Formation Fluid Management Inc.
TSX VENTURE : FFM

Formation Fluid Management Inc.

September 09, 2014 17:25 ET

Formation Fluid Announces First Profitable Year-End Results on Record Revenues

CALGARY, ALBERTA--(Marketwired - Sept. 9, 2014) - Formation Fluid Management Inc. (TSX VENTURE:FFM) ("Formation Fluid" or the "Company") announces its consolidated financial results for the years ended June 30, 2014 and 2013 and is very pleased to report that for the year ended June 30, 2014 the Company has achieved profitability for the first time due to record revenues.

2014 KEY TAKEAWAYS

  • Record revenues and earnings for the year in 2014;
  • Revenues for 2014 increased 583% over 2013;
  • Increase in yearly EBITDA in 2014 to $1,218,745 as compared to a negative EBITDA of $533,666 in 2013; and
  • Net earnings for 2014 of $1,015,584 as compared to a net loss of $(765,210) for 2013.

FINANCIAL SUMMARY

Year ended June 30,
2014 2013
Revenues $ 3,751,430 $ 549,470
EBITDA (1) $ 1,218,745 $ (533,666 )
Diluted per share $ 0.03 $ (0.01 )
EBITDA as % of revenues (1) 32 % (97 )%
Funds from operations (1) $ 1,405,687 $ (413,546 )
Diluted per share $ 0.03 $ (0.01 )
Net earnings (loss) $ 1,015,584 $ (765,210 )
Basic per share $ 0.03 $ (0.02 )
Diluted per share $ 0.02 $ (0.02 )
Property & equipment additions (cash) $ 346,577 $ 28,048
As at June 30,
2014 2013
Weighted average shares outstanding:
Basic 40,578,514 38,904,243
Diluted 44,766,608 40,167,805
Working capital $ 2,486,314 $ (922,865 )
Total assets $ 6,404,029 $ 3,845,298
Loans excluding current portion $ 184,595 $ nil
Total shareholders' equity $ 5,965,146 $ 2,581,319

(1) Refer to Non-GAAP discussion below.

Business Outlook

The Company expects to see continued strong growth as a result of the following factors:

  • The Next Generation RO unit has been designed and is currently under construction, with the capability to process contaminated water at industry expected cubic meter per minute flow rates and recover 92% of the water processed as potable water;
  • Testing of a new proprietary oil/ water separation technology has proven highly successful in removing emulsified oil from water, allowing FFT to offer clients the ability to clean produced water and frac water returns to potable water standards;
  • The Company's Board of Directors has approved a capital budget of $2.5 million for fabrication of additional equipment which will give the Company the ability to undertake up to four contracts concurrently;
  • The industry's continued focus on contaminated water issues such as the Mt. Polley tailing pond spill is providing the company with expanding market opportunities;
  • A marketing team is being assembled to begin an aggressive marketing program in Western Canada and the southern United States; and
  • The Company has expanded its office and shop facilities to accommodate the expected increase in growth.

Financial Results

During fiscal 2014, the Company generated $3,751,430 (2013: $549,470) in revenue from water filtration services and incurred field expenses of $1,555,891 (2013: $156,335) resulting in gross margin of $2,195,539 (2013: $393,135) or 58% (2013: 71%), and net income of $1,015,584, $0.03 basic income per share or $0.02 diluted income per share (2013: net loss $765,210, $0.02 basic and diluted loss per share). EBITDA for 2014 was $1,218,745 (2013: negative EBITDA $533,666). Field expenses consist of the direct costs associated with providing the water filtration services generating the Company's revenues.

In fiscal 2014 the Company generated cash provided by operations of $199,119 (2013: $41,084). The Company used net cash of $346,577 in 2014 for capital expenditures (2013: $28,048). The capital expenditures in 2014 were incurred to commence construction of additional water processing plants in the fourth quarter to meet expected customer demand.

The Company's financing activities in 2014 generated cash of $2,166,818 net of share issuance costs from a private placement financing. The Company also repaid short term bank indebtedness of $70,499 and entered into a long term bank loan agreement for the construction of capital equipment, which generated $184,595 in financing during fiscal 2014. In 2013 the Company incurred short term bank indebtedness of $69,132 to fund operations. Total cash inflows exceeded total cash outflows during the year ended June 30, 2014 by $2,133,456l (2013: Nil).

At June 30, 2014, the Company had cash of $2,133,456 and working capital of $2,486,314, (2013: cash of $nil, working capital deficit of $922,865). Shareholders' equity at June 30, 2014 was $5,965,146 (2013: $2,581,319).

The Company's full financial statements and management discussion and analysis are available online at SEDAR at www.sedar.com.

Non-GAAP Measures

FFM uses certain performance measures throughout this document that are not recognizable under Canadian generally accepted accounting principles ("GAAP"). These performance measures include EBITDA, EBITDA per share, funds from operations and funds from operations per share. Management believes that these measures provide supplemental financial information that is useful in the evaluation of the Corporation's operations and are commonly used by other oil and natural gas service companies.

Investors should be cautioned, however, that these measures should not be construed as alternatives to measures determined in accordance with GAAP as an indicator of FFM's performance. The Corporation's method of calculating these measures may differ from that of other organizations, and accordingly, these may not be comparable. Per share amounts are calculated using the treasury stock method whereby deemed proceeds on the exercise of the share options are used to reacquire common shares at an average share price. The calculations of per share amounts on a dilutive basis do not include anti-dilutive options.

EBITDA

EBITDA, defined as earnings before interest, taxes, depreciation and amortization, is not a financial measure that is recognized under GAAP. Investors should be cautioned that EBITDA should not be construed as an alternative measure to net earnings determined in accordance with GAAP.

The following is a reconciliation of net earnings to EBITDA:

Year ended June 30,
2014 2013
Net earnings (loss) $ 1,015,584 $ (765,210 )
Add:
Depreciation and amortization 201,817 226,368
Provision for income taxes - -
Interest expense, net 1,344 5,176
EBITDA as reported $ 1,218,745 $ (533,666 )

Funds from Operations

Funds from operations is defined as cash flows generated from operating activities before changes in non-cash working capital. Investors should be cautioned that this financial measure should not be construed as an alternative measure to cash flows from operating activities determined in accordance with GAAP.

The following is a reconciliation of cash flows from operating activities to funds from operations:

Year ended June 30,
2014 2013
Cash flows from operating activities $ 199,119 $ (41,084 )
Add:
Changes in non-cash working capital 1,205,224 (377,638 )
Provision for income taxes - -
Interest expense, net 1,344 5,176
Funds from operations $ 1,405,687 $ (413,546 )

About Formation Fluids

Formation Fluid Technology has developed a waste water treatment plant that uses a proprietary process to clean waste water. The system is mobile and can be scaled to process required volumes. This system treats water to meet or exceed CCME Guidelines (Canadian Environmental Quality Guidelines), resulting in reusable water that can be used for: Boilers, Frac Water, Water Floods, and Drilling Operations. Formation Fluids is seeking to service a significantly underdeveloped segment within the oil and gas industry; its waste water treatment system is intended to cost effectively deal with produced water while satisfying the need to reuse and recycle an increasing valuable resource. For more information, please visit: www.formationfluid.com or contact Investor Relations at 403 887-8874.

On behalf of the Board of Directors.

Ken Rose, Chief Executive Officer

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.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

Certain statements contained in this news release, including references to the Company's receipt of applicable approvals, may constitute forward-looking information under applicable Canadian securities legislation. These statements relate to future events and are prospective in nature. All statements other than statements of historical fact may constitute forward-looking statements or contain forward-looking information. Forward-looking statements are often, but not always, identified by the use of words such as "may", "will", "project", "predict", "potential", "plan", "continue", "estimate", "expect", "targeting", "intend", "could", "might", "seek", "anticipate", "should", "believe" or variations thereof. Forward-looking information may relate to management's future outlook and anticipated events or results and may include statements or information regarding the future plans or prospects of the Company. Forward-looking information is subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements. The Company believes that the expectations reflected in the forward-looking statements contained in this news release are reasonable, but no assurance can be given that they will prove to be correct. Actual results and future events may differ materially from those anticipated and accordingly forward-looking statements should not be unduly relied upon. Forward-looking statements contained in this document speak only as of the date of this news release. Except as required by applicable law, the Company disclaims any obligation to update any forward-looking information.

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