AQE

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 three and nine months ended September 30, 2013.

During the Company’s third quarter of 2013:

• Aqua-Pure received notification yesterday, November 25, 2013 that its customer in the dry gas Barnett Shale Basin would suspend its operations in the area prior to year end due to a slowdown in the customer’s development program. The customer has informed Aqua-Pure that they may have other recycling opportunities in other geographic areas in which they operate as corporate plans and reviews of future drilling activity and water requirements are determined. Aqua-Pure generated revenues of $1.0 million in the third quarter and $2.9 million for the nine month period of 2013 from this customer. Aqua-Pure has a long standing relationship with the customer and will continue to work with them to identify future suitable recycling opportunities. While the decision by this customer was not anticipated by Aqua-Pure, over the past few years, the Company has strategically been successful in diversifying its efforts away from shale gas towards the more lucrative oil field installations;

• The Company installed four NOMAD units in the Permian Basin of which the first two units, contracted by a large, independent oil and gas company, began processing flow back water late in the third quarter. The second two units were installed at a Pioneer Natural Resources Company site in November and are expected to begin processing water by month end;
• The Company activated its exclusive Fountain Quail Water Management and Select Energy (a leading water solutions and oilfield service company) joint venture (“FQS”) following the highly successful oil and gas wastewater recycling project with one of the most active operators in the Permian Basin. 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, traceable H2S present in the produced water was reduced to undetectable levels. The ROVER proved to work effectively and consistently under all variations of conditions, and the clean brine produced was able to be reused in a broad range of drilling operations. To launch the FQS, Select effectively purchased half of the first ROVER which is now in operation;
• Aqua-Pure expanded Richard Broderick’s role in the Company, appointing him President of Fountain Quail Water Management. In addition, Mr. Broderick has assumed the chairman position of Fountain Quail’s recently launched 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;
• It secured an additional US $1.5 million of capital from the sale of Convertible Debentures to international investors in August 2013;
• The Company continued to strengthen its balance sheet by reclassifying approximately $3 million of short-term debt to long-term debt maturing in 2017. In conjunction with the August 2013 financing, Hallmark Resources Ltd. (“Hallmark”), Aqua-Pure's controlling shareholder, converted an existing demand loan in the principal amount of US $700,000 to a debenture on the same terms as the offering. Hallmark also agreed to revise the terms of its $7.0 million convertible debenture such that (i) the debenture will mature on January 15, 2017 rather than November 12, 2014 and (ii) the interest rate shall be increased from 5% to 8% effective on November 13, 2014 for the remainder of the revised term of the debenture. In addition, Hallmark converted $3,000,000 principal of its 8% promissory notes that were due on demand into a term loan bearing 8% interest and maturing on January 15, 2017. Hallmark also agreed to not be repaid on its remaining promissory notes until the Company achieves positive EBIDTA.

Aqua-Pure reported third quarter 2013 revenues of $1.5 million compared to $1.9 million for the same period of the previous year and $1.3 million for the second quarter of 2013. The decrease in the year-over-year revenues was expected by Company management and reflects the continuing impact of the Company’s decision to terminate operations with a small, independent oilfield service company located in the Eagle Ford in the fourth quarter 2012 due to lower than contracted flow back levels. The Company’s two NOMAD units that had been operating in the Eagle Ford have since been redeployed by a larger, independent oil and gas operator in the Permian basin, for which operations commenced late in Q3 2013. Consequently, revenues in the third quarter 2013 increased over the second quarter due to the successful remobilization of the company’s first two NOMADs into the Permian. In addition, Company successfully launched its ROVER clarifier into the Permian Basin in September 2013, which had a small contribution to revenues in the third quarter and is expected to have a greater impact in subsequent quarters. While the company will be decommissioning its two NOMADs in the Barnett Shale Basin at the end of November 2013, Aqua-Pure anticipates an increase in revenue in subsequent quarters as the first two NOMADs will be in operation for an entire quarter and as an additional two NOMADs (also in the Permian) contracted by Pioneer begin to generate revenue in December. The expected first full quarter in which all four newly located NOMADs in the Permian Basin will be operating is the first quarter 2014.

The Company reported a comprehensive loss of $(876,000) or $(0.010) per basic share for the third quarter of 2013, which included a gain of $168,000 on the sale of half ownership of the first ROVER unit to the Select Energy joint venture, a gain of $848,000 for settlement of debt (half of which represents the extension into 2017 of the Hallmark debt) that is controlled by an officer and director of Aqua-Pure), and foreign currency exchange loss of $(274,000). This compares to a comprehensive loss of $(1.0) million or $(0.013) per basic share for the same period in 2012, which included a foreign currency exchange loss of $(48,000), and $(545,000) or $(0.005) per basic share for the second quarter 2013, which included foreign currency exchange gain of $566,000. During the third quarter 2013, Aqua-Pure incurred a loss from operations, before financing costs and other expenses, of $(870,000) versus a loss from operations of $(832,000) during the same period of the prior year and a loss from operations of $(576,000) in the second quarter 2013. The Company’s operating profits during the third quarter 2013 were negatively impacted by one-time start-up costs totaling approximately $338,000 related to the placement of 4 NOMADs and 1 ROVER in the Permian Basin, and its cost of sales included approximately $250,000 related to transport and set-up costs for the recently installed four Nomads.

The Company reported gross profit of approximately $274,000 during the third quarter, which included the one-time costs of approximately $250,000 related to equipment delivery and set-up of the recent NOMAD installations. Excluding the delivery and set-up costs, gross margins would have been approximately 35% for the quarter, which is approximately in line with the 37% reported in the second quarter of 2013. 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, should deliver increasing gross margin as the implementation of its strategy continues.

Operating expenses during the third quarter of 2013 totaled $1.1 million, an increase of approximately $32,000 or 2.9% over the third quarter of 2012, reflecting expenses incurred in sourcing and closing the financings, additional investor relations activity and additional personnel focused on the deployment of services in the Permian offset by a decrease in stock based compensation and foreign exchange gain. Operating expenses increased approximately $102,000 when compared to the second quarter 2013 primarily due to $128,000 of engineering set up costs related to the deployment of its NOMAD equipment on two sites in the Permian. This was off-set by a $123,000 gain in foreign currency exchange.

Interest expense for the three months ended September 30, 2013 totaled $299,000 plus accretion of debentures of $114,000 compared to $220,000 in interest expense and $91,000 of accretion of debentures during the third quarter of 2012 and $275,000 in interest expense and $148,000 of accretion of debentures during the second quarter 2013. Overall financing costs (interest, debenture accretion, derivative value, cost of financing) increased over the prior year third quarter by approximately $437,000 of which $238,000 was attributed to non-cash loss on derivative value. This was also an increase over the second quarter 2013 by $213,000 primarily due to costs and interest associated with the $2.2 million convertible debenture issued on August 8, 2013 that bears interest of 8% paid quarterly in cash and the first full quarter of interest on the $2.15 million 8% convertible closed in March 2013.

For the nine months ended September 30, 2013, Aqua-Pure reported revenues of $3.6 million, a 34% decrease compared to the same period in 2012, largely reflecting the removal of equipment from Eagle Ford that was re-commissioned into the Permian. The Company reported a comprehensive loss for the nine months ended September 30, 2013 totaling $(2.5) million or $(0.027) per basic share compared to $(3.4) million or $(0.038) per basic share for the same period in 2012.

At September 30, 2013, the Company reported cash and cash equivalents of $856,000, accounts receivable of $442,000 and inventory of $460,000. Total assets during the third quarter increased by $673,000 to $18.1 million from year end 2012 due primarily to the effect of the recent financing and the deployment of proceeds to build equipment. On September 30, 2013, the Company’s short-term debt totaled $2.6 million, a decrease of approximately $4.0 million during the third quarter, $3.0 million of which was reclassified to long term debt maturing in 2017. The Company’s long-term debt increased by approximately $3.6 million to $12 million. Of the Company’s overall debt totaling $16.8 million, $12.4 million is held by a company controlled by an officer and director of Aqua-Pure.

On September 30, 2013, Aqua-Pure common stock outstanding totaled approximately 91.5 million shares, consistent with year-end 2012. As a result of the August financing and issuance of options, the Company’s fully diluted shares increased 10.3 million shares during the three months to approximately 124.7 million, inclusive of all options, warrants, and convertible debt, which upon the conversion of all options and warrants would generate approximately $3.8 million in additional working capital for the Company.

“We have experienced a rapid transformation and further diversification of our business during 2013, which has enabled us to achieve our third sequential revenue growth quarter. While the timing of the decommissioning of our two long standing NOMADs in the dry gas Barnett Shale is not optimum, the net effect should not interrupt our quarterly sequential revenue growth, albeit at a temporarily reduced pace until the two NOMADs are contracted into more lucrative oil shale plays,” commented Aqua-Pure’s CEO, Jake Halldorson. “The fracking industry is recognizing the recycling of contaminated flow back and produced water for its environmental and operational benefits, and now, importantly, for its economic advantages in drought affected regions, just at the time as Aqua-Pure advances its highly competitive position in the industry. Up until recently, we generated most of our revenue from one customer in one gas shale play. Today we have three customers, expanded our technology offering and contracted our equipment in several regions of the country, capable of addressing opportunities in both gas and oil plays. We are also fortunate to have attracted leading industry management talent and a powerful joint venture partner to support our effort. We look forward with confidence to continuing to grow revenues as we further diversify our customer base and prove out the benefits of our technologies.”

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 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 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.

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 and gross margin expectations for the balance of 2013. 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 September 30, 2013 is set out below. This information should be read in conjunction with the 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.CONSOLIDATED BALANCE SHEETS(expressed in Canadian dollars)

 

         

 

September 30, 2013

(Unaudited)

  December 31, 2012 Assets Current assets: Cash and cash equivalents

$

855,940

$ 361,455 Accounts and other receivables

442,492

344,481 Inventories 459,673 418,725 Prepaid expenses 173,393 94,322 Assets related to discontinued operations 6,285 217,244 Total current assets 1,937,783 1,436,227 Non-current assets: Investment in joint venture 150,489 - Property, plant and equipment 15,937,975 15,869,384 Intangible assets 21,801 69,460 Total non-current assets 16,110,265 15,938,844 Total assets

 

$

$ 18,048,048 $ 17,375,071   Liabilities and Equity Current liabilities:

Bank indebtedness

$

-

$ 1,895,285 Accounts payable and accrued liabilities 3,511,201 2,827,681 Current portion of deferred revenue 698,532 519,078 Current portion of long-term debt 2,624,813 5,458,119 Liabilities related to discontinued operations 55,567 187,066 Total current liabilities 6,890,113 10,887,229 Non-current liabilities: Deferred revenue 1,154,757 1,563,770 Long-term debt 3,504,624 593,094 Derivative liability 2,285,090 - Convertible debentures 8,481,704 6,239,555 Total non-current liabilities 15,426,175 8,369,419 Total liabilities 22,316,288 19,283,648 Equity (deficiency) attributable to equity holders of the parent   Share capital 49,553,893 49,553,893 Equity portion of convertible debenture 1,323,227 1,323,227 Contributed surplus 7,828,807 7,707,443 Reserve – translation of foreign operations (398,385) (1,006,592) Deficit (62,575,782) (59,486,548) Total equity (deficiency) (4,268,240) (1,908,577) Total liabilities and equity (deficiency) $ 18,048,048 $ 17,375,071

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

  Three Months ended

September 30

  Nine Months ended

September 30

2013   2012 2013   2012   Revenue $ 1,482,972 $ 1,874,742 $ 3,634,628 $ 5,520,647 Cost of sales (1,209,081) (1,595,515) (2,648,471) (4,613,951) Gross profit 273,891 279,227 986,157 906,696   Operating expenses Selling, general and administrative 555,109 503,670 1,940,768 1,660,316 Engineering and product development 443,281 397,829 802,035 1,247,052 Amortization expense 145,666 131,424 408,405 399,694 Foreign exchange loss (gain) (51,470) (5,923) 10,758 (2,512) Stock based compensation 50,914 84,583 121,363 148,151 Total operating expenses 1,143,500 1,111,583 3,283,329 3,452,701   Loss before other expenses and financing costs (869,609) (832,356) (2,297,172) (2,546,005)   Other expenses Gain on sales of assets 168,332 535 168,332 535 Gain on settlement of debt, net 848,397 - 848,397 - Write-off of assets - - (850) - Loss before financing costs 147,120 (831,821) (1,281,293) (2,545,470)   Financing costs Interest income (24,711) (58) (26,634) (22,073) Interest expense 299,204 219,962 830,675 644,081 Accretion of debentures 113,957 90,713 369,094 348,594 Financing related issue costs 120,674 - 215,283 - Loss on fair value of derivative 238,422 - 374,550 - Net financing costs 747,546 310,617 1,762,968 970,602   Net loss from continuing operations (600,426) (1.142,438) (3,044,261) (3,516,072) Income (loss) from discontinued operations (1,894) 171,603 (44,973) 105,394   Other comprehensive loss

Exchange gain (loss) on translationof foreign operations

(273,905)

(47,516)

608,207

(1,761)

Comprehensive income (loss) $ (876,225) $ (1,018,351) $ (2,481,027) $ (3,412,439)   Loss per share:

Basic and diluted loss per share fromcontinuing operations

 

$

(0.009)

$

(0.013)

$

(0.026)

$

(0.0384)

Basic and diluted loss per share fromdiscontinue operations

$

(0.000)

$

0.002

$

(0.000)

$

0.0012

Aqua-Pure Ventures Inc.Karim Teja, 403-301-4123 ext 26Chief Financial OfficerorGrannus Financial Advisors, Inc.Yvonne Zappulla, 212-681-4108