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| ICPR.OB > SEC Filings for ICPR.OB > Form 10-Q on 15-Jun-2009 | All Recent SEC Filings |
15-Jun-2009
Quarterly Report
Forward Looking Statements
The Management's Discussion and Analysis ("MD&A") is designed to assist investors in understanding the nature and the importance of the changes and trends, as well as the risks and uncertainties associated with the Company's operations and financial position. Some sections of this report contain forward-looking statements that, because of their nature, necessarily involve a number of known and unknown risks and uncertainties, including statements regarding our capital needs, business strategy and expectations, and the factors described under "Risk Factors" contained in Item 1 of the Company's Form 10K Annual Report for the period ended January 31, 2009, which are incorporated herein by reference. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms or other comparable terminology. The Company's actual and future results could therefore differ materially from those indicated or underlying these forward-looking statements.
Although the Company deems the expectations reflected in these forward-looking statements to be reasonable, the Company cannot provide any guarantee as to the materialization of the expectations reflected in these forward-looking statements.
The following information should be read in conjunction with the unaudited consolidated financial statements for the three months period ended April 30, 2009 and 2008 and notes thereto. Unless otherwise indicated or the context otherwise requires, the "Company," "ICP," "we," "us," and "our" refer to ICP Solar Technologies Inc. and its subsidiaries.
Compliance with Generally Accepted Accounting Principles
Unless otherwise indicated, the financial information presented below, including tabular amounts, is expressed in US dollars and prepared in accordance with accounting principles generally accepted in the United States ("GAAP").
Use of Estimates
The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Critical items of the financial statements that require the use of estimates include the determination of the allowance for doubtful accounts, the determination of the allowance for inventory obsolescence, the determination of the useful life of fixed and intangible assets for amortization calculation purposes, the assumptions for fixed asset impairment tests, the determination of the allowance for guarantees, the determination of the allowance for income taxes, the assumptions used for the purposes of calculating the stock-based compensation expense, the determination of the fair value of financial instruments, the determination of the fair value of the assets and liabilities acquired on business acquisitions and the implicit fair value of goodwill.
The financial statements include estimates based on currently available information and management's judgment as to the outcome of future conditions and circumstances.
Changes in Accounting Principles
No accounting changes were adopted during fiscal 2008 and 2009 and the first three months ended April 30, 2009.
Overview
Company Background
Headquartered in Montreal, Canada, ICP Solar operates in the renewable energy industry. ICP Solar develops, markets, and sells solar energy based products to the consumer goods, Original Equipment Manufacturers ("OEM"), residential and commercial markets through its distribution channels in over 100 countries.
We develop and market solar power products that provide reliable and environmentally clean electric power throughout the world. Solar power products use interconnected photovoltaic cells to generate electricity from sunlight. Solar power products can provide a cost-competitive, reliable alternative for powering highway call boxes, microwave stations, portable highway road signs, remote street or billboard lights, vacation homes, rural homes in developed and developing countries, water pumps and battery chargers for recreational vehicles and other consumer applications. Furthermore, solar power products can provide on-grid customers with a clean, renewable source of alternative or supplemental electricity.
Our plan of operation for the next twelve months is to engage in our marketing, product development and sales channel efforts. We plan to expand our current distribution depth within the markets of North America, Europe and Japan for our consumer goods segment through the marketing of our internal brand SunseiŽ, as well as licensed brand ColemanŽ. We will launch our next generation metering products for both grid and off-grid RE applications.
Our immediate goal is the development of our thin film amorphous solar rooftop tile which can be seamlessly integrated into roofing lines for homes, buildings and other structures. We are currently developing a distribution channel and technology partnerships to launch products based on the thin film amorphous solar cell technology in 2009. Although there can be no assurances, we plan to deliver on a sustainable growth strategy across each of our main targets. We also intend to increase our addressable markets, further sales and solidify our brand through strategic partnerships with best practice distribution partners worldwide. Strategic partnerships for both distribution channel and technology are expected to be key drivers of our expansion plans.
These consolidated financial statements for the quarter ended April 30, 2009, were prepared under the assumption that the Company will continue operations as a going concern.
The Company has reported a net loss of $5,982,660 and negative cash flows from operating activities of $113,764 for the quarter ended April 30, 2009 as well as net losses of $9,285,467, $4,222,738, $2,626,565 and $1,396,672 and negative cash flows from operating activities of $1,991,115, $1,380,799, $3,828,787, and $978,067 for the fiscal years ended January 31, 2009, 2008, 2007 and 2006 respectively. As of April 30, 2009, the Company had an accumulated deficit of $24,912,588, negative working capital of $1,522,848 and cash of $48,541. Until and unless the Company's operations generate significant revenues and cash flow, we will attempt to continue to fund operations from cash on hand and through the sources of capital described below. The Company's long-term liquidity is contingent upon achieving sales and positive cash flows from operating activities, and/or obtaining additional financing. The most likely sources of financing include private placements of the Company's equity or debt securities or bridge loans to the Company from third-party lenders. On April 29, 2009 the Company entered into an agreement with a financial institution to provide up to $720,000 in financing based on its accounts receivable. The Company can give no assurances that any additional capital that it is able to obtain will be sufficient to meet its needs, or on terms favourable to it. During the fourth quarter of 2009, the Company significantly reduced overhead expenditures, reduced product costs and is continually expanding its customer pipeline. Management believes these factors will contribute toward achieving profitability. Despite these initiatives however, the Company still requires capital to sustain its existing operations. The Company may, however, choose to raise additional capital before January 31, 2010 to fund future development activities or to take advantage of other strategic opportunities. This could include the securing of funds through new strategic partnerships and/or the sale of common stock or other securities. There can be no assurance that such capital will be available to the Company on favourable terms, or at all. There are a number of risks and uncertainties related to the Company's attempt to complete a financing or strategic partnering arrangement that are outside its control. The Company may not be able to obtain additional financing on terms acceptable to it, or at all. If the Company is unsuccessful at obtaining additional financing as needed, it may be required to significantly curtail or cease operations. The Company will need additional financing thereafter until it achieves profitability, if ever.
Should the Company be unable to continue as a going concern it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. These financial statements do not include any adjustments that may result from the outcome of this uncertainty
Operating Results for the Three Month Period Ended April 30, 2009
Net Sales
During the first quarter ended April 30, 2009, ICP's consolidated net sales posted a decrease of 24% or $445 thousand to $1.45 million, down from $1.89 million for the three month period ended April 30, 2008. This difference can be explained by the loss of approximately $213 thousand in OEM business from Asia, $165 thousand in Europe and the remaining $67 thousand from North America. The lost business was due to the global economic crisis. Retailers chose to take a conservative position and rather than buy inventory for the summer season chose to sell existing stock or wait until volumes increased. The Company was also left with low inventory on a few high demand products and had a lack of resources to renew those depleted inventories to fulfill orders.
By geographic location, sales in North America accounted for approximately 75% (2008-64%) of total sales, Europe 23 %(2008-23%) ,and Asia 2%(2008-13%).
The gross margin decreased by 41% or $287 thousand to $413 thousand. Of this decrease $164 thousand was a result of lower sales. The remaining $123 thousand was because the gross profit margin as a percentage of sales worked out to 28.5% for the three month period ended April 30, 2009, compared to 37.0 % the previous year.
Operating expenses
Selling and general and administrative expenses decreased to $ 1 million from $1.58 million a year earlier. This decrease of 36% or $575thousand is explained by a $375 thousand reduction in stock based compensation, (a non-cash charge), from approximately $683 thousand for the three month period ended April 30, 2008 to $308 thousand for the current quarter ended April 30, 2009. General and administrative costs decreased by $70 thousand , $33 thousand in salary and benefits, $ 23 thousand in professional fees, and the remaining $44 thousand made up of overhead, offset by an increase of $30 thousand in warehousing due to a 30% increase in US warehouse sales. Selling costs decreased by $129 thousand including $56 thousand reduction in salaries, $30 thousand in travel and the remaining $43 thousand in selling and marketing costs due to lower sales.
Research and development costs increased by $4 as the Company had three months of R&D costs compared to only two months the prior year.
Including depreciation of $21 thousand and the foreign exchange loss of $37 thousand, operating losses amounted to $695 thousand compared to a loss of $935 thousand for the prior year 's three month period ended April 30, 2008.
Including interest expense of $78 thousand, the accretion of discount on senior secured convertible debentures of $847 thousand, the change in fair value of derivative liability-embedded conversion option of $221 thousand and the interest expense on put warrants of $4.1 million the net loss amounted to $6.0 million compared to $910 thousand the prior year. Please refer to Note 6 on the April 30, 2009 financial statements for an explanation of the non-cash charges relating to the conversion option and put warrants..
The loss per common share (basic and diluted) amounted to $0.17 on a weighted average of 34,367,817 outstanding shares, compared with loss per share of $0.03 on 32,861,695 shares the previous year.
Principal Cash Flows for the Three Month Period Ended April 30, 2009
Operating activities before net change in non-cash working capital items used cash flows of $408 thousand during the period compared to used cash flows of $272 thousand a year earlier. Net change in non-cash working capital items related to operations generated cash flows of $295 thousand for the three months ended April 30, 2009 compared to $247 thousand for the first quarter ended April 30, 2008. Operating activities used net cash flows of $114 thousand, compared with a use of cash of $25 thousand for the corresponding period the previous year.
Investing activities used cash of $30 thousand in the prior year as a result of the assets acquired through Wes Power. The current year's quarter reported no cash flows from investing activities..
The aggregate cash inflows and outflows for the three month period ended April 30, 2009 used net cash flows of $145 compared to $nil for the same period last year. ICP ended the period with cash of $48 thousand, up by $27 thousand from $21 thousand as at April 30, 2008.
Financial Position as at April 30, 2009
Total assets amounted to $2.4 million as at April 30, 2009, compared to $2.5 million as at January 31, 2009. This decrease primarily reflects the reduction in inventory offset by increases in accounts receivable and prepaids.
Working capital was a deficit of $ 1.5 million as at April 30, 2009 and was $418 thousand as at January 31, 2009. The working capital deficit is due to increases in accounts payable, senior secured convertible debentures and the derivative liability-embedded conversion option. The current ratio as at April 30, 2009 was at 0.59:1 and at 1.22:1 at January 31, 2009.
Considering the accumulated losses to date and the increase in total debt, the Company was not in compliance with certain ratios contained in the covenants related to its senior secured convertible debenture agreements but has obtained the necessary waivers from its lenders.
Shareholders' deficit amounted to $9.1 million at April 30, 2009 from $2.9 million as at January 31, 2009.
Pursuant to the Company's agreements with Senior Secured Convertible Debenture Holders, in the case where the Company does not reach certain thresholds in sales and EBITDA for the quarter ended April 30, 2009, the conversion price on the $2,476,969 in outstanding debentures of $ 0.25 per share, and the exercise price on the 13,333,332 Series A and 26,666,666 Series B Warrants of $0.25 per share and 13,333,332 Series C warrants of $0.50/share will change to a lower of:
1) a weighted average of the previous five days market price at April 30,2009 and
2) a weighted average of the previous five days market price five trading days after filing of the Company`s fiscal 2010 first quarter 10Q report with the SEC.
At April 30, 2009 the Company did not meet the threshold mentioned above therefore the conversion price and exercise price would have been changed to $0.19 per share however the Company has agreed that the Senior Secured Convertible Debenture Holders may convert recent conversions at $0.14 per share. In the case where the weight average price after the 10Q filing is less than the converted price of $0.14 per share then all conversions subsequent to April 30, 2009 will be adjusted to the new exercise price and additional shares, if necessary will be issued.
On May 11, 2009 the Company issued 348,000 common shares at a value of approximately $49,000 to a director as consideration for obtaining a factoring agreement with a financial institution. This $49,000 has been accrued as professional fees at April 30, 2009. (S.R- I haven't yet updated FS for this-will do with all adjustments.)
On May 12, 2009 a Senior Secured Convertible Debenture Holder converted approximately $78,000 at a conversion price of $0.14 for 552,576 common shares.
On May 13, 2009 the Company issued 463,581 common shares to a director for approximately $60,000 as payment for consulting services previously provided for and owed to a company in which the director is a shareholder. In relation to these common shares a put option was also granted at a value of approximately 60,000 whereby the holder has an option to have the Company repurchase any or all of the common shares at a price of $0.13/share during the period June 22, 2009 to June 22, 2010.
On May 22, 2009 a Senior Secured Convertible Debenture Holder converted $25,000 at a conversion price of $0.14 for 178,571 common shares.
On May 27.2009 the Company issued 400,000 common shares to the Chief Executive Officer as redemption for 400,000 Class A Exchangeable shares in 1260491 Alberta Inc. relating to the September 29, 2006 share exchange agreement between the Company and ICP Solar Holdings Inc.
On June 8, 2009 Senior Secured Convertible Debenture Holder converted a total of approximately $128,000 at a conversion price of $0.14 for 916,781 common shares.
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