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 Teja
Chief Financial Officer
(403) 301 4123 ext 26

Yvonne Zappulla
Grannus 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 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.

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 governmentregulations 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 of
foreign 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)