American Mold Guard: Red Chip Conference Presentation Transcript

Feb.17.07 | About: American Mold (AMGI)
TRANSCRIPT SPONSOR
Click to enlarge

American Mold Guard, Inc. (OTC:ZANE)

Red Chip Conference

February 12, 2007 4:15 pm ET

Executives

Paul Bowman - CFO

Atif Malik - CSO of AMG Scientific

Presentation

Paul Bowman

Welcome, everyone, and I appreciate you joining us for the American Mold Guard story. [You'll notice on] our cover chart here that we also have another logo on that, and that's AMG Scientific. AMG Scientific is a wholly-owned subsidiary that we created of the Company back in October of 2006. And Dr. Atif Malik and I are going to share this presentation.

So you've seen Safe Harbor statements, I'm sure, all afternoon. I'll just warn you that there could be some forward-looking statements that we may present.

What American Mold Guard and AMG Scientific is all about as a company? We are the leader in antimicrobial surface treatment. And I'm going to take you through in the next 20 minutes a description of what are the markets that we service, what are the market that we are after as a company, who are the customers that we have targeted, what's the market size and opportunity that we have for a company.

I'll specifically focus in on our mold prevention business. And then I'll turn it over to Dr. Malik, who will talk about our interior surface treatment business that is aimed at the hospital healthcare facility environment.

You'll notice our slogan at the bottom here of the presentation "Prevention… It's Worth It!" We truly believe that. We're an antimicrobial service company. Antimicrobial applications have been in existence for a number of years. They've been in the manufacturing environment. What we as a company have done is taken that into a service organization, and we're focused on protecting people's greatest assets, their homes as well as their lives.

A bit about our company and the markets that we service. This company was founded in 2002 by our CEO and Founder, Tom Blakeley. Tom is an entrepreneur who has taken other companies public. He had a house in the Southern California area. It was about a $1.5-million valued house that he had paid cash for. He was selling it. The buyers of the house came in and wanted to do a home inspection and a mold test.

The wife of the buyer -- perspective buyer was allergic to mold, and he said, "Sure, have a look." They drilled some holes into the wall. Next thing you knew there was a patch of mold that he had behind a Jacuzzi tub. He tied up his biggest asset at that time in escrow for over a year.

Tom being the kind of guy that he is an entrepreneur went out, bought a lab, figured there is got to be a solution for this, and he stumbled across an antimicrobial agent that Dow Corning had patented over 25 years ago. And what Tom did was he took this into the housing industry from a prevention standpoint.

He first went to the mills and said, "Hey, you could apply this right at the lumber mill." They said, "No, Tom, you know, there is too many starches and too much going on at that point." He next went into the lumber yard and from there thought that we could just service it at the lumber yard.

But what we found out from an insurance standpoint is we needed to be able to demonstrate that our treatment has been at a site-specific structure. The insurance companies wanted to know where is this wood going to end up. And that's how we came to this business of mold prevention.

And our antimicrobial -- I'll take you through the process that we employ. But as a company, just in a few short years here, roughly about four years, we have serviced over 500 builders nationally. You'll recognize the names when I show them to you. The builders see a real value proposition in what we do.

They view it as an insurance policy that protects them from future liabilities, and they're able to give the homeowner a clean home -- a home that's free from mold or any kind of other antimicrobials. We've treated over 35 million square feet just last year. So we've got a lot of experience in terms of applying antimicrobials and removing mold.

AMG Scientific, as I said, is focused on interior surface treatment. We sort of stumbled on this business. Dr. Malik and also Dr. Asif Ali out of the Houston medical complex took a look at the science. They've been very involved in the public health aspect of the medical community.

They saw what the Company had and wanted to be a part of that. So they put their practices aside to join us fulltime to sell into the medical community, but I'll let Dr. Malik tell you more about that.

So mold. If we look at the mold business, it's a big business. The insurance companies back in the 2000 period stepped away from insuring mold claims. You're lucky if you can get mold insurance on your home, and if you can, I guarantee it's expensive with a pretty high deductible.

That transferred the liability back to the builder. The builders now held that liability. That's where we're focused. They are our customers to give them a measure of protection in the sale of that home.

You can see the number of lawsuits, the number of bills, there has been a lot of public awareness around mold and the health-related risks. Whether it's on extreme home makeover, whether it was post-hurricane Katrina, public awareness has risen to the effects of mold.

There is a real quick picture of what a moldy piece of wood looks like, whether it's black mold, whether it's green mold. I've been there. I've seen our sites where you would think new construction how could have mold on it. But frankly, that wood has set at the mill, at the lumber yard, and in some of the multifamily developments, it's been out in the elements for a long period of time. That's where we come in.

Things have changed. The builders are now liable for what's called the "Statue of Repose." That's what we give them a warranty on. In Louisiana, that's five years. In the State of Texas and California, it's a 10-year period. And in Florida, it's a 15-year period.

Public perception, as I said, has increased, and there has been a lot of changes to the design of how houses are manufactured that have made them more airtight and have caused this problem to escalate. What do we do? What we do is we come in with a four-step process.

First thing we do is a high-pressured spray. And this spray is really using baking soda -- food-grade baking soda. In fact, we're one of the biggest customers of ARM & HAMMER, right now. So you could imagine opening up all those little boxes. Now, we buy it in bulk.

But we go in there, we do a high pressured spray. It takes off about 100th of an inch of the surface of the wood, takes of all of the microbes, makes it pristine in terms of the way that wood actually looks.

Next thing that we do is we clean up the jobsite. You can see a before and after. You know, subcontractors leave a lot of debris. One of the value-add propositions we give to our builders is we clean that up for them. We clean up our baking soda, and we clean up their site. Typically, they'll pay $0.08 to $0.10 for that service. We offer it as part of our package.

Next thing we do is we apply our antimicrobial spray. You know, we will spray the entire structure, and then we stand behind it. We offer a site-specific warranty to the builders. What that warranty says is that we'll cover for your state Statue of Repose, whether that's 5 years or 15 years. And frankly, we stand behind it because we know that it works.

We haven't had one warrant claim since we've been in business for the last four and a half years. Now, our warranty, though, goes beyond that. It's backed by a Grade A insurance company with a $3-million injury personal damage policy. So the builders walk away with a nice protection.

The homeowner -- this is a transferable warranty to the homeowner. The homeowner also can have insurance that they've got a clean home. Then, you can see what unprotected and what protected wood actually looks like. This is a before and after picture.

Who are customers? I said we're working with some of the biggest names in the business, the Lennars, the KB Homes, The Warmingtons, Toll Brothers -- you can see the list here -- DR Horton.

We go out and we actually work with them at a regional and local basis. It's not as easy in the construction business. You can't just go the headquarters and get their business. These are companies that have been built by buying up smaller companies. So you got to go out to each of the locations.

We have a footprint today. We operate in about 10 states. We've got regional headquarters in five of those states, California, Texas, Mississippi, Louisiana and Florida; 16 services centers across the country. What we're about is expansion, right now. We're expanding up the East Coast. We've done a number of jobs up in Boston, Maryland, New Jersey, the Virginias and the Carolinas.

We recently announced, about two weeks ago, our real sales presence into the Carolinas, and we said that we're going to expand with our sales presence in Atlanta, the Baltimore, the Washington DC area, and Portland and Seattle. So you can pretty much picture the US and look up and down the coast. You got moisture, you got a food source, and that's wood.

The market opportunity that we have -- this just builds the pyramid to the market opportunity at the bottom. You take the US government housing starts that take place. You look at what we charge. We charge about $0.35 to $0.40 per square foot. So that gives us about $1 billion market opportunity.

Today, we're a $10 million revenue company and growing, and I'll talk a little bit more about our financials after Dr. Malik goes through the Scientific. But if we would just capture a 5% market share, that's a $50-million opportunity.

For us, it's about expansion in this business, and it's also about going after the multifamily builders. We can be very, very productive when we go after some of the bigger jobs, whether that's a 200, 300 home site development, whether that's a big condo or apartment complex.

With that, I want to turn it over to Dr. Malik to talk about our Scientific business. Go ahead.

TRANSCRIPT SPONSOR

RedChip Companies, Inc., is a well-established source of independent research and information on the small-cap market. Dedicated to "discovering tomorrow's blue chips today(tm)," its analysts seek out up-and-coming and undiscovered small-cap companies before they show up on Wall Street's radar screen. Through RedChip Review(tm), the Company's flagship publication, analysts provide a unique breadth of coverage and depth of research on relatively unknown small-cap companies. RedChip Visibility(tm) provides publicly-traded small-cap companies an opportunity to present their business to institutional and individual investors by holding investor conferences across the country. For an investor kit click here or call 1-800-REDCHIP.

Read all Red Chip Conference presentation transcripts here.

To sponsor an investor conference presentation transcript please contact us.

Click to enlarge

Atif Malik

Does this automatically come on? Okay. Good.

In the last 150 years, the most common -- 150 years ago, the most common cause of death used to be infection. And western medicine was smart enough to recognize that hand washing is very important. But even 150 years later, our hospital acquired infections are the fourth largest killer of Americans, according to the CDC.

Most recently, you can take a look at the data in November 2006 this was released. Pennsylvania Health Care Cost Containment Council looked at nosocomial infections and the costs it has on the Medicare and Medicaid within their own state.

Pennsylvania only makes about 5% of the US population. If you look at the cost and morbidity, it's -- morbidity can be as high as 12.9%, it adds another 400,000 days to the hospitals. Hospitals don't make money on that amount.

They make money when there is quick turnaround on the patients, when they do procedures. When the patients are admitted to the hospital and they are getting just antibiotics, it's doesn't make them a lot of money. So it's a money loser. And in fact, of the $3.5 billions that it costs Pennsylvania, $2.6 billion was paid by Medicare.

Medicare does not like that. If an average patient gets admitted to the hospital that costs about 31,000 just on an average. It doesn't matter whether it's a hip replacement or a stroke. But if you get a nosocomial infection, that cost can go up more than fivefold to 185,000.

Congress enacted what's called the Deficit Reduction Act in 2005. Starting in 2008, on October 1st, they are going to start to mandate that the hospitals get reduced payments for nosocomial infection related discharges. And also in 2008, you're going to have the largest part of the population retiring, the baby-bloomers.

States are now starting to get in on the act because what used to happen is only the CDC took into consideration what the right was. Now, a lot of the consumer groups have mandated and have gone after hospitals to release their infection rates.

This is sort of how the technology works. It's sprayed on to an electrostatic process where the polymer is charged, and once it lands on a surface, it forms a covalent bond. You'll see at in a second.

These monomers that have a silica atom attached to them -- silica is a most abundant compound on the planet. It's glass. It attaches covalently, which is a strongest bond in nature, and you have this long hydrocarbon chain aching carbon atoms, and these act as swords.

Once the microbe lands on this sword, it causes a mechanical disruption of the cell membrane of the pathogen. This in particular is a coli compound that's landing on these long hydrocarbon chains. You can see it implodes. Same thing happens to viruses and also to mold.

This is a virus particle. Viruses are a little more resistant, because they have a proteinaceous outer coating. But we found out that this technology very easily kills those pathogens and inoculates them from becoming infectious. Once they have disrupted, it's just a biofilm, which is non-infectious. It can be cleaned off with regular reagents. You'll have to see industrial strength reagent to disrupt the efficacy of the polymer on the surface.

You take a look at the efficacy of this compound, you see it's 99% all way down, everything from Staph aureus and Staph epidirmidis, which are the two pathogens on a normal person's skin to MRSA and VRE, which are the super bugs to RNA and DNA viruses. So it's a very efficacious compound.

And in fact, the time to kill 4-gram positives, because the Staph aureus is a gram-positive pathogen, 99% in one minute. E. coli is gram-negative, 96% in one minute. You look at Tol aureus, 99%.

What's most impressive, though, is if you look at the 18 hours, this is a control group. This is a coronary quaternary mean. It's a six-log hill. Three logs is considered sterile. Six log is twice the sterility. You could literally drink this stuff and won't get infected from it. But in seven days, it contains to persist. This study was actually done in wounds. They took a band-aid and applied this compound to it, stuck it in a dirty wound and looked at the rate of kill.

Toxicology virus is very efficacious. Not only has it been tested in rabbits and guinea pigs, but also in humans, tracheoesophageal shunt. They use it on a lot of the laparotomy drapes already and a lot of other consumer products.

What we do that's different than other companies that utilize this chemistry is that we take it and we apply it to preexisting surfaces. You can come into a room and make an antimicrobial. Who wouldn't want to stay in the room that has this compound attached to it and knowing that that environment is nearly sterile.

Safety-wise, this is non-leaching. What I mean by that is most of the antimicrobials have heavy metals attached to them, and they're always leaching off. This thermoplastic forms a covalent bond. It doesn't leach off. It stays there.

Once it kills a pathogen, it contains to stay in his normal form. It's non-migrating. And there is no chemical transference, meaning that if you touch the chemistry and then you touch something else, you don't take the chemistry with you.

And it's inert. It's thermoplastic. It has GreenSpec listing. It's been around 1968. It's been used in all sorts of products, everything from Dr. Scholl's foot inserts through socks, antimicrobial socks, you've seen a lot of those at Marshalls and all sorts of other stores. Brillo pad has and Sesame Street Diapers has it. Bioguard socks have it. Wal-Mart is starting to use it in a lot of their undergarments and underwears. You find this product in a lot of different consumer products. In fact, I have to show socks -- you can wash these 80 times and it will not come off.

We use special technique. Paul has already talked about, how they use it on in the building industry. But in the hospital environment, it's a little bit different. You may have room that's contaminated. So we use cleaning room practices. We'll clean off the surface because that allows the chemistry to form a very strong covalent bond. You could spread on the surface, kill the pathogen but then it won't bond as well. So it's better to clean off the surface.

Same electrostatic discharge, once you make electrostatic, the silica atom is charged. It very nicely forms a covalent bond with the surface. Because one over that its 40 micron. Your hair particles are about 100 microns. So it's less than half of your hair particles. It's odorless you can see it. You can tell that it's on the surface that's been treated with that.

We also use that humidifier, which is on the right and also our air scrubber on the left. And the important reason for that is when you clean the surface you dislodge those pathogens from the surface of the air. And then they are going to land back on the surface again.

So when we are cleaning these rooms. We turn these things on. So all the pathogens are sucked in through this very airtight hepa filter and they are no longer round. Paul, you want to take a look.

Paul Bowman

Thanks Dr. Malik. So our approach to the market that we've taken is we are focused on large organizations with AMG scientific, specifically Dr. Malik and Dr. Ali are in negotiations and talking with major medical institutions across the US, really in the sight her against infectious disease.

Now, you can think of a lot of other applications or markets that this is applicable to the cruise ship industry, hospitalities, hotels, the airline industry. So we see a lot of market opportunity with what we do from a surface treatment standpoint applying our micro static antimicrobial.

We think there is a big market out there for this side of the business coupled with the market opportunity for the Mold business. So as a company where are we from a financial standpoint? We are relatively young company as I said, we were incorporated in 2003. We've had about threes years of revenue growth.

We grew last years 62%year-to-date that was in spite of the construction pull back that we saw early in 2006. We were able to put up some nice growth during that period. I am more pleased with the margin improvement that the Company made.

We went public as a company in May of 2006. We're currently traded on the NASDAQ under the symbol AMGI. And you can see the margin improvement that we were able to make. We went public. We used the funds from the IPO to pay-off all of our debts. So we are debt free. And we used that to invest in the efficiency of the company.

We put in a number of productivity improvements in place. We are able to go out and buy our own material in bulk, stop renting equipment lease our equipment and reduce those costs. We've been able to put up a 43% margin for the year. We had 44.8% in the fourth quarter model. As revenue continues to grow the margin expansion is build into this model.

From a cost standpoint we have, you know, made the investment into the public costs that are necessary to run a company. But we found our -- I'll call it equilibrium point on our spending in the last two quarters we've been able to hold spending flat. Now as a company we're not yet profitable. But you can see the trend that we have there pushing towards profitability. In our fourth quarter we had a loss of $0.33. So on a improved project -- trajectory from what you even see on this chart.

We've got 115 employees in the company those are all our employees of which roughly two thirds of those are hourly employees. Our business is done out in the filed, out in the regions and so those workers are out there from a service business. Outstanding share count is relatively lower about 4.6 million shares.

And as a company when you look at American MoldGuard and AMG Scientific, we really believe that we are in early stage market for anytime microbial surface treatment, whether that's mold prevention, whether that's in the interior side of the business, in a fight against hospital acquired infections or the other markets.

We are -- it's all about the topline growth for us as a company. The model is in place from a margin, from the spending, to drop it through to the bottomline and really pushing this company towards profitability. We are the leader anytime microbial surface treatment. We really do take our slogan seriously "That prevention is really worth it whether it's protecting your asset or protecting your health".

And with that I'd like Dr. Ali to come back up here. We'll answer any questions with the remaining time that we have.

Question-And-Answer-Session

Paul Bowman

Yes, in the back.

Unidentified Audience Member

Who's your competitor?

Paul Bowman

Good question. From a competitive standpoint we are the first to market. The competitors that we have in the mould prevention business are typically the chemical suppliers, the – enviCARE, the Fasters. What's different about us and them is they sell the chemicals to a third party applicator who goes in and does what they do.

No other company offers the four steps that I described from the soda blasting all the way to the full warranty coverage. We also have mom and pop competitors that are out there doing mold prevention in various -- by various means and various methods.

We are the largest, so we got the largest market share in that space. In the scientific or the interior or hospital, I'll narrow it down, we don't know of any other competitors. What hospitals have today is they have their cleaning staffs that in some cases will do a disinfectant. But frankly, the main protocol in the hospital is hand washing, which New England Journal of Medicine says is, at best case about 40% affective. Yes.

Unidentified Audience Member

[Question Inaudible]

Paul Bowman

We believe that we can Dr. Malik I'll let you go ahead and add some color to that.

Unidentified Audience Member

[Question Inaudible]

Paul Bowman

Yes, it is.

Atif Malik

It would be, it would be similar to you know doing it at hours for a level, cleaning the surfaces, but we're trying to get the cruise ship to utilize this technology every time, this Calica virus and Norwalk virus, have certain outbreaks that occurs at certain time a year just like a flu virus would.

So we're in sort of discussion with them at a very early stage, to utilize this technology in that. The Chinese use the same technology during the SARS outbreak in 2002. During that one building that had all the SARS viruses going in their, in their water system, they ran to water system that leaked and there the whole building that had the SARS virus.

Unidentified Audience Member

Have you shown your staffs how to imply the material or are you planning --

Atif Malik

No. We would do it ourselves.

Paul Bowman

We do, we are a service company and we want to perform that service from top to bottom.

Unidentified Audience Member

Yes.

Paul Bowman

EPA. You have to get an EPA label to imply this technology.

Atif Malik

That's pretty much same.

Unidentified Audience Member

[Question Inaudible]

Paul Bowman

From a profitability standpoint, you saw our numbers from a revenue -- from a margin standpoint. We put together a plan in our mold prevention business. It's got a minor contribution from the scientific side that we believe with that plan, that towards the end of the year, here in '07 our target is to turn the corner. Now, what could change that? What could change that is one of these large hospital orders with one of those large orders.

Currently we've got about $5.3 million of cash on hand, as I said, we are debt free. The current plan that we have says, that cash would be sufficient through 2007 to fund the business. With one of these large orders that would then, position us to go back into the market to seek additional funding to fund that growth.

Okay. With that I think I'm out of time. I really appreciate everyone coming to hear our story. If you got additional questions, Dr. Malik and I would be at booth three, we'll be more than happy to answer more questions. Thanks you.

TRANSCRIPT SPONSOR

RedChip Companies, Inc., is a well-established source of independent research and information on the small-cap market. Dedicated to "discovering tomorrow's blue chips today(tm)," its analysts seek out up-and-coming and undiscovered small-cap companies before they show up on Wall Street's radar screen. Through RedChip Review(tm), the Company's flagship publication, analysts provide a unique breadth of coverage and depth of research on relatively unknown small-cap companies. RedChip Visibility(tm) provides publicly-traded small-cap companies an opportunity to present their business to institutional and individual investors by holding investor conferences across the country. For an investor kit click here or call 1-800-REDCHIP.

Read all Red Chip Conference presentation transcripts here.

To sponsor an investor conference presentation transcript please contact us.

Click to enlarge

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!