Interview with: Brian Herner, President and CEO - featuring: their advanced technology for using biological air filters for the removal of odors and organic contaminants from municipal and industrial air streams.

BIOREM Technologies Inc. (BRM-TSX)

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Expansion into China, Middle East and South America as well as market share growth in the U.S. and Canada has BIOREM Technologies excited as they seek to replace chemical scrubbing and activated carbon with their biofilters technology

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BIOREM Technologies Inc.

7496 Wellington Road 34RR#3
Guelph, ON Canada N1H 6H9
Phone: 519-767-9100

Brian Herner
President and CEO

Interview conducted by:
Lynn Fosse, Senior Editor
April 20, 2006

CEOCFO: Mr. Herner, what was your original vision for BIOREM and where are you today?
Mr. Herner: “Our vision at the beginning of the company was to become a world leader at the application of biological technologies for environmental improvement. We have since focused on applying biological technologies toward air pollution control. We have been successful in becoming a major supplier in the North American market and we are currently making good progress in developing our international business area so that we can have a global presence in this market place.”

CEOCFO: What is your core offering?
Mr. Herner: “Our core offering is to provide advanced technology for using biological air filters for the removal of odors and organic contaminants from municipal and industrial air streams. We do this through modular packaged bio-filter systems and also field erected our custom engineered, designed and installed biofilter systems.”

CEOCFO: What is your competition?
Mr. Herner: “Conventional technologies have been chemical scrubbers and activated carbon and thermal oxidizers of gas-fired combustion systems. Each of these are high-energy consumers and have high operating costs. The core offering we have provides superior removal of these contaminants from air streams with very little energy consumption. We harness the energy of the biological process and therefore, have lower operation costs than the conventional technologies. In addition to having less energy consumption, we also have less greenhouse gas production so that industries that are now aligning themselves for reduced greenhouse glass emissions, are merely carbon dioxide or their equivalents, can achieve this through using biofiltration technology.”

CEOCFO: Your products clearly have superior features; what inhibits acceptance in the marketplace and how do you get beyond that?
Mr. Herner: “There were two issues: First the biofilters require higher space. They have a higher space requirement than the conventional technologies, which may result in higher upfront capital cost.  To get beyond the higher upfront cost we calculate the product cost on a life cycle cost basis. On this basis, we are the low-cost provider and with the projections that energy costs are going to continue to rise, then our life cycle cost advantage begins to occur over a shorter and shorter period. The second issue is that conventional biofilters used organic filter media, which would be a wood-based, or compost or peat-based material. These filter materials would have a short bed life and would have a lot of operational problems in that the material would degrade and break down and cause mechanical problems in trying to put air through the filters. To address this issue BIOREM introduced an inorganic media, which has a long bed life persistent to compaction and breakdown and allows excellent airflow characteristics over an extended period. By introducing an engineered inorganic media that is consistent and reliable, and has long bed life, we have given the customers the ability to use this technology in a confident manner, in that it will provide reliable serviced for a long period. ”

CEOCFO: Does this translate into more business, or opportunities to present your story?
Mr. Herner: “Yes, and particular in this last year. I think that previously, we found less acceptance of life cycle cost because most operations deal with capital cost first and operating costs second. Many decisions are made based on capital cost and availability of capital. In the last year, the increase in the cost of energy has escalated so rapidly that the operating side of the businesses is now clamoring to look for methods to get their energy costs down and one method would be to utilize a technology that has less energy consumption. What we are seeing happening is that new green fields installation are seriously looking at life cycle cost more so than in the past, and any plants that have old equipment that requires replacement, are also considering life cycle cost more seriously. The ones that are not considering life cycle cost are those that have an existing technology and have equipment that is relatively new and still in good operation condition. They are not prepared to replace that equipment in order to save operating costs.”

CEOCFO: You recently announced a million-dollar order from a Georgia Municipality; is that typical?
Mr. Herner: “This is a typical deal price for a custom size unit today and we currently have eight projects of this size at various stages of the order cycle. We have been installing biofilters since 2000 and when we first started we sold standard smaller modular systems with an average deal price of $100 to $200 thousand As our municipal and industrial customers gained confidence in our process, they have asked us to help them solve their more complicated and larger odor problems.”

CEOCFO: Are you working outside of the U.S?
Mr. Herner: “We have started developing our international business about a year to a year-and-a-half ago and we now have sales into the Middle East. We are starting our initiative into China; we have an initial pilot system purchased for installation in China into next year and we have received orders for projects in South America. We made an acquisition of a company just outside of Rochester, New York; they had a product called the BIOCUBEŽ System, so we now own and manufacture that product. BIOCUBEŽ has made some good entry into the South American market and we are now able to piggy-back onto that distribution to include our complete range of products, so we have a business developed in Mexico, Peru, and we are working on Brazil and some Central American countries.”

CEOCFO: Will you tell us more about the growth of the microbes and the purpose?
Mr. Herner: “A biofilter is a filtration vessel that contains a filter media and the air is blown into the filter vessel. As the air passes through the filter media, the organics in the air stream, the contaminants whether odor or organic chemical contaminants, are absorbed onto the surface of the media and that is through a combination of soluablization and absorption. The air then exits the vessel and the odors and organic materials have been removed. The filter media itself, which we manufacture, is a granule media about pea-sized and twice that size. It has a patented coating that we apply during the manufacturing process; that coating includes organic carbon sources, PH stabilizers to keep the material from becoming too acidic, nutrients and a microbiological source, so that we actually have microbes living on the surface coating of this hard porous media. The microbes are self-sustaining so they go through a life cycle and utilize the organics that are deposited on the surface as their food source. The air is bringing the food to the microbes. Microbes are immobilized sitting on the surface of the media. They utilize the organics that are deposited on the surface as a food source and they reproduce. The older microbes die and new microbes are formed in the life cycle process. There is no need for us to add any additional microbes as long as we sustain an environment that the microbes can thrive in. We do that through providing the proper oyster nutrients and PH environment and temperature for them to thrive.”

CEOCFO: Do you maintain the systems after you install them?
Mr. Herner: “Yes we do! We take pride in being able to provide our customers ongoing service; what we do to that extent is we have our customers send in samples of filter media on a regular basis. We analyze them in the laboratory, examine them, and ensure that they are in a healthy condition with respect to those operating parameters that I mentioned. By ensuring that they retain a good healthy environment for the microbes, we know that the system is in healthy and good working condition. If we identify that some of the some of the operating characteristics have deteriorated, we can notify the client and take corrective action to make sure that are not going to have a surprised failure in the system.”

CEOCFO: What is the financial picture today?
Mr. Herner: “BIOREM has made particular efforts to strengthen financially and has been profitable since 2002. In 2004, we completely recapitalized the company by adding new equity and completing a Capital Pool transaction, which closed in January 2005, and we brought in some additional capital at that time. As a result of these transaction we had no debt and sufficient cash to fund the $ 3 million purchase of Biocube, which closed on July 1, 2005. The first day of trading of BIOREM shares was on January 21, 2005 and they share values have increased from the $2.00 range to the $3.00 range today. We have approximately ten million shares, which equates to approximately $30 million market cap. We have about $1.5 million in working capital, which we started with after going public and after doing the acquisition. We should be around $2 million in working capital by the end of this year. This is sufficient to allow us to take on increasingly larger contracts.”

CEOCFO: What is ahead for BIOREM and why should investors be interested?
Mr. Herner: “The interesting thing is that the market for odor control is growing much faster than industrial and municipal market growth by itself because we are not only obtaining increased growth through market share but we are also replacing existing technology. Right now biofilters represent about 20% of the market for odor control but we see that expanding up to 30 or 40% over the next five to ten years, which means some of the other technologies such as chemical scrubbing and activated carbon will be replaced with biofilters. Combining those aggressive growth rates in our domestic markets of the U.S. and Canada, we are expanding into China, Middle East and South America. Currently, the Chinese market is probably only 20 or 30% of the size of the U.S. market. We estimated five or ten years it will be double the U.S. market. Getting in now, at the early stage, we expect to become a major supplier in that market as well.

Another factor that is influencing our market is the implementation of what are called MACT standards (maximum achievable control technology standards) by the EPA in the U.S. The EPA has been working on their max standard program for many years and some of the industries impacted, have selected and approved biofilters as an acceptable technology to meet their standards. We are particularly active in the Compass and Board industry in the U.S. where new max standards come into effect in 2007 and we estimate thirty to forty biofilter systems will be required. These systems range from 2 million to $5 million each. This is a new incremental market that is coming onto the scene very rapidly in the next two to three years. Only two to three companies currently provide biofilters with this application, in the United States. Even if we were to get only 20% of the market, we could be looking at several millions of dollars a year at new incremental business.”

CEOCFO: Is your team in-place for the projected growth or will you need to add some strength?
Mr. Herner: “We have been adding to our management team quite aggressively in the last year-and-a-half. We added a senior director of operations with 20 years of experience in the business because we recognize that our systems are getting larger and more complex so we needed to have more of a heavyweight on the operation side for engineering and manufacturing of installation; that individual is now in-place. At the end of the first quarter in 2005, we added a CFO with twenty years of experience in corporate finance and he has been a great asset as we meet the obligations of the public company. He is a great resource in business planning and systems management. On the marketing side, we have a small sales and marketing team with the director of sales and marketing that has been with the company for eight years now and has been instrumental in developing our market and he will carry on in that area. When we acquired the company in Rochester N.Y. (Biocube), we retained the president of that company who is a twenty-year veteran in the position of Vice President and he has focused on business development. I am confident that we have our team in-place with some seasoning behind them so we can move forward aggressively.”

CEOCFO: In closing, tell us about your commitment to technology development.
Mr. Herner: “We have started from the beginning on the basis of adding science and technology to the application of biofilters. In the past, much of the application technology was based on experience and projections that did not have sound scientific background. We have spent much effort, time and cost in developing predictive capabilities of biofilters. By introducing a manufactured media, we can develop consistent data on the performance of our media under (inaudible) operating conditions. We have three research pilot plans installed here at our head office facilities and we continually run various gasses through these systems and develop performance criteria, which we can then put into mathematical models. The consulting engineers who use this information, are very pleased to have this modeling information because then they can design systems and anticipate what the performance will be much more accurately than they could in the past. We definitely plan to add technology to our field of application and maintain a solid technical leadership in biofilters.”

CEOCFO: You are really ready on all fronts!
Mr. Herner: “We are. We have been working very diligently. We have a good board-of-directors with a lot of foresight and they are supportive of all the work we are doing in expanding both of our markets geographically and with products, as well as supporting an active research capability.”


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“In the last year, the increase in the cost of energy has escalated so rapidly that the operating side of the businesses is now clamoring to look for methods to get their energy costs down and one method would be to utilize a technology that has less energy consumption. What we are seeing happening is that new green fields installation are seriously looking at life cycle cost more so than in the past, and any plants that have old equipment that requires replacement, are also considering life cycle cost more seriously.” - Brian Herner does not purchase or make
recommendation on stocks based on the interviews published.