Mr. Evan Price reports

CO2 SOLUTIONS ANNOUNCES FISCAL 2016 THIRD QUARTER RESULTS

CO2 Solutions Inc. has filed its financial results for the third quarter ended March 31, 2016. The corporation's detailed financial statements and management report will be available on SEDAR.

Third quarter and subsequent highlights

• Closed public offering of convertible secured debentures;
• CO2 Solutions and Mojonnier announced alliance to provide lower-cost, sustainable CO2 (carbon dioxide) to beverage industry;
• Completion of CO2 Solutions' pilot operation at Valleyfield and formal release of results;
• Quebec government to invest $15-million to apply CO2 Solutions carbon capture technology;
• CCEMC (Climate Change and Emissions Management Corp.) grant of $15-million;
• SDTC (Sustainable Development Technology Canada) grant of $2.4-million;
• CO2 Solutions receives additional funding from the government of Canada.

Following the successful completion of its 10-tonne-per-day demonstration project at Salaberry-de-Valleyfield in November, 2015, the corporation announced in January the findings of the project, which ran for over 2,500 hours, demonstrating the stable and effective operation of its technology under field conditions similar to those that would be encountered in a commercial setting. Other findings were:

• The corporation's proprietary enzyme, 1T1, performed in a stable manner;
• No toxic waste products were generated;
• Solvent consumption was negligible;
• The demonstration unit was largely operated autonomously;
• The technology produced CO2 suitable for food, beverages and other reuse applications;
• The use of low-grade, nil-value heat for solvent regeneration at low temperatures was proven effective, thereby supporting the low-cost claims related to the technology.

The corporation contracted with Tetra Tech Inc., a leading international engineering firm, for an independent review of project data related to the mass and energy balances. This review allowed the corporation to confirm core process capture costs for a 1,250-tonne-CO2-per-day scale of $28 per tonne, in line with earlier published estimates. This cost is below the proposed Alberta carbon tax and below the U.S. Department of Energy's target for new carbon capture processes. In this regard, to the knowledge of the corporation, its technology has achieved the lowest demonstrated cost in the industry for a postcombustion carbon capture application, by a significant margin.

In May, the corporation announced an alliance with Mojonnier Ltd., a global leader in beverage industry process solutions, to provide a new, lower-cost and environmentally friendly solution to the carbonated beverage industry for its CO2 needs. The alliance builds on CO2 Solutions' existing collaboration agreement with GasTran Systems (GTS), which licensed its technology to Mojonnier, a leading supplier of soft drink and beverage process equipment and services since 1919. Mojonnier has an established client list in the beverage industry and will jointly market this solution with the corporation to this sector.

In March, the corporation announced that its technology has been selected by the government of Quebec for application in the framework of the government's "Strategie gouvernementale de developpement durable 2015-2020" (2015 to 2020 government strategy for sustainable development). In its 2016/2017 budget, released on March 17, 2016, the Quebec provincial government announced that it has allocated a budget of $15-million over the next three years to support the creation of a consortium to promote the adoption of CO2 Solutions' patented enzyme-enabled carbon capture technology.

In February, the corporation announced that it has been selected to receive $15-million in the form of a non-refundable grant from the Alberta-based CCEMC. The grant is expected to be used for the commercial deployment of CO2 Solutions' technology in Alberta at approximately the 300-tonne-CO2-per-day scale. It is anticipated that the project will consist of the capture of CO2 from a major Alberta industrial company, with beneficial reuse of the captured carbon. The reuse of the captured CO2 will improve project economics, while at the same time achieving a considerable reduction in greenhouse gas emissions. The corporation currently is in active negotiations with potential industrial partners to establish the project and is pursuing non-dilutive financing for the balance (estimated at $15-million) of the project finance.

In March, the Minister of Innovation, Science and Economic Development, Navdeep Bains, announced that CO2 Solutions had been selected by SDTC to receive $2.4-million in the form of a non-refundable grant. The grant is expected to be used for the deployment of CO2 Solutions' technology in Quebec at approximately the 30-tonne-CO2-captured-per-day scale, incorporating RPB (rotating packed bed) equipment. The intention is for the corporation to install a unit capturing carbon from a Quebec pulp mill, with the CO2 being reused in a neighbouring commercial greenhouse operation. The reuse of the captured CO2 will improve project economics, while at the same time achieving a net reduction in greenhouse gas emissions.

On April 7, 2016, the corporation announced that additional funding of $255,000, over and above the $350,000 that was previously announced in November, 2015, was received from Natural Resources Canada's ecoENERGY innovation initiative. The $605,000 additional funding is intended for use in further testing of the corporation's proprietary carbon capture technology using RPB technology configuration, with the objective of demonstrating the potential of major equipment cost reductions. These tests are part of a continuing and successful technology scale-up program, to which the Canadian government's total contribution up to now, including the new grant, has been $5,305,000.

Management commentary

"The strong results of the Valleyfield demonstration project have put CO2 Solutions firmly on the radar screen with industry and government," stated Evan Price, president and chief executive officer of CO2 Solutions. "With substantial funding towards two projects committed, and positive traction in the pursuit of non-dilutive financing for the balance of these projects, we are well on our way to bringing our technology to commercialization."

Mr. Price added: "The selection by the government of Quebec for application of our technology in the framework of the 2015 to 2020 government strategy for sustainable development is further strong recognition of our value proposition of economically viable reduction of CO2 emissions and the commercial reuse thereof. Finally, the new co-operation agreement with Mojonnier, who have long-standing relationships within the beverage industry, provides us with access to what potentially is a very substantial market for our joint solution. Together we can offer the beverage industry a breakthrough approach to improve the economic and environmental sustainability of their operations, and secure their supply of beverage-quality CO2."

Summary of financial results for the three and nine months ended March 31, 2016

Revenues

The corporation recorded no revenues for the three- and nine-month periods ended March 31, 2016, and 2015. Funds received from subsidy agreements signed with government agencies are not treated as revenue. Rather, these amounts are accounted for as a deduction from research and development expenses in the period in which the contribution is claimed and accrued.

Research and development expenses

Research and development expenses, before tax credits and government assistance, decreased by $1.7-million to $400,000 for the three-month period ended March 31, 2016, compared with $2.1-million for the same period in 2015. Decreases compared with the prior year reflect the wind-down during the quarter of the work associated with the ecoENERGY project, which was started in January, 2013. For the nine-month period, research and development expenditures, before tax credits and government assistance, decreased by $1.8-million to $2.2-million, as compared with $4-million for the same period in 2015. Decreases in the nine-month period are also a result of the wind-down of work associated with the ecoENERGY project.

Government assistance accrued during the quarter was $500,000.

Business development expenses

Business development expenses were $300,000 for the three-month period ended March 31, 2016, compared with $200,000 for the same period in 2015.

Business development expenses for the nine-month period ended March 31, 2016, were $700,000, compared with $400,000 for the same period in 2015.

General and administrative expenses

General and administrative expenses came in at $500,000 for the quarter, compared with $400,000 for the same period in 2015.

For the nine-month period, general and administrative expenses increased by $300,000 to $1.6-million compared with the same period in 2015. This net increase is attributable mainly to an increase of $200,000 in professional fees, primarily related to legal and professional fees associated with public relations, investor relations and communications, and patent litigation.

Loss and comprehensive loss for the quarter

The corporation recorded a loss of $700,000, or nil per share, for the three-month period ended March 31, 2016, a decrease of $800,000 from the loss of $1.5-million, or one cent per share, for the same period in 2015. No significant factors, other than those described above, contributed to the decrease in the loss for the periods. The corporation recorded a loss of $3.6-million, or three cents per share, for the nine-month period ended March 31, 2016, an increase of $600,000 from the loss of $3-million, or three cents per share, for the same period in 2015. No significant factors, other than those described above, contributed to the change in the loss for the periods.

Liquidity and financial position

At March 31, 2016, the corporation had cash of $700,000, accounts receivable (predominantly from Canadian government agencies) of $1.1-million and tax credits receivable of $600,000, for a total of $2.4-million. The corporation had short-term financial obligations from accounts payable and accrued liabilities and short-term debts of $1.7-million, including term loans payable, but with no current portion of long-term debt. The liquidity and the availability of these assets to secure additional financing are adequate for the settlement of the corporation's short-term (less than one year) financial obligations. In addition, management can raise the additional necessary capital to meet its longer-term financing requirements and has every confidence that it will be able to raise sufficient capital to sustain its operations.

Grant of restrictive share units (RSUs)

On May 26, 2016, in accordance with the terms of the RSU plan that was approved in November, 2015, the corporation's board of directors granted 819,168 RSUs to certain officers and employees of the corporation. In accordance with the terms of the plan, these RSUs were valued at 17 cents per share, that being the last closing price of the common shares on the TSX Venture Exchange immediately prior to the date on which the market value of the units was determined, which was May 25, 2016. The RSUs granted will vest immediately.

We seek Safe Harbor.