Aqua-Pure Ventures Inc. ("Aqua-Pure" or the "Company") (TSX: AQE), today reported financial results for its year ended December 31, 2012. As a low cost provider of a patented on-site, gas and oil field wastewater treatment technology focused on water recycle and reuse, 2012 marked a year of multi-level strategic expansion. After recycling nearly 20 million barrels of shale gas wastewater in North Texas' Barnett shale since 2004, the Company moved to enhance its business in several ways:

  • Aqua-Pure successfully piloted and began to actively market a second product, ROVER that is a clarifier technology designed for primary treatment of shale gas flowback at or near the source. A mobilized small footprint system that recycles water on-demand near the wellhead, ROVER removes suspended solids and soluble organics from oil and gas wastewater, and returns clean brine that can be blended for re-use. The self contained system can treat up to 10,000 barrels of flowback and produced water per day;
  • The Company joined forces with Select Energy Services ("Select"), a leading water solutions and oilfield service company with annualized revenues in excess of $1 billion, over 5000 employees and operations within every major North American shale play, for the purposes of developing opportunities for wastewater recycling in the North American oil and gas industries. Under the joint venture, Aqua-Pure's wholly owned service company based in Texas, Fountain Quail Water Management LLC, will contribute its equipment and technological expertise to the joint venture, and Select will contribute capital to acquire and/or construct additional recycling equipment. Both parties will provide business development support to the venture. Aqua-Pure will earn a royalty stream from the joint venture from the exclusive licensing agreement which will come into effect with the venture's first project;
  • Aqua-Pure added a marquee hire to its senior management team through the appointment of 30-year, industry veteran Richard Broderick - most recently Global Leader, Oil and Gas for Schlumberger Water Services - to head up Aqua-Pure business development and serve as Chairman of the newly created subsidiary joint venture with Select Energy (FQS Venture, LLC);
  • Aqua-Pure redirected its resources in support of its strategy to focus and further develop its in-house core competencies and technologies and, as a result, terminated its distribution agreement with Salsnes Norway and discontinued this segment of the Company.
  • The Company achieved its third consecutive year as a Top 50 Water Company and one of the five most-promising emerging leaders with revenues over $5 million per year selected by The Artemis Project? ;
  • The Company focused on sourcing and nurturing opportunities in oil and liquids rich shale plays given the more attractive economics over dry gas. Subsequent to year end, the Company further diversified its business and entered the oil rich Permian basin with an order from a large independent oil and gas exploration company to install two 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 on or near-site; and,
  • Aqua-Pure strengthened its balance sheet and completed a private placement on March 6, 2013, totaling US $2.15 million in secured 8% - three year convertible debentures, exercisable into common shares at US $0.30 per share. For each US $1.00 principal amount of debentures, investors also received 1.33 warrants to purchase shares of the Company's common stock at an exercise price of US $0.40 per share until March 4, 2016. This represents the Company's first financing completed entirely with outside investors and is also the first financing completed outside of Canada. Heretofore, the Company has primarily been funded by related parties.

Commenting on industry trends and Aqua-Pure's strategy, the Company's CEO, Jake Halldorson, said, "Depletion of conventional resources coupled with uncertainty in global energy security has caused producers to shift to unconventional energy sources such as heavy oil, coal bed methane and shale gas. This shift has created an enormous demand for fresh water supply and the consequential requirement to properly dispose of contaminated wastewater unsuitable for environmental discharge. The once preferred method of trucking and injecting has become increasingly expensive. Importantly, deep well injection far below the earth's water table permanently removes water from the environment's hydrological cycle at a time when access to fresh water is becoming increasingly difficult, particularly in drought affected areas. Recycling and reuse is a vital long-term sustainable solution, and the emerging emphasis and scrutiny of water treatment imposed by governmental and non-governmental agencies comes at a fortuitous time. While Aqua-Pure has long been engaged in cost-effectively applying our patented technology to recycle contaminated frac flowback and produced water in the Barnett Shale, the time is now to expand our geographic reach and product capability to address the varied shale formations across North America."

Mr. Halldorson continued, "Aqua-Pure is working with companies to transform wastewater from a liability into an asset by making recycling available and affordable. The Company and its customers recognize that the vast Marcellus shale and other relatively new shale plays have fewer, easily accessible disposal wells as compared to established shale plays such as the Barnett. The environmental and regulatory challenges and costs of drilling more disposal wells in many of these newer plays is significant, making the Company's opportunity in those regions that much more significant. As our technology has been validated in the Barnett shale these past 8 years by Devon Energy; as we have won a number of technology awards and, now, have been selected by a premier water service company such as Select Energy as its joint venture partner, the ROVER and NOMAD solutions are recognized as not only environmentally prudent, but are also emerging as economically preferred solutions. I am pleased with the opportunity pipeline that is being built."

Aqua-Pure reported revenues of $6.5 million for 2012, a 23 percent increase over the previous year level of $5.3 million. The increase in revenues was primarily the result of a ROVER pilot project and initial revenues from a smaller independent operator in the Eagle Ford basin, resulting from the Company's plan to expand and diversify its target market. The Company anticipates a material increase in revenue during 2013 as it maintains its two NOMAD units in the Barnett Shale area, realizes increasing royalty and licensing revenue from a water services company in the Marcellus Shale region, and shifts two NOMAD units from Eagle Ford, where its operator was delivering flowback water at well below contracted levels, to a well site in the Permian basin contracted by a larger independent oil and gas operator. In addition, the 50/50 Select Energy and Fountain Quail partnership, FQS Venture, LLC has made significant progress over the past six months in identifying new opportunities and exposing the Company's technology and benefits of water recycling to a number of oil and gas exploration and production companies.

The Company reported a comprehensive loss of $(5.6) million or $(0.06) per basic share for 2012, which included financing costs of $1.3 million. This compares to a comprehensive loss of $(1.8) million or $(0.04) per basic share for 2011, which included a gain on sale of assets of $2.4 million and a gain on settlement of debt of $4.7 million, partially offset by financing costs of $4.1 million. Aqua-Pure reported a loss from operations of $(3.9) million in 2012 versus a loss from operations of $(4.9) million during the prior year. The loss in 2012 narrowed by $1 million due to higher revenues, improved gross margins and lower general and administration costs, which were partially offset by higher engineering costs as the Company completed development of new equipment and processes required in oil shale plays, as well as higher marketing expenses associated with the expansion into the oil shale market.

Aqua-Pure's gross profit on revenue totaled $957,000 in 2012, yielding a gross margin of 15 percent, compared to a negative gross margin in the prior year. The bulk of the Company's water processing had occurred in the Barnett Shale, which is predominately dry gas and currently lower gross margin business. The Company expects to achieve significantly higher gross margins as it continues the diversification of its business mix and expands into the oil rich shale regions and as the activity and secondary revenue from higher margined oil recovery and brine treatment are realized.

Operating expenses during 2012 totaled $4.9 million, a 3.6 percent increase from the prior year level. Engineering and product development increased by $685,883 or 72 percent during the year due to the product development effort on Rover, as well as additional engineering support required to modify equipment and protocols for treating oil and liquids rich shale frac water, which was offset by lower stock based compensation that fell by $417,000 to $232,000. While Aqua-Pure anticipates operating expenses to increase relative to increased business activity, such increases will be closely managed and timed to revenue growth to maximize operating margins.

The Company incurred interest expense in 2012 of $899,000 plus accretion of debentures of $451,000 as compared to $2.3 million in interest expense and $1.8 million of accretion of debentures in 2011. The total decrease in year over year financing costs of approximately $2.8 million was due to the conversion of $15.3 million of convertible debentures and interest into equity in late 2011, as well as the settlement of a $5.0 million interest bearing debenture.

For the fourth quarter ended December 31, 2012, Aqua-Pure revenues totaled $978,000 compared to revenues of $1.3 million in the prior year fourth quarter. This is also a decrease of 94 percent over the prior third quarter 2012 revenues of $1.9 million. The decrease in the current quarter was largely the result of a shift in strategy to diversify and expand operations into areas of increasing economics that is expected to result in significantly higher future year-over-year revenue, which came at the expense of near term results. Expenses in the fourth quarter were further negatively impacted by the cost of the decommissioning, moving, clean up and set-up costs of the relocated equipment. The net comprehensive loss during the fiscal fourth quarter was $(2.2) million or $(0.02) per basic share compared to a comprehensive income of $376,000 or $0.01 per basic share in the previous fiscal year fourth quarter, which included a foreign exchange gain, as well as a gain on the settlement of debt of $1.1 million. The fourth quarter 2012 comprehensive loss also compares to a loss of $(1.0) million or $(0.01) per basic share for the third quarter of 2012.

At December 31, 2012, including discontinued operations, the Company had cash and cash equivalents of $446,892, accounts receivable of $475,807 and inventory of $419,000. Total assets during 2012 decreased approximately 20 percent to $17.4 million, due to operating losses, a write-off related to a decrease in land values in 2012, and effects of the translation of foreign currency. On December 31, 2012, the Company's short term debt totaled approximately $7.4 million, an increase of approximately $1.5 million over the previous year-end, $5.5 million of which is held mostly by Company insiders. The Company's long term debt as of December 31, 2012 of $6.8 million includes $6.2 million in convertible debentures held by a company controlled by an officer and director of Aqua-Pure, which converted previously held convertible debentures in the amount of $15.3 million into shares of the Company's common stock in December 2011.

As of December 31, 2012, Aqua-Pure had approximately 91.5 million shares of common stock outstanding, equivalent to the shares outstanding at year end 2011. Aqua-Pure's fully diluted shares on December 31, 2012 totaled approximately 104.1 million (inclusive of all options; warrants; and convertible debt). This represents a decrease of 4.9 million shares from the prior year fully diluted share count. As a result of the private placement the Company completed on March 5, 2013 totaling US $2.15 million, the fully diluted share count as of April 15, 2013 increased to 114.6 million shares. Subsequent to year end, the Company issued a subordinated secured promissory note payable on demand to a company controlled by an officer and director of Aqua-Pure for an aggregate principal amount of US $600,000 bearing an annual interest rate of 5%. Some of the proceeds of the note and debenture were used to offset the Company's higher interest line of credit. As such, Aqua-Pure renewed its revolving credit line to a reduced limit of US $505,000 at a fixed interest rate of 9%. The Company believes more attractive terms may be available given the recent business traction and is actively exploring additional opportunities. As of December 31, 2012, the Company has tax loss carry forwards of approximately $20.3 million in the United States and $8.7 million in Canada, which expire between 2026 and 2032.

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.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 and twelve month periods ended December 31, 2012 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)

             
December 31,
  2012         2011  

Assets

Current assets:

Cash and cash equivalents $ 361,455 $ 2,037,531
Accounts and other receivables

344,481

559,534

Inventories 418,725 484,755
Prepaid expenses 94,322 439,841
Assets related to discontinued operations   217,244     331,719  
Total current assets 1,436,227 3,853,380
Non-current assets:
Property, plant and equipment 15,869,384 16,772,371
Intangible assets   69,460     133,005  
Total non-current assets   15,938,844     16,905,376  
Total assets

 

$ 17,375,071  

 

$

20,758,756

 
 

Liabilities and Equity

Current liabilities:

Bank indebtedness $ 1,895,285 $ 1,678,050
Accounts payable and accrued liabilities 2,827,681 2,165,332
Current portion of deferred revenue 519,078 563,608
Current portion of long-term debt 5,458,119 74,469
Current portion of convertible debentures - 4,129,772
Liabilities of discontinued operations   187,066     41,286  

Total current liabilities

  10,887,229     8,652,517  

Non-current liabilities:

Deferred revenue

1,563,770 2,125,298

Long-term debt

593,094 595,694

Convertible debentures

  6,239,555     5,883,505  

Total non-current liabilities

  8,369,419     8,604,497  

Total liabilities

19,283,648 17,257,014

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 3,105,969
Contributed surplus 7,707,443 5,692,685
Reserve - translation of foreign operations (1,006,592 ) (668,613 )
Deficit   (59,486,548 )   (54,182,192 )

Total equity (deficiency)

  (1,908,577 )   3,501,742  

Total liabilities and equity (deficiency)

$ 17,375,071   $ 20,758,756  
 
     

AQUA-PURE VENTURES INC.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(expressed in Canadian dollars)

 
Year Ended December 31,
    2012           2011  
   
Revenue $   6,498,619 $   5,272,869
Cost of sales     (5,541,584 )         (5,477,451 )
Gross profit     957,035           (204,582 )
 
Operating expenses
Selling, general and administrative 2,387,106 2,487,910
Engineering and product development 1,639,633 953,750
Amortization expense 629,529 694,502
Foreign exchange loss (gain) (7,577 ) (72,786 )
Stock based compensation     232,016           649,035  
    4,880,707           4,712,411  
Loss before other income and financing costs     (3,923,672 )         (4,916,993 )
Other income
Gain on sale of assets 11,404 2,380,479
Gain on settlement of debt, net - 4,696,826
Write-off of assets     (146,927 )         (57,434 )
    (135,523 )         7,019,871  
Income (loss) before financing costs     (4,059,195 )         2,102,878  
 
Financing costs
Interest income (23,378 ) (7,567 )
Interest expense 899,157 2,319,698
Accretion of debentures     451,278           1,828,559  
Net financing costs 1,327,057 4,140,690
       
Net loss from continuing operations (5,386,252 ) (2,037,812 )
Income (loss) from discontinued operations     81,896           (171,288 )
Net loss (5,304,356 ) (2,209,100 )
 
Other comprehensive loss

Exchange gain (loss) on translation of foreign operations

    (337,979 )         389,237  
Comprehensive loss $   (5,642,335 )     $   (1,819,863 )
 
Loss per share:

Basic and diluted loss per share from continuing operations

$

(0.0587

)

$

(0.0433

)

Basic and diluted loss per share from discontinued operations

$ 0.0008

$

(0.0036

)
 

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