>>I have had 2 more communications from Mark Clancey. Let me say I have been very favorably impressed with these, especially the last. I will not post the questions I sent him, since they should be fairly obvious from the answers. In general I inquired about dilution of shares, which is always a major concern for shareholders. I especially inquired about various aspects of Aquafuel, including COST of production and plans for sales. I further asked about the profit margins on the BORS pump. I will print his responses below.
>>1. The company is now engaged in the liquification aspects of AquaFuel. The data which could be determined in response to this first question would not prove reliable until the liquification aspect has been determined.
2. Basically the same answer for number two. While one could extrapolate a cost comparison, there are two factors which would make this data unreliable:
a. The methods we've been using to manufacture AquaFuel include welders and other off the shelf materials that were never intended to make AquaFuel. Accordingly, the efficiency level is very poor. We are now constructing units specifically for AquaFuel which will, when completed, provide reliable data.
b. Minus liquification and the costs and techniques required, any price comparison to liquified gasoline would not be reliable.
3. This question has been answered.
4. The total number of shares is approximately 18,000,000. There are no warrants or other outstanding options at this writing. Our plans are to issue more shares as opportunities mandate. We would not proforma our anticipated outstanding shares one year from now as such an estimation would not be reliable. In short, we can't predict the future.
5. The Company is currently engaged in the direct sale of AquaFuel and related products and does not, at this writing, intend to "sell to the highest bidder."
6. The Company anticipates its profit margin for the BORS lift pump will be in the 5-7% range based on a retail price of $15,000. <<
While I found these answers helpful, I was still unsatisfied in regard to the cost component, which is of course critical to marketing. I could understand the problem in giving an accurate cost comparison to existing fuels since production is still being refined, but I wanted some sort of estimate. So I wrote that in the April report I had read a cost production figure of .02/cf, roughly half the cost of bottled hydrogen. I found his response below quite encouraging. I also asked about the possibility of a Nasdaq listing, since we all know the OTCBB is not the best place to be.
In his prior response I noticed that he mentioned the company was currently engaged in the sale of Aquafuel, so I asked again about that just to make sure. Finally, he clearly spoke to my concerns about dilution in a rather eloquent fashion. His responses are below. I have decided to include his whole EM this time, because I believe it says a lot about the company and their philosophy.
>>Good morning, Andrew
Please let me address the first question with a three-part answer.
1. Yes, we believe the cost to produce AquaFuel will be considerably less than .02/cf as we move to more efficient equipment specifically designed to produce AquaFuel.
2. Assume for a moment that our company was engaged to conduct waste water treatment utilizing the AquaFuel process. This is a specific characteristic of the process (i.e., eliminating biological waste in liquids). Let us assume further that we as a company we didn't want a "profit" for cleaning the waste water. This of course wouldn't happen but is just to make a point. As we are operating the process to recycle the water, AquaFuel is created as a by product. In this scenario, there is not cost at all to produce AquaFuel as we are using whatever voltage necessary to clean the water. AquaFuel is a by-product.
3. Because there is no electrolyte or other "resistor" used in the water, the electric arc passes through with no loss in power. Now draw a picture of a city and then draw a picture of a power plant which provides electricity to that city. Draw a line connecting the two and assume that line is the power line going from the plant to the city. Directly in between these two items, insert an AquaFuel apparatus. The power that leaves the plant then passes through the AquaFuel apparatus. As the "arc" finds no resistance when passing through the AquaFuel apparatus, there is no loss in power so the city will still receive 100% of the power sent not accounting for normal loss that occurs in such a transmission. However, the act of "passing through" the AquaFuel apparatus creates AquaFuel. This is a crude picture but it makes the point that AquaFuel can be inserted in an existing power stream without taking away from that power output. In this scenario, you are utilizing an existing flow of power so theoretically, there is no cost to produce AquaFuel.
4. Relating to dilution. Consider our first year. We had needs to capitalize our efforts and to assemble licensed technologies and acquisitions sufficient to provide for consistent revenues and earnings. Accordingly, our first year issuance reflects that approach in that while we have no debt except normal trade payable, we have issued approximately 18,000,000 shares. That was then. Now we have a degree of critical mass in that we have our several technologies and acquisitions to provide for month in-month out operations and we have an AquaFuel which may potentially provide a large upside for our investors. Our negotiating position is now much stronger than before and we are much more appealing to any new technologies or acquisitions which may come along. However, the issuance of shares has a definite limit so that the situation you mentioned (i.e., a severe diminution of shareholder value) does not occur. As we now consider any new issuance for funding or acquisitions, we would insist on a greater relationship between such an issuance and our obligation to generate positive earnings for our shareholders. I believe the only time any company can get in trouble by issuing too much stock is when they don't take the time to proforma such an issuance against the benefits received. Our attitude, particularly as fellow shareholders, is to cause for the lowest amount of dilution for the highest prospective return. We agree this is a critically important factor in our responsibilities to the company's shareholders and would always carefully consider such matters in that light. In this regard, you may find the answer to your next question of some interest.
5. The OTCBB, while a necessary starting point, is, to use your words, a problematic location for any stock. Our data indicates we will meet the SmallCap criteria at some point in the fourth quarter. IMMEDIATELY, if not sooner, that we achieve these numerical listing standards, we shall make application to cause our stock to be listed on the SmallCap market place. You may find it interesting that the governance requirements for listing on the SmallCap require that any significant issuance of stock be put to a vote of shareholders prior to issuance and that management cannot operate on their own. You will further note that as the insiders once holding over 50% of the shares, we have allowed ourselves to be diluted down to around 35-40%. In many small stocks, it is an unfortunate practice wherein management issues stock in such a way that majority control is maintained. We have confidence in our shareholders that if we have done a good job, we will be re-elected as Board Members and can continue our program. If we fail, then our shareholders have a right to remove our Board and insert another group. You can read more about the SmallCap governance requirements on the NASD homepage and I can send you that link if you like. The point here is under their new rules, when you list a SmallCap stock, management gives up certain rights, particularly when issuing additional shares to officers and directors. Again, we feel if deserved, our shareholders will always vote to grant us more shares and if not deserved, they won't.
6. I can state that we are actively working to market AquaFuel directly, without an intermediary. You are not misreading and yes, at this point I can't go into any more detail than that we are actively engaged in such marketing efforts.
I will never send you any response that you could not post on the internet or publish through any medium. We try and be an open book and welcome the highest levels of due diligence possible.
We like to think our stock is picking up because more and more people are becoming familiar with our new company and they like what they see. However, as management we keep our focus on day to day operations and try not to let ourselves become victims to the ebb and flow of the stock price. Again, if we perform well, the stock price will reflect that performance. If we don't, well the price will reflect that as well.
Management with a good equity position such as in our case is similar to the pilot on the air plane. While we would all love to be in the driver seat and therefore control how the plane takes off, flies and lands, we can take confidence in the fact that if it crashes, the pilot get killed first. Accordingly, we can all take comfort that the pilot will do everything possible to keep from crashing.
I've thoroughly enjoyed our dialogue and look forward to future communications.
Thanks.
Mark Clancy
Vice President
Director
Co-founder<<
That's it so far. I did inquire about the October report on Aquafuel mentioned in the press release and was told it should be on the website any day.
That should be enough to stimulate some discussion. |
