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Aqua-Pure Venture Inc. Reports Second Quarter and First Half 2014 Financial Results

Company generates operating profits on 114% revenue increase and record margins

ALBERTA, Canada--(BUSINESS WIRE)--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 second quarter ended June 30, 2014. In line with the Company’s diversification strategy implemented in 2012, it accomplished several milestones during the first half of 2014, resulting in positive financial results.

Key Second Quarter Year-Over-Year Financial Results Summary

  • Q2 2014 revenue increased to $2.7 million, a 114% increase over previous year’s second quarter and a 16% increase over Q1 2014.
  • Record gross margins. Gross profit as a percent of sales improved to 42% from 37% in Q2 2013 and 40% in Q1 2014.
  • Aqua-Pure recognized its first income contribution from FQS Ventures of approximately $95,000.
  • Aqua-Pure reported its first income from operations, generating $445,000 in operating income in Q2 2014 versus a loss from operations of $(576,000) in Q2 2013 and a loss from operations of $(177,000) in Q1 2014.
  • Commenced construction on three additional ROVERS. FQS Ventures contracts a second ROVER to an operator in the Eagle Ford.

Aqua-Pure reported second quarter 2014 revenues of $2.7 million, a 114% increase compared to revenues of $1.3 million for the same period of the previous year and a 16% increase compared to revenues of $2.3 million for the first quarter of 2014. The significant increase in year over year revenues is predominantly due to the Company’s second full quarter of operations of the four NOMADS installed in the third and fourth quarters of 2013 at two customer sites in the oil-rich Permian basin. The greatly improved weather conditions from first quarter in Texas contributed to management’s ability to recycle greater volumes of water in the Permian. Management anticipates continued increases in processing recycled water at all 4 NOMAD units in the second half of the year. Importantly, the industry trend towards reuse and recycling of water for fracking is on the raise. Both Pioneer and Cimarex have indicated continued interest in additional NOMAD and ROVER units as well as a number of new potential customers within the region. Currently, Aqua-Pure has commenced production of three ROVER units for which the Company has received great interest from new customers, both within and outside of the Company’s joint-venture with Select Energy. In fact, the joint venture has already contracted one of the units for three months to an operator in the Eagle Ford. Operations are expected to commence in September.

The Company’s net loss from continuing operations improved from ($1.1) million in Q2 2013 to ($196,000) in Q2 2014. However, mostly due to non-cash items, the Company reported a comprehensive loss of $(862,000) or $(0.01) per basic share for the second quarter of 2014, which included a foreign currency exchange loss of $(666,000) and a loss of $(93,000) on the fair value of the company’s warrant derivatives. This compares to a comprehensive loss of $(545,000) or $(0.01) per basic share for the same period in 2013, which included a foreign currency exchange gain of $566,000 plus a loss of $(112,000) on the fair value of the Company’s warrant derivatives, and a comprehensive income of $553,000 or $0.01 per basic share for the first quarter 2014, which included foreign currency exchange gain of $701,000 and a gain of $588,000 on the fair value of the company’s warrant derivatives.

During the second quarter of 2014, Aqua-Pure reported its first profit from operations (before financing and other costs) of $445,000 versus a loss from operations of $(576,000) during the same period of the prior year and a loss from operations of $(177,000) in the first quarter 2014. The improvement in operating margins reflects the impact of the Company’s cost reduction initiatives combined with its diversification strategy, which included product diversification with the 2013 introduction of the ROVER to recycle contaminated frack water to clean brine, and the geographic expansion into the oil rich shale regions where market pricing is more advantageous and supplemental revenue from higher margined oil recovery and brine treatment exists. The Company’s diversification 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 second quarter of 2014, yielding a record gross margin of 42%. This compares to 37% and 40% gross margins in the prior year’s second quarter and first quarter of 2014, respectively. 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 productivity improvements that were previously incurred and expensed.

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. 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). For the first quarter, FQS Ventures incurred a loss of $(20,000) (50% attributed to Aqua-Pure) due to start-up transportation and set-up costs for a ROVER unit during which the venture had very little production time. During the second quarter, FQS Ventures generated revenues of $635,000 and net income of $190,000 from the one ROVER unit in operation in the Permian. As a 50% partner in the venture, Aqua-Pure recognized a contribution from FQS Ventures of approximately $95,000. Going forward Aqua-Pure anticipates continued growth from the joint venture as several additional ROVER opportunities have been identified, the first of which has already been contracted for the second ROVER for a three month term to be deployed in the Eagle Ford in September 2014.

Operating expenses during the second quarter of 2014 totaled $774,000, a decrease of approximately $268,000 or 26% over the second quarter of 2013, reflecting a $195,000 positive shift in foreign currency exchange, a $45,000 positive shift in stock based compensation, and a $35,000 reduction in engineering and product development given the completion of the ROVER launch during 2013. Similarly, operating expenses decreased $333,000 when compared to the first quarter 2014 primarily due to a $234,000 positive reversal in foreign currency exchange, approximately $56,000 reduction in stock based compensation, and a $38,000 decrease in engineering and product development expenses as a result of lower engineering support costs. Interest expense for the three months ended June 30, 2014 totaled $311,000 plus accretion of debentures of $237,000 compared to $274,000 in interest expense and $148,000 of accretion of debentures during the second quarter of 2013 and $329,000 in interest expense and $230,000 of accretion of debentures during the first quarter 2014. Overall financing costs (interest, debenture accretion, derivative value, cost of financing) increased year-over-year by approximately $107,000 and quarter-over-quarter increase by $671,000 primarily attributed to the reversal of a significant first quarter derivative value gain of $588,000 that subsequently was recorded as a loss of $(93,000) in the second quarter.

For the six months ended June 30, 2014, Aqua-Pure reported revenues of $5.0 million, a 134% increase compared to the same period in 2013, largely reflecting a full two quarters of four NOMAD units in operation in the oil-rich Permian. The Company reported a comprehensive loss for the six months ended June 30, 2014 totaling $(309,000) or $(0.00) per basic share compared to $(1.6) million or $(0.02) per basic share for the same period in 2013. Aqua-Pure reported income from operations, before financing costs, of $268,000 which included for the first time a contribution from FQS Ventures of $85,000, versus a loss from operations of $(1.4) million during the same period of the prior year.

At June 30, 2014, the Company reported cash and cash equivalents of $992,000, accounts receivable of $613,000 (DSOs less than 30 days) and inventory of $430,000. Total assets during the second quarter increased by $597,000 to $18.8 million from year end 2013 due primarily to an increase in cash of $881,000 through a net draw-down of $1.4 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 and a $108,000 increase in accounts receivable, offset by a $122,000 decrease in prepaid expenses and a $206,000 reduction in the Company’s equipment due to the effect of foreign currency exchange.

As of June 30, 2014, the Company’s non-convertible debt totaled $7.7 million, an increase of $1.3 million from year end 2013 predominantly due to the AFSC loan discussed earlier. Of the Company’s overall debt totaling $19.1 million (face value), $13.4 million is effectively held by two directors of Aqua-Pure in the form of $7.8 million in a convertible debenture and $5.6 million in notes and advances payable. During the first half of 2014, the Company’s monthly cash burn (before capital expenditures) averaged approximately $69,000.

On June 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 June 30, 2014 (inclusive of all options, warrants and convertible debt) totaled approximately 123.3 million, a decrease of 1.3 million shares from year end due to option expirations. The exercise of all outstanding options and warrants would generate approximately $3.5 million in additional working capital for the Company. As of June 30, 2014, the Company has tax loss carry forwards of approximately US$20.6 million in the United States and C$10.1 million in Canada, which expire between 2026 and 2033.

Aqua-Pure’s CEO, Jake Halldorson commented, “10 years ago Aqua-Pure’s wholly owned subsidiary Fountain Quail pioneered the recycling and reuse of contaminated frack water at one of the first frack sites in the Barnett Shale. We have since safely and cost-effectively recycled over a billion gallons of water, and yet it is only now that our operations are turning profitable. I attribute this positive shift to a number of factors. First, the industry has begun to recognize water recycling as a cost effective, predictable and stable water solution that significantly reduces the regulatory and environmental issues related to hydro- fracking. Second, we adopted, as a result of hard lessons learned, a sweeping diversification strategy in 2012 that expanded our geographical reach, adapted our equipment to handle both oil and gas shale formations, increased our customer base, added to our product line, launched a joint venture relationship with a leading water solutions management company, expanded and strengthened our executive management and diversified our funding sources. Finally we streamlined our operations and developed new and more effective and efficient processes and methodologies to improve both our gross and operating margins. These principle factors have resulted in our Company delivering the 6th sequential quarter of year over year revenue growth at increasingly higher gross margins. We see this trend continuing and expect to continue to deliver improved financial performance for the foreseeable future.”

For more information, please contact: info@aqua-pure.com or:

Karim Teja       Yvonne Zappulla
Chief Financial Officer Grannus Financial Advisors, Inc.
(403) 301 4123 ext 26 (212) 681-4108
 

About Aqua-Pure Ventures Inc.

Aqua-Pure (www.aqua-pure.com) is the premier recycler of industrial wastewater in North America. The Calgary-based oilfield engineering and services firm has developed and commercialized cutting-edge technology that transforms wastewater from a liability to an asset. Aqua-Pure's municipal and oil and gas wastewater services and technology solutions ensure environmental sustainability through the utilization of patented and proprietary technologies. 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 and expense expectations for the balance of 2014. 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) a continued downturn in general economic conditions in North America and internationally, (2) the inherent uncertainties associated with the demand for oil and gas, (3) federal and local government regulations that affect the oil and gas drilling industries (4) the risk that the Company does not execute its business plan, (5) inability to finance operations and growth (6) inability to retain key management and employees, (7) ; an increase in the number of competitors with larger resources, and (8) other factors beyond the Company’s control. 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 six month period ended June 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 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)

 

     

 

June 30, 2014
Unaudited)

December 31, 2013
ASSETS
Current assets
Cash and cash equivalents $ 992,118 $ 111,323
Accounts and other receivables

612,537

504,779
Inventories 429,740 482,912
Prepaid expenses 210,977 333,356
Assets related to discontinued operations   -     5,667  
Total current assets 2,245,372 1,438,037
Non-current assets
Investment in joint venture 162,561 161,443
Property, plant and equipment 16,370,246 16,576,000
Intangible assets   1     5,915  
Total non-current assets   16,532,808     16,743,358  

Total assets

$ 18,778,180   $   18,181,395  
 
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,901,232 $ 4,139,106
Current portion of deferred revenue 456,128 584,167
Current portion of long-term debt 2,978,220 2,926,295
Liabilities related to discontinued operations   -     52,667  
Total current liabilities   7,335,580     7,702,235  
Non-current liabilities:
Deferred revenue 1,115,346 1,124,814
Long-term debt 4,703,495 3,422,083
Derivative liability 1,496,409 1,990,551
Convertible debentures   8,964,457     8,493,820  
Total non-current liabilities   16,279,707     15,031,268  
Total liabilities 23,615,287 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 7,958,144 7,934,118
Reserve – translation of foreign operations 191,952 156,982
Deficit   (64,224,683 )   (63,880,688 )
Total equity (deficiency)   (4,837,107 )   (4,552,108 )
Total liabilities and equity (deficiency) $ 18,778,180   $ 18,181,395  
 
 

AQUA-PURE VENTURES INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(expressed in Canadian dollars)

 
   

Three Months ended
June 30

 

Six Months ended
June 30

2014   2013 2014   2013
 
Revenue $ 2,704,798 $ 1,265,607 $ 5,031,627 $ 2,151,656
Cost of sales (1,571,123) (800,022) (2,968,207) (1,439,390)
Gross profit 1,133,675 465,585 2,063,420 712,266
 
Share of joint venture profit (loss) 94,931 - 84,560
 
Operating expenses
Selling, general and administrative 651,375 637,851 1,304,037 1,385,659
Engineering and product development 135,712 170,251 309,891 358,754
Amortization expense 125,395 132,161 254,441 262,739
Foreign exchange loss (gain) (123,148) 71,968 (11,971) 62,228
Stock based compensation (15,742) 28,966 24,026 70,449
Total operating expenses 773,591 1,041,192 1,880,424 2,139,829
 
Income (Loss) before other expenses and financing costs

455,015

(575,607)

267,556

(1,427,563)

 
Other expenses
Gain (loss) on sale of assets (9,939) - 357 (850)
Income (loss) before financing costs 445,076 (575,607) 267,913 (1,428,413)
 
Financing costs
Interest income - (94) (480) (1,923)
Interest expense 311,001 274,565 639,519 531,471
Accretion of debentures 237,059 147,886 467,011 255,137
Financing related issue costs - - - 94,609
Loss (gain) on fair value of derivative 93,484 111,837 (494,142) 136,128
       
Net financing costs 641,544 534,194 611,908 1,015,422
 
Net loss from continuing operations (196,468) (1.109,801) (343,995) (2,443,835)
Income (loss) from discontinued operations - (1,187) - (43,079)
 
Other comprehensive loss
Exchange gain (loss) on translation of foreign operations

(665,837)

566,241

34,970

882,112

Comprehensive income (loss) $ (862,305) $ (544,747) $ (309,025) $ (1,604,802)
 
Loss per share:
Basic and diluted loss per share from

continuing operations

$

(0.01)

$

(0.01)

$

(0.00)

$

(0.02)

Basic and diluted loss per share from discontinue operations

$

(0.00)

$

(0.00)

$

(0.00)

$

(0.00)

Basic and diluted loss per share

$

(0.01)

$

(0.01)

$

(0.00)

$

(0.02)

 
 

AQUA-PURE VENTURES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)

 
      Six months ended

June 30, 2014
(Unaudited)

 

June 30, 2013
(Unaudited)

Cash flow from operating activities
Net loss from continuing operations $ (343,995 ) $ (2,443,835 )
Adjustments for:
Accretion of debentures 467,011 255,137
Stock-based compensation 24,026 70,449
Loss on sale of assets 18,395 850
Foreign exchange (32,954 ) (128,952 )
Amortization expense 254,441 262,739
Fair value of broker warrants from issue costs - 8,492
Loss on fair value of derivative liability   (494,142 )   136,128  
(107,218 ) (1,838,992 )
Changes in non-cash working capital   (307,588 )   626,383  
Net cash used in operating activities (414,806 ) (1,212,609 )
Cash flow from investing activities
Purchase of equipment (194,387 ) 16,717
Proceeds on sale of equipment   203,651     -  
Net cash provided by (used in) investing activities   9,264     16,717  
 
Cash flow from investing activities
Proceeds on issuance of notes payable $ - $ 794,631
Proceeds on issuance long term debt 1,561,666 -
Proceeds on issuance of convertible debentures - 2,199,473
Repayment of bank indebtedness - (1,727,405 )
Repayment of long-term debt   (228,329 )   -  
Net cash provided by (used in) financing activities   1,333,337     1,266,699  
 
Net increase (decrease) in cash and cash equivalents 927,795 70,807
Net cash provided from (used in) discontinued operations (47,000 ) (25,219 )
Cash and cash equivalents at beginning of the period   111,323     361,455  
Cash and cash equivalents at end of the period $ 992,118   $   407,043  
 

Contacts

Aqua-Pure Ventures Inc.
Karim Teja, 403-301-4123 ext 26
Chief Financial Officer
info@aqua-pure.com
or
Grannus Financial Advisors, Inc.
Yvonne Zappulla, 212-681-4108