• RDX employs very advanced water treatment technologies coupled with a high gross margin energy conversion business.
• The company’s franchise business is set to explode due to the competitive advantages offered to businesses seeking water filtration, operators and franchisees.
• A multi-year agreement with COG Operating LLC and a $19.92M Contract With Pontus Energy LLC will provide valuable income streams. Also, a recent real estate sale has strengthened RDX’s cash levels.
• Contracts slated to be announced will act as additional growth drivers for the company.
• RDX has achieved high revenue growth of $6M to $31M in the last four fiscal years. The rollout of the company’s highly competitive franchising model will lead to $100M+ in 2015.

Opening:

Water is ubiquitous, with oceans holding 321 million cubic miles of water on the earth. The human body consists of roughly 60% of the liquid. Like the liquid, the extensive reach of the entire water industry generally goes unnoticed, as a flick of a handle will allow clean water to pour into your hands. The industry is fragmented with a wide array of industry subsets, which make investing in water very difficult. This can be seen by the specific nature of companies focusing on one area in the industry, such as American Water Works (AWK) acting as a water utility or Valmont Industries (VMI) focusing on infrastructure for water irrigation. In an attempt to consolidate the market for investors, funds such as PowerShares Global Water Portfolio (PIO) and PowerShares Water Resources (PHO) were brought around so investors could tap the universe of diverse water companies at once.

RDX Technologies (RGDEF) is a company that stands alone in the water and energy industries as a rapidly growing and unique player. The magic of RDX Technologies is that the company is an excellent investment story built on its substantial benefits offered to each party of its franchising business and its high gross margin end product.

Expanded Thesis:

RDX's Technology and Business Overview:

RDX is a highly unique energy services and water treatment company headquartered in Scottsdale, Arizona. RDX collects wastewater and mines that water for valuables while treating it for legal discharge or reuse. Afterwards, RDX refines what is mined into liquid fuel. At each of the three steps in the process, the company makes a profit.

The company is not dependent upon one customer, such as an oil and gas company, as RDX has a wide array of potential customers including restaurants, hospitals, manufacturing plants, mining companies and more. RDX's business is primarily focused on the treatment and storage of contaminated water. This water could be wastewater left over from hydraulic fracturing or any wastewater that a business produces. What differentiates RDX from other water companies is its ability to take the waste out of the water while in turn filtering it to separate out the raw material found in this waste to then refine it into a useable fuel. Waste water is full of waste polymers which can combust and produce energy. After refining this wastewater RDX is left with No.2, No.4 or No.6 class oil fuels, which can be sold off as a commodity. RDX obtains these fuels through its proprietary electro-catalytic and dialysis process.

RDX's strong competitive advantages stem from its two-sided income source of not only cleaning water for the end customer but from extracting fuel from the waste component and selling it on the open market. RDX enjoys very high gross margins of 84% on the sale of its fuel, as they are able to produce a barrel of No.2, No.4 or No.6 fuel for $23 and sell it for $147. A refinery's cost to produce a barrel of diesel fuel is $102 (which is not pure diesel) and consists of many different fuel types. RDX's business operations clearly differentiate them from other players in the water and energy markets.

RDX is a compelling investment story, whose key growth driver is still in its infancy, granting investors the opportunity to get in on the ground floor. With a franchising business that offers businesses, operators and franchise owners invaluable benefits, RDX will enjoy substantial growth moving forward. With benefits offered to each party in the franchise chain, a history of high growth, technology validated in the marketplace, contracts both signed and pending and an opportunity to invest while RDX's franchising business is still in its infancy, RDX deserves a look. If RDX is able to reach $0.08 to $0.10 in EPS for FY 2015 with a conservative P/E ratio, investors will enjoy substantial upside potential.

A Franchise Business Set To Explode:

BlueDot Overview:

On February 27, 2014, RDX announced the launch of its BlueDot industrial franchise program with plans to open at least 40 locations in 2015 and 300 locations by 2016. This announcement demonstrates that RDX's franchising business is still in its early stages, and investors can profit as the program grows into fruition.

A BlueDot stands for map locations where the company can place recovery facilities in various metropolitan areas. For example, the company can place nine locations in Phoenix Arizona, an area with roughly 4M people. The number of locations will cut down on transportation as trucks will only have to go 5-7 miles to reach each business.

Within its franchise program RDX offers the equipment and the technical ability to treat water and mine effluent. This effluent ends up at RDX refineries and is turned into fuel energy. This process also grants the ability to discharge water to EPA standards.

The first step in the process is a truck operator bringing wastewater from a business to a BlueDot location. A BlueDot location is a 7,500 to 25,000 square foot facility that can handle 15,000 to 200,000 gallons of water per day. Each location can be operated indoors or outdoors and requires 2-3 employees, including collection. Each location has RDX's tanker-to-tanker technology, which eliminates exterior tankage and is fully automated and satellite monitored in Scottsdale, Arizona. Further, BlueDot locations employ RDX's Monitor 24 Technology that eliminates interceptor pumping. Further, RDX technology allows for the P/L statement to be conducted for each facility while granting the franchisee the ability to run each location as an individual business or as a part of multiple locations.

A Highly Competitively Priced End Product:

At the end of the production chain, RDX's fuel is all produced by contract and 100% of it stems from raw material found in wastewater. It is a clean and renewable replacement for diesel fuel and heating oils. RDX has an 84% margin in producing a barrel of diesel fuel putting them on top of the competition. This also means that the company has no problem selling the produced fuel, a commodity, in the marketplace as they are able to price it under the market price.

Strong Advantages For The Customer:

RDX's technology offers substantial benefits to the customer not offered by any other company. These competitive advantages which RDX Franchise owners can offer potential customers will help franchisees to attract customers, and allow RDX to grow their top line.

The invaluable benefits offered to the customer surround RDX's technology, which substantially enhances the existing grease trap systems used by businesses already. Also known as grease interceptors, grease traps intercept greases and solids before they enter the wastewater disposal system. Since RDX's technology is an additional element to the system there is no need to replace the grease interceptors businesses already employ. Businesses simply have to add RDX's system to their grease interceptors.

Grease traps clog up and need to be pumped regularly, which is both costly and a time-consuming inconvenience for business owners. RDX's BlueDot's Monitor 24 technology eliminates interceptor pumping. Monitor 24 Technology offers huge cost savings and lifts the burden of having to deal with interceptor problems.

Monitor 24 captures and reduces 95% of all grease and solids from collecting in the interceptor. This fact positions RDX's system as a much needed asset for businesses. The system is serviced monthly by BlueDot to result in cleaner interceptors, reduced maintenance and a worry-free operation. The technology fits in any size interceptor, does not interfere with normal function and does not require any excavation or electricity. Further, the average interceptor holds 2,500 gallons of fuel and produces 65 to 85 gallons of raw material that RDX can convert into fuel each month. More importantly for the customer is that the current cost of interceptor services are over $200 per month. With Monitor 24 this amount is reduced to $28 per month and includes no charge for pumping services.

Another advantage for the end user is that the device self reports to the business location and to RDX in Scottsdale, AZ, to measure temperature, pH, flow and electro-conductivity. This activity is monitored every 30 minutes to check for any problems to insure a seamless operation.

RDX's CEO has stated that Monitor 24 will kill the pump truck in North America due to the benefits offered by using RDX's system instead. This would in turn greatly benefit the company as business flows from the conventional pump truck method to RDX's system. In conclusion, the numerous benefits RDX's franchise owners can offer to business using grease interceptors is substantial and will feed growth for franchise owners.

Value To The Operator:

RDX offers a very high value proposition to operators, which will undoubtedly attract new operators to this model. Operators are the individuals operating the wastewater collection trucks. RDX's franchising program allows for individual operators to sign on with or without their own BlueDot location. This depends on the state and regulations, although RDX's franchising program can be broken down into operators and BlueDot location owners for a more specific look.

RDX puts operators into two additional businesses they originally did not profit from - water mining and the energy business. RDX buys all of the raw material based on a monthly collection schedule. This means that an operator will never be left with any raw material that they cannot sell.

RDX will pay operators $0.30 to $0.60 per gallon of raw material depending on market size and their ability to deliver to the refinery. Additionally, RDX gives a fuel override on gross fuel sales from 3% to 6% depending on size and ability to deliver.

Looking at an example, the increase in income to the operator is huge. At an 80,000 gallon per month collection rate the operator will receive $0.50 per gallon or an extra $40,000.

Additionally the operator would receive a 5% fuel sales override. In total this amounts to additional revenue of $1,860 per day from water mining and $333 from fuel energy. In total this amounts to additional revenue of $2,193 per day, per truck. This is based on 21.5 work days per month and $3.58 current wholesale fuel price. Due to the excellent income opportunity offered to operators, RDX will be able to attract operators moving forward.

Advantages and Opportunities Offered To A BlueDot Franchise Owner:

In addition to working for RDX as an operator, potential franchisees can also own their own BlueDot locations. BlueDot locations are locations set forth by RDX where it is viable to run an operation based on population density. A BlueDot facility is where operators bring wastewater to be converted into filtered water, and where the raw material in this water can be mined into effluent, which ends up at RDX refineries where it is turned into fuel energy. RDX will be purchasing additional locations deemed BlueDot locations moving forward and franchisees have the ability to choose any of these various locations that are still available.

The best way to view the opportunity offered to potential BlueDot franchise owners is the operating results they would enjoy. Below is an example of a BlueDot location operated with two employees and two service vehicles. This example is a smaller BlueDot location having 350 customers with a fuel price at $3.50.

A franchise owner in this example could earn $96,550.00 with expenses of $32,340 resulting in a profit of $64,710.00. This equates to a gross profit margin for the franchise owner of 67%. The initial investment required for this BlueDot facility is $890,000.

RDX's CEO, Mr. Dennis Danzik, stated that this is a smaller and average facility and profits could be better or worse depending upon the location. Moreover, this is for a single service location while multiple locations are available.

A concern for franchise owners in industrial industries is whether or not the equipment itself is a worthwhile investment, and how well it will fare when operational. The equipment used in BlueDot locations are 100% designed and manufactured by RDX. The company also provides full modeling and analysis to its potential franchise owners. RDX has been designing its equipment for the past six years without a single infield failure or time loss accident. RDX equipment has all internal pumps, no overhead electric and all equipment is monitored by satellite. The equipment comes with a five-year warranty. Should a franchise owner have questions they can reach the RDX team who not only designed the equipment, but also built it. As such, franchisees will have direct access to the company if they have any questions or problems.

RDX offers potential BlueDot franchise owners an extremely attractive and profitable opportunity linked to a viable and worthwhile business operation. In turn, RDX will see continued and strong growth in its franchise business. This franchise program will not only generate business for RDX through water filtration services provided to businesses, equipment sales, and licensing for BlueDot and its franchising operations, but also it will provide RDX with the effluent the company can convert to fuel energy. This fuel energy is a commodity and can easily be sold in the open market at a profitable 84% margin.

Attracting Franchises:

RDX's franchise business offers a significant income opportunity for both operators and those looking to own their own BlueDot location. These substantial benefits alone are enough to attract and sign on franchisees, but RDX is taking this a step further to feed growth and scale its franchising operations.

Back in March 2014, RDX was featured in a Forbes advertising section for Platts. This advertising campaign helped the company grow its revenue substantially this year by informing potential franchisees the company's franchising unit. RDX stated that they are planning additional programs in the future, and that the company will attend major energy and water conferences in the U.S., Canada and Europe.

RDX's franchising unit's substantial benefits for franchisees will attract business moving forward to bolster top line growth for the company. These benefits will be permeated through RDX's future national advertising campaign programs, attending water and energy conferences in multiple countries, through its own sales team, and if current franchisees grow their existing operations. The latter can expand their business by adding additional customers or by adding BlueDot locations to their franchising operation - all to the benefit of RDX.

Multi-Year Contract With COG Operating LLC, $19.92M Contract With Pontus Energy LLC, Land Sale and Recent Fuel Refinery Purchase:

COG Operating Contract:

On March 24, 2014, RDX announced an up to 13-year agreement to provide delivery of over 45,000 barrels per day of treated water with COG Operating LLC (CXO, a subsidiary of Concho Resources). This deal will provide millions of dollars in revenue to RDX and validates the company's technology as a choice for businesses.

A breakdown of this agreement deal is as follows:

1. In the first term of the deal COG guarantees a minimum of two million gallons of water per day. This equates to $18.5M in revenue and can max out at $24M.
2. The second term of the deal is for years four through eight. This portion is an option held by COG to continue the deal and this would be worth a minimum of $22M.
3. The third term is the same option as in the second term and applies to years nine through thirteen. This would be worth a minimum of $24M in revenue.

With operating margins expected to be around 30%, this equates to a minimum income to RDX of $1.85M for the first three years alone ($18.5M / 3 x 0.30). With regard to costs, a pipeline in southern Texas will have to be constructed for the project and will cost RDX $1M, for the pipeline itself and for permits. This deal will provide RDX with a viable income stream and validates the company's tech in the marketplace.

A key question to ponder is whether or not COG will continue the deal beyond the first term. RDX's CEO Mr. Dennis Danzik has stated (March 24, 2014 update call) that customers will save 50% on their water bill. As such, it is logical to assume that COG would want to continue these cost savings for their customers and continue the second and third contract terms. If COG decides not to pass on the savings to their customers, they can take the increased profits for themselves. In either scenario, COG has an incentive to continue the contract to the second and third terms.

$19.92M Contract With Pontus Energy LLC:

On August 14, 2014, RDX announced a $19.92M contract with Pontus Energy, LLC for the purchase and operation of RDX franchise locations in Ohio, southern Michigan and northern Kentucky. Further Pontus has agreed to install, open and place into operation all of the locations by March 31, 2015.

This contract validates RDX’s technology in the marketplace even further. Additionally, this business relationship brings the company substantial restaurant and food service business experience which it can use to grow its knowledge base. This deal also provides RDX with an invaluable income stream, and a home-run hit to growth their top line revenue.

Santa Fe, California Land Sale:

In early July 2014, RDX's subsidiary, Ridgeline Energy, announced the sale of excess real estate located in Santa Fe Springs, California. Gross proceeds of the sale were $12.4M and net proceeds before escrow expenses and taxes were $8.412M. RDX has stated that they will be able to earn additional remediation revenue from the property moving forward. The proceeds from this sale can help RDX purchase additional BlueDot real estate locations and pay down debt. The sale was worthwhile for RDX as the company increased their balance sheet cash to $6M from the Santa Fe Springs and franchise sales.

California Refinery Purchase:

In mid July 2014, RDX announced that it had purchased substantially all of the assets of the Renewable Energy Products refinery located in Santa Fe Springs for cash and common stock. The total purchase price was $2.85M.

The Renewable facility has a capacity of 10M gallons per year and will open the door to fuel sale opportunities for RDX in the western part of The United States. RDX is currently moving the refinery operation to a confidential location that is more business friendly and closer to an RDX fuel consumer. The refinery is expected to be in operation in late fall of this calendar year. Through RDX obtaining this facility it expands its operations especially for its BlueDot franchising program. Now the company can serve a larger and untapped area with its operations while being accessible to operators hauling effluent to the refinery in this location.

Pending Contracts Will Bolster RDX's Growth:

RDX's franchise business is growing, and the proof is written in ink. At RDX's update conference call on July 17, Mr. Dennis Danzik provided insight into the company's deal pipeline for its franchising program.

• A contract in Ohio with 14 locations that will be executed within the next three weeks.
• A contract in Virginia with 5 locations that will close in 4 to 5 weeks.
• A contract in Arizona with nine locations that will be closing within one week.
• Two written offers for an 8 location contract in Europe and a manufacturing facility in Poland. The company will accept one of the deals by August 8, 2014.

Outside of the large deal with COG, these pending deals validate RDX's technology in the marketplace. Further, these deals can bolster RDX's revenue while increasing exposure to the benefits of its franchising program.

Whether or not the company will offer a press release for each deal is unknown. RDX's CEO offering insight into the company's pipeline is an excellent notion and keeps investors close to RDX's business progress. Due to the complex nature of these deals, I would view the dates as a forecast rather than in absolute terms. Since RDX has historically kept investors updated through business update calls, I believe RDX will keep investors informed. The company has a call planned for August 12 to update investors, I believe we will learn more information related to these events then.

Valuations and Projections:

RDX possesses the unique ability to not only clean water across various industries but to turn the effluent into a high margin bearing alternative fuel. RDX's BlueDot's franchising program is successful and will grow since it offers each party involved (customers, operators, BlueDot franchise owners) invaluable advantages. These benefits range from cost savings, clean water and less servicing of grease trap collectors for businesses to increased profits and a viable business opportunity for potential franchisees. All the while, the technology involved has been validated in the marketplace - specifically through COG's contract with the company.

RDX has achieved record revenue growth of $6M to $31M in the last four fiscal years. We believe this growth will continue on the back of the company's franchising program that has only just begun to break into the market. RDX's management has provided guidance and is expecting FY 2015 revenues from all segments to be between $85M and $107M with FY 2015 EBITDA of $19M to $26M. On the bottom line management is expecting EPS of $0.08 to $0.12 per share for FY 2015. We agree with RDX's management's guidance and believe that this guidance is achievable.

As a small $36M company, RDX has plenty of room to grow. RDX has doubled revenues Y/Y from $16.4M in 2013 to $33.7M in 2014 and we believe this trend will continue. If RDX is able to deliver to management's expectations they will triple revenues Y/Y to just over $100M in 2015. Conservatively accounting for a doubling of direct expenses, a tripling of amortization expenses and 20% growth in all operating expenses, RDX can achieve $18.5M in operating income in 2015. We have accounted for increased finance costs 20% to finance BlueDot real estate purchases or equipment, while keeping foreign exchange changes on the CWT notes payable and the gain in the fair value of PTEC earn-out and note payable constant since these are impossible to project. Further, with a constant share count of 168M, RDX has the potential to earn $0.09 in 2015, and deliver considerable upside to investors from current levels.

We also believe that this guidance is achievable as revenue will greatly outpace direct costs as the franchisees will have to bear the bulk of the cost of equipment and setup of BlueDot locations - outside of RDX purchasing the real estate. Further, since RDX has a high 84% gross margin commodity to sell at the end of the line and a franchising program to not only feed growth but to provide the raw material to mine to create this fuel, we believe the company will enjoy substantial growth moving forward.

To remain conservative, our FY 2015 EPS estimate is on the low end of management's $0.08 - $0.12 projection. We have also accounted for a very conservative 15X P/E ratio for 2015. This is a modest P/E ratio as a company's P/E ratio generally expands as growth increases. Even if RDX delivers a fraction of the EPS projection that management has provided, investors will enjoy considerable upside from current levels.

Recent Sell-Off Provides For An Attractive Opportunity:

On July 30, 2014, RDX announced their FY 2014 earnings. Following the announcement, shares dropped over 20% from roughly $0.26 to $0.21. In my opinion shares dipped since the company's net income loss grew from a loss of $12M in 2013 to a loss of $13M in 2014. I believe the drop in the share price offers an attractive entry point for investors to gain shares at a third less the price when compared to where shares were trading a few weeks ago at over thirty cents. I believe the share price dip was an overreaction as, on a comprehensive basis, RDX's bottom line improved. RDX reported a comprehensive loss of $8.7M in 2014, besting 2013's comprehensive loss of $11.9M. This was due to a positive currency adjustment of $4.5M not present in 2013.

Further, RDX reported a more than doubling of revenues Y/Y from $16.4M to $33.7M and an adjusted EBITDA improving from a loss of $4.34M to a positive $553,449. These results demonstrate the strong growth the company is enjoying as they continue to build out their business.

The annual report also had several other highlights worth mentioning. RDX sold excess Santa Fe Springs real estate for $12.5M and increased balance sheet cash to $6M. The year also included the company introducing a direct service program for waste water producers that includes transportation and has begun expanding to work in waste water operations in Virginia, New York and Ohio. Lastly, RDX completed the first pipeline right of way in Odessa, Texas for the delivery of water to oil and gas operators while completing initial survey work and planning for new pipeline treatment facilities in Midwest Wyoming.

The glaring dip in the share price is obvious, but RDX's report was not as detrimental as this slip may have seemed. This disparity between the market's reaction and the company's report offers a unique buying opportunity for investors.

Record Earnings Proves The Growth Story:

On September 2, 2014 RDX announced their 1Q 2014 earnings. This record report for the company included revenues increasing 92% Y/Y to $13.4M from $7M. Further, the company’s EBITDA improved to $1.4M Y/Y from a loss of $2.1M. This quarter included RDX growing it’s Environmental and Reclamation business to new heights, which was the backbone of this quarter’s excellent growth.

RDX ended the quarter with $5M in cash and is now looking to open 40 new franchise locations in 2015 and 300 locations through 2018. The fact that this is in motion is evidenced by the company’s earnings, but more so by the 16 franchise location deal with Pontus Energy LLC. We believe this earnings report demonstrates RDX’s successful growth story.

Risks:

RDX is a micro-cap company so investors have to understand the risks associated with these types of companies. This is in part mitigated by the fact that the company is larger than many nano-caps and micro-caps and is already an established company with a market capitalization of $37M. Buying shares under the RDX.V ticker, which trades on the TSX Venture Exchange in Canada, can offer more liquidity. RDX's CEO has expressed his dislike for this exchange, which may not offer the environment RDX is looking for. Until RDX moves exchanges, the current exchange could hamper growth and exposure. If and when RDX makes a move to the NYSE this risk would be mitigated and shares could enjoy further upside and exposure.

Another risk is the short-term contract targets, which the CEO has offered. Providing investors with short-term goals linked to complex contractual agreements may cause confusion if these deals take longer than expected. We do believe this risk is mitigated as RDX has proven the benefits for every party involved in its franchising program and has doubled revenues Y/Y linked to the company's technology. RDX has also historically provided business update calls so it is feasible to assume they will continue. As per the last update call on July 17, 2014, the company stated another update call is planned for August 12. As an investors I would view these deals as a forecast rather than in absolute terms. Lastly, RDX's CEO stated in our interview that these deals come with a general 30-day window, so these dates should be viewed as a forecast rather than in absolute terms.

Conclusion:

Water is an extraordinary chemical compound that is a major and ubiquitous building block in our world. The water sector is fragmented with many companies offering their own technologies or servicing just one subset of the water market. RDX is unique in their ability to not only provide clean water for their customers, but to convert the effluent into a commodity, diesel fuel, that can be sold. Due to the significant benefits offered to each party involved in RDX's franchising program, we believe the company's franchise business will enjoy substantial growth over the next year.

RDX's highly scalable and advantageous franchise business model will lead to over $100M in revenue or $0.08 to $0.10 in EPS in 2015 providing for significant upside potential for investors. This investment has limited downside, since if RDX provides only a portion of its 2015 target, investors will still enjoy upside potential. With the risk noted, we hold RDX Technologies as a conviction pick and believe investors can be handsomely rewarded moving forward.

This article was released early to SecretCaps subscribers on August 11, 2014. RDX has been profiled at a share price of $0.194

An Interview With Dennis Danzik, CEO Of RDX:

Tom: Hello Mr. Danzik thank-you for taking part in this interview to help inform readers and investors on RDX Technologies.

Mr. Danzik: Thanks Tom, happy to be here.

Tom: One bird's eye view question I have is whether or not RDX's water filtration system can be used across various industries or just to enhance the existing grease interceptor systems used by businesses today?

Mr. Danzik: RDX's water filtration technologies can serve a wide variety of customers and businesses. For example, our largest installation is in Texas and treats 2M gallons of water per day. This is for the oil and gas industry and is linked to our contract with Concha Resources. Our smallest is less than a couple thousand gallons per day for a restaurant. As such, we can serve a wide variety of customers and business and are not stuck serving one type of business or industry.

Tom: A major push by RDX's technology is to eliminate the pump truck. Should this be considered an enhancement to the existing scenario since trucks will have to bring wastewater from businesses to BlueDot facilities anyway?

Mr. Danzik: Currently, we do accept a lot of pump truck