AQUA-PURE VENTURES INC. Aqua-Pure Ventures Inc. (“Aqua-Pure” or the “Company”) (TSXV: AQE), a premier recycler of oil field and shale gas wastewater, today reported financial results for its third quarter and nine month period ended September 30, 2014. The Company accomplished several milestones and financial goals during the third quarter of 2014 as it continued its growth strategy initiated in mid-2012.
Key Third Quarter Highlights:
- Q3 2014 revenue increased to $2.6 million, a 74% increase over previous year’s third quarter.
- Gross profit as a percent of sales improved in Q3 2014 to 41% from 18% in Q3 2013.
- Aqua-Pure joint venture FQS Ventures commenced operations of a second ROVER on September 5, 2014 in the Eagle Ford. Q3 2014 FQS Ventures revenue increased 62% sequentially to $1.0 million with record gross margins of 47%. Since first commercial installation 7 months ago, the first ROVER has recycled over 1 million barrels of contaminated frac water to clean brine.
- Reported its first positive quarterly cash flow from operations totaling $64,000 and generated positive EBITDA of $324,000 in Q3 2014 compared to cash flow from operations of $(431,000) and EBITDA of $(457,000) in the prior year third quarter.
- Subsequent to quarter-end, Aqua-Pure recently received notice from one of its customers in the Permian with two installed NOMAD units and one ROVER unit (contracted through the FQS joint venture) that the contract would not be renewed at this point in time due to the customer’s organizational restructuring of its water group and pending assessment of its drilling program and resulting water needs. The customer has indicated, however, the possibility of a continued relationship with Aqua-Pure upon the completion of its assessment.
- Pipeline of NOMAD opportunities is the strongest in 5 years and ROVER opportunities and performance (operational and financial) continues to surpass management’s expectations.
- Also subsequent to quarter end, Aqua-Pure contracted two additional ROVER units in the Permian, independent of the joint venture, concurrent with the completion of construction on two of three ROVER units initiated during the third quarter. The Company has drawn down the remaining $600,000 of the 5.12% - $3 million Agriculture Financial Services Corporation loan to complete construction of the third unit and initiate the build for an additional unit for which a number of E&P operators have expressed interest.
Aqua-Pure reported third quarter 2014 revenues of $2.6 million, a 74% increase compared to revenues of $1.5 million for the same period of the previous year and a 5% decrease compared to revenues of $2.7 million for the second quarter of 2014. The significant year-over-year increase in revenues is predominantly due to the full quarter contribution from four NOMAD units installed in the third and fourth quarters of 2013 at two customer sites in the oil-rich Permian basin, compared to two NOMAD units operating in the dry gas area of the Barnett shale in the prior year’s quarter. The small sequential quarterly decline was due to less water being processed for a customer that is currently undergoing an organizational restructuring of its water group. While customers have voiced total satisfaction with our equipment, and in fact, subsequent to quarter-end, Cimarex has ordered its first ROVER with expectations of contracting additional units; Aqua-Pure recently received notice from one of its customers in the Permian with two installed NOMAD units and one ROVER unit (contracted through the FQS joint venture) that the contract would not be renewed at this time due to the customer’s management reorganization and pending assessment of its drilling program and resulting water needs. The customer has indicated, however, the possibility of a continued relationship with Aqua-Pure upon the completion of its assessment.
Aqua-Pure is addressing a number of near term additional opportunities, for both the ROVER and NOMAD, and is currently making arrangements to complete two more ROVER units that it expects to have operational in Q1 2015. As of today, there are two NOMAD units operating in the Permian, one ROVER deployed in the Eagle Ford through FQS Ventures, and independent of the joint venture, two ROVER units in the Permian that were contracted during Q4 2014.
The Company reported a comprehensive loss of $(142,000) or $(0.00) per basic share for the third quarter of 2014, which included a foreign currency exchange gain of $923,000 and a loss of $(647,000) on the fair value of the company’s warrant derivatives. This compares to a comprehensive loss of $(876,000) or $(0.01) per basic share for the same period in 2013, which included a foreign currency exchange loss of $(274,000) plus a loss of $(238,000) on the fair value of the Company’s warrant derivatives. This also compares to a comprehensive loss of $(862,000) or $(0.01) per basic share for the second quarter 2014, which included foreign currency exchange loss of $(666,000) and a loss of $(93,000) on the fair value of the company’s warrant derivatives.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for Q3 2014 amounted to $324,000 compared to a loss of $(457,000) in the same quarter last year and a loss of $(426,000) in Q2 2014. The Adjusted EBITDA (which removes other non-cash items and is equal to EBITDA less foreign exchange changes, derivative value changes, accretion, gain on settlement of debt and stock based compensation) improved to $454,000 in Q3 2014 from a loss of $(679,000) in Q3 2013 and $432,000 booked in Q2 2014.
During the third quarter of 2014, Aqua-Pure reported a profit from operations (before financing and other costs) of $98,000, which included a foreign exchange loss of $(146,000) versus a loss from operations of $(870,000), inclusive of a foreign exchange gain of $51,000 during the same period of the prior year and a profit from operations in the second quarter 2014 of $455,000, inclusive of a foreign exchange gain of $123,000. The year-over-year improvement in operating margins reflects the impact of the Company’s cost reduction initiatives combined with its diversification strategy, which has materially improved gross margins and provided greater opportunity for revenue growth.
Aqua-Pure’s gross profit on revenue totaled $1.1 million in the third quarter of 2014, generating a gross margin of 41%. This compares to 18% gross margins in the prior year’s third quarter and 41% in the second quarter of 2014. The margin improvements are the result of achieving higher prices in the new oil shale play operations (as compared to the dry gas Barnett shale) combined with the implementation of many cost cutting and more efficient operating procedures and protocols.
Late in the first quarter, the Fountain Quail/Select joint venture company – FQS Ventures – commenced work on a three month ROVER project with a large Permian operator, which continued beyond the initial period and was in operation for the full third quarter. Given the 50% ownership split of FQS Ventures, Aqua-Pure has added a line item just below gross profit in its income statement to account for its share of joint venture profit/(loss). In the second quarter, the one ROVER unit in operation in the Permian generated revenues of $635,000 and net income of $190,000 to FQS Ventures. On September 5, 2014, FQS Ventures commenced operations of a second ROVER unit in the Eagle Ford and together, in the third quarter, both units generated revenue of approximately $1.0 million and net income of $462,000 to the joint venture, of which $231,000 was recognized by Aqua-Pure for its share of the joint venture.
Operating expenses during the third quarter of 2014 totaled $1.2 million, an increase of approximately $46,000 or 4% over the third quarter of 2013, reflecting a $197,000 negative impact of foreign currency exchange, largely offset by a decrease of $141,000 in selling, general and administrative costs. Similarly, operating expenses increased $416,000 when compared to the second quarter 2014 primarily due to a $269,000 negative impact of foreign currency exchange, an increase of approximately $236,000 in engineering and product development expenses related to the new site set-up and start-up support for the additional ROVER units contracted outside the Fountain Quail-Select joint venture, partially offset by $117,000 reduction in selling costs.
Interest expense for the three months ended September 30, 2014 totaled $331,000 plus accretion of debentures of $258,000 compared to $299,000 in interest expense and $114,000 of accretion of debentures during the third quarter of 2013 and $311,000 in interest expense and $237,000 of accretion of debentures during the second quarter 2014. Overall financing costs (interest, debenture accretion, derivative value, cost of financing) increased by approximately $488,000 or 65% in Q3 2014 when compared to Q3 2013. The primary driver of this large increase was the $408,000 increase on the derivative fair value. Similarly the loss on the fair value derivative jumped by $553,000 from the $93,000 booked in Q2 2014 to $647,000 in Q3 2014.
For the nine months ended September 30, 2014, Aqua-Pure reported revenues of $7.6 million, a 109% increase compared to the same period in 2013, largely reflecting a full three quarters of four NOMAD units in operation in the oil-rich Permian. The Company reported a comprehensive loss for the nine months ended September 30, 2014 totaling $(451,000) or $(0.00) per basic share compared to $(2.5) million or $(0.02) per basic share for the same period in 2013. Aqua-Pure reported income from operations, before financing costs, of $365,000 which included contribution from FQS Ventures of $316,000, versus a loss from operations of $(2.3) million during the same period of the prior year. On a nine month basis, EBITDA improved from a loss of $(1.3) million to positive $900,000 and adjusted EBITDA (EBTDA net of non-cash items) improved to $1.0 million in 2014 from a loss of $(1.8) million booked in 2013.
At September 30, 2014, the Company reported cash and cash equivalents of $712,000, accounts receivable of $544,000 (DSOs less than 30 days) and inventory of $630,000. Total assets during the third quarter increased by $2.8 million to $21.0 million from year end 2013 due to the impact of foreign exchange translation gains and a net draw-down of $2.4 million from the $3 million, 5.12%, five-year secured loan agreement the Company entered into with the Agriculture Financial Services Corporation (“AFSC”) (a Provincial Government Crown Corporation) for the construction of additional NOMAD and ROVER units.
As of September 30, 2014, the Company’s current and long-term non-convertible debt totaled $8.8 million, an increase of $2.4 million from year end 2013 predominantly due to the AFSC loan. The Company’s overall debt totaled $20.3 million, which includes $13.4 million held by two directors of Aqua-Pure in the form of $7.7 million in a convertible debenture and $5.6 million in notes and advances payable. During the third quarter of 2014, the Company generated cash from operating activities of approximately $21,000 per month
On September 30, 2014, Aqua-Pure common stock outstanding totaled approximately 91.5 million shares, equivalent to the shares outstanding at year end for the last two years. Aqua-Pure’s fully diluted shares on September 30, 2014 (inclusive of all options, warrants and convertible debt) totaled approximately 123.1 million, a decrease of 1.3 million shares from year end due to option expirations. The exercise of all outstanding options and warrants (average exercise price $0.33) would generate approximately $3.5 million in additional working capital for the Company. As of September 30, 2014, the Company has tax loss carry forwards of approximately US$20.2 million in the United States and C$10.2 million in Canada, which expire between 2026 and 2033.
“We have accomplished a great deal towards achieving our strategic diversification and growth goals initiated in 2012. Over the last two years, we have enhanced our marketing capabilities by expanding our geographical reach, increasing our customer base, adding to our product line and launching a joint venture relationship with a leading water solutions management company. We have also improved our operations by expanding and strengthening our executive management team, diversifying our funding sources and streamlining our operations. These actions have resulted in our seventh sequential quarter of year-over-year revenue growth, near record margins and positive cash flow from operations for the quarter,” stated Aqua-Pure’s CEO, Jake Halldorson.
“We are experiencing a marked increase in requests for information and meetings to discuss the suitability of both the NOMAD and ROVER technologies in existing and future fracking programs. The current acceleration in our pipeline should support a continuation of our growth momentum, even in light of the decommissioning notification received from one of our customers in the Permian as they undergo an internal reorganization and reassessment of their drilling program and resulting water needs. Fortunately, this is occurring at a time when industry developments are accelerating the adoption of water recycling and reuse programs, and our equipment is gaining recognition as a leading technology in the fracking industry. Should our Permian client's reorganization be prolonged, we are confident that we will be able to deploy our equipment to new opportunities. At the end of third quarter 2014 there were four NOMADs and two ROVERs installed in the field. Two additional ROVERs have been contracted and will be operational before the end of the year for which we will receive 100% of the revenues and earnings. We anticipate there could be as many as six ROVER units operational in the field in the first quarter of 2015, thus ensuring our continued growth momentum. In addition, our opportunity pipeline for NOMADs is very robust – we have more NOMAD proposals in the market today than we have had at any point in the last 5 years.”
For more information, please contact: info@aqua-pure.com or:
Karim Teja
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Yvonne Zappulla
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About Aqua-Pure Ventures Inc.
Aqua-Pure
(www.aqua-pure.com)
is the premier recycler of oil field wastewater in North America. The
Calgary and Texas based firm has developed and commercialized a
cutting-edge, cost effective water recycling technology that transforms
wastewater from a liability to an asset. Aqua-Pure's oil and gas
wastewater services and technology solutions enhance environmental
sustainability through the utilization of patented and proprietary
technologies. The Company’s NOMAD technology has converted over a
billion gallons of oil field wastewater into clean distilled fresh water
while the ROVER technology has converted over 50 million gallons into
clean brine. The Corporation's common shares are listed on the TSX
Venture Exchange under the trading symbol "AQE."
About Fountain Quail Water Management
Fountain
Quail Water Management (www.fountainquail.com)
provides low-cost, practical recycling alternatives for both shale gas
and shale oil producers. The company is the global leader in recycling
shale gas flowback and produced water into fresh water for re-use.
Fountain Quail is wholly owned by Aqua-Pure Ventures Inc. and is based
in Roanoke, Texas.
Forward-looking Statements:
Certain statements in this release are forward-looking statements, which reflect the expectations of management regarding the Company’s future operations.Specifically, this release contains forward-looking statements respecting revenue, gross margin, order flow, product performance, market acceptance of the Company’s products, timing of unit commissioning and decommissioning and expense expectations for the balance of 2014 and into 2015. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future.Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them.These forward-looking statements reflect management’s current views and are based on certain expectations, estimates and assumptions which may prove to be incorrect.A number of risks and uncertainties could cause our actual results to differ materially from those expressed or implied by the forward-looking statements, including: (1) the performance of the ROVER and NOMAD units in a new area or shale play with different water characteristics, (2) the success of the customer’s exploration and development program in the area the units is deployed (3) a downturn in general economic conditions in North America and internationally and specifically in the oil and gas sector, (4) the inherent uncertainties associated with the demand for oil and gas, (5) federal and local governmentregulations that affect the oil and gas drilling industries and water use therein (6) the risk that the Company does not execute its business plan, (7) inability to finance operations and growth (8) inability to retain key management and employees, (9) ; an increase in the number of competitors with larger resources, and (10) other factors beyond the Company’s control; (11) the introduction of new technologies either in the water reuse and recycling or in the amount of water used in hydraulic fracturing operations; (12) the availability of more cost effective sources of water These forward-looking statements are made as of the date of this news release and the Company intends to update such forward looking information in the Company's MD&A in the event that actual results differ materially from such forward-looking statements contained herein.Additional information about these and other assumptions, risks and uncertainties are set out in the “Risks and Uncertainties” section in the Company’s MD&A filed with Canadian security regulators.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
*** Selected Financial Information Follows ***
Selected financial information for the three and nine month period ended September 30, 2014 is set out below. This information should be read in conjunction with the consolidated interim and annual financial statements and the Company’s management discussion and analysis available under the Company’s profile on the Sedar website at www.sedar.com. If there are any discrepancies between the following statements and those presented in the Company’s financial statements, the Company’s financial statements as published on Sedar will be deemed to be correct.
Non IFRS Measures: This press release contains terms not defined by International Financial Reporting Standards (IFRS).Our usage of these terms may vary from the usage adopted by other companies. Specifically, Gross profit, Gross Margin, Operating profit, EBITDA, Adjusted EBIDTA and Cash flow from operations are undefined terms by IFRS. Further details respecting the non-IFRS financial measures is contained in the Company’s management discussion and analysis available under the Company’s profile on the Sedar website at www.sedar.com.
AQUA-PURE VENTURES INC.
CONSOLIDATED BALANCE SHEETS
(expressed
in Canadian dollars)
|
| ||||||||||||
September 30, 2014 | December 31, 2013 | ||||||||||||
| ASSETS | |||||||||||||
| Current assets | |||||||||||||
| Cash and cash equivalents | $ | 712,090 | $ | 111,323 | |||||||||
| Accounts and other receivables | 544,111 | 504,779 | |||||||||||
| Inventories and work in progress | 630,088 | 482,912 | |||||||||||
| Prepaid expenses | 166,376 | 333,356 | |||||||||||
| Assets related to discontinued operations | - | 5,667 | |||||||||||
| Total current assets | 2,052,665 | 1,438,037 | |||||||||||
| Non-current assets | |||||||||||||
| Investment in joint venture | 480,405 | 161,443 | |||||||||||
| Property, plant and equipment | 18,428,558 | 16,576,000 | |||||||||||
| Intangible assets | 1 | 5,915 | |||||||||||
| Total non-current assets | 18,908,964 | 16,743,358 | |||||||||||
| Total assets |
| $ | 20,961,629 | $ | 18,181,395 | ||||||||
| Liabilities and Equity | |||||||||||||
| Current liabilities: | |||||||||||||
| Accounts payable and accrued liabilities | $ | 4,240,240 | $ | 4,139,106 | |||||||||
| Current portion of deferred revenue | 305,017 | 584,167 | |||||||||||
| Current portion of long-term debt | 4,047,253 | 2,926,295 | |||||||||||
| Liabilities related to discontinued operations | - | 52,667 | |||||||||||
| Total current liabilities | 8,592,510 | 7,702,235 | |||||||||||
| Non-current liabilities: | |||||||||||||
| Deferred revenue | 1,129,479 | 1,124,814 | |||||||||||
| Long-term debt | 4,703,495 | 3,422,083 | |||||||||||
| Derivative liability | 2,143,026 | 1,990,551 | |||||||||||
| Convertible debentures | 9,369,205 | 8,493,820 | |||||||||||
| Total non-current liabilities | 17,345,205 | 15,031,268 | |||||||||||
| Total liabilities | 25,937,715 | 22,733,503 | |||||||||||
| Equity (deficiency) attributable to equity holders of the parent | |||||||||||||
| Share capital | 49,553,893 | 49,553,893 | |||||||||||
| Equity portion of convertible debenture | 1,683,587 | 1,683,587 | |||||||||||
| Contributed surplus | 7,960,809 | 7,934,118 | |||||||||||
| Reserve – translation of foreign operations | 1,115,122 | 156,982 | |||||||||||
| Deficit | (65,289,497) | (63,880,688) | |||||||||||
| Total equity (deficiency) | (4,976,086) | (4,552,108) | |||||||||||
| Total liabilities and equity (deficiency) | $ | 20,961,629 | $ | 18,181,395 | |||||||||
AQUA-PURE VENTURES INC.
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(expressed in Canadian dollars)
Three Months ended
|
Nine Months ended
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| 2014 | 2013 | 2014 | 2013 | |||||||||
| Revenue | $ | 2,582,597 | $ | 1,482,972 | $ | 7,614,225 | $ | 3,634,628 | ||||
| Cost of sales | (1,526,386 | (1,209,081) | (4,494,593) | (2,648,471) | ||||||||
| Gross profit | 1,056,211 | 273,891 | 3,119,632 | 986,157 | ||||||||
| Share of joint venture profit (loss) | 231,191 | - | 315,751 | - | ||||||||
| Operating expenses | ||||||||||||
| Selling, general and administrative | 534,055 | 555,109 | 1,838,092 | 1,940,768 | ||||||||
| Engineering and product development | 372,139 | 443,281 | 682,030 | 802,035 | ||||||||
| Amortization expense | 134,964 | 145,666 | 389,405 | 408,405 | ||||||||
| Foreign exchange loss (gain) | 145,788 | (51,470) | 133,817 | 10,758 | ||||||||
| Stock based compensation | 2,665 | 50,914 | 26,691 | 121,363 | ||||||||
| Total operating expenses | 1,189,611 | 1,143,500 | 3,070,035 | 3,283,329 | ||||||||
| Income (Loss) before other expenses and financing costs | 97,791 | (869,609) | 365,348 | (2,297,172) | ||||||||
| Other expenses | ||||||||||||
| Gain (loss) on sale of assets | 72,837 | 168,332 | 73,194 | 168,332 | ||||||||
| Gain on settlement of debt, net | - | 848,397 | - | 848,397 | ||||||||
| Write-off of assets | - | - | - | (850) | ||||||||
| Income (loss) before financing costs | 170,628 | 147,120 | 438,542 | (1,281,293) | ||||||||
| Financing costs | ||||||||||||
| Interest income | - | (24,711) | (480) | (26,634) | ||||||||
| Interest expense | 330,717 | 299,204 | 970,236 | 830,675 | ||||||||
| Accretion of debentures | 258,109 | 113,957 | 725,120 | 369,094 | ||||||||
| Financing related issue costs | - | 120,674 | - | 215,283 | ||||||||
| Loss (gain) on fair value of derivative | 646,617 | 238,422 | 152,475 | 374,550 | ||||||||
| Net financing costs | 1,235,443 | 747,546 | 1,847,351 | 1,762,968 | ||||||||
| Net loss from continuing operations | (1,064,815) | (600,426) | (1,408,809) | (3,044,261) | ||||||||
| Income (loss) from discontinued operations | - | (1,894) | - | (44,973) | ||||||||
| Other comprehensive loss | ||||||||||||
| Exchange gain (loss) on translation of foreign operations | 923,170 | (273,905) | 958,140 | 608,207 | ||||||||
| Comprehensive income (loss) | $ | (141,645) | $ | (876,225) | $ | (450,669) | $ | (2,481,027) | ||||
| Loss per share: | ||||||||||||
Basic and diluted loss per share from
| $ | (0.00) | $ | (0.01) | $ | (0.00) | $ | (0.03) | ||||
Basic and diluted loss per share from | $ | 0.00 | $ | (0.00) | $ | 0.00 | $ | (0.00) | ||||
Basic and diluted loss per share | $ | (0.00) | $ | (0.01) | $ | (0.00) | $ | (0.03) | ||||
AQUA-PURE VENTURES INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(expressed in Canadian dollars)
Nine months ended | |||||||||||||||||
|
| ||||||||||||||||
September 30, 2014 (Unaudited)
| September 30, 2013 (Unaudited) | ||||||||||||||||
| Cash flow from operating activities | |||||||||||||||||
| Net loss from continuing operations | $ | (1,408,810) | $ | (3,089,234) | |||||||||||||
| Adjustments for: | |||||||||||||||||
| Accretion of debentures | 725,120 | 369,094 | |||||||||||||||
| Stock-based compensation | 26,691 | 121,363 | |||||||||||||||
| Gain on sale of assets | (73,194) | (168,332) | |||||||||||||||
| Write down of assets | - | 850 | |||||||||||||||
| Foreign exchange | 30,334 | 70,339 | |||||||||||||||
| Amortization expense | 389,405 | 408,405 | |||||||||||||||
| Fair value of broker warrants from issue costs | - | 21,663 | |||||||||||||||
| Gain on settlement of debt | - | (848,397) | |||||||||||||||
| Loss on fair value of derivative liability | 152,475 | 374,550 | |||||||||||||||
| (157,979) | (2,739,699) | ||||||||||||||||
| Changes in non-cash working capital | (192,879) | 678,173 | |||||||||||||||
| Net cash used in operating activities | (350,858) | (2,061,526) | |||||||||||||||
| Cash flow from investing activities | |||||||||||||||||
| Investment in joint venture | (217,685) | (150,489) | |||||||||||||||
| Purchase of equipment | (1,409,669) | (75,586) | |||||||||||||||
| Proceeds on sale of equipment | 223,609 | 351,601 | |||||||||||||||
| Net cash provided by (used in) investing activities | (1,403,745) | 125,526 | |||||||||||||||
| Cash flow from investing activities | |||||||||||||||||
| Proceeds on issuance of notes payable | $ | - | $ | 78,224 | |||||||||||||
| Proceeds on issuance long term debt | 2,798,464 | - | |||||||||||||||
| Proceeds on issuance of convertible debentures | - | 4,168,087 | |||||||||||||||
| Repayment of bank indebtedness | - | (1,895,286) | |||||||||||||||
| Repayment of notes payable | (84,000) | - | |||||||||||||||
| Repayment of long-term debt | (312,094) | - | |||||||||||||||
| Net cash provided by (used in) financing activities | 2,402,370 | 2,351,025 | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 647,767 | 415,025 | |||||||||||||||
| Net cash provided from (used in) discontinued operations | (47,000) | 79,460 | |||||||||||||||
| Cash and cash equivalents at beginning of the period | 111,323 | 361,455 | |||||||||||||||
| Cash and cash equivalents at end of the period | $ | 712,090 | $ | 855,940 | |||||||||||||
| Interest paid | $ | 562,982 | $ | 159,301 | |||||||||||||
