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The water series continues as we attempt to get arms around the very
large market to package, deliver, purify, treat, and recycle
water. As the need for water increases with population and
economic activity, the use of waste waters has become an
imperative. In this post we look at three companies helping to
clean up, reclaim and otherwise recycle waste water.
Ecosphere Technologies, Inc.
PK) has introduced several water solutions that can be used in
agriculture, mining, industry, or municipal applications. The
company’s flagship Ozonix Technology is a chemical-free system to
recycle waste waters. Instead, the system saturates the water
ozone using hydrodynamic and acoustic cavitation and then destroys
the cell walls of harmful micro-organism with electrochemical
oxidation. Even highly reactive bacteria can be wiped out
through this process.
The Ozonix mobile system can be wheeled into even remote locations
such as mines or oil and gas well sites. The company recently
signed an exclusive licensing agreement with a distribution partner
in the mining industry. Abandoned Mine Cleanup LLC has agreed
to pay an upfront licensing fee of $5 million for exclusive access
to the Ozonix system for mining market in North and South
America. Ecosphere will also earn royalties on future sales
and the licensee has guaranteed a minimum of two sales.
The company is late in filing its financial report for the year
ending December 2015, notifying the SEC at the end of March 2016
that a discrepancy with its auditors related to “certain payment
issues” has delayed the completion of the annual audit.
In the late notice, the company provided preliminary financial
results with sales totaling $736,874 and an operating loss of $4.9
million. In light of the protracted downturn in the oil and
gas industry, which has been Ecosphere’s primary addressable market,
its auditors have recommended a write-off of $11.9 million in
intangible assets. That will bring the net loss for the year
2015 to an estimated $22.6 million. The late notice filing
provided no balance sheet or cash flow details. At the end of
September 2015, the company held $4,822 in cash on its balance sheet
and had a negative working capital profile.
With the troubled financial profile it should be no surprise that
the Company trades at nickel per share. The recent licensing
agreement appears to be coming at a critical point for
Ecosphere. The share price thus represents an option on this
payment and the ability of management to use the cash flow as a
springboard to market penetration.
Industry is not the only place to find foul water. Excess
nutrients in water runoff from fields have led to algal blooms
deadly to fish and livestock waste has contaminated downstream water
OTC) has patented a biological process that facilitates the growth
of naturally-occurring bacteria that converts most the nitrogen in
waste streams to harmless inert gas. The rest of the nitrogen
and phosphorus is converted to a cellulosic biomass that is later
recovered from the water stream. When put to work, Bion’s
process removes up to 95% of the excess nutrients from agricultural
waste streams and reduces 90% or more of greenhouse gas
emissions. The clean water can be reused at the farm for
animals or crops or allowed to return to ground water
reservoirs. The cellulosic solids can be repurposed for energy
production. The company has also patented technology to
recover nitrogen-rich fertilizer from livestock waste streams.
Under provisions of the Clean Water Act of 1972, the U.S.
Environmental Protection Agency is responsible for regulating animal
waste. The 1998 Clean Water Action Plan
identified a strategy for addressing pollution from animal feeding
operations. Dairies in particular are prone to releasing
untreated wastewater into neighboring environments since they use
large amounts of water to remove manure from milking barns and
corrals. Stricter regulatory action is likely needed to get
livestock owners the incentive to invest in water clean-up
As promising as the story sounds, Bion has had trouble penetrating
the U.S. agricultural market. Sales have yet to reach even the
$100,000 hurdle. Management appears to be moving forward with
a bare bones budget, using $1.0 million in cash to support
operations in the twelve months ending December 2015. The
company only had $185,560 in the bank at that time, suggesting a
critical need to find paying customers. At $0.84 per share,
the stock appears to be a rather expensive play on management’s
ability to get livestock owners to adopt its system.
If these two companies leave you wheezing and coughing, France’s
water industry giant Veolia
Environment P.A. (VIE:
PA or VEOEY: OTC) may provide an ‘emergency inhaler.’
Water treatment and clean-up solutions are only parts of a wide menu
of environmental products and services offered by the Veolia.
A recent contract win from Petrofac, a British oil and gas producer,
is typical of Veolia’s water clean-up business. Veolia will
provide treatment systems for wastewater generated at the Rabab
Harweel oil and gas project in the Sultanate of Oman. Veolia
is already familiar with Oman, having completed the expansion of the
Sur desalination plant near Muscat, Oman.
Veolia reported $25 billion in sales in the fiscal year ending
December 2015, providing $450 million in net income or $0.69 per
share. Operations generated $2.4 billion in operating cash
flow. The company ended the year 2015 with $4.6 billion in
cash on the balance sheet. Even at the very low interest rates
now offered by banks, Veolia’s cash balances would produce enough
interest income to provide working capital for both Ecosphere and
Bion. Veolia might be conserving its cash for to support
its debt burden. Veolia carries enough debt to propel its
debt-to-equity ratio to 130.0.
To get a taste of Veolia investors must pony up a price 30.4 times
trailing earnings, suggesting that a position in a large, well
established operation comes with a price. One plus is that the
shares come with a 3.4% current dividend yield. Another plus
is low volatility. Shares quoted on the U.S. Over the Counter
listing have a beta of 0.90.
Debra Fiakas is the Managing
Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
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