Azure Dynamics Reports Second Quarter 2006 Results
TORONTO, July 25 -- Azure Dynamics Corporation (TSX: AZD & LSE: ADC) ("Azure" or the " Company") a leading developer of hybrid electric and electric powertrains for commercial and military vehicles, today announced its financial results for the second quarter ended June 30, 2006. The Company also provided an update on corporate and product development activities in the period.
"We are pleased with our progress this quarter and reached a major development milestone with the completion of Azure's first commercially produced Series hybrid electric chassis," said Campbell Deacon, Deputy Chairman and Chief Executive Officer of Azure. "Moving forward, we are well positioned to increase volume production and advance our product commercialization objectives."
Corporate
Azure Dynamics is committed to leveraging the strategic value of its asset base to accelerate the commercialization of its technology. The Company's Strategic Committee of the Board of Directors continues to work with Rothschild, a leading international investment bank, to help in reviewing strategic, value creation opportunities available to the Company. By gaining access to one or more industry partners the Company believes it can accelerate the commercialization of its Technology. In the execution of this strategy, the Company is leveraging its strength in the following four areas.
- Technology - Azure has developed unique electric and hybrid electric
Technology and has established know-how in the commercial vehicle
industry. Azure's patents have been recognized and cited by leading
companies in the automotive and electronics industries.
- Market Differentiation - Azure is operating in a world-wide niche
market and has attracted high profile lead customers.
- Independent Source - Azure is one of the few independent electric and
hybrid electric research, development and production companies in the
world.
- People - Azure has over 80 highly trained engineers and technicians
with a depth of experience unavailable in the general marketplace.
Azure's core expertise is in power electronics, controls software and
vehicle system integration.
Evaluation of the Company's options is ongoing, and the committee and Rothschild are engaged in preliminary discussions with various parties.
Product Developments
In the second quarter of 2006, the Company remained focused on deploying its proprietary technology into powertrain products for light to heavy duty commercial and military vehicles. Azure develops hybrid and electric powertrains and components for four broad vehicle categories. Within each vehicle category, Azure leverages its powertrain designs to satisfy a broad range of vehicle applications. Significant product developments in the second quarter of 2006 included:
G1 Series (7,500 to 16,000 lbs. gross vehicle weight, "GVW")
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- Completion of the first commercially produced G1 Series hybrid
electric chassis. A production assembly line has been established by
PCI in Union City, Indiana which is capable of handling the initial
volume demand for hybrid chassis for delivery van and shuttle bus
applications; and,
- Continued development of the G1 shuttle bus cab and body, as well as
marketing programs for Azure's hybrid "CitiBus" shuttle bus. Azure
has received orders for nine buses to date and deliveries are
expected to begin in Q3, 2006; and,
- On July 18, 2006 the Company announced it has signed a Memorandum of
Understanding ("MOU") for the production of hybrid shuttle buses with
StarTrans, a business division of Supreme Corporation. Under the
proposed terms of the MOU, Azure will provide StarTrans with hybrid
cab-chassis on which StarTrans will assemble their shuttle bus body
at its manufacturing facilities in Goshen, Indiana. Azure's hybrid
cab-chassis is a derivative of Azure's series hybrid chassis
integrated with a newly developed cab. When fully assembled, the
Azure hybrid electric shuttle bus will be compliant with the United
States' Buy-America program and after testing will be eligible for
the Federal Transit Administrations funding for bus purchases.
P1 Parallel (10,000 - 19,000 lbs. GVW)
--------------------------------------
- Launched the first in-service P1 Parallel hybrid delivery van
developed for the United States Postal Service. Azure continues to
evaluate two additional P1 vehicles with a view to system design
modifications required to achieve fuel economy optimization targets;
and,
- Finalised the build of the AM General High-Mobility Multipurpose
Vehicle integrated with a third generation Auxiliary Power
Distribution System for military use. After further commissioning,
the vehicle was delivered in July, 2006.
P2 Parallel (over 19,000 lbs. GVW)
----------------------------------
- Continued the development of the second generation P2 Parallel
powertrains and completed the physical build of two P2 Class 7
delivery trucks for Charmer-Sunbelt; after vehicle commissioning the
vehicles are scheduled for delivery in the second half of 2006.
E1 Electric (1,000 - 14,000 lbs. GVW)
-------------------------------------
- Received a follow-on order for 20 electric powertrain systems from
Smith under the supply agreement entered in 2005; and,
- Continued collaboration with Smith in the development of an all-
electric airport tug and the conversion of an OEM delivery vehicle to
a full electric platform.
Components
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- Continued the design, development, and testing of power electronics
and drive systems components for the supply agreement with DRS
Sustainment Systems, Inc. (formerly DRS Engineered Air Systems Inc.),
an operating unit of DRS Technologies, Inc.; and,
- Received a follow-on order valued at CDN$2.8 million from DRS
for invertors, converters, and under-the-hood export power
components. In total, the contract with DRS is now for 221 systems,
which together with engineering services is valued at approximately
CDN$19 million.
Financial Results
Revenue for the quarter ended June 30, 2006 was DOLLAR 1.2 million compared to DOLLAR 1.5 million in the same period a year ago and DOLLAR 2.4 million year-to-date compared to DOLLAR 2.5 million during the same period in 2005. The decrease in revenue is attributable to decreased activities in funded engineering contracts in the US operations as focus is shifted towards the Company's core development programs. Revenue is mainly comprised of sales of components, customer engineering contracts, and after-sales service support. After considering direct and applicable indirect costs of sales, the gross margin contribution from revenue in the quarter was DOLLAR 0.1 million compared to DOLLAR 0.3 million in the first quarter in 2005 and DOLLAR 0.4 million year-to-date compared to DOLLAR 0.6 million in the same period in 2005. Gross margin as a percentage of sales was 6% for the quarter compared to 18% in the first quarter a year ago and 16% year-to-date compared to 22% in 2005. The decrease in gross margin is primarily attributable to a combination of program mix (less higher-margin engineering service work) and additional costs incurred on two development programs in the US operation.
For the quarter ended June 30, 2006, the Company incurred a net loss of DOLLAR 4.9 million (DOLLAR 0.03 per share) compared to a net loss of DOLLAR 5.6 million (DOLLAR 0.04 per share) in the first quarter of 2005. The reduced net loss in the current quarter is primarily attributable to lower operating expenses, particularly engineering and product development costs, when compared to a period of high-activity spending on the G1 program in the second quarter of 2005. As the G1 program transitions from the development phase to pre-production and production phases, spending levels have decreased. For the six months ended June 30, 2006, the Company incurred a net loss of DOLLAR 9.4 million compared to DOLLAR 10.5 million in the corresponding period a year ago.
Before contributions, the Company expended DOLLAR 2.7 million on engineering, research and development operations in the quarter, including DOLLAR 1.3 million in respect of product development costs, compared to DOLLAR 4.1 million for the same period in 2005, including DOLLAR 2.4 million in respect of product development costs. The expenses were reduced by DOLLAR 0.4 million in respect of government and customer contributions compared to DOLLAR 0.8 million in the corresponding period a year ago. For the first six months of 2006 the Company expended DOLLAR 5.4 million compared to DOLLAR 7.2 million during the same period in 2005, including DOLLAR 2.6 million in respect of product development costs compared to DOLLAR 3.7 million during the corresponding period in 2005. Contributions from the government and customers totalled DOLLAR 0.7 million year-to-date compared to DOLLAR 1.2 million in 2005.
The Company had cash and cash equivalents of DOLLAR 10.7 million at June 30, 2006, compared to DOLLAR 20.7 million at December 31, 2005 and DOLLAR 12.8 million at June 30, 2005. Net cash outflows were approximately DOLLAR 4.9 million in the quarter compared to DOLLAR 5.9 million in the second quarter of 2005. The current year quarter included proceeds from the exercise of stock options of DOLLAR 0.7 million compared to DOLLAR 39,000 in the second quarter of 2005. Net cash outflows in respect of operations, working capital financing and capital expenditures were approximately DOLLAR 5.6 million in the quarter compared to DOLLAR 5.9 million in the second quarter of 2005. The Company's complete 2006 second quarter Financial Statements and Management Discussion and Analysis are available at www.sedar.com or on the Company's website at www.azuredynamics.com. The Company's financial statements for the three and six-month periods ended June 30, 2006, are attached to this press release.
About Azure Dynamics
Azure Dynamics Corporation is a world leader in the development and production of hybrid electric and electric commercial and military vehicles and systems. The Company estimates it has more than 25 million miles of vehicle experience. Azure Dynamics' operations are based in North America and Europe.
Azure is currently working internationally with various partners and customers, including Purolator Courier Ltd., Canada Post, United States Postal Service, Smith Electric Vehicles, Workhorse Custom Chassis, DRS Sustainment Systems, Inc. and AM General LLC. Azure Dynamics Corporation is a public company trading on the TSX (TSX: AZD) in Canada and on the AIM (LSE: ADC) in the UK.
For more Company information please visit www.azuredynamics.com.
The TSX and LSE Exchanges do not accept responsibility for the adequacy or accuracy of this release.
NOTE: The foregoing information may contain forward-looking statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Such factors include, but are not limited to: the ability to raise the capital required for product development and operations, product development delays, changing environmental regulations, the ability to attract and retain business partners, competition from other developers of hybrid electric vehicle control systems, competition from other advanced or existing power technologies, evolving markets for power for transportation vehicles. These factors should be considered carefully and readers should not place undue reliance on Azure's forward-looking statements. Investors are encouraged to review the risks detailed from time to time in the company's filings with regulatory authorities.
Azure Dynamics Corporation
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Stated in thousands)
June 30 December 31 June 30
2006 2005 2005
As at (Unaudited) (Audited) (Unaudited)
-------------------------------------------------------------------------
DOLLARS DOLLARS DOLLARS
ASSETS
Current
Cash and cash equivalents 10,747 20,721 12,784
Accounts receivable 1,130 1,004 1,326
Contributions receivable 639 597 1,757
Inventory and related prepayments 4,328 2,696 2,700
Prepaid expenses 1,017 980 910
-----------------------------------
17,861 25,998 19,477
Restricted cash 670 698 778
Property and equipment 5,789 5,573 5,524
Other assets 44 61 61
Intangible assets, net of
amortization (note 3) 11,411 12,133 12,949
Goodwill (note 3) 2,932 2,932 2,888
-----------------------------------
38,707 47,395 41,677
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued
liabilities 3,043 3,403 2,635
Customer deposits and deferred
revenue 912 1,574 271
Current portion of notes payable
(note 4) 2,427 2,558 238
-----------------------------------
6,382 7,535 3,144
Long-term
Deferred revenue 986 1,038 1,120
Notes payable - - 2,486
-----------------------------------
986 1,038 3,606
-----------------------------------
Shareholders' equity
Share capital (note 5) 82,178 80,701 66,184
Contributed surplus (note 5) 2,768 2,316 1,564
Deficit (53,607) (44,195) (32,821)
-----------------------------------
31,339 38,822 34,927
-----------------------------------
38,707 47,395 41,677
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Certain reclassifications have been made to the June 30 2005 comparative
numbers to conform to the current period presentation
Azure Dynamics Corporation
(A Development Stage Enterprise)
Consolidated Statements of Operations and Deficit
(Stated in thousands, except per share amounts)
For the three months For the six months
ended June 30 ended June 30
(unaudited) (unaudited)
2006 2005 2006 2005
-------------------------------------------------------------------------
DOLLARS DOLLARS DOLLARS DOLLARS
Revenues 1,205 1,525 2,353 2,509
Cost of sales 1,129 1,253 1,972 1,946
----------------------- ----------------------
Gross Margin 76 272 381 563
----------------------- ----------------------
Expenses
Engineering, research,
development and
related costs, net 2,320 3,298 4,737 6,006
Selling and marketing 823 801 1,548 1,448
General and
administrative 1,935 2,060 3,752 3,663
----------------------- ----------------------
Total expenses 5,078 6,159 10,037 11,117
----------------------- ----------------------
Loss from operations (5,002) (5,887) (9,656) (10,554)
Interest and other
income, net 118 41 255 82
Foreign currency gains/
(losses) 38 246 (11) (50)
----------------------- ----------------------
Net loss for the period (4,846) (5,600) (9,412) (10,522)
Deficit, beginning of
period (48,761) (27,221) (44,195) (22,299)
----------------------- ----------------------
Deficit, end of period (53,607) (32,821) (53,607) (32,821)
-------------------------------------------------------------------------
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Loss per share - basic (0.03) (0.04) (0.06) (0.08)
Weighted average number
of shares - basic(x) 158,638 141,203 157,569 133,095
(x) No fully diluted earnings per share have been disclosed, as these
would be anti dilutive.
Azure Dynamics Corporation
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Stated in thousands)
For the three months For the six months
ended June 30 ended June 30
(unaudited) (unaudited)
2006 2005 2006 2005
-------------------------------------------------------------------------
DOLLARS DOLLARS DOLLARS DOLLARS
Cash flows from operating
activities
Net loss for the period (4,846) (5,600) (9,412) (10,522)
Adjustments for:
Amortization of property
and equipment and other
assets 193 193 386 337
Amortization of
intangible assets 408 425 808 708
Unrealized foreign
currency gains/(losses) 387 (192) 170 68
Stock option
compensation expense 214 342 639 848
----------------------- ----------------------
(3,644) (4,832) (7,409) (8,561)
Changes in non-cash
working capital items (1,110) (878) (2,873) (3,812)
Movement due to
exchange impact (43) (33) (39) (32)
----------------------- ----------------------
(1,153) (911) (2,912) (3,844)
----------------------- ----------------------
Total Cash flows from
operating activities (4,797) (5,743) (10,321) (12,405)
----------------------- ----------------------
Cash flows from financing
activities
Issuance of common
shares (net of costs) 673 39 1,290 11,789
Principle payments on
notes payable (14) - (28) (15)
Movement due to
exchange impact (113) (35) (103) (35)
----------------------- ----------------------
Total Cash flows from
financing activities 546 4 1,159 11,739
----------------------- ----------------------
Cash flows from
investing activities
Acquisition of property
and equipment (367) (165) (601) (456)
Acquisition of other
assets (54) 57 (69) (39)
Changes in Restricted
Cash - (13) - 409
Movement due to exchange
impact (267) - (204) -
----------------------- ----------------------
Total Cash flows from
investing activities (688) (121) (874) (86)
----------------------- ----------------------
Decrease in cash and cash
equivalents (4,939) (5,860) (10,036) (752)
Exchange Impact on Cash
Held in Foreign Currency (89) 177 62 1
Cash and cash equivalents,
beginning of period 15,775 18,467 20,721 13,535
----------------------- ----------------------
Cash and cash equivalents,
end of period 10,747 12,784 10,747 12,784
----------------------- ----------------------
----------------------- ----------------------
Certain reclassifications have been made to the June 30 2005 comparative numbers to conform to the current period presentation.
For further information: Daniel Renzella, Senior Vice-President, Finance and CFO, +1-(781)-932-9009 ext 229, Email: drenzella@azuredynamics.com; Steven Glaser, Vice-President, Corporate Affairs, +1-(416)-367-0220 ext 105, Email: sglaser@azuredynamics.com