Formation Fluid Technology Inc.

Formation Fluid Technology Inc.

November 30, 2015 21:06 ET

Formation Fluid Announces Quarter End Results

CALGARY, ALBERTA--(Marketwired - Nov. 30, 2015) - (TSX VENTURE:FFM) - Formation Fluid Management Inc. ("Formation Fluid" or the "Company") announces its financial results for the three months ended September 30, 2015 and 2014.



  • Revenues of over $60,000;
  • Gross Margin of over 33%;
  • Decline of oil and gas prices have affected activity levels in the petroleum industry resulting in significantly decreased earnings and cash flow for the industry.


Continued performing pilot projects to create significant new applications for the Hydro-Cycle system beyond the historic remediation uses for the system;

The success in these projects will allow the Company to develop year round commercial applications for the Hydro-Cycle system which result in clean water available for re-use.


Quarter ended
September 30,
2015 2014
Revenues $60,451 $1,154,480
EBITDA (1) ($355,491 ) $478,924
Diluted per share (1) ($0.01 ) $0.01
EBITDA as % of revenues (1) (588 %) 41 %
Funds from operations (1) ($347,165 ) $478,924
Diluted per share (1) ($0.01 ) $0.01
Net earnings (loss) ($463,646 ) $145,931
Basic per share ($0.01 ) $0.00
Diluted per share ($0.01 ) $0.00
Equipment additions; net cash $123,921 $683,671
Weighted average shares outstanding:
Basic 52,026,421 51,126,421
Diluted 52,026,421 61,838,597
As at September 30,
2015 2014
Working capital ($789,008 ) $2,567,384
Total assets $5,585,912 $7,040,940
Loans excluding current portion $287,676 $470,455
Total shareholders' equity $4,361,980 $6,381,131
(1) Refer to Non-GAAP discussion below.

Business Outlook

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

  • Fabrication of an additional Hydro Pure unit is complete, this addition now provides the company with two sets of equipment. Manufacturing has also completed a combination (Hydro Clear and Hydro Pure) unit. Both new units were completed and started work in September 2015;
  • The successful completion of two major remediation projects has demonstrated the efficiency and robustness of the Company's equipment, allowing Formation Fluid to offer clients the ability to clean saline spills and decontaminate produced water to potable water standards;
  • The industry's continued focus on contaminated water issues is providing the Company with expanding market opportunities to provide water for fracs, water flood, polymer flood, and SAGD;
  • An aggressive marketing program in Western Canada has resulted in numerous inquiries from several major producers;
  • The Company's expanded shop facilities now includes testing facilities allowing the Company to provide clients with complete evaluation for their water and processing options; and,
  • The oil industry is focusing on ways to reduce costs. The Hydro-Cycle system can clean produced water for re-use, recycling or release in oilfield operations and this can save money and conserve surface water for other uses.

The Company has seen a slower growth rate than previously anticipated due to the following factors:

  • Decline of oil and gas prices have affected activity levels in the petroleum industry. During the past year oil prices have ranged from a high of approximately US$70/ bbl to a low of US$40/ bbl. This volatility has resulted in significantly decreased earnings and cash flow for the industry. At the time of writing the oil price was approximately US$44/bbl.
  • As result of decreased earnings and cash flow oil and gas companies have delayed and cancelled both capital and operating projects; and,
  • Oil and gas companies are refocusing their efforts on ways to cuts costs and save money. This has been detrimental to the Company in the short term as projects have been delayed. The Company believes that in the long term this focus on costs will be to our benefit. Our Hydro-Cycle system can save oil companies in excess of 50% on their water management program. The silver lining of the industry down turn is that companies now have the time and the incentive to look at cost saving technologies like our Hydro-Cycle system.

Financial Results

During the quarter ended September 30, 2015, the Company generated $60,451 (2014: $1,154,480) in revenue from water remediation services and incurred field expenses of $40,462 (2014: $400,739) resulting in gross margin of $19,989 (2014: $753,741) or 33% (2014: 65%), and net loss of $463,646, $0.01 basic and diluted loss per share (2014: net income of $145,931; $0.00 basic and diluted income per share). EBITDA for the quarter ended September 30, 2015 was negative $355,491 (2014: positive $478,924). Field expenses consist of the direct costs associated with providing the water remediation services generating the Company's revenues.

In the quarter ended September 30, 2015 the Company used cash in operations of $130,870 (2014: cash generated from operations of $706,110). The Company used net cash of $116,421 during the quarter ended September 30, 2015 for capital expenditures (2014: $683,671). The capital expenditures in the current period were incurred to complete the construction of additional water processing plants to meet expected customer demand.

The Company's financing activities in the quarter ended September 30, 2015 resulted in cash outflows of $69,265 corresponding to loan payable repayments. During the quarter ended September 30, 2014 the Company generated cash of $285,860 from proceeds from loan payable. Total cash outflows exceeded total cash inflows during the quarter ended September 30, 2015 by $316,556. During the quarter ended September 30, 2014, total cash inflows exceeded total cash outflows by $308,299.

At September 30, 2015, the Company had cash of $41,389 and negative working capital of $789,008, (2014: cash of $2,441,755, working capital of $2,567,384). Shareholders' equity at September 30, 2015 was $4,361,980 (2014: $6,381,131).

This financial information has been prepared on a going concern basis, with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. In assessing whether or not there are material uncertainties that may lend doubt as to the ability of the Company to continue as a going concern, management takes into account all available information about the future, which is at least but not limited to twelve months from the end of the reporting period. Management is aware of the material uncertainties that could cast significant doubt upon the Company's ability to continue as a going concern. The Company has negative cash flows from operations of $130,870 and a net loss and comprehensive loss of $463,646 for the quarter ended September 30, 2015, and negative working capital of $789,008 at September 30, 2015. As a result, the Company will need to raise additional financing within the next twelve months in order to meet its liabilities as they come due and to continue with its business activities.

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

Non-GAAP Measures

The Company uses certain performance measures throughout this document that are not recognizable under International Financial Reporting Standards ("IFRS"). 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 Company'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 IFRS as an indicator of Formation Fluid's performance. The Company'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, defined as earnings before interest, taxes, share-based compensation, 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:

Quarter ended
September 30,
2015 2014
Net earnings (loss) ($463,646 ) $145,931
Depreciation 73,266 62,896
Share-based compensation 29,986 270,054
Interest expense, net 4,903 43
EBITDA as reported ($355,491 ) $478,924

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 IFRS.

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

Quarter ended September 30,
Net cash (used in) provided by 2015 2014
Operating activities ($130,870 ) $706,110
Changes in non-cash working capital (221,198 ) (227,229 )
Interest expense, net 4,903 43
Funds from operations ($347,165 ) $478,924

Subsequent Events

On November 6, 2015, the Company announced that it had obtained two secured non-convertible loans (collectively, the "Loans") in the amounts of $200,000 and $500,000 from Ken Rose, President, CEO and Director of the Company (the "Ken Rose Loan"), and Patch International Inc. ("Patch") (the "Patch Loan"), respectively. The Ken Rose Loan is evidenced by a promissory note issued by the Company to Ken Rose on October 27, 2015 (the "Ken Rose Promissory Note") and secured by a general security agreement. The amount outstanding under the Ken Rose Promissory Note bears no interest and is due and payable on demand. The Patch Loan is evidenced by a promissory note issued by the Company to Patch on November 6, 2015 (the "Patch Promissory Note") and secured by a general security agreement. Amounts outstanding under the Patch Promissory Note shall incur interest at a rate of 10% per annum, payable in arrears at maturity, and will be due six months from the date of issue. The security interests of the Ken Rose Loan and Patch Loan shall rank parri passu. The Loans will be used by the Company for working capital and general and administrative expenses. Mr. Mark Bentsen, a director of the Company, is also a director of Patch and Mr. Ken Rose is the current President, CEO and a Director of the Company. Accordingly, the Loans are considered "related party" transactions pursuant to Multilateral Instrument 61-101 ("MI 61-101"). The Company is relying on the exemption available under section 5.7(f) of MI 61-101 from the minority shareholder approval requirement of MI 61-101. The issuance of the Patch Promissory Note and the Ken Rose Promissory Note are not subject to the formal valuation requirements.

On November 23, 2015, the Company announced that it has entered into a Cooperative Marketing agreement with Clear Environmental Solutions (Clear) a division of Canadian Energy Services & Technology Corp. (TSX:CEU). Under the terms of the agreement, Clear and the Company will market certain of each others services to existing and new clients.

On November 26, 2015, the Company announced that it has entered into a non-binding letter of intent (the "LOI") with an arm's length industry participant (the "Proposed Transaction Party") whereby the Company will acquire all of the issued and outstanding securities in the Proposed Transaction Party (the "Proposed Transaction"). It is anticipated that the Proposed Transaction will be completed in calendar 2016 and the Company will issue a further press release detailing the Proposed Transaction upon the signing of a definitive agreement or as otherwise required by applicable law. The entering into of the definitive agreement is subject to standard conditions, including, but not limited to, director approval, successful due diligence and final determination of the valuation of the parties. In addition to the LOI, the Company has advanced a secured non-convertible loan (the "Loan") in the amount of $250,000 to a wholly owned subsidiary of the Proposed Transaction Party (the "Loan Party"). The Loan is evidenced by a promissory note issued by the Loan Party to Company (the "Promissory Note") and secured by a general security agreement on certain water right assets of the Loan Party. Amounts outstanding under the Promissory Note shall accrue interest at a rate of 10% per annum, payable in arrears at maturity, and will be due on May 19, 2016. The Proposed Transaction Party is a fully integrated service company headquartered in Houston, Texas, that is dedicated to the safe and cost-effective collection, handling, transport, treatment, and reuse of contaminated water produced by conventional oil & gas production and hydraulic-fracturing flow-back water.

About Formation Fluids

Formation Fluid Management has developed a three stage waste water treatment plant (Hydro-Cycle) that uses a proprietary process to clean waste water. Each plant is mobile and can process up to 1000 m3 of water per day. 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 has identified commercial applications for the Hydro-Cycle system within the oil and gas industry. The waste water treatment system has a primary use to reduce producers costs of dealing with produced water. The system also satisfies the need to reuse and recycle an increasing valuable resource. For more information, please visit: 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.


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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