Carmanah Technologies Corporation (TSX:CMH) (“Carmanah”) provides the following disclosure updates.
Change in Chief Financial Officer
On September 12, 2013, Carmanah terminated the contract of Mr. Roland Sartorius as Chief Financial Officer. At the same time, Carmanah appointed Mr. Stuart Williams as Chief Financial Officer.
Spot Devices Acquisition
On January 7, 2013, Carmanah completed its previously announced (November 15, 2012) transaction to acquire the assets of Spot Devices, Inc. (“Spot Devices”). Spot Devices was a participant in the traffic signaling industry and, together with Cirrus Systems, LLC, an innovator of System Infrastructure Management Application (“SIMA”) technology. The transaction planned to include a license agreement for the exclusive use of SIMA for public roadway applications but this negotiation was not concluded at the same time as the asset purchase agreement. Terms of the asset purchase transaction that did close on January 7, 2013 included the issuance of 2.2 million common shares to Spot Devices (valued at approximately $0.6 million on closing) plus conditional cash payments pursuant to a two-year cash earn-out where Spot Devices is paid 12.5% of the portion of cumulative 2013 and 2014 gross traffic revenues exceeding US$17.5 million.
In early July 2013, Carmanah concluded that the SIMA system did not meet Carmanah reliability standards and also that the market potential was far less than Carmanah had determined prior to the January 7, 2013 transaction completion. Accordingly Carmanah withdrew from any further consideration of entering a SIMA license agreement.
Carmanah is currently in the process of determining its go forward strategy, which will likely include a modified product offering without SIMA services. As a result of this, Carmanah has written off $0.6 million of intangible assets associated with the acquisition and expects that it will need to replace, or in some way repair or retrofit, some of the Spot Devices products sold by Carmanah between January 2013 and August 2013. A current estimate of future costs to be incurred to remedy this matter has not yet been determined.
Carmanah and Carmanah Technologies (US) Corporation were named as defendants in a suit filed on July 17, 2013 by R.D. Jones, Stop Experts, Inc. and RRFB Global, Inc. (“Plaintiffs”) in the United States District Court for the Southern District of Florida. Spot Devices, Inc. was named as a co-defendant. The Plaintiffs have asserted claims of patent infringement and have also alleged violations of the Lanham Act, 15 U.S.C. 1125(a) and Florida’s Deceptive and Unfair Trade Practices Act, Florida Statutes Section 501.201, et seq. As of the date of this news release, the Plaintiffs have alleged in court that the amount claimed exceeds US$75,000. Carmanah is contesting the suit and denies the Plaintiffs’ claims. The Plaintiffs have sought preliminary injunctive relief in connection with their claims. Carmanah has opposed the Plaintiffs’ request. There has been no decision on Plaintiffs’ motion to date. On September 12, 2013 Carmanah answered the suit and launched a counter claim asserting that R.D. Jones, Stop Experts, Inc., and RRFB Global, Inc. have infringed a patent owned by Carmanah.
Revenue Projections and Restructuring Charge
During the past 12-18 months, in various oral and written disclosures, management of Carmanah indicated that it expected Carmanah’s revenue to grow and for Carmanah’s operations to become cash flow positive by the end of fiscal 2013. To date, these expectations have not been met and current executive management of Carmanah does not believe that in its current structure Carmanah will achieve revenue growth or positive cash flow from operations in the near term. Management intends to assess all of Carmanah’s operations during the remainder of fiscal 2013. This assessment is not yet completed and may result in a restructuring of the organization and as it does so a corresponding restructuring charge will be taken. Currently there is no estimate of the nature or magnitude of any potential restructuring charge.
Marine Project Agreement
On June 28, 2012, Carmanah announced that had entered into a non-binding letter agreement with one of its distributors for the procurement, commissioning and installation of aids to navigation within a broader, significant marine project in South America. The agreement was expected to be completed within 30 days, and Carmanah cautioned that there could be no assurances that the transactions contemplated in the non-binding letter agreement would be completed as anticipated, or at all. At the end of 2012 Carmanah further revised its estimate of the agreement finalization date to 2013 with commencement of delivery of the product throughout 2013 and early 2014.
Since signing the agreement Carmanah has not received a purchase order or any other indication that the counterparty is willing and/or intending to perform the terms of the agreement. At this time, Carmanah cannot reasonably estimate the probability and cannot provide an assurance that the transaction contemplated in the non-binding letter of agreement will be completed as currently anticipated, or at all.
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 transportation 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.
For further information:
Carmanah Technologies Corporation:
Stuart Williams, Chief Financial Officer / Corporate Secretary
Statements contained in this news release relating to future results, events or developments, including, but not limited to, statements regarding whether Carmanah’s future strategy will include a modified product offering without SIMA services, whether Carmanah will replace, repair or retrofit certain Spot Devices products sold by Carmanah and the related costs, the expected outcome of the litigation initiated by R.D. Jones, Stop Experts, Inc. and RRFB Global, Inc., Carmanah management’s expectations regarding revenue growth or positive cash flow from operations in the near term, Carmanah management’s expectations regarding restructuring, whether the transaction contemplated by the non-binding letter agreement for the procurement, commissioning and
installation of aids to navigation will be completed as currently anticipated or at all, and statements containing the words "believes," "may," "could", "plans," "will," "estimate," "continue," "anticipates," "intends," "expects", “goal” and similar expressions, are "forward-looking statements" or “forward-looking information” under applicable U.S. and Canadian securities laws. Forward-looking statements or information are subject to the related assumptions made by us and involve known and unknown risks, uncertainties and other factors that may cause actual results, events or developments to be materially different from those expressed or implied by such statements or information.
Many of such risks, uncertainties and other factors form part of our underlying assumptions, and include, among other things, financial risks that would affect our operations such as our limited available working capital and cash flows and whether and for how long available funds will be sufficient to fund our operations, and our ability to raise additional capital as and when needed; our need for substantial additional funding to conduct research and development and commercialization activities; current financial market conditions which may negatively affect our ability to obtain financing; the ability to obtain regulatory approval and shareholder acceptance of planned financings, and other factors referenced in our Annual Information Form (AIF) and other filings with Canadian securities regulatory authorities.
Given these uncertainties, assumptions and risks, readers are cautioned not to place undue reliance on such forward-looking statements or information. We disclaim any obligation to update, or to publicly announce any revisions to, any such statements or information to reflect future results, events or developments, except as required by law.