ENGY - Enviro-Energy Corporation (ENGY)

[evan]

This is the meat. enjoy

Tom Bowers: Okay. The Tillamook digester was installed to be online in June of this past year. We actually flared gas and proved the concept. That is a sequential batch system that was originally installed to take care of about 300 milking cows in Oregon. The system was conceived to have bladders placed within our metal reactors. As it turned out, the bladders could not perform consistently under the load of animal waste that was placed on it when coupled with the temperature and the gas pressure. So we redesigned the Tillamook facility for the reactors to be manufactured without bladders. This required a redesign of the interiors and then we coated them experimentally with a commercial product called Rhino Liner. The Rhino Liner worked very, very well for us in one of our five test reactors. We found that we needed to go back and re-engineer the system again so that we could put a greater amount of the non-corrosive Rhino Liner in there; that was completed the first week in January. On the 20th we re-sprayed test reactor 5, we go through a corrosion test and a pressure test under commercial load starting the 21st. By the 24th that will be evaluated. We think we’ve licked all the problems there and we’ll go back into a production environment in the month of January and during the month of February we’ll have performance specifications on Tillamook published on our website.

Tom Allinder: All right. Could you please comment on the status of any potential new business?

Tom Bowers: Sure. We have new business in two primary areas. They are the commercial dairy areas and food processing. Let me speak first of all of commercial dairy. California is the largest commercial dairy-producing area in the world. The San Joaquin Valley, around the greater Fresno area, has some of the highest concentrations of dairy animals of any place in the world as does the Chino area of California. There are about 5,700 dairies in California, all of which are of the size to be a prospect for our anaerobic digestion system. That’s where we’re concentrating our efforts now. We have two dairies in the Fresno area now that we have proposals out to that we hope to be able to announce to the customers that we’ll break ground on in February. Those proposals should be closed and announceable to our stockholders before the 15th of February.

We also have an area that we’ve been working with for some time now, actually since last September, in an area that we didn’t originally contemplate to be a short-term prospect area but is evolving very quickly into one, and that’s the bio-mass that are created by food processing. Food processing creates a great deal of bio-waste, which has to be handled before it can be placed in the municipal waste systems because of the volume and highly-reactive biological nature of the waste. We are finding that they are just an absolutely ideal candidate for our anaerobic digestion system and we are exploring that market very heavily and we are also working with some engineering firms who specialize only in food processing firms and that has kind of accelerated our entry into that market. We hope also to be able to announce in the month of February the closing of a significant piece of business in the mid-west for a food processor using our anaerobic digester.

Tom Allinder: All right. What do you see is the real market potential for your product over the next one to two years?

Tom Bowers: Well, that’s a very good question in the sense that it’s very hard to answer. The marketplace exists and has existed since probably the mid-1950s in confined animal operations. The confined animal operations produce, just to give you some statistics that are rather staggering, but it takes about 100 pounds of feed a day for a thousand-pound dairy cattle to produce 100 pounds of milk, so if you have 500 cows in your dairy, you’re producing 500 times 100 pounds of waste a day, which is a great deal of matter to be able to handle. Now many dairies, especially those in California, have several thousand head of cattle, so those are the commercial operations – the confined animal feeding operations – that are being targeted by the EPA to make sure that they have a very effective manure management program and farmland run-off program so that when these animal wastes come in contact with flood waters from rain or irrigation or other things, that they’re not carried out into the water table and ultimately into the water supply. So, now that the pressure is on the farm operations to become what we like to say “good neighbors” once again that won’t produce highly offensive odors, that don’t produce this run-off, that don’t produce this massive waste, which is biologically very active – or the term in the industry is “hot” – the anaerobic digester is the absolutely perfect way to be able to handle that. It turns this waste into a highly-desirable, fertilizer-like amended soil, which has immediate application to go back into land and landscaping and crop-raising applications. Secondly it reclaims the gray water that can be used immediately back in farmland use for irrigation or dairy cleanup. And thirdly, it takes this biological waste pile and turns it into an income stream, because it generates gas, a bio-gas, which is someplace between 60% and 70% methane, and that methane is very similar to natural gas, so it has a high caloric value, it can be used to power either an internal combustion engine or boilers to be able to create energy at very, very economical prices and, as I told you earlier, the cow produces 100 pounds of this a day, it’s a highly-renewable resource. So the anaerobic market for us is ever-expanding and as long as there is waste that’s being allowed to go into the landfill and create nothing but odor and problems, the anaerobic market will still expand.

Tom Allinder: Where do you see the company in five years and, for the stockholders, when can we reasonably expect to see a return on our investment?

Tom Bowers: Well, I can’t speak to the return on investment because I don’t know the level of it, so let me tell you about what I think the company will be doing in revenues in five years, given the ability to be able to maintain the growth that management presently sees in the statistics that are available in the marketplace. We think that this company at the end of five years, could very easily be selling at the rate of about $120 million on an annualized basis of anaerobic digestion systems. It sees that it could maintain a profitability in that that would be – since there aren’t any real industry standards other than let’s say the general manufacturing industry for farm implements or ag implements – we think that we could on $120 million of sales, that we could make $8 to $10 million, so we think that if that were the case that we would be very, very comfortably placed in the top echelon of companies that are involved in the renewable energy, the manufacturing area, and on the fringe areas of the agricultural industry. And we think that their stocks are going to perform very well and consequently we think that we’ll perform well along with those other stocks.

Tom Allinder: We received two questions regarding the JW Reed company, that was a deal that was announced last year, and one question was specific as far as when will those shares be dispersed, but I guess first we need to answer where are we at on the JW Reed deal?

Tom Bowers: All right. The JW Reed transaction actually took place and was signed last February. It was a very involved transaction, which involved some companies that were yet to be formed and so on. Now, those transactions have proceeded up to the point that the people in Reed -- now known as Reed Holdings – have made an offer to give to Enviro-Energy the shares of stock that it had committed to, as far as numbers, it had committed to last February in its purchase agreement. Reed Holdings has announced to its shareholders and to the public in general that it had completed the purchase of ERI in all aspects. We disputed that to the point that they could not give us an evaluation of what those shares were and the shares that were offered to us for the purchase of the ERI asset from us. We’ve turned that over in December to Johnson & Spurr. Bill Spurr is the attorney that is handling it. He has told me last Thursday that he expects a resolution in the next 10 days and those shares that are to come to the shareholders of ENGY should be available to us within 30 days and one of the conditions of the sale was that the people at Reed Holdings were to go to our stock transfer agent and have the distribution distributed – those shares on a pro rata basis – to the shareholders of record directly through the transfer agent. So ENGY, the management of Enviro-Energy, our team, will not actually take possession of those shares, but they’ll go through the transfer agent and then they’ll be distributed to the individual shareholders by name on a pro rata ownership basis, and we would hope that that would happen in the next 30 days.

Tom Allinder: What is the company’s strategy as far as increasing visibility to both the company’s business and also to the stock?

Tom Bowers: Let me speak first of all to the company’s in-the-field business, the operational level in the field. We have a fairly active dissemination of information about our company, both from our website, which gets a great deal of activity. There’s a lot of word of mouth activity about us, especially here on the West Coast and through the academic circles. Also there’s a lot of activity that has been created now that the 2002 Farm Bill has been announced and it’s the EQIP portion of that farm bill has been declared to have funding in it nationwide. That has created a lot of activity for everybody who fits within theEQIP Bill, and we believe that we fit there and consequently we’re getting some visibility that way.

Also, we’re very active in the field now, attending meetings with farmers, going to farming groups of milking association, creamery and dairy associations and so on, and talking about the concept of the anaerobic digesters to these individual farmers at these meetings.

As far as the stock goes, we’re going to start taking steps like the one we’re taking today with the teleconference we’re having. On our website that will be updated twice a month, we’ll have a frequently asked questions area that will answer the questions that come up consistently. For example, like the Reed situation or sales situations, those things will be discussed in a reader-friendly or user-friendly forum and available on our website. We’re also going to have more concrete news announcements that will go out through the commercial wire areas announcing the performance of the company in various areas. So each time there’s a significant piece of new business that comes into the company, either on the Colvico side or on the anaerobic digester side, and/or developments within the company that are meaningful to the stockholders, we will be talking about that on a regular basis, but we won’t be talking about things that are far off in the future or highly speculative; we’re going to try and talk about the things that are short-term or that have been signed, that are prospective today that could be proved tomorrow.

Tom Allinder: Has ENGY secured enough capital to meet its current and future needs and, if not, what efforts have been made in this regard?

Tom Bowers: We just completed a short-term financing agreement with an investment banking group out of Florida in which the terms and conditions were just accepted today. That will take us through the end of the first quarter. We think that the sales that I’ve referenced earlier – the two in California and the one back in the mid-west that will create a great deal of activity for us – the activity will lead to the ability to be able to do other things with sold contracts that we can leverage and actual cash flow and income from those, so the second phase past this first quarter is somewhat problematic in the sense that we are fully expecting to be able to make some of these sales activities come true that have quite a bit of investment of time and effort in them up to this point. We do feel that our chances are extremely high of closing all three of those contracts. Those three contracts will provide adequate funding to carry us through the second and third quarters, and then of course through the balance of the year we hope to be able to sell into the fourth quarter and the opening of 2004 with a bit more of new business and that will create financing opportunities for us as well.

Tom Allinder: Okay, Tom, that’s all the questions that I have. Is there anything else that you want to add to anything that you’ve said?

Tom Bowers: Yes, I would like to say that the tone of the questions seem to be optimistic and upbeat about the company. The company would like to do a lot of things. We purposely kept it extremely lean; there are four executives in the company, all of which are being paid considerably under market with the prospect that as things break, their remuneration will reflect that. We do know that there’s more that needs to be done, we know how to get that done. We have the wherewithal we think now to get some of those things done. And then, more importantly, there’s the desire – I’ve never met a more motivated set of technical people working with their administrative support such as myself and Pete Martinelli, the Financial Officer. We’ve got professionals in the spots for the first time with a well-defined goal in front of us to sell these projects one at a time and make sure that each one of these goes together with a stamp from all three sides of the house that says engineering it’s sound, financially it’s sound, and administratively we know we can make it happen. So, we have our ducks in a row for what I would say is the first time since this company has been operating as Enviro-Energy Corporation.

We also have some goals, especially in California – once that these anaerobic digesters meet with success in some of these medium- to larger-size operations, we feel that the sales cycle time will be shortened considerably. Right now, it’s running in excess of 180 days from the time that the first serious contact is made to the development of a proposal. We think that we can shorten that up to less than 90 days. We think that we can design, build and install our sequential batch systems for the smaller operations, that we can build those within 60 days and we can install them within 60 days, so we can shorten up the design and sell cycle from about nine months that we can get that down to less than five months. In the larger systems, we think that we can take that sell/design/build cycle from what’s historically been about a year to 13 months, that we can get that down to less than six months. That being said, we think that we’ll see a lot more action in the selling side, the proposal side and the closing of these prospects into customers, we’ll see that happen a lot more frequently and across a broader spectrum of customers, especially in California in 2003 and 2004. So we think that the pace of sales will pick up considerably to where we can see that we very possibly could have one major sale every 30 days. So those are the directions that the company is going in, we’re going to continue to run a lean ship, we’ll continue to run it in the departments as we have it now, we’ll continue to rely on very high quality strategic alliances like we’ve done with Stantec, SSE and Alder Construction, for example – people who can come in, get it done, that have done it before in similar circumstances in water and wastewater management areas that have good reputations and have the ability to create the bonds that are necessary and have a long-term, over 50 years in both these cases, track record of success and growth.

That being said, I think that we’ve learned a lot, we have developed a plan, we think we’ve got a very good direction now, we’ve got a good management team and I think we’re pretty well managed in those departments, so I think that we’re an awful good bet for the future and I think each successive quarter will prove that with growth and move towards profitability.