After the worst of the wind and rain had died down from Hurricanes Harvey and Irma, and people began making their way back home, it became apparent that citizens of Texas and Florida would have more worries. The U.S. Environmental Protection Agency disclosed that at least thirteen toxic waste sites in Texas were flooded and damaged by Hurricane Harvey and another forty-one Superfund sites were negatively affected. Legacy contamination includes lead, arsenic, polychlorinated biphenyls, benzene and other carcinogenic compounds from historic industrial processes. After Hurricane Irma over six million gallons of wastewater reportedly flowed out to the coast and the Key Biscayne aquatic preserve in Florida.
The communities in Florida and Texas need clean-up like that offered by OriginClear, Inc. (OCLN: OTC/PK). The company’s Electro Water Separation (EWS) system can be used for chemical-free water cleanup by municipalities, oil and gas refiners, or pharmaceutical manufacturers among others. First contaminated water is put through an Electro Chemical Reactor, where electricity in small amounts helps concentrate and float oils and suspended solids. The resulting sludge is removed with a mechanical ‘rake’ from the water surface. The water is then put through a second advanced oxidation step that oxidizes and reduces the few remaining micron-sized suspended solids and dissolved contaminants. In demonstrations, OriginClear claims delivery of 99.9% removal of dispersed oil, 99.5% removal of suspended solids and successful treatment of specific chemicals such as ammonia, phosphorus and hydrogen sulfide.
One of the demonstrations completed by OriginClear is particularly interesting for decision makers in Florida and Texas. In 2015, OriginClear used its system to treat floodwater at an industrial site in Oklahoma. Floodwaters had invaded Prime Conduit, an electrical manufacturing plant in Oklahoma City. The company sent its ‘crash truck’ with the OriginClear system on board directly to the site. The mobile EWS unit is capable of treating 36 metric tons of contaminated water per day, with sufficient filter arrays to meet municipal clean water standards.
The water was laced with heavy metals and other contaminants, but the EWS delivered clear water that was approved to be disposed directly into the Oklahoma sewer system or used for beneficial use. The treatment cost was less than the alternative solution, which was to soak up the water and truck it to a hazardous waste disposal site.
The big success in Oklahoma City suggests the OriginClear system has value in post-storm situations. Whether the company is in a good position to deploy in an emergency is another question.
In the twelve months ending June 2017, OriginClear reported $3 million in total sales, resulting in a net loss of $11.5 million. The company still needs cash resources to support operations. Cash burn was $1.3 million in the same twelve month period. Unfortunately, the company only had $274,560 in the bank at the end of June 2017. There is also debt on OriginClear’s balance sheet – $3.3 million in convertible, promissory notes.
The need for cash to keep going and a weak balance sheet are not cornerstones of a good foundation to seize market opportunity. We note that since the June 2017 quarter ended, OriginClear completed a private placement of common stock, raising $282,000 in cash. The company also used stock instead of cash to pay for consulting services and salaries of some senior officers. The issuance of new shares here, there and seemingly everywhere may solve the immediate cash shortage but also awakens the dilution dragon.
It is a bleak picture and all investors, even the most risk oriented sort, should think twice about a long position in OriginClear. An investment case involving storm reaction may also be invalid. Actually, the company has been focused on cleaning up water used in industrial process or in treating micro-toxins at municipal treatment plants or commercial bottling plants. Candidly, ‘poop storm’ aftermath has not been a top priority for this cash-strapped company. Nonetheless, investors with an interest in the field may still find the risks at OriginClear acceptable at the six penny stock price.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.