RNS Number:8389Q
QuestAir Technologies Inc
07 February 2007
For Immediate 7 February, 2007
QuestAir
QuestAir Reports First Quarter 2007 Results
VANCOUVER, B.C. - QuestAir Technologies Inc. ("QuestAir" or "the Company"; AIM:
QAR; TSX: QAR) reported today its unaudited financial and operational results
for the first quarter of fiscal 2007 ("FY07"), ended December 31, 2006. All
amounts are in Canadian dollars unless otherwise noted.
First Quarter Highlights
* Revenues of $1.6 million for the quarter, increased by 89% compared to
Q1 FY06. QuestAir's sales order backlog at quarter end was $5.8 million,
increased by 15% from $5.0 million at September 30, 2006.
* Cash used in operations and capital expenditures of $4.1 million (Q1
FY06: $2.3 million), increased due to changes in non-cash working capital
which are expected to reverse in subsequent quarters.
* Net loss of $2.2 million ($0.04 per share), compared to $2.1 million
($0.06 per share) for Q1 FY06.
* The extension of the joint development agreement with ExxonMobil
Research and Engineering ("EMRE") for a further 3 years.
* The installation of QuestAir's first M-3200 system to recover pipeline
grade methane from anaerobic digester gas at a Michigan dairy farm.
* Significant commercial progress in the industrial hydrogen market,
including the sale of a H-3100 system to recover waste hydrogen from a
polyethylene plant in Brazil, as well as the sale of H-3200 systems for use
in the steel and edible oil processing industries.
Jonathan Wilkinson, President and CEO of QuestAir, said:
"We are extremely pleased with the progress that we made this quarter towards
increasing the sales of our commercial gas purification products. Key highlights
included the sale of a H-3100 hydrogen purifier to a Brazilian polyethylene
plant, and the installation of our first system to recover methane from
anaerobic digester gas. We expect that both of these markets will be important
sources of growth in the future."
"During the quarter we also extended our joint development agreement with
ExxonMobil for a further 3 years. We believe that this is a strong endorsement
of Exxon's on-going support for our product development, and provides us with
addition time and resources to expand the addressable markets for the H-6200
product platform in the refinery and petrochemical sectors," said Wilkinson.
Operating Review
A number of significant achievements were made during the quarter in the sale of
QuestAir's commercial gas purification products. In the industrial hydrogen
market, the Company sold a H-3100 hydrogen purifier to recover hydrogen from
ethylene cracker offgas at a polyethylene plant in Brazil. This sale was notable
since it was QuestAir's first sale in Latin America, a significant potential
growth market for the Company. More importantly, ethylene cracker offgas is an
important source of waste hydrogen for recovery and reuse in the petrochemical
industry, and QuestAir will be targeting larger capacity applications in this
market with the H-6200 hydrogen purifier in the future. The Company further
expanded the range of applications for its commercial products in the industrial
hydrogen market, with sales of H-3200 purifiers into the steel and edible oil
processing industries.
During the quarter QuestAir also installed a M-3200 system to recover
pipeline-grade methane from anaerobic digester gas at a dairy farm in Michigan.
This project is the first application of QuestAir's pressure swing adsorption
("PSA") technology in the digester gas market, which is emerging as a
significant growth market in the US the US Environmental Protection Agency has
identified over 6,900 farms across the US where digesters could cost effectively
be operated.
Early in the quarter, the Company renewed its Joint Development Agreement
("JDA") with EMRE, extending the exclusivity period of the research
collaboration in the refinery and petrochemical markets for a further 3 years.
The objective of this extension is to allow QuestAir to complete additional
product development work with EMRE to extend the H-6200 product platform into
additional markets in the oil refining and petrochemical markets. Following the
extension of the JDA, QuestAir completed two small funded research contracts
with EMRE during the quarter to assess the use of the H-6200 platform in a
specific petrochemical separation, as well as for the processing of "sour"
natural gas. Options for the continuation of these research contracts are
currently being assessed by the parties.
Subsequent Events
Following the end of the quarter, the Company announced that it had successfully
achieved one of its key corporate milestones for fiscal 2007 with the receipt of
an order for a M-3200 system to recover pipeline-grade methane from anaerobic
digester gas in Switzerland. This is QuestAir's first sale into the European
biogas market, which has been identified as a significant potential growth
market for the Company.
In addition, the Company built on the strong sales momentum established in the
first quarter, securing an order from Air Liquide U.S. for a H-3100 to recover
waste hydrogen in the petrochemical industry. QuestAir also extended its M-3100
product line into the processing of well-head natural gas, securing an order
from a large independent oil producer for a M-3100 to remove carbon dioxide and
other contaminants from natural gas to meet the demanding quality specifications
of Californian gas utilities.
Collectively, these orders demonstrate the growing market traction of QuestAir's
commercial PSA products, as well as the broad applicability of QuestAir's
product platforms in a range of industrial and energy-related markets.
Outlook
Commenting on the outlook for the remainder of fiscal 2007, Jonathan Wilkinson
said:
"Our priorities include shipping the prototype H-6200 hydrogen purifier to
ExxonMobil's European refinery. Construction resources at our key supplier in
Texas remain tight, and based on our supplier's current schedule, we expect to
ship the prototype plant by mid-April."
"An April shipment of the prototype will place some pressure on our marketing
timeline for the H-6200, given that stable operating data from the prototype
unit may only be available in mid 2007. However, we continue to aggressively
market the H-6200 together with Exxon, with the objective of securing our first
commercial sale this fiscal year."
"We also aim to build on the excellent momentum that we have developed with the
sales of our commercial gas purification products. Specific areas for near-term
growth include the biogas upgrading market, both in Europe and North America, as
well as hydrogen recovery and on-site hydrogen generation."
"Based on our current level of backlog and contracts under negotiation, we
remain comfortable with our revenue guidance of $9-10 million and our cash burn
guidance of $7-8 million for the fiscal year."
Q1 FY07 Financial Results
Operating Results
The following table provides a breakdown of QuestAir's revenues from the sale of
gas purification systems and engineering service contracts for the reported
periods:
---------------- ------------------
(Unaudited, $ '000) Three months
ended December
31,
2006 2005
---------------- ---------- ----------
Gas purification systems 1,422 221
Engineering service contracts 221 651
---------------- ---------- ----------
Total revenue 1,643 872
---------------- ---------- ----------
The increase in revenue from gas purification systems for the first quarter of
fiscal 2007 resulted from revenue recognized towards the construction of the
prototype H-6200 hydrogen purifier to be demonstrated at an ExxonMobil refinery.
For accounting purposes, the sale of the H-6200 prototype plant is treated as a
long-term production-type contract. Consequently, in accordance with generally
accepted accounting principles, revenue from the H-6200 prototype plant is
recognized on a percentage-of-completion basis. No similar revenue was
recognized in the same period in fiscal 2006.
The decrease in revenue from engineering service contracts for the first quarter
of fiscal 2007 versus the same period in 2006 resulted from reduced levels of
work completed on engineering service contracts with EMRE in the current year,
as the focus of the refinery program shifted from product development to the
construction of the prototype plant.
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 year to year. Accordingly, Management believes that recognized revenue and
changes in our 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 have not yet been recognized as revenue. The following table
provides an analysis of the changes in the Company's sales order backlog for the
quarter ended December 31, 2006.
------------------ ------------------------
(Unaudited, $ '000) For the quarter
ended December
31, 2006
Gas Engineering Total
------------------ Purification Service ------
Systems Contracts
------------- --------
Opening Balance 4,908 136 5,044
Bookings 1,921 199 2,120
Revenue
Recognized (1,422) (221) (1,643)
Adjustments(1) 290 8 298
------------------ ------------- -------- ------
Ending Balance 5,697 122 5,819
------------------ ------------- -------- ------
The total sales order backlog increased by $775,279, or 15%, during the first
quarter of fiscal 2007. The increase in backlog was driven by orders received
during the quarter valued at $2,120,540, the majority of which related to new
orders for our commercial products. This included an order valued at
approximately $626,000 for an H-3100 hydrogen purifier to recover hydrogen from
ethylene cracker offgas at a petrochemical plant in Brazil. Foreign exchange
fluctuations during the quarter resulted in a positive adjustment to our sales
order backlog of $298,215.
Management currently expects that most of the sales order backlog as of December
31, 2006 will be recognized as revenue by September 30, 2007.
The following table provides a calculation of QuestAir's gross profit for the
reported periods:
----------- ------------------
(Unaudited, $ '000) Three months
ended December
31,
2006 2005
----------- ----------- ---------
Sales 1,643 872
Cost of goods sold 1,355 118
----------- ----------- ---------
Gross Profit 288 754
Gross Margin (%) 17.6% 86.5%
----------- ----------- ---------
The decrease in gross margin for the first quarter of fiscal 2007 compared to
the same period in fiscal 2006 resulted from a change in the mix of revenues
recognized during the quarter. In the most recent quarter, a significant portion
of the revenue recognized was from the prototype H-6200 hydrogen purifier that
is being sold to an ExxonMobil refinery at cost. Additional information
regarding this sale can be found in QuestAir's Management Discussion and
Analysis ("MD&A") for fiscal 2006. By comparison, the bulk of the revenues
recognized in the first quarter of fiscal 2006 were from engineering service
contracts, which typically contribute high gross margins.
Margins are expected to fluctuate each quarter depending on the mix of revenues
recognized from engineering service contracts and gas purification systems.
Sales and marketing expenses were $479,227 for the quarter ended December 31,
2006, an increase of 26% compared to $380,135 for the same period in fiscal
2006. The increase in sales and marketing expenses for the quarter was
attributed to an increased level of sales activities compared to the prior
period.
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,
2006 2005
-------------------- ---------- ----------
Gross R&D Expenditure 1,625 1,746
Less: Government & Partner Funding 385 473
-------------------- ---------- ----------
Net R&D Expenditure 1,240 1,273
-------------------- ---------- ----------
The 7% reduction in gross R&D expenditures for the first quarter of fiscal 2007
compared to the same period in fiscal 2006 was due to a reduction in the amount
of R&D undertaken, as resources were redirected towards supporting our
commercial sales efforts and the construction of the prototype H-6200 hydrogen
purifier. Government funding decreased for the quarter 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 ("TPC").
General and Administrative ("G&A") expenses were $839,110 for the first quarter
of fiscal 2007, an increase of 5% from $798,386 for the same period in fiscal
2006. The increase in G&A expenses for the quarter related to increases in
salary and consulting expenses, partially offset by reductions in regulatory,
accounting and legal expenses compared to the prior period.
Amortization expenses were $230,362 for the quarter ended December 31, 2006
compared to $374,632 for the same period in fiscal 2006. The decrease in
amortization expenses was a result of certain capital assets becoming fully
amortized during the prior fiscal year.
Net loss for the quarter ended December 31, 2006 was $2,224,665 ($0.04 per
share) compared to $2,067,870 ($0.06 per share) for the same period in fiscal
2006. The increase in the net loss for the quarter was primarily a result of
reduced gross profits compared to the prior period, partially offset by lower R&
D and amortization expenses and higher interest income.
Loss per share is calculated based on the weighted average number of common
shares outstanding through the quarter. The reduction in the loss per share for
the quarter ended December 31, 2006 was a result of an increase in the weighted
average number of common shares outstanding compared to the prior period.
Capital expenditures net of Government funding and proceeds on sale ("Net
CAPEX"), for the first quarter of fiscal 2007 was $261,319 compared to $330,933
for the same period in fiscal 2006. Net CAPEX for the quarter includes the
completion of leasehold improvements made to new hydrogen testing facilities
that were built during fiscal 2006 which were included in accounts payable at
the end of the fiscal year, and subsequently paid during the current quarter. 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, 2006 cash and short-term investments were $14,760,735, compared
to $18,418,800 at September 30, 2006. Not included in cash and short-term
investments at December 31, 2006 was $991,374 of restricted cash, which will
primarily be used to fund remaining equipment purchases for the H-6200 prototype
plant in fiscal 2007.
Cash used by operations and capital requirements for the first quarter of fiscal
2007 was $4,104,553, compared to $2,322,270 for the same period in fiscal 2006.
The increase in cash used by operations and capital requirements for the quarter
was driven by an increased loss for the period, as well as significant changes
in non-cash working capital. Accounts payable and accrued liabilities decreased
$1,887,233 in the quarter, reflecting the payment of various supplier invoices
related to the construction of the H-6200 prototype plant that had been received
late in the prior quarter. Due to the nature of the contracts related to the
construction and sale of this plant, certain suppliers have been paid prior to
receipt of offsetting funds from the ExxonMobil refinery. Timing delays in the
receipt of grants receivables contributed to the reduction in non-cash working
capital during the quarter. These increases in uses of cash during the quarter
were partially offset by increases in deferred revenue and a reduction in
prepaid expenses. The outflows of working capital in the quarter are expected to
be reversed in subsequent periods as cash is received from our customers and
granting agencies.
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 December 31, 2006, QuestAir had
drawn $1,065,758 against the term loans net of repayments. The Company is in
compliance with all of its bank covenants.
On June 6, 2003, QuestAir was awarded a $9,600,000 conditionally repayable loan
from TPC, a funding program administered by Industry Canada. At December 31,
2006, the Company had claimed $8,150,083 against this loan. Based on forecasted
R&D expenditures, the Company expects to draw down on the remaining $1,449,917
of TPC funding by the end of fiscal 2007.
QuestAir's authorized share capital consists of an unlimited number of common
shares, of which 52,393,065 common shares were issued and outstanding as of
December 31, 2006, unchanged from September 30, 2006. In addition, there were
4,904,401 stock options and 192,308 share purchase warrants outstanding at
December 31, 2006.
Further information on QuestAir's financial results for the quarter ended
December 31, 2006 can be found in the Company's financial statements and MD&A at
www.sedar.com.
Balance Sheets
----------------------------- --------- ----------
Unaudited (expressed in Canadian dollars) As at As at
December 31, September 30,
2006 2006
ASSETS
Current assets:
Cash and cash equivalents $9,760,735 $ 11,018,800
Restricted cash 991,374 1,256,354
Short-term investments 5,000,000 7,400,000
Accounts receivable 1,740,616 1,476,024
Grants and funding receivables 844,597 454,597
Inventories 4,064,379 3,510,508
Prepaid expenses 211,884 337,335
Derivatives 36,680 -
--------- ----------
22,650,265 25,453,618
Property, plant and equipment 1,884,203 2,103,626
Other long-term assets 132,600 125,000
--------- ----------
$24,667,068 $27,682,244
--------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $2,276,039 $4,413,717
Deferred revenue 3,017,382 1,946,781
Current portion of bank debt 478,604 351,398
--------- ----------
5,772,025 6,711,896
--------- ----------
Long term liabilities: 587,154 532,852
Bank debt
--------- ----------
6,359,179 7,244,748
--------- ----------
Shareholders' equity:
Share capital
Authorized
Unlimited common shares, voting, no par value
Unlimited preferred shares, issuable in series, no
par value
Common shares 109,020,202 109,020,202
Contributed surplus 6,582,677 6,462,772
Deficit (97,294,990) (95,045,478)
--------- ----------
18,307,889 20,437,496
--------- ----------
$24,667,068 $27,682,244
========= ==========
----------------------------- --------- ----------
Statements of Operations, Comprehensive Loss and Deficit
---------------------------- ----------------
Unaudited (expressed in Canadian dollars) For the three
months ended
December 31, December 31,
2006 2005
Revenues $1,643,476 $871,773
Cost of goods sold 1,355,036 117,801
--------- ---------
Gross Profit 288,440 753,972
--------- ---------
Operating expenses
Research and development - net 1,240,427 1,272,579
General and administration 839,110 798,386
Sales and marketing 479,227 380,135
Amortization 230,362 374,632
--------- ---------
2,789,126 2,825,732
--------- ---------
Loss before undernoted (2,500,686) (2,071,760)
--------- ---------
Other income (expense)
Interest income 156,073 50,641
Other 119,948 (46,751)
--------- ---------
276,021 3,890
--------- ---------
Loss for the period (2,224,665) (2,067,870)
Other comprehensive income - -
--------- ---------
Comprehensive loss for the period (2,224,665) (2,067,870)
Deficit - Beginning of period (95,045,478) (84,782,560)
Unrealized foreign exchange loss
on derivatives (24,847) -
--------- ---------
Deficit - End of period $(97,294,990) $(86,850,430)
--------- ---------
Basic and diluted loss per share $(0.04) $(0.06)
Weighted average number of common
shares outstanding 52,393,065 37,337,298
---------------------------- --------- ---------
Statements of Cash Flows
----------------------------- -------------------
Unaudited (expressed in Canadian dollars) For the three
months ended
December 31, December 31,
2006 2005
Cash flows from operating activities
Loss for the period $(2,224,665) $(2,067,870)
Items not involving cash
Amortization 230,362 374,632
Gain on sale of property, plant and equipment (65) -
Unrealized foreign exchange gain on derivatives (61,527) -
Non-cash compensation expense 119,905 121,571
---------- -----------
(1,935,990) (1,571,667)
---------- -----------
Changes in non-cash operating working capital
Accounts, grants and funding receivables (654,592) (672,567)
Inventories (553,870) (561,260)
Prepaid expenses 117,851 73,641
Accounts payable and accrued liabilities (1,887,233) (325,378)
Deferred revenue 1,070,600 1,065,894
---------- -----------
(1,907,244) (419,670)
---------- -----------
(3,843,234) (1,991,337)
---------- -----------
Cash flows from investing activities
Decrease in short-term investments 2,400,000 -
Purchase of property, plant and equipment (266,819) (363,775)
Government grants and funding related to property,
plant 5,435 32,842
and equipment
Proceeds on sale or property, plant and equipment 65 -
Decrease in restricted cash 264,980 -
---------- -----------
2,403,661 (330,933)
---------- -----------
Cash flows from financing activities
Issuance of common shares on - 21,716
exercise of stock options
Issuance of bank debt 248,505 -
Repayment of bank debt (66,997) (18,070)
---------- -----------
181,508 3,646
---------- -----------
Decrease in cash and equivalents (1,258,065) (2,318,624)
Cash and equivalents - Beginning of period 11,018,800 10,414,219
---------- -----------
Cash and equivalents - End of period $9,760,735 $8,095,595
========== ===========
----------------------------- ---------- -----------
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 Hall
Director, Corporate Development
Phone: (001) 604-453-6967
Email: hall@questairinc.com
Web: www.questairinc.com
UK media contact: Canadian media contact:
Charles Ryland Glen Edwards
Ben Willey Karyo Communications
Buchanan Communications Phone: (001) 604-623-3007
Phone: +44 (0) 20 7466 5000
Canaccord Adams:
Mark Ashurst
Erin Needra
Phone: +44 207 050 6500
This information is provided by RNS
The company news service from the London Stock Exchange
END
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