AFS (2004) announces record year for revenue and profit



    CALGARY, April 23 /CNW/ - Alternative Fuel Systems (2004) Inc. ("AFS" or
the "Company") (TSX Venture: AFX) announced today that it achieved record
revenue and profit for the year ended December 31, 2008. Total revenue for the
year, including engineering and interest receipts, was $3,916,285, more than
double the $1,839,974 recorded in 2007. Profit for 2008 was $494,316 compared
to a loss of ($582,411) in the year ended December 31, 2007. AFS President and
CEO Jim Perry said that "We are very pleased with the results for 2008.
Dramatic increases in both of our business lines during the year not only
resulted in record highs for revenue and profit, but also provided slightly
more than $1/2 million in cash flow from operations."
    In 2008, sales of natural gas pressure regulators were strong, especially
in the last half of the year. That business line contributed about 65% of the
Company's revenue in 2008. Significant growth was also recorded in the engine
management and other electronic equipment business, where shipments to
customers operating primarily in Southeast Asia increased as serial production
of new vehicles using AFS products ramped up.
    Mr. Perry added that "The global financial turmoil will definitely affect
our pressure regulator sales going forward. We previously announced that the
European manufacturer that purchased the bulk of our pressure regulators in
2008 has ceased production of the vehicle that used our products. In contrast,
we are seeing considerable growth in our sales of engine management systems in
Asia. The strong results in 2008 have resulted in AFS having a financial
position with good cash reserves and no debt going into these difficult
times".

    Management's Discussion and Analysis ("MD&A")

    Below is Management's discussion and analysis of financial results for
the years ended December 31, 2008 and December 31, 2007.

    
    Operating results:

    Sales revenue                                   2008
    -------------------------------------------------------------------------
    ($ thousand)                  Q1        Q2        Q3        Q4     Total
    -------------------------------------------------------------------------
    Pressure regulators         $462      $566      $735      $774    $2,537
    Engine management
     systems                      40       152       278       267       737
    Ignition systems &
     other parts                  73        97       116       122       408
    -------------------------------------------------------------------------
      Subtotal product sales    $575      $815    $1,129    $1,163    $3,682
    Engineering services           3         5       116        82       206
    -------------------------------------------------------------------------

      Total                     $578      $820    $1,245    $1,245    $3,888

    -------------------------------------------------------------------------
    Gross margin percentage      48%       44%       47%       38%       44%
    -------------------------------------------------------------------------


    Sales revenue                                   2007
    -------------------------------------------------------------------------
    ($ thousand)                  Q1        Q2        Q3        Q4     Total
    -------------------------------------------------------------------------
    Pressure regulators         $254      $402      $216      $174    $1,046
    Engine management
     systems                      82        25        42        91       240
    Ignition systems &
     other parts                  69        54       120       153       396
    -------------------------------------------------------------------------
    Subtotal product sales      $405      $481      $378      $418    $1,682
    Engineering services          10        20        18        61       109
    -------------------------------------------------------------------------

    Total                       $415      $501      $396      $479    $1,791

    -------------------------------------------------------------------------
    Gross margin percentage      41%       40%       37%       15%       33%
    -------------------------------------------------------------------------
    

    The 143% increase in pressure regulator sales in 2008 versus 2007 was
primarily due to increased production in Europe of vehicles that use AFS
products. Small increases in regulator sales were also seen for projects in
the northwestern United States in the fall of 2008 when gasoline prices were
at unusually high levels.
    Sales of engine management systems in 2008 were slightly more than triple
those recorded in 2007, as shipments to customers using these products in
production vehicles in India and other southeastern Asian countries ramped up.
In addition, a major customer based in the United States placed significant
orders in 2008 for products also destined for sales in Southeast Asia.
    Ignition systems and other parts sales remained steady year over year.
Engineering revenue in 2008 was approximately double the amount recorded in
2007 due to development projects for engine management systems being billed
during 2008.
    Overall, gross margins for the year ended December 31, 2008 were improved
by 30% as a result of higher volumes of product shipments, combined with
changes in product mix toward items with higher margin. The lower margin in
the fourth quarter of 2008 is primarily due to adjustment made to reconcile
physical to book inventory. The low margin in the fourth quarter of 2007 was
primarily due to the write off of obsolete inventory.

    
    Historical summary financial information

                                                    2008
    -------------------------------------------------------------------------
    ($ thousand, except per
     share data)                  Q1        Q2        Q3        Q4     Total
    -------------------------------------------------------------------------
    Gross revenue                584       828     1,251     1,253     3,916
    Net (loss) income            (20)       37       277       200       494
    Net (loss) income per
     share                     (0.00)     0.00      0.02      0.01      0.03
    -------------------------------------------------------------------------


                                                    2007
    -------------------------------------------------------------------------
    ($ thousand, except per
     share data)                  Q1        Q2        Q3        Q4     Total
    -------------------------------------------------------------------------
    Gross revenue                425       513       378       523     1,839
    Net (loss) income           (126)     (160)     (128)     (168)     (582)
    Net (loss) income per
     share                     (0.01)    (0.01)    (0.01)    (0.01)    (0.03)
    -------------------------------------------------------------------------


    Quarterly variations in gross revenue are primarily the result of
fluctuations in sales of natural gas pressure regulators. In both Q1 and Q3 of
2007, the largest customer for natural gas pressure regulators suspended
production of vehicles due to issues unrelated to AFS. In 2008, sales of
natural gas pressure regulators increased each quarter as this same customer
ramped up production. The variance between 2007 and 2008 revenues was again
primarily driven by increased sales of pressure regulators, combined with the
increase in sales of engine management systems.

    Operating and administrative expenses

    Operating and administrative expenses for the years ended December 31,
2007 and December 31, 2006 were comprised of the following:

                                                    2008
    -------------------------------------------------------------------------
    ($ thousand, except per
     % change)                    Q1        Q2        Q3        Q4     Total
    -------------------------------------------------------------------------
    Engineering & product
     development                $142      $139      $138      $134      $553
    Administrative & other       119       121       114       111       465
    Sales and marketing           48        45        49        47       189
    -------------------------------------------------------------------------
      Total                     $309      $305      $301      $292    $1,207
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    2007
    -------------------------------------------------------------------------
    ($ thousand, except per
     % change)                    Q1        Q2        Q3        Q4     Total
    -------------------------------------------------------------------------
    Engineering & product
     development                $135      $137      $128      $125      $525
    Administrative & other       107       140       105       107       459
    Sales and marketing           45        43        44        45       177
    -------------------------------------------------------------------------
      Total                     $287      $320      $277      $277    $1,161
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The $28,000 increase in engineering and product development expenses in
2008 over the same period in 2007 was primarily due to increased salaries and
benefits expense due to the addition of one technician during the third and
fourth quarter of 2008. In 2007, the Company also had one less engineer for
approximately half the year.
    Employee wages and benefits accounted for 73 % or $875,691 (2007 - 66% or
$819,000) of the $1,206,227 ($1,161,000 - 2007) total operating and
administrative expenses recognized during the year. The increase in employee
wages and benefits in the current year of 7% or $56,691(2007 - decrease of 7%
or $13,000) was due to the hiring of an additional 5 people during the third
and fourth quarter of 2008 to meet increased pressure regulators demand.
    At the end of 2008, there were 17 full time employees. In the first
quarter of 2009, staff was reduced as demand for pressure regulators in Europe
slowed down dramatically when the Company's largest customer announced that
they were ceasing production of the vehicle that used AFS products. The
Company currently has 10 full time employees with consultants, distributors
and agents in Europe, Asia and India

    Compensation of Executive and Directors

    The following table sets forth all compensation and awards paid by the
Company to the executive officers for the year ended December 31:

    
                                                                   Other
    Named Executive                             Salary   Bonus  Compensation
     Officer                     December 31      ($)      ($)      ($)
    -------------------------------------------------------------------------
    Jim F. Perry, President and      2008       165,167    NIL     14,141
     Chief Executive Officer         2007       164,000    NIL     14,094
    -------------------------------------------------------------------------
    Joyce Berg, Chief Financial      2008          0       NIL      NIL
     Officer(1)                      2007        22,280    NIL      NIL
    -------------------------------------------------------------------------

    (1) The position of Chief Financial Officer was filled by Mr. Perry
        during 2008 and part of 2007.

    In addition to the above, the President and Chief Executive Officer and
Chief Financial Officer participate in the Company's stock-based compensation
plan:

              Shares
             acquired   Aggregate                              Value of
                on        value                              In the Money
             exercise   realized         Options at        options at year
    Name       (No.)       ($)         year end (No.)         end(2) ($)
             ---------  ---------  --------------------  --------------------
                                      Exer-    Unexer-      Exer-    Unexer-
                                    cisable    cisable    cisable    cisable
                                   ---------  ---------  ---------  ---------
    Jim F.
    Perry       Nil        Nil      249,200     68,800      696        Nil
    -------  ---------  ---------  ---------  ---------  ---------  ---------

    (2) Value is calculated based upon the difference between the exercise
        price of the options and the 10-day average closing price of the
        Common Shares on the Exchange of $0.103 at December 31, 2008.

    (3) All options granted to the former Chief Financial Officer were
        forfeited upon her departure from the Company in 2007.

    During the year, $350 in cash was paid to each outside director of the
Company to attend meetings. Each director was also granted stock options
during the year.

    Financial Position

    The following table outlines the changes in the balance sheet from
December 31, 2007 to December 31, 2008:


                        Change ($)   Change (%)
                         Increase     Increase
                        (decrease)   (decrease)            Explanation
    -------------------------------------------------------------------------
    Cash and short-term                             See statements of cash
     investments          447,594          46%      flow.

    Accounts receivable   253,656         111%      Increase due to an
                                                    increase in operating
                                                    activity levels in Q4 of
                                                    2008 versus Q4 of 2007.
                                                    Approximately 65% of the
                                                    accounts receivable
                                                    related to one major
                                                    customer, of which was
                                                    aged 30 days or less. It
                                                    was 100% collected
                                                    subsequent to year end.

    Prepaid expenses                                Increase due to timing of
     and deposits          49,306         416%      prepayment of annual
                                                    insurance at the end of
                                                    Q4 in 2008 versus
                                                    prepayment of the same
                                                    insurance in Q1 of 2008.

    Inventory             201,089          29%      Increase due to purchases
                                                    to meet higher sales
                                                    volumes and orders.

    Property, plant                                 Net increase due to
     and equipment         10,483           6%      purchases of production
                                                    tooling equipment of
                                                    $53,699 offset by
                                                    amortization of $43,216.

    Intangible assets     (17,843)        (38%)     Net decrease due to
                                                    amortization of $20,138
                                                    partially offset by
                                                    purchases of $2,295.

    Accounts payable      190,631          70%      Increase primarily due to
     & accrued                                      a $101,595 increase in
     liabilities                                    trade accounts payable as
                                                    a result of increased
                                                    operating activity levels
                                                    in Q3 of 2008 versus Q4
                                                    of 2007.

    Advances from         221,485         379%      In order to mitigate the
     customers                                      risk inherent in
                                                    providing customized
                                                    engineering and product
                                                    development work, the
                                                    Company generally
                                                    requires a deposit on all
                                                    new large orders before
                                                    work commences. 70% of
                                                    these advances are from
                                                    one customer.

    Capital stock           2,825          .1%      Increase due to exercise,
                                                    in Q1, of 16,000 employee
                                                    stock options at $0.10
                                                    per share, plus $1,225.
                                                    Fair value of those
                                                    options exercised charged
                                                    to share capital.

    Contributed surplus    35,028           7%      Change from December 31,
                                                    2007 due to impact of
                                                    stock-based compensation
                                                    expense of $36,253 offset
                                                    by fair value of stock
                                                    options of $1,225
                                                    exercised in Q1.

    Deficit              (494,316)        (43%)     The decrease in the
                                                    deficit is due to the
                                                    impact of net income of
                                                    $494,316 for the year
                                                    ended December 31, 2008.
    

    Net income (loss) and cash flow

    AFS reported net income for the year ended December 31, 2008 of $494,316
or $0.03 per share on a basic and diluted basis. The net loss for the year
ended December 31, 2007 was ($582,411) or ($0.03 per share). Offsetting this
net income was an overall decrease in working capital for the year of
($91,935) versus an overall increase in working capital of $ 19,254 for 2007.
The decrease in working capital for the year ended December 31, 2008 was
primarily due to a $253,656 increase in accounts receivable, $49,306 increase
in prepaid expenses and a $201,089 increase in inventory, offset by a $190,631
increase in accounts payable and accrued liabilities and a $221,485 increase
in advances from customers.
    Cash flow from operations for the year was $501,988 versus a cash outflow
for the year ended December 31, 2007 of $484,134. This change is due to the
factors discussed above.

    
    Annual information

    Summary of the last three year's annual information:

                                            2008          2007          2006
                                      ---------------------------------------
    Total revenue                     $3,916,285    $1,839,074    $2,510,815
    Net income (loss)                   $494,316     ($582,411)    ($100,393)
    Basic and diluted loss per share        0.03         (0.03)        (0.01)
    Total assets                      $3,071,303    $2,127,018    $2,696,712
                                      ---------------------------------------
    

    The increase in revenue in 2008 compared to the prior two years was
primarily due to increased sales of natural gas pressure regulators as
previously discussed. The decrease in net loss, and swing to net income over
the last three years is also primarily a result of increased regulator revenue
in 2008. The increase of $374,591 in total assets over the last three years is
primarily due to an increase in accounts receivable of $212,350, an increase
in prepaid expenses of $28,975 and an increase of $242,075 in inventory.
Specifically, the increase in inventory since 2006 is a function of both
increased cost and increased quantities. These are offset by a decrease in
cash and short-term investments over the last three years of $52,703 and a net
decrease of property, plant and equipment and intangibles of $56,106.

    
    Capital stock

    a) Authorized

    Unlimited common voting shares without nominal or par value

    b) Issued

    As at December 31, 2008, the Company had 16,998,080 (2007 - 16,982,080)
    shares outstanding. The issued capital stock increased during the year
    by 16,000 shares due to the exercise of 16,000 stock options in the first
    quarter of 2008.

    As of April 21, 2009, the number of shares outstanding is unchanged from
    the December 31, 2008 balance.
    

    Commitments

    In November 2005, the Company entered into a license agreement effective
July 1, 2006 to June 30, 2011. Under the terms of this license the Company is
required to pay a royalty to the licensor for each regulator sold. During the
year ended December 31, 2008, the Company paid $152,700 (2007 - $68,665) to
the licensor.
    AFS leases 5,800 square feet of warehouse, shop and office space, which
currently house all of its operations. The lease agreement is for a two-year
period from July 1, 2008 to June 30, 2010 with monthly lease payments of
$6,283.

    Contingent liabilities

    Included in the package of assets and liabilities acquired from AFS
Energy was a contingent liability to repay certain government funding from the
National Research Council of Canada (the "NRC") that had been previously
received by AFS Energy. The original funding amount was $310,000, of which
approximately $114,000 had been repaid to September 30, 2004. The net amount
remaining of $196,000 is repayable by the Company on a quarterly basis at a
rate of 0.75% of gross sales recognized in the related period. During the year
ended December 31, 2008, the Company repaid an additional $29,109 (2007 -
$14,299) to the NRC in respect of this government funding bringing the total
repayments to date to approximately $199,236 (balance at end of 2007 -
$170,127).
    The Company will continue to make repayments to the NRC until the earlier
of the full repayment or December 31, 2011. The repayment rate of 0.75% is
subject to periodic review by the NRC, which has the discretion to increase
the rate to 1.5%.
    The Company also provides warranty on the electronic fuel management
systems, natural gas pressure regulators, and related components that it
sells. Warranty costs are accrued as a percentage of sales and recognized as
cost of sales. The warranty provision is an estimate and the impact of future
costs associated with repairs of products under warranty could have a material
effect on these financial statements.

    Related party transaction

    During the year, the Company paid legal fees in the amount of $1,482 to a
firm in which a director of the Company is a partner.

    Liquidity and capital resources

    In April 2005 the Company closed a series of equity financings, which
raised gross proceeds of $1.5 million.
    For the twelve months ended December 31, 2008, there was a total increase
in cash of $447,594 from the December 31, 2007 balance. Excluding non-cash
transactions such as amortization and stock based compensation expense of
$99,607 this increase was primarily due to net income from operations of
$494,316 and proceeds from exercise of stock options of $1,600 offset by a
decrease in working capital of ($91,935) and purchase of equipment of
($55,994),
    At December 31, 2008, the Company's capital resources included total
working capital of $2,120,839. This is comprised of cash and short-term
investments of $1,412,535, $906,686 inventory, accounts receivable of $482,716
and prepaid expenses of $61,152 offset by accounts payable and accrued
liabilities of $462,396 and advances from customers of $279,854.
    The current business environment is very uncertain. Commodity price
fluctuations, credit restrictions and capital market volatility have combined
to make forecasting very difficult. As a result, the Company is focusing on
controlling costs and preserving capital, while working with its customers to
bring new projects into production. Currently, the Company has no outstanding
debt and had a cash balance of more than $1.4 million at the end of 2008. As
part of the Company's management of liquidity and capital resources,
discretionary spending and the cash burn rate are monitored to proactively
manage the cash and working capital position of the Company. Management
anticipates that this level of resources will be sufficient to allow the
Company to continue to operate in the coming year.

    Future business direction

    As announced in a Press Release on January 23, 2009, AFS was informed by
its European representative that the major vehicle manufacturer (the "OEM")
that was purchasing the bulk of the Company's natural gas pressure regulators
planned to discontinue the production of the vehicle that uses those products.
The production halt has since occurred. As a result, a significant portion of
the Company's revenue stream going forward will be affected. In 2008, pressure
regulator sales to this OEM through AFS's European representative amounted to
about fifty-five percent of the Company's revenue.
    It is expected that this production halt will have some impact on the
Company's revenues in the first quarter of 2009 (the period ending March 31,
2009). However, its effects later in the year will probably be material. AFS
is concentrating on growing the engine management system side of its business
to try and compensate for this anticipated decline in regulator sales. Vehicle
manufacturers are customers that order large volumes of product and who are
generally reluctant to change suppliers once a relationship has been
established. Although these customers can be very demanding and price
conscious, in the opinion of AFS management, they offer the best opportunity
for growth of AFS revenues. Forecasting sales volume to the vehicle
manufacturers is always a challenge, since the Compressed Natural Gas market
is relatively small and not "main line" business for them. As a result, the
manufacturers can change production levels at short notice. However, the
significant regulatory changes being enacted in many countries in order to
address pollution and greenhouse gas emissions are expected to lead to
increased use of alternative fuels. These changes could lead to significantly
higher volumes of natural gas fuelled vehicles being manufactured, and could
provide increased opportunities for the Company.
    It should be noted that the current business environment is very
uncertain. Commodity price fluctuations, credit restrictions, capital market
volatility and other factors outside the Company's control have combined to
make forecasting very difficult. It is not possible to determine what portion
of the anticipated regulator sales decline might be offset by increased sales 
of other products in the coming year.

    
    Significant accounting policies

    a) Revenue recognition

    Revenues from the sale of electronic fuel management systems, natural gas
    pressure regulators and related components are recognized at the time
    these items are shipped and collection is reasonably assured. Other
    revenues are recognized at the time services are rendered.

    b) Inventory

    Inventory, which is primarily electronic fuel management systems, natural
    gas pressure regulators and related components, is valued at the lower of
    cost determined on a weighted average basis, and net realizable value.

    c) Property, plant and equipment

    Property, plant and equipment are recorded at cost, less accumulated
    amortization. The amortization expense and related accumulated
    amortization is computed by the declining balance method as follows:

    Machine and equipment                            20% per annum
    Computer hardware and software                   33% per annum
    Furniture, fixtures and office equipment         20% per annum
    Vehicles                                         20% per annum

    d) Intangible assets

    Research and development expenditures (with the exception of those which
    are capital in nature) are expensed as incurred unless a development
    project meets the criteria for deferral under Canadian generally accepted
    accounting principles. Patents and trademarks are amortized on a
    straight-line basis over five years.

    e) Product warranty cost

    The Company accrues product warranty costs relating to sales of fuel
    management systems, natural gas pressure regulators and related
    components. This warranty estimate, which is calculated as a percentage
    of sales, is adjusted periodically to reflect actual product return
    rates.

    f) Critical accounting estimates

    The preparation of financial statements in conformity with Canadian
    generally accepted accounting principles requires management to make
    estimates and assumptions that affect the reported amounts of assets and
    liabilities and disclosure of contingent assets and liabilities at the
    date of the financial statements and the reported amounts of revenues and
    expenses during the reporting period. The most significant estimates
    relate to valuation of inventory and assessment of net realizable value,
    determining the liability relating to product warranty costs,
    recoverability of the carrying values of property, plant and equipment
    and intangible assets, and assessment of recoverability of accounts
    receivable. Actual results could differ materially from these estimates.

    Key Business Risks and Uncertainties

    a) Small Customer Base - AFS has a small number of customers, some of
    which are major contributors to the Company's revenue stream. If one of
    these major customers were to cease to use AFS products, a significant
    impact on sales volume would occur.

    b) Financial Resources - The Company has limited financial resources
    compared to those of its larger competitors, some of which are major
    multinational corporations. Although AFS has raised funds in the equity
    markets in times past, there is no guarantee that the Company will be
    able to access such markets in future if additional resources are
    required.

    c) Foreign Exchange Rate Risk - Almost all of AFS's invoicing to
    customers is due and payable in Euros or US dollars. AFS is exposed to
    Euro to CDN and USD to Canadian dollar exchange rate risk. Fluctuations
    in foreign currency valuations may result in exchange losses or gains
    that would affect net income.

    d) Major Competitors - AFS has a number of competitors that are much
    larger in size and have considerably more resources than the Company.
    Although AFS has been successful in gaining business through quality
    products and customer service, other players in the market may develop
    competing technologies.

    e) Government Regulations - Sales of AFS products in a number of
    jurisdictions such as India and other Southeast Asian markets are driven
    in part by local government regulations on vehicle emissions. If these
    regulations are changed so that vehicles no longer have to meet such
    emissions restrictions, a significant negative change in AFS sales might
    follow.

    f) Fuel Pricing and Infrastructure - Growth in the Company's primary
    markets is dependent on a number of factors, including having a favorable
    price differential between conventional fuels and natural gas, and having
    sufficient fueling stations to make natural gas vehicles attractive to
    customers. There can be no assurance that either or both of these factors
    will continue to be present in any particular market.

    g) Dependence Upon Key Personnel - AFS depends on its senior management
    and its technical staff. If the Company is unable to attract and retain
    key personnel, it may have a material adverse effect on the business.

    New accounting policies

    On January 1, 2008 the Company adopted the following CICA Handbook
sections:

    a) "Capital Disclosures", Section 1535 required disclosure of the
    Company's objectives, policies and processes for managing its capital.
    This included qualitative information regarding AFS's objectives,
    policies and processes for managing capital and quantitative data about
    what AFS manages as capital. These disclosures are based on information
    that is provided internally by AFS's key management.

    b) "Inventories", Section 3031 provides guidance on the determination of
    cost and its subsequent recognition as an expense, including any write-
    down to the net realizable value, and on the cost formulas that are used
    to assign costs to inventories. There was no impact on our financial
    position or results of operations as a result of the adoption of this
    standard.

    c) "Financial Instruments - Disclosures", Section 3862 and "Financial
    Instruments - Presentation", Section 3863 replaced Section 3861
    "Financial Instruments - Disclosures and Presentation" which revised and
    enhanced financial instruments disclosure requirements and left unchanged
    its presentation requirements. These new sections placed increased
    emphasis on disclosures about the nature and extent of risks arising from
    financial instruments and how AFS manages those risks.
    

    The CICA has issued the following new Handbook Section that will become
effective for the Company beginning January 1, 2009. Section 3064, "Goodwill
and Intangible Assets," deals with the accounting treatment of internally
developed intangibles and the recognition of such assets. The Company does not
expect that the adoption of this standard will have a material effect on its
financial statements.

    Adoption of International Financial Reporting Standards

    In 2006, the CICA Accounting Standards Board (AcSB) adopted a strategic
plan for the direction of accounting standards in Canada. As part of that
plan, the AcSB confirmed in February 2008 that International Financial
Reporting Standards (IFRS) will replace Canadian GAAP in 2011 for
profit-orientated Canadian publicly accountable enterprises. As the Company
will be required to report its results in accordance with IFRS starting in
2011, the Company is assessing the potential impacts of the changeover
accordingly.

    Forward-looking statements

    Certain statements in this MD&A including but not limited to (i)
statements that may contain words such as "anticipate", "could", "expect",
"seek", "may", "might", "intend", "will", "believe", "should", "project",
"forecast", "plan" and similar expressions, including the negatives thereof,
(ii) statements that are based on current expectations and estimates about the
markets in which the Company operates and (iii) statements of belief,
intentions and expectations about developments, results and events that will
or may occur in the future, constitute "forward-looking statements" and are
based on certain assumptions and analysis made by the Company. Forward-looking
statements in this MD&A specifically include, but are not limited to,
statements with respect to future business opportunities, nature and timing
thereof; business strategy; expansion and growth of the Company's business and
operations and other such matters as the case may be. Such forward-looking
statements are subject to important risks, uncertainties and assumptions which
are difficult to predict and that may affect the Company's operations,
including, but not limited to: the impact of general economic conditions;
industry conditions; customer base changes; financial market conditions;
government and regulatory developments; oil and natural gas product supply,
demand and pricing; foreign exchange rates; competition; market conditions in
the countries where the Company operates; and the Company's ability to attract
and retain qualified personnel. The Company's actual results, performance or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements and, accordingly, no assurance can be given
that any of the events anticipated by the forward-looking statements will
transpire or occur, or if any of them do transpire or occur, what benefits or
disadvantage the Company may derive therefrom. Except as required by
applicable securities laws, the Company undertakes no intention or obligation
to update or revise any forward-looking statements.
    All forward-looking statements contained in this document are expressly
qualified by this cautionary statement. Further information about the factors
affecting forward-looking statements is available in the Company's current
financial statements and other documents that the Company files from time to
time with securities regulatory authorities. Copies of these documents are
available without charge from the Company or electronically on the internet on
the Company's SEDAR profile at www.sedar.com.

    %SEDAR: 00020995E




For further information:

For further information: Jim Perry, President and CEO, Phone: (403)
516-6632, E-mail jperry@afsglobal.com. Visit our website at:
www.afsglobal.com

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ALTERNATIVE FUEL SYSTEMS (2004) INC.

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