RNS Number:3975V
QuestAir Technologies Inc
09 December 2005
For Immediate Release 9 December, 2005
QuestAir Technologies announces 2005 Results and
2006 Milestones
BURNABY, B.C. - QuestAir Technologies Inc. ("QuestAir" or "the Company"; AIM:
QAR; TSX: QAR) reported today its financial and operational results for the
fiscal year ended September 30, 2005 ("fiscal 2005"). All amounts are in
Canadian dollars unless otherwise noted.
2005 Highlights
* Significant progress in the program with ExxonMobil Research and
Engineering Company ("EMRE") to develop a large capacity hydrogen pressure
swing adsorption ("PSA") system for refinery and petrochemical
applications. The program successfully passed an internal ExxonMobil
review, authorizing initial funding from EMRE to support the construction
of a prototype PSA to be demonstrated at an ExxonMobil refinery in 2006.
* Revenue growth of 110% to $6.3 million (2004: $3.0 million), in line with
the Company's revenue target of $6 million for the fiscal year. QuestAir's
sales order backlog at year end was $3.0 million, compared to $3.9 million
at September 30, 2004.
* Cash used in operations and capital requirements of $8.7 million (2004:
$5.7 million), slightly higher than the cash burn target of under $8.5
million for the fiscal year.
* Net loss of $9.5 million ($0.31 per share), unchanged from $9.5 million
($1.94 per share) for fiscal 2004.
* Expansion of the distribution channels for QuestAir's first generation PSA
products, including the signing of non-exclusive distribution agreements
with Mitsubishi Kakoki Kaisha and Technip KTI S.p.A., and a supply
agreement with HyRadix Inc.
* The installation of a hydrogen purification system at a Chevron hydrogen
fueling demonstration project in Chino California, as well as the receipt
of orders for the Chevron hydrogen station in Oakland California, and a
station to be constructed by the Gas Technology Institute in Texas.
* The completion of an initial public offering ("IPO") on the AIM Market of
the London Stock Exchange Plc and the Toronto Stock Exchange, raising net
proceeds of approximately $11.7 million.
Jonathan Wilkinson, President and CEO of QuestAir, said:
"We have made good progress in our first year as a public company. Our revenue
more than doubled, year over year, and we were successful in adding value on
both the development and commercial sides of our business.
"Our key development program with ExxonMobil passed a critical program review,
and remains on track for the planned prototype demonstration at an ExxonMobil
refinery in 2006. In the commercial area, our key accomplishments included the
distribution agreements signed with MKK and Technip KTI, the agreement to supply
H-3200 hydrogen PSA's to HyRadix, and our continued leadership in the supply of
hydrogen purification systems to hydrogen fueling demonstration projects around
the world.
"Based on the progress we made in fiscal 2005, we remain confident in our
ability to achieve significant growth over the next several years."
Operating Review & 2005 Milestone Update
QuestAir made significant progress during the year with the program being
undertaken with EMRE to develop a large-capacity hydrogen PSA for refinery and
petrochemical applications. In September 2005 the program passed an internal
ExxonMobil review, authorizing initial funding from EMRE to support QuestAir's
construction of a prototype hydrogen PSA to be demonstrated at an ExxonMobil
refinery. As previously announced, the Company expects to receive a series of
purchase orders for the prototype plant through the first half of fiscal 2006,
rather than a single purchase order that was expected during fiscal 2005. The
overall program timing remains on track, and it is expected that the prototype
plant will be installed and operational in the second half of calendar 2006.
Strong financial support was received from EMRE through the year, including a
$2.2 million order for test systems to support the development program, and a
$1.3 million engineering service order covering the design of the prototype
plant and subsequent commercial systems.
During the year, QuestAir also received a $0.1 million contract from EMRE to
undertake an initial phase of work on the application of the large-capacity PSA
product for the processing of contaminated natural gas. This contract is
significant in demonstrating the potential application of the large capacity PSA
platform to other high-value markets.
Progress was also made with the sale of QuestAir's first generation gas
purification products. During the year, QuestAir signed distribution agreements
with Technip KTI S.p.A. and Mitsubishi Kakoki Kaisha ("MKK"), leading suppliers
of industrial hydrogen plants. These distribution agreements strengthen
QuestAir's market presence in Japan, Asia and Europe. QuestAir also signed a
supply agreement and received an initial US$263,000 order from HyRadix Inc., a
leading developer of hydrogen generators for industrial and hydrogen fueling
markets.
In the landfill gas processing market, several project proposals are in active
negotiation, and QuestAir is working with the City of Vancouver on a
demonstration of a methane purification system at the Vancouver Landfill. This
demonstration is expected to be operational in the first half of fiscal 2006,
and should provide a valuable reference site to assist in QuestAir's marketing
efforts in the biogas market.
In the emerging hydrogen infrastructure market, QuestAir received orders for
three H-3200 hydrogen PSA's to be included in the AC Transit hydrogen fueling
station in Oakland, California (two systems) and a hydrogen station to be
constructed in Texas by GTI (one system). A H-3200 hydrogen PSA was also
included in the Chino hydrogen fueling demonstration station unveiled by Chevron
in California in March 2005.
The Company also signed a memorandum of understanding ("MOU") with FuelCell
Energy Inc. to evaluate the use of QuestAir's hydrogen purification technology
to produce a hydrogen by-product from FuelCell Energy's Direct FuelCell(R) power
plants. As part of this agreement, the parties are working to secure a funded
demonstration of this 'hydrogen export' technology.
In summary, progress made towards the achievement of QuestAir's 2005 milestones
was as follows:
Milestone Progress
1. Receive a purchase order for a prototype Initial funding from EMRE was approved in September 2005
large capacity hydrogen PSA. to support QuestAir's construction of a prototype, and
multiple purchase orders are expected in first half of
fiscal 2006. A single purchase order was not received
during fiscal 2005 due to a revision in the project
approval procedures.
2. Increase revenue by at least 100% over Revenue of $6.3 million represented growth of 110% over
2004 levels. fiscal 2004 revenue, and exceeded our revenue target of $6
million for the year.
3. Manage average cash used in operating Cash burn was slightly ($0.2 million or 2%) higher than
activities and CAPEX to under $8.5 million. expected due to a delay in the receipt of a $0.7 million
progress payment from EMRE. This payment was received
shortly after year end.
4. Sign an additional distribution agreement Distribution agreements were signed with MKK and KTI
with a leading hydrogen plant vendor Technip, exceeding our expectations.
5. Receive the first purchase order for a Several project proposals remain under negotiation, and a
methane purification system for landfill gas demonstration at the Vancouver landfill is expected to be
processing. operational in the first half of fiscal 2006. However a
formal purchase order was not received during fiscal 2005.
6. Enter into an agreement to demonstrate QuestAir signed a MOU with FuelCell Energy in March 2005
hydrogen recovery from molten carbonate fuel to evaluate the use of QuestAir's technology in FuelCell
cell systems. Energy's fuel cell power plants. As part of this
agreement, the parties are working to identify
demonstration projects.
2006 Outlook and Milestones
Looking forward, 2006 represents a pivotal year in the development and
commercialization of QuestAir's large capacity PSA product for the refinery
market. Key highlights expected for the year include the fabrication and
shipment of the prototype plant to an ExxonMobil refinery, and the signing of an
agreement to extend the large capacity PSA platform into a new market. A key
milestone in the commercial area is the signing of an additional distribution
agreement with a leading hydrogen plant vendor, which has the potential to drive
additional revenue growth over the coming years.
"We believe that macroeconomic drivers in the oil refining industry create
compelling opportunities for our large capacity PSA product currently under
development. Our relationship with ExxonMobil remains strong, and we remain very
optimistic regarding the growth prospects for the company," said Wilkinson.
QuestAir's operational milestones for the remainder of fiscal 2006 are:
1. Pass final ExxonMobil program review and receive purchase orders for
prototype large capacity hydrogen PSA.
The development program will undergo a final ExxonMobil program review in
early calendar 2006, triggering the final purchase orders from EMRE for the
prototype plant to be demonstrated at an ExxonMobil refinery.
2. Complete fabrication and shipment of the large capacity hydrogen PSA to
ExxonMobil refinery.
The Company expects to complete the fabrication of the prototype plant
during the fiscal year. Shipment of the plant to an ExxonMobil refinery is
also expected prior to the end of the fiscal year.
3. Sign agreement with EMRE for marketing of large capacity hydrogen PSA in
the oil refining industry.
The Company expects to sign an agreement with EMRE covering the joint
marketing of the large capacity hydrogen PSA to non-Exxon refineries.
Active marketing of the product to select refinery customers is expected to
begin once this agreement is signed.
4. Sign agreement to extend large capacity PSA product platform into new
market.
QuestAir intends to leverage the large capacity PSA product platform by
developing extensions of the product into additional markets such as
natural gas processing, other applications in the petrochemical industry,
or the production of high purity hydrogen from natural gas.
5. Sign an additional distribution agreement for QuestAir's first generation
gas purification products with a leading hydrogen plant vendor.
Distribution relationships are a key component of QuestAir's strategy to
accelerate the penetration of its commercial PSA systems in specific market
segments and geographies. The Company intends to secure another
distribution partnership during the coming year.
In addition to the operational milestones for fiscal 2006, the company has set
the following key financial targets for the coming fiscal year:
Revenues: Total revenue for the year ended September 30, 2006 is expected to be
at least $7.5 million. Purchase orders for the prototype large capacity PSA to
be demonstrated at an ExxonMobil refinery in 2006 are currently under
negotiation, and it is expected that the last of these orders will be received
in the first quarter of calendar 2006. Given current uncertainty related to
certain contract terms which may influence revenue recognition, significant
revenue from these prototype purchase orders has not been included in the
revenue target for fiscal 2006, and it is assumed that the majority of this
revenue will be recognized early in fiscal 2007.
Cash Burn: Cash used in operations and capital expenditures is expected to be in
the range of $8.5 to $9.5 million. It is expected that the level of R&D
activities on the EMRE refinery program will continue through fiscal 2006 as the
Company completes the development program and prepares for the commercial launch
of the large capacity hydrogen PSA.
2005 Financial Results
Revenues increased by 110% to $6.3 million in fiscal 2005 (2004: $3.0 million).
In addition, gross margin increased to 44% in fiscal 2005 (2004: 30%). The
improvement in top line performance was partially offset by an increase in
research and development expenditures, which increased from $4.7 million in
fiscal 2004 to $5.7 million in fiscal 2005, and an increase in general and
administrative expenditures, which increased from $2.5 million in fiscal 2004 to
$3.4 million in fiscal 2005. Consequently, the net loss for fiscal 2005 was $9.5
million ($0.31 per share), unchanged from $9.5 million ($1.94 per share) for
fiscal 2004.
Operating Results
The following table provides a breakdown of the Company's revenues from the sale
of gas purification systems and engineering service contracts for the reported
periods:
(Unaudited, $ '000) Years ended
September 30, 2005 September 30, 2004
Gas purification systems 4,158 1,226
Engineering service contracts 2,134 1,776
Total revenue 6,292 3,002
The increase in revenue from gas purification systems for fiscal 2005 resulted
from increased revenues from commercial PSA systems, and the delivery of two
test systems, with a total value of $2.2 million, to EMRE in support of the
program to develop a large capacity hydrogen PSA for use in oil refineries.
Engineering service contract revenue also increased for fiscal 2005 as a result
of increased work completed on engineering service contracts with EMRE, which
are recognized on a percentage completion basis. The total recognized revenue
of $6.3 million for fiscal 2005 exceeded the revenue target of $6.0 million
provided by management on January 25, 2005.
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 an analysis of the
changes in the Company's sales order backlog for fiscal 2005 and fiscal 2004:
(Unaudited, $ '000) For the year ended September 30, For the year ended September 30,
2005 2004
Gas Eng. Gas Eng.
Purification Service Purification Service
Systems Contracts Systems Contracts
Total Total
Opening Balance 2,812 1,106 3,918 860 35 895
Bookings 3,897 1,951 5,848 3,165 2,820 5,985
Revenue Recognized (4,158) (2,134) (6,292) (1,226) (1,776) (3,002)
Adjustments(1) (311) (155) (466) 13 27 40
Ending Balance 2,240 768 3,008 2,812 1,106 3,918
It should be noted that fluctuations in recognized revenue and the receipt of
new sales orders are to be expected in the industrial markets that the Company
currently serves. In addition the timing of receipt of new engineering service
contracts can vary from period to period.
The total sales order backlog decreased by $0.9 million, or 23%, during fiscal
2005, compared to an increase in backlog of $3.0 million for fiscal 2004. The
reduction in backlog during fiscal 2005 resulted from an increase in recognized
revenues during the year, combined with a 31% reduction in new bookings of
engineering service contracts compared to fiscal 2004. Engineering service
contract bookings were higher in fiscal 2004 due to the booking of a US$1.0
million contract from EMRE for the first phase of development of an on-board
hydrogen purifier. No comparable contract was booked in fiscal 2005.
Negative adjustments to the Company's sales order backlog also increased in
fiscal 2005 to $0.5 million. These adjustments reflected the negative impact of
the appreciation of the Canadian dollar relative to the US dollar, and the
adjustment or cancellation of previously booked customer orders with a total
value of $0.3 million.
The Company expects that the backlog as of September 30, 2005 will be
substantially recognized as revenue by the third quarter of fiscal 2006.
The following table provides a calculation of the Company's gross profit for the
reported periods:
(Unaudited, $ '000) Years ended
September 30, 2005 September 30, 2004
Sales 6,292 3,002
Cost of goods sold 3,537 2,097
Gross Profit 2,755 905
Gross Margin (%) 43.8% 30.0%
The increase in percentage gross margin for fiscal 2005 compared to the prior
year was largely due to higher margins realized on revenue from engineering
service contracts recognized during the year. It is expected that margins will
fluctuate from year to year depending on the mix of revenues recognized from
engineering service contracts and gas purification systems.
A total warranty expense of $0.4 million was included in the cost of goods sold
for fiscal 2005, compared to $nil for the prior year. $0.3 million of this
warranty expense remains as a provision against future warranty claims.
Sales and marketing expenses were $1.8 million for fiscal 2005, an increase of
6% compared to $1.7 million for the prior period. The slight increase in sales
and marketing expenses for the year was attributed to increased salary expenses
resulting from the addition of personnel to the commercial sales group.
The gross research and development ("R&D") expenditures, offsetting government
funding and the resulting net R&D expenditures for the relevant periods, were as
follows:
(Unaudited, $ '000) Years ended
September 30, 2005 September 30, 2004
Gross R&D Expenditure 7,667 6,252
Government Funding 1,933 1,554
Net R&D Expenditure 5,734 4,698
The 22% increase in net R&D spending for fiscal 2005 compared to the prior
period was due to increased gross R&D expenditures related to the program
undertaken with EMRE to develop a large capacity PSA for use in oil refineries.
Government funding increased by $0.4 million, or 24%, roughly in line with the
percentage increase in gross R&D spending, reflecting the fact that the
Company's principal government funding from Technology Partnerships Canada is
calculated as a fixed percentage of gross R&D expenditures for certain
development programs.
It is expected that the level of R&D activities on the EMRE refinery program
will continue through fiscal 2006 as the Company completes the design and
construction of the prototype hydrogen PSA to be demonstrated at an ExxonMobil
refinery beginning in the second half of calendar 2006.
General and administrative ("G&A") expenses were $3.4 million for fiscal 2005,
an increase of 36% compared to $2.5 million for the prior year. The increase in
G&A expenses was attributed to incremental costs associated with the public
listing of the Company's common shares, including regulatory filing fees,
insurance costs and investor relations expenses.
Employee stock-based compensation expense was $0.8 million for fiscal 2005,
compared to $0.3 million for the prior period. The increase was a result of a
one-time stock option grant and the repricing of certain options at the time of
QuestAir's IPO.
Net capital expenditures for fiscal 2005 were $0.9 million, compared to $0.6
million for the prior year. The increase in capital expenditures for the current
fiscal year related mainly to the purchase of R&D equipment for the refinery
development program undertaken with EMRE. It is expected that capital
expenditures will fluctuate from year to year depending on the requirements of
specific product development programs and administrative needs.
Liquidity and Capital Resources
At September 30, 2005 cash and short term investments were $10.4 million,
compared to $6.7 million at September 30, 2004. Cash used by operations and
capital requirements(2) for fiscal 2005 was $8.7 million, compared to $5.7
million for fiscal 2004. The increase in operational cash burn for the year
resulted mainly from increased R&D and capital expenditures related to the
development program with EMRE, as well as the collection of a $2.3 million
government funding receivable which reduced the operational cash burn for fiscal
2004.
Cash used by operations and capital requirements of $8.7 million was slightly
higher than the cash burn target of under $8.5 million provided by management on
January 25, 2005. The principal reason for the higher-than-expected cash burn
was an unexpected delay in the receipt of a $0.7 million progress payment from
EMRE related to an existing engineering service contract. The progress payment
was received shortly following year-end.
On December 21, 2004, the Company completed an IPO of its securities
concurrently 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 at a price of $1.75 per share. Upon
completion of the IPO, the Company had approximately $17.6 million in combined
cash and cash equivalents.
During the year the Company secured a US$3 million ($3.5 million) credit
facility from Comerica Bank. The credit facility is comprised of a US$1 million
accounts receivable credit line and a US$2 million term loan. As at September
30, 2005, the Company had drawn $0.7 million against the term loan. The Company
is in compliance with all of its bank covenants.
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 September 30, 2005, the Company had claimed $5.9 million
against this loan.
At September 30, 2005 QuestAir had 37,307,621 common shares issued and
outstanding. In addition, the Company had 4,826,860 stock options outstanding,
of which 3,082,400 were exercisable, and 622,308 warrants outstanding at that
date.
Further information on QuestAir's financial results for the year ended September
30, 2005 can be found in the Company's 'Management Discussion and Analysis' ("MD
&A") at www.sedar.com.
Consolidated Balance Sheets
(expressed in Canadian dollars) As at As at
September 30, September 30,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $ 10,414,219 $ 6,691,923
Accounts receivable - net of allowance for doubtful accounts 1,075,255 425,628
of $nil (September 30, 2004 - $28,486)
Grants and funding receivables 493,913 687,692
Inventories 1,945,876 1,676,013
Prepaid expenses 299,757 90,283
14,229,020 9,571,539
Deferred charges - 399,742
Property, plant and equipment 1,984,014 2,592,286
$ 16,213,034 $ 12,563,567
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals $ 2,210,686 $ 1,781,512
Deferred revenue 1,602,103 1,980,439
Current portion of bank debt 216,839 -
Current portion of obligations under capital lease 110,357 114,810
4,139,985 3,876,761
Bank debt 433,678 -
Obligations under capital lease - 120,776
4,573,663 3,997,537
Shareholders' Equity:
Share capital
Authorized
Unlimited common shares, voting, no par value
Unlimited preferred shares, issuable in series, no par
value
Common shares 89,774,802 2,795,830
Preferred shares - 75,315,007
89,774,802 78,110,837
Contributed surplus 6,647,129 4,015,802
Deficit (84,782,560) (73,560,609)
11,639,371 8,566,030
$ 16,213,034 $ 12,563,567
Consolidated Statements of Operations and Deficit
(expressed in Canadian dollars) For the year ended
September 30, September 30,
2005 2004
Revenues $ 6,292,309 $ 3,001,955
Cost of goods sold 3,537,068 2,097,264
Gross Profit 2,755,241 904,691
Operating expenses
Research and development - net 5,733,846 4,697,897
General and Administration 3,427,315 2,479,387
Sales and marketing 1,779,703 1,677,173
Amortization 1,531,112 1,810,710
12,471,976 10,665,167
Loss before undernoted (9,716,735) (9,760,476)
Other income
Interest income 226,165 190,834
Other income (expense) (26,288) 53,743
199,877 244,577
Loss for the year (9,516,858) (9,515,899)
Deficit - Beginning of year (73,560,609) (64,044,710)
Preferred share conversion (1,705,093) -
Deficit - End of year $(84,782,560) $ (73,560,609)
Basic and diluted loss per share $ $
(0.31) (1.94)
Weighted average number of common shares outstanding 30,017,856 4,915,287
Consolidated Statements of Cash Flows
(expressed in Canadian dollars) For the year ended
September 30, September 30,
2005 2004
Cash flows from operating activities
Loss for the year $ (9,516,858) $ (9,515,899)
Items not involving cash
Amortization 1,531,112 1,810,710
Gain on sale of property, plant and equipment (7,418) (2,357)
Non-cash compensation expense 754,759 300,661
Foreign currency gain (9,661) (12,772)
(7,248,066) (7,419,657)
Changes in non-cash operating working capital
Accounts, grants and funding receivables (455,846) 2,288,482
Inventories (269,864) (740,527)
Prepaid expenses (209,474) 29,220
Accounts payable and accrued liabilities 782,382 (614,156)
Deferred revenue (378,337) 1,395,138
(531,139) 2,358,157
(7,779,205) (5,061,500)
Cash flows from investing activities
Decrease in short-term investments - 9,876,040
Purchase of property, plant and equipment (1,261,919) (744,282)
Decrease in note receivable - 150,000
Proceeds on sale of property, plant and equipment 10,895 2,919
Government grants and funding related to property, plant and equipment 335,600 133,402
(915,424) 9,418,079
Cash flows from financing activities
Issuance of common shares 15,050,000 -
Share issue costs (2,835,287) -
Issuance of common shares on exercise of stock options 20,470 15,480
Repayment of obligations under capital lease (115,568) (133,968)
Bank debt 650,518 -
Deferred charges (353,208) (46,534)
12,416,925 (165,022)
Increase (decrease) in cash and equivalents 3,722,296 4,191,557
Cash and equivalents - Beginning of year 6,691,923 2,500,366
Cash and equivalents - End of year $ 10,414,219 $ 6,691,923
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, however, disclosures that would otherwise be required under
U.S. GAAP have not been provided.
September 30, 2005 September 30, 2004
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
Liabilities
Class C preferred (a) - - - 5,877,243
Shareholders'equity
Common shares 89,774,802 81,320,036 2,795,830 2,795,830
Preferred shares (a) - - 75,315,007 56,000,436
Contributed surplus 6,647,129 5,326,001 4,015,802 9,418,709
Consolidated Balance Sheets
Consolidated Statements of Operations and Deficit
Year ended
September 30, September 30,
2005 2004
Loss for the year under Canadian GAAP $(9,516,858) $(9,515,899)
Accretion of redeemable preferred shares (48,780) (211,885)
Preferred share conversion 1,790,253 -
Loss for the year under U.S. GAAP (7,775,385) (9,727,784)
Deficit - Beginning of year under Canadian GAAP (73,560,609) (64,044,710)
Add: Accumulated accretion on redeemable preferred (5,388,661) (5,176,776)
shares calculated under U.S. GAAP
Accumulated stock based compensation under U.S. (208,460) (208,460)
GAAP
Deduct: Accumulated accretion of redeemable preferred 13,631,542 13,631,542
shares calculated under Canadian GAAP
Deficit - Beginning of year under U.S. GAAP (65,526,188) (55,798,404)
Preferred share conversion under Canadian and U.S. GAAP (1,705,093) -
Deficit - End of year under U.S. GAAP $(75,006,666) $(65,526,188)
Loss per share - U.S. GAAP $ (0.32) $ (1.98)
Consolidated Statements of Cash Flows
Year Ended
September 30, September 30,
2005 2004
Loss for the year under U.S. GAAP $(7,775,385) $(9,727,784)
Items not involving cash
Amortization 1,531,112 1,810,710
Gain on sale of property, plant and equipment (7,418) (2,357)
Non-cash compensation expense recorded in contributed 754,759 300,661
surplus
Foreign currency gain (9,661) (12,772)
Accretion on preferred shares (a) 48,780 211,885
Changes in non-cash operating working capital (531,139) 2,358,157
Cash flows from operating activities under U.S. and Canadian GAAP (5,988,952) (5,061,500)
Cash flows from financing activities under Canadian GAAP 12,416,925 (165,022)
Preferred share conversion (1,790,253) -
Cash flows from financing activities under U.S. GAAP 10,626,672 (165,022)
Cash flows from investing activities under U.S. and Canadian GAAP (915,424) 9,418,079
Increase in cash and cash equivalents under U.S. and Canadian GAAP $3,722,296 $4,191,557
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 under U.S. GAAP. 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. The Class A and B preferred shares are classified as
equity for U.S. GAAP purposes.
At September 30, 2004, the liability for the Class C preferred shares was
recorded at its estimated fair value of $5,877,243, with the increase of
$211,885 being recorded as an accretion charge in the consolidated statement of
operations and deficit. Immediately prior to the conversion of the Class C
preferred shares (see below), a further $48,780 was recorded as an accretion
charge for that part of fiscal 2005 for which the Class C preferred shares were
outstanding. This increased the estimated fair value of the liability to
$5,926,023 immediately prior to conversion.
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 A, B and C preferred shares relating
to automatic conversion rights were modified to convert these shares into common
shares. The modification of the share rights is accounted for on a fair value
basis. The difference between the fair value of the preferred share rights
prior to and subsequent to the modification is accounted for as an adjustment to
shareholders' equity and to operations for U.S. GAAP purposes. The modification
to the Class A and B preferred share rights resulted in an increase in deficit
of $1,705,093 for both Canadian and U.S. GAAP purposes as these shares are
classified as equity. However, the modification of the Class C preferred share
rights resulted in a gain of $1,790,253 for U.S. GAAP purposes, as the Class C
preferred shares were classified as a liability. Under Canadian GAAP, the
modification of the Class C preferred shares was treated as contributed surplus.
With respect to calculating loss per share for U.S. GAAP purposes, both the
gain on the conversion of the Class C preferred shares and the charge related to
the conversion of the Class A and B preferred shares were included in the
computation of loss per share.
b) Stock-based compensation
Under Canadian GAAP, 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 U.S.
GAAP.
Had the Company adopted the fair value based method under U.S. GAAP 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:
(expressed in Canadian dollars) Year ended
September 30, September 30,
2005 2004
Loss for the year $(7,775,385) $(9,727,784)
Additional compensation expense (65,118) (336,842)
under fair value based method
Loss for the year - pro forma $(7,840,503) $(10,064,626)
Loss per share - pro forma
Basic and diluted $ (0.32) $ (2.05)
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
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 refueling
stations. 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".
Forward-looking statements
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.
Contact Information:
QuestAir Technologies Inc.
Jonathan Wilkinson
President & CEO
Phone: (001) 604-454-1134
Email: wilkinson@questairinc.com
Web: www.questairinc.com
UK media contact:
Charles Ryland
Ben Willey
Eleanor Williamson
Buchanan Communications
Phone: 020 7466 5000
Canadian media contact:
Terry Foster
James Hoggan + Associates
Phone: (001) 604-739-7500
--------------------------
(1) Adjustments to backlog include adjustments for fluctuations in foreign
currency exchange rates, adjustments made to contract values after signing, and
cancelled orders.
(2) Cash used by operations and capital requirements is defined "cash flows from
operating activities" and "cash flows from investing activities" (excluding
changes in short term investments and note receivable) reported on the Company's
Statement of Cash Flows.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FSWFAASISEDE
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