UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549






FORM
10-K






(Mark
One)




|X|   ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
fiscal year ended December 31, 2008 or






|_|   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934






For the
transition period from _____ to _____






Commission
file number: 333-130394




VeruTEK Technologies,
  Inc.(Exact
      name of the registrant as specified in its charter)Nevada
              
              06-1828817(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)





65
      West Dudley Town Road, Suite 100
              Bloomfield,
      CT
            
            06002(Address
      of principal executive offices)
            
            (Zip
      Code)




Registrant’s
telephone number, including area code: (860) 242-9800




Securities
Registered Pursuant to Section 12(b) of the Exchange Act: None


Securities
Registered Pursuant to Section 12(g) of the Exchange Act: None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes |_|    No |X|




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.     Yes |_|    No
|X|






Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes |X|   
No |_|






Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.    |X|




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer
            £
            
            Accelerated
      filer
            £Non-accelerated
      filer
            £
            
            Smaller
      reporting company
            T(Do
      not check if a smaller reporting
company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes |_|    No |X|




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates was $8,930,978 based upon the last sale price of the registrant’s
Common Stock on the OTC Bulletin Board on June 30, 2008.




As of
March 20, 2009, 27,049,278 shares of the registrant’s Common Stock, par value
$.001 per share, were outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE


None.



















VeruTEK
Technologies, Inc.






INDEX










Part I
                          
                          Description
                          Page
                            NumberItem 1
                          
                          Business
                          1Item 1A
                          
                          Risk Factors
                          10Item 1B
                          
                          Unresolved Staff Comments
                          19Item 2
                          
                          Properties
                          19Item 3
                          
                          Legal Proceedings
                          19Item 4
                          
                          Submission of Matters to a Vote of Security
      Holders
                          19Part IIItem 5
                          
                          Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities
                          20Item 6
                          
                          Selected Financial Data (Not required for Smaller Reporting
      Companies)
                          21Item 7
                          
                          Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                          22Item 7A
                          
                          Quantitative and Qualitative Disclosures About Market Risk
      (Not required for Smaller Reporting Companies)
                          30Item 8
                          
                          Financial Statements and Supplementary
    Data
                          31Item 9
                          
                          Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure
                          58Item 9A(T)
                          
                          Controls and Procedures
                          58Item 9B
                          
                          Other Information
                          58Part IIIItem 10
                          
                          Directors, Executive Officers and Corporate
      Governance
                          59Item 11
                          
                          Executive Compensation
                          61Item 12
                          
                          Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                          65Item 13
                          
                          Certain Relationships and Related Transactions, and
      Director Independence
                          66Item 14
                          
                          Principal Accounting Fees and Services
                          67Part IVItem 15
                          
                          Exhibits, Financial Statement Schedules
                          68Signatures
                          
                          
                          69Supplemental Information to Be Furnished With Reports Filed
      Pursuant to Section 15(d) of the Act by Registrants Which Have Not
      Registered Securities Pursuant to Section 12 of the
Act
                          70Exhibit Index
                          71

















FORWARD
LOOKING STATEMENTS





This Form
10-K contains certain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Specifically, all statements other than statements of historical facts
included in this report regarding VeruTEK Technologies, Inc.'s (the "Company")
financial position and business strategy and the plans and objectives of the
Company's management for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend," and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements (the "cautionary
statements") reflect the current view of the Company's management with respect
to future events and are subject to risks, uncertainties, and assumptions
related to various factors including, without limitation, competitive factors,
general economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
product introductions and acceptance, technological change, changes in industry
practices, one-time events and the other risks identified elsewhere herein.
Although the Company believes that expectations are reasonable, it can give no
assurance that such expectations will prove to be correct. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the applicable cautionary statements.
The Company does not assume any responsibility to publicly update any of its
forward-looking statements regardless of whether factors change as a result of
new information, future events, or for any other reason. The Company advises you
to review any additional disclosures made in the reports that it files with the
Securities and Exchange Commission (the “SEC”).




PART
I





Item 1.   Business





Description
of Our Company




The
Company’s wholly-owned operating subsidiary, also named VeruTEK Technologies,
Inc., or VeruTEK-Delaware, was organized as a Delaware corporation on February
1, 2006. VeruTEK-Delaware was formed to develop and commercialize new
technologies in the field of environmental remediation. VeruTEK-Delaware
provides technical services to clients to resolve complex environmental
remediation matters at a wide range of waste sites, principally by combining
surfactant (surface active agent) and oxidant chemistries. The name VeruTEK is
registered in the U.S. Patent and Trademark Office.




On May 9,
2007, a Nevada corporation formerly known as Streamscape Minerals, Inc., or
VeruTEK-Nevada, completed a share exchange with VeruTEK-Delaware and each of
VeruTEK-Delaware's shareholders. Pursuant to the share exchange VeruTEK-Nevada
acquired all of the issued and outstanding capital stock of VeruTEK-Delaware
from the VeruTEK-Delaware shareholders in exchange for shares of VeruTEK-Nevada
common stock. As a result of the share exchange, VeruTEK-Delaware became a
wholly owned subsidiary of VeruTEK-Nevada.




We
conduct our business operations through VeruTEK-Delaware. As used hereafter, the
terms “Company”, “VeruTEK”, “we,” “us,” or “our” refer to VeruTEK-Nevada and
VeruTEK-Delaware, collectively.  Unless otherwise indicated,
references to the Company for periods prior to the share exchange shall instead
refer to VeruTEK-Delaware.




VeruTEK-Nevada
was incorporated in the State of Nevada on February 3, 2004. Until the share
exchange, VeruTEK-Nevada was an exploration stage company in the business of the
acquisition and exploration of mining properties and intended to be in the
business of mineral property exploration. VeruTEK-Nevada’s management determined
that the lack of capital and a lack of funding sources to fund mining
explorations and mining operations would not allow VeruTEK-Nevada to execute its
business plan in a viable fashion. VeruTEK-Nevada’s management decided not to
proceed with a mineral exploration program and consequently elected to enter
into the share exchange with VeruTEK-Delaware.




On
December 19, 2008, the Company announced that it intends to cease filing certain
reports with the SEC following the filing of this Form 10-K for the fiscal year
ended December 31, 2008.  The Company expects that it will file a Form
15 with the SEC to voluntarily suspend its duty to file reports under Section
15(d) of the Exchange Act; however, the timing of the filing of the Form 15 will
continue to be evaluated by the Company’s Board of Directors and may be delayed
at any time and for any amount of time, including indefinitely, in the sole
discretion of the Board of Directors.  The Company is eligible to no
longer file such reports because it has fewer than 300 holders of record of its
common stock.








1







Upon
filing of the Form 15, the Company’s obligation to file certain reports with the
SEC, including Forms 10-K, 10-Q and 8-K, will immediately be
suspended.  As a result of no longer making such filings, the
Company’s common stock will cease to be eligible for quotation on the OTC
Bulletin Board, or the OTCBB.  There can be no assurance that the
Company’s common stock will be traded in any other forum, such as the Pink
Sheets, or that any brokers will continue to make a market in the Company’s
common stock once the Form 15 is filed.




On or
shortly after the date of filing of the Form 15, the Company also intends to
reincorporate from the State of Nevada to the State of Delaware.  The
reincorporation is intended to allow the Company to take advantage of the
greater predictability and flexibility afforded by Delaware’s corporate laws and
its extensive and established case law.




Description
of Business





We are an
environmental remediation company that provides environmental solutions for
complex environmental problems. We have developed new clean and green
technologies using food-grade surfactants and food additives that remove
contamination without risk to humans or the environment. We anticipate that our
technologies will allow development of the following revenue
streams:




•
            remediation
      of contaminated sites;




•
            sale
      of branded green chemicals;




•
            licensing
      of proprietary technology; and




•
            laboratory
      services.




We
currently derive our revenue from technical services related to environmental
remediation. Revenues result from the implementation of projects to remedy
contaminated sites, treatability and pilot studies to evaluate potential
remedies, and consulting services related to environmental remediation.
The Company is using engineering optimization, treatability studies and
pilot studies to successfully demonstrate its capabilities in customizing
remedies to address environmental remediation issues and thereby secure much
larger contracts for full scale remediation of environmental issues at client
sites. As of December 31, 2008, the Company had secured one large project with
Keyspan Corporate Services LLC (“Keyspan”) and eight relatively small
commitments for full scale remediation projects. The Company has completed four
of the eight smaller implementation projects. Securing a sufficient number of
full scale remediation projects at acceptable profit margins is critical to
ensure the long-term viability of the Company.   We have not yet
established revenue streams related to the sale of branded green chemicals or
licensing of proprietary technology.




The
Company had two customers that accounted for approximately 46% of its revenues
for the year ended December 31, 2008. Keyspan and an agency of a state
government accounted for 29% and 17% of  2008 revenues,
respectively.




We have
successfully tested the first series of clean, green and effective technologies
for surface and subsurface contamination in laboratory and field studies. The
tests have involved both laboratory and field study. Laboratory studies were
conducted by an independent third-party laboratory. Field tests were observed by
a third party consultant and the New York State Department of Environmental
Conservation, or the NYSDEC. A report on field tests prepared by the third party
consultant has been accepted by the NYSDEC.  In addition, we have
received approvals from the South Carolina Department of Health and
Environmental Control and the Florida Department of Environmental Protection to
utilize our technology for remediation at potential client sites in their
respective states.  We will use this technology to diversify our
revenue streams. In the long term, we expect these technologies will be used to
penetrate the fragmented environmental market so the Company can become the
first large, green environmental services firm.




Currently,
most contaminated surface soil is excavated, treated at an off-site facility and
landfilled. Initially, we expect remediation of contaminated sites will be our
most significant revenue stream. We will clean soils, sediments, and groundwater
especially for clients with large liabilities (such as Fortune 500 industrial
clients, utilities, the federal government and others). These solutions remove
contamination at complex (large) commercial/industrial and government sites. Our
opportunity and vision is to replace the dig/haul/landfill mentality that
pervades the environmental market. Instead of costly removal of vast quantities
of contaminated soil, we now have the ability to design treatments in place
using food-grade materials.




Branded
green chemical development is a further potential revenue stream. We have
developed our first line of green, biodegradable solutions for environmental
cleanup. The continual development and branding of the VeruSOLTM line of products
will facilitate movement of the marketplace to more intelligent, earth-friendly
solutions. We believe selling of branded green chemicals will catalyze our
position in the environmental marketplace.




The
environmental market is fragmented between water resources management,
laboratory and analytical, consulting, real estate, and remediation sectors.
Remediation (or cleanup) and laboratory services are common themes of these
markets; both are marketing vehicles and revenue generators. Initially, our
laboratory services will focus on high-end and specialty analysis of pollutants
to support remediation methodologies and programs. As we grow, we expect our
laboratory will grow to provide support for our growing services.








2






With a
previous dearth of real environmental solutions available, the environmental
consulting market is currently commodity driven by technologies centered on
excavation and landfill disposal. These traditional remediation technologies are
basic to many implementers and result in a lack of differentiation and higher
levels of competition. With more complete, long-term solutions for cleanup, we
believe the environmental consulting market will be changed to high-end
consulting for true cost-effective remediation utilizing green chemistry that
can be safely implemented. We are positioned to capitalize on this trend in the
market.




Our
technologies can achieve complete or near complete cleanup of soils to provide a
real solution. We use plant-derived natural surfactants that constitute our
green solution.  We believe the cost of our technology is comparable
to excavation and landfill disposal technologies for contamination near the
surface of the ground. However, unlike traditional excavation and landfill
remediation, our technology is not depth limited and consequently we are able to
remediate subsurface soil contamination at greater depths. The cost of
excavation and landfill disposal remediation at depth is prohibitive. In
addition, excavation and landfill disposal is almost never 100 percent effective
and sometimes leaves significant amounts of contamination in place. Excavation
and landfill disposal also increases the likelihood of exposure to contaminants
for workers and communities through which contaminants are hauled. By design,
landfill disposal moves the contamination from one location to the landfill
location without eliminating the contamination. Our technology has none of these
limitations.




Our
technologies are effective in remedying organic chemical based non-aqueous phase
liquids in soils and groundwater.  Organic chemicals are carbon and
hydrogen compounds that are important constituents of many products and
industries such as paints, plastics, food, explosives, drugs and petrochemicals,
to name but a few. As a result of our technology development, we have positioned
ourselves as a solution provider for many types of organic chemical
contamination by providing uniquely designed solutions in partnership with the
traditional environmental remediation consultants and implementers. We believe
our technology is unique and we have 13 active patent applications pending in
the U.S. and other foreign jurisdictions covering 9 different technological
matters.  The Company is using its green chemistry solutions and
implementation technologies to develop solutions for a number of applications,
including providing remedies to treat herbicide and pesticide contamination and
contaminated real estate.  The Company is also evaluating
opportunities in its laboratory including oil spill remediation, oil extraction
and water treatment. Accordingly, we believe we are uniquely positioned to
capitalize on the drive toward more effective, safe and economical solutions to
environmental problems.




We expect
our technologies will have an impact on the “brownfields” real estate market.
These green technologies are non-intrusive and can safely remedy contamination
in-place in cities and residential areas without having to destroy structures or
move residents. Our technologies can be used to essentially eliminate
significant obstacles faced in the sale or resale of these properties. This area
offers another source of potential revenue.




We
believe we have the opportunity to redefine the environmental market with
green-brand and cost-effective solutions. In addition, borrowing marketing
strategies from other industries will help transform the large commodity-driven
environmental market to a specialty market.




As of
December 31, 2008, we had 19 employees, of which 15 were full time salaried
employees and 4 were hourly employees. We have not experienced any work
stoppages and we consider our relations with our employees to be
good.




Our
research and development expenses were $392,815 and $167,618 for the fiscal
years ended December 31, 2008 and 2007, respectively.




Products
and Services





We have
developed several new, patentable technologies that we believe will change the
nature of the environmental remediation market at complex waste sites. By
combining surfactant and oxidant chemistries, we have invented a proprietary
controlled dissolution and desorption process (by dilute surfactant mixtures)
with concomitant biological or chemical destruction processes. We have already
developed a simultaneously coupled co-solvent/surfactant activated persulfate
oxidation process. Our goal is to have our remedies replace generic site
remedies with designer surfactant/oxidant combinations that are environmentally
safe and non-intrusive to the nearby community. We believe designer remedial
applications will have the same brand appeal to environmental stakeholders that
“designer drugs” have in the pharmaceutical industry. We expect the
environmental industry to evolve toward a pharmaceutical-like business with
green chemicals (the VeruSOLTM line, for example) continually developed and sold
under developed brand names.









3







Our
Surfactant-Enhanced In Situ Chemical Oxidation (S-ISCOTM) is a technology that
safely destroys (reduces to carbon dioxide and water) organic
contamination.  It can target contamination deep in the subsurface of
soils such that remediation is possible where previously it was not
possible.  It also provides a cost-effective and safe means to remedy
surface and subsurface contamination in place without excavating it and sending
millions of tons of contaminated soils to landfills, many of which are hundreds
or thousands of miles away.  Our technology has been tested in the
laboratory for a specific contaminated site with coal tar in the
subsurface.  It was also successfully implemented at a Connecticut
site in 2008 and at a pilot test site from April 2006 to November
2006.  An independent third-party report concluded that our S-ISCOTM
mixtures traveled together (coeluted) to targeted soil zones and contaminants
were solubilized and destroyed through the pilot test area. Results of the
transport data show that contaminated soil strata were and can be targeted for
treatment by the S-ISCOTM method. The pilot test demonstrated that S-ISCOTM can be
used to treat the contaminants such as tar saturated soils, tar blebs and
tar-coated lenses beneath buildings and other potential obstructions (for
example, railroad tracks).  The NYSDEC has also approved the
application of S-ISCOTM for full scale remediation and implementation is underway
at a client site. S-ISCOTM is one type of a family of coelution technologies that
we are developing.  We have completed extensive laboratory work for
the remediation of chlorinated compounds.  We are continuing to work
on development of remedies for the remediation of common herbicides and
pesticides often found as residual material in farm soils.




We have
developed green chemistry solutions using plant-derived surfactants and
implementation technologies that remediate and eliminate the environmental
effects of chemical waste.




COELUENT
TECHNOLOGIESTM





Coeluent
TechnologiesTM, which include S-ISCOTM, provide treatment that enables the rapid
removal of contaminants from soils and groundwater.




S-ISCOTM





The
S-ISCOTM process uses groundwater to move green chemicals that destroy
contaminants to where the contaminants are located in the
soil.  Alternatively, in soils that have low permeability, S-ISCOTM can
be deployed using emplaced fracturing methodologies or direct-push
injection.  S-ISCOTM requires no heavy equipment, no destruction of
buildings, little odor control, and has very little community
impact.




VeruSOLTM





The
Company’s VeruSOLTM product is a surfactant (surface active agent) based solvent.
By combining VeruSOLTM with traditional oxidant chemistries the Company is able
to remove contaminants from soils and groundwater through a controlled
dissolution and desorption process, eliminating the need for
excavation.




Additional
Product Opportunities





The
Company’s primary market is the remediation of surface and subsurface soil and
groundwater contamination.  The Company also currently has field tests
which include herbicide/pesticide and contaminated real estate
remediation.  We believe our solutions have applications in oil spill
remediation, oil extraction and water treatment.




HERBICIDES
AND PESTICIDES




The
Company has developed a remedy for legacy soil and groundwater herbicides and
pesticides such as endrin and DDT that it is currently testing in a field
demonstration.  Remedying herbicide and pesticides is useful in
marketing to chemical companies that have a portfolio of contaminated properties
from past improper disposal practices, railroads that used them extensively on
their right of ways and military sites.  It also provides an
additional opportunity to formulate a retail product that can be sold for
residential buyers concerned about the presence of toxic compounds in their
lawns.  Notably, communities around the United States are preventing
residential and commercial development of farmland soils that have had past
agricultural activities until removal of legacy herbicides and
pesticides.




CONTAMINATED
REAL ESTATE REMEDIATION





The
Company believes its technologies will have an impact on the “Brownfield’s” real
estate market.  The Company’s green technologies can safely remedy
contamination in-situ in cities and residential areas without having to destroy
structures or move residents.  These technologies can be used to
essentially eliminate the stigma of these properties for sale and
resale.  The Company intends to develop  partnerships or
joint-ventures with a real estate investment companies to clean urban,
contaminated properties.






4






OIL
SPILLS





S-ISCOTM
products are readily applicable to oil spills.  Because they are made
of natural surfactants, they do not impact the marine
environment.  Their action in slowly dissolving and then degrading
coal tar is easily transferred to beach oil, both on rocks and that which has
seeped into the beach sands.




Demand





Government,
industry, and the public are interested in cleaning up the environment. Federal
and state laws require the cleanup of contamination that has been released into
the environment.  When hazardous waste is dumped in soil, it poses a
direct risk to dermal exposure and contaminants volatilize such that people can
be harmed by inhaling minute quantities of gas that volatilize from the
soil.  The hazardous waste also migrates to groundwater where minute
quantities of the organic compounds dissolve in the
groundwater.  These dissolved contaminants, benzene, for example, are
transported off-site, where they volatilize into the soil gas and eventually can
make their ways into houses.  The exposure pathways are called “vapor
intrusion.”  Inhalation of the minute quantities of contaminants has
been identified by the United States Environmental Protection Agency, or the
EPA, as a significant potential exposure pathway to be evaluated on hazardous
waste sites.  In many cases, there is no permanent remedy that removes
contamination to provide sufficient protection to the general public and
ecology.   As such, most owners of contaminated land generally
approach the clean up through a risk based standard where they do the minimum
clean up in order to limit their liability.  Risk-based standards are
not a permanent remedy for several reasons:  (1) they are constantly
being revised (usually downward) based on new or updated toxicological
information, (2) new compounds are added to the regulatory list as new
toxicological information is acquired and (3) based on new toxicological
information, any site that is “closed” but that has residual contamination (that
is, most, if not all, contaminated sites) can be reopened by the EPA to require
a more extensive cleanup.  We believe parties engaged in site clean up
will begin to migrate from risk based standard remedies to designer
surfactant/oxidant combinations that are environmentally safe and non-intrusive
to the nearby community.




Distribution





We are
currently distributing our products and services exclusively through direct
marketing but expect to also distribute and market through licensees and
chemical companies.




Environmental
Market





The
environmental market is fragmented between water resources management,
laboratory and analytical, consulting, real estate and remediation sectors.
Remediation, which is an endpoint of all environmental projects, ties these
markets together.




Trends
in the Remediation Market





The
market for environmental remediation is being driven by a number of trends
including:




•           a
better understanding of the health risks associated with environmental
contamination;




•           an
increased awareness as it relates to environmental conservation;




•           a
stricter regulatory environment;




•           an
improved understanding of the benefits of green chemistry solutions;
and




•           the
desire to solve environmental contamination with solutions that are economically
sustainable.




Government,
industry and the public are demanding the clean up of the environment, in no
small part due to the increasingly proven negative health effects of
contamination.  While consumer advocacy groups are stridently
demanding further regulatory and legislative mandates and are increasingly
vocal, it is important to note that federal and state laws already require the
cleanup of environmental contamination.







5






Additionally,
federal legislation such as the Clean Water Act, the Superfund law and
Sarbanes-Oxley, have created both a legal requirement and a financial incentive
to clean up contaminated sites, accelerating demand for environmental
remediation. The Clean Water Act restricts pollution of the “Waters of the
United States” without a permit.  The Superfund program forces people
who own or who have owned toxic waste sites to remedy contamination that has
leaked offsite.  The Superfund Amendment, Resource Conservation and
Recovery Act legislates that potentially responsible parties are responsible for
onsite contamination.  Other important environmental contamination
legislation includes the Endangered Species Act, the Community Right to Know Act
and the Toxic Substances Control Act.




The
profit motive also drives the environmental remediation market.  Real
estate developers have increasingly focused on acquiring and remedying
contaminated properties due to their low acquisition costs and potential for
value recovery.  Property owners, insurers and shippers importantly
seek to mitigate their environmental liabilities through environmental
remediation.




Due to
such legislation, large corporations must set aside substantial reserves to pay
for environmental remediation.  These firms are required by federal
and state law to cleanup the contamination that has been released into the
environment.  Corporate reserves mainly address the impact of
contamination on human health and the ecology. In addition, new government
accounting rules will now require government bodies or agencies to recognize
remediation liabilities.




As a
result, the Company believes that over the next several years, federal, state,
and local governments and private industry will commit billions of dollars
annually to clean up sites contaminated with hazardous waste and petroleum
products from a variety of industrial sources, which should drive demand for
environmental remediation services and technologies.




Technology





Excavation
and landfilling is the most frequently used method of soil and groundwater
remediation in the U.S. However, much of the simple surface contamination
amenable to low-tech removal has been completed. The remaining problems are
deeper subsurface and contributing substantial contamination to groundwater and
vapor in residences and commercial establishments. Because there is no effective
remediation of subsurface contamination, there is a high demand for an effective
remedy.




Technology
Implications of VeruTEK Technologies





Remediation
costs have been a prohibitive factor in speeding the pace of cleanups and the
flow of revenues for firms concentrating on remedial construction. Cost
effectiveness is already a vital competitive differentiating factor for
contractors and is expected only to grow in importance. For many complex sites,
such as those with light non-aqueous phase liquids, or LNAPLs, or dense
non-aqueous phase liquids, or DNAPLs, including chlorinated solvents,
Manufactured Gas Plant, or MGP, residuals and polynuclear aromatic hydrocarbons,
or PAHs, treatment has been practically limited to excavation with off-site
disposal.




Technology
has played a limited role to date in the remediation of hazardous waste sites
but will become increasingly important in the future as in situ remediation
(remediation of contaminants in the place they are situated) methods gain
importance. Previously, “dig and haul” was the method of choice for remediation.
The table below presents the limitations of traditional remediation
systems.




Remedy
                    
                    LimitationSoil
      excavation and incineration or disposal
                    
                    Incapable
      of handling enormous volumes; not able to nondestructively remedy beneath
      buildings; liability retention associated with off-site
      disposal.Off-site
      disposal
                    
                    Environmental
      and community concerns, cost.Pump
      and treat - groundwater
                    
                    Liability
      not eliminated, only shifted.

                      Proven
      ineffective, especially for non-aqueous phase liquids - acknowledged as a
      containment
method.





EPA
policy and a strong emphasis on cost effectiveness from the buyers of
remediation services are both helping to drive in-situ methods, which require
better technical solutions. The majority of “backlogged sites” are problem
sites, which may either require novel treatment or new technologies. We believe
the current marketplace needs more effective treatment of both groundwater and
soil contamination.




Fewer of
the more complex sites have been cleaned up and many U.S. Department of Energy
sites are specifying “cap and contain” solutions to prevent contamination
problems from spreading or worsening while they await remediation. In effect,
this creates a technology waiting game until cost-effective on-site treatment
methods are proven and approved by regulators.






6






Development
of In Situ Technology





The
development of soil-vapor extraction, or SVE, was a significant development in
the in situ remediation of petroleum-based wastes (Dr. Hoag, one of the founders
of VeruTEK-Delaware was the primary developer of SVE technology in the early
1980s). However, the presence of chlorinated compounds, NAPLs, or DNAPLs
nullifies the effectiveness of the combined SVE and current above-ground
systems. (Many chlorinated volatile organic chemicals, or VOCs, are (1) not well
absorbed onto activated carbon, (2) resistant to effective catalysis, and (3)
corrode internal combustion engines because of hydrochloric acid formation.) The
slow rate of extraction of NAPLs or DNAPLs makes SVE an impractical remedial
method for those contaminants, particularly those at depths lower than the water
table.




More
recently, in-situ chemical oxidation has been used to remediate soils and
groundwater, especially in media that are contaminated with chlorinated VOCs.
In-situ chemical oxidation, or ISCO, involves injecting chemical oxidants into
the soil and/or groundwater to oxidize organic contaminants. The common oxidants
are hydrogen peroxide-based, Fenton’s chemistry, and potassium permanganate, or
KMnO 4, better known as
permanganate. Ozone can also oxidize organic contaminants in-situ, but it has
been used less frequently when higher levels of contaminants are present.
Complete mineralization to carbon dioxide and water is the desired endpoint of
an ISCO process. These ISCO technologies can work well on simple sites with
low-level soil and ground water contamination, but generally have failed on
sites (complex sites) that have NAPLs present. Potassium permanganate is limited
to treating chloroethenes, such as trichloroethene, but is ineffective at
treating non-chlorinated hydrocarbons and most pesticides, herbicides and PCBs.
Our successful combination of surfactant and oxidant chemistry has allowed the
development of a controlled release of NAPL and absorbed contaminants into the
aqueous phase with subsequent degradation by oxidants. Coupled with free-radical
based in-situ chemical oxidation processes such as activated persulfate and
Fenton’s chemistry, industry and government agencies will now have a remedial
alternative that can treat their many waste sites.




We
believe the more complex sites with chlorinated contaminants, heavier organics
(semi-VOCs) and metals make up the majority of waste sites that have not begun
remedial action.




The
Company has filed patent applications for both its S-ISCOTM green chemistry
solutions as well as its Coeluent TechnologiesTM implementation
equipment.  S-ISCOTM can target and destroy subsurface soil and ground
water contamination for complete remediation.  The Company’s Coeluent
TechnologiesTM are a controlled dissolution and desorption process for biological
or chemical destruction processes.




Technology
Opportunities





The
trends in technology applications and characteristics of waste sites requiring
remediation provide market opportunities for technologies that:




•
            are
      completely in-situ;




•
            minimize
      residuals;




•
            treat
      chlorinated hydrocarbons;




•
            treat
      light non-aqueous phase liquids (“LNAPLs”) and DNAPLs where conventional
      SVE and ISCO is generally
ineffective;




•
            are
      proprietary and provide market
differentiation;




•
            simultaneously
      treat groundwater and soil; and




•
            can
      be used in tandem with other complementary
  technologies.




As
previously mentioned, we believe technologies are directly applicable to each of
the most likely remediation opportunities.




Competition





The
remediation market is composed of a substantial number of companies. We believe
most top remediation companies are large construction management firms that
mainly provide low-technology solutions that move soils to treatment centers or
landfills. We believe the trend is toward smaller high-tech
companies.




Several
mid-sized, full-service remediation companies are poised to compete with the
larger remediation firms by using innovative technology as a differentiator. One
such company has branded a calcium peroxide-based, slow-oxygen-release product
as a key technology. This technology may compete with our Company on specific
sites, but is more likely a useful partner to our Company on sites requiring
multiple strategies and higher levels of technologies required for cleanup and
site closure.







7






There are
several smaller remediation companies that would have a similar client base to
our Company. However, the quality of many smaller-sized implementers work has
become an issue amongst industry and regulatory agencies because of a lack of
focus. Their range of services and their implementation of “one remedy fits all”
is in line with the larger remediation market, where excavation and removal is
the clear choice. In the ISCO and innovative technology market, it is clear that
high-level consulting is a key success factor in what is now a niche
market.




Several
other smaller remediation companies provide a menu of new technologies including
chemical oxidation methods. Generally, they are regional companies with one
office and limited capabilities. As such, they can be considered potential
teaming partners of the Company.




We
believe the trend in environmental remediation is moving toward more
sophisticated cleanup operations that emphasizes risk and liability management.
The trend is moving away from specialization, reflecting that a team should be
able to solve more than one problem or use one technology. This trend benefits
smaller firms that can provide niche services to the larger remediation
companies that dominate the market.




The
beliefs regarding the competitive dynamics in each of the three main remediation
markets are outlined below.




The
traditional excavation/landfill market is comprised of consultants, who
frequently recommend dig and haul strategies and then contract the landfill type
companies.  We believe these companies can also be allies of the
Company because they are supposed to be technology neutral.  The
Company also works with landfill/treatment companies.




We
believe that the problems with traditional excavation include:




·
            environmentally
      unfriendly and requires excavation of material in neighborhoods and
      transporting through communities;




·
            not
      a sustainable and green remedy, due to energy
  inefficiency;




·
            low
      tech solution;




·
            landfill
      capacity is shrinking and the cost of landfill space is
      increasing;




·
            potentially
      responsible party continues to bear liability even in the landfill, if the
      landfill leaks; and




·
            contamination
      often exceeds 25 feet and continues into the
  groundwater.




The
containment market is a remedy of last resort.  Containment solutions
include wall construction in the soil and/or pumping of wells to keep
contamination contained.  We believe that issues with this solution
include:




·
            it
      does not solve the problem;




·
            the
      wall dissolves;




·
            liability
      is still there;




·
            can
      not generally reuse the property;




·
            expensive
      solution; and




·
            community
      unfriendly.




The final
market, which is usage of only an oxidant without surfactants, is mainly
employed by chemical companies.  We believe that oxidant-only
solutions have several shortcomings which include:




·
            remedy
      is not permanent in nature;




·
            it
      can be expensive;




·
            inject
      it and forget it; and




·
            oxidant-only
      solutions are not effective.






8






Barriers
to Entry





We have
identified four barriers to competition that are important to maintain during
implementation of our business plan. First, we have implemented an aggressive
patent program to ensure that intellectual property rights are maintained. A
provisional patent that acts as an umbrella for all S-ISCO technology was
applied for in April 2006 and a final patent was applied for in March 2007.
Including this provisional patent, we have a total of 13 active patent
applications pending in the U.S. and other foreign jurisdictions covering 9
different technological matters.  Second, we plan to focus our
competitive efforts on more complex issues where simple solutions such as
excavation are not effective. We are providing the leadership to refocus
competition on the larger excavation market and partnering with potential
competitors in delivering its products and solutions to clients.




Third,
the science and engineering behind ISCO is sufficiently complex to provide a
barrier to competition and barriers to entry. We have completed comprehensive
treatability studies regarding remediation of contaminants through the use of
our S-ISCO chemical oxidation process, as well as having completed a field test
and four remediation projects.




Fourth,
through research and development and branding, we will begin to differentiate
our surfactant/oxidant formulations. This will provide potential clients with a
brand that provides assurance of effectiveness through a record of success. We
have begun this strategy by offering VeruSOLTM products for specific
applications.










9









Item 1A.   Risk Factors





The
following section describes the risks inherent with our business. You should
carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Forward Looking Statements.” The risks and uncertainties
described below are not the only ones facing the Company. Additional risks and
uncertainties not presently known to us or that we currently believe are
immaterial may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially affected, the value of our common stock could decline, and
you may lose all or part of your investment.





Risks Relating to Our Debt
Obligations





On
May 9, 2009, we expect to owe $1,645,083 in principal and interest to satisfy
obligations under secured convertible notes that we issued on May 9,
2007.  We do not currently have sufficient funds to meet those
obligations and maintain our operations.





On May 9,
2007, we issued secured convertible notes (the “Notes”) with a face value of
$1,685,000, together with related warrants.  The Notes are due on May
9, 2009, at which time we expect to be obligated to pay $1,635,000 in principal
($50,000 of the Notes was previously converted to common stock) and $10,083 in
interest, which we pay quarterly.  We do not currently have sufficient
funds to meet our obligations under the Notes and maintain our
operations.  We are seeking to negotiate a modification of the terms
of the Notes to extend the date on which the obligations become
due.  We cannot, however, guarantee that we will be successful in
negotiating an extension of the term of the Notes.  Any extension that
we are able to negotiate could contain a modification of other terms that are
highly detrimental to the Company, including, without limitation, a higher
interest rate, a higher conversion ratio and/or additional restrictive
covenants.  Such modifications could impose significant future
obligations on the Company and result in significant dilution to the Company’s
stockholders.





If we are
unable to negotiate an extension of the term of the Notes, we would need to
promptly obtain additional financing or sell assets to meet our obligations,
which we may not be able to do on commercially reasonable terms, or at
all.  We cannot assure you that we would be able to obtain funding
sufficient to satisfy our obligations under the Notes.





Our
inability to negotiate an extension of the term of the Notes or to satisfy our
obligations under the Notes would likely subject us to lawsuits brought by the
holders of the Notes to enforce our obligations and may render us insolvent
which could result in a complete loss of our debt and equity holders’
investments in the Company.





Risks Relating to Our
Announced Intention to Cease Filing Certain Reports with the SEC and
Reincorporate from the State of Nevada to the State of
Delaware





There
is currently and will continue to be a limited market for our common stock,
which may make it difficult to dispose of your common stock.





On
December 19, 2008, we announced that we intend to cease filing certain reports
with the SEC following the filing of this Form 10-K for the fiscal year ended
December 31, 2008.  We expect that we will file a Form 15 with the SEC
to voluntarily suspend our duty to file reports under Section 15(d) of the
Exchange Act; however, the timing of the filing of the Form 15 will continue to
be evaluated by our Board of Directors and may be delayed at any time and for
any amount of time, including indefinitely, in the sole discretion of our Board
of Directors.  We are eligible to no longer file such reports because
we have fewer than 300 holders of record of our common stock.





Upon
filing of the Form 15, our obligation to file certain reports with the SEC,
including Forms 10-K, 10-Q and 8-K, will immediately be suspended.  As
a result of no longer making such filings, our common stock will cease to be
eligible for quotation on the OTCBB.  There can be no assurance that
our common stock will be traded in any other forum, such as the Pink Sheets, or
that any brokers will continue to make a market in our common stock once the
Form 15 is filed.  As a result, following the filing of the Form 15,
we cannot guarantee that our stockholders will be able to sell their common
stock at an acceptable price, or at all.  Furthermore, the ability of
our “affiliates” and persons holding our “restricted securities” to dispose of
our common stock pursuant to Rule 144 promulgated under the Securities Act (to
the extent Rule 144 would have otherwise been available) may be impaired or
eliminated if we do not maintain “current public information,” as that term is
defined in Rule 144.











10









Our
failure to be quoted on the OTCBB will be an event of default under the current
terms of the Notes and will give holders the option to redeem their
Notes.





The
current terms of the Notes provide that an event of default will occur upon the
failure of our common stock to be quoted on the OTCBB for five consecutive
business days, which would occur shortly after we file the Form 15 and are no
longer eligible for quotation on the OTCBB.  Upon an event of default
under the Notes, the holders may require us to redeem all or a portion of the
principal and interest owed under the Notes.  If we do not get consent
from the holders of the Notes (which we have not yet obtained) and decide to
proceed with the filing of the Form 15, we could be subject to significant
redemption obligations under the terms of the Notes.  We do not
currently have sufficient funds to meet our obligations and maintain our
operations if all of the holders of the Notes were to request
redemption.  In addition to the Notes, there might be similar breaches
and violations of the terms of other of our agreements upon filing of the Form
15.





Risks Relating to Our
Business





Our limited operating history makes
it difficult for us to evaluate our future business prospects and make decisions
based on those estimates of our future performance.




Although
our management team has been engaged in the field of environmental remediation
for an extended period of time, VeruTEK-Delaware did not begin operations of its
current business concept until February 1, 2006. We have a limited operating
history in our current line of business, which makes it difficult to evaluate
our business on the basis of historical operations.  As a consequence,
it is difficult to forecast our future results based upon our historical
data. Because of the uncertainties related to our lack of historical
operations, we may be hindered in our ability to anticipate and timely adapt to
increases or decreases in sales, revenues or expenses.  If we make poor
budgetary decisions as a result of unreliable historical data, we could be less
profitable or incur losses, which may result in a decline in our stock
price.




Our
results of operations have not been consistent, and we may not be able to
achieve profitability.




We
incurred net losses that have resulted in an accumulated deficit of
approximately $11.9 million as of December 31, 2008. Our management believes
that our current business plan will be successful and that we will be able to
limit our losses; however, our business plan is speculative and unproven. 
There is no assurance that we will be successful in executing our business plan
or that even if we successfully implement our business plan, that we will be
able to curtail our losses now or in the future.  If we incur significant
operating losses, our stock price may decline, perhaps
significantly.




There
is substantial doubt about our ability to continue as a going concern as a
result of our cash flow challenges, sustained net losses, the lack of a
sufficient number of full scale remediation projects with adequate profit
margins and the fact that a relatively small number of customers comprise a
significant portion of our revenues and if we are unable to generate significant
revenue or alternative financing, we may be required to cease or curtail our
operations.




In
their report, dated March 27, 2009, prepared in conjunction with our
consolidated financial statements, our independent registered public accounting
firm included an explanatory paragraph stating that, because we have incurred
net losses,  and have an accumulated deficit, there is substantial
doubt about our ability to continue as a going concern.




We have
an accumulated deficit of approximately $11.9 million at December 31, 2008. Our
working capital of approximately $0.1 million at December 31, 2008 is net of
$1,546,818 of Notes and related warrants issued on May 9, 2007. The Notes are
reflected in the accompanying consolidated financial statements at their face
value of $1,635,000 less unamortized discounts related to the warrants and a
beneficial conversion feature. The Notes have been classified as a current
liability at December 31, 2008 due to their May 9, 2009 maturity date. The
Company is pursuing options for replacement financing and amendment or extension
of the Notes and there is no guarantee that the Company will be successful in
meeting the repayment obligations of the Notes when they come due. As is typical
with early stage growth companies, the Company’s recurring net losses have been
largely a result of business development expenses as well as investments in
infrastructure for growing the Company’s business and operations.  As
of December 31, 2008, we had secured one large project with Keyspan Corporate
Services LLC, or Keyspan, and eight relatively small projects for full scale
remediation projects (four of which are complete). We have not yet secured a
sufficient number of sufficiently profitable implementation projects to allow us
to achieve profitability. Securing a sufficient number of full scale remediation
projects at acceptable profit margins is critical to ensure our long-term
viability. These factors raise substantial doubt about our ability to continue
as a going concern.




The
financial statements do not include adjustments that might result from the
outcome of this uncertainty and if we are unable to generate significant revenue
and profit or alternative financing we may be required to cease or curtail our
operations.  If we do not secure projects for full scale environmental
remediation of sufficient size and profitability or if we do not secure
additional funding from other sources, we estimate current funding will sustain
our operations up to May 9, 2009 when the Notes are due.








11









We
are dependent upon two customers and if we are to lose any one of our customers
we may be forced to cease operations.





We have
two customers that accounted for 46% of our revenues for the year ended December
31, 2008.   If we are unable to develop additional customers or
lose one of our existing customers our operations may be severely impacted and
we may be forced to cease operations.




Our
management has limited experience in managing the day to day operations of a
public company and, as a result, we may incur additional expenses associated
with the management of our company.





Our
acquisition of VeruTEK-Delaware occurred on May 9, 2007. Following the
acquisition of VeruTEK-Delaware, the management team, consisting of John
Collins, George Hoag, and Michael Vagnini, is responsible for the operations and
reporting of the combined company. The requirements of operating as a small
public company are relatively new to the management team and the employees as a
whole. We have needed to obtain outside assistance from legal, accounting,
investor relations, and other professionals who have been, and could continue to
be, more costly than planned.  Any failure to comply with reporting
requirements and other provisions of securities laws could negatively affect our
stock price and adversely affect our results of operations, cash flow and
financial condition.







While
we believe that we currently have adequate internal control over financial
reporting, we must maintain adequate internal control over financial
reporting.




Until we
are no longer subject to the Exchange Act, Section 404 of the Sarbanes-Oxley Act
of 2002, or Section 404, requires our management to report on the
operating effectiveness of our internal controls over financial reporting. We
must maintain an ongoing program to perform the system and process evaluation
and testing necessary to comply with these requirements, which requires us to
incur expenses and to devote resources to Section 404 compliance on an ongoing
basis.




It is
difficult for us to predict if changes in circumstances or the nature of our
business and operations will require us to spend additional time and resources
to maintain the effectiveness of our internal control over financial
reporting and to remediate any deficiencies in our internal control over
financial reporting. As a result, we may not be able to complete the assessment
process on a timely basis. In the event that our Chief Executive Officer, Chief
Financial Officer or independent registered public accounting firm determine
that our internal control over financial reporting is not effective as defined
under Section 404, we cannot predict how regulators will react or how the market
prices of our shares will be affected.




We
are dependent on the environmental remediation industry, which has experienced
volatility in remediation spending.





We derive
the majority of our revenues from sales of services and products to the
environmental remediation industry. Purchases of our services may be deferred as
a result of many factors including mergers and acquisitions, regulatory
decisions, weather conditions, rising interest rates, clean-up specific
financial situations and general economic downturns. In the future, we may
experience variability in operating results, on both an annual and a quarterly
basis, as a result of these factors.




Environmental
remediation industry sales cycles can be lengthy and unpredictable, which can
cause delays in purchasing and variability to our financial projections and
could adversely affect our results of operations.





Sales
cycles with customers in the environmental remediation industry are generally
long and unpredictable due to a variety of factors including regulatory
processes, customers’ budgeting, purchasing and political influences.
Accordingly, realization of revenues from projects can take longer than
expected. Our remediation customers typically issue requests for quotes and
proposals, establish evaluation committees, review different technical options
with vendors, analyze performance and cost/benefit justifications and perform a
regulatory review, in addition to applying the normal budget approval process
within a company. Delays in completing these processes can cause delays in
purchasing and variability to our financial projections and could adversely
affect results of operations.







12









We
face competitive pressures from a variety of companies in the markets we serve
which may have an adverse effect on our operating results.





We are a
small company in a highly competitive market. Some of our present and potential
competitors have, or may have, substantially greater financial, marketing,
technical or manufacturing resources, and in some cases, greater name
recognition and experience than we have. Some competitors may enter markets we
serve and sell products at low prices in order to obtain market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements. They may also be able to devote greater
resources to the development, promotion and sale of their products and services
than we can. Current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties
that enhance their ability to address the needs of our prospective customers. It
is possible that new competitors or alliances among current and new competitors
may emerge and rapidly gain significant market share. Other companies may also
produce products or provide services that are equal or superior to our products
and services, which could reduce our market share, reduce our overall sales,
severely impair our ability to secure business and require us to invest
additional funds in new technology development. Our technology is new and we
have implemented or are currently implementing only one large scale remediation
project and eight relatively small projects for the full scale remediation of
contaminated environmental sites. We have not yet secured a sufficient number of
sufficiently profitable implementation projects to allow us to achieve
profitability. Securing a sufficient number of full scale remediation projects
at acceptable profit margins is critical to ensure our long-term
viability.  We may face competition from other environmental
remediation firms with alternative technologies that will be less costly to the
client and result in our inability to secure projects or result in our inability
to secure such projects at acceptable profit margins. If we cannot compete
successfully against current or future competitors, this will have a material
adverse effect on our business, financial condition, results of operations and
cash flow.




Our
financial forecasts may not be achieved as a result of the unpredictability of
customer buying patterns, which could make our stock price more
volatile.





We do not
maintain significant levels of backlog. Revenue in any year or quarter is
dependent, in significant part, on contracts entered into, booked and completed
in that period. Forecasts may not be achieved, either because expected sales are
delayed or do not occur or because they occur at lower prices or on terms that
are less favorable to us.




In
addition, fluctuations may be caused by a number of other factors,
including:




·
            the
      timing and volume of customer contracts, projects and customer
      cancellations;




·
            a
      change in our revenue mix of services and a resulting change in the gross
      margins;




·
            the
      timing and amount of our expenses;




·
            the
      introduction of competitive services or products by existing or new
      competitors;




·
            reduced
      demand for any given service or product;
and




·
            the
      market’s transition to new
technologies.




Due to
these factors, forecasts may not be achieved, either because expected revenues
do not occur or because they occur at lower prices, at later times, or on terms
that are less favorable to us. In addition, these factors increase the chances
that our results could diverge from the expectations of investors and analysts.
If so, the market price of our stock would likely decrease and may result in
shareholder lawsuits.




We
need to manage growth in operations to maximize our potential growth and achieve
our expected revenues and our failure to manage growth will cause a disruption
of our operations resulting in the failure to generate revenue.





In order
to maximize potential growth in our current and potential markets, we believe
that we must expand our sales and marketing operations, our field operations and
our laboratory operations. This expansion will place a significant strain on our
management team and our operational, accounting, and information systems. We
expect that we will need to continue to improve our financial controls,
operating procedures, and management information systems. We will also need to
effectively hire, train, motivate, and manage our employees. Our failure to
properly manage our growth could disrupt our operations and ultimately prevent
us from generating the revenues we expect.







13






If
we are not able to implement our strategies in achieving our business
objectives, our business operations and financial performance may be adversely
affected.




Our
business plan is based on circumstances currently prevailing and the assumptions
that certain circumstances will or will not occur, as well as the inherent risks
and uncertainties involved in various stages of development. However, there is
no assurance that we will be successful in implementing our strategies or that
our strategies, even if implemented, will lead to the successful achievement of
our objectives. If we are not able to successfully implement our strategies, our
business operations and financial performance may be adversely
affected.




If
we need additional capital to fund our growth, we may not be able to obtain
sufficient capital and may be forced to limit the scope of our
operations.





In
connection with our growth strategies, we may experience increased capital needs
and accordingly, we may not have sufficient capital to fund our future
operations without additional capital investments. Our capital needs will depend
on numerous factors, including the following:




·
            our
      profitability;




·
            the
      release of competitive products by our
  competition;




·
            the
      level of our investment in research and development;
  and




·
            the
      amount of our capital expenditures, including
  acquisitions.




We cannot
assure you that we will be able to obtain capital in the future to meet our
needs. If we cannot obtain additional funding, we may be required
to:




·
            limit
      our investments in research and
development;




·
            limit
      our marketing efforts; and




·
            decrease
      or eliminate capital expenditures.




Such
reductions could materially adversely affect our business and our ability to
compete.





Even if
we do find a source of additional capital, we may not be able to negotiate terms
and conditions for receiving the additional capital that are acceptable to us.
Any future capital investments could dilute or otherwise materially and
adversely affect the holdings or rights of our existing shareholders. In
addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to our common
stock. We cannot give you any assurance that any additional financing will be
available to us, or if available, will be on terms favorable to
us.




We
depend on our ability to develop and release new products and services from
development in a timely and consistent manner.





Our
products and services have only recently reached the point of commercialization,
been approved for use by regulatory authorities and still may require additional
and continuing development to become competitive with other competing products
and services. We expect to continue to make substantial investments in
technology development. Our future success will depend, in part, on our ability
to continue to design and provide new competitive products and services and to
enhance and sustain our existing products and services. This product and service
development will require continued investment in order to maintain and grow our
market position. We may experience unforeseen problems in the development or
performance of our technologies or products. In addition, we may not meet our
product and service development schedules. Finally, we may not achieve market
acceptance of our new products and solutions. These factors could materially
affect our ability to forecast operations and negatively affect our stock price,
results of operations, cash flow and financial condition.







14









Our
technology may have defects or we may not be able to achieve satisfactory
results which could lead to a loss of revenues or product liability
claims.





Our
products and services use complex development technologies and may contain
defects, especially when first introduced or when new technologies are
implemented. Despite laboratory testing, we may not detect defects in our new
products, services or technologies until after we have commenced commercial
implementation. In addition, we may not be able to achieve satisfactory results
in remediating client sites due to the complex nature of such sites and the
related contaminants. If defects are discovered or satisfactory results are not
achieved after commercial implementation of either new products or
services:




·
            potential
      customers may delay purchases;




·
            customers
      may react negatively, which could reduce future
  sales;




·
            our
      reputation in the marketplace may be
damaged;




·
            we
      may have to defend product liability
claims;




·
            we
      may be required to indemnify our customers, clients or
    others;




·
            we
      may incur additional service and warranty costs;
  and




·
            we
      may have to divert additional development resources to correct the
      defects, which may result in the delay of new product and technology
      implementations.




If any or
all of the foregoing occur, we may lose revenues, incur higher operating
expenses and lose market share, any of which could severely harm our financial
condition and operating results.





We
depend on a single, exclusive supplier for surfactants and a limited number of
suppliers for other chemicals which are a critical raw material in our
environmental solutions, and our inability to obtain sufficient supplies of this
raw material in a timely manner or at favorable prices could increase our prices
or otherwise harm our business.





Our
environmental solutions for complex environmental problems require
plant-derived, food-grade surfactants, for which we currently have an eight-year
exclusive relationship with a single manufacturer and
supplier.  Because we are dependent on this outside supplier for
surfactants and do not maintain an inventory of surfactants, we must obtain
sufficient quantities of quality surfactants from our supplier at acceptable
prices and in a timely manner.  This manufacturer and supplier could
discontinue manufacturing or supplying surfactants, experience interruptions in
their operations or raise their prices. We are also dependent on a limited
number of outside manufacturers and suppliers for other chemicals for which we
must obtain sufficient quantities of quality product from our suppliers at
acceptable prices and in a timely manner.  Any or all of these
manufacturers and suppliers could discontinue manufacturing or supplying
surfactants or these other chemicals, experience interruptions in their
operations or raise their prices.




A major
decline in our suppliers’ financial condition could cause a production slowdown
or stoppage.  As a result, our customers could cancel orders, which
could have a material adverse effect on our business and results of
operations.  Any of the foregoing could reduce our sales in a given
period, cause a loss of business to a competitor, or otherwise cause our
financial condition to suffer.




Moreover,
we may not be able to identify alternative sources of supply in a timely fashion
or at all and any relationship by us with such an alternative source could be
inconsistent with our ten-year exclusive relationship with our current
surfactant supplier or other chemical suppliers.  Any transition to
alternate suppliers may result in delays with respect to the performance of our
contracts with our customers or otherwise limit our ability to perform under
those contracts and could result in a breach of our arrangement with our current
surfactant supplier and other chemical suppliers.




We have a
long-term letter of understanding with our surfactant supplier and believe we
are on good terms with all suppliers.  However, we cannot be certain
that we will continue to have access to our current sources of supply of
surfactants and other chemicals or that we will not encounter supply problems in
the future.




Our
inability to maintain adequate manufacturer and supplier relationships due to
our financial position and working capital situation may limit the availability
of surfactants and other chemicals and impair our ability to implement contracts
with customers, which could adversely affect our financial
position.







15






We
are subject to regulatory compliance and we may incur substantial expenses in
complying with these regulations





We are
subject to various governmental regulations including those related to
occupational safety and health, labor and wage practices and regulations
regarding the performance of certain engineering services. Failure to comply
with current or future regulations could result in the imposition of substantial
fines, suspension of production, alteration of our production processes,
cessation of operations or other actions, which could materially and adversely
affect our business, financial condition and results of operations.




Our
operating results may be adversely affected by the uncertain geopolitical
environment and unfavorable factors affecting economic and market
conditions.





Adverse
factors affecting economic conditions worldwide have contributed to a general
inconsistency in environmental remediation spending and may continue to
adversely impact our business, resulting in:




·
            Reduced
      demand for our products or services as a result of a decrease in spending
      by our customers and potential
customers;




·
            Increased
      price competition for our products and services;
  and




·
            Higher
      overhead costs as a percentage of
  revenues.




Terrorist
and military actions may continue to put pressure on economic conditions. If
such an attack should occur or if the economic and market conditions in the
United States deteriorate as a result of a terrorist attack, we may experience a
material adverse impact on our business, operating results, and financial
condition as a consequence of the above factors or otherwise.




Stockholders
may experience significant dilutions if future equity offerings are used to fund
operations or acquire complimentary businesses.





If future
operations or acquisitions are financed through the issuance of equity
securities, stockholders could experience significant dilution. In addition,
securities issued in connection with future financing activities or potential
acquisitions may have rights and preferences senior to the rights and
preferences of our common stock. We have established an incentive stock award
plan for management and employees. We have granted options to purchase shares of
our common stock to our directors, employees and consultants and we will grant
additional options in the future. The issuance of shares of our common stock
upon the exercise of these options may result in dilution to our
stockholders.




We
may have difficulty defending our intellectual property rights from infringement
resulting in lawsuits requiring us to devote financial and management resources
that would have a negative impact on our operating results.





We regard
our service marks, trademarks, trade secrets, patents and similar intellectual
property as critical to our success. We rely on trademark, patent and trade
secret law, as well as confidentiality and license agreements with certain of
our employees, customers and others to protect our proprietary rights. No
assurance can be given that our patents and licenses will not be challenged,
invalidated, infringed or circumvented, or that our intellectual property rights
will provide competitive advantages to us.




If
our patents do not protect our environmental remediation processes, or our
environmental remediation processes infringe third-party patents, we could have
difficulty protecting our technology or be subject to litigation and
liability.





We have
several patent applications pending in the United States, and intend to file
others.  Our success will depend, in part, on our ability to obtain
and maintain United States patent protection for our environmental remediation
chemicals, methods and processes.  We do not know whether any patents
will issue from any of our patent applications or, even if patents issue or have
issued, that the issued claims will provide us with any significant protection
against competitive products or otherwise be valuable
commercially.  If we are not able to obtain adequate patent
protection, our ability to prevent competitors from making, using and selling
similar environmental remediation chemicals, methods and/or processes may be
limited.  Furthermore, in a competitive environmental remediation
market, our activities may infringe the claims of patents held by third
parties.  Defense and prosecution of infringement or other
intellectual property claims, as well as participation in other inter-party
proceedings, can be expensive and time-consuming, regardless of whether or not
the outcome is favorable to us.  If the outcome of any such litigation
or proceeding were adverse, we could be subject to significant liabilities to
third parties, could be required to obtain licenses from third parties, or could
be required to cease sales of our environmental remediation chemicals, methods
and/or processes, any of which outcomes could have a material adverse effect on
our business.




16












Our
executive officers, board of directors and key employees are crucial to our
business, and we may not be able to recruit, integrate and retain the personnel
we need to succeed.




Our
success depends upon a number of key management, sales, technical and other
critical personnel, including our Chief Executive Officer, Director or Research
and Development and Chief Financial Officer, the members of our Board of
Directors and other key employees. The loss of the services of any key
personnel, or our inability to attract, integrate and retain highly skilled
technical, management, sales and marketing personnel could result in significant
disruption to our operations, including the timeliness of new product
introductions, success of product development and sales efforts, quality of
customer service, and successful completion of our initiatives, including growth
plans and the results of our operations. Any failure by us to find suitable
replacements for our key senior management may be disruptive to our operations.
Competition for such personnel in the technology industries is intense, and we
may be unable to attract, integrate and retain such personnel
successfully.




Our
bylaws provide that we may indemnify our officers and directors which may
result in significant expenditures for our Company, which may further exacerbate
our losses.





Our
bylaws essentially provide that we shall indemnify our directors, officers,
employees, and agents to the fullest extent permitted by Nevada law. We will
also bear the expenses of litigation for any of our directors, officers,
employees, or agents. This indemnification policy could result in substantial
expenditures which we may be unable to recoup.




We
are subject to certain restrictions and covenants under our Securities Purchase
Agreement with the holders our Notes and related warrants.





Pursuant
to that certain Securities Purchase Agreement that we entered into with
investors in May 2007, we are subject to certain restrictions and covenants,
including, among others, covenants prohibiting us from selling all or
substantially all of our assets except to certain purchasers, limiting our
ability to incur indebtedness or issue securities, prohibiting us from amending
or modifying our governing documents, and granting certain rights of first offer
to such investors with respect to certain issuances of our securities. These
restrictions and covenants may have the effect of delaying, deterring or
preventing certain transactions and activities by us, which could adversely
affect our results of operations, cash flow and financial
condition.




If
we breach our registration rights agreement with certain of our investors, we
could be subject to penalties or liabilities that could have a material adverse
effect on our business.





We
previously agreed to effect the registration of shares of our common stock
issuable upon the conversion of the Notes and the related warrants under the
Securities Act of 1933, as amended, or Securities Act, pursuant to a
registration rights agreement. On January 18, 2008, the SEC declared effective
our registration statement with respect to 3,270,327 shares of our common stock,
which included shares of common stock subject to the registration rights
agreement issuable upon the conversion of the Notes and related warrants. The
January 18, 2008 registration did not meet the requirement under the
registration rights agreement dated May 9, 2007. Under the May 9, 2007
registration rights agreement, the registration statement was to be declared
effective within 180 days following May 9, 2007. However, we did receive
consents we believe extended the registration deadline from investors comprising
approximately 70% of the shares of common stock issuable under the issued and
outstanding Notes and warrants. Accordingly, we provided an accrued liability of
$24,250 for penalties related to the Notes for which holders did not provide
consents extending this deadline.  (See “Management’s Discussion and
Analysis or Plan of Operation – Liquidity and Capital Resources” included in our
Form 10-Q for the quarterly period ended June 30, 2008.)




We have
also agreed to effect the registration of 5,693,904 shares of common stock and
3,100,768 warrants to purchase shares of common stock, each issued in
conjunction with a May 2008 private placement. On October 27, 2008, the SEC
declared effective our registration statement with respect to 5,693,904 shares
of common stock and 3,100,768 warrants to purchase shares of common stock. The
registration of these shares of common stock and warrants to purchase shares of
common stock was completed within the time allowed under the registration rights
agreement.




To the
extent that we fail to meet any other requirements under the registration rights
agreement, we could be subject to additional penalties or liabilities, which
could have a material adverse effect on our business.




Risks Relating to Our Common
Stock





We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.





We have
never paid cash dividends on our common stock and do not anticipate paying cash
dividends in the foreseeable future. The payment of dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors affecting it at such time as the board of directors may
consider relevant. If we do not pay dividends, our common stock may be less
valuable because a return on your investment will only occur if its stock price
appreciates.






17






The
issuance of shares upon conversion of the Notes and exercise of outstanding
warrants issued to the investors may cause immediate and substantial dilution to
our existing stockholders.





The
issuance of shares upon conversion of the Notes and exercise of warrants may
result in substantial dilution to the interests of other stockholders since the
investors may ultimately convert and sell the full amount issuable on
conversion. Although the investors may not convert or exercise their Notes and
common stock purchase warrants if such conversion would cause them to own more
than 9.99% of our outstanding common stock, this restriction does not prevent
the investors from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the investors could sell
more than their 9.99% limit while never holding more than 9.99%.




Our
management controls a significant percentage of our common stock, and their
interests may conflict with those of our other stockholders.





Two of
our executive officers, John Collins, who is our President, Chief Executive
Officer, and Director, and George Hoag, who is our Senior Vice President,
Research and Development, together with their affiliates, collectively and
beneficially own or control approximately 49% of our common stock, as of
January 31, 2008.  The concentration of voting control
represented by these holdings gives Messrs. Collins and Hoag and their
respective affiliates substantial influence over, and the potential ability to
control, any matters which require a stockholder vote (which under Nevada law
can in certain circumstances be held without a meeting), including, without
limitation, the election of our directors, amendments to our articles of
incorporation, going private transactions, and the approval of mergers or other
business combination transactions.  The ownership positions of these
stockholders may have the effect of delaying, deterring or preventing a change
in the composition of our board of directors or a change in control transaction,
including a transaction in which the holders of the common stock might receive a
premium on their shares over a prevailing market
price.  Alternatively, such concentration of ownership could result in
us undertaking certain types of transactions, including change of control
transactions that it might not otherwise pursue.




The
interests of Messrs. Collins and Hoag, in their capacity as our stockholders,
may not always coincide with our interests or the interests of other
stockholders and they may act in their capacity as our stockholders in a manner
that advances their best interests as stockholders and not necessarily those of
our other stockholders.  Sales of a significant number of shares of
our common stock by Messrs. Collins or Hoag, or the expectation that such sales
may occur, could also significantly reduce the market price of our common
stock.




Our
common stock is subject to the “Penny Stock” rules of the SEC and the trading
market in our securities is limited, which makes a transaction in our stock
cumbersome and may reduce the value of an investment in our stock.





The SEC
has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for
the purposes relevant to us, is any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than $5.00 per
share, subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, Rule 15g-9 requires:




·
            that
      a broker or dealer approve a person's account for transactions in penny
      stocks; and




·
            the
      broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.




In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            obtain
      financial information and investment experience objectives of the person;
      and




·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.




The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:





·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and




·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.




Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.




Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.









18










Item 1B. Unresolved Staff Comments





Not
applicable.




Item 2.   Properties





The
Company’s principal executive offices and laboratory facilities are located at
65 West Dudley Town Road, Suite 100, Bloomfield, Connecticut, 06002. The
location contains approximately 8,800 square feet of space which is leased.
Approximately one half of the space is office space, approximately 25% comprises
laboratory facilities, and approximately 25% is warehouse and storage space. The
term of the lease runs to July 31, 2012 with an option to extend the term for an
additional five years. We believe the facilities will adequately meet the needs
of the Company for at least the next year and possibly longer.




Item 3.   Legal Proceedings





It is
possible we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. Litigation is subject to inherent
uncertainties, and an adverse result may arise from time to time that may harm
our business. We are currently not aware of any legal proceedings or claims that
we believe will have, individually or in the aggregate, a material adverse
affect on our business, financial condition or operating results.





Item 4. Submission of Matters to a Vote of Security
Holders





There
were no matters submitted to a vote of security holders of the Company through
the solicitation of proxies or otherwise during the fourth quarter of the year
ended December 31, 2008.








19








PART
II








Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities





Following
the May 9, 2007 share exchange, the Company’s common stock was quoted for
trading on May 17, 2007 on the OTCBB under the symbol “VTKT”. Prior to May 17,
2007, there was no active market for the common stock of
VeruTEK-Delaware.





For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock as quoted on the OTCBB during each indicated quarter.
These prices represent inter-dealer quotations without retail markup, markdown,
or commission and may not necessarily represent actual
transactions.





Fiscal
      2008COMMON
      STOCK
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    5.00
                    
                    
                    $
                    1.25Second
      Quarter
                    
                    
                    2.45
                    
                    
                    
                    0.60Third
      Quarter
                    
                    
                    1.30
                    
                    
                    
                    0.61Fourth
      Quarter
                    
                    
                    0.75
                    
                    
                    
                    0.20








Fiscal
      2007COMMON
      STOCK
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    --
                    
                    
                    $
                    --Second
      Quarter
                    
                    
                    3.25
                    
                    
                    
                    .05Third
      Quarter
                    
                    
                    15.00
                    
                    
                    
                    2.30Fourth
      Quarter
                    
                    
                    4.25
                    
                    
                    
                    2.00





As of
March 20, 2009, we believe our shares of common stock were held by approximately
99 stockholders of record. We believe that the number of beneficial owners is
substantially greater than the number of record holders because a significant
portion of our outstanding common stock is held of record in broker “street
names” for the benefit of individual investors. The transfer agent of our common
stock is Island Stock Transfer.





Securities Authorized for
Issuance Under Equity Compensation Plans





The
following table provides information about the securities authorized for
issuance under our 2008 Stock Incentive Plan, or the Plan, as of December 31,
2008. The Plan was approved by our Board of Directors on March 27, 2008 and our
stockholders on February 3, 2009.





(a)
                                                                                                                                              
                                                                                                                                              (b)
                                                                                                                                              
                                                                                                                                              (c)Number
      of securities to be issued upon exercise of outstanding options,
      warrants and rights
                                                                                                                                              
                                                                                                                                              Weighted-average
      exercise price of outstanding options, warrants and rights
                                                                                                                                              
                                                                                                                                              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflectedin column (a))Equity
      compensation plans approved by security holders
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              1,220,879
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              1.21
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              779,121Equity
      compensation plans not approved by security holders
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              -
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              -
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              -Total
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              1,220,879
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              1.21
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              779,121







20








Dividends





We have
never paid cash dividends and have no plans to do so in the foreseeable future.
Our future dividend policy will be determined by our board of directors and will
depend upon a number of factors, including our financial condition and
performance, our cash needs and expansion plans, income tax consequences, and
the restrictions that applicable laws and our credit arrangements then
impose.





Unregistered Sales of Equity
Securities





On
October 7, 2008, we issued a warrant to purchase 253,816 shares of our common
stock to Needham & Company, the placement agent for our May 2008 private
placement.  The warrant was issued as compensation for their services,
and we did not receive any additional cash in return for its
issuance.  The warrant has an exercise price of $1.10 per share, will
expire on May 30, 2013 and may be exercised for cash or by means of a cashless
exercise.  The warrant was issued pursuant to the exemption from
registration provided under Rule 506 of the Securities Act.





During
the three-month period ended December 31, 2008, we issued 50,000 shares of
common stock upon the conversion of $50,000 of Notes by the holder
thereof.  No additional consideration was paid by the note holder in
connection with the issuance of such shares of common stock, and such shares
were issued pursuant to the exemption from registration provided under Rule 506
of the Securities Act.





Item 6.   Selected Financial Data





Pursuant
to Item 301(c) of Regulation S-K, the Company, as a smaller reporting company,
is not required to provide the information required by this item.





21






Item 7.   Management’s Discussion and Analysis of
Financial Condition and Results of Operations





FORWARD LOOKING STATEMENTS –
CAUTIONARY STATEMENTS





This Form
10-K contains certain "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Specifically, all
statements other than statements of historical facts included in this report
regarding the Company’s financial position and business strategy and the plans
and objectives of the Company's management for future operations are
forward-looking statements. These forward-looking statements are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," "intend," and
words or phrases of similar import, as they relate to the Company or Company
management, are intended to identify forward-looking statements. Such cautionary
statements reflect the current view of the Company's management with respect to
future events and are subject to risks, uncertainties, and assumptions related
to various factors including, without limitation, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
product introductions and acceptance, technological change, changes in industry
practices, one-time events and other risks identified elsewhere herein. Although
the Company believes that expectations are reasonable, it can give no assurance
that such expectations will prove to be correct. Based upon changing conditions,
should any one or more of these risks or uncertainties materialize, or should
any underlying assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected, or
intended. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the applicable cautionary statements. The Company
does not assume any responsibility to publicly update any of its forward-looking
statements regardless of whether factors change as a result of new information,
future events, or for any other reason. The Company advises you to review any
additional disclosures made in the reports that it files with the
SEC.





OVERVIEW





The
Company was formed to develop and commercialize new technologies in the field of
environmental remediation. The Company provides technical and consulting
services to clients to resolve complex environmental remediation matters at a
wide range of waste sites, principally by combining surfactant and oxidant
chemistries.





The
accompanying consolidated financial statements reflect the consolidated accounts
of VeruTEK-Nevada and its wholly owned subsidiary, VeruTEK-Delaware. All
significant inter-company balances and transactions have been eliminated in
consolidation





Going
Concern





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business.  As shown in the accompanying consolidated financial
statements, the Company had an accumulated deficit of approximately $11.9
million at December 31, 2008. Our working capital of approximately $0.1 million
at December 31, 2008 is net of approximately $1.5 million of Notes and related
warrants issued on May 9, 2007. The Notes are reflected in the Company’s
consolidated financial statements at their face value of approximately $1.6
million less unamortized discounts related to the warrants and a beneficial
conversion feature. The Notes have been classified as a current liability at
December 31, 2008 due to their May 9, 2009 maturity date. The Company is
pursuing options for replacement financing and amendment or extension of the
Notes and there is no guarantee that the Company will be successful in meeting
the repayment obligations of the Notes when they come due.   As
is typical with early stage growth companies, the Company’s recurring net losses
have been largely a result of business development expenses as well as
investments in infrastructure for growing the Company’s business and
operations.  The possible continuation of net losses and the
accumulated deficit raise substantial doubt about the Company’s ability to
continue as a going concern.  The financial statements do not include
adjustments that might result from the outcome of this uncertainty.





Management
believes that the Company will be successful in its efforts to adequately meet
its capital needs and continue to grow its business, but, in order to do so, the
Company will need to, among other things, extend or refinance the Notes or
obtain new financing to pay off the Notes, in the short term, and increase its
revenue with adequate profit margins, in the longer term. Although the Company
is pursuing such options, there is no guarantee that the Company will
successfully complete any or all of these actions. During May 2008, the Company
completed a private placement raising approximately $6.3 million (before
transaction related expenses) in funds from 41 institutional and accredited
investors and 3 directors of the Company. Transaction expenses directly related
to the private placement were approximately $0.5 million. At December 31, 2008,
the Company is holding approximately $2.6 million in cash and cash equivalents
which will be utilized to support future operations. The Company estimates
current funding will sustain its operations through May 9, 2009.





22








Revenues





The
Company generates revenue by providing technical services related to
environmental remediation. Revenues result from the implementation of projects
to remedy contaminated sites, treatability and pilot studies to evaluate
potential remedies, and consulting services related to environmental
remediation. The Company is using engineering optimization, treatability
studies and pilot studies to successfully demonstrate its capabilities in
customizing remedies to address environmental remediation issues and thereby
secure much larger contracts for full scale remediation of environmental issues
at client sites. The Company is continuing to pursue such opportunities. As of
December 31, 2008, the Company had secured one large project with Keyspan and
eight relatively small commitments for full scale remediation projects. Securing
a sufficient number of full scale remediation projects at acceptable profit
margins is critical to ensure the long-term viability of the
Company.





On March
3, 2008, the Company and Keyspan entered into an agreement (the “Agreement”),
pursuant to which the Company agreed to provide Keyspan with professional
services for the purpose of implementing the Company’s S-ISCO remedial measures
at Operable Unit number 4 (“OU-4”) Cesspool area of the Bay Shore former MGP
site in Bay Shore, New York.  The Company’s services are being
performed in accordance with the New York State Department of Environmental
Conservation approved Bay Shore/Brightwaters Former MGP Site OU-4, Former
Cesspool, S-ISCO Work Plan, dated February 19, 2008.  The Company’s
work under this Agreement focuses on the Company’s implementation of S-ISCO at
the former OU-4 cesspool area to remediate the MGP-related
impacts.  The Agreement contains customary terms and conditions as
applied to independent contractors of professional services, including, but not
limited to, warranties by the Company regarding the performance of its services
in a workmanlike and professional manner, covenants regarding the Company’s
compliance with applicable law, indemnification of Keyspan by the Company with
respect to, among other things, materials, goods, work and services provided by
the Company pursuant to the Agreement, and non-disclosure obligations under the
Agreement.  The term of the Agreement will remain in effect until
December 31, 2009, unless extended or earlier terminated pursuant to the
Agreement’s terms.  The Agreement may be terminated in connection with
certain specified events of default, including, but not limited to, any failure
by the Company to perform any material covenant for period of thirty (30) days
after notice of such failure and any breach by the Company of its non-disclosure
obligations under the Agreement.  Keyspan may also terminate the
Agreement for convenience upon ten days prior written notice.








LIQUIDITY AND CAPITAL
RESOURCES





Financing and Bank
Default





During
May 2008, the Company closed a private placement with 41 institutional and
accredited investors and three of its directors. This private placement
consisted of a sale of 2,846,952 units, each consisting of two shares of the
Company’s common stock (the “Shares”) and one warrant to purchase a share of the
Company’s common stock (an “Investor Warrant”, and together with the Shares, a
“Unit”), at a price of $2.20 per Unit for gross aggregate proceeds of
approximately $6.2 million (the “Financing”).  Transaction expenses
directly related to the Financing were $525,547. In addition, on October 7,
2008, the Company issued a warrant to purchase 253,816 shares of the Company’s
common stock to the Company’s placement agent for the transaction, Needham &
Company LLC (the “Agent Warrant”).  Each Investor Warrant has an
exercise price of $1.30 per share and the Agent Warrant has an exercise price of
$1.10 per share, each of which is subject to certain adjustments as set forth in
the respective warrant agreements.  The warrants may be exercised by
means of a cashless exercise. The Investor Warrants will expire five years from
the date of issuance and the Agent Warrant will expire on May 30, 2013. The
Company has concluded that the terms of the Investor Warrants and Agent Warrant
meet the tests of EITF Issue 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”
(“EITF 00-19”), for equity classification.





In
connection with the closing of the Financing, the Company entered into a
registration rights agreement with the purchasers.  Under the terms of
the registration rights agreement, the Company agreed to file a registration
statement with the SEC for the resale of the Shares issued in the Financing as
well as the shares of the Company’s common stock underlying the warrants issued
in the Financing. Failure to file the registration statement within 150 days
from the closing of the Financing would have resulted in payment by the Company
to each investor of liquidated damages, subject to limitations set forth in the
registration rights agreement. These liquidated damages would have been payable
in the event that the resale registration statement had not been declared
effective within certain time periods or if sales could not have been made
pursuant to the registration statement following its effectiveness, each as
described in the registration rights agreement. The Company’s registration
statement was filed on October 9, 2008, within 150 days of the closing of the
Financing as required under the registration rights agreement. In addition, the
registration statement was declared effective by the SEC on October 27, 2008,
which was within the time period allowed under the registration rights
agreement. Accordingly, the registration of these shares of common stock and
warrants to purchase shares of common stock was completed within the time
allowed in accordance with the registration rights agreement.







23








On
October 17, 2007, the Company completed a private placement of investment units
to accredited investors at the price of $1.50 per investment unit. Each
investment unit is comprised of one share of common stock; a five year
non-callable warrant to purchase one share of common stock at an exercise price
of $1.80 per share; and a five year non-callable warrant to purchase one share
of common stock at an exercise price of $2.10 per share. The Company raised
approximately $1.9 million (net of $125,648 transaction related expenses) from
approximately 29 accredited investors, who were issued 1,373,334 of the
aforementioned investment units. There were no underwriting discounts or
commissions incurred in the transaction. The securities issued in conjunction
with the transaction are not subject to any registration rights.





On May 9,
2007, the Company issued $1,685,000 of the Notes which are convertible into
1,685,000 shares of common stock, and detachable warrants to purchase 842,500
shares of common stock, which are exercisable for a 5 year period at an exercise
price of $1.20 per share. Gross proceeds amounted to $1,685,000 and net proceeds
amounted to approximately $1.5 million. Gross proceeds were allocated to the
Notes and warrants, respectively. The amount allocated to the Notes was
$1,396,767 and resulted in a beneficial conversion discount of $151,650.
The beneficial conversion discount is being amortized to interest
expense over the term of the Notes. The $288,233 allocated to the
warrants was recorded as a discount to the Notes and as a derivative
instrument liability as of the issue date in accordance with EITF 00-19. The
$288,233 discount to the Notes is being amortized to interest expense over the
life of the Notes. The warrants are subject to mark-to-market adjustment in each
period. As a result, for the year ended December 31, 2008, the Company
recognized a pre-tax benefit for derivative instrument income of $2,013,000. The
resulting derivative instrument liability was $154,000 at December 31,
2008.  For the year ended December 31, 2007, the Company recognized a
pre-tax charge for derivative instrument expense of $1,878,767. The resulting
derivative instrument liability at December 31, 2007 was $2,167,000. The fair
value of the warrants was determined by using the Black-Scholes model assuming a
risk free interest rate of 1.1%, volatility of 103% and an expected life equal
to the May 9, 2012 contractual life of the warrants. The Notes mature on May 9,
2009, and accordingly have been classified as a current liability in the
December 31, 2008 consolidated balance sheet. Although the Company is pursuing
options for replacement financing and amendment or extension of the Notes, there
is no guarantee that the Company will be successful in meeting the repayment
obligations of the Notes when they come due.




During
the year ended December 31, 2008, $50,000 of the Notes issued on May 9, 2007
were converted to 50,000 shares of common stock. There were no conversions
during the year ended December 31, 2007.




The
Company agreed to effect the registration of the shares to be issued upon the
conversion of the Notes and warrants under the Securities Act pursuant to a
registration rights agreement. The registration rights agreement required the
Company to file a registration statement and have such registration statement
declared effective within 60 and 180 days, respectively, following the May 9,
2007 closing for the Notes.  In the event that the Company failed to
file by the required filing deadline or if such registration statement was not
declared effective by the required effective deadline, then the Company was
required to make cash payments to holders of the Notes equal to 2% of the
purchase price for each relevant 30 day period, prorated for partial
periods.  However, the Company was entitled to suspend its filing and
effective deadline for a period of 10 consecutive business days under certain
circumstances.  The Company did not file its initial registration
statement until July 20, 2007, which was not within the 60 day period allowed
under the registration rights agreement.  The Company believes it was
entitled to suspend the filing of such registration period and, as a result,
does not owe a cash penalty in accordance with this provision of the
registration rights agreement.




The
Company received a notice of effectiveness from the SEC on January 18, 2008 for
registration of 3,270,327 shares of the Company’s common stock. This
registration did not meet the requirement under the registration rights
agreement for the registration statement to be declared effective within 180
days following the May 9, 2007 closing for the Notes. However, the Company
received consents extending the registration deadline from investors comprising
approximately 70% of the issued and outstanding Notes and warrants. Accordingly,
the Company has provided an accrued liability of $24,250 for penalties related
to those Notes and warrants for which holders did not provide consents extending
this deadline.  In addition, in the event that sales of shares related
to the Notes or warrants issued on May 9, 2007 cannot be made pursuant to the
registration statement after it has been declared effective, or the Company is
required to file an amendment or supplement (or a new registration statement)
with certain timing exceptions, the Company is required to make cash payments to
the holders of the Notes equal to 2% of the purchase price for each 30 day
period, prorated for partial periods. The Company does not currently believe it
is probable that it will incur these penalties under the registration rights
agreement and consequently has not recorded a provision for these
penalties.





The
Company has a term note (the “Term Note”) from Webster Bank (the “Bank”) that
matures on August 16, 2011. Payments of principal and interest on the Term Note
total $1,728 per month. The outstanding balance due on the Term Note as of
December 31, 2008 was $48,363. As a result of the issuance of the Notes on May
9, 2007, the Company has been in default of certain provisions of the Term Note.
As a result, at the option of the Bank, the stated interest rates for the Term
Note could be increased to 13.5% and all interest and principal would become due
and payable immediately. As a result, the amount outstanding under the Term Note
has been classified as a current liability. As of the date of this filing, the
Company has not received any notice that the Bank has elected to increase the
interest rate or accelerate the repayment of the Term Note. The Term Note is
guaranteed by certain officers and a director of the Company.








24





Commitments





The
Company entered into a lease agreement for office and lab facilities commencing
August 1, 2007 and continuing for a 5 year term with an option to renew for a
further 5 years. The lease agreement requires annual rental payments ranging
from $38,000 in year one to $42,000 in year five. In addition, the Company is
responsible for maintenance, taxes, insurance and other costs related to the
facility. The Company has capitalized $116,380 in leasehold improvement costs
through December 31, 2008 to complete its renovation plan for the initial
occupation of the facility.





The
Company does not have any off-balance sheet arrangements.




Officer
Compensation





The
Company has employment agreements effective May 4, 2007 with Mr. John Collins,
President and Chief Executive Officer, and Mr. George Hoag, Senior Vice
President, Research and Development, and an employment agreement effective May
14, 2007 with Mr. Michael F. Vagnini, Senior Vice President and Chief Financial
Officer. The agreements with Mr. Collins and Mr. Hoag expire on December 31,
2016 and the agreement with Mr. Vagnini is an “at-will” agreement. Mr. Collins’
agreement includes a base salary of $250,000 per annum, Mr. Hoag’s agreement
includes a base salary of $350,000 per annum and Mr. Vagnini’s agreement
includes a base salary of $200,000 per annum.  Mr. Collins and Mr.
Hoag are also owed $300,000 each as deferred compensation to be paid at a future
unspecified date. These amounts, totaling $600,000, are included in due to
officers/directors in the accompanying balance sheets. Mr. Vagnini’s
agreement also included a grant of 506,051 shares of restricted common stock
that will vest over future periods. As of December 31, 2008, 272,489 shares had
vested. Mr. Vagnini would forfeit the 233,562 remaining unvested shares should
his employment with the Company terminate. Mr. Vagnini will have 116,781 shares
vesting on February 5, 2009 and 116,781 shares vesting on February 5, 2010. (See
Note 9 to the consolidated financial statements for further discussion of common
stock grants.)





The
agreements also include the following benefits and payments:





a.
              annual
      incentive payments equal to a maximum of 50% of base salary to be paid at
      the discretion of the  Board of Directors;b.
              participation
      in any future stock option program offered by the Company if their
      respective equity holding is less than 10% of the total equity of the
      Company;c.
              participation
      in a profit sharing plan if approved and implemented by the Board of
      Directors;d.
              twenty
      days of paid vacation annually;e.
              an
      automobile allowance of $750 per month for Mr. Hoag; andf.
              severance
      in the event of a termination (or effective termination) that is not for
      cause in the amount of one year’s salary for Mr. Collins and Mr. Hoag,
      which coincides with the terms of their non-compete agreements, and 90
      days’ salary for Mr. Vagnini.




On April
10, 2008, the Board of Directors of the Company approved the grant of incentive
stock options to purchase 50,000 shares of the Company’s common stock to Mr.
Vagnini.  The options were granted pursuant to the
Plan.  The options will vest in equal yearly increments over a
five-year period beginning the first anniversary of the initial grant date and
will expire on April 10, 2014.  The exercise price per share payable
upon the exercise of the options will be $1.25.




Director
Compensation





On April
10, 2008, the Board of Directors of the Company approved a grant of nonqualified
stock options to purchase 745,879 shares of the Company’s common stock
(collectively, the “Non-Employee Director Options”) to three non-employee
directors of the Company (collectively, the “Non-Employee
Directors”).  In connection with the grant of the Non-Employee
Director Options, the Board also adjusted previously disclosed non-employee
director compensation for 2008, determining that, effective as of January 1,
2008, the 2008 non-employee director cash compensation will be a monthly
retainer of $2,000 and a per meeting fee of $1,000.  Previously
disclosed compensation for 2008 for the chairman was to have been an aggregate
stipend of $60,000 for all services to be rendered as a director of the Company,
an aggregate stipend of $74,000 for all services rendered as Chair of the Board
and for all services rendered as chair of such committee(s) of the Board as the
Board may from time to time request, and aggregate fees of $16,000 for
attendance (either in person or by telephone) at Board and/or Board committee
meetings. Previously disclosed compensation for 2008 for the two other
Non-Employee Directors would have had each receiving an aggregate stipend of
$60,000 for all services to be rendered as a non-employee director of the
Company, an aggregate stipend of $24,000 for services as chair of such
committee(s) of the Board as the Board may from time to time request, and
aggregate fees of $16,000 for attendance (either in person or by telephone) at
Board and/or committee meetings.







25






The
Non-Employee Director Options were granted pursuant to the Plan.  The
Non-Employee Director Options will vest in approximately equal yearly increments
over a three-year period beginning on the first anniversary of the initial grant
date and will expire on April 10, 2012.  The exercise price per share
payable upon the exercise of each of the Non-Employee Director Options is
$1.25.





Stipends,
fees and the composition of the compensation of the Board are subject to review
by the Board from time to time.




Cash Flows Provided By /
Used In Operations





Net cash
used in operations was $3,529,997 for the year ended December 31, 2008. The use
of cash was primarily a result of operating losses incurred by the Company. The
Company’s net loss of $1,796,459 was net of a non-cash benefit of $2,013,000 to
mark a derivative instrument liability to market. This was partially offset by
non-cash charges of $117,139 for depreciation and amortization, $58,655 for
amortization of debt issue costs, $151,152 for the amortization of debt
discounts related to warrants, $79,526 for the amortization of a beneficial
conversion discount and $320,137 for employee stock compensation expense. An
increase in accounts receivable of $345,880 which resulted from increased
business activity and associated revenues had an adverse impact on cash flow.
Cash flow was also adversely impacted by a $118,441 decrease in accrued payroll
and benefits, a $57,572 decrease in customer deposits and a $42,209 decrease in
other current liabilities. The decrease in other current liabilities primarily
resulted from payments for accrued professional services. Partially offsetting
these adverse impacts was a $132,555 increase in accounts payable which
primarily resulted from payables associated with increased levels of business
activity.





Net cash
used in operations was $2,088,926 for the year ended December 31, 2007. The use
of cash was primarily a result of operating losses incurred by the Company. The
Company’s net loss of $5,888,032 from operations included non-cash charges of
$1,878,767 to mark a derivative instrument liability to market, $874,709 for
employee stock compensation expense, $242,068 for the amortization of
beneficial conversion discounts, $79,300 for amortization of debt discounts
related to warrants, $148,567 for non-cash interest expense related to warrant
issuances, $95,773 for the amortization of debt issuance costs, $41,890 for
depreciation and amortization and $20,833 for interest paid for by the issuance
of common stock. Cash used in operations was partially offset by a $94,369
reduction in accounts receivable, a $55,314 increase in accounts payable, an
$87,500 increase in customer deposits and a $224,934 increase in other current
liabilities. The decrease in accounts receivable resulted from a decline in
revenues. Increases in accounts payable and other current liabilities resulted
primarily from higher expenses and the timing of payments.




Cash Flows Provided By /
Used In Investing and Financing Activities





Net cash
used in investing activities for the year ended December 31, 2008 amounted to
$800,767. Expenditures were related to the construction and purchase of
machinery and equipment ($403,459), the purchase of lab equipment ($339,141),
leasehold improvements ($34,325) and the purchase of office furniture and
equipment ($23,842).





Net cash
used in investing activities for the year ended December 31, 2007 amounted to
$219,466. Expenditures amounted to  $94,776 for machinery and
equipment, $82,055 for leasehold improvements and $42,635 for other assets
including furniture, office equipment and laboratory equipment.





Cash
provided by financing activities for the year ended December 31, 2008 of
$5,783,194 included $6,263,294 in gross proceeds from the Financing. These
proceeds were partially offset by $459,967 in payments directly related to the
Financing and $20,133 for repayments of long-term debt.





Cash
provided by financing activities for the year ended December 31, 2007 of
$3,422,748 included $2,060,001 in gross proceeds from the October 17, 2007 sale
of equity securities, $1,685,000 in gross proceeds from the Notes issued on May
9, 2007 and $510,000 in proceeds from the January 4, 2007 Bridge Loan. These
proceeds were partially offset by the $349,407 repayment of the Company’s
revolving credit facility, $140,000 in debt issuance cost payments, $198,568 in
payments directly related to the May 9, 2007 share exchange and $125,648 in
payments directly related to the October 17, 2007 sale of equity securities.
Additionally, scheduled repayments of long-term debt amounted to
$18,630.








26







RESULTS OF OPERATIONS – FOR
THE YEAR ENDED DECEMBER 31, 2008 VERSUS THE YEAR ENDED DECEMBER 31,
2007





Net
revenues for the year ended December 31, 2008 were $1,028,427 as compared to
$616,331 for the year ended December 31, 2007. For the year ended December 31,
2008, approximately 70% of the Company’s revenue was derived from full scale
remediation projects, 8% from consulting services related to the evaluation of
environmental contamination at various sites, and 22% from treatability and
pilot studies intended to customize remedies to address specific contamination
issues at specific client sites. For the year 2007, approximately 57% of
revenues were generated from consulting services and 43% were generated from
treatability studies.





Revenues
for the year 2008 from consulting services were $269,092 less than 2007 and
revenues from treatability and pilot studies were $36,327 less than 2007. This
decrease was offset by $717,515 in higher revenues from implementation of
projects.





The Company
is using engineering optimization, treatability studies and pilot studies to
successfully demonstrate its capabilities in addressing environmental
remediation issues and thereby secure much larger contracts for full scale
remediation projects at client sites. The Company is continuing to pursue such
opportunities. As of December 31, 2008, the Company had secured one large
project with Keyspan and eight relatively small commitments for full scale
remediation projects. Four of the eight smaller projects were completed in 2008.
There were no full scale remediation projects completed in 2007.





Revenues
for the year 2008 have been below prior expectations as the signing of new
contracts and progress on certain implementation projects has been
extended.  Progress on the Keyspan project has been slower than
expected as the Company and Keyspan address certain implementation issues. The
Company believes the aforementioned matters represent delays in timing of
revenue realization rather than a decrease in the expected potential for
longer-term revenue growth. Regarding the delay in the Keyspan project, the
Company expects full resolution of the project-related issues without any
material adverse impact on the project results.  The Company does not
currently anticipate a loss on the Keyspan project and accordingly has not
provided for any such loss on this project. Securing full scale remediation
projects at acceptable profit margins is critical to ensure the long-term
viability of the Company. Management cannot provide any guarantee that the
Company will be successful in securing a sufficient number of full scale
remediation projects with acceptable profit margins.





Costs of
revenues for the year 2008 of $1,649,414 were $548,111 greater than the prior
year. The increase was primarily due to $422,565 in higher direct project
costs.  Higher fixed and other overhead costs of $108,780 primarily
resulted from an increase in depreciation and spending on supplies. A provision
for estimated future losses on fixed price contracts accounted for a $16,766
increase versus the prior year. Provisions for estimated losses on fixed price
contracts are based on expected revenues that exclude any performance based fees
that may be earned as described in the Company’s revenue recognition policy.
Revenues from performance based fees are recognized in the period in which the
project-specific criteria are achieved and client acceptance is
obtained.





Selling,
general and administrative expenses of $2,452,305 for the year 2008 were
$227,011 lower than the prior year. The decrease was primarily due to $610,534
in lower share-based compensation expense, $252,320 in lower board of directors
fees and a $52,739 reduction in investor relations expenses. This decrease was
primarily offset in part by an increase of $283,438 for legal, audit and
professional fees, an increase of $204,926 for sales and marketing staff, an
increase of $58,191 in administrative personnel expenses, a $49,243 increase for
facilities rent and services, and a $66,808 increase for insurance.





For the
year 2008, research and development expense of $392,815 increased by $225,197
versus 2007. The increase was due to additional research and development
activities related to new technology opportunities.





Derivative
instrument income was $2,013,000 for the year 2008 as compared to derivative
instrument expense of $1,878,767 for the year 2007. Derivative instrument income
and expense reflects a non-cash mark-to-market adjustment to record the
derivative instrument liability related to warrants issued in conjunction with
the Notes at fair value. The 2008 change in the fair value of the derivative
instrument liability was primarily due to a decline in the fair market value of
the Company’s underlying shares of common stock at December 31,
2008.





Interest
expense of $396,094 for the year 2008 was $281,265 lower than the prior
year.  The decrease primarily resulted from $434,745 of non-cash
charges in 2007 related to the conversion of the January 4, 2007 bridge loan to
shares of the Company’s common stock. This decrease was comprised of $200,345
for the amortization of the bridge loan beneficial conversion discount, $148,567
for amortization of the discount related to bridge loan warrants, $65,000 of
debt issuance amortization and $20,833 of interest paid through the issuance of
common stock. Partially offsetting the $434,745 decrease resulting from the
bridge loan was an increase of $172,783 related to the Notes. The increase
resulting from the Notes was comprised of $27,882 for the amortization of debt
issuance costs, $37,804 for the amortization of a beneficial conversion
discount, $71,851 for the amortization of a discount related to warrants issued
in conjunction with the Notes and $35,246 in additional interest paid on the
Notes.





Interest
income for the year 2008 was $52,742. Interest income was earned on the
investment of excess cash from proceeds received in the Financing.








27






The
Company did not recognize any benefit or expense for income taxes for the year
2008 or 2007. At December 31, 2008, the Company had established a full valuation
allowance against all tax benefits and accordingly recorded no income tax
expense or benefit for the year ended December 31, 2008.




CRITICAL ACCOUNTING
ESTIMATES





The
Company’s financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America, which require
management to make estimates and assumptions that affect the amounts and
disclosures reported in the financial statements.  The Company’s estimates
are based on historical experience and currently available
information.  Actual results in these areas could differ from
management’s estimates.




Share-based
Compensation





The
Company applies the provisions of Statement of Financial Accounting Standards
No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”), to all share-based
payment awards made to employees and directors. SFAS 123R establishes accounting
for equity instruments exchanged for employee services. Under the provisions of
SFAS 123R, share-based compensation is measured at the grant date, based upon
the fair value of the award, and is recognized as an expense over the holders’
requisite service period (generally the vesting period of the equity award). The
Company has expensed its share-based compensation for share-based payments under
the ratable method, which treats each vesting tranche as if it were an
individual grant.





The
Company periodically grants shares of common stock and stock options for a fixed
number of shares of common stock to its employees and directors. Stock options
are granted with an exercise price greater than or equal to the fair market
value of the Company’s common stock at the date of the grant. The Company
estimates the fair value of stock options using a Black-Scholes valuation model.
Key inputs used to estimate the fair value of stock options include the exercise
price of the award, the expected post-vesting option life, the expected
volatility of the Company’s stock over the option’s expected term, the risk free
interest rate over the option’s expected term, and the expected annual dividend
yield.





The
Company accounts for common stock awards granted to employees and directors
based on the fair value of the common shares issued. Due to the absence of
available arms-length transactions with unrelated parties for the period prior
to the share exchange, the Company utilized a discounted cash flow method to
determine the fair value of common stock shares as of the date such shares were
granted. Appropriate discount rates were utilized reflecting venture capital
discount rates in the start-up or early development stages. The Company utilized
a start-up venture capital discount rate of 70% for the period up to and
including September 30, 2006. Subsequent to September 30, 2006 and up to the
date of the share exchange, the Company adjusted its discount rate to 50%,
reflecting the successful completion of a pilot remediation project at a client
location, thereby substantiating the effectiveness of the Company’s technology
and know-how. Subsequent to the share exchange, the fair value of the Company’s
common stock is determined by using the adjusted closing price from an active
market.





Estimates
of fair value are not intended to predict actual future events or the value
ultimately realized by persons who receive equity awards.





The
Company recognizes share-based compensation expense for the number of awards
that are ultimately expected to vest. As a result, recognized stock compensation
is reduced for estimated forfeitures prior to vesting. The Company’s estimate of
annual forfeiture rates was approximately 3%. Estimated forfeitures will be
reassessed in subsequent periods and may change based on new facts and
circumstances.





Since the
Company has not generated any taxable income to date and has not paid any
federal or state taxes based on income since inception, it has provided a
valuation allowance for the full amount of its net deferred tax assets and,
accordingly, no tax benefits related to stock compensation expense have been
recorded in its consolidated financial statements.




Revenue
Recognition




The
Company generates revenue by providing technical services related to
environmental remediation. Revenues result from the implementation of projects
to remedy contaminated sites, treatability and pilot studies to evaluate
potential remedies, and consulting services related to environmental
remediation.






28






Revenue
from the implementation of projects to remedy environmental issues at
contaminated sites generally includes fixed fees and performance based fees.
Fixed fee revenue is recognized on the proportional performance model (which
approximates the percentage of completion method), based on costs incurred. In
order to calculate the completion ratio on a given project, costs incurred to
date on the project are divided by the total estimated costs for the entire
project. This ratio is then multiplied by the total fixed fee to be earned on
the project, resulting in the amount of revenue earned to date. Performance
based fees are tied to the achievement of project-specific criteria related to
the reduction or elimination of contaminants. Performance based fee revenue is
recognized in the period in which the project-specific criteria are met and
client acceptance is obtained.




Certain
technical services provided by the Company on a fixed price basis, primarily
treatability studies, are recognized using the completed contract performance
model, as these contracts are generally short-duration contracts. Fees are based
upon completion of agreed-upon task-based laboratory services. The Company
recognizes revenue when applicable tasks are completed in accordance with the
completed contract performance model.




Revenues
related to consulting services are generally recognized on a time and materials
basis in accordance with agreed-upon billing rates and in the period such
services are provided.




It is the
Company’s normal and customary business practice to enter into service
agreements that, once approved by authorized representatives of the Company and
its customer, are considered to be binding. In the absence of an approved
service agreement, or approved change order, the Company recognizes revenue only
when persuasive evidence of an arrangement exists.




The
Company bears the risk of cost overruns and inflation with respect to its fixed
price contracts, including those for full scale remediation.  If
circumstances indicate a loss will be incurred on any such contract, a provision
is made at that time for the entire loss.  Revenues related to fixed
price contracts comprised approximately 68% of the Company’s total revenues for
the year ended December 31, 2008 and approximately 43% for the year ended
December 31, 2007.  At December 31, 2008 and 2007, the Company had
$29,928 and $87,500, respectively, of deferred revenue in the form of customer
deposits received that relate to future services to be provided by the Company.
This deferred revenue has been recorded in current liabilities in the
consolidated balance sheets as of December 31, 2008 and 2007, respectively. The
deferred revenue is recognized upon completion of the services. Deferred costs
are comprised of costs incurred prior to the recognition of the related revenue.
Deferred costs at December 31, 2008 and 2007 amounted to $14,902 and $33,775,
respectively. Deferred costs are included in other current assets in the
consolidated balance sheets. An accrual for estimated future losses on fixed
price contracts amounting to $15,665 has been provided for and is included in
other current liabilities in the consolidated balance sheets as of December 31,
2008. There was no provision for estimated losses on fixed price contracts for
the year ended December 31, 2007.





Research and Development
Expense





Research
and development expenses include payroll, employee benefits, depreciation and
direct expenses associated with the discovery and development of new
technologies related to environmental remediation. Research and development
costs are expensed as incurred.





Accounts
Receivable





The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of the Company’s customers were to deteriorate, resulting in
an impairment of their ability to make such payments, additional allowances may
be required. An increase in allowances for customer non-payment would increase
the Company’s expenses during the period in which such allowances are made. The
Company did not require an allowance for doubtful accounts as of December 31,
2008.





Derivative Instrument
Liability





The
Company accounts for derivative instruments in accordance with Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative Instruments
and Hedging Activities,” as amended, which establishes accounting and reporting
standards for derivative instruments and hedging activities, including certain
derivative instruments embedded in other financial instruments or contracts and
requires recognition of all derivatives on the balance sheet at fair value,
regardless of the hedging relationship designation. Accounting for the changes
in the fair value of the derivative instruments depends on whether the
derivatives qualify as hedge relationships and the types of relationships
designated are based on the exposures hedged.








29








Fair Value
Measurements





On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines
fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.  SFAS 157 applies to
reported balances that are required or permitted to be measured at fair value
under existing accounting pronouncements; accordingly, the standard does not
require any new fair value measurements of reported balances. The Financial
Accounting Standards Board (“FASB”) has partially delayed the effective date for
one year for certain fair value measurements when those measurements are used
for financial statement items that are not measured at fair value on a recurring
basis. The Company has measured and disclosed all major categories of assets and
liabilities, to which SFAS 157 applies, at fair value using SFAS 157
guidance.





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This
statement permits all entities to choose, at specified election dates, to
measure eligible items at fair value (the “fair value option”). A business
entity must report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting date. Upfront
costs and fees related to items for which the fair value option is elected must
be recognized in earnings as incurred and not deferred. This statement is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. The adoption of SFAS 159 did not have an impact on the
Company’s results of operations or financial position, as the Company did not
elect the fair value option for any of its eligible financial assets or
liabilities.




Item 7A.   Quantitative and Qualitative
Disclosures About Market Risk





Pursuant
to Item 305(e) of Regulation S-K, the Company, as a smaller reporting company,
is not required to provide the information required by this item.














30








Item 8. Financial Statements and Supplementary Data
































VeruTEK
Technologies, Inc. and Subsidiary





Audited
Financial Statements





Years
Ended December 31, 2008 and 2007




















31








REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors and Stockholders of


VeruTEK
Technologies, Inc.








We have
audited the accompanying consolidated balance sheets of VeruTEK Technologies,
Inc. and subsidiary (the "Company") as of December 31, 2008 and 2007, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we have expressed no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of VeruTEK Technologies, Inc.
and subsidiary as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the accompanying consolidated
financial statements, the Company has sustained net losses of approximately $1.8
million and $5.9 million for the years ended December 31, 2008 and December 31,
2007, respectively, has an accumulated deficit of approximately $11.9 million at
December 31, 2008 and has a principal payment of $1,635,000 due on May 9, 2009
for its secured convertible notes. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans
regarding these matters are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.











/s/ CCR
LLP





Glastonbury,
Connecticut


March 27,
2009














32







VeruTEK
      Technologies, Inc.Consolidated
      Balance SheetsDecember
      31, 2008 and 20072008
                      
                      
                      2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      2,635,305
                      
                      
                      $
                      1,182,875Accounts
      receivable
                      
                      
                      471,923
                      
                      
                      
                      126,043Other
      current assets
                      
                      
                      99,118
                      
                      
                      
                      60,590Total
      current assets
                      
                      
                      3,206,346
                      
                      
                      
                      1,369,508Property
      and equipment, net
                      
                      
                      1,005,384
                      
                      
                      
                      321,756Other
      assets, net
                      
                      
                      4,000
                      
                      
                      
                      85,583Total
      assets
                      
                      $
                      4,215,730
                      
                      
                      $
                      1,776,847LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIENCY)Current
      liabilities:Convertible
      notes - current, net
                      
                      $
                      1,546,818
                      
                      
                      $
                      -Long-term
      debt – current
                      
                      
                      53,510
                      
                      
                      
                      68,504Accounts
      payable
                      
                      
                      404,865
                      
                      
                      
                      206,730Accrued
      payroll and benefits
                      
                      
                      80,059
                      
                      
                      
                      198,500Due
      to officers / directors
                      
                      
                      600,000
                      
                      
                      
                      600,000Derivative
      instrument liability
                      
                      
                      154,000
                      
                      
                      
                      2,167,000Customer
      deposits
                      
                      
                      29,928
                      
                      
                      
                      87,500Other
      current liabilities
                      
                      
                      230,248
                      
                      
                      
                      272,457Total
      current liabilities
                      
                      
                      3,099,428
                      
                      
                      
                      3,600,691Convertible
      notes, less current portion, net
                      
                      
                      -
                      
                      
                      
                      1,366,140Long-term
      debt, less current portion
                      
                      
                      13,226
                      
                      
                      
                      18,365Total
      liabilities
                      
                      
                      3,112,654
                      
                      
                      
                      4,985,196Stockholders'
      equity (deficiency):Preferred
      stock, $.001 par value; 10,000,000 sharesauthorized,
      none issued and outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $.001 par value; 150,000,000 sharesauthorized,
      27,049,278 issued and outstanding as ofDecember
      31, 2008; 21,305,374 issued and outstandingas
      of December 31, 2007
                      
                      
                      27,049
                      
                      
                      
                      21,305Additional
      paid-in capital
                      
                      
                      12,986,667
                      
                      
                      
                      6,884,527Accumulated
      deficit
                      
                      
                      (11,910,640
                      )
                      
                      
                      (10,114,181
                      )Total
      stockholders' equity (deficiency)
                      
                      
                      1,103,076
                      
                      
                      
                      (3,208,349
                      )Total
      liabilities and stockholders' equity (deficiency)
                      
                      $
                      4,215,730
                      
                      
                      $
                      1,776,847


The
accompanying notes are an integral part of these consolidated financial
statements.






33









VeruTEK
      Technologies, Inc.Consolidated
      Statements of OperationsFor
      the Years Ended December 31, 2008 and
2007





2008
                    
                    
                    2007Net
      revenues
                    
                    $
                    1,028,427
                    
                    
                    $
                    616,331Costs,
      expenses and other income:Cost
      of revenues
                    
                    
                    1,649,414
                    
                    
                    
                    1,101,303Selling,
      general and administrative
                    
                    
                    2,452,305
                    
                    
                    
                    2,679,316Research
      and development
                    
                    
                    392,815
                    
                    
                    
                    167,618Non-operating
      expenses (income):Interest
      expense
                    
                    
                    396,094
                    
                    
                    
                    677,359Derivative
      instrument (income)expense
                    
                    
                    (2,013,000
                    )
                    
                    
                    1,878,767Interest
      income
                    
                    
                    (52,742
                    )
                    
                    
                    -Total
      costs, expenses and otherincome
                    
                    
                    2,824,886
                    
                    
                    
                    6,504,363Loss
      before income taxes
                    
                    
                    (1,796,459
                    )
                    
                    
                    (5,888,032
                    )Income
      tax provision
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (1,796,459
                    )
                    
                    $
                    (5,888,032
                    )Weighted
      average common shares outstanding:Basic
      and diluted
                    
                    
                    24,714,117
                    
                    
                    
                    18,818,130Net
      loss per shareBasic
      and diluted
                    
                    $
                    (0.07
                    )
                    
                    $
                    (0.31
                    )







The
accompanying notes are an integral part of these consolidated financial
statements.














34






VeruTEK
      Technologies, Inc.Consolidated
      Statements of Changes in Stockholders' Equity (Deficiency)For
      the Years Ended December 31, 2008 and 2007Common
      StockShares
      Issued
                          
                          
                          Par
      Value
                          
                          
                          Additional
      Paid-in Capital
                          
                          
                          Accumulated
                            Deficit
                          
                          
                          TotalBalance,
      January 1, 2007
                          
                          
                          15,687,582
                          
                          
                          $
                          15,688
                          
                          
                          $
                          3,121,405
                          
                          
                          $
                          (4,226,149
                          )
                          
                          $
                          (1,089,056
                          )Shares
      issued as compensation (Note 9)
                          
                          
                          996,531
                          
                          
                          
                          996
                          
                          
                          
                          873,713
                          
                          
                          
                          -
                          
                          
                          
                          874,709Reverse
      acquisition recapitalizationadjustment,
      net (Note 4)
                          
                          
                          2,950,678
                          
                          
                          
                          2,951
                          
                          
                          
                          (164,669
                          )
                          
                          
                          -
                          
                          
                          
                          (161,718
                          )Conversion
      of bridge loan tocommon
      stock (Note 6)
                          
                          
                          750,000
                          
                          
                          
                          750
                          
                          
                          
                          599,250
                          
                          
                          
                          -
                          
                          
                          
                          600,000Accrued
      interest on bridge loan satisfiedwith
      common stock (Note 6)
                          
                          
                          26,051
                          
                          
                          
                          26
                          
                          
                          
                          20,807
                          
                          
                          
                          -
                          
                          
                          
                          20,833Beneficial
      conversion discount - bridgeloan
      (Note 6)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          200,345
                          
                          
                          
                          -
                          
                          
                          
                          200,345Issuance
      of warrants in connection withbridge
      loan (Note 6)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          148,567
                          
                          
                          
                          -
                          
                          
                          
                          148,567Beneficial
      conversion discount -convertible
      notes (Note 7)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          151,650
                          
                          
                          
                          -
                          
                          
                          
                          151,650Issuance
      of common stock and warrants inconnection
      with private placement, net ofissuance
      costs of $125,648 (Note 8)
                          
                          
                          1,373,334
                          
                          
                          
                          1,373
                          
                          
                          
                          1,932,980
                          
                          
                          
                          -
                          
                          
                          
                          1,934,353Rescission
      and cancellation of commonshares
      (Note 8)
                          
                          
                          (478,802
                          )
                          
                          
                          (479
                          )
                          
                          
                          479
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (5,888,032
                          )
                          
                          
                          (5,888,032
                          )Balance,
      December 31, 2007
                          
                          
                          21,305,374
                          
                          
                          
                          21,305
                          
                          
                          
                          6,884,527
                          
                          
                          
                          (10,114,181
                          )
                          
                          
                          (3,208,349
                          )Share-based
      compensation (Note 9)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          320,137
                          
                          
                          
                          -
                          
                          
                          
                          320,137Conversion
      of convertible notes to commonstock
      (Note 7)
                          
                          
                          50,000
                          
                          
                          
                          50
                          
                          
                          
                          49,950
                          
                          
                          
                          -
                          
                          
                          
                          50,000Issuance
      of common stock and warrants inconnection
      with private placement, net ofissuance
      costs of $525,547 (Note 8)
                          
                          
                          5,693,904
                          
                          
                          
                          5,694
                          
                          
                          
                          5,732,053
                          
                          
                          
                          -
                          
                          
                          
                          5,737,747Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,796,459
                          )
                          
                          
                          (1,796,459
                          )Balance,
      December 31, 2008
                          
                          
                          27,049,278
                          
                          
                          $
                          27,049
                          
                          
                          $
                          12,986,667
                          
                          
                          $
                          (11,910,640
                          )
                          
                          $
                          1,103,076








The
accompanying notes are an integral part of these consolidated financial
statements.








35





VeruTEK
      Technologies, Inc.Consolidated
      Statements of Cash FlowsFor
      the Years Ended December 31, 2008 and 2007





2008
                        
                        
                        2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                        
                        $
                        (1,796,459
                        )
                        
                        $
                        (5,888,032
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                        
                        
                        117,139
                        
                        
                        
                        41,890Amortization
      – debt issuance costs
                        
                        
                        58,655
                        
                        
                        
                        95,773Amortization
      of debt discounts – warrants
                        
                        
                        151,152
                        
                        
                        
                        79,300Amortization
      of beneficial conversion discount
                        
                        
                        79,526
                        
                        
                        
                        242,068Non-cash
      interest expense on warrant issuance
                        
                        
                        -
                        
                        
                        
                        148,567Non-cash
      interest expense on bridge loan
                        
                        
                        -
                        
                        
                        
                        20,833Loss
      on disposal of property, plant and equipment
                        
                        
                        -
                        
                        
                        
                        3,913Derivative
      instrument (income) expense
                        
                        
                        (2,013,000
                        )
                        
                        
                        1,878,767Share-based
      compensation expense
                        
                        
                        320,137
                        
                        
                        
                        874,709Changes
      in operating assets and liabilities, net:Accounts
      receivable
                        
                        
                        (345,880
                        )
                        
                        
                        94,369Other
      current assets
                        
                        
                        (38,528
                        )
                        
                        
                        (40,355
                        )Other
      assets, net
                        
                        
                        22,928
                        
                        
                        
                        (4,000
                        )Accounts
      payable
                        
                        
                        132,555
                        
                        
                        
                        55,314Accrued
      payroll and benefits
                        
                        
                        (118,441
                        )
                        
                        
                        (4,476
                        )Customer
      deposits
                        
                        
                        (57,572
                        )
                        
                        
                        87,500Other
      current liabilities
                        
                        
                        (42,209
                        )
                        
                        
                        224,934Net
      cash used in operating activities
                        
                        
                        (3,529,997
                        )
                        
                        
                        (2,088,926
                        )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                        
                        
                        (800,767
                        )
                        
                        
                        (219,466
                        )Net
      cash used in investing activities
                        
                        
                        (800,767
                        )
                        
                        
                        (219,466
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from the issuance of common stock and warrants
                        
                        
                        6,263,294
                        
                        
                        
                        2,060,001Proceeds
      from convertible notes
                        
                        
                        -
                        
                        
                        
                        1,685,000Proceeds
      from long-term debt - bridge loan
                        
                        
                        -
                        
                        
                        
                        510,000Repayment
      of  revolving loan
                        
                        
                        -
                        
                        
                        
                        (349,407
                        )Payments
      directly related to private placement issuance costs
                        
                        
                        (459,967
                        )
                        
                        
                        (125,648
                        )Payments
      directly related to recapitalization
                        
                        
                        -
                        
                        
                        
                        (198,568
                        )Payments
      for debt issuance costs
                        
                        
                        -
                        
                        
                        
                        (140,000
                        )Repayments
      of long-term debt
                        
                        
                        (20,133
                        )
                        
                        
                        (18,630
                        )Net
      cash provided by financing activities
                        
                        
                        5,783,194
                        
                        
                        
                        3,422,748NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                        
                        
                        1,452,430
                        
                        
                        
                        1,114,536CASH
      AND CASH EQUIVALENTS, beginning of year
                        
                        
                        1,182,875
                        
                        
                        
                        68,519CASH
      AND CASH EQIVALENTS, end of year
                        
                        $
                        2,635,305
                        
                        
                        $
                        1,182,875












The
accompanying notes are an integral part of these consolidated financial
statements.






36





VeruTEK
      Technologies, Inc.Consolidated
      Statements of Cash Flows (Continued)For
      the Years Ended December 31, 2008 and
2007





2008
                                                            
                                                            
                                                            2007SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for:Interest
                                                            
                                                            $
                                                            112,430
                                                            
                                                            
                                                            $
                                                            111,651Non-cash
      investing and financing activities:Common
      stock issued upon conversion of convertible notes
                                                            
                                                            
                                                            50,000
                                                            
                                                            
                                                            
                                                            -Accrued
      costs directly related to private placement transactions – included
      inaccounts
      payable
                                                            
                                                            
                                                            65,580
                                                            
                                                            
                                                            
                                                            -Common
      stock issued upon conversion of bridge loan and accrued
      interest
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            620,833Beneficial
      conversion discount – convertible notes
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            151,650Discount
      on bridge loan
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            148,567Common
      stock issued to advisors - recapitalization
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            36,850











The
accompanying notes are an integral part of these consolidated financial
statements.








37





VeruTEK
Technologies, Inc.


Notes to Consolidated Financial
Statements




NOTE 1 –
            ORGANIZATION
      AND NATURE OF BUSINESS





On May 9,
2007, a Nevada corporation formerly known as Streamscape Minerals, Inc. ("SSMI"
or “VeruTEK-Nevada”) completed a share exchange (the “Share Exchange”) with a
Delaware corporation known as VeruTEK Technologies, Inc. ("VeruTEK-Delaware")
and each of VeruTEK-Delaware's shareholders. Pursuant to the Share Exchange,
VeruTEK-Nevada acquired all of the 21,430 issued and outstanding shares of
capital stock of VeruTEK-Delaware from the VeruTEK-Delaware shareholders in
exchange for 16,684,112 shares of VeruTEK-Nevada’s common stock (see Note 4). As
a result of the Share Exchange, VeruTEK-Delaware became a wholly owned
subsidiary of VeruTEK-Nevada.VeruTEK-Delaware was
organized as a Delaware corporation on February 1, 2006. VeruTEK-Nevada and
VeruTEK-Delaware are hereinafter collectively referred to as the “Company”.
Unless otherwise indicated, references to the Company for periods prior to the
Share Exchange shall instead refer to VeruTEK-Delaware.





BASIS
OF PRESENTATION





The
Company was formed to develop and commercialize new technologies in the field of
environmental remediation. The Company provides technical services to clients to
resolve complex environmental remediation matters at a wide range of waste
sites, principally by combining surfactant and oxidant chemistries.





The
accompanying consolidated financial statements reflect the consolidated accounts
of VeruTEK-Nevada and its wholly owned subsidiary, VeruTEK-Delaware. All
significant intercompany balances and transactions have been eliminated in
consolidation.





GOING
CONCERN / MANAGEMENT’S PLAN





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business.  As shown in the accompanying consolidated financial
statements, the Company had an accumulated deficit of approximately $11.9
million at December 31, 2008. The Company’s working capital of approximately
$0.1 million at December 31, 2008 is net of $1,546,818 of secured convertible
promissory notes (the “Notes”) and related warrants issued on May 9, 2007. The
Notes are reflected in the accompanying consolidated financial statements at
their face value of $1,635,000 less unamortized discounts related to the
warrants and a beneficial conversion feature. The Notes have been classified as
a current liability at December 31, 2008 due to their May 9, 2009 maturity date.
The Company is pursuing options for replacement financing and amendment or
extension of the Notes and there is no guarantee that the Company will be
successful in meeting the repayment obligations of the Notes when they come due.
As is typical with early stage growth companies, the Company’s recurring net
losses have been largely a result of business development expenses as well as
investments in infrastructure for growing the Company’s business and
operations.  The possible continuation of net losses and the
accumulated deficit raise substantial doubt about the Company’s ability to
continue as a going concern.  The financial statements do not include
adjustments that might result from the outcome of this
uncertainty.





Management
believes that the Company will be successful in its efforts to adequately meet
its capital needs and continue to grow its business, but, in order to do so, the
Company will need to, among other things, extend or refinance the Notes or
obtain new financing to pay off the Notes, in the short term, and increase its
revenue with adequate profit margins, in the longer term. Although the Company
is pursuing such options, there is no guarantee that the Company will
successfully complete any or all of these actions. During May 2008, the Company
completed a private placement raising approximately $6.3 million (before
transaction related expenses) in funds from 41 institutional and accredited
investors and three directors of the Company. Expected transaction expenses
directly related to the private placement were $525,547 (see Note 8). The
successful completion of the May 2008 private placement resulted in
approximately $2.6 million in cash and cash equivalents at December 31, 2008,
which will be utilized to support future operations. The Company estimates
current funding will sustain its operations through May 9, 2009.











38





VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements








NOTE
      2 –
              SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES





REVENUE
RECOGNITION





The
Company generates revenue by providing technical services related to
environmental remediation. Revenues result from the implementation of projects
to remedy contaminated sites, treatability and pilot studies to evaluate
potential remedies, and consulting services related to environmental
remediation.





Revenue
from the implementation of projects to remedy environmental issues at
contaminated sites generally includes fixed fees and performance based fees.
Fixed fee revenue is recognized on the proportional performance model (which
approximates the percentage of completion method), based on costs incurred. In
order to calculate the completion ratio on a given project, costs incurred to
date on the project are divided by the total estimated costs for the entire
project. This ratio is then multiplied by the total fixed fee to be earned on
the project, resulting in the amount of revenue earned to date. Performance
based fees are tied to the achievement of project-specific criteria related to
the reduction or elimination of contaminants. Performance based fee revenue is
recognized in the period in which the project-specific criteria are met and
client acceptance is obtained.





Certain
technical services provided by the Company on a fixed price basis, primarily
treatability studies, are recognized using the completed contract performance
model, as these contracts are generally short-duration contracts. Fees are based
upon completion of agreed-upon task-based laboratory services. The Company
recognizes revenue when applicable tasks are completed in accordance with the
completed contract performance model.





Revenues
related to consulting services are generally recognized on a time and materials
basis in accordance with agreed-upon billing rates and in the period such
services are provided.





It is the
Company’s normal and customary business practice to enter into service
agreements that, once approved by authorized representatives of the Company and
its customer, are considered to be binding. In the absence of an approved
service agreement, or approved change order, the Company recognizes revenue only
when persuasive evidence of an arrangement exists.





The
Company bears the risk of cost overruns and inflation with respect to its fixed
price contracts, including those for full scale remediation.  If
circumstances indicate a loss will be incurred on any such contract, a provision
is made at that time for the entire loss.  Revenues related to fixed
price contracts comprised approximately 68% of the Company’s total revenues for
the year ended December 31, 2008 and approximately 43% for the year ended
December 31, 2007.  At December 31, 2008 and 2007, the Company had
$29,928 and $87,500, respectively, of deferred revenue in the form of customer
deposits received that relate to future services to be provided by the Company.
This deferred revenue has been recorded in current liabilities in the
consolidated balance sheets as of December 31, 2008 and 2007, respectively. The
deferred revenue is recognized upon completion of the services. Deferred costs
are comprised of costs incurred prior to the recognition of the related revenue.
Deferred costs at December 31, 2008 and 2007 amounted to $14,902 and $33,775,
respectively. Deferred costs are included in other current assets in the
consolidated balance sheets. An accrual for estimated future losses on fixed
price contracts amounting to $15,665 has been provided for and is included in
other current liabilities in the consolidated balance sheets as of December 31,
2008. There was no provision for estimated losses on fixed price contracts for
the year ended December 31, 2007.




SHARE-BASED
COMPENSATION





The
Company applies the provisions of Statement of Financial Accounting Standards
No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”), to all share-based
payment awards made to employees and directors. SFAS 123R establishes accounting
for equity instruments exchanged for employee services. Under the provisions of
SFAS 123R, share-based compensation is measured at the grant date, based upon
the fair value of the award, and is recognized as an expense over the holders’
requisite service period (generally the vesting period of the equity award). The
Company has expensed its share-based compensation for share-based payments under
the ratable method, which treats each vesting tranche as if it were an
individual grant.








39




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements





NOTE 2 –
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





SHARE-BASED
COMPENSATION (Continued)





The
Company periodically grants shares of common stock and stock options for a fixed
number of shares of common stock to its employees and directors. Stock options
are granted with an exercise price greater than or equal to the fair market
value of the Company’s common stock at the date of the grant. The Company
estimates the fair value of stock options using a Black-Scholes valuation model.
Key inputs used to estimate the fair value of stock options include the exercise
price of the award, the expected post-vesting option life, the expected
volatility of the Company’s stock over the option’s expected term, the risk free
interest rate over the option’s expected term, and the expected annual dividend
yield.





The
Company accounts for common stock awards granted to employees and directors
based on the fair value of the common shares issued. Due to the absence of
available arms-length transactions with unrelated parties in VeruTEK-Delaware’s
common stock for the period prior to the Share Exchange, the Company utilized a
discounted cash flow method to determine the fair value of common stock shares
as of the date such shares were granted. Appropriate discount rates were
utilized reflecting venture capital discount rates in the start-up or early
development stages. The Company utilized a start-up venture capital discount
rate of 70% for the period up to and including September 30, 2006. Subsequent to
September 30, 2006 and up to the date of the Share Exchange, the Company
adjusted its discount rate to 50%, reflecting the successful completion of a
pilot remediation project at a client location, thereby substantiating the
effectiveness of the Company’s technology and “know-how.” Subsequent to the
Share Exchange, the fair value of the Company’s common stock is determined by
using the adjusted closing price from an active market.





Estimates
of fair value are not intended to predict actual future events or the value
ultimately realized by persons who receive equity awards.





The Company recognizes share-based
compensation expense for the number of awards that are ultimately expected to
vest. As a result, recognized stock compensation is reduced for estimated
forfeitures prior to vesting. The Company’s estimate of annual forfeiture rates
at December 31, 2008 was approximately 3%. Estimated forfeitures will be
reassessed in subsequent periods and may change based on new facts and
circumstances.





Since the
Company has not generated any taxable income to date and has not paid any
federal or state taxes based on income since inception, it has provided a
valuation allowance for the full amount of its net deferred tax assets and,
accordingly, no tax benefits related to stock compensation expense have been
recorded in its consolidated financial statements.





DERIVATIVE
INSTRUMENT LIABILITY





The
Company accounts for derivative instruments in accordance with Statement of
Financial Accounting Standards No. 133, “Accounting for Derivative Instruments
and Hedging Activities,” as amended (“SFAS 133”), which establishes accounting
and reporting standards for derivative instruments and hedging activities,
including certain derivative instruments embedded in other financial instruments
or contracts and requires recognition of all derivatives on the balance sheet at
fair value, regardless of the hedging relationship designation. Accounting for
changes in the fair value of the derivative instruments depends on whether the
derivatives qualify as hedge relationships and the types of relationships
designated are based on the exposures hedged. At December 31, 2008 and 2007, the
Company did not have any derivative instruments that were designated as
hedges.





Derivative
instrument income of $2,013,000 and expense of $1,878,767 for the years ended
December 31, 2008 and 2007, respectively, reflects a non-cash mark-to-market
adjustment for the derivative instrument liability resulting from warrants
issued in conjunction with the Notes (see Note 7).





CASH
AND CASH EQUIVALENTS





Cash and
cash equivalents consist of bank deposits and money market funds with original
maturities of three months or less. All amounts shown as cash and cash
equivalents on the consolidated balance sheets, are held as immediately
available deposits. There are no restrictions on cash balances shown on the
consolidated balance sheets. Cash equivalents consisted of high quality money
market funds invested in U.S. Government securities totaling $2,617,276 and
other money market funds totaling $3,732 as of December 31, 2008. The Company
had no cash equivalents at December 31, 2007.







40




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements





NOTE 2 –
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





ACCOUNTS
RECEIVABLE





The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company’s customers were to deteriorate, resulting in
an impairment of their ability to make such payments, additional allowances may
be required. An increase in allowances for customer non-payment would increase
the Company’s expenses during the period in which such allowances are made. The
Company did not require an allowance for doubtful accounts as of December 31,
2008 and 2007.





PROPERTY
AND EQUIPMENT





Property
and equipment is carried at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over asset lives that range from 5 to 7
years. Renewals and improvements that extend the useful lives of assets are
capitalized. Capitalized leased assets are depreciated over the estimated useful
life of the related equipment. Expenditures for maintenance and repairs are
charged to expense as incurred. Leasehold improvements are depreciated over the
remaining life of the related lease, excluding renewal options.





ADVERTISING
EXPENSE





The
Company expenses advertising costs as incurred. Advertising expense for the
years ended December 31, 2008 and 2007 amounted to $2,813 and $68,100,
respectively.





RESEARCH
AND DEVELOPMENT COSTS





Research
and development costs are expensed as incurred.





INCOME
TAXES





In June
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109” (“FIN 48”). The interpretation
contains a two step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”) The first step is
to evaluate the tax position for recognition by determining if the weight of
available evidence indicates it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon ultimate settlement.
The Company has adopted FIN 48 as of January 1, 2007. The adoption of FIN 48 did
not have a material impact on the Company’s consolidated financial
statements.





Deferred
income taxes are computed in accordance with SFAS 109 and reflect the net tax
effects of temporary differences between the financial reporting carrying
amounts of assets and liabilities and the corresponding income tax amounts. The
Company establishes a valuation allowance if it believes that it is more likely
than not that some or all of the deferred tax assets will not be realized (see
Note 12).





Prior to
the Share Exchange (see Note 4), the Company had elected to be treated as an S
corporation under sections of the federal and state income tax laws which
provide that, in lieu of federal and state corporate income taxes, all income,
deductions, losses and credits pass through to the stockholders for them to
report on their personal tax returns. Accordingly, the financial statements do
not include any provision for federal or state corporate income taxes for the
period prior to the Share Exchange.








41




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements





NOTE 2 –
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)








FINANCIAL
INSTRUMENTS




The
carrying amounts for cash, accounts receivable, other current assets, accounts
payable, other current liabilities and long term debt approximate their fair
value because of the short term maturities of these instruments. The fair value
of the Notes is not determinable because of the lack of any quoted market price
or trading activity in the instruments (see Note 7 for a description of these
instruments).





Proceeds
allocated to the warrants issued on May 9, 2007 in conjunction with the Share
Exchange are accounted for as a derivative instrument liability in accordance
with EITF Issue 00-19 “Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). The
warrants may require cash settlement at fair value in the event of certain
circumstances (see Note 7). The warrants are subject to mark-to-market
adjustment based on the fair value of the warrants as determined by using the
Black-Scholes model.





FAIR
VALUE MEASUREMENTS





On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines
fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.  SFAS 157 applies to
reported balances that are required or permitted to be measured at fair value
under existing accounting pronouncements; accordingly, the standard does not
require any new fair value measurements of reported balances. The FASB has
partially delayed the effective date for one year for certain fair value
measurements when those measurements are used for financial statement items that
are not measured at fair value on a recurring basis. The Company has measured
and disclosed all major categories of assets and liabilities, to which SFAS 157
applies, at fair value using SFAS 157 guidance (see Note 15).





In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of FASB Statement No. 115” (“SFAS 159”).
This statement permits all entities to choose, at specified election dates, to
measure eligible items at fair value (the “fair value option”). A business
entity must report unrealized gains and losses on items for which the fair value
option has been elected in earnings at each subsequent reporting
date. Upfront costs and fees related to items for which the fair value
option is elected must be recognized in earnings as incurred and not deferred.
This statement is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. The adoption of SFAS 159 did not have
an impact on the Company’s results of operations or financial position, as the
Company did not elect the fair value option for any of its eligible financial
assets or liabilities.




RECLASSIFICATIONS





Certain
prior year amounts have been reclassified to conform to the current year
presentation.











42




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements





NOTE 2 –
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




ACCOUNTING
PRONOUNCEMENTS NOT YET ADOPTED




In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" (“SFAS 161”),
which changes the disclosure requirements for derivative instruments and hedging
activities. SFAS 161 requires enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under SFAS 133 and its related interpretations,
and (c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company has not yet determined the
effect, if any, that SFAS 161 will have on its consolidated financial
statements.





In June
2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock" (“EITF 07-5”).
EITF 07-5 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also provides clarification on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The Company has not yet determined the
effect, if any, that EITF 07-5 will have on its consolidated financial
statements.





In
December 2007, the FASB reached a consensus on EITF Issue No. 07-1, “Accounting
for Collaborative Arrangements” (“EITF 07-1”). The EITF concluded on the
definition of a collaborative arrangement and that revenues and costs incurred
with third parties in connection with collaborative arrangements would be
presented gross or net based on the criteria in EITF Issue No. 99-19, “Reporting
Revenue Gross as a Principal versus Net as an Agent,” and other accounting
literature.  Companies are also required to disclose the nature and
purpose of collaborative arrangements along with the accounting policies and the
classification and amounts of significant financial-statement amounts related to
the arrangements.  Activities in the arrangement conducted in a
separate legal entity should be accounted for under other accounting literature;
however, required disclosure under EITF 07-1 applies to the entire collaborative
agreement.  This issue is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years, and is to be applied retrospectively to all periods
presented for all collaborative arrangements existing as of the effective date.
EITF 07-1 will be effective for the Company on January 1, 2009.  The
Company has not yet determined the effect, if any, that EITF 07-1 will have on
its consolidated financial statements.





There are
no other accounting pronouncements not yet adopted that are expected to have a
significant impact on the Company’s consolidated financial
statements.


NOTE 3 –
              CONCENTRATIONS
      OF CREDIT RISK


Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash and cash equivalents and accounts receivable.
The Company maintains its cash accounts at high quality financial institutions
insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company
controls this risk by minimizing cash held at financial institutions and
maintaining such balances in non-interest bearing transaction accounts which are
insured by the FDIC, including the FDIC’s Transaction Account Guarantee program
which fully insures such accounts through December 31,
2009.  Investments of excess cash are maintained in high quality money
market funds invested in U.S. government securities. The Company controls credit
risk associated with trade receivables through credit approvals, customer limits
and monitoring procedures. For the year ended December 31, 2008, the Company had
two customers that accounted for approximately 46% of revenues. For the year
ended December 31, 2007, the Company had two customers that accounted for
approximately 83% of revenues.








43




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements





NOTE 4 –
            SHARE
      EXCHANGE





In
connection with the Share Exchange (Note 1), the Company raised approximately
$1.5 million, net of approximately $150,000 in transaction costs. The
transaction involved a share exchange whereby VeruTEK-Delaware’s shareholders
exchanged 100% of their 21,430 common shares outstanding for 16,684,112 common
shares of VeruTEK-Nevada. Concurrent with the Share Exchange, VeruTEK-Nevada
issued 930,944 shares of its common stock to five advisors to the Share Exchange
and also issued approximately $1.7 million of 6% secured convertible notes and
warrants. The Notes are convertible under certain conditions into shares of
VeruTEK-Nevada common stock.





The
Company agreed to effect the registration of the shares issuable upon the
conversion of the Notes and warrants under the Securities Act of 1933, as
amended, pursuant to a registration rights agreement. The registration rights
agreement required the Company to file a registration statement and have such
registration statement declared effective within 60 and 180 days, respectively,
following the May 9, 2007 closing of the Share Exchange.  In the event
that the Company failed to file by the required filing deadline or have such
registration statement declared effective by the required effective deadline,
then the Company would be required to make cash payments to holders of the Notes
equal to 2% of the purchase price for each 30 day period, prorated for partial
periods.  However, the Company was entitled to suspend its filing and
effective deadline for a period of 10 consecutive business days under certain
circumstances.  The Company did not file its registration statement
until July 20, 2007, which was not within the 60 day period allowed under the
registration rights agreement. The Company believes it was entitled to suspend
the filing of such registration period and, as a result, does not owe a cash
penalty in accordance with this provision of the registration rights
agreement.





Additionally,
the Company did not have the registration statement declared effective until
January 18, 2008, which was not within 180 days following the May 9, 2007
closing of the Share Exchange. However, the Company received consents it
believes extended this registration deadline from investors comprising
approximately 70% of the shares of common stock issuable under the issued and
outstanding Notes and warrants. Accordingly, the Company has provided an accrued
liability of $24,250 for penalties related to those Notes  and
warrants for which holders did not provide consents extending this
deadline.





Prior to
the Share Exchange, VeruTEK-Delaware was a non-reporting, privately held
company. The post-Share Exchange Company is accounted for as a recapitalization
of VeruTEK-Delaware using accounting principles applicable to reverse
acquisitions with VeruTEK-Delaware being treated as the accounting parent
(acquirer) and VeruTEK-Nevada (formerly known as SSMI), the legal parent, being
treated as the accounting subsidiary (acquiree). Prior to the consummation of
the Share Exchange on May 9, 2007, SSMI had been an inactive public shell with
2,019,734 shares of common stock outstanding and at the date of the Share
Exchange, it had no material assets, liabilities, or net stockholders' equity.
VeruTEK-Delaware is regarded as the predecessor entity. In accordance with the
provisions governing the accounting for reverse acquisitions, the historical
figures presented are those of VeruTEK-Delaware.





The key
components of the reverse acquisition recapitalization adjustment were as
follows:





Common
      Stock
                            
                            
                            AdditionalShares
                            
                            
                            Amount
                            
                            
                            Paid-in
      CapitalPublic
      company shares already outstanding on date of Share
      Exchange  (May 9, 2007), par value $.001 per
    share
                            
                            
                            2,019,734
                            
                            
                            $
                            2,020
                            
                            
                            $
                            (2,020
                            )Shares
      issued and cash paid – Share Exchange costs
                            
                            
                            930,944
                            
                            
                            
                            931
                            
                            
                            
                            (162,649
                            )*Public
      company shares issued in exchange for private company
      shares,  par value $.001 per share
                            
                            
                            16,684,112
                            
                            
                            
                            16,684
                            
                            
                            
                            (16,684
                            )Private
      company shares exchanged,par
      value $.001 per share
                            
                            
                            (16,684,112
                            )
                            
                            
                            (16,684
                            )
                            
                            
                            16,684Reverse
      acquisition recapitalization adjustment, net
                            
                            
                            2,950,678
                            
                            
                            $
                            2,951
                            
                            
                            $
                            (164,669
                            )




*Includes
cash payments for transaction related costs of $198,568, less $36,850 for stock
issued to advisors to the transaction.




44




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements








NOTE 5 –
            PROPERTY
      AND EQUIPMENT





Property
and equipment at December 31, 2008 and 2007 consists of the
following:





2008
                  
                  
                  2007Machinery
      and equipment
                  
                  $
                  578,260
                  
                  
                  $
                  119,758Automobiles
                  
                  
                  30,529
                  
                  
                  
                  30,529Laboratory
      equipment
                  
                  
                  364,372
                  
                  
                  
                  25,231Office
      furniture and equipment
                  
                  
                  88,707
                  
                  
                  
                  64,864Leasehold
      improvements
                  
                  
                  116,380
                  
                  
                  
                  82,055Construction
      in process
                  
                  
                  11,559
                  
                  
                  
                  66,6031,189,807
                  
                  
                  
                  389,040Less:
      accumulated depreciation
                  
                  
                  184,423
                  
                  
                  
                  67,284Property
      and equipment, net
                  
                  $
                  1,005,384
                  
                  
                  $
                  321,756





Depreciation
and amortization expense for the years ended December 31, 2008 and 2007 totaled
$117,139 and $41,890, respectively.





NOTE 6 –
            DEBT





A summary
of long-term debt as of December 31, 2008 and 2007 is as follows:





2008
                    
                    
                    2007Term
      note due on demand (see “Bank Default”), interest at 9.25%, collateralized
      by substantially all of the assets of the Company and a personal guarantee
      of certain officers and a director of the Company
                    
                    $
                    48,363
                    
                    
                    $
                    63,760Vehicle
      financing loan due May 9, 2012, interest at 7.99%, collateralized by the
      vehicle and a personal guarantee of an officer and
    director.
                    
                    
                    18,373
                    
                    
                    
                    23,10966,736
                    
                    
                    
                    86,869Less:  current
      portion
                    
                    
                    53,510
                    
                    
                    
                    68,504$
                    13,226
                    
                    
                    $
                    18,365





At
      December 31, 2008, scheduled maturities of long-term debt are as
      follows:





Year
      ending December 31:2009
                        
                        $
                        21,7952010
                        
                        
                        23,9782011
                        
                        
                        19,3722012
                        
                        
                        1,591Total
                        
                        $
                        66,736










45










VeruTEK Technologies,
Inc.


Notes
to Consolidated Financial Statements




NOTE 6 –
              DEBT
      (Continued)





BANK
DEFAULT





As a
result of the Company issuing the Notes associated with the Share Exchange, the
Company is not in compliance with certain provisions of its $82,500 original
principal value term note from its bank (the “Term Note”) and thus is in
default. As a result, at the election of the bank, the stated interest rates for
the Term Note may be increased to 13.5% and payment of all principal and
interest may be subject to acceleration. The Term Note has been classified as a
current liability as of December 31, 2008 and 2007. As of December 31, 2008, the
Company had not received any notice that the bank has elected to increase the
interest rate or accelerate the repayment of the Term Note.





BRIDGE
LOAN





On
January 4, 2007, the Company secured a $600,000 bridge loan (the “Bridge Loan”)
to support development plans and fund operations. The Bridge Loan had a stated
interest rate of 10% which, under the terms of the Bridge Loan, was payable
beginning on May 31, 2007. The Bridge Loan was to mature upon the earlier of (a)
completion of an equity financing transaction, or (b) May 31, 2008. As a result
of the Share Exchange (Note 1), the Bridge Loan was converted into 750,000
shares of the Company’s common stock. In addition, as a result of the
conversion, accrued interest expense of $20,833 was paid through the issuance of
26,051 shares of the Company’s common stock and the Company accelerated the
amortization of the remaining $51,040 of unamortized debt issuance costs. In
accordance with the terms of the Bridge Loan, the Company also issued warrants
to the holders of the Bridge Loan. The warrants have a 5 year life (expiring in
May 9, 2012) and entitle the holders to purchase shares of common stock of the
Company equal to the number of shares issued from conversion of the Bridge Loan
(776,051 shares) at a price of $1.20 per share. The terms of the warrants do not
provide holders with the option to exercise on a cashless basis, nor do they
include any requirement to redeem the warrants based on a Black-Scholes
calculation. In addition, the Bridge Loan warrants specifically contemplate
settlement of the warrants in unregistered shares. The Company has accordingly
concluded that these warrants meet the tests in EITF 00-19for equity
classification.





The
Bridge Loan had a beneficial conversion discount because the conversion price of
the Bridge Loan was less than the fair value of the Company’s common stock. The
value of the beneficial conversion discount and associated warrants was
dependent upon the conversion ratio of existing shares of the Company’s common
stock to shares of the Company’s common stock after completion of an equity
financing transaction. The value of the warrants, and consequently the value of
the beneficial conversion discount, could not be determined until a conversion
ratio for an equity financing transaction had been established. Accordingly, the
total value of the beneficial conversion discount of $200,345 was recognized as
interest expense in the second quarter of 2007 as a result of the Share
Exchange. The $148,567 allocated to the warrants was based on the fair value of
the warrants and was recorded as a charge to interest expense and additional
paid-in capital in the second quarter of 2007. The fair value of the warrants
was determined by using the Black-Scholes model assuming a risk free interest
rate of 4.9%, volatility of 50% and an expected life equal to the May 9, 2012
contractual life of the warrants.














46






VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements




NOTE 7 –
              CONVERTIBLE
      NOTES


On May 9,
2007, the Company issued $1,685,000 of Notes and related warrants. The Notes are
due and payable on May 9, 2009, carry a stated interest rate of 6% and, at the
option of the holders, are convertible under certain conditions into common
stock of the Company at a conversion price of $1.00 per share. The warrants
entitle the holder to purchase the number of shares of the Company’s common
stock equal to 50% of the number of shares of common stock into which the Notes
are convertible. The warrants have a 5 year life and have an exercise price of
$1.20 per share. The holders of the Notes have been granted a security interest
in substantially all of the assets of the Company. The Notes contain covenants
that limit the ability of the Company to enter into certain transactions and
further encumber the Company’s assets. The covenants include restrictions on
incurring additional indebtedness, payment of dividends, distributions of
capital stock, repurchases of capital stock and payments to officers or
directors other than reasonable compensation and reimbursements. Gross proceeds
amounted to $1.685 million and net proceeds from the issuance of the Notes
amounted to approximately $1.5 million. Debt issuance costs attributed to the
Notes of $111,850 are being amortized to interest expense over the term of the
Notes. The debt issuance costs consisted of cash payments totaling $75,000 and
shares of common stock issued to advisors that were valued at
$36,850.





For the
years ended December 31, 2008 and 2007, the Company recorded interest expense of
$58,655 and $30,773, respectively, related to the amortization of debt issuance
costs, including an acceleration of amortization of the debt issuance costs
related to $50,000 of Notes converted during 2008. Unamortized debt issuance
costs at December 31, 2008 and 2007 amounted to $22,422 and $81,977,
respectively, and are included in other current assets and other assets, net,
respectively, in the consolidated balance sheets.





The Notes
contain a beneficial conversion discount of $151,650 because the value allocated
to the Notes is less than the fair value of the Company’s common stock. This
beneficial conversion feature is calculated after the Notes and warrants have
been valued with proceeds allocated on a relative basis. The Company allocated
$1,396,767 to the Notes and $288,233 to the warrants (see below). The discounts
are being amortized to interest expense over the life of the Notes. For the year
ended December 31, 2008, the Company recorded interest expense of $151,152
related to the warrants, and interest expense of $79,526 related to the
beneficial conversion discount. Interest expense related to the warrants and
beneficial conversion discount for the year ended December 31, 2008 included an
acceleration of the amortization related to the $50,000 of Notes converted into
common stock during 2008. For the year ended December 31, 2007, the Company
recorded interest expense of $79,301 related to the warrants, and interest
expense of $41,723 related to the beneficial conversion discount. During 2008,
$50,000 of the Notes were converted to 50,000 shares of common stock.
Accordingly, as of December 31, 2008, convertible notes of $1,635,000 are
reflected on the consolidated balance sheets net of the unamortized portion
($57,780) of the $288,233 discount on the convertible debt relating to the
warrants and net of the unamortized portion ($30,401) of the beneficial
conversion discount of $151,650. Because the Notes mature on May 9, 2009, they
have been classified as a current liability in the December 31, 2008
consolidated balance sheet. There were no Notes converted during
2007.





The
$288,233 in proceeds allocated to the warrants was classified as a liability as
of the issuance date in accordance with EITF 00-19. The warrants may require
cash settlement at fair value in the event of certain circumstances, including
certain mergers or consolidations, sale of substantially all of the assets of
the Company, sale of more than 50% of the outstanding common shares of the
Company, or certain other stock purchase or business combinations. Accordingly,
the warrants have been accounted for as a derivative instrument liability which
is subject to mark-to-market adjustment. The derivative instrument liability was
$154,000 at December 31, 2008 and $2,167,000 at December 31, 2007 (see Note
15).





The fair
value of the warrants at December 31, 2008 was determined by using the
Black-Scholes model assuming a risk free interest rate of 1.1%, volatility of
103% and an expected life equal to the May 9, 2012 contractual life of the
warrants. No dividend yield was assumed because the Company has never paid a
cash dividend. The volatility used for the period ending December 31, 2008 was
developed using a blend of the Company’s historical volatility and historical
volatilities of selected comparable companies. A blended volatility was used
because the Company is a relatively new public company and there is limited
historical data available on the publicly traded market prices of the Company’s
common stock. For the year ended December 31, 2008, the Company recorded a
pre-tax benefit for derivative instrument income of $2,013,000.





The fair
value of the warrants at December 31, 2007 was determined by using the
Black-Scholes model assuming a risk free interest rate of 3.3%, volatility of
50% and an expected life equal to the May 9, 2012 contractual life of the
warrants. The resulting derivative instrument liability was $2,167,000 at
December 31, 2007. For the year ended December 31, 2007, the Company recorded a
pre-tax charge for derivative instrument expense of $1,878,767.








47











VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements




NOTE 7 –
              CONVERTIBLE
      NOTES (Continued)


The
effective interest rate for the Notes after giving effect to all interest
including interest resulting from debt issuance costs, the discount related to
beneficial conversion feature and the discount related to the proceeds allocated
to the warrants is 27%.




NOTE 8 –
              STOCKHOLDERS’ EQUITY





STOCK
ISSUANCES




During
May 2008, the Company closed a private placement with 41 institutional and
accredited investors and three of its directors. This private placement
consisted of the sale of 2,846,952 investment units, each consisting of two
shares of the Company’s common stock (the “Shares”) and one warrant to purchase
a share of the Company’s common stock (an “ Investor Warrant”, and together with
the Shares, a “Unit”), at a price of $2.20 per Unit for gross aggregate proceeds
of $6,263,294 (the “Financing”).  Transaction expenses directly
related to the Financing are estimated to be $525,547. In addition, on October
7, 2008, the Company issued a warrant to purchase 253,816 shares of the
Company’s common stock to the Company’s placement agent for the transaction (the
“Agent Warrant”).  Each Investor Warrant has an exercise price of
$1.30 per share and the Agent Warrant has an exercise price of $1.10 per share,
each of which is subject to certain adjustments as set forth in the respective
warrant agreements.  The warrants may be exercised by means of a
cashless exercise. The Investor Warrants will expire five years after the date
of issuance and the Agent Warrant will expire on May 30, 2013.  The
Company has concluded that the terms of the Investor Warrants and Agent Warrant
meet the tests of EITF 00-19 for equity classification.





In
connection with the closing of the Financing, the Company entered into a
registration rights agreement with the purchasers.  Under the terms of
the registration rights agreement, the Company agreed to file a registration
statement with the Securities and Exchange Commission (the “SEC”) for the resale
of the Shares issued in the Financing as well as the shares of the Company’s
common stock underlying the warrants issued in the Financing. Failure to file
the registration statement within 150 days from the closing of the Financing
would have resulted in payment by the Company to each investor of liquidated
damages, subject to limitations set forth in the registration rights agreement.
These liquidated damages would have been payable in the event that the resale
registration statement had not been declared effective within certain time
periods or if sales could not have been made pursuant to the registration
statement following its effectiveness, each as described in the registration
rights agreement. The Company’s registration statement was filed on October 9,
2008, within 150 days of the closing of the Financing as required under the
registration rights agreement and declared effective by the SEC on October 27,
2008.





On
October 17, 2007, the Company completed a private placement of investment units
to 29 accredited investors at the price of $1.50 per investment unit. Each
investment unit is comprised of one common share; a five year non-callable
warrant to purchase one common share at an exercise price of $1.80 per share;
and a five year non-callable warrant to purchase one common share at an exercise
price of $2.10 per share. The Company raised $1,934,353, net of transaction
related expenses, primarily legal fees, totaling $125,648, in exchange for
1,373,334 of the aforementioned investment units. There were no underwriting
discounts or commissions incurred in the transaction. The securities issued in
conjunction with the transaction are not subject to any registration rights.
Although the terms of the warrants do not provide holders with the option to
exercise on a cashless basis, they do specifically contemplate settlement of the
warrants in unregistered shares. In addition, the warrants do not include any
requirement to redeem the warrants based on a Black-Scholes calculation. The
Company has accordingly concluded that these warrants meet the tests in EITF
00-19 for equity classification.




STOCK
RESCISSION





On May 9,
2007, the Company issued to John Collins, the Chief Executive Officer of the
Company, 1,848,643 shares of the Company’s common
stock.  Subsequently, the Company determined that, because such shares
of common stock were unregistered, Mr. Collins would be unable to sell a portion
of such shares to pay the related income taxes with respect to the issuance of
478,802 of such shares of common stock.  As a result, on December 31,
2007, the Company’s Board of Directors and Mr. Collins agreed to rescind the
issuance of such 478,802 shares and Mr. Collins returned the shares to the
Company for no consideration and such shares were cancelled on December 31,
2007. The 478,802 shares granted to Mr. Collins were fully vested when granted
and compensation expense of $385,605 was recognized in the first quarter of 2007
with respect to the 478,802 shares granted.








48








VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements




NOTE 8 –
              STOCKHOLDERS’ EQUITY (Continued)
 WARRANTS





A summary
of warrant activity is as follows.


Warrants
                  
                  
                  Exercise
      Price per Warrant
                  
                  
                  Weighted
      Average Exercise Price
                  
                  
                  Weighted
      Average Remaining Life (in Years)Outstanding
      at January 1, 2007
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  -Issued:May
      9, 2007 in conjunction withthe
      Bridge Loan
                  
                  
                  776,051
                  
                  
                  
                  1.2
                  
                  
                  
                  1.2
                  
                  
                  
                  3.4May
      9, 2007 in conjunction with theNotes
                  
                  
                  842,500
                  
                  
                  
                  1.2
                  
                  
                  
                  1.2
                  
                  
                  
                  3.4October
      17, 2007 in conjunction withthe
      sale of equity securities
                  
                  
                  1,373,334
                  
                  
                  
                  1.8
                  
                  
                  
                  1.8
                  
                  
                  
                  3.8October
      17, 2007 in conjunction withthe
      sale of equity securities
                  
                  
                  1,373,334
                  
                  
                  
                  2.1
                  
                  
                  
                  2.1
                  
                  
                  
                  3.8Exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Expired
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at December 31, 2007
                  
                  
                  4,365,219
                  
                  
                  
                  
                  
                  
                  
                  1.7
                  
                  
                  
                  3.6Issued:May
      2008 in conjunction with the sale ofequity
      securities
                  
                  
                  2,846,952
                  
                  
                  
                  1.3
                  
                  
                  
                  1.3
                  
                  
                  
                  4.4October
      7,  2008 in conjunction with thesale
      of equity securities
                  
                  
                  253,816
                  
                  
                  
                  1.1
                  
                  
                  
                  1.1
                  
                  
                  
                  4.4Exercised
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Expired
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      and exercisable atat
      December 31, 2008
                  
                  
                  7,465,987
                  
                  
                  
                  
                  
                  
                  
                  1.5
                  
                  
                  
                  3.9














49





.




VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements





NOTE 9 –
              SHARE-BASED
      COMPENSATON


During
2006 and 2007, the Company granted certain key employees and advisors shares of
common stock as part of the Company’s offer of employment. The purpose was to
enable the Company to retain and motivate such employees. The grants are
recognized ratably as compensation expense over the requisite service periods
based on the fair value of the grants as of the grant dates. Because grant dates
were prior to the Share Exchange, fair value of shares at the grant date was
determined using a discounted cash flow model. Common shares totaling 233,562 as
of December 31, 2008 will vest at various times through February of
2010.





Shares
granted as compensation are as follows:




Grant
      Date
                        
                        Fair
      Value at Grant Date
                        
                        
                        Shares
      Granted as of December 31, 2007
                        
                        
                        Shares
      Issued during the period from January 1, 2007 through December 31,
      2007
                        
                        
                        Vested
      Shares as of December 31, 2008
                        
                        
                        Unvested
      Shares as of December 31, 20082/13/2006
                        
                        $
                        12,700
                        
                        
                        
                        77,854
                        
                        
                        
                        38,927
                        
                        
                        
                        77,854
                        
                        
                        
                        -4/17/2006
                        
                        
                        14,800
                        
                        
                        
                        77,854
                        
                        
                        
                        38,927
                        
                        
                        
                        77,854
                        
                        
                        
                        -6/1/2006
                        
                        
                        15,815
                        
                        
                        
                        77,854
                        
                        
                        
                        38,927
                        
                        
                        
                        77,854
                        
                        
                        
                        -2/1/2007
                        
                        
                        407,550
                        
                        
                        
                        506,051
                        
                        
                        
                        506,051
                        
                        
                        
                        272,489
                        
                        
                        
                        233,5622/19/2007
                        
                        
                        583,110
                        
                        
                        
                        724,042
                        
                        
                        
                        724,042
                        
                        
                        
                        724,042
                        
                        
                        
                        -Total
                        
                        $
                        1,033,975
                        
                        
                        
                        1,463,655
                        
                        
                        
                        1,346,874
                        
                        
                        
                        1,230,093
                        
                        
                        
                        233,562





There
were no shares granted, exercised or forfeited during the year ended December
31, 2008.





On
February 19, 2007, Dr. George Hoag, a founder of the Company and Senior Vice
President and Director of Research and Development, returned 350,343 common
shares to the Company for no consideration. Dr. Hoag received these shares on
February 1, 2006 (inception). These shares were reissued to the parties
receiving the 724,042 common shares granted on February 19, 2007. Consequently,
the total number of new shares issued by the Company for stock compensation for
the period from January 1, 2007 through December 31, 2007 was 996,531 shares
(1,346,874 shares issued as stock compensation less 350,343 shares returned to
the Company by Dr. Hoag).





On March
27, 2008, the Board of Directors approved the adoption of the 2008 Stock
Incentive Plan (the “Plan”).  The purpose of the Plan is to promote
the long-term growth and profitability of the Company by enabling the Company to
attract, retain and reward the best available persons for positions of
substantial responsibility within, or support of, the Company or certain
affiliates of the Company.  Under the Plan, eligible participants may
be awarded options to purchase common stock of the Company, restricted shares,
restricted share units, share appreciation rights, phantom shares or performance
awards. The Board has authority to administer the Plan and has delegated this
authority to the Compensation Committee of the Board.  In addition,
the Board or the Compensation Committee may delegate duties to the Company’s
chief executive officer or other senior officers of the Company, to the extent
permitted by law and the Company’s Bylaws.  Employees, officers,
directors and consultants of the Company, or of certain affiliates of the
Company, are eligible to participate in the Plan.  However, the actual
recipients of awards under the Plan are selected by the Board or the
Compensation Committee.  The Plan authorizes the granting of awards up
to a maximum of two million (2,000,000) shares of common stock of the Company.
Stock available under the Plan may be, in any combination, authorized but
unissued share of common stock, treasury stock and shares of common stock that
have been repurchased, in the market, and canceled by the Company.  If
any award granted under the Plan expires, terminates or is forfeited,
surrendered or canceled, without delivery (or, in the case of restricted shares,
vesting) of common stock or other consideration, the shares of common stock of
the Company that were underlying the award shall again be available under the
Plan.













50











VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements (Unaudited)







NOTE 9 –
              SHARE-BASED
      COMPENSATION (Continued)





On April
10, 2008, the Board of Directors of the Company granted incentive stock options
to purchase 50,000 shares of Company’s common stock to an officer of the Company
and incentive stock options to purchase 476,554 shares of the Company’s common
stock to certain employees of the Company. On July 30, 2008 and October 1, 2008,
the Board of Directors of the Company granted an incentive stock option to
purchase 5,000 shares and 100,000 shares, respectively, of the Company’s common
stock to certain employees of the Company. These aforementioned grants are
hereinafter collectively referred to as the “Employee Options”.  The
Employee Options were granted pursuant to the Plan.  The Employee
Options will vest in equal yearly increments over a five-year period beginning
on the first anniversary of the initial grant date and will expire six years
from the date of initial grant.  The exercise prices per share payable
upon the exercise of the April 10, 2008, July 30, 2008 and October 1, 2008
Employee Options are $1.25, $1.03 and $0.75, respectively, each of which is
equal to the fair market value of the Company’s common stock as determined by
the closing price of the Company’s common stock on each respective grant
date.





On April
10, 2008, the Board of Directors of the Company granted nonqualified stock
options to purchase 745,879 shares of the Company’s common stock to three
non-employee directors of the Company (collectively, the “Non-Employee Director
Options”).  The Non-Employee Director Options were granted pursuant to
the Plan.  The Non-Employee Director Options will vest in
approximately equal yearly increments over a three-year period beginning on the
first anniversary of the initial grant date and will expire on April 10,
2012.  The exercise price per share payable upon the exercise of each
of the Non-Employee Director Options is $1.25, which is equal to the fair market
value as of April 10, 2008 of the Company’s common stock as determined by the
April 10, 2008 closing price of the Company’s common stock.





Share
information related to options granted under the Plan is as
follows:




Employee
      Options
                      
                      
                      Weighted
      Average Exercise Price
                      
                      
                      Non-Employee
      Director Options
                      
                      
                      Weighted
      Average Exercise Price
                      
                      
                      Total
      2008 Stock Incentive Plan
                      
                      
                      Weighted
      Average Exercise PriceOutstanding
      at January 1, 2008
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -
                      
                      
                      $
                      -Granted
                      
                      
                      631,554
                      
                      
                      
                      1.17
                      
                      
                      
                      745,879
                      
                      
                      
                      1.25
                      
                      
                      
                      1,377,433
                      
                      
                      
                      1.21Forfeited
                      
                      
                      (156,554
                      )
                      
                      
                      1.25
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (156,554
                      )
                      
                      
                      1.25Exercised
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      at December 31, 2008
                      
                      
                      475,000
                      
                      
                      
                      1.14
                      
                      
                      
                      745,879
                      
                      
                      
                      1.25
                      
                      
                      
                      1,220,879
                      
                      
                      
                      1.21Available
      for future grant
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      779,121Average
      remaining term (in years)
                      
                      
                      5.4
                      
                      
                      
                      
                      
                      
                      
                      3.3
                      
                      
                      
                      
                      
                      
                      
                      4.1Exercisable
      at December 31, 2008
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      -Intrinsic
      Value:Outstanding
                      
                      $
                      -
                      
                      
                      
                      
                      
                      
                      $
                      -
                      
                      
                      
                      
                      
                      
                      $
                      -Exercisable
                      
                      $
                      -
                      
                      
                      
                      
                      
                      
                      $
                      -
                      
                      
                      
                      
                      
                      
                      $
                      -











51








VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements (Unaudited)








NOTE 9 –
              SHARE-BASED
      COMPENSATION (Continued)





The
following table summarizes the status of the Company’s non-vested stock
options.





Non-Vested
      OptionsNumber
      of Shares
                            
                            
                            Weighted
      Average Fair Value per ShareNon-vested
      at January 1, 2008
                            
                            
                            -
                            
                            
                            $
                            -Granted
                            
                            
                            1,377,433
                            
                            
                            
                            0.52Vested
                            
                            
                            -
                            
                            
                            
                            -Forfeited
                            
                            
                            (156,554
                            )
                            
                            
                            0.58Non-vested
      at Dec. 31, 2008
                            
                            
                            1,220,879
                            
                            
                            
                            0.51








The
Company estimates the fair value of stock options using the Black-Scholes
valuation model. The following table summarizes the assumptions used to compute
the weighted average fair value of stock options granted in 2008.




Non-EmployeeEmployee
      Option
                              
                              
                              Director
      OptionsWeighted
      average volatility
                              
                              
                              58%
                              
                              
                              
                              55%Risk
      free interest rate
                              
                              
                              2.6%
                              
                              
                              
                              2.0%Expected
      holding period
                              
                              4.5
      years
                              
                              
                              3.0
      yearsDividend
      yield
                              
                              
                              -
                              
                              
                              
                              -





No
dividend yield was assumed because the Company has never paid a cash dividend.
Volatilities were developed using a blend of the Company’s historical volatility
and historical volatilities of selected comparable companies. A blended
volatility was used because the Company is a relatively new public company and
there is limited historical data available on the publicly traded market prices
of the Company’s common stock. The risk-free interest rate was developed using
the U.S. Treasury yield for periods equal to the expected life of the stock
options on the grant date. The expected holding period was developed based on
the mid-point between the vesting date and the expiration date of each
respective grant as permitted under the SEC’s Staff Accounting Bulletin No. 110,
“Share-Based Payment.” This method of determining the expected holding period
was utilized because the Company does not have sufficient historical experience
from which to estimate the period.











52













VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements (Unaudited)





NOTE 9 –
              SHARE-BASED COMPENSATION (Continued)





The
following table summarizes the components and classification of share-based
compensation expense included in the statement of operations.





Year
      ended December 31,2008
                                      
                                      
                                      2007Shares
      granted as compensation
                                      
                                      $
                                      83,994
                                      
                                      
                                      $
                                      874,709Stock
      options granted pursuant tothe
      Plan
                                      
                                      
                                      236,143
                                      
                                      
                                      
                                      -Total
      share-based compensation
                                      
                                      $
                                      320,137
                                      
                                      
                                      $
                                      874,709Cost
      of revenue
                                      
                                      $
                                      58,897
                                      
                                      
                                      $
                                      2,935Selling,
      general and administration
                                      
                                      
                                      261,240
                                      
                                      
                                      
                                      871,774Total
      share-based compensation
                                      
                                      $
                                      320,137
                                      
                                      
                                      $
                                      874,709





As of
December 31, 2008, additional compensation expense of $38,184 related to the
233,562 unvested shares granted as compensation will be recognized over the
remaining requisite future service period ending February 5, 2010.





Additional
compensation expense (net of estimated forfeitures) related to the unvested
portion of stock options granted pursuant to the Plan totaled $395,236 as of
December 31, 2008. Unvested compensation expense related to stock options
granted pursuant to the Plan is expected to be recognized over a remaining
weighted average period of 1.8 years.





As the
Company has not achieved profitable operations, management has determined that
it is more likely than not that the future benefits arising from any share-based
compensation will not be realized and has accordingly recorded a valuation
allowance for the full amount of any resulting deferred tax assets.


NOTE 10 –
              OPERATING
      LEASE COMMITMENTS


The
      Company leases its facilities and certain office equipment under operating
      leases which expire in July 2012 and March 2010, respectively. The Company
      has an option to renew its facility lease for an additional 5 years.
      Future minimum rental commitments under these operating leases are as
      follows.





Year
      ending December 31:2009
                          
                          $
                          42,4852010
                          
                          
                          41,1842011
                          
                          
                          41,4172012
                          
                          
                          24,500$
                          149,586





Rental
expenses under operating leases totaled $43,069 and $26,735 for the years ended
December 31, 2008 and 2007, respectively.





Real
estate taxes, insurance, utilities, repairs and maintenance expenses are
generally obligations of the Company, and accordingly, are not included above as
part of rental commitments and expenses.









53









VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements


NOTE 11 –
              LOSS
      PER SHARE


The
computation of basic net loss per common share is based on the weighted-average
number of common shares outstanding. The shares issuable upon conversion of the
Notes or exercise of warrants have been excluded from the calculation of diluted
shares as their effect would be anti-dilutive. Accordingly, basic and fully
diluted shares used in the calculation of weighted-average number of common
shares outstanding are equal for all periods presented. The weighted average of
anti-dilutive common share equivalents excluded from the loss per share
calculations for the years ended December 31, 2008 and 2007 totaled 2,408,272
and 2,115,077 equivalent shares, respectively.





Shares
outstanding in all prior periods presented have been revised to reflect the
exchange ratio of the Share Exchange (Note 4). In accordance with the terms of
the Share Exchange, each share of VeruTEK-Delaware common stock was exchanged
for 778.54 shares of VeruTEK-Nevada common stock.


NOTE 12 –
              INCOME
      TAXES





For the
period February 1, 2006 (inception) through March 31, 2007, the Company was an
S-Corporation under Subchapter S of the Internal Revenue Code.  Under
those provisions, the Company did not pay federal or state corporate income
taxes on its taxable income.





The
provision for income taxes differs from the amount computed by applying the
statutory rate as follows:




2008
                
                
                2007Income
      taxes using U.S. federal statutory rate
                
                $
                (611,000
                )
                
                $
                (2,008,000
                )State
      income taxes, net of federal benefit
                
                
                (97,000
                )
                
                
                (171,000
                )Valuation
      allowance
                
                
                766,000
                
                
                
                1,347,000S
      Corporation income
                
                
                -
                
                
                
                433,000Stock
      compensation
                
                
                -
                
                
                
                254,000Share-based
      expenses
                
                
                -
                
                
                
                136,000Other
                
                
                (58,000
                )
                
                
                9,000Total
                
                $
                -
                
                
                $
                -





Significant
      components of the Company’s deferred tax assets and liabilities at
      December 31, 2008 and 2007 are as
follows:





2008
                    
                    
                    2007Deferred
      income tax liabilities:Fixed
      assets
                    
                    $
                    (30,000
                    )
                    
                    $
                    (10,000
                    )Deferred
      income tax assets:Deferred
      compensation
                    
                    
                    415,000
                    
                    
                    
                    254,000Derivative
      instrument  / debt
                    
                    
                    48,000
                    
                    
                    
                    844,000Net
      operating losses
                    
                    
                    2,265,000
                    
                    
                    
                    844,0002,728,000
                    
                    
                    
                    1,942,000Net
      deferred income tax assets
                    
                    
                    2,698,000
                    
                    
                    
                    1,932,000Valuation
      allowance
                    
                    
                    (2,698,000
                    )
                    
                    
                    (1,932,000
                    )Net
      deferred income tax assets/(liabilities)
                    
                    $
                    -
                    
                    
                    $
                    -








54







VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements




NOTE 12 –
              INCOME
      TAXES (Continued)


As the
Company has not achieved profitable operations, management has determined that
it is more likely than not that the future benefits will not be realized.
Therefore, the Company recorded a valuation allowance for the full amount of the
deferred tax assets.





As of
December 31, 2008, the Company had net operating loss carry-forwards for federal
and state income tax purposes of approximately $6,800,000 which are available to
offset future federal and state taxable income through 2027.





The
Company has a tax benefit of approximately $382,000 related to the grant of
common stock to certain key employees and advisors.  Pursuant to SFAS
123R, the benefit will be recognized and recorded to additional paid-in capital
when the benefit is realized through the reduction of taxes
payable.





The
Company complies with the provisions of FIN 48. FIN 48 addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements.  Under FIN 48,
the Company may recognize the tax benefit from an uncertain tax position only if
it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The Company has determined that the Company has no uncertain tax
positions requiring recognition under FIN 48.





The
Company is subject to U.S. federal income tax as well as income tax of certain
state jurisdictions. The Company has not been audited by the U.S. Internal
Revenue Service or any states in connection with income taxes. The periods from
February 1, 2006 (inception) to December 31, 2006, January 1, 2007 to May 9,
2007, May 10, 2007 to December 31, 2007 and January 1, 2008 to December 31, 2008
remain open to examination by the U.S. Internal Revenue Service and state taxing
authorities.





We
recognize interest accrued related to unrecognized tax benefits and penalties,
if incurred, as a component of income tax expense.


NOTE 13 –
              DUE
      TO OFFICERS / DIRECTORS
 The
Company has employment agreements dated May 4, 2007 with Mr. John Collins,
President and Chief Executive Officer, and Mr. George Hoag, Senior Vice
President, Research and Development. The agreements expire on December 31, 2016.
Mr. Collins’ agreement includes a base salary of $250,000 per annum and Mr.
Hoag’s agreement includes a base salary of $350,000 per annum. Mr. Collins and
Mr. Hoag are also owed $300,000 each for compensation earned in 2006, payable at
a future unspecified date and subject to the approval of the holders of the
Notes under the terms of the Share Exchange. These amounts totaling $600,000 are
included in due to officers/directors in the accompanying consolidated balance
sheets.


NOTE 14 –
              EMPLOYEE
      RETIREMENT PLAN
  The
Company offers certain employees the opportunity to contribute to a 401(k) plan
that is administered by a third party. Under the plan, qualified employees may
contribute a portion of their earnings on a pre-tax basis up to applicable IRS
limits. The Company may, at its discretion, make additional contributions on
behalf of qualified employees. The Company did not provide any contributions to
the plan on behalf of employees for the years ended December 31, 2008 or
2007.








55















VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements




NOTE 15 –
              FAIR
      VALUE MEASUREMENTS


SFAS No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement.  Therefore, a fair value measurement
should be determined based on the assumptions that market participants would use
in pricing the asset or liability.  As a basis for considering market
participant assumptions in fair value measurements, SFAS 157 establishes a fair
value hierarchy that distinguishes between market participant assumptions based
on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).





Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets
or liabilities that the Company has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that
are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, which is typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.





The fair
value of the derivative instrument liability is determined using the
Black-Scholes model. This model uses inputs such as the underlying price of the
shares issued when the warrant is exercised, volatility, risk free interest rate
and expected life of the instrument. The Company has determined that the inputs
associated with this fair value determination are readily observable and as a
result the instrument is classified within Level 2 of the fair-value
hierarchy.





The
Company’s financial assets and liabilities that are reported at fair value in
the accompanying consolidated balance sheets as of December 31, 2008, were as
follows:





Level
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    Balance
      at December 31, 2008Liabilities:Derivative
      instrument liability
                    
                    $
                    -
                    
                    
                    $
                    154,000
                    
                    
                    $
                    -
                    
                    
                    $
                    154,000


NOTE 16 –
              RELATED
      PARTIES




Certain
officers and directors have provided personal guarantees in connection with the
Company’s Term Note, vehicle financing and leasing of certain computer
equipment.





Douglas
Anderson, Mark Ain, and Carlos Naudon, each a director of the Company, purchased
units issued as part of the May 2008 private placement of equity securities. Mr.
Anderson purchased 170,454 units, Mr. Ain purchased 170,455 units and Mr. Naudon
purchased 113,636 units.  Each unit is comprised of two shares of the
Company’s common stock and a five year non-callable warrant to purchase one
share of the Company’s common stock at an exercise price of $1.30 per share (see
Note 8).





Douglas
Anderson, Mark Ain, and Carlos Naudon, each a director of the Company, also
purchased investment units issued as part of the October 17, 2007 private
placement of equity securities. Douglas Anderson purchased 200,000 investment
units, Mark Ain purchased 133,000 investment units and Carlos Naudon purchased
direct and indirect beneficial ownership interests in 134,000 investment
units.  Each investment unit is comprised of one share of the
Company’s common stock; a five year non-callable warrant to purchase one share
of the Company’s common stock at an exercise price of $1.80 per share; and a
five year non-callable warrant to purchase one share of the Company’s common
stock at an exercise price of $2.10 per share (See Note 8).











56









VeruTEK
Technologies, Inc.


Notes
to Consolidated Financial Statements






NOTE 17 –
              SUBSEQUENT
      EVENT





On
February 3, 2009, VeruTEK-Nevada, entered into an agreement and plan of merger
(the “Merger Agreement”) with VeruTEK-Delaware, whereby VeruTEK-Nevada has
agreed to merge with and into VeruTEK-Delaware in order to effect the
reincorporation of VeruTEK-Nevada from the State of Nevada to the State of
Delaware (the “Reincorporation”).  Among other things, the
Reincorporation is intended to allow the surviving corporation to take advantage
of the greater predictability and flexibility afforded by Delaware’s corporate
laws and its extensive and established case law.





As a
result of the Reincorporation, (1) VeruTEK-Nevada will cease to exist and
VeruTEK-Delaware will be the surviving corporation, (2) each outstanding share
of VeruTEK-Nevada common stock, par value $0.001 per share (“Nevada Common
Stock”), will convert into one share of VeruTEK-Delaware common stock, par value
$0.001 per share (“Delaware Common Stock”), (3) each outstanding share of
Delaware Common Stock held by VeruTEK Nevada will be cancelled and retired, (4)
each outstanding option to acquire shares of Nevada Common Stock will be
converted into and became an equivalent option to acquire, upon the same terms
and conditions, the number of shares of Delaware Common Stock that is equal to
the number of shares of Nevada Common Stock that an optionee would have received
had an optionee exercised such option in full immediately before the effective
time of the Reincorporation, (5) all other rights to acquire shares of Nevada
Common Stock will be converted into the right to acquire, upon the same terms
and conditions, the number of shares of Delaware Common Stock that is equal to
the number of shares of Nevada Common Stock that the holder would have received
had the holder exercised such right in full immediately before the effective
time of the Reincorporation, and (6) VeruTEK-Delaware will succeed to, assume
and acquire all of the rights, privileges, debts, liabilities, obligations,
duties, powers and property of VeruTEK-Nevada.  The charter and
by-laws of VeruTEK-Delaware will become the governing documents of the surviving
corporation.  In addition, the directors and officers of
VeruTEK-Nevada immediately prior to the effective time of the Reincorporation
will become the directors and officers of the surviving
corporation.





The
closing of the Reincorporation is subject to no stockholders of VeruTEK-Nevada
exercising dissenters’ rights in connection with the
Reincorporation.  Presuming that no such dissenters’ rights are
exercised, VeruTEK-Nevada’s current plan is for the Reincorporation to be
consummated shortly after the filing of a Form 15 with the Securities and
Exchange Commission to voluntarily suspend VeruTEK-Nevada’s duty to file reports
under Section 15(d) of the Securities Exchange Act of 1934, as
amended.  VeruTEK-Nevada’s current plan is to file the Form 15
following the filing of its Form 10-K for the fiscal year ended December 31,
2008; however, the timing of the filing of the Form 15 will continue to be
evaluated by the Board of Directors of VeruTEK-Nevada and may be delayed at any
time and for any amount of time, including indefinitely, in the sole discretion
of the Board of Directors.











57







Item 9.   Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure





Not
Applicable





Item 9A(T).   Controls and
Procedures





Disclosure Controls and
Procedures





The
Company’s management, with the participation of its Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure
controls and procedures as of December 31, 2008.  The term “disclosure
controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. The
Company’s management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of the Company’s disclosure controls and procedures as of December
31, 2008, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that, as of such date, the Company’s disclosure controls and
procedures were effective at the reasonable assurance level.





Changes in Internal Control
Over Financial Reporting





No change
in the Company’s internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter
ended December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





Annual Report of Management
on Internal Control Over Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act).





The
internal control over financial reporting at the Company was designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes those policies and procedures
that:





·
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





·
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of
    America;





·
            provide
      reasonable assurance that receipts and expenditures of the Company are
      being made only in accordance with authorization of management and
      directors of the Company; and





·
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of assets that could have a
      material effect on the consolidated financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.




The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008. Management based this
assessment on criteria for effective internal control over financial reporting
described in “Internal Control — Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this
assessment, the Company’s management determined that, as of December 31, 2008,
the Company maintained effective internal control over financial reporting.
Management reviewed the results of its assessment with the Audit Committee of
the Company’s Board of Directors.





This
annual report on Form 10-K does not include an attestation report of the
Company’s independent registered public accounting firm regarding internal
control over financial reporting.  Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the SEC that permit the Company to provide only management’s
report in this annual report on Form 10-K.





Item 9B.   Other Information





None.








58





PART
III




Item 10.   Directors, Executive Officers and
Corporate Governance





Executive Officers and
Directors




Below are
the names and certain information regarding our executive officers and
directors:





Employed
                          
                          DirectorName
                          
                          Age
                          
                          Position
      with Company
                          
                          Since
                          
                          SinceGeorge
      Hoag
                          
                          55
                          
                          Senior
      Vice President and Director of Research and Development
                          
                          2/1/2006
                          
                          NAJohn
      Collins
                          
                          49
                          
                          President,
      Chief Executive
                            Officer,
      and Director
                          
                          2/1/2006
                          
                          5/9/2007Michael
      Vagnini
                          
                          52
                          
                          Senior
      Vice President and
                            Chief
      Financial Officer
                          
                          2/5/2007
                          
                          NADouglas
      Anderson
                          
                          59
                          
                          Director
                          
                          NA
                          
                          10/12/2007





Mark
      Ain
              
              65
              
              Director
              
              NA
              
              10/12/2007





Carlos
      Naudon
              
              58
              
              Director
              
              NA
              
              10/12/2007








Messrs.
Ain and Naudon are classified as Class A Directors and Messrs. Anderson and
Collins are classified as Class B Directors.  The Class A Directors
were elected to hold office until our 2008 annual meeting of stockholders,
following which they would be nominated to serve a one-year term, and thereafter
would be nominated to serve two-year terms.  The Class B Directors
were elected to hold office until our 2008 annual meeting of stockholders,
following which they would be nominated to serve two-year
terms.  Because we did not hold an annual meeting of stockholders in
2008, Messrs. Ain, Anderson, Collins and Naudon will continue to serve as
directors until their successors have been duly elected and
qualified.





Our
officers are elected annually by our Board of Directors (subject to the terms of
any employment agreement) at the meeting of the Board of Directors that follows
our annual meeting of stockholders.  Each officer holds office until
such officer’s successor has been duly appointed and qualified, unless an
officer sooner dies, resigns or is removed by the Board.





There are
no family relationships among any of our directors or executive
officers.





Background of Executive
Officers and Directors





John Collins serves as
President, Chief Executive Officer and Director. Dr. Collins received his Ph.D.
in Soil Physical Chemistry from the University of California (Riverside) in
1988, his MS from the University of Connecticut in 1985 and his BS from McGill
University in 1980. In his 20-year career, he has managed regional offices for
several large environmental consulting firms and has consulted for the
Department of Defense/Energy/EPA and Fortune 500 companies on environmental
risk, remediation, insurance cost recovery and liability. Dr. Collins is a
well-known proponent of green technologies in solving the worldwide legacy of
industrial contamination. Prior to joining the Company in 2006, Dr. Collins
worked for GEI Consultants, Inc. from 2004 to 2005 and for Vanasse Hangen
Brustlin, Inc. from 2002 to 2004.














59





George Hoag serves as Senior
Vice President and Director of Research and Development. Dr. Hoag has served in
this role since January 2007. Dr. Hoag also served as President and Chief
Executive Officer of the Company from its inception (February 1, 2006) through
January 2007. Dr. Hoag was a director of the Company from its inception through
October 12, 2007. Dr. Hoag received his Ph.D. in Environmental Engineering in
1983 from the University of Connecticut, his MS from the University of Lowell in
1980 and his BA from the University of Colorado in 1976. He founded and directed
the Environmental Research Institute at the University of Connecticut until 2002
and served as a Professor in Civil and Environmental Engineering through 2003.
He was a manager of Hoag Environmental Systems, LLC, a sole proprietorship
focused on environmental consulting, from 1998 to 2007. Dr. Hoag has over 200
peer-reviewed scientific papers, 4 patents and is considered one of the fathers
of In Situ Chemical Oxidation (ISCO), Soil Vapor Extraction and other
environmental remediation methods.





Michael Vagnini serves as
Chief Financial Officer and Senior Vice President. Mr. Vagnini worked for
Chemtura Corporation (formerly Crompton Corporation and Uniroyal Chemical
Corporation), a manufacturer and distributor of chemical products, for 27 years
until February 2007 serving finally as Senior Vice President and Controller.
During that time, he was CFO of Uniroyal Chemical Canada Ltd. from 1986 through
1994. Mr. Vagnini received his BS - Accounting from the University of
Connecticut in 1978 and his MBA - Finance from the University of Connecticut in
1980.




Douglas Anderson serves as the
Chairman of the Board.  Mr. Anderson served as a director of Open
Solutions, Inc., a leading provider of e-business and software applications for
community financial institutions, from July 1994 until it was acquired by The
Carlyle Group and Providence Equity Partners in January 2007.  Mr.
Anderson previously served as Chairman of the Board of Open Solutions from
December 1997 to March 2000, as Chief Executive Officer from December 1997 to
November 1999 and as President from October 1995 to December 1997. In addition,
Mr. Anderson worked for the Savings Bank of Manchester from 1987 to 2004 finally
serving as President and Chief Operating Officer until its acquisition by New
Alliance Bank.  Mr. Anderson is a director of NewAlliance Bancshares,
Inc.





Mark Ain serves as a
director.  Mr. Ain founded Kronos Incorporated, a provider of
workforce management solutions, in 1977 and served as Kronos’ CEO through 2005.
He has since served as executive chairman. Mr. Ain has a BS in electrical
engineering from MIT, and an MBA from the Simon School at the University of
Rochester.  Mr. Ain is also a director for several public and
non-profit companies including KVH Industries, LTX-Credence Corporation,
SpaceClaim Corporation, Walker Home & School, YMCA of Boston; Board of
Trustee member, University of Rochester, and Simon School Executive Advisory
Committee, University of Rochester.





Carlos Naudon serves as a
director.  Mr. Naudon has served as the President and CEO of Banking
Spectrum Inc. and a partner of Allister & Naudon, counselors at law, both
since 1984.  Mr. Naudon received his Bachelors in economics and
computer science from the University of Maryland in 1972, his  MBA
(Accounting, Finance and Operations Management) in 1974 from the
University of  Rochester and his law degree from Brooklyn Law
School in 1981. Mr. Naudon is a retired Certified Public
Accountant.




Code of
Ethics




We have
adopted a code of ethics that applies to all employees, including our principal
executive officer, principal financial officer and principal accounting officer.
We will provide a copy of our code of ethics to any person without charge, upon
request to VeruTEK Technologies, Inc., c/o Chief Financial Officer, 65 West
Dudley Town Road, Suite 100, Bloomfield, CT 06002. We intend to disclose waivers
and amendments of provisions of the code, if any, for our principal executive
officer, principal financial officer and principal accounting officer and that
relate to any element of the code of ethics definition enumerated in applicable
SEC rules by posting such information on our Internet website, www.verutek.com.





Audit
Committee





The
members of our audit committee are Messrs. Anderson, Ain and Naudon. Our Board
of Directors has determined that Mr. Naudon is an “audit committee financial
expert” as defined by applicable SEC rules.  The Board of Directors
has determined that each of the members of our audit committee is independent as
defined under applicable rules established by The NASDAQ Stock Market
(“NASDAQ”), which the Company uses for this purpose because the OTCBB does not
have its own rules for director independence, and the independence requirements
contemplated by Rule 10A-3 under the Exchange Act.




60





Item
11.   Executive Compensation




Summary Compensation
Table




The
following table sets forth information concerning the compensation earned by the
Company’s Chief Executive Officer and the two other most highly compensated
executive officers who were serving as such as of December 31, 2008, and whose
total compensation during the fiscal year ended December 31, 2008 exceeded
$100,000 (the “Named Executive Officers”).  There were no other
executive officers of the Company. Each became an executive officer of our
Company at the time of the share exchange.





Name
      and Principal Position
                  Year
                  
                  Salary
                  
                  
                  Stock
      Awards
                    (2)
                  
                  
                  
                  
                  
                  Option
      Awards
                    (2)
                  
                  
                  
                  
                  
                  All
      Other Compensation
                  
                  
                  
                  
                  
                  TotalJohn
      Collins
                  2008
                  
                  $
                  250,000
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  
                  
                  
                  $
                  22,500
                  
                  
                  
                  (3
                  )
                  
                  $
                  272,500President
      and Chief
                  2007
                  
                  
                  256,863
                  
                  
                  
                  385,605
                  
                  
                  
                  (4
                  )
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  642,468Executive
      OfficerMichael
      Vagnini (1)
                  2008
                  
                  
                  200,000
                  
                  
                  
                  83,994
                  
                  
                  
                  (5
                  )
                  
                  
                  8,536
                  
                  
                  
                  (6
                  )
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  292,530Senior
      Vice President and
                  2007
                  
                  
                  148,037
                  
                  
                  
                  285,372
                  
                  
                  
                  (5
                  )
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  433,409Chief
      Financial OfficerGeorge
      Hoag
                  2008
                  
                  
                  350,000
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  9,000
                  
                  
                  
                  (7
                  )
                  
                  
                  359,000Senior
      Vice President and
                  2007
                  
                  
                  371,250
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  5,250
                  
                  
                  
                  (7
                  )
                  
                  
                  376,500Director
      of Research andDevelopment





(1)
            Mr.
      Vagnini commenced employment with our Company in February
      2007.(2)
            The
      amounts included in these columns reflect the value of stock awards and
      stock option awards that were recognized as compensation expense for
      financial statement reporting purposes, calculated pursuant to SFAS 123R.
      (See Note 9 to the consolidated financial statements for a further
      discussion of assumptions used in calculating stock compensation
      expense.)(3)
            Mr.
      Collins received a payment of $22,500 in lieu of matching 401(k)
      contributions.(4)
            On
      February 19, 2007, the Company awarded to Mr. Collins 478,802 shares of
      the Company’s common stock.  Subsequently, the Company
      determined that, because such shares of common stock were unregistered,
      Mr. Collins would be unable to sell a portion of such shares to pay the
      related income taxes with respect to the issuance of such
      shares.  As a result, the Company’s Board of Directors and Mr.
      Collins agreed to rescind the issuance of such shares and Mr. Collins
      returned the shares to the Company for no consideration and such shares
      were cancelled on December 31, 2007. The 478,802 shares granted to Mr.
      Collins were fully vested when granted and  the related
      compensation expense of $385,605 was recognized in the first quarter of
      2007.(5)
            On
      February 1, 2007, Mr. Vagnini was granted 506,051 shares of the Company’s
      common stock in accordance with the terms of his employment agreement, of
      which 77,854 shares vested during the year ended December 31, 2008 and
      194,635 shares vested during the year ended December 31, 2007. Mr. Vagnini
      will have 116,781 shares vesting on February 5, 2009 and 116,781 shares
      vesting on February 5, 2010. (See Note 9 to the consolidated financial
      statements for a further discussion of share-based
      compensation.)(6)
            On
      April 10, 2008, Mr. Vagnini was granted incentive stock options to
      purchase 50,000 shares of the Company’s common stock pursuant to the Plan.
      The options will vest in equal yearly increments over a five-year period
      beginning April 10, 2009 (the first anniversary of the initial grant date)
      and will expire on April 10, 2014.  (See Note 9 to the
      consolidated financial statements for a further discussion of share-based
      compensation.)(7)
            Mr.
      Hoag received an automobile allowance of $9,000 in 2008 and $5,250 in
      2007.








61











We have
employment agreements with Mr. Collins, Mr. Hoag and Mr. Vagnini. The agreements
for Mr. Collins and Mr. Hoag expire on December 31, 2016, and the agreement with
Mr. Vagnini is an “at-will” agreement. Mr. Collins’ agreement includes a base
salary of $250,000, Mr. Hoag’s agreement includes a base salary of $350,000 and
Mr. Vagnini’s agreement includes a base salary of $200,000. The Agreements
include the following benefits and payments:





a.
            annual
      incentive payments equal to a maximum of 50% of their respective base
      salaries, at the discretion of the Board of
  Directors;




b.
            participation
      in any future stock option program offered by the Company if they are then
      the owner of less than 10% of the total equity of the
    Company;





c.
            participation
      in a profit sharing plan if approved and implemented by the Board of
      Directors;d.
            twenty
      days of paid vacation annually;e.
            an
      automobile allowance of  $750 per month for Mr. Hoag;
      and




f
            severance
      in the event of a termination (or effective termination) that is not for
      cause in the amount of one year’s salary for Mr. Collins and Mr. Hoag,
      which coincides with the terms of their non-compete agreements, and 90
      days’ salary for Mr. Vagnini.




To date,
Mr. Collins and Mr. Hoag have not received approximately $300,000 each in
compensation due to them under their employment agreements. The amounts payable
to Mr. Collins and Mr. Hoag with respect to deferred compensation are included
in due to officers/directors in the accompanying balance sheets (see Note 13 to
the consolidated financial statements).





Each of
the above named executives is eligible to participate in the Company’s 401(k)
retirement plan (see Note 14 to the accompanying consolidated financial
statements). As of December 31, 2008, the Company paid Mr. Collins $22,500 in
lieu of matching contributions that would otherwise have been made with respect
to the Company’s 401(k) retirement plan. The Company no longer offers any form
of payment to match contributions made to 401(k) plans to employees or the Named
Executive Officers. There were no matching payments related to 401(k)
contributions due to Mr. Hoag or Mr. Vagnini during 2008.




Outstanding Equity Awards at
Fiscal Year-End





The
following tables sets forth certain information concerning stock options and
stock awards held by each of our Named Executive Officers as of December 31,
2008.





Option
      AwardsName
                      
                      
                      
                      
                      Number
      of Securities Underlying Unexercised Options (#)
    Exercisable
                      
                      
                      Number
      of Securities Underlying Unexercised Options (#)
    Unexercisable
                      
                      
                      Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#)
                      
                      
                      Option
      Exercise Price ($)
                      
                      Option
      Expiration Date(a)
                      
                      
                      
                      
                      (b)
                      
                      
                      (c)
                      
                      
                      (d)
                      
                      
                      (e)
                      
                      (f)John
      Collins
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Michael
      Vagnini
                      
                      (1)
                      
                      
                      
                      -
                      
                      
                      
                      50,000
                      
                      
                      
                      -
                      
                      
                      $
                      1.25
                      
                      4/10/2014George
      Hoag
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -








(1)
            On
      April 10, 2008, Mr. Vagnini was granted an incentive stock option to
      purchase 50,000 shares of the Company’s common stock pursuant to the Plan.
      The options will vest in equal yearly increments over a five-year period
      beginning April 10, 2009 (the first anniversary of the initial grant date)
      and will expire on April 10, 2014.











62






Stock
      AwardsName
                        
                        
                        
                        
                        Number
      of Shares or Units of Stock that Have Not Vested (#)
                        
                        
                        Market
      Value of Shares or Units of Stock That Have Not Vested ($)
                        
                        
                        
                        
                        
                        Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      that Have Not Vested (#)
                        
                        
                        Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested ($)(a)
                        
                        
                        
                        
                        (g)
                        
                        
                        (h)
                        
                        
                        
                        
                        
                        (i)
                        
                        
                        (j)John
      Collins
                        
                        
                        
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        $
                        -Michael
      Vagnini
                        
                        (1)
                        
                        
                        
                        233,562
                        
                        
                        
                        93,425
                        
                        
                        (2)
                        
                        
                        
                        -
                        
                        
                        
                        -George
      Hoag
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -





(1)
            On
      February 1, 2007, Mr. Vagnini was granted 506,051 shares of the Company’s
      common stock in accordance with the terms of his employment agreement, of
      which 272,489 shares were vested as of December 31, 2008. Mr. Vagnini will
      have 116,781 shares vesting on February 5, 2009 and 116,781 shares vesting
      on February 5, 2010.(2)
            The
      market value of Mr. Vagnini’s unvested shares of common stock at December
      31, 2008 was based on that day’s quoted closing market price of the
      Company’s common stock on the OTCBB under the symbol “VTKT”, which was
      $0.40 per share, multiplied by the number of unvested
    shares.





Termination
Payments




Mr.
Collins and Mr. Hoag (each is referred to as “Employee” for the purpose of this
paragraph) have entered into employment agreements with the Company where the
Employee may terminate his employment thereunder for Good Reason. "Good Reason"
means (i) a material diminution of Employee's employment duties without
Employee's consent, which consent shall not be unreasonably withheld; or (ii) a
material and persistent breach by the Company of Section 3 of the employment
agreement (Compensation). Employee must provide the Company thirty (30) days
prior written notice of his intention to resign for Good Reason which states his
intention to resign and sets forth the reasons therefore, and any resignation
without delivery of such notice shall be considered to be a resignation for
other than Good Reason. In the event that Employee terminates his employment for
Good Reason, Employee shall be entitled to (i) payment of Employee's
then-current accrued, unpaid base compensation and accrued, unused vacation,
each prorated through the date of termination, and (ii) an amount in respect of
individual severance pay equal to the then-current full year base compensation
plus bonus compensation. During the thirty (30) day period following the
delivery of such notice, Employee shall reasonably cooperate with the Company in
locating and training Employee's successor and arranging for an orderly transfer
of his responsibilities. In addition, the Company may terminate Employee’s
employment without Cause upon fourteen (14) days written notice. In the event
that Employee is terminated without Cause, Employee shall be entitled to (i)
payment of Employee’s then-current accrued, unpaid base compensation and
accrued, unused vacation, each prorated through the date of termination, and
(ii) an amount in respect of individual severance pay equal to the then-current
full year base compensation plus bonus compensation. During the fourteen (14)
day period following the delivery of such notice, Employee shall reasonably
cooperate with the Company in arranging for an orderly transfer of his
responsibilities. “Cause” means Employee’s: (i) conviction of, or indictment
for, criminal negligence or criminal acts in the work place or conviction of a
felony, (ii) violation of the Company’s material policies or procedures that
have been made known to Employee, or violation by Employee on Company premises
of any law or material regulation, (iii) material breach or violation of the
employment agreement, (iv) commission of any act of theft, fraud, dishonesty, or
falsification of any employment or Company records, (v) appropriation of a
business opportunity or transaction in contravention of Employee’s duties to the
Company, (vi) any improper action by Employee which has a detrimental effect on
the Company’s reputation or business, (vii) failure to perform the duties
assigned or requested by Employee’s superiors, or (viii) gross negligence,
incompetence or willful misconduct by Employee in the performance of Employee’s
duties.





Mr.
Vagnini is entitled to similar termination payments; however, his severance pay
would only be for a period of up to ninety (90) days.






63




Director
Compensation




Non-employee
director compensation for the fiscal year ended December 31, 2008 was as
follows.





Name
                  
                  Fees
      Earned or Paid in Cash
                  
                  
                  Option
      Awards
                    (1)
                  
                  
                  
                  
                  
                  TotalDouglas
      Anderson
                  
                  $
                  32,000
                  
                  
                  $
                  60,565
                  
                  
                  
                  (2
                  )
                  
                  $
                  92,565Mark
      Ain
                  
                  
                  32,000
                  
                  
                  
                  40,376
                  
                  
                  
                  (3
                  )
                  
                  
                  72,376Carlos
      Naudon
                  
                  
                  32,000
                  
                  
                  
                  40,376
                  
                  
                  
                  (4
                  )
                  
                  
                  72,376





(1)
            The
      amounts included in these columns reflect the value of stock option awards
      that were recognized as compensation expense for financial statement
      reporting purposes, calculated pursuant to SFAS 123R. (See Note 9 to the
      consolidated financial statements for a further discussion of assumptions
      used in calculating stock option expense.)(2)
            There
      were 319,663 outstanding options held by Mr. Anderson at December 31,
      2008.(3)
            There
      were 213,108 outstanding options held by Mr. Ain at December 31,
      2008.(4)
            There
      were 213,108 outstanding options held by Mr. Naudon at December 31,
      2008.





During
2008, each of our non-employee directors received a monthly retainer of $2,000
and a per meeting fee of $1,000.  We also reimburse our directors for
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors and committees of the Board of Directors.   In
addition, on April 10, 2008, the Board of Directors granted Mr. Anderson a stock
option to purchase 319,663 shares of the Company’s common stock and each of
Messrs. Ain and Naudon a stock option to purchase 213,108 shares of the
Company’s common stock.  The stock options vest in equal annual
installments over a three-year period beginning on April 10, 2009 and will
expire on April 10, 2012. The price per share payable upon exercise of each
stock option is $1.25.





As an
employee director, Mr. Collins is not eligible to receive either compensation or
an annual stock grant for service in his capacity as a director.











64







Item 12.   Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters





The
following table sets forth certain information, as of January 31, 2009 with
respect to the beneficial ownership of our outstanding common stock by (i) any
holder of more than 5% percent of our common stock; (ii) each of our Named
Executive Officers and directors; and (iii) our directors and executive officers
as a group. Except as otherwise indicated, each of the stockholders listed below
has sole voting and investment power over the shares beneficially
owned.





Name
      of Beneficial Owner (1)
                            
                            Amount
                              and
      Nature
                              of
      Beneficial
                              Ownership
                            
                            
                            
                            Percent
      of
                              Class
      (2)George
      Hoag*
                            
                            9,913,539
                            
                            (3)
                            
                            36.65%John
      Collins*
                            
                            
                            3,295,949
                            
                            (4)
                            
                            12.18%Michael
      Vagnini*
                            
                            
                            506,051
                            
                            
                            
                            1.87%Douglas
      Anderson*
                            
                            
                            1,123,040
                            
                            (5)
                            
                            4.07%Mark
      Ain*
                            
                            
                            1,783,558
                            
                            (6)
                            
                            6.49%Carlos
      Naudon*
                            
                            
                            750,908
                            
                            (7)
                            
                            2.75%Hoag
      Environmental, LP
                            
                            
                            2,945,995
                            
                            
                            
                            10.89%Collins
      Family LP
                            
                            
                            1,926,108
                            
                            
                            
                            7.12%All
      executive officers and directors as a group (6 persons)
                            
                            
                            17,373,045
                            
                            
                            
                            61.09%


*Executive
officer and/or director of the Company.





(1)
            Except
      as otherwise indicated, the address of each beneficial owner is c/o
      VeruTEK Technologies, Inc.,  65 West Dudley Town Rd., Suite 100,
      Bloomfield, CT 06002.(2)
            Applicable
      percentage ownership is based on 27,049,278 shares of common stock
      outstanding as of January 31, 2009, together with securities exercisable
      or convertible into shares of common stock within 60 days of January 31,
      2009 for each stockholder. Beneficial ownership is determined in
      accordance with the rules of the SEC and generally includes voting or
      investment power with respect to securities. Shares of common stock that
      are currently exercisable or exercisable within 60 days of January 31,
      2009 are deemed to be beneficially owned by the person holding such
      securities for the purpose of computing the percentage of ownership of
      such person, but are not treated as outstanding for the purpose of
      computing the percentage ownership of any other person.(3)
            Includes
      2,945,995 shares of common stock held by Hoag Environmental,
      LP.(4)
            Includes
      1,926,108 shares of common stock held by Collins Family
  LP.(5)
            Includes
      (i) warrants to purchase 200,000 shares of common stock at a price of
      $1.80 per share, (ii) warrants to purchase 200,000 shares of common stock
      at a price of $2.10 per share and (iii) warrants to purchase 170,454
      shares of common stock at a price of $1.30 per share.(6)
            Includes
      (i) warrants to purchase 133,000 shares of common stock at a price of
      $1.80 per share, (ii) warrants to purchase 133,000 shares of common stock
      at a price of $2.10 per share and (iii) warrants to purchase 170,455
      shares of common stock at a price of $1.30 per share.(7)
            Includes
      (i) 40,000 shares of common stock held by Allister & Naudon, (ii)
      warrants to purchase 94,000 shares of common stock at a price of $1.80 per
      share held by Carlos Naudon Dynasty Trust, (iii) warrants held by Allister
      & Naudon to purchase 40,000 shares of common stock at a price of $1.80
      per share, (iv) warrants to purchase 94,000 shares of common stock at a
      price of $2.10 per share held by Carlos Naudon Dynasty Trust, (v) warrants
      held by Allister & Naudon to purchase 40,000 shares of common stock at
      a price of $2.10 per share and (vi) warrants to purchase 113,636 shares of
      common stock at a price of $1.30 per share held by Carlos
      Naudon.





The
information required by Item 201(d) of Regulation S-K is contained under the
heading “Securities Authorized for Issuance Under Equity Compensation Plans” in
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities in this Form
10-K.








65








Item
13.   Certain Relationships and Related Transactions, and
Director Independence





Related Party
Transactions





During
May 2008, we completed a private placement of 2,846,952 investment units with 41
institutional and accredited investors and three of our directors. Each
investment unit, which was sold for $2.20, was comprised of two shares of common
stock and a five year non-callable warrant to purchase one share of common stock
at an exercise price of $1.30 per share. Douglas Anderson, Mark Ain, and Carlos
Naudon (each a director of the Company) purchased investment units in
conjunction with this private placement and were accordingly issued shares of
our common stock and warrants. Mr. Anderson purchased 170,454 investment units
at a total purchase price of $374,999, Mr. Ain purchased 170,455 investment
units at a total purchase price of $375,001 and Mr. Naudon purchased 113,636
investment units at a purchase price of $249,999.





On
October 17, 2007, we completed a private placement of 1,373,334 investment units
to 29 accredited investors, including Messrs. Anderson, Ain and Naudon. Each
investment unit, which was sold for $1.50, was comprised of one share of common
stock, a five year non-callable warrant to purchase one share of common stock at
an exercise price of $1.80 per share and a five year non-callable warrant to
purchase one share of common stock at an exercise price of $2.10 per
share. Messrs. Anderson, Ain and Naudon purchased investment units in
conjunction with this private placement. Mr. Anderson purchased 200,000
investment units at a total purchase price of $350,000, Mr. Ain purchased
133,000 investment units at a total purchase price of $199,500 and Mr. Naudon
purchased directly and beneficially 134,000 investment units at a purchase price
of $201,000.




Director
Independence





As noted
above, the Company’s common stock is quoted on the OTCBB.  Since the
OTCBB does not have its own rules for director independence, the Company uses
the definition of independence as established by NASDAQ, under its Marketplace
Rule 4200(a)(15).  The Board of Directors has determined that Messrs.
Anderson, Ain, and Naudon are independent in accordance with the definition of
independent director set forth in NASDAQ Marketplace Rule
4200(a)(15).





The Board
of Directors has established two committees, Audit and Compensation, to assist
it in the discharge of its responsibilities. Committee membership of each
committee is limited to independent directors, as defined by NASDAQ. Messrs.
Anderson, Ain and Naudon are each members of both the Audit and Compensation
Committees, with Mr. Naudon serving as the chairman of the Audit Committee and
Mr. Ain serving as chairman of the Compensation Committee.






66









Item
14.   Principal Accounting Fees and
Services




The
following table presents fees for services rendered by CCR LLP, our independent
registered public accounting firm, for the years ended December 31, 2008 and
2007.




Year
      Ended December 31,
    2008
                    
                    
                    Year
      Ended December 31, 2007Audit
      Fees (1)
                    
                    $
                    105,000
                    
                    
                    $
                    82,820Audit
      Related Fees (2)
                    
                    $
                    18,960
                    
                    
                    $
                    89,595Tax
      Fees (3)
                    
                    $
                    -
                    
                    
                    $
                    470All
      Other Fees
                    
                    $
                    -
                    
                    
                    $
                    -




(1)
            Audit
      fees consist of fees for professional services rendered for the audit of
      the Company’s consolidated annual financial statements and review of
      consolidated financial statement included in the Company’s quarterly
      reports.


(2)
            Audit
      related fees are for professional services rendered in connection with
      accounting consultations related to the Company’s S-1, S-8 and SB-2
      filings and other matters.


(3)
            Tax
      fees are related to consultation on tax compliance
  matters.





The
charter for our Audit Committee, which was formed in March 2008, provides that
the Audit Committee will review and approve fees paid to our independent
auditors, including audit fees and fees for all other consulting services. For
the fiscal year ended December 31, 2008, all Audit Fees and $7,740 of the
$18,960 of Audit Related Fees were approved by the Audit Committee. The remained
Audit Related Fees were not approved by the Audit Committee because they were
incurred prior to its formation.





For
the fiscal year ended December 31, 2007, $65,000 of the $82,820 of Audit Fees
were approved by our Board of Directors, as we did not have an Audit Committee
at the time.  The remaining Audit Fees, the Audit Related Fees and the
Tax Fees for the fiscal year ended December 31, 2007 were not approved by our
Board of Directors.








67




PART IV




Item
15.   Exhibits, Financial Statement Schedules




(a)  Financial
Statements.  The audited consolidated balance sheets,
statements of operations, statements of changes in stockholders’ equity
(deficiency) and statements of cash flows as of and for the fiscal years ended
December 31, 2007 and 2008 are contained in Item 8 of this Form
10-K.  All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the related
instructions or are inapplicable and, therefore, have been omitted.





(b)  Exhibits.  The
exhibits filed as part of this Form 10-K are set forth on the Exhibit Index
immediately preceding such exhibits, and are incorporated herein by
reference.





(c)  Financial Statement
Schedules.  See Item 15(a) above.














68






SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


VERUTEK
      TECHNOLOGIES, INC.By:
                /s/
      John Collins
                
                Date:
                March
      27, 2009John
      CollinsChief
      Executive OfficerBy:
                /s/
      Michael F. Vagnini
                
                Date:
                March
      27, 2009Michael
      F. VagniniChief
      Financial Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
                          
                          Title
                          
                          Date/s/
      John Collins
                          
                          President,
      Chief Executive Officer and Director
                          
                          March
      27, 2009John
      Collins
                          
                          (Principal
      Executive Officer)/s/
      George E. Hoag
                          
                          Senior
      Vice President and Director of Research and Development
                          
                          March
      27, 2009George
      E. Hoag/s/
      Michael F. Vagnini
                          
                          Senior
      Vice President and Chief Financial Officer
                          
                          March
      27, 2009Michael
      F. Vagnini
                          
                          (Principal
      Financial and Accounting Officer)





/s/
      Douglas K. Anderson
              
              Chairman
      of the Board
              
              March
      27, 2009Douglas
      K. Anderson





/s/
      Mark S. Ain
              
              Director
              
              March
      27, 2009Mark
      S. Ain





/s/
      Carlos P. Naudon
              
              Director
              
              March
      27, 2009Carlos
      P. Naudon











69








Supplemental Information to Be Furnished With Reports Filed
Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act





VeruTEK
Technologies, Inc. has not prepared or sent to its security holders an annual
report to security holders covering the fiscal year ended December 31,
2008.  In addition, since January 1, 2008, VeruTEK Technologies, Inc.
has not prepared or sent to its security holders a proxy statement, form of
proxy or other proxy soliciting material with respect to an annual or other
meeting of security holders.










70







EXHIBIT INDEX




Exhibit Number
                                  
                                  Description of Document2.1(1)
                                  
                                  Agreement
      and Plan of Share Exchange, dated as of May 9, 2007, by and among VeruTEK
      Technologies, Inc. and the shareholders of VeruTEK Technologies, Inc., on
      the one hand, and the Registrant, Ezio Montagliani and Peter Keller, on
      the other hand2.1(2)
                                  
                                  Agreement
      and Plan of Merger, dated as of February 3, 2009, by and between the
      Registrant and VeruTEK Technologies, Inc., its wholly owned
      subsidiary3.1(3)
                                  
                                  Articles
      of Incorporation of the Registrant3.2(4)
                                  
                                  Certificate
      of Amendment to Articles of Incorporation of the
  Registrant3.3(5)
                                  
                                  Bylaws
      of the Registrant4.1(6)
                                  
                                  Securities
      Purchase Agreement, dated as of May 9, 2007, by and among the Registrant,
      the purchasers party thereto and Nite Capital Master, LTD as collateral
      agent4.2(7)
                                  
                                  Form
      of Secured Convertible Note4.3(8)
                                  
                                  Form
      of Warrant to Purchase Common Stock4.4(9)
                                  
                                  Registration
      Rights Agreement, dated as of May 9, 2007, by and between the Registrant
      and the purchasers party thereto4.5(10)
                                  
                                  Security
      Agreement, dated as of May 9, 2007, by and among the Registrant and Nite
      Capital Master, LTD as collateral agent4.6(11)
                                  
                                  Form
      of Common Stock Purchase Warrant4.7(12)
                                  
                                  Registration
      Rights Agreement, dated as of May 12, 2008, by and between the Registrant
      and the subscribers party thereto4.8(13)
                                  
                                  Form
      of Subscription Agreement10.1(14)*
                                  
                                  Employment
      Agreement, effective as of May 4, 2007, by and between the Registrant and
      George Hoag10.2(15)*
                                  
                                  Employment
      Agreement, effective as of May 4, 2007, by and between the Registrant and
      John Collins10.3(16)*
                                  
                                  Employment
      Agreement, effective as of May 14, 2007, by and between the Registrant and
      Michael Vagnini10.4(17)
                                  
                                  Lease,
      dated as of June 29, 2007, by and between the Registrant and Wales Realty,
      LLC10.5(18)
                                  
                                  Agreement,
      dated as of February 22, 2008, by and between the Registrant and Keyspan
      Corporate Services LLC10.6(19)*
                                  
                                  2008
      Stock Incentive Plan10.7*
                                  
                                  Form of Incentive Stock Option Grant Agreement under the
      2008 Stock Incentive Plan10.8*
                                  
                                  Form of Nonqualified Stock Option Grant Agreement under
      the 2008 Stock Incentive Plan21.1(20)
                                  
                                  Subsidiaries
      of the Registrant31.1
                                  
                                  Certification of Principal Executive Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of
      193431.2
                                  
                                  Certification of Principal Financial Officer pursuant to
      Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of
      193432.1
                                  
                                  Certification of Principal Executive Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
                                  
                                  Certification of Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002





*
Management contract or compensatory plan or arrangement





(1)  Incorporated
by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed
on May 15, 2007.




(2)  Incorporated
by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed
on February 5, 2009.




(3)  Incorporated
by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form
SB-2 filed on December 16, 2005.




(4)  Incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed
on May 10, 2007.




(5)  Incorporated
by reference to Exhibit 3 to the Registrant’s Current Report on Form 8-K filed
on September 28, 2007.






71






(6)  Incorporated
by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K
filed on May 15, 2007.




(7)  Incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed
on May 15, 2007.




(8)  Incorporated
by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
on May 15, 2007.




(9)  Incorporated
by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed
on May 15, 2007.




(10)  Incorporated
by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form
SB-2 filed on July 20, 2007.




(11)  Incorporated
by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed
on May 16, 2008.




(12)  Incorporated
by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed
on May 16, 2008.




(13)  Incorporated
by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K
filed on May 16, 2008.




(14)  Incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on May 15, 2007.




(15)  Incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
filed on May 15, 2007.




(16)  Incorporated
by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
filed on May 15, 2007.




(17)  Incorporated
by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007.




(18)  Incorporated
by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2007.




(19)  Incorporated
by reference to Exhibit 4.3 to the Registrant’s Registration Statement on Form
S-8 filed on April 2, 2008.




(20)  Incorporated
by reference to Exhibit 21.1 to the Registrant’s Registration Statement on Form
SB-2 filed on July 20, 2007.










72