CALGARY, ALBERTA--(Marketwired - May 30, 2016) - Formation Fluid Management Inc. (TSX VENTURE:FFM) ("Formation Fluid", "FFM" or the "Company") announces its financial results for the three and nine months ended March 31, 2016 and 2015.

THREE AND NINE MONTH RESULTS - FISCAL 2016

KEY TAKEAWAYS

  • On April 11, 2016 the company initiated a strategic review process. This process is underway with Canaccord Genuity as financial advisor;
  • The Company has received a non-binding letter of intent from Robix. This is a positive sign of interest in FFM. The strategic review process will continue and the special committee will evaluate all strategic alternatives;
  • First tranche of a private placement was closed May 20, 2016. This will provide the resources for the company to evaluate all alternatives through the strategic alternative process;
  • 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 and in turn the company.
  • FFM continues to actively market our services in Western Canada and recently into the United States with marketing partners.

FINANCIAL SUMMARY

Three months ended Nine months ended
March 31, March 31,
2016 2015 2016 2015
Revenues $8,000 $NIL $161,395 $1,154,480
EBITDA (1) ($395,147) ($589,749) ($1,285,021) ($620,403)
Diluted per share (1) ($0.01) ($0.01) ($0.02) ($0.01)
EBITDA as % of revenues (1) (4939%) N/A (796%) (54%)
Funds from operations (1) ($395,147) ($589,749) ($1,280,805) ($620,403)
Diluted per share (1) ($0.01) ($0.01) ($0.02) ($0.01)
Net earnings (loss) ($540,228) ($701,706) ($1,697,568) ($1,157,218)
Basic per share ($0.01) ($0.01) ($0.03) ($0.02)
Diluted per share ($0.01) ($0.01) ($0.03) ($0.02)
Equipment additions; net cash $NIL $349,954 $142,491 $1,603,989
Weighted average shares outstanding:
Basic 52,026,421 51,137,291 52,026,421 51,131,856
Diluted 62,287,510 62,148,380 62,287,510 61,993,488
As at March 31,
2016 2015
Working capital ($1,762,528) $597,892
Total assets $5,435,348 $6,275,469
Loans excluding current portion $215,480 $430,885
Total shareholders' equity $3,166,180 $5,269,433

(1) Refer to Non-GAAP discussion below.

Business Outlook

The Company has initiated a strategic alternative process and anticipates a successful result due to the following factors:

  • Engagement of Canaccord Genuity Corp. as exclusive financial advisor;
  • Receipt of a Letter of Intent from Robix Environmental Technologies Inc.;
  • The Company's intention is to continue the strategic alternative process and evaluate every alternative. We are encouraged by the initial interest and look forward to a robust process;
  • Marketing efforts in Western Canada continue to generate interest in FFM's Hydro Cycle. When activity levels in the oil industry resume FFM believes that water for oil and gas as well as industrial use will be a scarce resource and lead to significant interest in cleaning produced and frac flow back water; and,
  • The Company has entered into a marketing arrangement to target specific states in the USA, there has been a positive response and interest in FFM's services;

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$65/bbl to a low of US$29/bbl. This volatility has resulted in significantly decreased earnings and cash flow for the industry.
  • 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 three months ended March 31, 2016, the Company generated $8,000 (2015: $NIL) in revenue from water remediation services and incurred field expenses of $9,247 (2015: $NIL) resulting in negative gross margin of $1,247 (2015: NIL) or negative 16% (2015: NIL), and net loss of $540,228, $0.01 basic and diluted loss per share (2015: net loss of $701,706; $0.01 basic and diluted loss per share). EBITDA for the three months ended March 31, 2016 was negative $395,147 (2015: negative $589,749). Field expenses consist of the direct costs associated with providing the water remediation services generating the Company's revenues.

During the nine months ended March 31, 2016, the Company generated $161,395 (2015: $1,154,480) in revenue from water remediation services and incurred field expenses of $176,172 (2015: $400,739) resulting in negative gross margin of $14,777 (2015: positive $753,741) or negative 9% (2015: positive 65%), and net loss of $1,697,568, $0.03 basic and diluted loss per share (2015: net loss of $1,157,218; $0.02 basic and diluted loss per share). EBITDA for the nine months ended March 31, 2016 was negative $1,285,021 (2015: negative $620,403). Field expenses consist of the direct costs associated with providing the water remediation services generating the Company's revenues.

In the nine months ended March 31, 2016 the Company used cash in operations of $576,300 (2015: negative $52,963). The Company used net cash of $142,491 during the first nine months ended March 31, 2016 for capital expenditures (2015: $1,603,989). The capital expenditures were incurred to complete construction of additional water processing plants to meet expected customer demand.

The Company's financing activities in the nine months ended March 31, 2016 generated cash of net $560,843 from the receipt of two related party loans totalling $700,000 less repayments on bank loan payable of $139,157 corresponding to a long term bank loan agreement for the construction of capital equipment. During the nine months ended March 31, 2015 the Company generated cash of $614,327 from the long term bank loan agreement and the exercise of stock options in the amount of $90,000. Total cash outflows exceeded total cash inflows during the period ended March 31, 2016 by $351,232. During the period ended March 31, 2015, total cash outflows exceeded total cash inflows by $1,042,625.

At March 31, 2016, the Company had cash of $6,713 and negative working capital of $1,762,528, (June 30, 2015: cash of $357,945, negative working capital of $248,960). Shareholders' equity at March 31, 2016 was $3,166,180 (June 30, 2015: $4,795,640).

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 $576,300 and a net loss and comprehensive loss of $1,697,568 for the nine months ended March 31, 2016, and negative working capital of $1,762,528 at March 31, 2016. 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 www.sedar.com.

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

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:

Three months ended Nine months ended
March 31, March 31,
2016 2015 2016 2015
Net earnings (loss) ($797,761) ($701,706) ($1,697,568) ($1,157,218)
Add:
Depreciation and amortization 132,940 51,366 341,206 164,990
Stock-based compensation 15,715 62,662 68,108 371,505
Provision for income taxes - - - -
Interest expense, net (3,575) (2,071) 3,233 320
EBITDA as reported ($395,147) ($589,749) ($1,285,021) ($620,403)

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:

Three months ended Nine months ended
March 31, March 31,
2016 2015 2016 2015
Cash flows from operating activities ($34,250) ($612,580) ($576,300) ($52,963)
Add:
Changes in non-cash working capital (357,322) (24,902) (707,738) (567,760)
Provision for income taxes - - - -
Interest expense, net (3,575) (2,071) 3,233 320
Funds from operations ($395,147) ($589,749) ($1,280,805) ($620,403)

Subsequent Events

Previously the Company had announced on November 26, 2015 that it had entered into a non-binding letter of intent with an arm's length industry participant (the "Proposed Transaction Party") and had advanced a secured non-convertible loan in the amount of $250,000 to a wholly owned subsidiary of the Proposed Transaction Party whereby the loan was evidenced by a promissory note with interest to be accrued at a rate of 10% per annum, payable in arrears at maturity (due on May 10, 2016) and secured by a general security agreement on certain water right assets of the Proposed Transaction Party. Subsequent to March 31, 2016, the Company has learned that the Proposed Transaction Party has filed for Chapter 11 and began the bankruptcy process which could lead to the promissory note and any accrued interest receivable being impaired.

On April 11, 2016, the Company announced that its board of directors had initiated a strategic review process to identify, examine and consider a range of strategic alternatives available to the Company with a view to maximizing shareholder value. This process could result in a sale of the Company, a sale of a material portion of the Company's assets, a merger, business combination or a corporate reorganization, equity financing, among other alternatives. This process is continuing alongside the LOI that has been received from Robix.

On May 5, 2016, the Company announced its plan to complete a non-brokered private placement of up to 11,000,000 units (the "Units") at a price of $0.06 per Unit for total gross proceeds to the Company of up to $660,000 (the "Offering"). Each Unit will consist of one common share (a "Common Share") in the capital of the Company and one-half of one warrant to purchase a Common Share (a "Warrant"). Each whole Warrant will entitle the holder to purchase one Common Share at an exercise price of $0.12 for a period of 24 months from the closing of the Offering. The proceeds of the Offering will be used for general working capital purposes.

On May 20, 2016, the Company announced that it had closed the first tranche of its non-brokered private placement (the "Offering") previously announced on May 5, 2016. The Company issued 7,033,366 units (the "Units") at a price of $0.06 per Unit for total gross proceeds to the Company of $422,002. In connection with the Offering, a cash commission was paid to Leede Jones Gable Inc., Richardson GMP Ltd and Wolverton Securities Ltd. in connection with certain subscriptions.

On May 26, 2016, the Company announced that it had received an unsolicited bid and has entered into a non-binding Letter of Intent ("LOI") with respect to a proposed business combination with Robix Environmental Technologies, Inc. ("Robix").The purpose of the LOI is to reflect the desire of both parties to effect a business combination pursuant to which Robix will acquire all of the issued and outstanding common shares of the Company through a share exchange, amalgamation, plan of arrangement or such other comparable form of transaction as determined by Robix and the Company following a review of all relevant tax, corporate and securities law considerations and a due diligence review (the "Transaction"). Pursuant to the Transaction and subject to adjustment prior to the execution of a definitive agreement setting out in more detail the proposed terms of the Transaction (a "Definitive Agreement"), each outstanding Robix common share will be exchanged for one common share of the combined entity existing after completion of the Transaction (the "Resulting Issuer") and every two outstanding of the Company's common shares will be exchanged for one common share of the Resulting Issuer. Upon completion of the Transaction, it is anticipated that the Resulting Issuer will be listed on the Canadian Securities Exchange.

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: www.formationfluid.com or contact Investor Relations at 403 348-5077.

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.