Tuesday, August 21, 2007

Spring House Cleaning All Year Long

Environmental clean-up is big business. The job is valued in excess of $200 billion by the EPA. Most of the investment opportunity has been in the transport and storage service providers such as American Ecology Corp. (ECOL: Nasdaq) and Waste Management, Inc. (WMI: NYSE).

VeruTEK Technologies, Inc. (VTKT: OTC/BB) offers a play on remediation at the site. The company recently introduced treatment solutions for surface and subsurface clean up of contaminants in soil and ground water. The VeruTEK solution involves injecting a customized solution into the contaminated area to change the chemical composition of the contaminant and wash it away. VeruTEK solutions work on chlorinated hydrocarbons, pesticides, herbicides and petroleum among other nasty by-products of industrial and commercial activities.

The VeruTEK solutions are a mixture of
“earth-friendly” surfactants, such as citrus, coconut oil and castor oil, and an oxidant. The surfactant mixes with the contaminant, making it water and oil soluble. The oxidant is then able to destroy the contaminant and the surfactant, leaving nothing but carbon dioxide, water and clean soil.

Injection into the soil eliminates the need for costly excavation, handling and storage. VeruTEK management believes this advantage will make the VeruSOL technology the preferred solution for remediation of
“brownfield sites. The EPA has designated as many as 450,000 parcels of land in need of clean up to return them to the “highest and best use” real estate value.

VeruTEK has only been in business a few short years, but the simplicity of its solution has already attracted the attention of both government agencies and private business. The company recorded $461,577 in sales in the first six months of 2007. Unfortunately, the cost of sales exceeded receipts and operating expenses along with research and development work led to a loss of $3.8 million. Comparisons with the prior year are difficult since the company just went public in February 2006.

A stake in VeruTEK requires a leap of faith that its solutions can be produced and marketed at a profit. Since there have been a number of in situ solutions in the market for several years, VeruTEK has to educate real estate owners of the differences in its technology. VeruTEK is not well capitalized. The company has a little over $800,000 in cash on its balance sheet, but operations burn up about $400,000 in cash per quarter. There is a going concern note on the financial statements. Sales need to accelerate at a fairly rapid pace or VeruTEK needs to pass the hat.

At a price of $6.25, VTKT shares may be a bit overvalued. Nonetheless, the technology is interesting and the value proposition of the in situ solution is compelling. I am putting VeruTEK on my list of companies to watch in the next year.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Buy rating on ECOL shares.

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