CALGARY, Aug. 29 /CNW/ - Alternative Fuel Systems (2004) Inc. ("AFS
(2004)" or the "Company") (TSX Venture: AFX) announced today the Company's
financial and operating results for the second quarter ended June 30, 2005.
AFS (2004) has been operating since June 30, 2004 as a result of acquiring the
natural gas equipment business of predecessor company, Alternative Fuel
Systems Inc. ("AFS") on that date.
For the three-month period ended June 30, 2005, the Company recognized
revenue of $653,000 from sales to clients primarily in the U.S., Europe and
India. AFS (2004) recorded a net loss of $39,000 ($.01 per share) during the
quarter and a small positive cash flow from operations. Revenue for the six
months ended June 30 totalled $1.3 million and the net loss for this period
was $100,000.
The Company is also pleased to announce that Joyce Berg, CGA has been
appointed Chief Financial Officer of Alternative Fuel Systems (2004) Inc.
effective August 25, 2005. Joyce was previously the Controller of AFS (2004).
Management's Discussion and Analysis ("MD&A")
Below is Management's discussion and analysis of financial results for
the three and six month periods ended June 30, 2005. Due to commencement of
the Company's operations on June 30, 2004, there is no comparative financial
information for the prior year periods.
Sales Revenue
Sales for the second quarter were comprised of the following (amounts in
thousands of Canadian dollars):
<<
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Three Months Six Months
Ended Ended
June 30, June 30,
2005 2005
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Ignition systems & other parts $ 480 $ 746
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Pressure regulators 126 331
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Engine management systems 29 144
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Engineering services 18 91
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Total $ 653 $ 1,312
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Ignition systems and component sales during the second quarter of
$480,000 related primarily to shipments of "Raven" ignition modules and
related products. Also included in this revenue category was partial delivery
relating to a previously announced $160,000 U.S. contract to design and
manufacture a custom ignition and fuel system for a client based in the United
States. Raven sales were to clients in India and to an automotive distributor
in the U.S. End customers for this product (which provides an ignition system
for diesel vehicles converted for natural gas operation) are in India and
Southeast Asia.
Sales of the Company's natural gas "Falcon" pressure regulator for the
three-month period ended June 30, 2005 amounted to $126,000, and were mostly
to a European automotive distributor. A significant end customer of this
product is a European OEM manufacturer of taxis who has been using this
regulator in their new vehicles.
Sales of engine management systems during the second quarter were
comprised of equipment delivered to customers in the U. S. and Iranian client,
DESA. A new contract with DESA was announced in June of 2005. Work under this
U.S. $135,000 contract, for conversion of a 1000 HP engine to run on a mixture
of natural gas and diesel fuel, is expected to commence once the associated
letter of credit is finalized.
Engineering revenue for the second quarter of $18,000 was mostly from
U.S. clients. Canadian based engineering work for the Iran contract was
essentially completed in the first quarter, so there was little contribution
from this source to second quarter engineering revenue.
Gross margins
Gross margins realized in the second quarter were $344,000 or 53%
compared to first quarter margins of 44%. This percentage is higher than
historical margins for the business (which have typically been in the range of
35% to 40%) reflecting the sale of inventory incorporating some parts with a
zero cost base that were acquired from predecessor company, AFS.
Operating and administrative expenses
Operating and administrative expenses for the three and six month periods
ended June 30, 2005 were comprised of the following (amounts in thousands of
Canadian dollars):
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Three Months Six Months
Ended Ended
June 30, June 30,
2005 2005
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Engineering & product development $ 159 $ 295
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Administrative & other 145 273
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Sales & marketing 37 74
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Total $ 341 $ 642
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Employee wages and benefits accounted for 66% (or $224,000) of the
$341,000 in total operating and administrative expenses recognized during the
second quarter. An additional 17% (or $57,000) was attributed to insurance and
public company costs such as audit, annual meeting and stock exchange fees.
The Company currently has 11 full time employees, with consultants,
distributors and agents in Canada, Europe, India, Iran and the U.S.
Prepaid expenses
As at June 30, 2005, the Company had $101,000 of prepaid expenses and
deposits on its balance sheet as compared to $61,000 at December 31, 2004.
This increase reflects the significant prepayments that were made to suppliers
just before the end of the second quarter for purchases of inventory to fill
orders for delivery in the third and fourth quarters of 2005.
Accounts payable and accrued liabilities
As at June 30, 2005 accounts payable and accrued liabilities amounted to
$198,000,compared to the December 31, 2004 balance of $262,000, mostly due to
a $57,000 decrease in trade payables.
Advances from customers
At the end of the first quarter, AFS (2004) reported a balance in
advances from customers of $175,500, a significant increase from the
December 31, 2004 balance of $97,000. Most of this increase relates to
deposits made by two customers prior to June 30 to secure orders for delivery
in the third quarter of 2005.
Contractual obligations
AFS (2004) had the following contractual obligations at June 30, 2005:
1. A minimum royalty commitment of $28,400 related to a license
agreement under which the company is assembling and selling a
sophisticated natural gas pressure regulator. This obligation is
required to be paid by August 31, 2005. Details of this license
agreement are disclosed in the audited December 31, 2004 financial
statements.
2. AFS (2004) leases 5,800 square feet of warehouse, shop and office
space, which currently house all of the company's operations. The
lease agreement runs until June 30, 2006 with monthly lease payments
of $4,500 for the remaining period.
Contingent liabilities
During the second quarter ended June 30, 2005, there were no material
changes in the contingent liabilities as disclosed in the audited December 31,
2004 financial statements.
Due from AFS Energy Inc.
The amount due from AFS Energy Inc. (formerly AFS) arose as AFS (2004)
had been paying some of the public company costs incurred by AFS Energy while
that company proceeded with its restructuring. The remaining balance was fully
paid to AFS (2004) during the second quarter.
Liquidity, capital resources and business risk
On April 15, 2005, the Company closed a series of equity financings (as
announced in the press release on April 18, 2005) which raised gross proceeds
of $1.5 million. As a result of these financings, AFS (2004) is better
capitalized to pursue potential business opportunities and increase its
sustainability period. The Company's long-term viability still depends on its
ability to generate cash from operating activities and/or raising additional
funds in the equity markets.
Critical accounting estimates
The Company's June 30, 2005 period end financial statements contain
significant accounting estimates made by management, including ongoing
valuation of inventory and assessment of its net realizable value,
determination of the liability related to product warranty costs, and
recoverability of the carrying values of property, plant and equipment and
intangible assets.
Financial Statements
Below are the unaudited interim financial statements for the three and
six month period ended June 30, 2005.
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Balance Sheet
(Unaudited)
(expressed in Canadian dollars)
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As at As at
June 30, December 31,
2005 2004
Assets $ $
Current assets
Cash and short-term investments 1,654,274 284,636
Cash held in trust - 50,000
Accounts receivable 223,985 266,388
Due from AFS Energy Inc. - 36,711
Prepaid expenses and deposits 100,683 61,293
Inventory 535,112 566,003
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2,514,054 1,265,031
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Property, plant and equipment 241,341 250,175
Intangible assets 173,961 227,180
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2,929,356 1,742,386
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Liabilities
Current liabilities
Accounts payable and accrued liabilities 198,033 261,678
Advances from customers 175,500 97,368
Provision for royalty commitment 28,400 27,000
Deferred revenue 19,076 17,334
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421,009 403,380
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Shareholders' Equity
Capital stock 2,693,771 1,427,523
Settlement warrants 171,000 171,000
Contributed surplus 22,964 19,548
Deficit (379,388) (279,065)
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2,508,347 1,339,006
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2,929,356 1,742,386
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statement of Operations and Deficit
(Unaudited)
(expressed in Canadian dollars)
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Three months Six months
ended ended
June 30, June 30,
2005 2005
$ $
Product revenue 635,319 1,220,603
Engineering revenue 17,771 91,109
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653,090 1,311,712
Cost of revenue 309,572 679,975
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Gross Margin 343,518 631,737
Interest and Other Income 8,212 8,212
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351,730 639,949
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Expenses
Operating and administration
Engineering and product development 158,748 295,159
Administrative and other 144,816 272,804
Sales and marketing 37,194 74,252
Repayment of research funding 4,898 9,847
Depreciation of property, plant & equipment 15,306 30,030
Amortization of intangible assets 27,390 54,764
Stock option compensation 1,958 3,416
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390,310 740,272
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Loss for the period (38,580) (100,323)
Deficit - Beginning of period (340,808) (279,065)
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Deficit - End of period (379,388) (379,388)
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Basic and diluted loss per common share (0.01) (0.01)
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statement of Cash Flow
(Unaudited)
(expressed in Canadian dollars)
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Three months Six months
ended ended
June 30, June 30,
2005 2005
$ $
Cash provided by (used in)
Operating activities
Loss for the period (38,580) (100,323)
Items not involving cash
Depreciation and amortization 42,696 84,794
Stock option compensation 1,958 3,416
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Cash flow from operations 6,074 (12,113)
Change in non-cash working capital items (99,590) 51,532
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(93,516) 39,419
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Investing activities
Purchase of equipment and intangible assets (16,219) (22,740)
Cash held in trust 50,000 50,000
Net proceeds from share issue 1,266,248 1,266,248
Due from AFS Energy Inc. 30,671 36,711
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1,330,700 1,330,219
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Increase in cash & short-term investments 1,237,184 1,369,638
Cash & short-term investments - beginning of
period 417,090 284,636
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Cash & short-term investments - end of period 1,654,274 1,654,274
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AFS (2004) is a Canadian company providing innovative and cost-effective
solutions to the growing global problem of harmful exhaust emissions from
internal combustion engines. AFS (2004) has commercialized electronic engine
management systems enabling diesel and gasoline engines to operate on cleaner
burning natural gas. The Company is headquartered in Calgary, Canada and
trades on the TSX Venture Exchange under the trading symbol AFX.
Forward-looking statements - this news release may contain forward-
looking statements about the business of AFS (2004) and marketing and product
development plans based on the current expectations of management.
AFS (2004) cautions investors that any forward-looking statements are
subject to various risks, uncertainties and other factors that could cause the
Company's actual results to differ materially from those expressed in, or
implied by forward looking statements. These risks, uncertainties and other
factors include, without limitation, uncertainty related to the Company's
ability to successfully implement its business strategy; the risk that product
development projects may not be completed successfully or in a timely manner;
the ability of the Company to successfully negotiate and execute definitive
agreements with its customers; the development of competing technologies and
the possibility of increased competition; fluctuating energy prices;
uncertainties involving government policies and government regulations
affecting the Company's business.
Visit our website at: www.afsglobal.com
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