RNS Number:0967H
QuestAir Technologies Inc
02 August 2006
For Immediate Release 2 August 2006
QuestAir Technologies Inc.
QuestAir Reports Third Quarter 2006 Results
BURNABY, B.C. - QuestAir Technologies Inc. ("QuestAir" or "the Company"; AIM:
QAR; TSX: QAR) reported today its unaudited financial and operational results
for the third quarter of fiscal 2006, ended June 30, 2006. All amounts are in
Canadian dollars unless otherwise noted.
Third Quarter Highlights
* Significant progress in the refinery development program with ExxonMobil
Research and Engineering ("EMRE"), including the successful passing of a
critical internal Exxon program review. Subsequent to the end of the
quarter, QuestAir received the final $2.2 million purchase order for a
prototype H-6200 hydrogen purifier ("prototype plant") to be demonstrated at
an ExxonMobil refinery in Europe.
* The signing of an agreement with EMRE to jointly market the H-6200
hydrogen purifier in the oil refining market worldwide.
* Revenues of $1.2 million for the quarter, and $4.9 million for the nine
months ended June 30, 2006, in line with the Company's revenue guidance of
$7.5 million for the fiscal year.
* QuestAir's sales order backlog at quarter end was $5.0 million, compared
to $5.8 million at March 31, 2006, and $3.5 million at June 30, 2005.
Backlog as of June 30, 2006 did not include the $2.2 million purchase order
from Exxon which was received after quarter end.
* Cash used in operations and capital requirements of $1.9 million for the
quarter and $5.9 million for the nine months ended June 30, 2006, in line
with the Company's cash burn guidance of $8.5-9.5 million for the fiscal
year.
* Net loss of $2.1 million for the quarter and $7.5 million for the nine
months ended June 30, 2006 (nine months ended June 30, 2005: $6.9 million),
increased due to a change in the mix of revenues recognized during the
second quarter.
* Successful closing of an equity financing, raising net proceeds of $18.4
million. The Company had cash and short term investments of $21.9 million at
June 30, 2006.
Jonathan Wilkinson, President and CEO of QuestAir, said:
"We are very pleased with the progress that we have made in our refinery
development program with ExxonMobil. The successful program review was a very
significant milestone for the Company, authorizing the final $2.2 million
purchase order for the prototype plant that we received after quarter end."
"On the commercial front, the marketing agreement that we signed with EMRE maps
out how we will jointly market the H-6200 hydrogen purifier in the oil refining
industry, and we have begun to actively promote this product to oil refineries
around the world."
"We also successfully completed a $20 million equity financing during the
quarter. We were particularly pleased by the strong support from a number of our
existing institutional and strategic investors in the financing, as well as the
addition of a number of new, high-quality European and North American
institutional investors to our shareholder base."
"This equity financing provides us with the expansion capital required to
commercialize the H-6200 hydrogen purifier, and also to explore options for
extending this product platform into related high-value markets such as natural
gas processing or petrochemical separations."
Operating Review
A number of key milestones were achieved in the program with EMRE to develop the
H-6200 hydrogen purifier for use in oil refineries and petrochemical plants.
Early in the quarter, the program passed a critical internal ExxonMobil review,
which authorized final funding for the construction of the prototype plant to be
demonstrated at an ExxonMobil refinery in Europe. Subsequent to the end of the
quarter, the Company received a final $2.2 million purchase order from Exxon to
complete construction of the prototype plant. This order follows an initial $1.8
million order received from EMRE in December 2005 as well as small purchase
orders for long lead items, bringing the total value of the prototype plant to
$4.8 million. During the quarter, the Company also signed a marketing agreement
with EMRE which covers the marketing of the H-6200 hydrogen purifier to third
party customers in the oil refining industry. The agreement outlines the roles
that each party will play in the marketing process, and how the commercial gain
from sales of this product will be shared between QuestAir and EMRE.
During the quarter, QuestAir strengthened its position as the leading supplier
of hydrogen purification systems in the emerging hydrogen infrastructure market.
The Company signed an agreement, valued at up to US$700,000 over 2 years, to
supply its H-3300 hydrogen purifiers to Nuvera Fuel Cells ("Nuvera"). The H-3300
will be incorporated into Nuvera's PowerTapTM branded hydrogen generators, which
will be marketed as a distributed source of hydrogen fuel for fuel cell powered
industrial vehicles such as fork lifts and airport ground support vehicles. Fuel
cells have the potential to offer a compelling value proposition as a
replacement for lead acid batteries in industrial transportation markets, and
leading end-users of industrial vehicles such as Deere & Company, FedEx Canada,
General Motors of Canada and Wal-Mart(R) are undertaking or have recently
completed successful field trials of prototype fuel cell-powered vehicles.
Also in the hydrogen infrastructure field, QuestAir received an order for an
H-3200 hydrogen purifier from SK Corporation for use in a demonstration hydrogen
fueling station to be constructed in Seoul, Korea. This is the third H-3200 sold
into the hydrogen fueling market in Korea over the past 6 months. Korea is
emerging as a leading early adopter of automotive fuel cell technology and
related hydrogen infrastructure.
Outlook
"Our focus for the fourth quarter of fiscal 2006 will be on completing the
construction of the prototype H-6200 hydrogen purifier to be demonstrated at an
ExxonMobil refinery. In the product development area, we remain focused on
securing additional engineering contracts to extend the H-6200 product platform
into high value markets such as petrochemical separations or natural gas
processing," said Jonathan Wilkinson.
"Based on our financial performance over first nine months of fiscal 2006, and
our expected activities for the remainder of the year, we remain on track to
achieve our revenue guidance of $7.5 million for the year. Our cash burn is
expected to increase during the fourth quarter as we complete the construction
of the prototype plant. Consequently, we expect our cash burn for fiscal 2006 to
be towards the top end of the guidance range of $8.5 to 9.5 million."
"As the final $2.2 million purchase order for the prototype plant has only
recently been received, the timeline for construction of the prototype plant has
been extended. Consequently, we expect to ship the prototype plant to the
ExxonMobil refinery in Europe by the end of calendar 2006, and we expect that
the prototype plant will be operational by the end of the first quarter of
calendar 2007."
"Our marketing activities for the H-6200 hydrogen purifier are proceeding as
planned, and we are currently working through a number of commercial enquiries
from both ExxonMobil and third party refineries. We do not expect that the
revised timing of the shipment and start-up of the prototype plant will impact
our commercialization plans for the H-6200."
Q3 2006 Financial Results
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 Nine months
ended June 30, ended June 30,
2006 2005 2006 2005
---------------- --------- --------- ---------- ---------
Gas purification
systems 574 2,307 3,277 3,785
Engineering service
contracts 619 337 1,584 1,348
---------------- --------- --------- ---------- ---------
Total revenue 1,193 2,644 4,861 5,133
---------------- --------- --------- ---------- ---------
Revenue from gas purification systems was higher for the prior periods as a
result of revenue recognized during the quarter ended June 30, 2005 from two
test systems delivered to EMRE in support of the refinery development program.
The increase in revenue from engineering service contracts for the quarter ended
June 30, 2006 resulted from increased levels of work completed during the
quarter on the engineering service contract with EMRE to develop a compact
hydrogen generator for use in a range of transportation markets.
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. 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 our commercial operations.
QuestAir's sales order backlog is defined as future revenue from signed
contracts that has not yet been recognized by the Company. The following table
provides an analysis of the changes in the Company's sales order backlog for the
quarter and nine months ended June 30, 2006:
(Unaudited, $'000) For the three months ended For the nine months ended
June 30, 2006 June 30, 2006
Gas Gas
purification Eng. service purification Eng. service
systems contracts Total systems contracts Total
-------- ------ ------ -------- ------- ------
Opening balance 4,815 1,025 5,840 2,240 768 3,008
Bookings 336 - 336 5,669 1,226 6,895
Revenue recognized (574) (619) (1,193) (3,278) (1,583) (4,861)
Adjustments+ (7) - (7) (61) (5) (66)
-------- ------- ------ -------- ------- ------
Ending balance 4,570 406 4,976 4,570 406 4,976
------------- ------- ------ ------ -------- ------- ------
+ Includes adjustments for fluctuations in foreign currency exchange rates as
well as cancelled orders.
The total sales order backlog decreased by $863,720, or 15%, during the quarter
ended June 30, 2006. New orders for gas purification systems booked over the
quarter were offset by revenues recognized over the quarter, reducing total
backlog over the quarter. A small negative adjustment was made to the Company's
sales order backlog as a result of a foreign exchange fluctuation during the
quarter. It should be noted that backlog as of June 30, 2006 does not include
the $2.2 million purchase order from Exxon for the prototype plant which was
received after quarter end.
The Company expects that the backlog as of June 30, 2006 will be substantially
recognized as revenue by December 31, 2006.
The following table provides a calculation of the Company's gross profit for the
reported periods:
(Unaudited, $ '000) For the three months ended For the nine months ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
----------- ---------- ---------- ----------
Sales 1,193 2,644 4,861 5,133
Cost of goods sold 714 1,921 3,824 2,900
----------- ---------- ---------- ----------
Gross Profit 479 723 1,037 2,233
Gross Margin(%) 40.2% 27.3% 21.3% 43.5%
------------ ----------- ---------- ---------- ----------
The increase in gross margin for the quarter ended June 30, 2006 compared to the
same period in 2005 resulted from an increase in the proportion of revenue
recognized from engineering service contracts, which typically contribute high
gross margins. The reduction in gross margin for the nine months ended June 30,
2006 compared to the same period in 2005 resulted from losses incurred in the
second quarter of fiscal 2006 on the H-3100 hydrogen purifier installed at the
HydroEdge liquid hydrogen plant, and on the prototype H-6200 hydrogen purifier
to be demonstrated at an ExxonMobil refinery.
Margins are expected to fluctuate from quarter to quarter depending on the mix
of revenues recognized from engineering service contracts and gas purification
systems. Margins are expected to remain somewhat reduced over the next several
quarters until revenue from the prototype H-6200 hydrogen purifier has been
fully recognized.
Sales and marketing expenses were $489,328 and $1,472,316 for the quarter and
nine months ended June 30, 2006, largely unchanged compared to the same periods
in 2005.
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 Nine months ended
June 30, June 30,
2006 2005 2006 2005
--------- --------- -------- ---------
Gross R&D Expenditure 1,641 1,964 5,133 5,762
Government & Partner Funding 405 473 1,371 1,464
--------- --------- -------- ---------
Net R&D Expenditure 1,236 1,491 3,762 4,298
---------------- --------- --------- -------- ---------
The reduction in gross R&D expenditures for the quarter and nine months ended
June 30, 2006 compared to the same periods in 2005 was due to a reduction in
amount of R&D undertaken as resources were redirected towards supporting the
Company's commercial sales efforts and the construction of the prototype H-6200
hydrogen purifier. Government funding decreased for the quarter and nine months
ended June 30, 2006 in proportion to the reduction in R&D undertaken on the
refinery development program with EMRE, which is eligible for funding from
Technology Partnerships Canada.
General and administrative ("G&A") expenses were $775,809 for the quarter ended
June 30, 2006, a decrease of 18% from $940,872 for the same period in 2005. The
decrease in G&A expenses for the quarter related to a reduction in legal,
accounting and investor relations expenses. G&A expenses were $2,475,989 for the
nine months ended June 30, 2006, relatively unchanged compared to the same
period in 2005.
Employee stock-based compensation expense was $127,101 for the quarter ended
June 30, 2006, relatively unchanged from the same period in 2005. Stock-based
compensation expense was $373,591 for the nine months ended June 30, 2006
compared to $485,191 for the same period in 2005. Stock-based compensation
expenses were higher for the nine months ended June 30, 2005 due to a stock
compensation charge related to the repricing of certain options at the time of
QuestAir's Initial Public Offering ("IPO") in the first quarter of fiscal 2005.
The net loss for the quarter ended June 30, 2006 was $2,134,814 ($0.05 per
share) compared to $2,562,676 ($0.07 per share) for the same period in fiscal
2005. For the nine months ended June 30, 2006, the net loss was $7,538,338
($0.19 per share) compared to $6,929,057 ($0.25 per share) for the same period
in 2005. The reduction in the net loss for the quarter ended June 30, 2006 was a
result of reduced R&D, G&A and amortization expenses compared to the same period
in 2005. The increase in the net loss for the nine months ended June 30, 2006
was primarily a result of reduced gross profits compared to the same period in
2005, partially offset by lower R&D and amortization expenses.
Loss per share is calculated based on the weighted average number of common
shares outstanding through the quarter and nine months. The reduction in the
loss per share for the quarter and nine months ended June 30, 2006 was a result
of an increase in the weighted average number of common shares outstanding
compared to the same period in 2005.
Capital expenditures net of Government funding and proceeds on sale ("Net
CAPEX"), for the quarter ended June 30, 2006 were $353,454, compared to $574,636
for the same period in 2005. The reduction in net CAPEX for the quarter was a
result of reduced capital expenditures on the refinery development program being
undertaken with EMRE.
Net CAPEX for the nine months ended June 30, 2006 was $750,971, compared to
$896,481 for the same period in 2005. 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 June 30, 2006 cash and short term investments were $21,878,508, compared to
$5,262,559 at March 31, 2006. Not included in cash and short term investments at
June 30, 2006 and March 31, 2006 was $1,112,731 of restricted cash, which will
primarily be used to fund equipment purchases for the prototype plant in future
periods.
Cash used by operations and capital requirements for the quarter ended June 30,
2006 was $1,876,151, compared to $1,672,893 for the same period in 2005. Cash
used by operations and capital requirements for the nine months ended June 30,
2006 was $5,922,222, compared to $6,398,471 for the same period in 2005. The
increase in operational cash burn for the quarter ended June 30, 2006 compared
to the same period in 2005 resulted from reductions in cash flow from changes in
working capital. The reductions in operational cash burn for the nine months
ended June 30, 2006 compared to the same period in 2005 resulted from a positive
change in cash flow from changes in working capital, which was offset somewhat
by increased losses for the nine months ended June 30, 2006.
On May 31, 2006, the Company completed an equity offering, raising gross
proceeds of $20,000,250 through the sale of 14,815,000 common shares at a price
of $1.35 per share. Net proceeds after share issuance costs were $18,350,434.
During fiscal 2005, the Company signed a credit facilities agreement with
Comerica Bank. This agreement was amended and restated as part of the renewal of
these facilities in June 2006. The amended credit facilities include a US$1
million accounts receivable line of credit and a US$2 million term loan, in
addition to $673,212 outstanding under the original term loan agreement. Both
facilities are subject to annual renewal. As at June 30, 2006, the Company had
drawn $673,212 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 $9,600,000 conditionally repayable loan
from Technology Partnerships Canada, a funding program administered by Industry
Canada. At June 30, 2006 the Company had claimed $7,305,486 against this loan.
As at June 30, 2006, QuestAir had 52,276,597 common shares issued and
outstanding. In addition, the Company had 4,933,650 stock options outstanding.
During the quarter, 430,000 warrants that were issued to certain agents upon
closing of the Company's IPO expired unexercised, leaving a total of 192,308
warrants outstanding as at June 30, 2006.
Further information on the Company's financial results for the quarter can be
found at www.sedar.com.
Consolidated Balance Sheets
--------------------------- ---------- ----------
Unaudited (expressed in Canadian dollars) As at As at
June 30, September 30,
2006 2005
ASSETS
Current assets:
Cash and cash equivalents $ 14,478,508 $ 10,414,219
Restricted cash 1,112,731 -
Short term investments 7,400,000 -
Accounts receivable 621,204 1,075,255
Grants and funding receivables 484,633 493,913
Inventories 2,143,756 1,945,876
Prepaid expenses 514,959 299,757
------------ ------------
26,755,791 14,229,020
Property, plant and equipment 1,792,192 1,984,014
------------ ------------
$ 28,547,983 $ 16,213,034
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,509,251 $ 2,210,686
Deferred revenue 1,455,975 1,602,103
Current portion of bank debt 267,988 216,839
Current portion of obligations under capital
lease - 110,357
------------ ------------
5,233,214 4,139,985
Long term liabilities:
Bank debt 405,224 433,678
------------ ------------
5,638,438 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 108,317,011 89,774,802
Contributed surplus 6,913,432 6,647,129
Deficit (92,320,898) (84,782,560)
------------ ------------
22,909,545 11,639,371
------------ ------------
$ 28,547,983 $ 16,213,034
============ ============
Consolidated Statements of Operations and Deficit
Unaudited (expressed For the three months ended For the nine months ended
in Canadian dollars) June 30, June 30, June 30, June 30,
2006 2005 2006 2005
Revenues $ 1,193,380 $ 2,643,892 $ 4,861,497 $ 5,133,411
Cost of goods sold 714,014 1,920,817 3,823,872 2,900,211
---------- ---------- ---------- ----------
Gross profit 479,366 723,075 1,037,625 2,233,200
---------- ---------- ---------- ----------
Operating expenses
Research and development
- net 1,236,313 1,491,092 3,762,538 4,297,956
General and
administration 775,809 940,872 2,475,989 2,510,277
Sales and marketing 489,328 500,684 1,472,316 1,432,360
Amortization 187,360 415,716 951,218 1,171,638
---------- ---------- ---------- ----------
2,688,810 3,348,364 8,662,061 9,412,231
---------- ---------- ---------- ----------
Loss before undernoted (2,209,444) (2,625,289) (7,624,436) (7,179,031)
---------- ---------- ---------- ----------
Other income
Interest income 90,316 66,065 179,779 174,887
Other income
(expense) (15,686) (3,452) (93,681) 75,087
---------- ---------- ---------- ----------
74,630 62,613 86,098 249,974
---------- ---------- ---------- ----------
Loss for the period (2,134,814) (2,562,676) (7,538,338) (6,929,057)
Deficit - Beginning
of period (90,186,084) (79,632,083) (84,782,560) (73,560,609)
Preferred share
conversion - - - (1,705,093)
---------- ---------- ---------- ----------
Deficit - End
of period $ (92,320,898) $ (82,194,759) $(92,320,898) $ (82,194,759)
---------- ---------- ---------- ----------
Basic and diluted
loss per share $ (0.05) $ (0.07) $ (0.19) $ (0.25)
Weighted
average number
of common shares
outstanding 42,498,492 37,299,396 39,091,486 27,785,673
--------------- ---------- ---------- ---------- ----------
Consolidated Statements of Cash Flows
Unaudited (expressed For the three months ended For the nine months ended
in Canadian dollars) June 30, June 30, June 30, June 30,
2006 2005 2006 2005
Cash flows used in
operating activities
Loss for the period $ (2,134,814) $ (2,562,676) $ (7,538,338) $ (6,929,057)
Items not involving
cash
Amortization 187,360 415,716 951,218 1,171,638
Gain on sale of
property, plant
and equipment (350) - (8,424) (6,523)
Non-cash compensation
expense 127,101 111,033 373,591 485,191
Foreign currency
loss (gain) - 6,411 503 (3,747)
---------- --------- --------- ---------
(1,820,703) (2,029,516) (6,221,450) (5,282,498)
---------- --------- --------- ---------
Changes in non-cash
operating working
capital
Accounts, grants and
funding receivables 976,076 177,045 463,330 (340,296)
Inventories (584,676) 1,132,362 (197,881) (109,085)
Prepaid expenses (178,503) (57,191) (215,202) (95,308)
Accounts payable and
accrued liabilities 635,126 470 1,146,080 606,729
Deferred revenue (550,017) (321,427) (146,128) (281,532)
---------- --------- --------- ---------
298,006 931,259 1,050,199 (219,492)
---------- --------- --------- ---------
(1,522,697) (1,098,257) (5,171,251) (5,501,990)
---------- --------- --------- ---------
Cash flows used in
investing activities
Increase in short term
investments (7,400,000) - (7,400,000) -
Purchase of property,
plant and equipment (383,773) (712,066) (841,442) (1,100,164)
Government grants and
funding related to
property, plant and
equipment 29,969 137,430 86,621 193,683
Proceeds on sale of
property, plant
and equipment 350 - 3,850 10,000
Restricted cash - - (1,112,731) -
---------- --------- --------- ---------
(7,753,454) (574,636) (9,263,702) (896,481)
---------- --------- --------- ---------
Cash flows from
financing activities
Issuance of
common shares 20,000,250 - 20,000,250 15,050,000
Share issue
costs (1,497,328) (365,331) (1,497,328) (3,116,530)
Issuance of common
shares on exercise
of stock options 5,064 5 84,486 20,462
Repayment of bank debt (58,472) - (130,752) -
Term loan advance 153,446 650,518 153,446 650,518
Repayment of obligations
under capital lease (110,860) (115,568) (110,860) (115,568)
---------- --------- --------- ---------
18,492,100 169,624 18,499,242 12,488,882
---------- --------- --------- ---------
Increase (decrease) in
cash and equivalents 9,215,949 (1,503,270) 4,064,289 6,090,411
Cash and equivalents -
Beginning of
period 5,262,559 14,285,604 10,414,219 6,691,923
---------- --------- --------- ---------
Cash and equivalents -
End of period $ 14,478,508 $ 12,782,334 $ 14,478,508 $ 12,782,334
========== ========== ========== ==========
Notes to the financial statements
1. United States generally accepted accounting principles
The Company follows Canadian GAAP, which are different in certain respects from
generally accepted accounting principles 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.
Consolidated Balance Sheets
Unaudited June 30, 2006 September 30,2005
(expressed in
Canadian dollars)
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
$ $ $ $
------------------ --------- -------- --------- --------
Shareholders'
equity
Common shares 108,317,011 99,862,245 89,774,802 81,320,036
Contributed surplus 6,913,432 5,592,304 6,647,129 5,326,001
------------------ --------- -------- --------- --------
Consolidated statements of operations and deficit
Unaudited (expressed Three months ended Nine months ended
in Canadian dollars)
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Loss for the
period under
Canadian GAAP $(2,134,814) $(2,562,676) $(7,538,338) $(6,929,057)
Preferred
share
conversion - - - 1,790,253
-------- -------- -------- --------
Loss for the
period under
U.S. GAAP (2,134,814) (2,562,676) (7,538,338) (5,138,804)
-------- -------- -------- --------
Deficit -
Beginning of
period under
Canadian GAAP (90,186,084) (79,632,083) (84,782,560) (73,560,609)
Accumulated
accretion on
preferred
shares 13,631,542 13,631,542 13,631,542 13,631,542
under Canadian GAAP
Accumulated
accretion on
preferred
shares (5,437,441) (5,388,661) (5,437,441) (5,388,661)
under U.S. GAAP
Accumulated
stock-based
compensation (208,460) (208,460) (208,460) (208,460)
under U.S. GAAP
Gain on preferred
share conversion
under U.S. GAAP 1,790,253 1,790,253 1,790,253 -
-------- -------- -------- --------
Deficit - Beginning
of period under
U.S. GAAP (80,410,191) (69,807,409) (75,006,666) (65,526,188)
Preferred
share conversion
under Canadian
and U.S. GAAP - - - (1,705,093)
-------- -------- -------- --------
Deficit - End
of period under U.S.
GAAP $(82,545,004) $(72,370,085) $(82,545,004) $(72,370,085)
-------- -------- -------- --------
Loss per share
- U.S. GAAP ($0.05) ($0.07) ($0.19) ($0.25)
---------------------- -------- -------- -------- --------
Consolidated statements of cash flows
Unaudited (expressed in Three months ended Nine months ended
Canadian dollars)
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
------------------------ -------- -------- -------- --------
Loss for the
period under U.S.
GAAP $(2,134,814) $(2,562,676) $(7,538,338) $(5,138,804)
Items not involving cash
Amortization 187,360 415,716 951,218 1,171,638
Gain on sale of
property, plant
and equipment (350) - (8,424) (6,523)
Non-cash
compensation
expense recorded
in 127,101 111,033 373,591 485,191
contributed surplus
Foreign currency
loss (gain) - 6,411 503 (3,747)
Changes in
non-cash operating
working capital 298,006 931,259 1,050,199 (219,492)
-------- -------- -------- --------
Cash flows used in
operating
activities under (1,522,697) (1,098,257) (5,171,251) (3,711,737)
U.S. GAAP
Cash flows from
financing
activities under 18,492,100 169,624 18,499,242 12,488,882
Canadian GAAP
Preferred share
conversion under
U.S. GAAP - - - (1,790,253)
-------- -------- -------- --------
Cash flows from
financing
activities under 18,492,100 169,624 18,499,242 10,698,629
U.S. GAAP
-------- -------- -------- --------
Cash flows used in
investing
activities under (7,753,454) (574,636) (9,263,702) (896,481)
U.S. and Canadian GAAP
-------- -------- -------- --------
Increase in cash
and cash
equivalents under $9,215,949 $(1,503,270) $4,064,289 $6,090,411
U.S. and Canadian GAAP
-------- -------- -------- --------
------------------------ -------- -------- -------- --------
a) Reconciliation of deficit under Canadian and U.S. GAAP
Prior to the Company's IPO, 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 IPO, 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 under Canadian and U.S. GAAP
When the preferred shares were converted to common shares coincident with the
Company's IPO, 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 IPO. 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.
c) Reconciliation of statement of cash flows under Canadian and U.S. GAAP
The gain on conversion of the Class C preferred shares reduced the loss in
fiscal 2005 under U.S. GAAP by $1,790,253. Accordingly, this non-cash amount is
reflected in the statement of cash flows under financing activities for fiscal
2005.
-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
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
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