Lawrence, here are my notes from last night's conference call with Dan Cumming and Rene...
The call started at 6:55 PM CDT. Rene started by addressing Poweruser's comments.
<- Here are a few answers - in advance - which I am aware of:
Extraction will not be incorporated into existing TMP's because of unpredictable contents of the input stream. Traditional TMP's will not be involved in the TE process other than drying (see next).>
Rene said this statement is semi-correct. The TE plants will be .to use Rene's analogy.the "oil wells" and TM plants will be the equivalent of "oil refineries". "We will lease or rent to a waste generator maybe a 10 TPD, maybe a 20 TPD, whatever their waste stream is. For example, if they are a tomato processing plant, we'll lease them a waste processing plant, which is a thermophilic liquid fermentation TE plant. There, the waste will be turned into a pasteurized liquid slurry. We'll have a truck that picks up that slurry, bringing it to our (on-site) TE plant where it will go through a filtration process. From there, the cake or material there will then be brought to the TM plant to dried." The chief advantage to "having TE plants on-site is. we are guaranteed the waste stream." We will have a little pulper, and it'll be turning the slurry. There will be less going into the container for the truckers to dispose of. We offering the waste generators a clean source of material.a cheaper system than renting a container , filling a container, and then having the container coming out to the TM plant, and then the enzyme coming back to our TE plant, or us having the separate processing system set up there.
1. To whom and how are these TE plants expected to be marketed? Are there certain waste generators whose streams hold greater potential than others?
Rene said certain waste streams hold greater potential than others and this has to do with the enzyme itself. A fat oil enzyme will have greater potential probably than a starch oil enzyme. You have your pharmaceutical enzymes coming from probably potentially like fish waste. Dan added "That's correct.there are many possibilities based on those waste streams."
2. What incentives are provided to the participating company to enlist their support/acceptance?
"If you were say.Nalley's Potato Chips, for example, the waste in their containers has to be shipped away on a daily basis, whether one quarter-full, half-full, etc., because the material rots pretty quickly. All of a sudden, you avoid all that, so you have your dry waste running to your bin, and you will have all wet organic waste basically disposed of, ground into a slurry, and not a problem and definitely out of sight, controls odor,. and the cost will be a lot cheaper. You're not paying us to dump and fix.you will be paying basically a lease fee that will include a processing fee and a lease fee for the unit. So there's definitely an advantage."
3. Which party pays to construct the necessary facility and contents? Is financing intended to be 100% TE or packaged in the form of JV deals?
"Thermo Enzyme has to pay for this lease program.they'll have to pay for the plants. This plants will be financed and owned by TE.there won't be JVs involved to our knowledge, at this point. We're using Nalley's credibility, and their assets really, for the leasing company to secure the lease. We will sell Nalley's the long-term contract, and then we turn around and leverage the contract with the leasing company."
4. How will Thermo Tech shareholders benefit from TE's process and or byproducts? Royalties to the parent, drying/pelletizing fees, etc...
First of all, they get a dividend on one TE share for every ten TTRIF shares held. This isn't 100% finalized, but there will be some type of royalty structure paid back to TTRIF, as a revenue source, on a plant for plant basis. The drying and pelletizing has nothing to do with TE. We will lease the TE plant.assuming it processes ten TPD and we're charging them $40-50 a ton. TE does $500 a day. Assume its going to pay $300 for the lease.it nets $200. Then the enzyme comes to the plant where we extract the enzyme. Now a gram of that of that one enzyme, which we should get out per ton, can go for a minimum of a $1,000 to up to as high as $20,000 per gram. So we'll get that gram out, but the cake material will be sent, basically free of charge, and they get to market the end product. We either go with a tip fee and the end product, and no royalties, or we go with the royalties and they get the end product. I wearing a TTRIF hat and Dan is wearing a TE hat. Right now I'm leaning on and saying to Dan.hey, lookit.I want my $50 a ton, I'll take your product.you bring it to my plant.I charge you $50 a ton.and I keep everything.and I don't want a royalty. Dan's trying to sell the royalty.there's a lot more revenue my way.and I can ASSURE you I'm going to get the tip fee.
5. Has/will this process be incorporated into the currently anticipated patents, will it require new levels of protection?
"TE has applied for brand new patents. When we got started in 1985, we started with an existing patent called "the thermophilic process". We worked on that until spring of 1993, and we got that process and worked on the thermophilic process and market the thermophilic process, etc., etc. as it existed. All we did during that time, was market the thermophilic process and the existing patents.
To give you a bit of history, I had a fermenter operating in my backyard on my acreage. Now, the old fermenters, and the old know-how was basically saying 48 hours and you had to balance the carbon and nitrogen ratio with the oxygen and etc., etc. Well, I learned through controlling the engineering design environment, that through agitation and aeration, that I could achieve something better than what was there. Now I didn't know until I met Dan that the old technology, or your patents, and the way you're running the plant.is two different things. Dan understood the microbiology and I understood, basically, that I had a better process. We knew we had design it and get a TMP going . So in 1993, we got the first engineering drawings needed done and we built the Corinth plant, which you're all aware, we shut down because of major engineering deficiencies, etc. and we got Brampton and Hamilton going.
Well, we applied then, for patents, and there was two ways we could have went.a) we could have gotten brand new patents, which we achieved and got or b) we could have gotten an extension on our existing thermophilic patents. Now, if we could prove to the examiners that we are different, with true agitation and aeration and the controlled environment, etc. than our existing patents.we would get new patents.if not, we would have just gotten an extension.
Well, we were very successful and we were able to get new patents. So phase one, basically the old thermophilic process, going into the design of the patents, and everything else, was basically more of an obsolete longer-term process. So, now we have the new thermophilic patents existing, and, at the same time, well.shortly afterwards, we finished working with Summerland on the new thermophilic patents.we get into this enzyme process, and we knew in order for the bacteria to create an enzyme, which is the key to unlock the molecules, so that bacteria could have the foods to grow and multiply.that we then basically knew that we found something out new.so we applied the new enzyme patents. So what TTRIF is going to end up with today, is new patents with the TM Plant and TE will have patents with the thermal enzymes (separately). So that's how the patents exist."
6. Is Nasdaq intended for the new company. If so what level (BB, Small Cap, etc) will be anticipated, and what is the capitalization (initial shares and price) anticipated at IPO? Will the shares be trading prior to IPO once date of record and distributions are made?
"We probably will put TE on NASDAQ and either the Alberta exchange or the Vancouver exchange. We're not sure which Canadian exchange yet. Initially, we won't have the market cap or the asset value of $4MM to start trading on NASDAQ. We should be close, but we're only looking at raising $2MM in seed stock. What we want to do is with the $2MM that we're in the process of .the research station is coming along really nicely.it's all basically the electrical is pretty well all in place, the plumbing is pretty well done and we're in the process of engineering the two small 5 TPD portable TE Plants that will have the evaporator, the centrifuge.a whole complete plant.that we will extract enzymes with. And our objective is to have that running at the same time that Richmond is going to be done. So when we had Richmond opening, we could take everybody, at the same time, to see the TE Plants.but, it looks like Richmond's going to beat us. But it won't be that far behind that we have the TE Plant, and then, yes.we will be doing an IPO. But, right now, we're looking at probably doing around approximately $2-3MM through initial seed stock. And then, having the TE Plant up and running, producing the enzymes. If we can do it where we get five grams a day and it's a $1,000 a gram, well that's $5,000 a day of revenue. Now it's a small plant that will be able to absolutely have revenue, and we can show the market potential with that plant and our objective is to do an IPO at a very high number. We can verify everything.
Now, if you take it the other way.the first thing we're going to start processing is fish.so, we going to go after the high enzyme.it's $20,000 a gram.well, that's $100,000 a day (in revenue) or a little old 5 TPD plant. Pretty scary numbers. When you look at it from a TMP, the TMPs are win-win-win.the shareholders are really winning big time because they're going to be getting a process material that they've only got to dry and they're going to be charging the TE Plant to take it from them. And they're still getting the same revenue source (tipping fee), only missing one gram (per ton).
Rene then addressed my questions regarding TE and other R&D-related questions, etc.
1) Due to modularity of TMP design, can enzyme extraction process/equipment be incorporated into EXISTING TMPs?
Already addressed above.
2) In order of priority, what are Dan's top three R&D projects right now? (enzymes, farm-level TMP, etc.?)
"Enzymes #1, enzymes #2, enzymes #3!". Also, Rene added that now that TMP technology is "just about there, I can get the enzymes going .I can help Dan a lot on the enzymes."
Down the road? "Could we make a special organic certified fertilizer that would help these organic farmers.these vegetarians? The fertilizer could be certified or guaranteed to the farmer as to these benefits. "
3) Actual R&D dollars have gone from $222M in FY95 to $432M in FY96 to $848M in FY97 to $1,659,904 for the nine months ended 1-31-98. Does he have an estimate of actual FY98 R&D expense and what are budgeted dollars for FY99, which begins 5-1-98?
"Our objective is to make TTRIF as profitable as possible now.and do R&D for Thermo Agri Products, Inc (TAPI) and Thermo Enzymes. From the royalty side, it comes back up from the plants.then we do development work. But, I can't see us doing much more research.
The classification of some of the expenses.we classify as R&D.on the development of the plants. The Hamilton plant is the new TMP, with the new patents, that's been retrofitted all along to achieve what the new patent wanted to achieve. So we do have our R&D budget totally confirmed."
4) From the Form 20-F, page 9..."Since 4-1-97, the Company has been involved in a cooperative research program with the Pacific Agricultural Research Centre (Summerland, B.C.) of Agriculture and Agri-Food Canada, under the Canadian federal government's Matching Investment Initiative program." Would Dan comment on this program (# of full-time TTRIF R&D employees, # on staff at Pacific Ag, etc.)? What does the Canadian government match... is it dollar for dollar, etc.?
Let's work through Ag Canada.we've been involved with this since 1988. All the employees are paid by the research grants. We provide the technology and our know-how. We provide one technician, that's been with us since 1990 about, that works on our R&D side. So that's our only expense that goes into it. So on the matching.we probably put in 20 (%) and they put in 80 (%). Cause the research station itself is a $30MM facility, and 100 people on staff at that particular Centre (Summerland)." Dan added "there's probably 1,500 across Canada that we have access to.as Rene say, there is a project leader and all those people can be "brought to bare" at the other facilities they have as well."
5) What is the expected optimum input capacity (# tons per day) per plant?
"I'll give you a crash course here. If you have biosolids at 10% solids, and you have a 20-hour retention time, and the plant is designed for 600 TPD.you could put 1,200 tons a day through.because it was designed for 20% solids at a 20-hour retention time. So, with 10% solids, you can process double the amount. If you have 30% solids, you can put 450 tons through.because you have to add water to get it down to 20%. To find 30% solids is almost impossible. When a plant is designed for 400 TPD, its got about a 30% reserve capacity. So when we say 400, it'll really do 430-450 depending on the solid content that goes in."
6) For say...100 tons of waste in, what specific enzymes are produced, what is the expected yield (in grams) for each enzyme, and what is the approximate market value per gram?
Already addressed earlier. One ton in equals one gram out.regardless of the enzyme.
7) Does the inputted waste (maybe...Coca-Cola versus cow dung versus leftover lasagna) effect which enzymes are produced or the production efficency (more milligrams per ton)? Can you target/isolate specific enzymes via a specific input "recipe"?
"The Coca-Cola would be a lot going direct to the TMP than coming to an Enzyme plant. The enzyme is the key that unlocks the molecules so that the bacteria can use it as a food source. Rene used the following analogy.Holstein cows produce a lot of milk and very little cream. Jersey cows produce less milk but a lot of cream. So, if you were going after the milk.you want Holsteins. If you want to sell cream.you go with Jersey cows." Every waste produces an enzyme.but what is the enzyme application going to be used for?.We believe that we can produce the first organic diet or pill that will be an enzyme. that will break down the fat in the human body. and help clean your cholesterol bloodstream.and that will come from the fish patent.this enzyme has that potential. So, pretty soon, you'll have to write on the thread, that instead of seeing my "fat face", you'll have to write "seeing my skinny face"."
8) Ask Dr. Cumming how the new Thermo Master PLANT patent will effect the company and its competitors.
Already answered.
9) Is the enzyme extraction process description modified or updated in the new patents? US Patent# 4292328 only mentions the enzyme cellulase, specifically. (BTW-This patent also mentions vitamin B12 along with amino acids such as lysine and methionine as other by-products).
This is a brand new (enzyme) patent.we're not following that (above) patent.
10) Slightly off topic...How does the actual chemical composition of the two current TMP end products, fertilizer and animal feed, differ (higher heavy metal content in fertilizer, etc.)? And how do these two TMP end products stand up nutritionally to the commercial competitors.
First of all, we don't make fertilizer.OK? We only make an ingredient.our product is used as a catalyst in the fertilizer industry. It's very water-soluble, it has a very high nitrogen level, and it's used as a blending agent. We don't make fertilizer.so we don't have to compete against it now. We will probably end up with an actually liquid fertilizer for organic farmers. Right now.all our product is sold and blended.so, if we look at what I'm saying in reality, we will probably utilize one ton of our product for ten tons of other product.that's blended together to make eleven tons.
(TO BE CONTINUED)
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