Vancouver, BC, Canada – (October 21, 2004) – Carmanah Technologies Corporation (TSX VE: CMH, Berlin and Frankfurt Stock Exchanges: QCX),is pleased to announce its third quarter results for the nine months ended September 30, 2004 and 2003.
Highlights for the Quarter
- Record Q3 2004 revenues of $4,628,383, representing a 98% increase over Q3 2003
- Record 2004 year-to-date revenues of $12,246,176, representing a 109% increase over the same nine-month period in 2003
- Net earnings for the quarter of $418,592, as compared to $120,585 for Q3 2003
- Year-to-date net earnings of $631,895, as compared to a net loss of $69,836 for the same nine-month period in 2003
- Year-to-date gross profit margin at 54%, as compared with 54% for fiscal 2003
“This has been the strongest quarter in our Company’s history,” stated Art Aylesworth, Carmanah’s CEO. “We are currently experiencing significant sales momentum in every market sector we are targeting, including those of subsidiary, Carmanah Signs (formerly AVVA Light Corporation). It is also very encouraging to see that our emerging markets are now providing the highest gains, consistent with our sales strategy for 2004.”
MANAGEMENT DISCUSSION AND ANALYSIS
Revenues
Carmanah’s total revenues for the three months ended September 30, 2004 were $4,628,383, representing a 98% increase over the same period in 2003 at $2,340,810. Total revenues for the nine months ended September 30, 2004 were $12,246,176, representing a 109% increase over the same period in 2003 at $5,855,312.
Carmanah’s revenues were derived from the sale of solar-powered LED lighting and illumination products manufactured by the Company’s operating subsidiary, Carmanah Technologies Inc. (“CTI”), as well as from the sale of LED edge-lit signs through the Company’s operating subsidiary, Carmanah Signs Inc. (“CSI”).
Contribution from Carmanah Technologies Inc.
CTI contributed $10,605,901 to the Carmanah’s overall revenues for the first nine months of 2004, as compared to $5,855,312 for the same period in 2003. This increase in revenues is attributed primarily to sales growth in the aviation and transit market sectors. These two market sectors combined, contributed over $6 million in revenue during the first nine months of 2004, compared to approximately $1.7 million in revenue for the same period in 2003.
Contribution from Carmanah Signs Inc.
(formerly AVVA Light Corporation)
CSI contributed $1,640,275 to Carmanah’s overall revenues for the first nine months of 2004. The Company has no CSI comparatives for the first nine months of 2003 because the acquisition of CSI took effect October 1, 2003. CSI sales had a slower than anticipated start in the 2004 year which resulted in a shortfall in meeting sales targets. The Company addressed the challenges affecting sales growth in the second quarter and is seeing positive results with increased sales momentum through the third quarter. Revenue for the three months ended September 30, 2004 was $640,000, representing an increase of approximately 28% over each of the previous two quarters. In addition, CSI had more than $300,000 in outstanding sales orders at the close of September 30, 2004 that are scheduled for fulfillment during the fourth quarter.
Cost of Sales and Gross Profit
Cost of sales was $2,190,807 (47% of revenue) for the three months ended September 30, 2004, resulting in a gross profit margin of 53%. Cost of sales was $5,647,938 (46% of revenue) for the nine months ended September 30, 2004, resulting in a 54% gross profit margin for the year to-date. Cost of sales includes labor, material, material burden and other manufacturing costs.
There are a number of factors that affect the Company’s gross profit levels ranging from the ratio of direct sales versus distributor sales, purchasing volumes and practices, and foreign exchange fluctuations. All of these factors are monitored closely in an effort to protect or enhance the Company’s ongoing profit margins. The Company has continued to maintain stable gross profit levels, notwithstanding the increase in value of the Canadian dollar relative to the US dollar.
Wages and Benefits
Wages and benefits expense for the three months ended September 30, 2004 increased 99% to $853,789, compared with $429,402 for the same period in 2003. For the nine months ended September 30, 2004, wages and benefits expense also increased 99% to $2,599,810, compared with $1,307,571 for the same period in 2003. The increase of $1,292,239 for the nine months ended September 30, 2004 over the same period in 2003 is the result of approximately $500,000 in additional wage expenses from CSI staff, a $99,000 severance expense for the termination of some executive and sales personnel, and an increase in sales and administrative staff in support of overall sales growth.
Staffing levels for the entire Company at September 30, 2004 were 97 full time employees, as compared to 54 at September 30, 2003. As a percentage of sales, total wages and benefits for the nine months ended September 30, 2004 represented 21% of total sales, compared to 22% for the same period 2003.
The Company booked a stock-based compensation expense for the three months ended September 30, 2004 in the amount of $69,097, and for the nine months ended September 30, 2004 in the amount of $167,315. This is the result of a new regulatory requirements that stipulates stock options be expensed direct on the income statement. In prior periods, this was reported on a pro forma basis within the notes to the financial statements.
Office and Administration
Office and administration expenses for the three months ended September 30, 2004 were $310,746, representing a 96% increase over 2003 at $158,432. For the nine months ended September 30, 2004, they were $813,631, representing a 62% increase over 2003 at $503,698. The increase for the three and nine month periods is primarily due to the addition of CSI’s office and administration costs as a result of the CSI acquisition. Office and administration expense for the nine months ended 2004 represent 7% of total sales, as compared to 9% of total sales for the same period ended 2003.
Research and Development
Research and development expenses consist of engineering labor and material expenses in support of product development and research activities. During the first nine months of 2004, research and development expenses of $1,063,134 represented a 65% increase over the previous year’s $642,891 (net of a $125,000 recovery under a Sustainable Development Technology Canada grant). This increase was the result of increased investment in development of new product offerings into new market sectors, as well as enhancements to current products that enable increased sales into other market sectors. This focus through much of 2003 and 2004 to-date has resulted in release of new products, including solar-powered LED bus stops, shelters and crosswalks. It also resulted in the release of the solar-powered LED aviation light, which is a modified version of CTI’s marine light. As a percentage of sales, research and development expenses for the nine-month period ending 2004 are 9%, down from 11% for the same period in 2003.
Sales and Marketing
Sales and marketing expenses for the three months ended September 30, 2004 were $337,287, compared to $180,979 for the same period in 2003. For the nine months ended September 30, 2004, sales and marking expenses were $1,000,832, compared to $477,946 in 2003. The increased expenses are due in part to the acquisition of CSI, as well as increased sales and marketing by CTI. Much of the Company’s sales and marketing resources have been and continue to be invested in emerging markets, such as transit, aviation, roadways and LED edge-lit signage. These markets have begun to realize significant revenues for 2004, and are expected to continue to grow in the future.
Net Earnings
Net earnings for the three months ended September 30, 2004 were $418,592, compared to $120,585 for the same period in 2003. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $529,812, compared with $172,156 for the same three-month period in 2003. For the nine months ended September 30, 2004, net earnings were $631,895 (EBITDA $938,370), compared to a net loss of $69,836 (EBITDA $62,367) for the same comparative period.
The Company utilized a portion of its carry forward investment tax credits, tax losses and SRED pools in order to minimize any current tax expense. The future income tax effect arising from the use of these items has been offset against available tax losses not previously recognized.
Cash and Liquidity
The Company’s cash and cash equivalents at September 30, 2004 were $7,068,976, compared to $1,693,069 at December 31, 2003. This $5,375,907 increase in cash is primarily the result of net inflows of cash provided from net income in the amount of $631,895; completion of a private placement for the issuance of 3,484,848 units at a price of $1.65 per unit for gross proceeds of $5,750,000; $468,125 and $324,672 raised from the exercise of stock options and warrants respectively, less cash used for inventory of $534,247, capital assets of $515,091, and repayment of bank line of credit and long-term debts in the amount of $521,992.
The Company’s net working capital at September 30, 2004 was $10,701,424 (current ratio of 7.37:1), compared to $4,168,728 (current ratio of 2.91:1) at December 31, 2003.
About Carmanah
Carmanah is an award-winning manufacturer specializing in proprietary solar-powered LED lighting solutions for commercial applications in the marine, aviation, transit, roadway, industrial worksite, and illuminated signage markets. The Company currently has more than 100,000 units installed in 110 countries. The shares of Carmanah Technologies Corporation are publicly traded on the TSX Venture Exchange under the symbol “CMH” and on the Berlin and Frankfurt Stock Exchanges under the symbol “QCX”. For more information, please visit www.carmanah.com.
On Behalf of the Board of Directors
Carmanah Technologies Corporation
Praveen Varshney, Director
CARMANAH TECHNOLOGIES CORPORATION
Consolidated Interim Balance Sheets
September 30, 2004 and December 31, 2003
(Unaudited – Prepared by Management)
| Sept 30, | December 31, | ||
| 2004 | 2003 | ||
| (unaudited) | (audited) | ||
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents | $ 7,068,976 | $ 1,693,069 | |
| Accounts receivable, net | 2,751,017 | 2,698,061 | |
| Inventories | 2,439,119 | 1,904,872 | |
| Prepaid expenses and deposits | 121,396 | 53,376 | |
| 12,380,508 | 6,349,378 | ||
| Equipment and leasehold improvements, net | 1,107,590 | 871,683 | |
| Intangible assets, net | 173,143 | 190,320 | |
| Goodwill | 3,072,173 | 3,072,173 | |
| Future Income taxes | 190,114 | 190,114 | |
| $16,923,528 | $10,673,668 | ||
| Liabilities and Shareholders’ Equity | |||
| Current liabilities: | |||
| Accounts payable and accrued liabilities |
1,581,839 | 1,648,841 | |
| Deferred Revenue | 71,988 | 71,228 | |
| Current portion of obligations under capital lease |
26,017 | 55,435 | |
| Bank loan | – | 383,332 | |
| Current portion of long-term debt |
– | 21,848 | |
| 1,679,084 | 2,180,650 | ||
| Obligations under capital lease | 17,553 | 71,656 | |
| Long-term debt | – | 33,325 | |
| 1,696,637 | 2,285,631 | ||
| Shareholders’ equity: | |||
| Share capital | 14,870,989 | 8,831,345 | |
| Contributed surplus | 639,214 | 471,899 | |
| Deficit | (283,312) | (915,207) | |
| 15,226,891 | 8,388,037 | ||
| $16,923,528 | $10,673,668 | ||
CARMANAH TECHNOLOGIES CORPORATION
Consolidated Interim Statements of Operations and Deficit
For the nine months ended September 30, 2004 and 2003
(Unaudited – Prepared by Management)
| 3 months ended | 9 months ended | ||||
| September 30 | September 30 | ||||
| 2004 | 2003 | 2004 | 2003 | ||
| Sales | 4,628,383 | 2,340,810 | 12,246,176 | 5,855,312 | |
| Cost of sales | 2,190,807 | 1,075,276 | 5,647,938 | 2,683,907 | |
| 2,437,576 | 1,265,534 | 6,598,238 | 3,171,405 | ||
| Operating expenses: | |||||
| Wages and benefits |
853,789 | 429,402 | 2,599,810 | 1,307,571 | |
| Research and development |
365,153 | 298,170 | 1,063,134 | 642,891 | |
| Sales and marketing |
337,287 | 180,979 | 1,000,832 | 477,946 | |
| Office and administration |
310,746 | 158,432 | 813,631 | 503,698 | |
| Stock-based compensation expense |
69,097 | 12,288 | 167,315 | 132,737 | |
| Bank charges | 20,682 | 32,847 | 76,821 | 71,896 | |
| Amortization of: | |||||
| Equipment and leasehold improvements |
100,962 | 49,367 | 276,464 | 125,226 | |
| Patents and other intang- ible assets |
10,258 | 2,204 | 30,011 | 6,977 | |
| 2,067,974 | 1,163,689 | 6,028,018 | 3,268,942 | ||
| Operating income (loss) for the period |
369,602 | 101,845 | 570,220 | (97,537) | |
| Interest and other income |
48,990 | 18,740 | 61,675 | 27,701 | |
| Net earnings (loss) before income taxes |
418,592 | 120,585 | 631,895 | (69,836) | |
| Income tax expense (recovery): |
|||||
| Current income taxes |
185,000 | – | 455,000 | – | |
| Future income taxes | (185,000) | – | (455,000) | – | |
| Net earnings (loss) for period |
418,592 | 120,585 | 631,895 | (69,836) | |
| Deficit, beginning of period |
(701,904) | (834,320) | (741,505) | (764,348) | |
| Adjustment to reflect change in accounting for employee stock options |
– | (144,914) | (173,702) | (24,465) | |
| Deficit, beginning of period, restated |
(701,904) | (979,234) | (915,207) | (788,813) | |
| Deficit, end of period | (283,312) | (858,649) | (283,312) | (858,649) | |
| Earnings (loss) per share | |||||
| Basic | $0.014 | $0.005 | $0.021 | $(0.003) | |
| Diluted | $0.013 | $0.005 | $0.020 | $(0.003) | |
| Weighted average # of shares outstanding |
|||||
| Basic | 30,646,336 | 22,897,055 | 29,731,267 | 22,832,186 | |
| Diluted | 32,853,390 | 22,667,682 | 31,938,321 | 22,832,186 | |
This release contains forward-looking statements within the meaning of the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are described under the caption “Note Regarding Forward-looking Statements” and “Key Information – Risk Factors” and elsewhere in Carmanah’s Annual Report for the fiscal year ended December 31, 2003, as filed with the U.S. Securities and Exchange Commission and which are incorporated herein by reference. These risks and uncertainties are also described under the caption “Risk Factors” in Carmanah’s Annual Information Form dated December 31, 2003, as filed with the British Columbia Securities Commission and which are incorporated herein by reference. Carmanah does not assume any obligation to update the forward-looking information contained in this press release.