CORRECTING and REPLACING Aqua-Pure Venture Inc. Announces Fiscal Year 2013 Financial Results
The Q4 2012 Gross Profit in the CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS should read 50,339 instead of 279,227.
The corrected release reads:
AQUA-PURE VENTURE INC. ANNOUNCES FISCAL YEAR 2013 FINANCIAL RESULTS
Aqua-Pure Reports Q4 Revenues - Highest in 17 Quarters
Aqua-Pure Ventures Inc. (“Aqua-Pure” or the “Company”) (TSXV: AQE), today reported financial results for its year ended December 31, 2013. As a low cost provider of a patented on-site, gas and oil field wastewater treatment technology focused on water recycling and reuse, 2013 marked a year of successful multi-level diversification, the results of which are expected to generate profitable growth during 2014. After recycling over 20 million barrels of wastewater in North Texas' Barnett shale since 2004, the Company's business progressed materially in 2013:
- Diversified into other formations / Diversified into oil plays / Diversified customer base. During 2013, Aqua-Pure exited the Barnet shale and entered the oil rich, Permian basin with orders for four NOMAD units, the Company's patented, state-of-the-art semi-mobile brine concentrator that utilizes a cost effective evaporation process to treat water polluted with oilfield contaminants, returning distilled fresh water that can be reused at or near-site. These units were installed during the second half of 2013. The first two units, contracted by Cimarex Energy Co., began processing flowback and produced water late in the third quarter. The second two units were installed at a site for Pioneer Natural Resources Company in November and commenced processing water in December. These two contracts are having a significant positive impact on the Company's revenues, cash flow and profitability;
- Diversified Product Line. During 2013, the Company completed a successful ROVER pilot in the Permian basin and began to actively market this second product line. The ROVER is a rugged mobilized small-footprint clarifier technology designed for the primary treatment of recycling water on-demand near the wellhead. It removes suspended solids and soluble organics from oil and gas wastewater and returns clean brine that can be blended for re-use or used in salt water frac programs. The self-contained system can treat up to 10,000 barrels of flowback and produced water per day, addressing some of the most pressing challenges faced by operators in shale plays across North America;
- Diversified Distribution. Following a successful oil and gas wastewater recycling project with one of the most active operators in the Permian Basin, Aqua-Pure activated its exclusive joint venture between its wholly owned subsidiary, Fountain Quail Water Management, and Select Energy Services, a leading water solutions management company with revenues in excess of $800 million and nearly 5,000 employees located within every major North American shale play. In its first commercial launch, Fountain Quail's ROVER processed approximately 300,000 barrels of produced water over a two month period, delivering clean salt water for reuse in the fracturing of four new wells. In addition to the normal clarification process, H2S present in the produced water was reduced to undetectable levels. The ROVER proved to be the most effective and consistent clarifier under all variations of conditions presented in the pilot, and the clean brine produced is able to be reused in a broad range of drilling operations. To launch the FQS, Select purchased half of the first ROVER;
- Diversified Management. Aqua-Pure expanded Richard Broderick's role, strengthening its executive team, by appointing him President of Fountain Quail Water Management on November 14, 2013. In addition, Mr. Broderick has assumed the chairman position of Fountain Quail's joint venture with Select Energy. Prior to joining Fountain Quail, Mr. Broderick's career spanned 29 years with Schlumberger, one of the world's leading oilfield services company, where his duties ranged from engineering field work, operations management, sales and marketing to quality and safety assurance, including serving as general manager of Schlumberger Water Services in North America and later rising to become Global Leader Oil and Gas Sector Water Services, a position he held until his retirement with them;
- Diversified Funding Source. During 2013, Aqua-Pure raised new capital of US $3.65 and converted an additional $700K of short term notes payable through the issuance of 8% secured convertible debentures, representing the Company's first financings completed predominately with outside investors and the first financings completed outside Canada. Heretofore, the Company has primarily been funded by related parties. Subsequent to year end, Aqua-Pure signed a $3.0 million five year secured loan agreement with Agriculture Financial Services Corporation bearing interest of 5.12 percent per annum, payable monthly. Proceeds from the Loan will be primarily used for the construction of additional NOMAD and ROVER units that will be used to address the growing demand for oil field and shale gas wastewater recycling. The loan will be drawn progressively throughout the construction phase;
- Strengthened balance sheet. The Company restructured approximately $3 million of short-term debt, converting it to long-term debt maturing in 2017. Hallmark Resources Ltd. (“Hallmark”), Aqua-Pure's controlling shareholder, agreed to convert an existing demand loan in the principal amount of US $700,000 to a debenture on the same terms as the August 2013 convertible debt financing and revised the terms of its $7.02 million convertible debenture such that (i) the debenture will mature on January 15, 2017 rather than November 12, 2014 and (ii) the interest rate will increase from 5% to 8%, effective on November 13, 2014 and for the remainder of the revised term of the debenture. In addition, Hallmark agreed to not be repaid on its remaining promissory notes until the Company achieves positive EBIDTA.
“We have experienced a rapid transformation and diversification of our business during 2013, which has enabled us to meaningfully improve our financial condition. During 2013 we cut our losses almost in half to $2.9 million compared to 2012's comprehensive loss of $5.6 million. Importantly, we are beginning to experience the benefits of our diversification strategy as the fourth quarter 2013 revenue increased to $2.4 million, an increase of approximately 150% over the prior year and 64% over the third quarter, marking this our fourth consecutive revenue growth quarter. This increase was coupled with material gross margin expansion," commented Jake Halldorson, CEO of Aqua-Pure. "We anticipate that 2014 will be the year we reap the benefits of our diversification strategy through increasing our revenues and growing our cash flow and profitability."
Aqua-Pure reported revenues of $6.1 million for 2013, a 6.6% decrease over the previous year level of $6.5 million. The decrease in revenues was primarily the result of the Company's decision to terminate its operations in the Eagle Ford in Q4 2012 due to lower than contracted flowback levels from a small independent, as well as the decommissioning of two NOMADs in the Barnett Shale Basin at the end of November 2013 due to a slowdown in a customer's development program in the dry gas shale play. During the third quarter 2013, however, Aqua-Pure successfully remobilized two NOMAD water treatment units from the Eagle Ford and commenced operations in the Permian basin. Additionally, during Q4 2013 two additional units commenced operations for a second customer in the Permian basin. Both of these new customers have indicated expansion opportunities as their drilling and development program is executed. The Company anticipates a material increase in revenue during 2014 as it maintains its four NOMAD units in the Permian Basin along with possible expansion opportunities, consistently contracting its ROVER unit, realizing royalty and licensing revenue from a water services company in the Marcellus Shale region, and increasing contributions from FQS Ventures, LLC. as a strong pipeline of opportunities has been generated that is being closely managed by both companies.
The Company reported a comprehensive loss of $(3.2) million or $(0.035) per basic share for 2013, which included a gain of $168,000 on sale of assets, a gain of $635,000 on settlement / modification of debt ($419,000 of which represents the extension into 2017 of the Hallmark convertible debt that is controlled by an officer and director of Aqua-Pure), a foreign currency exchange gain of $1.2 million and financing costs of $2.0 million. This compares to a comprehensive loss of $(5.6) million or $(0.06) per basic share for 2012, which included financing costs of $1.3 million and foreign currency translation loss of $338,000. Aqua-Pure reported a loss from continuing operations of $(4.4) million in 2013 compared to $(5.4) million during the prior year. The improvement was mostly due to higher gross margins as a result of the Company's decision to shift activity into oil shale plays and foreign currency translation gains partially offset by higher selling, general and administrative expenses and financing costs.
Aqua-Pure's gross profit on revenue totaled $1.9 million in 2013, yielding a gross margin of 32% compared to a 15% gross margin in the prior year. Aqua-Pure's diversification strategy 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 expects its gross margin to continue to expand during 2014 as all of its production is generated within oil rich shale plays instead of the shale gas Barnett region where a significant portion of its 2013 water processing was sourced.
Operating expenses during 2013 totaled $5.0 million, an increase of $162,000 or 3.3 percent from the prior year level, reflecting predominately increased professional fees incurred for financial advisors and expenses incurred in sourcing and closing two convertible debentures, initiation of training Select Energy Services' business development team, increased trade show activity and additional personnel focused on the deployment of services in the Permian. The increase was partially offset by a decrease in engineering and product development with the completion and subsequent launch of the ROVER during the year.
The Company incurred interest expense in 2013 of $1.1 million plus accretion of debentures of $648,000 as compared to $899,000 in interest expense and $451,000 of accretion of debentures in 2012. During 2013, overall financing costs (interest, debenture accretion, derivative value, cost of financing) totaled $2.0 million, an increase of approximately $708,000 over the prior year of which $80,000 was attributed to non-cash loss on fair value of derivatives. Financing cost increased due to costs and interest associated mostly with the $2.2 million 8% convertible debenture issued on August 8, 2013 and the $2.15 million 8% convertible closed in March 2013.
For the fourth quarter ended December 31, 2013, Aqua-Pure revenues totaled $2.4 million, a 149% increase from the prior fourth quarter revenues of $978,000 and a 64% increase from the previous third quarter 2013 revenue of $1.5 million. The significant increase in revenue was the result of two additional sites commencing operations in late Q3 and Q4 2013. The Company booked a near record gross profit of $942,000 compared to $50,000 booked in Q4 2012 and $274,000 booked in Q3 2013. Gross profit as a percent of sales improved to 39% from 5% in Q4 2012 and 18% in Q3 2013. The margin improvement reflects the higher prices in the oil shale region 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. Fourth quarter operating expenses increased over prior year fourth quarter by $331,000 (23%) to $1.8 million primarily due to costs related to increased marketing and professional fees of $249,000 and foreign exchange loss of $(148,000), partially offset by lower engineering and product development costs. Fourth quarter 2013 operating expenses increased by $570,000 over the prior third quarter due to increased professional fees, marketing and business development activity, as well as a negative $192,000 foreign currency exchange reversal. The Company's fourth quarter 2013 loss from operations totaled $(1.3) million compared to the prior year fourth quarter loss of $(1.9) million and previous third quarter 2013 operating loss of $(602,000).
The net comprehensive loss during the fiscal fourth quarter was $(750,000) or $(0.008) per basic share, which included a foreign currency translation gain of $555,000, compared to a comprehensive net loss of $(2.2) million or $(0.02) per basic share in the previous fiscal year fourth quarter, which included a foreign exchange translation loss of $(336,000). The fourth quarter 2013 comprehensive loss also compares to a loss of $(876,000) or $(0.01) per basic share for the third quarter of 2013, which included a foreign exchange translation loss of $(274,000).
At December 31, 2013, the Company reported cash and cash equivalents of $111,000, accounts receivable of $505,000 (DSOs less than 30 days), inventory of $483,000 and prepaid expenses of $333,000. Total assets during 2013 increased by $806,000 to $18.2 million from year end 2012 due primarily to the effect of the foreign exchange during the year and the deployment of proceeds to build equipment. On December 31, 2013, the Company's short-term debt totaled $2.9 million, a decrease of approximately $2.5 million during the year, $3.0 million of which was reclassified to long term debt maturing in 2017. The Company's long-term debt increased by approximately $7.1 million to $13.9 million. Of the Company's overall debt totaling $16.8 million, $12.3 million is held by a company that is a control person of Aqua-Pure and is held in part by two directors of Aqua-Pure.
As of December 31, 2013, Aqua-Pure had approximately 91.5 million shares of common stock outstanding, equivalent to the shares outstanding at year end for the last two years. Aqua-Pure's fully diluted shares on December 31, 2013 totaled approximately 124.1 million (inclusive of all options; warrants; and convertible debt). This represents an increase of 20.3 million shares or 19.5% from the prior year fully diluted share count as a result of the US $4.35 million convertible financings that occurred in March and August 2013. The debentures issued in 2013 can be converted into common shares at US$0.30 per share. The exercise of all outstanding options and warrants would generate approximately $3.8 million in additional working capital for the Company. As of December 31, 2013, the Company has tax loss carry forwards of approximately US$20.3 million in the United States and Cad$10.7 million in Canada, which expire between 2026 and 2033.
“We have weathered a difficult cold season in the oil patch beginning just after Thanksgiving, which has put many in the industry 3 to 5 months behind schedule.” commented Richard Broderick, newly appointed President and EVP of Business Development for Fountain Quail. “The converse is now upon us, with the warmer weather approaching, an upswing in the industry is rapidly developing and the trend toward water recycling/reuse is clearly visible in three large oil formations: The Permian, The Eagle Ford, and the Niobrara in Northeast Colorado. The new emphasis and scrutiny on water treatment imposed by governmental and non-governmental forces is increasing focus on recycling and reuse as a vital long-term sustainable and reliable solution for the industry's massive water needs required to support continued growth and energy independence.” Mr. Broderick continued, “Aqua-Pure's status as a proven, cost-advantageous water recycling veteran is attracting numerous inquiries from fracking regions that have become aware of the environmental and operational benefits of water recycling and, importantly, for its economic and reliability advantages, especially in drought affected regions. The pace of interest and pilot opportunities suggests that not only will our current customer opportunity grow, but our customer and geographic diversification will continue in 2014.”
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About Aqua-Pure Ventures Inc.
Aqua-Pure (www.aqua-pure.com) is a 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 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, at or near site recycling alternatives for both shale gas and shale oil producers. The company is a 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. Specifically, this release contains forward-looking statements respecting revenue, gross margin, net income and cash flow 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 downturn in general economic conditions in North America and internationally, (2) the inherent uncertainties associated with the demand for oil and gas extracted through fracking operations, (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 resource and / or new technologies, 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 period ended
December 31, 2013 and 2012 (unaudited) and the year ended December 31,
2013 and 2012 is set out below. If there are any discrepancies between
the following financial information and the audited financial
statements, the audited financial statements will be deemed to be
correct. This information should be read in conjunction with the audited
consolidated financial statements 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.
(expressed in Canadian dollars)
|December 31, 2013||
December 31, 2012
|Cash and cash equivalents||$||111,323||$||361,455|
|Accounts and other receivables||504,779 108,170||344,481|
|Assets related to discontinued operations||5,667||217,244|
|Total current assets||1,438,038||1,436,227|
|Investment in joint venture||161,443||-|
|Property, plant and equipment||16,576,000||15,869,384|
|Total non-current assets||16,743,358||15,938,844|
|Liabilities and Equity|
|Accounts payable and accrued liabilities||4,139,106||2,827,681|
|Current portion of deferred revenue||584,167||519,078|
|Current portion of long-term debt||2,926,295||5,458,119|
|Liabilities related to discontinued operations||52,667||187,066|
|Total current liabilities||7,702,235||10,887,229|
Total non-current liabilities
|Equity (deficiency) attributable to equity holders of the parent|
|Equity portion of convertible debenture||1,683,587||1,323,227|
|Reserve – translation of foreign operations||156,982||(1,006,592)|
|Total equity (deficiency)||(4,552,108)||(1,908,577)|
|Total liabilities and equity (deficiency)||$||18,181,395||$||17,375,071|
AQUA-PURE VENTURES INC.
(expressed in Canadian dollars)
|Three months ended||Twelve months ended|
|December 31,||December 31,|
|Cost of sales||(1,491,971)||(927,633)||(4,140,442)||(5,541,584)|
|Selling, general and administrative expenses||975,376||726,790||2,916,144||2,387,106|
|Engineering and product development||416,654||392,581||1,218,689||1,639,633|
|Foreign exchange loss (gain)||147,610||(5,065)||158,368||(7,577)|
|Stock based compensation||105,312||83,865||226,675||232,016|
|Loss before other expenses and financing costs||(817,140)||(1,377,667)||(3,114,312)||(3,923,672)|
|Gain on sale of assets||19||10,869||168,351||11,404|
|Gain on settlement of debt, net||(213,413)||-||634,984||-|
|Write-off of assets||(6,427)||(146,927)||(7,277)||(146,927)|
|Loss before financing costs||(1,036,961)||(1,513,725)||(2,318,254)||(4,059,195)|
|Accretion of debentures||278,904||102,684||647,998||451,278|
|Financing related issue costs||(3,818)||-||211,465||-|
|Loss on fair value of derivative||(294,539)||-||80,011||-|
|Net financing costs||271,714||356,455||2,034,682||1,327,057|
|Net loss from continuing operations||(1,308,675)||(1,870,180)||(4,352,936)||(5,386,252)|
|Income (loss) from discontinued operations||3,769||(23,498)||(41,202)||81,896|
|Other comprehensive loss|
|Exchange gain (loss) on translation of foreign operations||555,367||(336,218)||1,163,574||(337,979)|
|Comprehensive income (loss)||$||(749,539)||$||(2,229,896)||$||(3,230,564)||$||(5,642,335)|
|Loss per share:|
|Basic and diluted loss per share from continuing operations||$||(0.008)||$||(0.024)||$||(0.035)||$||(0.063)|
|Basic and diluted loss per share from discontinued operations||$||0.000||$||(0.000)||$||(0.000)||$||0.001|
|Basic and diluted loss per share||$||(0.008)||$||(0.024)||$||(0.035)||$||(0.062)|
Aqua-Pure Ventures Inc.
Karim Teja, 403-301-4123 ext 26
Chief Financial Officer
Grannus Financial Advisors, Inc.
Yvonne Zappulla, 212-681-4108