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January 2001: Volume 43, Number 1

A Word with PHSI’s Craig Story, Part 2
by Carlos David Mogollon

WC&P: Now, you've got three different levels of systems here, Pure Water 1, Pure Water 2 and Pure Water 3-what differentiates them?

Story: We knew that our dealers needed an arsenal of systems. They couldn't just go out and market the Pure Water 1; they'd go out of business. The Pure Water 1 is all the bells and whistles, six stages of purification, including the double-phase ozone injection. The Pure Water 2 is basically a four-stage system, RO; we standardize with a 45 gallon per day RO; it's sediment, pre-carbon, 45 gpd thin film composite RO and a final post-polish carbon filter and then into the drinking water tank. Basically, the Pure Water 1 has the same filtration and RO and you add the double-stage ozone injection, electronics and all that. Pure Waer 3 is a three stage system although there's four filters in the system; there's no RO; it's three filters in parallel; they're a combination sediment and carbon block; the final large diameter filter is a carbon block with titanium silicate to remove any lead; that would basically be the only inorganic other than chlorine that we'd be taking out of the water.

WC&P: So you kind of went backwards. Instead of starting simple and making the treatment more torturous as far as what it removed, you made it simpler?

Story: We started out with the system that would remove all contaminants. And what I didn't say earlier was that when we started with this idea we looked out in the cooler market and saw bits and pieces of parts of the puzzle. But no one had put the whole puzzle together into one package. And so that's basically what we did was take all the pieces of the puzzle and put them together in one package to provide a true system that would take out all the contaminants, including microbiological, which is extremely important, especially in this day and age. And it's self sanitizing, through the O3 process. From there, now you start taking bell and whistles out. And at the same time you reduce the cost of the system. You reduce the monthly rental to the customer. But all of our dealers go in and pitch the Pure Water 1 as the flagship. And then if in determining that it's just not viable for that customer, we talk about the PW2 or the PW3, depending upon the source quality of the water.

WC&P: What's the difference in the cost of the units, say the top tier vs. the lower tier?

Story: You're looking at a price range of between $39 a month for the Pure Water 3 to $89 a month for the Pure Water 1. And the Pure Water 1 could be as low as -- the more systems that are going out into a facility, the lease rate gets lower -- so we have deals where the dealer may put 20 PW1s in at $59 a month.

WC&P: Based on economies of scale?

Story: Exactly.

WC&P: Now, what do you see as far as competitors for this particular product?

Story: Well, there's no one really out there doing what we're doing with all the financing and so forth. The company that comes closest to PHSI is a company called innowave Corp. They do have a program. They do have a product family. They do use a different methodology than we do. They use a distillation methodology. That's their flagship system. We do run into these guys. We see them probably as our main competitor out there. Other than them, you really have dealers out there that will purchase cabinets without filters and they'll stuff their own filters within the unit. We don't agree with that approach. We provide a system that's complete and basically serves as plug and play.

WC&P: What about overseas? There's a lot of Asian companies I notice at the conventions that you see showing all sorts of different cooler product.

Story: Interesting. We don't see many Asian products at all in regard to point-of-use here in the States. Although bottled water coolers, there's plenty of those. They're here heavy duty with those, but not with point-of-use commercial. We don't see them. It's very limited. Though, I should mention, Innowave with their Two and their Three unit -- their flagship was distillation and that's what they hung their hat on when they started their company -- but they saw that they also needed a full arsenal for their dealers and so they also have a PW2 and a PW3, you might say. And this is basically a Korean product. So they are indeed using a Korean product in their arsenal.

WC&P: Now, they use ultraviolet light in one of their systems, do they not?

Story: Yes, they do. That is their Korean product. It's called their UVF-40.

WC&P: Has PHSI considered UV at all?

Story: No, what we're looking at -- and this is for the future as well -- for a PW2 system that will also have ozonation as well although it won't be as elaborate as the PW1.

WC&P: Is that the next generation that you're talking about coming up in 2001?

Story: For the PW2, it will be a refinement that we'll probably end up adding by summer.

WC&P: The dealers that you have out there, you've got a lot of interesting people you've brought on board. How did you choose them? Tell us some of their stories.

Story: I could tell you some interesting stories. I do want to say this though. We did a major ad campaign as we were going into dealer recruitment and most of our focus was with WC&P. And when we really started out to pick up dealers, most all of our inquiries from all three of the trade pubs came from WC&P. We probably had over 700 inquiries from WC&P. And so that was very helpful. Although, there was some major weeding out process. From that figure, we probably culled 20 dealers, which is great. It's a pretty good percentage. But, for example, meeting people on airplaines -- one of our biggest dealers is from Denver, Colorado. I met him on a plane coming back from Columbus, Ohio, flying home from visiting Oasis. I had about a three-hour captive audience and pitched him on our program. He was an entrepreneur, had a hi-tech company in computers and sold it -- and wanted to get back into business with his own corporation. He started Pure Technology Group in Denver. His name is Peter Sherry. There's an example. So, we have some interesting stories out there.

WC&P: Who was your first dealer?

Story: That was in California. He saw our systems at a home and garden show, a trade show, and was very intrigued. At the time, he was being courted by innowave and fell in love with our product and technology and we were able to bring him on as a dealer. Barry Taylor is chairman of the board. The company is run by Casey and Clint Taylor, his sons. They run the day-to-day operations. Barry was extremely successful businessperson in the copy industry and sold his company to Ikon. They were doing a rollup and, let's just say, he made a lot of money. I was impressed when I pulled up to meet with the guy at his house and it was a 15,000 square foot home. We called it the Kaiser estate. But anyway, he understood rentals and business-to-business sales. And really what we try to look for, and this is important, we're looking for entrepreneurs.

WC&P: Tell me about some of your other guys. You mentioned Mt. Olympus Water in the Salt Lake City area.

Story: Bill Bailey is at Mt. Olympus. We had sold our company-owned dealership -- one of the three original dealerships -- to Aquapure, which was sold to Superior Water. We went to one of the biggest bottled water businesses in the territory and basically sat down with Bill and explained our program to him, showed our product and provided the first pallet on consignment. If the program didn't work, we said, ship it back.

WC&P: Just like a dealer might say here, try this RO or softener and, if you like it, you keep it. If not, we'll take it back -- seven or eight out of 10 keep it...

Story: Right. Well we rolled the dice. We shipped $11,000 worth of product to his facility on the belief that he would like the product. He did. And we have a very good relationship with Mt. Olympus today. It's an extremely professional company. And this is the reason why we're interested in working with more bottled water companies. We're extremely impressed with the whole organization.

WC&P: What happened to the other of the initial dealerships?

Story: The one in Boise. It was tiny. It was basically just a satellite from Sand Point, Idaho, our headquarters. And so we closed it and basically in terms of service for product out there handed that over to Aquapure of Idaho.

WC&P: That's three dealerships that you rotated out and at the beginning of this year you had 40 dealer affiliates, today you have 70 and at the end of 2001 you expect 120. Effectively, how do you manage that? There's got to be a lot of different type of people in that mix and spread throughout a wide area.

Story: Chris Miller and Peter Rushmore come into play. We've really split the United States in half and Peter handles half and Chris handles the other half. In the meantime, both John Windju and myself provide support from the corporate office to all of our dealers. And then we have Tom Cernohouz. His title is project manager because we can't find an all encompassing title for the guy for what he does. He's involved with customer service, he's involved with production with Oasis Corp., he's involved with special projects that we have working with engineering services on new products that we have coming out. But customer service is a major part of his day to day and supporting dealers, shipping -- making sure that the product is going out and arrives on time to the dealers facility. If there's any sort of damage claims during shipping, to get those rectified. Service issues, to take care of those as quickly and promptly as possible. But everybody here at our organization in Idaho is trained to be able to answer questions regarding the product. There's always something here that can work with a dealer to take care of his or her needs. We have an open door policy and everybody knows what's going on out there in the industry and with our different dealers.

WC&P: Can we mention an irony? It seems odd that you're doing a lot more work with bottled water companies these days and the product you sell means that customers don't need bottled water. It's a plumbed-in system. How do the bottled water companies approach that?

Story: First, what we're trying to do is say let's work in synergy here. What we're saying is let's protect your market, because something that also upsets us is when we see extremely cheap filter coolers and so forth being placed in facilities at extremely low prices. And basically, the customer is not getting what they expected. The products may not be being maintained properly. We see these companies coming in and bastardizing the market. We say, look bottled water guys, let us protect your market with the most state-of-the-art product of this kind in the world. No one can behind this product and replace it. You can show your customers that you're bringing your state-of-the-art plant and putting it in their facility, their business. With bottled water guys, there's also all sorts of different financing that they can do with our system. They have a volume counter -- how much water is processed through the system -- so they can continue to charge by the gallon, if they like.

WC&P: Kind of like a copy machine?

Story: That's correct. Just like bottled water now sold by the gallon. We're showing them how they can take a proactive approach to protecting their market.

WC&P: How does your work with the water bottlers fit in with your work with water treatment equipment dealers and that network in terms of competition?

Story: As I mentioned, basically, we're not proactive in setting up bottled water companies in areas where we have protected markets with our dealers.

WC&P: You won't set up a water bottler with PHSI equipment where you have a POU dealer?

Story: Where we have a "protected" POU dealer -- there's a difference. We do have some dealers we work with that order product from time to time that are smaller dealers...

WC&P: Where a formal agreement is not written?

Story: That's correct.

WC&P: What do you see as challenges to your business, to the cooler business in general possibly? Are there any issues out there, whether they be technical issues or regulatory issues or competitive issues that this segment of the industry faces?

Story: Let me preface this by saying this is an extremely new business out there. POU coolers is in its infancy stage. We believe that through regulation and legislation, the position we're in today is where we want to be. With the Pure Water 1 system, we eliminate a whole host of issues out there. Heterotrophic plate count bacteria, the sanitizing of bottled water coolers, the sanitizing of filter coolers -- there's more and more legislation and regulation about inorganic contaminants, organic contaminants and microbiological contaminants -- including the HPC issue -- we believe our product addresses.

WC&P: What about the disinfection by-product issue related to the DBP Rule?

Story: Absolutely. In all three of our systems, we eliminate the THM issue and, with the Pure Water 1 system, we eliminate all issues.

WC&P: Are you also set up to deal with DBP precursors that may lead to say bromide, a by-product of ozonation in waters with the natural organic bromate?

Story: I understand where you're going there. But you have to understand that when we ozonate water, the water is purified prior to it going through the ozonation process. So we're not taking basically untreated water and ozonating that water. The other key point is we use UV-ozone rather than corona discharge in our generation so we don't have the requirement of using pure oxygen, which is necessary in corona discharge systems and can create other by-products. We don't have that issue. But the main thing is that with the Pure Water 1, we've taken out any potential organics that can create bromide issue.

WC&P: How do you fit in within the industry in general, attention from WQA, regulators, etc.? Is there any emphasis on coolers? Where do you fit in?

Story: We are a WQA member. We are working with NSF through Oasis Corp. And we're working on our next generation products right now in terms of our protocols. We're NSF approved for Standards 42, 53 and 58 at this time.

Join us next month when WC&P interviews Pentair's Jorge Fernandez.