AFS Announces Year End 2001 Results
CALGARY, April 11 /CNW/ - Alternative Fuel Systems Inc. ("AFS") (TSE:ATF - news) is pleased to announce the operating and financial results for the year ended December 31, 2001. 2001 Highlights
- AFS recorded revenue in 2001 of $2.8 million on sales of natural gas
engine management systems, components and engineering services. Sales
were to original equipment manufactures ("OEM's"), fleet owners and
conversion outfitters primarily in Iran, Europe, Mexico and the U.S.
AFS exited the year with $6.2 million in cash and short-term
investments.
- AFS achieved technical milestones for its "Sparrow" Engine Management
System including: formal Ultra Low Emission Vehicle ("ULEV")
Certification from the U.S. Environmental Protection Agency ("EPA") on
a medium duty natural gas engine; successful application of the Sparrow
system to the sophisticated, fully integrated GM 5.3 litre Vortec
engine; and the receipt of a U.S. patent for this system in September
2001.
- The AFS "Falcon" natural gas pressure regulator received key European
certifications for meeting technical and production standards of the
Economic Commission for Europe ("ECE") and German "TUV". These
certifications were instrumental in securing orders with European
OEM's.
- As a result of a corporate focus on market-driven activities, the
Company reduced several of its non-strategic initiatives and re-focused
human and capital resources to developing products that will generate
revenue in the short term. The Company is currently working on the
development of new natural gas and hydrogen related products targeted
at OEM markets.
- During 2001 the Company signed a supply agreement with Ecomex of Mexico
City which called for the sale of a minimum of 960 Sparrow systems
(with a value of $2.1 million) over a two-year period. The first
shipment of systems under this agreement commenced in December 2001.
These systems will be used to convert microbuses from gasoline to
natural gas.
- AFS significantly strengthened its Board of Directors in 2001 with the
additions of Darshan Kailly (President and CEO of Canadian Freightways
Ltd.), Jim Perry (President and CEO of Global Thermoelectric Inc.) and
Dr. David Checkel (a leading expert in alternative fuels and internal
combustion processes).
- The Company's production, product development and engine testing
capabilities were significantly enhanced with the move into the new
Calgary facility midway through 2001. This facility, which houses all
of the Company's employees, is situated in a highly visible area of
North Calgary and provides an excellent showcase of AFS' capabilities
to customers, industry partners and government representatives.
- At the end of 2001, AFS management implemented a number of cost cutting
measures to reduce annual operating expenses. The Company also
implemented pay cuts for its senior employees and subleased out 20% of
the space in its new facility to further reduce operating costs.
- AFS achieved a significant corporate milestone with the commencement of
trading on the Toronto Stock Exchange on March 15, 2001. This listing,
on Canada's senior exchange has exposed the Company to a broader base
of investors as well as heightened awareness of AFS in the capital
markets.
"AFS' core business of providing engine management systems and components
will continue to grow and be the base for our current revenue streams,"
commented AFS President and CEO, John Webb. "These products, combined with
AFS' experience with dedicated and combined natural gas technologies, will
enable the Company to play a part in the transition towards the hydrogen
economy. Our broadened customer base, planned new product offerings and
estimated first quarter sales of $1.0 million, should provide AFS with
momentum for the remainder of 2002."Financial Review - Discussion and Analysis
The following statement of operations shows the audited results for the year ended December 31, 2001 and the six month fiscal period ended December 31, 2000. The prior six-month stub period results from a change in year end from June 30 to December 31, effective for periods subsequent to the year ended June 30, 2000.
Amounts in 000's of Cdn. $ Year ended Six months ended (except per share data and December 31, 2001 December 31, 2000 No. of shares) (Audited) (Audited) ------------------------------------------------------------------------ Revenue $2,771 $2,003 Cost of Revenue 1,780 985 -------- -------- Gross Margin 991 1,018 Interest and other income 526 188 -------- -------- 1,517 1,206 -------- -------- Operating and administrative expenses: Engineering, R&D 2,019 689 General and administrative 2,905 904 Sales and marketing 823 272 Recovery of research costs (164) (146) Depreciation and amortization 1060 241 Provision for inventory write downs 781 62 Interest 20 9 -------- -------- 7,444 2,031 -------- -------- Net loss (5,927) (825) -------- -------- Net loss per share ($0.12) ($0.02) Number of shares o/s - end of period 49,429,441 45,764,238Revenue in 2001 was comprised of sales of natural gas engine management systems ($1.1 million), components ($1.6 million) and engineering services ($0.1 million). System sales were primarily to IDEM, an engine manufacturer in Iran, and Ecomex, a large conversion outfitter in Mexico City. The delivery of systems to Ecomex, which commenced in December, represented initial sales under the two-year supply agreement. Sales of components, which were made up primarily of the Falcon natural gas pressure regulator, were to OEM's, conversion outfitters and fleet owners in Europe, the U.S., Iran, Mexico, Australia, Japan and Canada.
Revenue in the 2000 stub period was comprised of systems sales ($1.0 million), component and parts sales ($0.6 million) and a license fee ($0.4 million).
Gross margins averaged 36% in 2001 compared to margins of 51% in the 2000 stub period. The higher margins in the prior period were generated by license fee revenue.
Interest and other income for the year ended December 31, 2001 of $526,000 related primarily to interest from surplus cash and short-term investments. Cash and short-term investments held by the Company at the beginning of 2001 was $11.8 million reflecting the net proceeds of $9.5 million from a Special Warrant financing in October 2000. AFS exited 2001 with $6.2 million in available funds.
The analysis of Operating and Administrative expenses is presented below as a comparison between the results of the year ended December 31, 2001 and the annualized amounts of the six-month stub period ended December 31, 2000.
Year ended Six months ended December 31, 2001 Dec. 31, 2000 - annualized amounts ----------------------------------------------------------------------- Engineering, R&D 2,019 1,378 General and admin. 2,905 1,808 Sales and marketing 823 544 Recovery of research costs (164) (292) ------- ------- Total 5,583 3,438Engineering, research and development expenses for the year ended December 31, 2001 amounted to $2.0 million as compared to the annualized amount of $1.4 million for the six-month stub period ended December 31, 2000. The increase is attributable primarily to increased wages of approximately $366,000 reflecting staff additions in the research and product development areas and increased facility costs of approximately $255,000 attributed to the new Calgary facility.
General and administrative expenses for the fiscal period ended December 31, 2001 amounted to $2.9 million representing a $1.1 million increase from the annualized stub period figures. This increase is attributed primarily to the following items: a one-time payment of $240,000 to the former CEO, John C. Anderson, upon his resignation in July 2001; a one-time profit equalization payment of $200,000 made to the licensor of the newly licensed natural gas pressure regulator; one-time moving expenses of $85,000 related to costs of moving staff and equipment into the new facility; increased wages and benefits of $290,000 reflecting staff additions in the quality control, purchasing, production and corporate areas; an increase of $120,000 in facility costs related to the new facility; and an increase of $125,000 in professional fees relating primarily to increased legal costs attributed to the Company's March 2001 TSE listing, a lawsuit by a party in the U.K. and dissident shareholder actions.
Sales and marketing expenses in 2001 were $823,000 compared to the annualized amount of $544,000 for the stub period ended December 31, 2000. Of the $279,000 increase, $173,000 related to increased travel, promotion and trade show expenses attributed to the significant number of trade shows and conventions attended by the Company in 2001. During 2001, AFS displayed its products or attended shows in Malmo (Sweden), Stuttgart (Germany), Brisbane (Australia), San Francisco, Detroit, Tehran (Iran), New Delhi (India) and Calgary. An additional $95,000 of the increase reflected staff additions in both the sales and marketing departments.
Recovery of research costs declined from the annualized amount of $292,000 in 2000 to $164,000 in 2001. This decline is mainly due to the completion of funding for one of the Company's Reverse Flow Catalytic ("RFC") technology projects which received government assistance from the National Research Council of Canada. AFS continues to receive ongoing government funding for several other research projects.
At the end of 2001, the management of AFS implemented certain cost cutting measures to reduce the Company's operating expenses. As a result of a corporate focus on market-driven activities, the Company reduced several of its non-strategic research initiatives and re-focused human and capital resources to developing products which would be marketable in a short time frame. The Company also implemented pay cuts for its senior employees and subleased out 20% of the space in its new facility to further reduce operating costs.
Depreciation and amortization amounted to $1.1 million in 2001 compared to an annualized amount of $0.5 million for the 2000 stub period. Of this $0.6 million increase, $0.3 million related primarily to increased equipment and building depreciation and $0.3 million related to increased amortization of capitalized product development costs. Depreciation expense in 2001 was impacted by the significant capital expenditures of $3.8 million related to equipment, furniture and infrastructure of the new Calgary facility. Amortization of product development costs was largely impacted by the write-off of $193,000 of development costs related to projects that AFS has suspended or discontinued.
Provision for inventory write-downs amounted to $781,000 in 2001 compared to a write-down of $62,000 for the prior year stub period. The write-down in 2001 related primarily to the discontinuance of early versions of the "Eagle" dual fuel engine management systems reflecting obsolescence in the technology and the commercial market for this product not materializing.
The loss for the year ended December 31, 2001 was $5.9 million ($0.12 per share) as compared to a loss for the six-month period ended December 31, 2000 of $825,000 ($0.02 per share).
The Company incurred $4.7 million in capital expenditures in 2001 compared to $0.5 million in capital expenditures in the stub period ended December 31, 2000. The 2001 expenditures were comprised of the following: infrastructure for the new, leased facility ($2.3 million), furniture and fixtures ($670,000), computer, production and engineering equipment ($763,000), product license fees related to a natural gas pressure regulator ($450,000), capitalized product development costs ($485,000) and patent and trademark costs ($96,000).
The engineering facilities include four engine test cells, one of which has been outfitted with a twin engine dynamometer. AFS is currently in the process of enhancing its emissions measurement equipment in the engine test area.
During 2001, the Company raised $2.9 million through common share issues. Of this amount, $2.6 million related to the exercise of 3.3 million, $0.80 share purchase warrants issued in connection with the March 2000 special warrant financings. A further $0.3 million related to the exercise of 400,000 Broker compensation warrants issued in the same financing. All unexercised share purchase warrants related to the March 2000 financings expired at the end of March 2001.
AFS is a Canadian environmental technology company providing innovative and cost-effective solutions to the growing global problem of harmful exhaust emissions from internal combustion engines. AFS has commercialized electronic engine management systems enabling diesel and gasoline engines to operate on cleaner burning natural gas. AFS' natural gas systems and components are installed worldwide in new vehicles manufactured by Original Equipment Manufacturers ("OEMs"), or retrofitted in existing fleets. AFS is headquartered in Calgary, Canada and trades on the Toronto Stock Exchange under the trading symbol ATF