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Clearford Water Systems Announces Agreement to Acquire ASI Water and Full-year Results for Fiscal 2018

Ottawa, Ontario – (May 3, 2019) – Clearford Water Systems Inc. (“Clearford” or the “Company”), (TSX-V:CLI), today announced it has entered into a purchase agreement to purchase the water and wastewater assets (ASI Water) of ASI Group Ltd, an Ontario-based water and wastewater management business. The Company also announced its consolidated audited results for the fiscal year ended December 31, 2018. The audited consolidated results are presented in accordance with IFRS (all figures in Canadian dollars).

Clearford announced today that it has entered into a definitive agreement with ASI Group Limited to acquire its ASI Water business subject to meeting final conditions of the Asset Purchase Agreement and completion of the necessary regulatory filings with the TSX-V. Clearford will pay $5 million in cash and issue $1 million in non-convertible preferred shares in a new wholly-owned subsidiary (Clearford ASI Inc.) redeemable over a 5-year period for the ASI Water assets. Clearford ASI is expected to contribute $5 million in annual revenues and $750,000 in earnings before interest, taxes and depreciation and amortization (“EBITDA”) annually following the close. The transactions will be financed through a new long-term loan which will be secured by the new asset. The terms and conditions of the new long-term loan are still to be finalized.

“The acquisition of ASI Water is a major step forward for Clearford in delivering on our long-term strategy of becoming a water utility,” said Kevin Loiselle, President and CEO of Clearford. “In addition to boosting our in-house expertise, revenues, and business footprint, this expansion of Clearford sends a clear message to our industry partners and prospective clients that we are committed to driving growth and innovation in the decentralized water and wastewater management sector. Our aim is to provide comprehensive solutions for communities, companies, and other stakeholders to access safe drinking water and reliable wastewater servicing, and the ASI Water team strengthens our ability to deliver.”

ASI Water has a well-established client base spread across Ontario. The combined Clearford Waterworks Inc. and new Clearford ASI Inc. entities will be one of the largest operators of private water and wastewater treatment facilities in Ontario and together have considerable potential for synergy. Going forward, the combined operations and maintenance team will be able to provide enhanced geographic coverage and faster response times, contributing to expanded capacity for additional operations contracts and new site services for the companies’ clients.

“These developments are all part of our strategic plan to strengthen Clearford’s robust capabilities in the decentralized water and wastewater treatment sector while driving sustainable business growth,” noted Mr. Loiselle. “We see considerable potential for further expansion of our integrated water-related services spanning the entire project lifecycle – from design-build contracts to operation and maintenance – as we offer professional services, end-to-end engineered solutions, and project-based financing.”

Clearford today released results for the financial year ended December 31, 2018. The audited consolidated financial statements are presented in accordance with IFRS (all figures in Canadian dollars).

Revenue for the quarter was $1,519,399, up from $1,174,064 in the same quarter last year. The operating loss before net financing costs for the quarter was $2,457,841, compared with $873,412 for the same quarter last year. Net financing costs for the quarter were $1,426,074, compared with $970,229 for the same quarter last year. Overall, the net loss for the quarter was $3,894,721 ($0.04 per share), compared with $1,845,454 ($0.02 per share) for the same quarter last year.

For the fiscal year ended December 31, revenue was $6,430,333 (compared with $3,894,260 for the same period last year). Revenues for the year were below the forecast estimate of $7.2 – $7.5 million as a result of the adverse weather conditions which impacted the delivery of design build projects at the end of the year. The Company reported an operating loss was $6,967,504 (compared with $2,343,884 for the same period last year). The operating loss included an impairment on its financial operating asset for a design, build, operate and financing project due to a change in assumptions to reduce the number of users attached to the system over the remaining life of the contract and a foreign exchange loss on long-term borrowings in the amount of $1,289,913. Net financing costs were $3,639,520, compared with $2,372,321 for the same period last year. The net loss for the fiscal year ended December 31, 2018 was $12,048,705 ($0.12 per share), compared with $5,687,047 ($0.06 per share) for the same period last year. The weighted average number of shares outstanding during the year was 102,027,729 (88,812,338 in previous fiscal year).

UV Pure Technologies Inc. (UV Pure) segmented revenues for the three-month period and fiscal year ended December 31, 2018 were $552,808 and $2,732,359, respectively, compared with $758,942 and $3,352,306 for the corresponding periods last year. The decrease relates primarily due to the delay in the launch of its next-generation product until 2019 as opposed to the spring of 2018 as communicated to customers by the former president and CEO of UV Pure. The new generation products are in final testing stage and are expected to be released for sale during the middle of the 2nd quarter of fiscal 2019.

The cost of revenue for the quarter increased to $1,414,457 compared with $578,893 in the same quarter last year. The increase was related primarily to the addition of Clearford Koester Canada Inc. and Clearford Waterworks through the 2017 acquisition and was exacerbated by issues in the Clearford Koester manufacturing division where projects were delayed or additional costs were incurred to make adjustments to treatment products delivered by Koester Canada prior to the close of the acquisition. These activities required the Company to invest a significant amount of resources and funding to implement corrective actions for the treatment plants. Additionally, the cost of revenue increased at UV Pure based on supply shortages and supply chain management as it begins to transition from its second-generation product to its third-generation product. For the full fiscal year, cost of revenue increased to $4,463,174 from $1,978,953 in the previous year. In addition to the items discussed above, the additional increases relate primarily to increased revenues on the Operations and Maintenance portion of Clearford Waterworks following the acquisition in November 2017.

Sales and marketing costs increased to $362,173 and $1,436,522 for the three-month period and fiscal year ended December 31, 2018, respectively. During the corresponding three-month period and prior fiscal year, these costs were $406,979 and $1,366,209, respectively. This decrease in the three months reflects lower travel costs during the period while the year over year increase reflects additional resources and travel costs required with the addition of Clearford Koester Canada Inc.

Costs of engineering, research and development decreased to $165,884 and $713,454 for the three-month period and fiscal year ended December 31, 2018, respectively. During the corresponding three-month and prior fiscal year, these costs were $181,054 and $799,403 respectively. This decrease relates primarily to a reduction in R&D and engineering staff at Clearford and UV Pure, which was partially offset by staff added at Clearford Koester Canada Inc.

General and administration costs increased to $1,291,896 and $5,151,876 for the three-month period and fiscal year ended December 31, 2018, respectively. During the corresponding prior year three-month period and fiscal year, these costs were $976,600 and $2,625,111 respectively. The increase relates primarily to the addition of Clearford Koester Canada Inc. and incremental resources required to continue to execute the Company’s long-term business plan.

Clearford ended the 2018 financial year with unrestricted cash of $228,468 on December 31, 2018, compared with $1,217,373 on December 31, 2017.

The Company’s year-end audited consolidated financial statements and MD&A are available at www.SEDAR.com. Neither the 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.

About Clearford Water Systems Inc.
Clearford Water Systems Inc. is a provider of unified water management solutions for the design, deployment, financing, and operation of water infrastructure systems. The Company’s technology-based water solutions include Clearford One® wastewater infrastructure systems, Clearford M-brane™ packaged treatment solutions, and a full range of UV Pure® water disinfection products. For more information, visit www.clearford.com.

Forward-Looking Statements
This news release contains certain statements that constitute forward-looking statements as they relate to the Company and its management. Forward-looking statements are not historical facts but represent management’s current expectation of future events, and can be identified by words such as “believe,” “expects,” “will,” “intends,” “plans,” “projects,” “anticipates,” “estimates,” “continues,” and similar expressions. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that they will prove to be correct.

By their nature, forward-looking statements include assumptions and are subject to inherent risks and uncertainties that could cause actual future results, conditions, actions or events to differ materially from those in the forward-looking statements. If and when forward-looking statements are set out in this news release, Clearford will also set out the material risk factors or assumptions used to develop the forward-looking statements. Except as expressly required by applicable securities law, the Company assumes no obligation to update or revise any forward-looking statements. The future outcomes that relate to forward-looking statements may be influenced by many factors, including, but not limited to: industry cyclicality; the ability to secure third-party agreements; successful integration of Clearford’s system with third-party technology; competition; reduction in demand for products; collection from customers; relationships with suppliers; product liability; intellectual property; reliance on key personnel; environmental factors; interest rates; uninsured and underinsured losses; operating hazards; risks of future legal proceedings; income tax matters; credit facilities; availability and terms of financing; distribution of securities; restrictions on potential growth; effect of market interest rates on price of securities; and potential dilution.

For more information contact:

Kevin Loiselle, President & CEO
Clearford Water Systems Inc.
Phone: (613) 599-6474 ext. 303
www.clearford.com

About Clearford Water Systems Inc.
Clearford Water Systems Inc. (TSX-V: CLI) is a provider of unified water management solutions for the design, build, finance, operation and maintenance of water and wastewater infrastructure systems. The Company’s technology-based water solutions include Clearford One® wastewater infrastructure systems, Clearford M-brane™ packaged treatment solutions, and a full range of UV Pure® water disinfection products. Clearford is the winner of the Frost & Sullivan 2017 Enabling Technology Leadership Award for Global Decentralized Water & Wastewater Treatment. For more information on Clearford Water Systems, please visit www.clearford.com.

Forward Looking Statements
This news release contains certain statements that constitute forward-looking statements as they relate to the Company and its management. Forward-looking statements are not historical facts but represent management’s current expectation of future events, and can be identified by words such as “believe”, “expects”, “will”, “intends”, “plans”, “projects”, “anticipates”, “estimates”, “continues” and similar expressions. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that they will prove to be correct.

By their nature, forward-looking statements include assumptions and are subject to inherent risks and uncertainties that could cause actual future results, conditions, actions or events to differ materially from those in the forward-looking statements. If and when forward-looking statements are set out in this news release, Clearford will also set out the material risk factors or assumptions used to develop the forward-looking statements. Except as expressly required by applicable securities law, the Company assumes no obligation to update or revise any forward looking statements. The future outcomes that relate to forward-looking statements may be influenced by many factors, including, but not limited to: industry cyclicality; the ability to secure third party agreements; successful integration of Clearford’s system with third party technology; competition; reduction in demand for products; collection from customers; relationships with suppliers; product liability; intellectual property; reliance on key personnel; environmental; interest rates; uninsured and underinsured losses; operating hazards; risks of future legal proceedings; income tax matters; credit facilities; availability and terms of financing; distribution of securities; restrictions on potential growth; effect of market interest rates on price of securities; and potential dilution.

For more information contact:
Kevin Loiselle, President & CEO
Clearford Water Systems Inc.
Phone: 613 599 6474 ext. 303
www.clearford.com

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