FOR: QUESTAIR TECHNOLOGIES INC.
TSX, AIM SYMBOL: QAR
February 12, 2008
QuestAir Technologies Reports First Quarter 2008 Results
BURNABY, BRITISH COLUMBIA--(Marketwire - Feb. 12, 2008) - QuestAir Technologies Inc. ("QuestAir" or
"the Company")(TSX:QAR)(AIM:QAR) reported today its unaudited financial and operational results for
the first quarter of fiscal 2008, ended December 31, 2007. All amounts are in Canadian dollars unless
otherwise noted.
First Quarter Highlights
- The prototype H-6200 hydrogen purifier ("prototype plant") was successfully started up at the
ExxonMobil refinery in France. Testing of the prototype plant has been proceeding well, and results to
date have been consistent with expected performance.
- QuestAir received two new orders from Verdesis Suisse ("Verdesis") for methane purification systems
to be installed in Europe. These are the third and fourth systems purchased by Verdesis in the past 12
months. Both systems will purify methane generated from anaerobic digestion of organic waste. One
installation will be used by a consortium of Swiss farmers, while the other will be fed with waste
from an industrial application. Verdesis will be providing turn-key plants to both customers, which
incorporate QuestAir's M-3200 pressure swing adsorption ("PSA") units.
- In November 2007, QuestAir successfully commissioned two M-3200 PSAs that were purchased by Verdesis
as part of a biomethane processing plant. The gas generated from this plant has met the specifications
for injection into the local natural gas grid, which validates the ability of QuestAir's PSAs to meet
the needs of the European biogas market.
- Also during the quarter, the Company successfully commissioned an M-3200 PSA which is supplying
compressed biomethane to the City of Salzburg bus fleet. Salzburg AG has committed to converting 10%
of their bus fleet per year over to CNG powered engines.
- Revenue was $1,567,925 for the quarter, a decrease of $75,551 or 5% compared to the same period in
fiscal 2007.
- Sales order backlog at December 31, 2007 was $10,140,566, a decrease of $913,199 or 8% from
September 30, 2007.
- Cash used by operations and capital requirements was $2,826,852 for the quarter, a decrease of
$1,277,701 or 31% compared to the same period in fiscal 2007.
- Net loss was $2,390,476 ($0.05 per share) for the quarter, an increase of $165,811 or 7% compared to
the same period in fiscal 2007.
Jonathan Wilkinson, President and CEO of QuestAir, said: "We are very pleased with the results from
the prototype test thus far. The prototype H-6200 hydrogen purifier has demonstrated its ability to
recover hydrogen from plant gas streams and return purified hydrogen for plant applications. The
robustness of the prototype plant under various conditions bodes well for future sales of this product
in the refinery market."
"Our financial results for the first quarter of fiscal 2008 were mixed. Cash burn was down
considerably, but revenue was also down compared to the prior period. This reflects the quarterly
fluctuations in our business that we regularly experience resulting from variability in receipt of new
sales orders, customer timelines for shipment and commissioning of PSAs, and associated changes in
working capital items."
Outlook
Commenting on the outlook for the remainder of fiscal 2008, Wilkinson said:
"Our priorities for the next few months include completing the test of the prototype plant, and
building our commercial products business."
"The testing of the prototype plant is expected to be completed by the end of March, 2008. Marketing
efforts with respect to the H-6200 are expected to be bolstered by the data from the prototype test,
which in turn is expected to support our objective of securing the first commercial sale of an H-6200
hydrogen purifier during this fiscal year."
"We are continuing our efforts to increase our market penetration in the biomethane market. The
successful start up and commissioning of two European biogas plants will facilitate this. These
installations demonstrate the ability of our PSAs to generate high quality biomethane for sale into
the natural gas grid and for use as a transportation fuel. We expect that these early installations
will serve as valuable reference sites for prospective customers in Europe."
"Growing our industrial hydrogen business is another priority over the coming months. We expect that
the expansion of product capacity that we undertook in fiscal 2007 will improve our competitive
position in the medium capacity range of the market."
Q1 2008 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:
/T/
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(Unaudited) Three months ended December 31,
2007 2006
--------------------------------------------------------------------------
Gas purification systems 1,362,811 1,422,845
Engineering service contracts 205,114 220,631
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Total revenue 1,567,925 1,643,476
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/T/
Total recognized revenue for the first quarter of fiscal 2008 was $1,567,925 compared to $1,643,476
for the same period in fiscal 2007. Revenue from gas purification systems decreased 4% while revenue
from engineering service contracts decreased 7% compared to the prior period.
Fluctuations in recognized revenue and the receipt of new sales orders are to be expected in the
industrial markets that QuestAir currently serves. In addition, the timing of receipt of new
engineering service contracts can vary from year to year. Accordingly, recognized revenue and changes
in sales order backlog should be monitored together to determine the strength of 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 sales order
backlog for the quarter ended December 31, 2007.
/T/
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(Unaudited) For the three months ended December 31,2007
Gas Engineering
Purification Service
Systems Contracts Total
--------------------------------------------------------------------------
Opening Balance 8,954,635 2,099,130 11,053,765
Bookings 510,309 107,200 617,509
Revenue Recognized (1,362,811) (205,114) (1,567,925)
Adjustments(1) 41,726 (4,509) 37,217
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Ending Balance 8,143,859 1,996,707 10,140,566
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(1) Includes adjustments for fluctuations in foreign currency exchange
rates.
/T/
The total sales order backlog decreased by $913,199, or 8%, during the first quarter of fiscal 2008,
as the dollar value of revenue recognized in the quarter exceeded new bookings in the quarter.
The following table provides a calculation of gross profit for the reported periods:
/T/
--------------------------------------------------------------------------
(Unaudited) Three months ended December 31,
2007 2006
--------------------------------------------------------------------------
Sales 1,567,925 1,643,476
Cost of goods sold 1,319,736 1,360,069
--------------------------------------------------------------------------
Gross Profit 248,189 283,407
Gross Margin (%) 15.8% 17.2%
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/T/
The decrease in gross margin for the first quarter of fiscal 2008 compared to the same period in
fiscal 2007 resulted from slightly lower margins being realized on commercial equipment sales. The
Company has been experiencing some margin compression due to the appreciation of the Canadian dollar,
which has lowered the value of recognized revenue on sales contracts denominated in US dollars and
increased costs of Canadian sourced components. Management is actively seeking ways to lower costs by,
among other things, sourcing more materials from lower cost US based suppliers, which is expected to
generate increased margins over the coming months.
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:
/T/
--------------------------------------------------------------------------
(Unaudited) Three months ended December 31,
2007 2006
--------------------------------------------------------------------------
Gross R&D Expenditure 955,864 1,387,642
Less: Government & Partner Funding - (384,565)
--------------------------------------------------------------------------
Net R&D Expenditure 955,864 1,003,077
--------------------------------------------------------------------------
/T/
The 31% reduction in gross R&D expenditures for the first quarter of fiscal 2008 compared to the same
period in fiscal 2007 was due to a reduction in the amount of R&D undertaken as a result of the
corporate reorganization that took place in May 2007. Although no government funding was recorded in
the first quarter of 2008, net R&D expenses fell 5% compared to the same period in fiscal 2007.
This is the first quarter that operations appears as a caption on the Company's financial statements,
and is the result of the restructuring undertaken in the prior fiscal year to increase resources on
commercial activities, and reduce R&D expenditures. Consistent with QuestAir's accounting policy,
comparative amounts have been reclassified, where necessary to conform to the presentation adopted in
the current fiscal year. Included in operations are expenses related to supply chain management,
shipping and receiving, quality management and non-development related engineering activities.
Operations expenses were $437,618 for the first quarter of fiscal 2008, an increase of 51% from
$290,322 for the same period in fiscal 2007. This increase is primarily due to the addition of human
resources to the department since the prior period.
Sales and marketing expenses and amortization expenses decreased while general and administrative
expenses increased compared to the first quarter of fiscal 2007. On balance, other expenses decreased
$29,529 or 2% in the first quarter of fiscal 2008 compared to the same period in fiscal 2007.
Other income was $215,982 for the first quarter of fiscal 2008 compared to $276,021 in the same period
in fiscal 2007. Lower interest income and higher interest expense were partially offset by increased
foreign exchange gains in the current quarter compared to the prior period.
Net loss for the quarter ended December 31, 2007 was $2,390,476 ($0.05 per share) compared to
$2,224,665 ($0.04 per share) for the same period in fiscal 2007. The increase in the net loss for the
quarter was a result of reduced gross profits and higher expenses compared to the prior period.
Capital expenditures net of government funding and proceeds on sale ("Net CAPEX"), for the first
quarter of fiscal 2008 was $153,793 compared to $261,319 for the same period in fiscal 2007. 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, 2007 cash and short-term investments were $5,909,516, compared to $8,786,692 at
September 30, 2007. Not included in cash and short-term investments at December 31, 2007 was $256,717
of restricted cash to secure letters of credit with customers.
Cash used by operations and capital requirements for the first quarter of fiscal 2008 was $2,826,852,
compared to $4,104,553 for the same period in fiscal 2007. The reduction for the quarter resulted from
less significant changes in non-cash working capital than in the prior period. Accounts receivable
increased in the quarter, reflecting progress payments invoiced to customers for orders in backlog.
Inventory also increased in the quarter related to construction of equipment to fulfill customer
orders in backlog. These increases in uses of cash during the quarter were partially offset by
increases in deferred revenue and accounts payable and accrued liabilities.
The Company has a US$1 million accounts receivable line of credit and a US$1 million term loan from
Comerica Bank, none of which had been drawn as at December 31, 2007. In addition, as at December 31,
2007 the Company had drawn $785,784 against previously issued term loans net of repayments. These
credit facilities are secured by the assets of the Company with certain exceptions. The Company is in
compliance with all of its bank covenants.
QuestAir's authorized share capital consists of an unlimited number of common shares, of which
52,683,647 common shares were issued and outstanding as of January 31, 2008. The Company also has an
unlimited number of preferred shares authorized, none of which are issued. In addition, there were
2,715,804 stock options and 192,308 warrants outstanding as of January 31, 2008.
Further information on QuestAir's financial results for the quarter can be found at www.sedar.com.
/T/
Balance Sheets
--------------------------------------------------------------------------
Unaudited (expressed in Canadian dollars) As at As at
December 31, September 30,
2007 2007
ASSETS
Current assets:
Cash and cash equivalents $ 5,847,468 $ 5,726,245
Restricted cash 256,717 340,802
Short-term investments 62,048 3,060,447
Accounts receivable 2,859,478 1,412,983
Inventories 5,644,822 4,376,717
Prepaid expenses 97,569 256,378
---------------------------
14,768,102 15,173,572
Long-term assets:
Property, plant and equipment 1,683,645 1,703,872
Other long-term assets 182,080 175,080
---------------------------
$ 16,633,827 $ 17,052,524
---------------------------
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,211,977 $ 2,791,139
Deferred revenue 6,201,616 4,546,584
Current portion of bank debt 499,266 564,306
Current portion of obligations
under capital lease 97,478 97,822
Derivatives 1,933 75,874
---------------------------
10,012,270 8,075,725
Long-term liabilities:
Bank debt 286,518 356,030
Obligations under capital lease 97,478 97,822
---------------------------
10,396,266 8,529,577
---------------------------
Shareholders' equity:
Share capital
Authorized
Unlimited common shares, voting, no par value
Unlimited preferred shares, issuable
in series, no par value
Common shares 109,702,558 109,383,859
Contributed surplus 6,413,216 6,626,825
Deficit (109,878,213) (107,487,737)
---------------------------
6,237,561 8,522,947
---------------------------
$ 16,633,827 $ 17,052,524
---------------------------
---------------------------
--------------------------------------------------------------------------
Statements of Operations, Comprehensive Loss and Deficit
--------------------------------------------------------------------------
Unaudited (expressed in Canadian dollars) For the three months ended
December 31, December 31,
2007 2006
Revenues $ 1,567,925 $ 1,643,476
Cost of goods sold 1,319,736 1,360,069
---------------------------
Gross profit 248,189 283,407
---------------------------
Operating expenses
Research and development - net 955,864 1,003,077
General and administration 885,568 760,257
Operations 437,618 290,322
Sales and marketing 401,576 500,075
Amortization 174,021 230,362
---------------------------
2,854,647 2,784,093
---------------------------
Loss before undernoted (2,606,458) (2,500,686)
---------------------------
Other income
Interest income 69,290 156,073
Other income 146,692 119,948
---------------------------
215,982 276,021
---------------------------
Loss and comprehensive loss for the period (2,390,476) (2,224,665)
Deficit - Beginning of period (107,487,737) (95,045,478)
Unrealized foreign exchange loss on
derivatives - (24,847)
---------------------------
Deficit - End of period $(109,878,213) $(97,294,990)
---------------------------
---------------------------
Basic and diluted loss per share $ (0.05) $ (0.04)
Weighted average number of common shares
outstanding 52,562,133 52,393,065
--------------------------------------------------------------------------
Statements of Cash Flows
--------------------------------------------------------------------------
Unaudited (expressed in Canadian dollars) For the three months ended
December 31, December 31,
2007 2006
Cash flows from operating activities
Loss for the period $ (2,390,476) $ (2,224,665)
Items not involving cash
Amortization 174,021 230,362
Gain on sale of property, plant
and equipment - (65)
Unrealized foreign exchange gain
on derivatives (73,941) (61,527)
Stock based compensation expense 104,947 119,905
Foreign currency gain (689) -
---------------------------
(2,186,138) (1,935,990)
---------------------------
Changes in non-cash operating working capital
Accounts receivables (1,446,495) (654,592)
Inventories (1,268,105) (553,870)
Prepaid expenses 151,809 117,851
Accounts payable and accrued liabilities 420,838 (1,887,233)
Deferred revenue 1,655,032 1,070,600
---------------------------
(486,921) (1,907,244)
---------------------------
(2,673,059) (3,843,234)
---------------------------
Cash flows from investing activities
Increase in short-term investments (62,048) -
Decrease in short-term investments 3,060,447 2,400,000
Purchase of property, plant and equipment (153,793) (266,819)
Government grants and funding related
to property, plant and equipment - 5,435
Proceeds on sale of property,
plant and equipment - 65
Decrease in restricted cash 84,085 264,980
---------------------------
2,928,691 2,403,661
---------------------------
Cash flows from financing activities
Issuance of common shares on exercise
of stock options 143 -
Repayment of bank debt (141,802) (66,997)
Increase in bank debt 7,250 248,505
---------------------------
(134,409) 181,508
---------------------------
Increase (decrease) in cash and equivalents 121,223 (1,258,065)
Cash and equivalents - Beginning of period 5,726,245 11,018,800
---------------------------
Cash and equivalents - End of period $ 5,847,468 $ 9,760,735
---------------------------
---------------------------
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/T/
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
This press release contains forward-looking statements. Forward looking statements generally can be
identified by the use of forward looking terminology such as "may", "will", "expect", "intend",
"anticipate", "plan", "foresee", "believe" or "continue" or the negatives of these terms or variations
of them or similar terminology. These forward looking statements include references to the future
success of our business, technology, and market opportunities. By their nature, forward looking
statements require QuestAir to make assumptions and are subject to important known and unknown risks
and uncertainties, which may cause QuestAir's actual results in future periods to differ materially
from forecasted results. While QuestAir considers its assumptions to be reasonable and appropriate
based on current information available, there is a risk that they may not be accurate. These forward
looking statements are neither promises nor guarantees, but involve known and unknown risks and
uncertainties that may cause the Company's actual results, level of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed in or implied by these forward looking statements. These risks include risks
related to general economic conditions, risks associated with revenue growth, operating results,
industry factors and QuestAir's general business environment, risks associated with doing business
with partners, risks involved with the development new products and technology, financing risks, such
as risks relating to liquidity and access to capital markets, and risks relating to competition, among
other factors. Readers are cautioned that the foregoing list of factors that may affect future growth,
results and performance is not exhaustive and undue reliance should not be placed on such forward
looking statements which speak only to the date they were made. QuestAir disclaims any obligation to
publicly update or revise any such statements to reflect any change in the Company's expectations or
in events, conditions, or circumstances on which any such statements may be based, or that may affect
the likelihood that actual results will differ from those set forth in the forward looking statements.
-30-
FOR FURTHER INFORMATION PLEASE CONTACT:
QuestAir Technologies Inc.
Sherry Tryssenaar
Chief Financial Officer
(604) 453-6902
(604) 454-1137 (FAX)
Email: tryssenaar@questairinc.com
Website: www.questairinc.com
OR
Canaccord Adams
Robert Finlay
+44 (0) 20 7050 6500
OR
Buchanan Communications
Charles Ryland
UK Media Contact
+44 (0) 20 7466 5000
OR
Buchanan Communications
Ben Willey
UK Media Contact
+44 (0) 20 7466 5000
OR
Karyo Communications
Stephen Burega
Canadian Media Contact
(604) 623-3007
QuestAir Technologies Inc.
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