AFS (2004) announces first quarter 2006 financial and operating results
CALGARY, May 10 /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 first quarter ended
March 31, 2006. "We are delighted to report that we made a modest profit
during the quarter," said President and CEO Jim Perry. "Our largest customer
for pressure regulators, a major European automaker, is ramping up production
of their natural gas fuelled taxis. Other applications for this product for
the same manufacturer are being discussed."
Mr. Perry also stated that, "On the electronics side of the business, we
are concentrating on higher margin products, and we are getting results from
our efforts to make larger production runs. These higher volumes allow us to
achieve significant savings when purchasing electronic parts. We are seeing
increased sales of our custom designed engine control modules, especially in
southeast Asia. Sales are made both directly into the market, and through a
U.S. based reseller. We are also finding that the mix of products we are
selling in this area is changing toward higher technology systems that can
handle both ignition and fuel control."
For the three-month period ended March 31, 2006, the Company recognized
revenue of $651,000 from sales to clients primarily in Europe, the U.S. and
Mexico. In the first three months of 2005, revenue was $659,000. AFS (2004)
recorded a net income of $14,000 during the quarter, compared to a net loss of
$61,743 in the first quarter of 2005.
Management's Discussion and Analysis ("MD&A")
Below is Management's discussion and analysis of financial results for
the three-month periods ended March 31, 2006 and March 31, 2005.
Sales Revenue
Sales for the first quarter were comprised of the following (amounts in
thousands of Canadian dollars):
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Three Months Three Months
Ended March Ended March
31, 2006 31, 2005
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Pressure regulators $386 $205
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Engine management systems 195 115
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Engineering services 37 73
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Ignition systems and other parts 33 266
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Total $651 $659
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Gross margins
Gross margins realized in the first quarter were $310,000 or 50% compared
to 37 % for the same quarter in 2005. This percentage is higher in 2006
reflecting the increased sale of products incorporating some parts with a zero
cost base that were acquired from predecessor company, AFS. Improved margins
were also realized on shipments of custom electronic products, due to cost
effective design and high volume purchasing of components.
Operating and administrative expenses
Operating and administrative expenses for the three-month periods ended
March 31, 2006 and March 31, 2005 were comprised of the following (amounts in
thousands of Canadian dollars):
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Three Months Three Months
Ended March Ended March
31, 2006 31, 2005
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Engineering & product development $151 $136
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Administrative & other 102 128
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Sales & marketing 44 37
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Total $297 $301
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Although total operating expenses quarter over quarter are essentially
the same, good results have been achieved in the drive to better utilize
available resources by decreasing Administrative costs where possible. These
funds have been redirected into engineering and production to achieve a better
return.
Employee wages and benefits accounted for 72% (or $213,000) of the
$297,000 in total operating and administrative expenses recognized during the
first quarter of 2006.
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 March 31, 2006, the Company had $391,543 of accounts receivable on
its balance sheet as compared to $307,352 at December 31, 2005. The increase
in Q1 is due to the shipment and billing of a substantial order very close to
quarter-end. Payment for this order has since been received.
Inventory
Inventory has increased in the first quarter of 2006 to $584,000 compared
to the December 31, 2005 balance of $487,000, a change of $97,000. During Q1
larger than normal purchases were made to raise inventory up to levels needed
to fulfill the higher demand for the Company's Falcon pressure regulator in
Europe.
Advances from customers
Advances from customers has decreased to $105,774 at March 31, 2006 from
a balance of $212,663 at December 31, 2005. The decrease is due to deposits
being applied to shipments made in the first quarter. In order to mitigate the
risk inherent in providing customized engineering and product development
work, the Company generally requires that all new large orders be guaranteed
by a deposit before work commences.
Contractual obligations
AFS (2004) had the following contractual obligation at March 31, 2006:
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. A new two-year lease was entered into effective July 1, 2006
which will see monthly payments increase modestly to $4,688.
Contingent liabilities
During the first quarter ended March 31, 2006, there were no material
changes in the contingent liabilities as disclosed in the audited December 31,
2005 financial statements.
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 March 31, 2006 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.
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures to ensure
that information disclosed in the 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.
There have been no changes in the Company's internal controls that occurred
during the Company's interim period, the three months ended March 31, 2006
that have materially affected or are reasonably likely to materially affect
AFS' internal controls over financial reporting.
Financial Statements
Below are the unaudited interim financial statements for the three month
periods ended March 31, 2006 and 2005. These interim financial statements have
not been reviewed by the Company's external auditor in accordance with section
7050, "Auditor Review of Interim Financial Statements" of the Canadian
Institute of Chartered Accountants Handbook.
ALTERNATIVE FUEL SYSTEMS (2004) INC.
Balance Sheets
(Unaudited)
(expressed in Canadian dollars)
March 31, December 31,
2006 2005
$ $
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Assets
Current assets
Cash and short-term investments 1,386,839 1,655,287
Accounts receivable 391,543 307,352
Prepaid expenses and deposits 152,680 145,904
Inventory 584,161 486,941
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2,515,223 2,595,484
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Property, plant and equipment 215,706 215,297
Intangible assets 92,161 119,180
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2,823,090 2,929,961
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Liabilities
Current liabilities
Accounts payable and accrued liabilities 255,593 271,210
Advances from customers 105,774 212,663
Deferred revenue 18,102 18,102
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379,469 501,975
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Shareholders' Equity
Capital stock 2,423,571 2,423,571
Warrants 270,200 270,200
Settlement warrants 171,000 171,000
Contributed surplus 37,772 36,394
Deficit (458,922) (473,179)
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2,443,621 2,427,986
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2,823,090 2,929,961
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statements of Operations and Deficit
(Unaudited)
(expressed in Canadian dollars)
For the three months ended
March 31
2006 2005
$ $
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Product revenue 614,207 585,284
Cost of revenue 304,471 370,403
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Gross Margin 309,736 214,881
Engineering revenue 36,644 73,338
Interest and Other Income 11,718 -
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358,098 288,219
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Expenses
Operating and administration
Engineering and product development 150,550 136,411
Administrative and other 102,046 127,988
Sales and marketing 43,981 37,058
Repayment of research funding 4,865 4,949
Depreciation of property, plant & equipment 13,582 14,724
Amortization of intangible assets 27,439 27,374
Stock option compensation 1,378 1,458
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343,841 349,962
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Income (loss) for the period 14,257 (61,743)
Deficit - Beginning of period (473,179) (279,065)
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Deficit - End of period (458,922) (340,808)
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Basic and diluted income (loss)
per common share 0.00 (0.01)
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statements of Cash Flows
(Unaudited)
(expressed in Canadian dollars)
For the three months ended
March 31
2006 2005
$ $
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Cash provided by (used in)
Operating activities
Income (loss) for the period 14,257 (61,743)
Items not involving cash
Depreciation and amortization 41,021 42,098
Stock option compensation 1,378 1,458
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Cash flow from operations 56,656 (18,187)
Change in non-cash working capital items (310,693) 151,122
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(254,037) 132,935
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Investing activities
Purchase of equipment and intangible assets (14,411) (6,521)
Due from AFS Energy Inc. - 6,040
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(14,411) (481)
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Increase in cash & short-term investments (268,448) 132,454
Cash & short-term investments -
beginning of period 1,655,287 284,636
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Cash & short-term investments -
end of period 1,386,839 417,090
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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.
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