RNS Number:7365X
QuestAir Technologies Inc
01 February 2006
For Immediate Release 1 February 2006
QuestAir Technologies Inc
QuestAir Reports First Quarter 2006 Results
BURNABY, B.C. - QuestAir Technologies Inc. ("QuestAir" or "the Company"; AIM:
QAR; TSX: QAR) reported today its financial and operational results for the
first quarter of fiscal 2006, ended December 31, 2005. All amounts are in
Canadian dollars unless otherwise noted.
First Quarter Highlights
* Receipt of purchase orders totaling $1.8 million from ExxonMobil
Research and Engineering Company ("EMRE") to kick-off the construction of a
prototype hydrogen purifier to be demonstrated at an ExxonMobil refinery in
2006.
* Revenues of $0.9 million, and a 90% increase in the Company's sales
order backlog from $3.0 million at September 30, 2005 to $5.7 million at
December 31, 2005.
* Cash used in operations and capital requirements of $2.3 million (Q1
FY05: $2.0 million), in line with the Company's cash burn guidance of
$8.5-9.5 million for fiscal 2006.
* A reduction in the net loss to $2.1 million (Q1 FY05: $2.5 million),
driven by increased gross margins for the quarter.
* Orders received for two H-3200 hydrogen purifiers for use in hydrogen
fueling stations in Korea and the BC Hydrogen HighwayTM.
* Receipt of a $1.4 million engineering services contract from EMRE to
continue the development of an on-board hydrogen generator for use in a
range of transportation markets.
Jonathan Wilkinson, President and CEO of QuestAir, said:
"We are very pleased with progress achieved in our key development program with
ExxonMobil. Construction has begun on the prototype hydrogen purifier to be
demonstrated at an ExxonMobil refinery later in the year, and the program is
transitioning from the development phase to commercialization."
"We are also pleased with the 90% growth in our sales order backlog over the
first quarter, which positions us well for good revenue growth over the
remainder of fiscal 2006".
Operating Review
During the quarter, excellent progress was made in the program being undertaken
with EMRE to develop a large capacity hydrogen purification system for use in
oil refineries and petrochemical plants. The Company received purchase orders
totaling $1.8 million from EMRE, kicking-off construction of a prototype
hydrogen purifier to be tested at an ExxonMobil refinery in 2006. QuestAir
expects to receive the final purchase orders related to the prototype plant upon
the successful completion of an ExxonMobil program review.
QuestAir maintained its position as the leading supplier of hydrogen
purification systems in the emerging hydrogen infrastructure market. During the
quarter, the Company received orders for two H-3200 hydrogen purifiers to be
included in demonstration hydrogen fueling stations in Korea and British
Columbia, Canada. In the Canadian station, QuestAir's H-3200 will recover and
purify waste hydrogen from a sodium chlorate manufacturing plant, producing
purified hydrogen to power a fleet of hydrogen-fueled vehicles. By-product
hydrogen from industrial facilities such as this has the potential to provide an
important source of low-cost hydrogen to support the commercialization of fuel
cell and hydrogen-fueled vehicles.
Also during the quarter, the Company received a $1.4 million engineering
services contract from EMRE covering the second phase of a program to develop a
compact hydrogen generator for use in a range of transportation markets. The
objective of the overall program is to develop a compact device to generate
hydrogen on-board a vehicle from a range of readily available fuels such as
diesel, gasoline and compressed natural gas. Target markets for the product
include potential earlier term fuel cell markets such as utility vehicles and
transit buses, and auxiliary power units for vehicles such as heavy-duty trucks
and military vehicles. This program demonstrates the unique capability of
QuestAir's proprietary pressure swing adsorption ("PSA") technology to scale
down to extremely compact devices suitable for use on-board a vehicle.
Outlook
Commenting on the outlook for the remainder of fiscal 2006, Jonathan Wilkinson
said:
"We are very optimistic regarding our prospects for the second quarter, and we
expect to achieve a number of key milestones in our refinery program with
ExxonMobil. We are presently negotiating an agreement with EMRE for the
marketing of the large capacity hydrogen purifier, and we expect to sign this
agreement during the second quarter of fiscal 2006. In addition, we expect EMRE
to complete their program review during the second quarter, with the final
purchase orders for the prototype plant following shortly thereafter."
Q1 2006 Financial Results
Revenues decreased by 10% to $0.9 million for the quarter ended December 31,
2005 compared to the same period in 2004. However, gross profit improved to $0.8
million for the quarter (Q1 FY05: $0.3 million) due to a greater proportion of
revenue recognized from high margin engineering service contracts. Key
expenditures, including sales and marketing, research and development and
general and administrative expenditures were largely unchanged from the same
period in 2004. The net loss for the quarter ended December 31, 2005 was $2.1
million ($0.06 per share), reduced from $2.5 million ($0.29 per share) for the
same period in 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) Three months ended December 31,
2005 2004
Gas purification 221 998
systems
Engineering service 651 -
contracts
Total revenue 872 998
The reduction in revenue from gas purification systems resulted from a drop in
the number of PSA systems delivered and commissioned during the quarter compared
to the same period in 2004. Revenue from a large one-off order of H-3200 PSA
systems was recognized during the quarter ended December 31, 2004, while no
comparable multi-system order was delivered during the current quarter.
Engineering service contract revenue increased for the quarter as a result of
work completed on the refinery development program with EMRE. No significant
work was completed on this program during the comparable period in 2004.
Fluctuations in the timing of receipt of new sales orders and the recognition of
revenue are to be expected in the industrial markets that the Company currently
serves. Consequently management believes that both recognized revenue and
changes in the Company's sales order backlog should be monitored together to
determine the strength of QuestAir's commercial operations. 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, 2005, September 30, 2005, June 30, 2005, March 31, 2005, and
December 31, 2004:
(Unaudited, $ December September June March December
'000) 31, 30, 30, 31, 31,
2005 2005 2005 2005 2004
Gas
purification
systems 4,359 2,240 1,848 3,623 4,102
Eng. service
contracts 1,343 768 1,623 1,733 1,398
Total sales
order backlog 5,702 3,008 3,471 5,356 5,500
The following table provides an analysis of the changes in the Company's sales
order backlog for the quarter ended December 31, 2005:
(Unaudited, $'000) For the three months ended December 31, 2005
Gas Engineering Service Total
Purification Contracts
Systems
Opening
Balance 2,240 768 3,008
Bookings 2,352 1,226 3,578
Revenue
Recognized (221) (651) (872)
Adjustments+ (12) 0 (12)
Ending Balance 4,359 1,343 5,702
+ Adjustments include adjustments for fluctuations in foreign currency exchange
rates as well as cancelled orders.
The total sales order backlog increased by $2.7 million, or 90%, during the
quarter. The key driver of this increase was the receipt of orders valued at
$1.8 million from ExxonMobil for a compressor to be included in the prototype
PSA plant to be tested at an Exxon refinery in 2006. In addition, the Company
received a $1.4 million order from EMRE to support the development of an
on-board hydrogen generator for use in a range of transportation markets. This
contract included both engineering services and the delivery of prototype
equipment, and 80% of the contract value was allocated to 'Engineering Service
Contract' backlog, with the balance allocated to 'Gas Purification System'
backlog. A small adjustment was also made to the Company's sales order backlog
as a result of fluctuations in foreign exchange rates during the quarter.
The Company expects that the backlog as of December 31, 2005 will be
substantially recognized as revenue by the fourth quarter of calendar 2006.
The following table provides a calculation of the Company's gross profit for the
reported periods:
(Unaudited, $ '000) Three months ended December 31,
2005 2004
Sales 872 998
Cost of goods sold 118 652
Gross Profit 754 346
Gross Margin (%) 86.5% 34.6%
The increase in percentage gross margin for the quarter ended December 31, 2005
compared to the same period in 2004 was due to an increase in the proportion of
revenues recognized from engineering service contracts, which typically
contribute high gross margins. It is expected that margins will fluctuate from
quarter to quarter depending on the mix of revenues recognized from engineering
service contracts and gas purification systems.
Sales and marketing expenses were $0.4 million for the quarter ended December
31, 2005; unchanged from the same period in 2004.
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) Three months ended December 31,
2005 2004
Gross R&D Expenditure 1,746 1,682
Government Funding 473 408
Net R&D Expenditure 1,273 1,274
Gross R&D expenditures for the quarter increased by 4% compared to the same
period in 2004. Government funding increased by 16% due to an increase in the
proportion of R&D undertaken on the refinery development program with EMRE,
which is eligible for funding from Technology Partnerships Canada. Consequently,
net R&D expenditures for the quarter ended December 31, 2005 remained unchanged
from the same period in 2004.
General and Administrative ("G&A") expenses were $0.8 million for the quarter
ended December 31, 2005, unchanged from the same period in 2004. Employee
stock-based compensation expense was $0.1 million for the quarter, compared to
$0.3 million for the same period in 2004. Stock-based compensation expenses were
higher for the quarter ended December 31, 2004 due to a stock compensation
charge related to the repricing of certain options at the time of QuestAir's
Initial Public Offering.
Capital expenditures ("CAPEX"), net of Government funding, for the quarter ended
December 31, 2005 were $0.3 million, compared to $0.03 million for the same
period in 2004. The increase in CAPEX for the quarter was driven by expenditures
on the demonstration landfill gas processing plant currently being commissioned
at the Vancouver Landfill, located in BC Canada. It is expected that capital
expenditures will fluctuate from quarter to quarter depending on the
requirements of specific product development programs and administrative needs.
Liquidity and Capital Resources
At December 31, 2005 cash and short term investments were $8.1 million, compared
to $10.4 million at September 30, 2005.
Cash used by operations and capital requirements for the quarter ended December
31, 2005 was $2.3 million, compared to $2.0 million for the same period in 2004.
The increase in operational cash burn for the quarter compared to the same
period in 2004 resulted mainly from increased capital expenditures related to
the landfill gas demonstration project at the Vancouver Landfill.
During fiscal 2005, 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 December 31,
2005, the Company had drawn $0.6 million against the term loan net of
repayments. 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 December 31, 2005 the Company had claimed $6.4 million
against this loan.
At December 31, 2005, QuestAir's had 37,362,637 common shares issued and
outstanding. In addition, the Company had 4,796,957 options to purchase common
shares, and 622,308 warrants outstanding at that date.
Consolidated Balance Sheets
(expressed in Canadian dollars) As at As at
December 31, September
2005 30,
2005
ASSETS
Current assets:
Cash and cash equivalents $8,095,595 $10,414,219
Accounts receivable - net of allowance
for doubtful accounts of $nil
(September 30, 2005 - $nil) 1,264,831 1,075,255
Grants and funding receivables 976,903 493,913
Inventories 2,507,136 1,945,876
Prepaid expenses 226,116 299,757
13,070,581 14,229,020
Property, plant and equipment 1,940,316 1,984,014
$ 15,010,897 $ 16,213,034
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $1,885,307 $2,210,686
Deferred revenue 2,667,997 1,602,103
Current portion of bank debt 216,839 216,839
Current portion of obligations under
capital lease 110,357 110,357
4,880,500 4,139,985
Bank debt 415,609 433,678
5,296,109 4,573,663
Shareholders' Equity:
Share capital
Authorized
Unlimited common shares, voting, no par
value
Unlimited preferred shares, issuable in
series, no par value
Common shares 89,861,388 89,774,802
Contributed surplus 6,703,830 6,647,129
Deficit (86,850,430) (84,782,560)
9,714,788 11,639,371
$15,010,897 $16,213,034
Consolidated Statements of Operations and Deficit
(expressed in Canadian dollars) For the three months ended
December December
31, 31,
2005 2004
Revenues $ 871,773 $ 998,095
Cost of goods sold 117,801 652,567
Gross Profit 753,972 345,528
Operating expenses
Research and development - net 1,272,579 1,273,762
General and administration 798,386 796,821
Sales and marketing 380,135 416,148
Amortization 374,632 361,421
2,825,732 2,848,152
Loss before undernoted (2,071,760) (2,502,624)
Other income (expense)
Interest income 50,641 24,180
Other income (expense) (46,751) (44,775)
3,890 (20,595)
Loss for the period (2,067,870) (2,523,219)
Deficit - Beginning of period (84,782,560) (73,560,609)
Deficit - End of period $(86,850,430) $(76,083,828)
Basic and diluted loss per share $ (0.06) $ (0.29)
Weighted average number of common
shares outstanding 37,337,298 8,789,484
Consolidated Statements of Cash Flows
(expressed in Canadian dollars) For the three months ended
December December
31, 31,
2005 2004
Cash flows from operating activities
Loss for the period $ (2,067,870) $ (2,523,219)
Items not involving cash
Amortization 374,632 361,421
Non-cash compensation expense 121,571 258,629
(1,571,667) (1,903,169)
Changes in non-cash operating working
capital
Accounts, grants and funding receivables (672,567) (499,672)
Inventories (561,260) (159,330)
Prepaid expenses 73,641 (326,531)
Accounts payable and accrued liabilities (325,378) 94,432
Deferred revenue 1,065,894 830,620
(419,670) (60,481)
(1,991,337) (1,963,650)
Cash flows from investing activities
Purchase of property, plant and equipment (363,775) (40,615)
Government grants and funding related to
property, plant and equipment 32,842 10,656
(330,933) (29,959)
Cash flows from financing activities
Issuance of common shares - 15,050,000
Share issue costs - (1,818,459)
Issuance of common shares on exercise of
stock options 21,716 -
Repayment of bank debt (18,070) -
Deferred charges - (353,208)
3,646 12,878,333
Increase (decrease) in cash and
equivalents (2,318,624) 10,884,724
Cash and equivalents - Beginning of
period 10,414,219 6,691,923
Cash and equivalents - End of period $8,095,595 $17,576,647
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. There are no reconciling items in the
consolidated statements of operations or cash flows for the three months ended
December 31, 2005 and 2004.
Consolidated balance sheets
December 31, September 30,
2005 2005
Canadian U.S. GAAP Canadian U.S. GAAP
GAAP $ GAAP $
$ $
Shareholders'
equity
Common shares 89,861,388 81,406,622 89,774,802 81,320,036
Contributed
surplus 6,703,830 5,382,702 6,647,129 5,326,001
Consolidated statements of deficit
December 31, December 31,
2005 2004
$ $
Deficit - Beginning of period under
Canadian GAAP (84,782,560) (73,560,609)
Accumulated accretion on preferred
shares under Canadian GAAP 13,631,542 13,631,542
Accumulated accretion on preferred
shares under U.S. GAAP (5,437,441) (5,388,661)
Accumulated stock-based compensation
under U.S. GAAP (208,460) (208,460)
Gain on preferred share conversion
under U.S. GAAP 1,790,253
Deficit - Beginning of period under
U.S. GAAP (75,006,666) (65,526,188)
Loss for the period under Canadian
and U.S. GAAP (2,067,870) (2,523,219)
Deficit - End of period under U.S.
GAAP (77,074,536) (68,049,407)
Loss per share - Canadian and U.S.
GAAP (0.06) (0.29)
a) Reconciliation of deficit under Canadian and U.S. GAAP
Prior to the Company's initial public offering, the Company had various classes
of preferred shares outstanding which were treated differently under Canadian
and U.S. GAAP due to the specific share provisions of each class. These
differences resulted in permanent differences in the accumulated accretion
expenses contained in the deficit under Canadian and U.S. GAAP. In addition,
the Class C preferred shares were treated as debt under U.S. GAAP, but were
treated as equity under Canadian GAAP. When the Class C preferred shares were
converted to common shares coincident with the Company's initial public
offering, the different accounting treatment of these shares resulted in a gain
on settlement of debt being recorded for U.S. GAAP purposes, versus an increase
in contributed surplus under Canadian GAAP. This gain of $1,790,253 is a
permanent difference between the deficit under Canadian and U.S. GAAP. The above
Consolidated Statements of Deficit adjust for these differences resulting from
the preferred shares.
b) Reconciliation of shareholder's equity
When the preferred shares were converted to common shares coincident with the
Company's initial public offering, the differences in the values of the
preferred shares due to differences in accumulated accretion between Canadian
and U.S. GAAP resulted in different values being transferred into the common
shares account under Canadian and U.S. GAAP. The values of the Class A and B
preferred shares included a combined accumulated accretion of $13,631,542 under
Canadian GAAP versus $5,176,776 under U.S. GAAP. The difference between these
values is the difference between the common share accounts under Canadian and
U.S. GAAP.
Similarly, the different accounting treatment for the Class C preferred shares
resulted in a difference between the contributed surplus accounts under Canadian
and U.S. GAAP. Under Canadian GAAP, the Class C preferred shares were treated as
equity, and no accretion expense was required due to the share provisions of
this class of shares. However, the conversion of the Class C preferred shares
resulted in an increase to contributed surplus of $1,790,253 under Canadian
GAAP. Conversely, under U.S. GAAP, accretion charges of $260,665 increased the
fair value of the debt recorded in respect of the Class C preferred shares,
which remained in the contributed surplus account once such shares were
converted to common shares on the initial public offering. The remaining
difference between contributed surplus under Canadian and U.S. GAAP relates to
the accumulated stock based compensation expense of $208,460 that was recorded
under U.S. GAAP in April 2002, but was not required to be expensed under
Canadian GAAP.
-30-
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.
Andrew G. Hall
Director, Corporate Development
Phone: (001) 604-454-1134
Email: hall@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
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRFEADFFDEKKEAE
Questair Tech (LSE:QAR)
Historical Stock Chart
From Jun 2024 to Jul 2024
Questair Tech (LSE:QAR)
Historical Stock Chart
From Jul 2023 to Jul 2024