RNS Number:7990H
QuestAir Technologies Inc
26 January 2005
For Immediate Release 26 January, 2005
QuestAir Reports First Quarter 2005 Results
BURNABY, B.C. - QuestAir Technologies Inc. ("QuestAir" or "the Company"; AIM:
QAR; TSX: QAR) a developer and supplier of advanced gas purification systems for
refinery, industrial and fuel cell markets reported today its financial results
for the first quarter of fiscal 2005, ending December 31, 2004. All amounts are
in Canadian dollars unless otherwise noted.
First Quarter Highlights
* Completion of an initial public offering ("IPO") on the AIM Market of
the London Stock Exchange Plc and the Toronto Stock Exchange, raising gross
proceeds of approximately $15.1 million. The Company's cash balance at
December 31, 2004 was $17.6 million.
* Revenues of $1.0 million, and a 40% increase in the Company's sales
order backlog from $3.9 million at September 30, 2004 to $5.5 million at
December 31, 2004.
* Cash used in operations and capital requirements of $2.0 million, in
line with the Company's cash burn guidance of less than $8.5 million for
fiscal 2005.
* Significant progress on the development program being undertaken with
ExxonMobil Research and Engineering Company ("EMRE"), including the receipt
of a $2.2 million order from EMRE for test systems to support the program.
* The signing of a non-exclusive supply and distribution agreement ("SDA")
with Technip KTI S.p.A., a global process engineering contractor in the
chemical, petrochemical and refining industries.
Jonathan Wilkinson, President and CEO of QuestAir, said:
"Our public offering was an extremely important milestone for QuestAir. By
successfully attracting public investors in the United Kingdom and Canada, we
strongly validated the progress that we have made to date, and our business plan
for the future. In addition, the offering has provided us with the financial
resources to bring our second generation gas purification products to the
marketplace on an aggressive timetable."
"The distribution agreement that we signed with Technip KTI S.p.A. was also a
key highlight for the quarter. The agreement, together with a similar agreement
that we signed with Iwatani International Corporation in fiscal 2004, gives
QuestAir a strong market presence in key growth markets across the world,
including Asia, the Middle East and Eastern Europe."
Operating Review and Outlook
During the quarter, QuestAir made significant progress with the program being
undertaken with EMRE to develop a large capacity hydrogen purification system
for recovering hydrogen in oil refineries. The Company completed the design of a
prototype system which we expect to test at a refinery site in 2006, and in
addition QuestAir received a $2.2 million order from EMRE for two test systems
to support this development program. This order was included in the Company's
sales order backlog at December 31, 2004.
Also during the quarter, QuestAir signed a non-exclusive agreement with Technip
KTI S.p.A. ("KTI") to distribute the Company's commercial hydrogen purification
systems on a global basis. KTI is a division of the Technip-Coflexip Group, one
the world's top five contractors in oil and petrochemical industries. It has
significant experience in the design and construction of hydrogen generation
plants for industrial markets, and has constructed more than 50 hydrogen plants
on five continents. Under the terms of the agreement, KTI will supply QuestAir's
hydrogen purification systems as part of its smaller capacity hydrogen plants.
On December 21, 2004 the Company completed an initial public offering ("IPO") of
its securities on the AIM Market of the London Stock Exchange Plc and the
Toronto Stock Exchange, raising gross proceeds of approximately $15.1 million
through the sale of 8.6 million common shares. Offering costs of $2.2 million
were paid during the quarter, and the Company anticipates further payments
totaling $1.0 million in fiscal 2005.
Commenting on the outlook for the remainder of fiscal 2005, Jonathan Wilkinson,
QuestAir's President and CEO said:
"Our results for the first quarter of fiscal 2005 were in line with management's
expectations, and our plan for 2005 remains on track. The key focus for the
coming quarter remains the development program with ExxonMobil Research and
Engineering Company, and the continued growth of our commercial sales."
Q1 2005 Financial Results
For the three months ended December 31, 2004, QuestAir recorded a net loss of
$2.5 million ($0.29 per share), compared to a net loss of $2.6 million ($0.53
per share) for the three months ended December 31, 2003. The decrease in the net
loss for the quarter ended December 31, 2004 compared to the comparable quarter
in 2003 was primarily the result of increased gross profit from the sale of gas
purification systems.
Operating Results
The key driver of revenue for this quarter was the sale of gas purification
systems. The following table provides a breakdown of our revenues for the
reported periods:
(Unaudited, $ '000) Three months ended December 31
2004 2003
Gas purification systems 998 0
Engineering service contracts 0 61
Total revenue 998 61
Revenue from the sale of gas purification systems was $1.0 million for the
quarter ended December 31, 2004. There were no gas purification system sales in
the comparable period in 2003. Additionally, there were no engineering service
contract revenues for the quarter ended December 31, 2004. Engineering contract
revenue was $0.06 million for the comparable period in 2003.
QuestAir's sales order backlog is defined as future revenue from signed gas
purification system sales and engineering service contracts that have not yet
been recognized by the Company. The following table provides a breakdown of the
Company's sales order backlog at December 31, 2004 and September 30, 2004:
(Unaudited, $ '000) Three months ended
December 31, 2004 September 30, 2004
Gas purification systems 4,102 2,812
Engineering service contracts 1,398 1,106
Total sales order backlog 5,500 3,918
Revenue backlog increased 40% mainly related to two gas purification system
orders received during the quarter.
Gross profit was $0.3 million for the quarter ended December 31, 2004 compared
to $0.1 million for quarter ended December 31, 2003. As a percentage of total
revenue, gross profit related to purification systems was 35% for the quarter
ended December 31, 2004. There were no comparable sales during the same period
in 2003.
Sales and marketing expenses were $0.4 million for the quarter ended December
31, 2004, an increase of 25% over sales and marketing expenses of $0.3 million
during the comparable period in 2003. This increase was attributed to increased
salary expenses due to an expanded sales group, and to increased travel costs.
Gross research and development expenses for the quarter ended December 31, 2004
totaled $1.7 million compared to $1.6 million for the same period in 2003.
These expenses were partially offset by government and joint development partner
funding contributions of $0.4 million in both periods, resulting in net research
and development costs of $1.3 million and $1.2 million in first quarter of 2004
and 2003, respectively.
General and administrative expenses for the quarter ended December 31, 2004 were
$0.8 million, compared to $0.6 million for the same period in 2003. The increase
was mainly a result of a non-cash stock compensation expense of $0.3 million
related to the grant and repricing of certain stock options upon completion of
QuestAir's IPO.
Gross capital expenditures for the quarter ended December 31, 2004 were not
material. Capital expenditures for same period in 2003 totaled $0.3 million.
Liquidity and Capital Resources
Cash and short-term investments at December 31, 2004 were $17.6 million, an
increase of $10.9 million from September 30, 2004. The increase was primarily
driven by the completion of the Company's IPO on December 21, 2004, from which
the Company received proceeds from the offering, net of offering costs, of $12.9
million. The Company is expecting to pay approximately $1.0 million in
additional offering related expenses in fiscal 2005.
Cash used by operations and capital requirements for the quarter ended December
31, 2004 was $2.0 million compared to $1.1 million for the same period in 2003.
This increase in cash burn related to additional non-cash working capital
requirements.
In June 2003, the Company was awarded a $9.6 million conditionally repayable
loan from Technology Partnerships Canada, a funding program administered by
Industry Canada. At December 31, 2004, the Company had claimed $4.3 million
against this loan.
As at December 31, 2004 QuestAir had 37,261,010 common shares issued and
outstanding. In addition, the Company had 4,731,927 options to purchase common
shares, and 622,308 warrants outstanding at that date.
Consolidated Balance Sheets
Unaudited (expressed in Canadian dollars) As at As at
December 31 September 30
2004 2004
ASSETS
Current assets:
Cash and cash equivalents $17,576,647 $6,691,923
Short-term investments - -
Accounts receivable - net of allowance for doubtful accounts of 818,375 425,628
$10,580 (2004 - $28,486)
Grants and funding receivables 794,616 687,692
Inventories 1,835,344 1,676,013
Prepaid expenses 416,814 90,283
21,441,796 9,571,539
Deferred charges - 399,742
Property, plant and equipment 2,260,823 2,592,286
$23,702,619 $12,563,567
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $982,153 $774,139
Accrued liabilities 1,452,484 1,007,373
Deferred revenue 2,811,059 1,980,439
Current portion of obligations under capital lease 114,810 114,810
5,360,506 3,876,761
Obligations under capital lease 120,776 120,776
5,481,282 3,997,537
Shareholders' Equity:
Share capital
Authorized
Unlimited common shares, voting, no par value
Unlimited preferred shares, Class A voting, convertible, no par
value
Unlimited preferred shares, Class B voting, convertible, no par
value
Unlimited preferred shares, Class C voting, convertible, no par
value
Common shares 90,030,734 2,795,830
Preferred shares - 75,315,007
90,030,734 78,110,837
Contributed surplus 4,274,431 4,015,802
Deficit (76,083,828) (73,560,609)
18,221,337 8,566,030
$23,702,619 $12,563,567
Consolidated Statements of Operations and Deficit
Unaudited (expressed in Canadian dollars) For the three months ended December 31
2004 2003
Sales $998,095 $60,720
Cost of goods sold 652,567 (74)
Gross Profit 345,528 60,794
Operating expenses
Amortization 361,421 578,035
Research and development - net 1,273,762 1,204,678
Sales and marketing 416,148 332,198
General and administration 796,821 600,135
2,848,152 2,715,046
Loss before undernoted (2,502,624) (2,654,252)
Other income (expense)
Interest income 24,180 39,617
Other (44,775) 18,432
(20,595) 58,049
Loss for the period (2,523,219) (2,596,203)
Deficit - Beginning of period (73,560,609) (64,044,710)
Deficit - End of period $(76,083,828) $(66,640,913)
Basic and diluted loss per share $(0.29) $(0.53)
Weighted average number of common shares 8,789,484 4,874,154
outstanding
Consolidated Statements of Cash Flows
Unaudited (expressed in Canadian dollars) For the three months ended December 31
2004 2003
Cash flows from operating activities
Loss for the period $(2,523,219) $(2,596,203)
Items not involving cash
Amortization 361,421 578,035
Gain on sale of property, plant and equipment - -
Non-cash compensation expense 258,629 -
(1,903,169) (2,018,168)
Changes in non-cash operating working capital
Accounts, grants and funding receivables (499,672) 1,850,225
Inventories (159,330) (347,569)
Prepaid expenses (326,531) (28,794)
Accounts payable and accrued liabilities 94,432 (1,089,414)
Deferred revenue 830,620 917,516
(60,481) 1,301,964
(1,963,650) (716,204)
Cash flows from investing activities
Purchase of property, plant and equipment (29,959) (335,418)
(29,959) (335,418)
Cash flows from financing activities
Issuance of common shares 15,050,000 -
Share issue costs (2,171,667) -
Issuance of share purchase warrants - -
Issuance of common shares on exercise of stock - 1,317
options
Repayment of obligations under capital lease - -
12,878,333 1,317
Increase (decrease) in cash and equivalents 10,884,724 (1,050,305)
Cash and equivalents - Beginning of period 6,691,923 12,376,406
Cash and equivalents - End of period $17,576,647 $11,326,101
Notes to the financial statements
1. United States generally accepted accounting principles
The Company follows generally accepted accounting principles in Canada (Canadian
GAAP), which are different in certain respects from those applicable in the
United States (U.S. GAAP). The significant differences between Canadian GAAP and
U.S. GAAP with respect to the Company's consolidated financial statements are
described below.
Consolidated Statements of Operations and Deficit
(Unaudited) December 2004 December 2003
$ $
Loss for the period under Canadian GAAP 2,523,219 2,596,203
Accretion of redeemable preferred shares - -
Loss for the period under U.S. GAAP 2,523,219 2,596,203
Deficit - Beginning of period under Canadian GAAP 73,560,609 64,044,710
Add: Accumulated accretion on redeemable preferred shares calculated 5,388,661 5,176,776
under U.S. GAAP
Accumulated stock based compensation under U.S. GAAP 208,460 208,460
Deduct: Accumulated accretion of redeemable preferred shares (13,631,542) (13,631,542)
calculated under Canadian GAAP
Deficit - Beginning of period under U.S. GAAP 65,526,188 55,798,404
Accretion of redeemable preferred shares for the period - -
65,526,188 55,798,404
Deficit - End of period under U.S. GAAP 68,049,407 58,394,607
Loss per share - U.S. GAAP 0.29 0.53
Consolidated Balance Sheet
(Unaudited) December 2004 September 2004
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
$ $ $ $
Liabilities
Class C Preferred (a) - - - 5,877,243
Shareholders'equity
Preferred shares (a) - - 75,315,007 56,000,436
Contributed surplus - - 3,753,798 9,156,705
Consolidated Statements of Cash Flows
(Unaudited) December 2004 December 2003
$ $
Loss for the period under U.S. GAAP (2,523,219) (2,596,203)
Items not involving cash
Amortization 361,421 578,035
Stock-based compensation expense 258,629 -
Accretion on preferred shares - -
Changes in non-cash operating working capital (60,481) 1,301,964
Cash flows from operating activities under U.S. and Canadian GAAP (1,963,650) (716,204)
a) Redeemable preferred shares reorganization
For the period from November 5, 2002 to July 1, 2003, the Class C preferred
shares were accounted for as equity. On July 1, 2003, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 150 (SFAS 150),
which resulted in the Class C preferred shares being classified as a liability.
The liability for the Class C preferred shares was reflected at its fair value
of $5,665,358 and the resulting gain of $5,194,447 from the adoption of SFAS 150
has been recorded in shareholders' equity as contributed surplus.
At September 30, 2004, the liability has been recorded at its estimated fair
value of $5,877,243 (2003 - $5,665,358), with the increase of $211,885 being
recorded as an accretion charge in the consolidated statement of operations and
deficit.
In December of 2004, the Company completed an initial public offering of its
securities on the Toronto Stock Exchange and on the AIM Market of the London
Stock Exchange Plc., consisting of a new issue of 8,600,000 Common Shares, for
gross proceeds of $15,050,000.
Immediately prior to closing the initial public offering, the Company completed
a reorganization of its share capital whereby the existing share classes were
converted into a single class of Common shares. To complete the share capital
reorganization, certain terms of the Class C preferred shares relating to
automatic conversion rights were amended to convert these shares into Common
shares. As a result of the share capital reorganization and completion of the
initial public offering, the Class C preferred shares were reclassified to
equity for U.S. and Canadian GAAP purposes.
b) Stock-based compensation
The Company adopted the fair value based method of accounting for stock-based
compensation, on a prospective basis, to account for all its awards of shares
and share options that are granted, modified or settled on or after October 1,
2002. The Company also adopted, on a prospective basis, the fair value based
method of accounting for stock-based compensation for U.S. GAAP purposes
effective October 1, 2002. Prior to October 1, 2002, the Company used the
intrinsic value based method to account for the above awards for both Canadian
and U.S. GAAP.
Had the Company adopted the fair value based method for the period prior to
October 1, 2002, the Company's net loss and loss per share under U.S. GAAP would
have been presented as follows:
(Unaudited) December 2004 December 2003
$ $
Loss for the period 2,523,219 2,596,203
Additional compensation expense under fair value based method 82,611 89,010
Loss for the period - pro forma 2,605,830 2,685,213
Loss per share - pro forma
Basic and diluted 0.30 0.55
In the calculation of the additional compensation expense above, the fair value
of each share option grant was estimated on the date of the grant using the
Black-Scholes option valuation model with the following assumptions:
Expected dividend yield 0%
Expected stock price volatility 0%
Risk-free interest rate 2.5%
Expected life of options 5 years
Certain statements in this press release may constitute ''forward-looking''
statements which involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. When used in this press release, such statements use
such words as "anticipate", "believe", "plan", "estimate", "expect", "intend", '
'may'', ''will'' and other similar terminology. These statements reflect current
expectations regarding future events and operating performance and speak only as
of the date of this press release. Forward-looking statements involve
significant risks and uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate indications of
whether or not such results will be achieved. A number of factors could cause
actual results to differ materially from the results discussed in the
forward-looking statements.
About QuestAir Technologies Inc.
QuestAir Technologies, Inc. is a developer and supplier of proprietary gas
purification systems for several large international markets, including existing
markets such as oil refining, biogas production and natural gas processing, and
emerging markets such as fuel cell power plants and fuel cell vehicle refuelling
stations. The Company has joint development agreements with Exxon Mobil Research
and Engineering Company and Shell Hydrogen, and a collaboration with FuelCell
Energy. QuestAir is based in Burnaby, British Columbia and its shares trade on
the AIM Market of the London Stock Exchange Plc. and on the Toronto Stock
Exchange under the symbol "QAR".
For further information please contact:
QuestAir Technologies Inc. Phone: (001) 604-453-6967
Andrew Hall Email: hall@questairinc.com
Director, Corporate Development and External Communications Web: www.questairinc.com
UK media contact:
Buchanan Communications Phone: 020 7466 5000
Charles Ryland, Ben Willey, Eleanor Williamson
Canadian media contact:
James Hoggan + Associates Phone: (001) 604-739-7500
Pam Smith
This information is provided by RNS
The company news service from the London Stock Exchange
END
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