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April 2006 Presenters

CL Solutions

Presented by:
Efrain Torres
513-489-2255
etorres@paynefirm.com

CL Solution identifies, produces and sells microorganisms that are highly effective at degrading organic chemicals present in contaminated soil and ground water. They are seeking $500k-$1 million to build a regional direct sales force; pursue new product development opportunities; begin development of "Street Sweeps" channel; and build a management team.

They are currently in an expansion stage after dedicating the last five years to:

Removing product risk: over 200 sites have successfully been cleaned
Removing manufacturing risk: they now know how to consistently produce in large scale and at target quality
Removing sales risk: they know how to build a sales channel and sell the product

For the past 12 months, CL Solutions has shown a profit of about $1 million, with a $1.4 million profit projected for 12 months forward.

CL Solutions' market phase is remediation construction, consisting of $2.3 billion in labor & field costs and $1.5 billion in technology. Their product fits in the $1.5 billion technology segment that is managed by environmental bioengineers trying to decide the best approach to getting a site cleaned. There are two main schools of thought on remediation: 1) microbiology, where naturally-occurring organisms are provided with the food they need to grow, thus decontaminating the site as they grow; and 2) isolating organisms active against contaminants and delivering them to the site.

CL Solutions' approach is the second, to deliver high concentrations of microorganisms in a highly controlled and repeatable process. They own a patented approach to bioaugmentation that consists of isolating microorganisms; growing pure strains; freeze drying these strains; blending them to enhance degrading potential; and packaging and shipping them in easy to use dosages for field injections. They offer three main products: CL-OUT, PETROX, and SWEEPS. Products are protected by a number of patents, significant know-how and trade secrets in manufacturing, and are the only products to receive the US EPA Design for the Environment Seal of Approval.

SWEEPS is used to clean petroleum hydrocarbons present in street sweeping debris, which is considered hazardous waste. CL Solutions partnered with the City of Portland, OR for a pilot program of this product. Portland collects about 30k tons from street sweeping efforts, paying about $28 per ton to land fill (over $1 million in expense). In as little as seven days, the pilot with SWEEPS reduced or eliminated tipping fees for disposal; decreased the need to purchase virgin aggregates; and offset operating costs through the sale of clean debris for mulching.

The company will be building a direct sales force throughout the US, focused on 11 main sales territories.

Their goal is reach $30 million with a 30% EBITDA in five to seven years. This will consist of $10 million from existing products; $5 million from new products; and $15 million from Street Sweeps. Their exit strategy is acquisition at a 4-8X EBITDA sale, resulting in 5-15X cash-on-cash return to investor.

Questions:

What is the competition? Out of the $115 billion market, the most dominant approach is pumping water out of the ground. With soil, the approach is similar - soil is removed, hauled and incinerated.
What is CL Solutions' specific advantage? There are a number of companies that sell microorganisms. However, CL Solutions has the most experience and the ability to make enough product. There is no other sizable company in the area.
What are the barriers to entry? The largest barrier is the conservative nature of the industry. They tend to stick with the "tried and true" method versus new approaches. Conversion will be the biggest challenge.