20 April 2006

WORKING CAPITAL

On 12 April 2006 Advanced Engine Components Limited ("ACE") announced the commencement of commercial sales to First Auto Works ("FAW") in China.

Over the next twelve months ACE expects NGVS kit sales to FAW to increase progressively. In addition, during the 2007 Financial Year, commercial kit sales are scheduled to commence to Weichai in China, Motive Energy in Australia, Automobile Corporation of Pakistan in Pakistan and Swaraj Mazda in India.

As a result of these increasing sales ACE will be required to fund significant working capital in the form of expanding inventory and trade receivables.

As stated in the Half Yearly Financial Report, lodged on 16 March 2006, 698 Capital International Limited ("698 Capital") confirmed its ongoing financial support subject to ACE raising share capital of approximately $1.5 million on or before 15 June 2006.

Despite the completion of engine development programmes, commencement of commercial sales, increase in international demand for alternate fuel products, the price of oil exceeding US$70 per barrel and other factors favourable to ACE, the ACE share price remains at a level at which the ACE Board is reluctant to raise additional share capital. The Board attributes the current low share price to a number of factors including:

1. impatience with expected announcements on commercial sales orders from China;

2. concerns over the future funding of ACE’s sales growth and related working capital requirements;

3. the November 2005 share placement at 13.5 cents; and

4. lack of liquidity and broker support in the market.

All of the above are being addressed and developments, as per this announcement and the announcement of 12 April 2006, will be released to the market as they progress.

As a result of ACE's current low share price 698 Capital has agreed to debt fund, in part, ACE's next 6 months working capital needs. 698 Capital has agreed to fund up to $750,000 of working capital on a $1 for $1 basis with third party lenders. That is, total working capital funding of $1.5 million. The $1.5 million loan funds will be unsecured with 9% pa interest payable quarterly in arrears.

The $1.5 million loan monies will be repayable on or before 31 October 2006. By that date it is expected the ACE share price will more accurately reflect ACE's progress, the maturing sales, the current and future potential and a more certain working capital requirement to take ACE to a positive cash flow position.

It is proposed that the overall long term funding plan will include a share purchase plan for existing shareholders and the opportunity for shareholders with unmarketable parcels to dispose of their shareholding.

698 Capital's offer of assistance with partial debt funding of the short term working capital requirements of ACE is further evidence of 698 Capital's ongoing support, commitment and belief in ACE’s future.

For further information please contact:
Tony Middleton (Managing Director) on (08) 9209 6900; or
Email: shares@advancedengine.com

Back to Top