Announcement of 2005 financial and operating results
CALGARY, May 1 /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 year ended
December 31, 2005. President and CEO Jim Perry stated that "we are delighted
to report that the Company achieved a small positive cash flow from operations
for the last half of the year, compared to negative cash flow from operations
of $181,000 in the same period of 2004. Our new business model is beginning to
show results. We are concentrating on developing revenue from our key skills
in electronics and fuel systems components. We have de-emphasized projects
where customers ask for free engineering up-front, with promises of revenue in
future if the work is successful. In past, the Company spent considerable
resources on projects that unfortunately never came to fruition. Now, we only
undertake work where the customer has the confidence to pay for engineering as
it is done."
For the year ended December 31, 2005, the Company recognized revenue of
$2,293,360 from sales to clients primarily in Europe, the U.S. and Asia. AFS
(2004) recorded a net loss of $194,000 ($.01 per share) during the year with a
small negative cash flow from operations. Revenue for the six months ended
December 31, 2004 totaled $1,049,684 and the net loss for this period was
$279,065. AFS (2004) began operations on June 30, 2004, so only six months of
results are available for that year.
Management's Discussion and Analysis ("MD&A")
Below is Management's discussion and analysis of financial results for
the year ended December 31, 2005 and the six-month period ended
December 31, 2004.
<<
Sales Revenue
Summary of Quarterly Results (amounts in thousands of Canadian dollars):
<<
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2005 Q1 Q2 Q3 Q4
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Ignition systems & other parts $266 $480 $195 $97
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Pressure Regulator 205 126 224 205
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Engine Management Systems 115 29 40 99
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Engineering Income 73 18 72 49
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Total $659 $653 $531 $450
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2004 Q1 Q2 Q3 Q4
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Ignition systems & other parts $78 $148
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Pressure Regulator 129 210
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Engine Management Systems 74 135
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Engineering Income 256 20
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Total $537 $513
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A significant increase in sales of ignition systems and related parts was
recorded as customers in India and the United States purchased these products
for use in southeast Asia. The AFS "Raven" stand-alone ignition system is
designed to be a very cost effective solution for such markets. In addition,
the Company has designed, manufactured and delivered a custom product that
combines an ignition system and a fuel controller, for higher end applications
in the same areas.
Sales of the Company's "Falcon" natural gas pressure regulator for the
year ended December 31, 2005 amounted to $760,000, and were mostly to a
European automotive parts 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.
Engine management system sales during the year amounted to $283,000, as
compared to $209,000 in sales of this product recorded in the six-month period
ended December 31, 2004. Most of the decrease came as a result of reduced
activity in Mexico. Engineering income was also less than recorded in 2004,
since the bulk of the engineering work for the Iran electrical generator
conversion project has been completed.
Gross margins
Gross margins realized in the year were $1,198,000 or 52% compared to
margins of $536,651 or 51% in the six months for 2004. 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 year ended
December 31, 2005 and the six months ended December 31, 2004 were comprised of
the following:
Summary of Quarterly Results (amounts in thousands of Canadian dollars):
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2005 Q1 Q2 Q3 Q4
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Engineering & product development $136 $159 $143 $150
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Administrative & other 128 145 111 90
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Sales & marketing 37 37 38 39
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Total $301 $341 $292 $279
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2004 Q1 Q2 Q3 Q4
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Engineering & product development $140 $160
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Administrative & other 162 170
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Sales & marketing 41 36
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Total $343 $366
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Significant progress has been made in aligning costs with the size of the
business. In 2004, the annualized operating and administrative expenses were
about $1.4 million; for the year ended December 31, 2005 these costs were
reduced to $1.2 million. Decreased legal and accounting fees related to
corporate restructuring, in combination with staff reductions accounted for
the bulk of the cost savings.
Employee wages and benefits accounted for 71% (or $865,000) of the
$1,213,000 in total operating and administrative expenses recognized during
the year.
The Company currently has 12 full time employees, with consultants,
distributors and agents in Europe, India, Iran and the U.S.
Accounts receivable
As at December 31, 2005 accounts receivable amounted to $307,352 compared
to the December 31, 2004 balance of $266,388, due to the billing of a few
larger orders shipped out just prior to the 2005 year end.
Prepaid expenses
As at December 31, 2005, the Company had $146,000 of prepaid expenses and
deposits on its balance sheet as compared to $61,000 at December 31, 2004. The
increase in 2005 is due to the prepayment of the 2006 insurance premiums
before year end. The 2005 premiums were not prepaid at the end of 2004.
Advances from customers
As at December 31, 2005 advances from customers amounted to $212,663 up
considerably from the balance of $97,368 at December 31, 2004. The increase is
due to a 50% deposit received from a U.S. customer as prepayment for a
substantial contract, the product due to be shipped in the first and second
quarters of 2006.
Contractual obligations
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.
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.
Critical accounting estimates
The Company's December 31, 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. There is no guarantee that such estimates are accurate.
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures to ensure
that information disclosed in this MD&A and the related financial statements
was properly recorded, processed, summarized and reported to the Board and the
Audit Committee. The Company's chief executive officer and chief financial
officer have evaluated and are satisfied with the effectiveness of these
disclosure controls and procedures for the period ending December 31, 2005.
Financial Statements
Below are the audited financial statements for the year ended December
31, 2005 and for the six-month period ended December 31, 2004.
ALTERNATIVE FUEL SYSTEMS (2004) INC.
Balance Sheet
(expressed in Canadian dollars)
December 31, December 31,
2005 2004
$ $
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Assets
Current assets
Cash and short-term investments 1,655,287 284,636
Cash held in trust - 50,000
Accounts receivable 307,352 266,388
Due from AFS Energy Inc. - 36,711
Prepaid expenses and deposits 145,904 61,293
Inventory 486,941 566,003
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2,595,484 1,265,031
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Property, plant and equipment 215,297 250,175
Intangible assets 119,180 227,180
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2,929,961 1,742,386
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Liabilities
Current liabilities
Accounts payable and accrued liabilities 271,210 261,678
Advances from customers 212,663 97,368
Provision for royalty commitment - 27,000
Deferred revenue 18,102 17,334
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501,975 403,380
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Shareholders' Equity
Capital stock 2,423,571 1,427,523
Warrants 270,200 -
Settlement warrants 171,000 171,000
Contributed surplus 36,394 19,548
Deficit (473,179) (279,065)
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2,427,986 1,339,006
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2,929,961 1,742,386
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statement of Operations and Deficit
(expressed in Canadian dollars)
For the For the
year six months
ended ended
December 31 December 31
2005 2004
$ $
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Product revenue 2,081,671 773,538
Engineering revenue 211,689 276,146
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2,293,360 1,049,684
Cost of revenue 1,095,203 513,033
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Gross Margin 1,198,157 536,651
Interest and Other Income 25,467 -
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1,223,624 536,651
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Expenses
Operating and administration
Engineering and product development 587,747 300,360
Administrative and other 473,799 331,962
Sales and marketing 151,383 77,284
Repayment of research funding 17,242 7,872
Depreciation of property, plant & equipment 61,176 15,554
Amortization of intangible assets 109,545 49,852
Provision for royalty commitment - 27,000
Stock option compensation 16,846 5,832
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1,417,738 815,716
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Loss for the period (194,114) (279,065)
Deficit - Beginning of period (279,065) -
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Deficit - End of period (473,179) (279,065)
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Basic and diluted loss per common share (0.01) (0.04)
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statement of Cash Flow
(expressed in Canadian dollars)
For the For the
year six months
ended ended
December 31 December 31
2005 2004
$ $
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Cash provided by (used in)
Operating activities
Loss for the period (194,114) (279,065)
Items not involving cash
Depreciation and amortization 170,721 65,406
Gain on sale of equipment (321) -
Stock option compensation 16,846 5,832
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Cash flow from operations (6,868) (207,827)
Change in non-cash working capital items 52,082 240,414
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45,214 32,587
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Investing activities
Purchase of equipment and intangible assets (28,522) -
Proceeds on disposal of equipment 1,000 154,400
Cash held in trust 50,000 -
Net proceeds from share issue 1,266,248 -
Due from AFS Energy Inc. 36,711 97,649
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1,325,437 252,049
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Increase in cash & short-term investments 1,370,651 284,636
Cash & short-term investments -
beginning of period 284,636 -
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Cash & short-term investments -
end of period 1,655,287 284,636
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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 and other alternative fuels. 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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