Revenue increases 163% over previous year
first quarter on significantly higher margins
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 first quarter ended March
31, 2014. The Company accomplished several milestones during Q1
2014, including the first full quarter of operations at both
Permian sites; each successfully recycling a significant volume of
clean water, despite challenging weather conditions. In addition,
late in the first quarter, FQS Ventures, the Fountain Quail/Select
joint venture company, commenced an initial three month Rover
project with a large Permian operator. In January, the Company
secured a $3 million 5.12% five-year secured loan from Agriculture
Financial Services Corporation for the construction of additional
NOMAD and ROVER units to fund the Company’s expansion
opportunities.
Importantly, Aqua-Pure is beginning to witness positive
financial developments from the diversification strategy it began
implementing in 2012.
Key First Quarter Year-Over-Year Financial
Results Summary
- Q1 2014 revenue increased to $2.3
million, a 163% increase over previous year’s first quarter.
- Gross profit as a percent of sales
improved to 40% from 28% in Q1 2013.
- Net loss from continuing operations was
reduced by approximately 89% to $(148,000) from $(1.3) million
booked in Q1 2013.
- FQS Ventures commenced Rover project
late in the quarter
- As a result of higher revenues, higher
margins, large foreign exchange and fair value derivative liability
gains, the Company booked comprehensive net income of $553,000 or
$0.006 per share.
Aqua-Pure reported revenues for the three months ended March 31,
2014 of $2.3 million compared to $886,000 for the same period 2013
when revenues were primarily generated from operations in the dry
gas area of the Barnett shale. This also compares to revenue of
$2.4 million in the fourth quarter of 2013, which included revenues
of $0.64 million attributed to the final three months of processing
water at the Devon site in the Barnett Shale. The significant
increase in year over year revenues is due to this quarter being
the first full quarter of operations of the four NOMADS installed
in the third and fourth quarters of 2013 at the two new customer
sites in the oil-rich Permian basin. With the improved weather
conditions, management expects to recycle even greater volumes of
water in the second quarter. Both of these recent large independent
E&P customers have indicated interest in additional NOMAD and
new Rover units as their drilling and development program is
executed.
For the three months ended March 31, 2014, the Company’s net
loss from continuing operations was reduced to $(147,000) or by
almost 90% from the $(1.4) million booked in Q1 2013 and $(1.3)
million booked in Q4 2013. The improvement was the result of higher
revenues, higher gross profit and a large gain on fair value of the
derivative liability.
The Company reported comprehensive income of $553,000 or $0.006
per basic share for the three months ended March 31, 2014, which
includes a foreign exchange gain of $701,000 and a gain of $588,000
on the fair value of the company’s warrant derivatives. This
compares to a comprehensive loss of $(1.1) million or $(0.01) per
basic share for the same period in 2013, which included a foreign
exchange gain of $316,000 and a loss on fair value of warrant
derivatives of $24,000, and a comprehensive loss of $(750,000) or
$(0.01) per basic share for the fourth quarter 2013, which included
foreign exchange gain of $555,000 and a gain of $295,000 on the
fair value of warrant derivatives. Aqua-Pure incurred a loss before
financing costs of $(177,000) during the first quarter of 2014
versus a loss before financing costs of $(852,000) during the same
period of the prior year and a loss before financing costs of
$(817,000) in the fourth quarter 2013. The improvement in operating
losses reflects the impact of the Company’s diversification
strategy, which has materially improved gross margins and offers
greater opportunity for revenue growth.
Aqua-Pure’s gross profit on revenue totaled $930,000 in the
first quarter 2014, yielding a gross margin of 40%. This compares
to 28% and 39% gross margins in first and fourth quarters of 2013,
respectively. The improvement in the gross margin over the previous
year period is primarily due to the redeployment of all NOMAD units
within oil rich shale formations instead of the Barnett shale gas
region (where contract pricing is far more challenging) combined
with the implementation of many cost cutting and productivity
improvements. The Company continues to focus on developing its oil
and liquids rich processing capabilities and protects many of these
innovative solutions through trade secrets and patents, where
applicable.
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 to
its income statement that recognizes the share of joint venture
profit/(loss) below the Company’s gross margin. 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
the Rover during which the venture had very little production time.
Aqua-Pure expects a meaningful positive contribution from the
venture in the second quarter and anticipates longer term
commitments upon the success of the operator’s drilling program. A
number of other Rover opportunities are being actively pursued by
the joint venture company.
Operating expenses for the three months ended March 31, 2014
totaled $1.1 million, in line with the comparable periods for the
last two years and a decrease of approximately $652,000 compared to
the fourth quarter of 2013. The significant decrease in sequential
operating expenses is predominately related to a decrease of
$337,000 in SG&A as a result of lower professional and
administrative fees incurred in exploring additional financing and
US listing options and a $242,000 decrease in engineering and
product development expenses as a result of lower engineering
support costs related to the set-up and start-up costs incurred in
the fourth quarter at the two Permian sites.
The Company incurred interest expense of $329,000 plus accretion
of debentures of $230,000 during the three months ended March 31,
2014. The compares to $257,000 in interest expense and $107,000 of
accretion of debentures during the first quarter of 2013 and
$293,000 in interest expense and $277,000 of accretion of
debentures during the fourth quarter 2013. Overall financing costs
(interest, debenture accretion, derivative value, cost of
financing) decreased year-over-year by approximately $511,000 and
quarter-over-quarter by $301,000 due predominately to a gain on
fair value of derivative of $588,000 for the first quarter
2014.
At March 31, 2014, the Company had cash and cash equivalents of
$508,000, accounts receivable of $447,000 (DSOs less than 30 days)
and inventory of $411,000. Total assets during the first quarter
increased by $687,000 to $18.9 million from year end 2013, due
primarily to the positive effect of foreign exchange value on the
Company’s equipment, increasing it by $533,000. In addition, cash
increased by $397,000 through an initial draw down of $780,000 from
the $3-million 5.12% five-year secured loan agreement the Company
entered into with Agriculture Financial Services
Corporation (a Provincial Government Crown Corporation).
As of March 31, 2014, the Company’s non-convertible debt totaled
$7.0 million, an increase of $700,000 from year end 2013 mostly due
to the AFSC loan discussed earlier. Of the Company’s overall debt
totaling $18.8 million (face value), $13.4 million is held by a
company that is a control entity of Aqua-Pure and is held in part
by two directors of Aqua-Pure.
On March 31, 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 March 31, 2014 remained unchanged from year end
2013 totaling approximately 124.3 million (inclusive of all
options, warrants and convertible debt). The exercise of all
outstanding options and warrants would generate approximately $3.8
million in additional working capital for the Company. As of March
31, 2014, the Company has tax loss carry forwards of approximately
US$20.2 million in the United States and C$9.5 million in Canada,
which expire between 2026 and 2033.
“Since 2012, we have embarked upon a path to strategically
diversify our business on multiple fronts. We have expanded our
geographical reach and have 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 finally diversified our
funding sources. The result of this initiative is beginning to
materialize in our financial performance,” commented Jake
Halldorson, Aqua-Pure’s CEO. “In addition to our internal efforts,
many macro forces are trending in the company’s favor, including
increased water sourcing and disposal issues, increased transport
and containment costs and increased regulatory requirements for
water usage in oil and gas fracking operations. As a result, oil
and gas exploration companies are seeking water reuse and recycling
alternatives, particularly in regions faced with draught conditions
such as the Permian, Eagle Ford and Niobrara. We have seen a marked
increase in requests for information and meetings to discuss the
suitability of the NOMAD and ROVER technologies in existing and
future fracking programs. Given the market receptivity and
resulting growing pipeline, we anticipate a profitable growth year
for 2014.”
For more information, please contact: info@aqua-pure.com or:
Karim TejaChief Financial Officer(403) 301 4123 ext 26
Yvonne ZappullaGrannus Financial Advisors, Inc.(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
ManagementFountain 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.
Certain statements in this release are forward-looking
statements, which reflect the expectations of management regarding
the Company’s future operations. 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 month periods
ended March 31, 2014 is set out below. If there are any
discrepancies between the following financial information and the
interim financial statements, the interim financial statements will
be deemed to be correct. This information should be read in
conjunction with the audited financial statements for the year
ended December 31, 2013, the condensed consolidated interim
financial statements for the three months ended March 31, 2014 and
the and 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)
March 31, 2014 December 31, 2013
(Unaudited)
(Audited)
Assets Current assets: Cash and cash equivalents $ 508,082 $
111,323 Accounts and other receivables 446,655 504,779 Inventories
410,702 482,912 Prepaid expenses 228,509 333,356 Assets related to
discontinued operations - 5,667 Total current assets
1,593,948 1,438,037 Non-current assets: Investment in joint venture
164,789 161,443 Property, plant and equipment 17,109,381 16,576,000
Intangible assets 1 5,915 Total non-current assets
17,274,171 16,743,358 Total assets $ 18,868,119 $ 18,181,395
Liabilities and Equity Current liabilities: Accounts
payable and accrued liabilities 3,707,356 4,139,106 Current portion
of deferred revenue 607,239 584,167 Current portion of long-term
debt 3,736,646 2,926,295 Liabilities of discontinued operations
- 52,667 Total current liabilities 8,051,241
7,702,235 Non-current liabilities: Deferred revenue
1,232,857 1,124,814 Long-term debt 3,311,550 3,422,083 Derivative
liability 1,402,925 1,990,551 Convertible debentures
8,828,605 8,493,820 Total non-current liabilities
14,775,937 15,031,268 Total liabilities 22,827,178
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 7,973,887 7,934,118 Reserve – translation of foreign
operations 857,789 156,982 Deficit (64,028,215)
(63,880,688) Total equity (deficiency) (3,959,059)
(4,552,108) Total liabilities and equity (deficiency) $ 18,868,119
$ 18,181,395
AQUA-PURE VENTURES INC.CONSOLIDATED
STATEMENTS OF LOSS AND COMPREHENSIVE LOSS(expressed in
Canadian dollars)
Three Months Ended March 31,
2014 2013
(Unaudited) (Unaudited) Revenue $
2,326,829 $ 886,049
Cost of sales (1,397,084) (639,368)
Gross profit 929,745 246,681 Share of joint venture profit
(loss) (10,371) -
Operating expenses Selling, general and
administrative 652,662 747,808 Engineering and product development
174,179 188,503 Amortization expense 129,046 130,578 Foreign
exchange loss (gain) 111,177 (9,735) Stock based compensation
39,769 41,483 1,106,833 1,098,637
Income (loss) before other
income and financing costs (187,459) (851,956)
Other
expenses Gain on sale of assets 10,296 - Write-off of assets -
(850)
Income (loss) before financing costs (177,163)
(852,806)
Financing costs Interest income (483)
(1,829) Interest expense 328,521 256,906 Accretion of debentures
229,952 107,251 Financing related issue costs - 94,609 Loss (gain)
on fair value of derivative (587,626) 24,291
Net financing
costs (29,636) 481,228
Net income (loss) from
continuing operations (147,527) (1,334,034)
Income (loss)
from discontinued operations - (41,892)
Net income
(loss) (147,527) (1,375,926)
Other comprehensive
income (loss) Exchange gain (loss) on translation offoreign
operations 700,807 315,871
Comprehensive income (loss) $
553,280 $ (1,060,055)
Income (loss) per share: Basic
and diluted income (loss) per share from continuing operations
$0.006 ($0.011) Basic and diluted income (loss) per share from
discontinued operations $0.000 ($0.000) Basic and diluted income
(loss) per share $0.006 ($0.012)
Aqua-Pure Ventures Inc.Karim Teja, (403) 301 4123 ext 26Chief
Financial Officerinfo@aqua-pure.comorGrannus Financial Advisors,
Inc.Yvonne Zappulla(212) 681-4108