Carmanah Technologies: Q3 2010 Results

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Carmanah Technologies Corporation reports its third quarter financial results for the three-month period ending September 30, 2010 and announces the termination of the previously announced agreement to acquire all of the outstanding shares of Lightech Electronics Industries Ltd (“Lightech”).

Q3 2010 Results

Sales for the quarter were $8.6 million, down $0.9 million from the same period last year. Third quarter Signals & Illumination sales increased by $0.4 million over the third quarter of the prior year, mainly due to a significant increase in marine product sales. Sales from Systems & Other decreased in the quarter by $1.3 million compared to the same period of the prior year, primarily as a result of a substantial spike in sales during the third quarter of 2009 resulting from a significant off-grid system sale and a one-time clearance of obsolete and discontinued products.

Highlights for the Quarter

    * Sales: $8.6 million, down from $9.5 million for the same period in 2009
    * Gross margin: 35.1%, up from 32.8% in 2009
    * Operating costs: $3.0 million, down from $3.2 million in 2009
    * Net (loss)/income: $(0.1) million, down from $1.2 million in 2009
    * Adjusted EBITDA: $0.9 million, down from $1.4 million in 2009
    * Cash balance: $6.0 million as at September 30, 2010, down from $8.7 million at December 31, 2009
    * Debt: Continued debt-free operations

Summary of Results

Sales for the quarter were up slightly over the first and second quarters of 2010 with growth in both the Signaling and Grid-tie segments. The increase in Signaling product sales was the result of higher sales within the Marine segment. For Grid-tie, sales increased primarily as a result of the Ontario Feed in Tariff program. Partially offsetting the increases in these segments was a decline in EverGEN™ illumination outdoor area lighting sales, reflecting the “lumpiness” of orders for this product line. Sales achieved were $0.7 million for the quarter, down $0.5 million from the second quarter, with trends suggesting some recovery towards year end. The newest EverGEN™ family member, the 1710 series with industry recognized Advanced Occupancy Sensing feature, launched in May, 2010 in Las Vegas, Nevada, at the annual Lightfair trade exhibition and conference, has shown a very positive market reception. The 1710’s performance, high level of industrial design and integration and net price-to-value, suggest that demand for the product will increase in upcoming quarters.

“The third quarter experienced revenue and gross margin growth over the second quarter of 2010, as well as improved gross margin over the third quarter of 2009,” stated Ted Lattimore, Chief Executive Officer. “Carmanah benefited from strong marine sales as a result of the Gulf of Mexico oil spill; as well, the first wave of Grid-tie solar system purchasing was realized from the Ontario Feed-in Tariff program.”

Sales

Sales for the third quarter of 2010 were $8.6 million, down from $9.5 million in 2009. This decrease is due primarily to a substantial spike in third quarter 2009 sales resulting from a significant off-grid system sale and a one-time clearance of obsolete and discontinued products. Also contributing to the decline were lower sales in Illumination products and aviation/obstruction sales during this period. A summary of revenues from each of the Company’s Signals & Illumination and Systems & Other business segments is displayed below:


Sales           For the three months ended September 30,     
(US$ thousands)         2010           2009           Change     
            $           Mix           $           Mix           $           %     
Signals & Illumination                                                           
Signals         5,042         58.8%         4,354         45.8%         688         15.8%     
Illumination         734         8.6%         1,042         11.0%         (308)         (29.6%)     
Total Signals & Illumination         5,776         67.4%         5,396         56.8%         380         7.0%     

Systems & Other                                                     
Solar Power Systems and Grid-tie         2,790         34.6%         4,091         43.1%         (1,301)         (31.8%)     
Other         -         -         8         0.1%         (8)         (100%)     
Total Systems & Other         2,790         34.6%         4,099         43.2%         (1,309)         (31.9%)     

Total Revenue           8,566           100%           9,495           100%           (929)           (9.8%)     


Adjusted EBITDA

The Company uses certain non-GAAP measures to assist in assessing its financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. One such non-GAAP measure used for assessing financial performance is Adjusted EBITDA, defined as net income before interest, income taxes, amortization, restructuring charges, goodwill, intangible impairments, discontinued operations and acquisition costs.


Adjusted EBITDA reconciliation           For the three months ended     
(US$ thousands)           September 30, 2010           September 30, 2009     
Net loss         $     (52)           $     1,244     
Add (deduct):                     

    * Interest

            (1)             (121)     

    * Income taxes

            42             (11)     

    * Amortization

            348             202     

    * Discontinued operations

            -             104     

    * Restructuring charges

            316             -     

    * Acquisition costs

                242                 -     
Adjusted EBITDA           $     895           $     1,418     


Operating Highlights

Throughout the third quarter of 2010, Carmanah continued to focus on supporting the success and growth of key relationships in its distribution network. Key relationships include our relationship with Sabik Oy (“Sabik”), for the global distribution of marine illumination products, ADB Airfield Solutions, LLC (“ADB”), for the global distribution of aviation illumination products, and Semex S.A. (“Semex”), for the distribution of traffic signaling products in Mexico. With Sabik, the focus is on expanding the marine product families to include Sabik’s marine lighting solutions, and the Company will continue to leverage its sales and distribution channels to deliver a complete range of marine lights to its global customer base. Sabik product sales commenced in the second quarter of 2010, and Carmanah anticipates further sales growth in this area for the fourth quarter of 2010 as it continues to strategically target to increase its collective marine market penetration. With ADB, the focus is on the launch and release of ADB branded and co-branded solar power aviation lighting solutions to grow the collective aviation market share. With Semex, the focus continues to be on local Mexican lighting and traffic signaling opportunities to penetrate into this region.

During 2010, organic growth continued to be a focus through new and existing strategic relationships with customers, OEMs and suppliers to penetrate new regions for market share. In the third quarter of 2010, steps were taken to execute the Company’s non-organic growth strategy. On September 21, 2010, an agreement was entered into to purchase all of the outstanding shares of Lightech. The acquisition agreement has been filed by the Company on SEDAR. See “Lightech Electronic Industries Ltd. Agreement” below for additional information regarding the Lightech acquisition and the termination thereof.

On November 10, 2010, the Company completed restructuring activities in order to reduce its operating costs. These activities primarily consisted of staff reductions related to a planned reduction of research and development investment, as a significant amount of development projects within the illumination product roadmap have been completed or are nearing completion. In addition, this restructuring will enable the Company to focus its efforts on critical market segments and vertically align staff towards profit and loss responsibilities separately within lighting and power system divisions.

Other operational highlights (including subsequent events)

    * Carmanah announced a strategic partnership with Trojan Battery Company, the world’s leading manufacturer of deep cycle batteries. Under the agreement, Carmanah will use Trojan’s deep cycle batteries to provide energy storage for its EverGENTM portfolio of outdoor solar LED lights. The global market for solar lighting applications has been expanding rapidly. This partnership between Carmanah and Trojan Battery will enable customers in the growing market to take advantage of the best of both companies’ central strengths thanks to a deeper technical integration of their respective products.
    * Carmanah received orders totaling over $1.1 million in recent weeks from the United States Coast Guard as part of the Coast Guard’s seasonal stock-up. More than 2,500 Carmanah/Sabik M700 series solar LED marine lanterns are scheduled for delivery to Coast Guard stations in 25 US states along the Atlantic and Pacific coasts, and the Mississippi, Gulf of Mexico and Great Lakes regions in the coming weeks. The orders are part of an ongoing Coast Guard initiative to replace incandescent lanterns with self-contained solar LED lanterns.
    * Carmanah announced that it has signed a definitive agreement to acquire all of the outstanding shares of Lightech Electronic Industries Ltd. (“Lightech”), an Israeli corporation. The completion of the Transaction is subject to satisfying certain customary conditions for transactions of this nature as well as other conditions agreed to by the parties, which include obtaining Toronto Stock Exchange approval of the issuance of the Common Shares to the security-holders of Lightech and completion by Carmanah of a public offering of securities in a amount not less than US$15.0 million by December 31, 2010.
    * The City of Bethany, Oklahoma is investing in 52 solar LED flashing beacons to improve the safety of the City’s district school zones. The R829 dual-flashing amber LED solar traffic beacons, provided by Carmanah and sold by local Carmanah distributor, Gades Sales Inc., represent a significant safety improvement for Bethany students returning to school this Fall. The R829 solar LED flashing beacons, which are designed specifically for school applications, will be employed to reduce vehicle speeds that are approaching the school zones from nearby residential areas.
    * Carmanah has been recognized by the Illuminating Engineering Society (IES) in the 2010 IES Progress Report. The report recognizes Advanced Occupancy Sensing, the Company’s newest technology, as providing a unique and significant advancement to the art and science of lighting.
    * Installation was completed for the 38 kW solar grid-tied photovoltaic system designed for the newly constructed Dr. David Suzuki Public School. The new solar system was engineered and installed by Carmanah for the Greater Essex County District School Board of Windsor, Ontario, who received funding for the solar project through the Government of Ontario. Capable of delivering up to 10 per cent of the facility’s total energy needs, the new solar PV system is expected to serve as both a sustainable, revenue-generating power source as well as a functional learning tool for up to 500 students returning to classes in the fall.
    * Carmanah is providing 26 EverGENTM 1710 solar LED lighting units to illuminate the Selkirk Trestle Bridge in Victoria, BC. The units will run the length of the 300 meter long railway trestle bridge and will provide illumination for pedestrians and cyclists who use this significant commuter corridor. The EverGENTM 1710 units will incorporate Advanced Occupancy Sensing, leading edge occupancy sensing technology that is not offered by any other light on the market. Advanced Occupancy Sensing allows all the lights on the trestle to be activated when just one light senses motion.

Lightech Electronic Industries Ltd. Agreement

On September 21, 2010, the Company announced that an agreement was entered into to purchase all of the outstanding shares of Lightech pursuant to a merger between Lightech and a wholly-owned subsidiary of Carmanah for aggregate consideration of $18.5 million payable to the shareholders of Lightech, consisting of $12.3 million in cash and the issuance of 8,867,276 common shares having a value of $6.2 million. The agreement provided for the payment of up to an additional $1.5 million to the securityholders of Lightech if certain revenue targets were achieved by Lightech in fiscal 2011. The Lightech agreement provided for a termination by either Lightech or Carmanah if the transaction is not completed by December 31, 2010 or the conditions to its respective obligation to complete the transaction are incapable of being satisfied by December 31, 2010. The closing of the transaction is subject to a number of conditions, including the completion by Carmanah of a public offering of its securities in an amount of not less than US$15.0 million.

On October 25, 2010, Carmanah announced that it had received a formal requisition for the calling of a special meeting of shareholders of the Company from a corporation holding approximately 9.5% of Carmanah's issued and outstanding common shares. The requisition stated that the business to be transacted at the meeting is to consider an ordinary resolution directing the Company not to complete the proposed financing which is necessary to complete the acquisition of Lightech and to remove Carmanah’s board of directors (the “Board of Directors”) if the Board of Directors does not agree to be bound by such ordinary resolution.

Based on advice from Carmanah’s financial advisor, among other factors, the Board of Directors concluded that Carmanah could not complete the public offering necessary to finance the Lightech acquisition by December 31, 2010 because, among other reasons, of the uncertainty over the results of the shareholder meeting to approve the ordinary resolution directing the Company not to proceed with the financing and/or replace the Board of Directors. The Company has concluded that it is incapable of satisfying the financing condition by December 31, 2010 and has provided a notice of termination to Lightech terminating the agreement on that basis.

“The decision to terminate the Lightech agreement was a very difficult one, but after due deliberation, the Board of Directors determined that it was the only decision that could be made in light of the fact that the financing condition is incapable of being fulfilled by December 31, 2010,” stated Rob Cruickshank, Chairman of Carmanah. “We are very disappointed with the resolve of this transaction but want to stress that we are well positioned to continue with our immediate organic investment and growth plans. We have $6.0 million in cash on our Balance Sheet and continue to be debt free,” added Ted Lattimore, Chief Executive Officer.

 About Carmanah Technologies Corporation

As one of the most trusted names in solar technology, Carmanah has earned a reputation for delivering strong and effective products for industrial applications worldwide. Industry proven to perform reliably in some of the world's harshest environments, Carmanah solar LED lights and solar power systems provide a durable, dependable and cost effective energy alternative. Carmanah is a publicly traded company, with common shares listed on the Toronto Stock Exchange under the symbol "CMH”. For more information, visit carmanah.com.


Contact:
Carmanah Technologies Corporation
Investor Relations:
Roland Sartorius, CFO
Toll-Free: 1-877-722-8877
[email protected]
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