For Immediate Release 25 January, 2005
QuestAir Reports First Quarter 2005 Results
BURNABY, B.C. - QuestAir Technologies Inc. ("QuestAir" or "the Company"; AIM: QAR; TSX: QAR) a developer and supplier of advanced gas purification systems for refinery, industrial and fuel cell markets reported today its financial results for the first quarter of fiscal 2005, ending December 31, 2004. All amounts are in Canadian dollars unless otherwise noted.
First Quarter Highlights
- Completion of an initial public offering ("IPO") on the AIM Market of the London Stock Exchange Plc and the Toronto Stock Exchange, raising gross proceeds of approximately $15.1 million. The Company's cash balance at December 31, 2004 was $17.6 million.
- Revenues of $1.0 million, and a 40% increase in the Company's sales order backlog from $3.9 million at September 30, 2004 to $5.5 million at December 31, 2004.
- Cash used in operations and capital requirements of $2.0 million, in line with the Company's cash burn guidance of less than $8.5 million for fiscal 2005.
- Significant progress on the development program being undertaken with ExxonMobil Research and Engineering Company ("EMRE"), including the receipt of a $2.2 million order from EMRE for test systems to support the program.
- The signing of a non-exclusive supply and distribution agreement ("SDA") with Technip KTI S.p.A., a global process engineering contractor in the chemical, petrochemical and refining industries.
Jonathan Wilkinson, President and CEO of QuestAir, said:
"Our public offering was an extremely important milestone for QuestAir. By successfully attracting public investors in the United Kingdom and Canada, we strongly validated the progress that we have made to date, and our business plan for the future. In addition, the offering has provided us with the financial resources to bring our second generation gas purification products to the marketplace on an aggressive timetable."
"The distribution agreement that we signed with Technip KTI S.p.A. was also a key highlight for the quarter. The agreement, together with a similar agreement that we signed with Iwatani International Corporation in fiscal 2004, gives QuestAir a strong market presence in key growth markets across the world, including Asia, the Middle East and Eastern Europe."
Operating Review and Outlook
During the quarter, QuestAir made significant progress with the program being undertaken with EMRE to develop a large capacity hydrogen purification system for recovering hydrogen in oil refineries. The Company completed the design of a prototype system which we expect to test at a refinery site in 2006, and in addition QuestAir received a $2.2 million order from EMRE for two test systems to support this development program. This order was included in the Company's sales order backlog at December 31, 2004.
Also during the quarter, QuestAir signed a non-exclusive agreement with Technip KTI S.p.A. ("KTI") to distribute the Company's commercial hydrogen purification systems on a global basis. KTI is a division of the Technip-Coflexip Group, one the world's top five contractors in oil and petrochemical industries. It has significant experience in the design and construction of hydrogen generation plants for industrial markets, and has constructed more than 50 hydrogen plants on five continents. Under the terms of the agreement, KTI will supply QuestAir's hydrogen purification systems as part of its smaller capacity hydrogen plants.
On December 21, 2004 the Company completed an initial public offering ("IPO") of its securities on the AIM Market of the London Stock Exchange Plc and the Toronto Stock Exchange, raising gross proceeds of approximately $15.1 million through the sale of 8.6 million common shares. Offering costs of $2.2 million were paid during the quarter, and the Company anticipates further payments totaling $1.0 million in fiscal 2005.
Commenting on the outlook for the remainder of fiscal 2005, Jonathan Wilkinson, QuestAir's President and CEO said:
"Our results for the first quarter of fiscal 2005 were in line with management's expectations, and our plan for 2005 remains on track. The key focus for the coming quarter remains the development program with ExxonMobil Research and Engineering Company, and the continued growth of our commercial sales."
Q1 2005 Financial Results
For the three months ended December 31, 2004, QuestAir recorded a net loss of $2.5 million ($0.29 per share), compared to a net loss of $2.6 million ($0.53 per share) for the three months ended December 31, 2003. The decrease in the net loss for the quarter ended December 31, 2004 compared to the comparable quarter in 2003 was primarily the result of increased gross profit from the sale of gas purification systems.
Operating Results
The key driver of revenue for this quarter was the sale of gas purification systems. The following table provides a breakdown of our revenues for the reported periods:
(Unaudited, $ '000) |
Three months ended December 31 |
|
2004 |
2003 |
Gas purification systems |
998 |
0 |
Engineering service contracts |
0 |
61 |
Total revenue |
998 |
61 |
Revenue from the sale of gas purification systems was $1.0 million for the quarter ended December 31, 2004. There were no gas purification system sales in the comparable period in 2003. Additionally, there were no engineering service contract revenues for the quarter ended December 31, 2004. Engineering contract revenue was $0.06 million for the comparable period in 2003.
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, 2004 and September 30, 2004:
(Unaudited, $ '000) |
Three months ended |
|
December 31, 2004 |
September 30, 2004 |
Gas purification systems |
4,102 |
2,812 |
Engineering service contracts |
1,398 |
1,106 |
Total sales order backlog |
5,500 |
3,918 |
Revenue backlog increased 40% mainly related to two gas purification system orders received during the quarter.
Gross profit was $0.3 million for the quarter ended December 31, 2004 compared to $0.1 million for quarter ended December 31, 2003. As a percentage of total revenue, gross profit related to purification systems was 35% for the quarter ended December 31, 2004. There were no comparable sales during the same period in 2003.
Sales and marketing expenses were $0.4 million for the quarter ended December 31, 2004, an increase of 25% over sales and marketing expenses of $0.3 million during the comparable period in 2003. This increase was attributed to increased salary expenses due to an expanded sales group, and to increased travel costs.
Gross research and development expenses for the quarter ended December 31, 2004 totaled $1.7 million compared to $1.6 million for the same period in 2003. These expenses were partially offset by government and joint development partner funding contributions of $0.4 million in both periods, resulting in net research and development costs of $1.3 million and $1.2 million in first quarter of 2004 and 2003, respectively.
General and administrative expenses for the quarter ended December 31, 2004 were $0.8 million, compared to $0.6 million for the same period in 2003. The increase was mainly a result of a non-cash stock compensation expense of $0.3 million related to the grant and repricing of certain stock options upon completion of QuestAir's IPO.
Gross capital expenditures for the quarter ended December 31, 2004 were not material. Capital expenditures for same period in 2003 totaled $0.3 million.
Liquidity and Capital Resources
Cash and short-term investments at December 31, 2004 were $17.6 million, an increase of $10.9 million from September 30, 2004. The increase was primarily driven by the completion of the Company's IPO on December 21, 2004, from which the Company received proceeds from the offering, net of offering costs, of $12.9 million. The Company is expecting to pay approximately $1.0 million in additional offering related expenses in fiscal 2005.
Cash used by operations and capital requirements for the quarter ended December 31, 2004 was $2.0 million compared to $1.1 million for the same period in 2003. This increase in cash burn related to additional non-cash working capital requirements.
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, 2004, the Company had claimed $4.3 million against this loan.
As at December 31, 2004 QuestAir had 37,261,010 common shares issued and outstanding. In addition, the Company had 4,731,927 options to purchase common shares, and 622,308 warrants outstanding at that date.
Consolidated Balance Sheets
Unaudited (expressed in Canadian dollars) |
|
As at |
|
As at |
|
|
December 31
2004 |
|
September 30
2004 |
|
|
|
|
|
| ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$17,576,647 |
|
$6,691,923 |
Short-term investments |
|
- |
|
- |
Accounts receivable - net of allowance for doubtful accounts of $10,580 (2004 - $28,486) |
|
818,375 |
|
425,628 |
Grants and funding receivables |
|
794,616 |
|
687,692 |
Inventories |
|
1,835,344 |
|
1,676,013 |
Prepaid expenses |
|
416,814 |
|
90,283 |
|
|
21,441,796 |
|
9,571,539 |
|
|
|
|
|
| Deferred charges |
|
- |
|
399,742 |
Property, plant and equipment |
|
2,260,823 |
|
2,592,286 |
|
|
$23,702,619 |
|
$12,563,567 |
| LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ 982,153 |
|
$ 774,139 |
Accrued liabilities |
|
1,452,484 |
|
1,007,373 |
Deferred revenue |
|
2,811,059 |
|
1,980,439 |
Current portion of obligations under capital lease |
|
114,810 |
|
114,810 |
|
|
5,360,506 |
|
3,876,761 |
| Obligations under capital lease |
|
120,776 |
|
120,776 |
|
|
5,481,282 |
|
3,997,537 |
| Shareholders' Equity: |
|
|
|
|
Share capital |
|
|
|
|
Authorized |
|
|
|
|
Unlimited common shares, voting, no par value |
|
|
|
|
Unlimited preferred shares, Class A voting, convertible, no par value |
|
|
|
|
Unlimited preferred shares, Class B voting, convertible, no par value |
|
|
|
|
Unlimited preferred shares, Class C voting, convertible, no par value |
|
|
|
|
| Common shares |
|
90,030,734 |
|
2,795,830 |
Preferred shares |
|
- |
|
75,315,007 |
|
|
90,030,734 |
|
78,110,837 |
Contributed surplus |
|
4,274,431 |
|
4,015,802 |
Deficit |
|
(76,083,828) |
|
(73,560,609) |
|
|
18,221,337 |
|
8,566,030 |
|
|
$23,702,619 |
|
$12,563,567 |
|
|
|
|
|
Consolidated Statements of Operations and Deficit
| Unaudited (expressed in Canadian dollars) |
|
|
For the three months ended December 31 |
|
|
|
2004 |
2003 |
|
|
|
|
|
| Sales |
|
|
$ 998,095 |
$ 60,720 |
Cost of goods sold |
|
|
652,567 |
(74) |
| Gross Profit |
|
|
345,528 |
60,794 |
|
|
|
|
|
| Operating expenses |
|
|
|
|
Amortization |
|
|
361,421 |
578,035 |
Research and development - net |
|
|
1,273,762 |
1,204,678 |
Sales and marketing |
|
|
416,148 |
332,198 |
General and administration |
|
|
796,821 |
600,135 |
|
|
|
2,848,152 |
2,715,046 |
| Loss before undernoted |
|
|
(2,502,624) |
(2,654,252) |
|
|
|
|
|
Other income (expense) |
|
|
|
|
Interest income |
|
|
24,180 |
39,617 |
Other |
|
|
(44,775) |
18,432 |
|
|
|
(20,595) |
58,049 |
|
|
|
|
|
| Loss for the period |
|
|
(2,523,219) |
(2,596,203) |
| Deficit - Beginning of period |
|
|
(73,560,609) |
(64,044,710) |
|
|
|
|
|
Deficit - End of period |
|
|
$(76,083,828) |
$(66,640,913) |
|
|
|
|
|
| Basic and diluted loss per share |
|
|
$ (0.29) |
$ (0.53) |
| Weighted average number of common shares outstanding |
|
|
8,789,484 |
4,874,154 |
Consolidated Statements of Cash Flows
Unaudited (expressed in Canadian dollars)
|
|
|
For the three months ended December 31 |
|
|
|
2004 |
2003 |
|
|
|
|
|
| Cash flows from operating activities |
|
|
|
|
Loss for the period |
|
|
$ (2,523,219) |
$ (2,596,203) |
Items not involving cash |
|
|
|
|
Amortization |
|
|
361,421 |
578,035 |
Gain on sale of property, plant and equipment |
|
|
- |
- |
Non-cash compensation expense |
|
|
258,629 |
- |
|
|
|
(1,903,169) |
(2,018,168) |
| Changes in non-cash operating working capital |
|
|
|
|
Accounts, grants and funding receivables |
|
|
(499,672) |
1,850,225 |
Inventories |
|
|
(159,330) |
(347,569) |
Prepaid expenses |
|
|
(326,531) |
(28,794) |
Accounts payable and accrued liabilities |
|
|
94,432 |
(1,089,414) |
Deferred revenue |
|
|
830,620 |
917,516 |
|
|
|
(60,481) |
1,301,964 |
|
|
|
(1,963,650) |
(716,204) |
| Cash flows from investing activities |
|
|
|
|
Purchase of property, plant and equipment |
|
|
(29,959) |
(335,418) |
|
|
|
(29,959) |
(335,418) |
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
Issuance of common shares |
|
|
15,050,000 |
- |
Share issue costs |
|
|
(2,171,667) |
- |
Issuance of share purchase warrants |
|
|
- |
- |
Issuance of common shares on exercise of stock options |
|
|
- |
1,317 |
Repayment of obligations under capital lease |
|
|
- |
- |
|
|
|
12,878,333 |
1,317 |
Increase (decrease) in cash and equivalents |
|
|
10,884,724 |
(1,050,305) |
Cash and equivalents - Beginning of period |
|
|
6,691,923 |
12,376,406 |
Cash and equivalents - End of period |
|
|
$ 17,576,647 |
$ 11,326,101 |
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.
Consolidated Statements of Operations and Deficit
(Unaudited) |
|
December 2004
$ |
|
December 2003
$ |
|
|
|
|
|
Loss for the period under Canadian GAAP |
|
2,523,219 |
|
2,596,203 |
Accretion of redeemable preferred shares |
|
- |
|
- |
|
|
|
|
|
Loss for the period under U.S. GAAP |
|
2,523,219 |
|
2,596,203 |
|
|
|
|
|
Deficit - Beginning of period under Canadian GAAP |
|
73,560,609 |
|
64,044,710 |
Add: Accumulated accretion on redeemable preferred shares calculated under U.S. GAAP |
|
5,388,661 |
|
5,176,776 |
Accumulated stock based compensation under U.S. GAAP |
|
208,460 |
|
208,460 |
Deduct: Accumulated accretion of redeemable preferred shares calculated under Canadian GAAP |
|
(13,631,542) |
|
(13,631,542) |
|
|
|
|
|
Deficit - Beginning of period under U.S. GAAP |
|
65,526,188 |
|
55,798,404 |
Accretion of redeemable preferred shares for the period |
|
- |
|
- |
|
|
|
|
|
|
|
65,526,188 |
|
55,798,404 |
|
|
|
|
|
Deficit - End of period under U.S. GAAP |
|
68,049,407 |
|
58,394,607 |
|
|
|
|
|
Loss per share - U.S. GAAP |
|
0.29 |
|
0.53 |
Consolidated Balance Sheet
(Unaudited) |
|
|
|
December 2004 |
|
|
|
September 2004 |
|
|
Canadian GAAP
$ |
|
U.S. GAAP
$ |
|
Canadian GAAP
$ |
|
U.S. GAAP
$ |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Class C Preferred (a) |
|
- |
|
- |
|
- |
|
5,877,243 |
|
|
|
|
|
|
|
|
|
Shareholders'equity |
|
|
|
|
|
|
|
|
Preferred shares (a) |
|
- |
|
- |
|
75,315,007 |
|
56,000,436 |
Contributed surplus |
|
- |
|
- |
|
3,753,798 |
|
9,156,705 |
Consolidated Statements of Cash Flows
(Unaudited) |
|
December 2004
$ |
|
December 2003
$ |
|
|
|
|
|
Loss for the period under U.S. GAAP |
|
(2,523,219) |
|
(2,596,203) |
Items not involving cash |
|
|
|
|
Amortization |
|
361,421 |
|
578,035 |
Stock-based compensation expense |
|
258,629 |
|
- |
Accretion on preferred shares |
|
- |
|
- |
|
|
|
|
|
Changes in non-cash operating working capital |
|
(60,481) |
|
1,301,964 |
|
|
|
|
|
Cash flows from operating activities under U.S. and Canadian GAAP |
|
(1,963,650) |
|
(716,204) |
a) Redeemable preferred shares reorganization
For the period from November 5, 2002 to July 1, 2003, the Class C preferred shares were accounted for as equity. On July 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards No. 150 (SFAS 150), which resulted in the Class C preferred shares being classified as a liability. The liability for the Class C preferred shares was reflected at its fair value of $5,665,358 and the resulting gain of $5,194,447 from the adoption of SFAS 150 has been recorded in shareholders' equity as contributed surplus.
At September 30, 2004, the liability has been recorded at its estimated fair value of $5,877,243 ( 2003 - $5,665,358), with the increase of $211,885 being recorded as an accretion charge in the consolidated statement of operations and deficit.
In December of 2004, the Company completed an initial public offering of its securities on the Toronto Stock Exchange and on the AIM Market of the London Stock Exchange Plc., consisting of a new issue of 8,600,000 Common Shares, for gross proceeds of $15,050,000.
Immediately prior to closing the initial public offering, the Company completed a reorganization of its share capital whereby the existing share classes were converted into a single class of Common shares. To complete the share capital reorganization, certain terms of the Class C preferred shares relating to automatic conversion rights were amended to convert these shares into Common shares. As a result of the share capital reorganization and completion of the initial public offering, the Class C preferred shares were reclassified to equity for U.S. and Canadian GAAP purposes.
b) Stock-based compensation
The Company adopted the fair value based method of accounting for stock-based compensation, on a prospective basis, to account for all its awards of shares and share options that are granted, modified or settled on or after October 1, 2002. The Company also adopted, on a prospective basis, the fair value based method of accounting for stock-based compensation for U.S. GAAP purposes effective October 1, 2002. Prior to October 1, 2002, the Company used the intrinsic value based method to account for the above awards for both Canadian and U.S. GAAP.
Had the Company adopted the fair value based method for the period prior to October 1, 2002, the Company's net loss and loss per share under U.S. GAAP would have been presented as follows:
(Unaudited) |
|
December 2004
$ |
|
December 2003
$ |
|
|
|
|
|
Loss for the period |
|
2,523,219 |
|
2,596,203 |
Additional compensation expense under fair value based method |
|
82,611 |
|
89,010 |
|
|
|
|
|
Loss for the period - pro forma |
|
2,605,830 |
|
2,685,213 |
|
|
|
|
|
Loss per share - pro forma |
|
|
|
|
Basic and diluted |
|
0.30 |
|
0.55 |
In the calculation of the additional compensation expense above, the fair value of each share option grant was estimated on the date of the grant using the Black-Scholes option valuation model with the following assumptions:
Expected dividend yield |
|
0% |
Expected stock price volatility |
|
0% |
Risk-free interest rate |
|
2.5% |
Expected life of options |
|
5 years |
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.
-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 refuelling stations. The Company has joint development agreements with Exxon Mobil Research and Engineering Company and Shell Hydrogen, and a collaboration with FuelCell Energy. 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".
For further information please contact:
QuestAir Technologies Inc.
Andrew Hall
Director, Corporate Development and External Communications
Phone: (001) 604-453-6967
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:
Pamela Smith
James Hoggan + Associates
Phone: (001) 604-739-7500
|
