Formation Fluid Management Inc.
TSX VENTURE : FFM

Formation Fluid Management Inc.

March 02, 2015 09:00 ET

Formation Fluid Announces Second Quarter Results

CALGARY, ALBERTA--(Marketwired - March 2, 2015) - (TSX VENTURE:FFM) - Formation Fluid Management Inc. ("Formation Fluid" or the "Company") announces its consolidated financial results for the three and six month periods ended December 31, 2014 and 2013. The Company did not generate any revenues in the second quarter itself due to seasonal winter shutdown of operations.

FISCAL 2015 KEY TAKEAWAYS

  • Gross margin of 65%;
  • Cash position of over $2.0 million;
  • Working capital of over $1.7 million;
  • Shareholders' equity of over $5.8 million;
  • Seasonal nature of remediation work resulted in $0 revenue for the quarter
  • Company is developing year round commercial applications for the Hydro-Cycle

FINANCIAL SUMMARY

Three months ended
December 31,
Six months ended
December 31,
2014 2013 2014 2013
Revenues $NIL $32,283 $1,154,480 $2,577,820
EBITDA (1) ($507,869 ) ($342,856 ) ($28,945 ) $1,092,400
Diluted per share ($0.01 ) ($0.01 ) ($0.00 ) $0.03
EBITDA as % of revenues (1) N/A (1062 %) (3 %) 42 %
Funds from operations (1) ($507,869 ) ($342,856 ) ($28,945 ) $1,077,917
Diluted per share ($0.01 ) ($0.01 ) ($0.00 ) $0.03
Net earnings ($601,443 ) ($389,830 ) ($455,512 ) $984,545
Basic per share ($0.01 ) ($0.01 ) ($0.01 ) $0.03
Diluted per share ($0.01 ) ($0.01 ) ($0.01 ) $0.02
Property & equipment additions (disposals); net cash $570,364 $6,700 $1,254,035 $(11,450 )
Weighted average shares outstanding:
Basic 51,137,291 38,904,243 51,131,856 38,904,243
Diluted 62,148,380 42,104,243 61,993,488 42,104,243
As at December 31,
2014 2013
Working capital $1,787,757 $163,106
Total assets $6,941,681 $4,050,188
Loans excluding current portion $723,118 $NIL
Total shareholders' equity $5,868,477 $3,565,864
(1) Refer to Non-GAAP discussion below.

Business Outlook

The Company expects activity levels to resume to previous levels due to the following factors:

  • The successful completion of two major remediation projects has demonstrated the efficiency and robustness of the Company's equipment, allowing FFT to offer clients the ability to clean saline spills as well as produced water to potable water standards;
  • Remediation work that the Company has done in the past 2 years has been completed between spring thaw and fall freeze up. The seasonality of this work will most likely continue.
  • Fabrication of additional equipment will be complete by the spring remediation season, this will double the operating capacity the Company had in previous years.
  • In the current low oil price environment the industry is focused on ways to save money. FFM's Hydro-cycle system can save oil companies over 50% on water management through re-use.
  • The company is commercializing additional uses of the Hydro-cycle technology. These additional uses are year round applications which involve cleaning of produced water for oil & gas industry re-use ;
  • Potential re-uses of cleaned produced water include; frac water, polymer flood, input water for boilers in SAGD operations;
  • The Company's expanded shop facilities now includes testing facilities allowing the company to evaluate water samples from customers.

Financial Results

During the six months ended December 31, 2014, the Company generated $1,154,480 (2013: $2,577,820) in revenue from water remediation services and incurred field expenses of $400,739 (2013: $1,033,830) resulting in gross margin of $753,741 (2013: $1,543,990) or 65% (2013: 60%), and net loss of $455,512, $0.01 basic and diluted loss per share (2013: net income of $984,545; $0.03 basic and $0.02 diluted income per share). EBITDA for the six months ended December 31, 2014 was negative $28,945 (2013: positive $1,092,400). Field expenses consist of the direct costs associated with providing the water remediation services generating the Company's revenues.

In the six months ended December 31, 2014 the Company generated cash provided by operations of $559,617 (2013: $692,774). The Company used net cash of $1,254,035 during the first six months ended December 31, 2014 for capital expenditures (2013: $(11,450)). The capital expenditures in the first half of fiscal 2015 were incurred to commence construction of additional water processing plants to meet expected customer demand.

The Company's financing activities in the six months ended December 31, 2014 generated cash of $588,523 from a long term bank loan agreement for the construction of capital equipment ($538,523) and the exercise of stock options ($50,000). During the six months ended December 31, 2013 the Company repaid short term bank indebtedness of $70,499. Total cash outflows exceeded total cash inflows during the period ended December 31, 2014 by $105,895. During the period ended December 31, 2013, total cash inflows exceeded total cash outflows by $633,725.

At December 31, 2014, the Company had cash of $2,027,561 and working capital of $1,787,757, (December 31, 2014: cash of $633,725, working capital of $163,106). Shareholders' equity at December 31, 2014 was $5,868,477 (December 31, 2013: $3,565,864).

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, stock-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:

Three months ended
December 31,
Six months ended
December 31,
2014 2014 2014 2014
Net earnings (loss) ($601,443 ) ($389,830 ) ($455,512 ) $984,545
Add:
Depreciation and amortization 50,728 46,477 113,624 104,459
Stock-based compensation 38,789 - 308,843 -
Provision for income taxes - - - -
Interest expense, net 4,057 497 4,100 3,396
EBITDA as reported ($507,869 ) ($342,856 ) ($28,945 ) $1,092,400

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:

Three months ended
December 31,
Six months ended
December 31,
2014 2013 2014 2013
Cash flows from operating activities ($146,493 ) ($340,842 ) $559,617 $692,774
Add:
Changes in non-cash working capital (365,433 ) (2,511 ) (592,662 ) 381,747
Provision for income taxes - - - -
Interest expense, net 4,057 497 4,100 3,396
Funds from operations ($507,869 ) ($342,856 ) ($28,945 ) $1,077,917

About Formation Fluids

Formation Fluid Technology 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: www.fftinc.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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