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CRNSF > SEC Filings for CRNSF > Form 10-Q on 19-Aug-2013All Recent SEC Filings

Show all filings for CORONUS SOLAR INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CORONUS SOLAR INC.


19-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This section of the quarterly report on Form 10-Q includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this quarterly report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Plan of Operation

Estimates and Assumptions

In the preparation of our financial statements, no estimates have been used since there is insufficient historical information in which to base such estimates.

Trends Affecting Our Business

In the past four years, solar module prices have been reduced by more than half, due to the impact of the global economic downturn, reduced silicon prices, increased polysilicon supply, and a general oversupply of solar modules on the market. Although we expect solar module prices to stay at current levels, or continue to decline, but not as drastically, a rebound in solar module prices would materially impact the viability of our business model, possibly rendering our model nonviable.

Regulatory Risk

On July 2, 2013, on June 12, 2013, the San Bernardino County Board of Supervisors approved a 45-day temporary moratorium on approval of commercial solar energy generation projects. The purpose of the moratorium is to prevent establishment of commercial solar energy generation projects that may be incompatible with existing land uses, while the County contemplate potential amendments to the Development Code for the purpose of ensuring and enhancing compatibility between solar energy generation projects and surrounding land uses. Coronus projects 29-Palms North, Yucca Valley East, Joshua Tree East, and Apple Valley East are subject to the moratorium. Coronus project Adelanto West is not. The moratorium may be extended by further action of the Board of Supervisors, initially for ten months and 15 days and then again for one year.

On July 23, 2013, the Board of Supervisors extended the moratorium for 10 months and 15 days, but said they hoped to put new regulations in place and lift the ban sooner than that. San Bernardino County Land Use Services Department Planning Director Terri Rahhal said the planners are working with a consultant and hope to return to the Board of Supervisors in three to six months with new regulations that would include location criteria, design standards and rules for processing applications. The Board of Supervisors could lift the moratorium at that time.

As a consequence of the moratorium extension, Coronus formally withdrew its SCE interconnection requests for Coronus solar PV systems 29-Palms North 2 and 3. Additionally, as a consequence of the moratorium extension, Coronus also put a formal request to SCE to terminate the PPAs in respect of these two projects.

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Plan of Operation for the Next Twelve Months

On August 9, 2013, we and our wholly-owned subsidiary, Coronus Energy Corp. ("Coronus"), entered into a share purchase and development services agreement (the "Share Purchase and Development Services Agreement") with Redwood Solar Development LLC ("Redwood"). Under the Share Purchase and Development Services Agreement, we have agreed to sell 100% of the issued and outstanding shares of Coronus to Redwood, in addition to performing certain development services in respect of the twelve anticipated, utility-scale, solar PV projects of Coronus, for $8,775,000 (the "Contract Price"). Redwood shall pay the Contract Price by issuing to us, a non-interest bearing, secured debenture (the "Redwood Debenture"). Our obligation to complete the sale is subject, in part, to 1) us receiving a release from Clean Focus in respect of any further obligations under or in connection with the Loan; and 2) the approval of the Share Purchase and Development Services Agreement by our shareholders holding not less than two-thirds of our shares. Redwood's obligation to complete the purchase is subject, in part, to 1) Redwood receiving lock-up agreements and proxies from our shareholders holding not less than 80% of our shares; and 2) the approval of the Share Purchase and Development Services Agreement by our shareholders holding not less than 80% of our shares.

Prior to executing the Share Purchase and Development Services Agreement, Redwood received lock-up agreements and proxies from eleven of our shareholders, who, in aggregate, hold 79.9% of our shares.

We are scheduled to hold an annual and special meeting of our shareholders (the "Meeting") on September 16, 2013, at which time, our shareholders will vote, by proxy or in person, on whether to approve the Share Purchase and Development Services Agreement. The closing date (the "Closing Date") means the date on which the closing will occur, which will be not more than three business days following the date of the Meeting.

In the event the required percentages of our shareholder votes are not met under the Share Purchase and Development Services Agreement, we shall owe Redwood a break-up fee of $5,000,000, which will be immediately due and payable. In addition, the Loan will be in immediate default, and will become due and payable, with us confessing judgment to the immediate exercise of remedies allowed with respect to the default of the Loan, including, without limitation, a declaration of foreclosure on the Coronus land parcels and the seizure of all assets of Coronus.

The Contract Price is the agreed upon price of $0.39/Wp, which is the estimated final output capacity of the twelve anticipated, utility-scale, solar PV projects of Coronus, and is based on the aggregate of the value of the installed solar PV systems and the value of the development services to be performed by us. The payment of the Contract Price, and the corresponding retirement of the Redwood Debenture, is as follows: 1) $1,000 was paid to us on the execution of the Share Purchase and Development Services Agreement; 2) $9,000 shall be paid to us on the Closing Date; 3) after four solar PV systems have met certain conditions, inclusive of the receipt of conditional use permits, a payment of 5% of the Contract Price, per solar PV system, shall be paid to us, estimated to be $36,563 per system; and 4) the balance of the Contract Price shall be pro-rated among the twelve solar PV systems with each pro-rata portion paid to us on permanent financial close in connection with the construction of each system.

Under the Share Purchase and Development Services Agreement, the Contract Price is subject to adjustment, upwards or downwards, as appropriate, based, in part, on the following parameters: installed capacity; development expense budget true-up; interconnection refund true-up; and Coronus financial statements true-up. Under the Share Purchase and Development Services Agreement, forward looking, Redwood agrees to fund, and the Contract Price reflects Redwood funding, certain development expenses that are separate and aside from the Contract Price. We understand and agree that the Redwood Debenture security interests received by us will be subordinate and junior to the interests securing the Loan, as well as subordinate and junior to all future draws under the Loan where the proceeds are used to fund those certain development expenses.

On August 9, 2013, by way of addendum (the "Loan Addendum"), the Maturity Date under the Loan was extended. The Note is now due on the earlier of i) the date of the Meeting, in the event that the Share Purchase and Development Services Agreement is not approved at the Meeting, or ii) the close of business on the Closing Date as defined in the Share Purchase and Development Services Agreement.

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In addition to the above, we are presently evaluating further vacant lands, ranging in size between 20 and 50 acres, for purchase. Over the course of the next twelve months, our intention is to acquire further lands, and to submit generating facility interconnection applications to SCE in respect of utility-scale, solar PV power systems to be sited on these lands.

Results of Operations

Three Months Ended June 30, 2013 compared to June 30, 2012

Amortization, tangible and intangible assets, expense decreased by $1,795 or 100% from $1,803 for the three months ended June 30, 2012 to $8 for the three months ended June 30, 2013. The reason for the decrease was that the Business Plan was fully amortized as of October 31, 2012.

We incurred $100,003 in amortization, financing costs on promissory note, expense for the three months ended June 30, 2013, as compared to no amortization, financing costs on promissory note, expense ($nil) for the three months ended June 30, 2012. The $100,003was the amortized portion of the deferred financing fees for the current period incurred on the issuance of the senior secured promissory note over the life of the note.

We incurred $148,147 in consulting fees expense for the three months ended June 30, 2013, as compared to no consulting fees expense ($nil) for the three months ended June 30, 2012. This expense relates to 1) the focused biological surveys we undertook for several properties during the current period, and 2) the Earthlight consultancy.

We incurred no interest on shareholder loan expense ($nil) for the three months ended June 30, 2013, as compared to $430 in interest on shareholder loan expense for the three months ended June 30, 2012. The reason for the decrease was that on April 18, 2012, we repaid, in full, the shareholder loan, and thus ended the accumulation of further interest.

Interest and bank charges expense increased by $44,425 or 616% from $7,207 for the three months ended June 30, 2012 to $51,632 for the three months ended June 30, 2013. The principal reason for the increase is the accrual of the interest owing on the senior secured promissory note in the amount of $88,222.

We incurred $6,692 in travel expense for the three months ended June 30, 2013, as compared to no travel expense ($nil) for the three months ended June 30, 2012. The increase was due to visits to our portfolio of sites in California.

Feasibility study expense decreased by $19,267 or 45% from $43,300 for the three months ended June 30, 2012 to $24,033 for the three months ended June 30, 2013. The decrease was due to the expensed portion of the numerous deposits Coronus paid over the past year to SCE for interconnection studies completed, in part, in the past year.

Foreign exchange loss expense decreased by $9,962 or 133% from an exchange loss of $7,513 for the three months ended June 30, 2012 to an exchange gain of $2,449 for the three months ended June 30, 2013. The decrease was attributable to the fluctuation of the USD/CAD exchange rate.

We incurred no write-off on discount of convertible notes expense ($nil) for the three months ended June 30, 2013, as compared to $80,237 in write-off on discount of convertible notes expense for the three months ended June 30, 2012. On April 20, 2012, we repaid, in full, the principal and interest owning on two convertible promissory notes. An amount of $5,302 was amortized for the period from April 1 to April 19, 2012, and the balance of the discount on issuance of the convertible promissory notes, $80,237, was written off.

We achieved no gain on sale of assets ($nil) for the three months ended June 30, 2013, as compared to $808,994 in gain on sale of assets for the three months ended June 30, 2012. Pursuant to the Solar PV Asset Sale Agreement, we recorded a gain of $808,994 in respect of the sale of Coronus Hesperia West 1 LLC in the three month period ended June 30, 2012.

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Assets and Liabilities at June 30, 2013 compared to March 31, 2013

Cash and cash equivalents decreased by $189,677 or 67% from $284,989 at March 31, 2013 to $95,312 at June 30, 2013. The reason for the decrease is that we used more cash in the current period to pay liabilities, than we achieved in gains in cash in the same period.

Other receivables decreased by $30,409 or 88% from $34,529 at March 31, 2013 to $4,120 at June 30, 2013. The principal reason for the decrease was the receipt of $25,081 in SCE utility study deposit refunds in the current period.

Current, prepaid expenses and deposit decreased by $25,828 or 93% from $27,666 at March 31, 2013 to $1,838 at June 30, 2013. The decrease is due to a comparative decrease in current, prepaid expenses in relation to utility interconnection studies.

We had $4,314,917 in assets held for sale at June 30, 2013, as compared to no assets held for sale ($nil) at March 31, 2013. The assets held for sale relate to the cash, other receivables, prepaid expenses and deposits, land, and project assets of Coronus. On August 9, 2013, we entered into the Share Purchase and Development Services Agreement with Redwood. Under the Share Purchase and Development Services Agreement, we have agreed to sell 100% of the issued and outstanding shares of Coronus to Redwood, in addition to performing certain development services in respect of the twelve anticipated, utility-scale, solar PV projects of Coronus.

We had no long-term prepaid expenses and deposit ($nil) at June 30, 2013, as compared to $564,150 in long-term prepaid expenses and deposit at March 31, 2013. As a result of entering into the Share Purchase and Development Services Agreement with Redwood, long-term prepaid expenses and deposit were reclassified as assets held for sale.

Property, plant and equipment decreased by $93,672 or 74% from $127,002 at March 31, 2013 to $33,330 at June 30, 2013. As a result of entering into the Share Purchase and Development Services Agreement with Redwood, property, plant and equipment, but for the 29-Palms East parcel, were reclassified as assets held for sale.

We had no project assets ($nil) at June 30, 2013, as compared to $3,477,920 in project assets at March 31, 2013. As a result of entering into the Share Purchase and Development Services Agreement with Redwood, project assets were reclassified as assets held for sale.

We had no senior secured promissory note ($nil) at June 30, 2013, as compared to $2,902,100 in senior secured promissory note at March 31, 2013. As a result of entering into the Share Purchase and Development Services Agreement with Redwood, senior secured promissory note was reclassified as liabilities held for sale.

We had no current notes payable ($nil) at June 30, 2013, as compared to $232,084 in current notes payable at March 31, 2013. As a result of entering into the Share Purchase and Development Services Agreement with Redwood, current notes payable were reclassified as liabilities held for sale.

We had $4,085,420 in liabilities held for sale at June 30, 2013, as compared to no liabilities held for sale ($nil) at March 31, 2013. The liabilities held for sale relate to the accounts payable and accrued liabilities, senior secured promissory note, and current and long-term notes payable of Coronus. On August 9, 2013, we entered into the Share Purchase and Development Services Agreement with Redwood. Under the Share Purchase and Development Services Agreement, we have agreed to sell 100% of the issued and outstanding shares of Coronus to Redwood, in addition to performing certain development services in respect of the twelve anticipated, utility-scale, solar PV projects of Coronus.

We had no long-term notes payable ($nil) at June 30, 2013, as compared to $579,014 in long-term notes payable at March 31, 2013. As a result of entering into the Share Purchase and Development Services Agreement with Redwood, long-term notes payable were reclassified as liabilities held for sale.

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Limited Operating History; Need for Additional Capital

There is limited historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources.

To become profitable and competitive, we need to obtain power purchase agreements from SCE, under the CPUC's feed-in tariff program for small generators, obtain land use permits, and secure financing, on a per project basis, to pay solar PV system integrators to construct the utility-scale, solar PV systems. There is no assurance that we will be able to obtain power purchase agreements or land use permits. Further, there is no assurance that we will be able to secure financing, or secure financing on acceptable terms. If financing is not available on acceptable terms, we may be unable to develop our operations.

We expect to raise additional capital through the sale of common stock in private placements, or through the sale of Coronus to Redwood. There is no assurance, however, that we will be able to raise any capital through the sale of common stock, or that the sale of Coronus to Redwood will close. Further, equity financing could result in additional dilution to existing shareholders.

We do not believe that possible inflation and price changes will affect our revenues.

Our auditors have issued a going concern opinion in our consolidated financial statements for the year ended March 31, 2013. This means that there is substantial uncertainty that we will continue operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Liquidity and Capital Resources

Since inception, we have issued 17,219,486 shares of our common stock and received cash of $591,861.

On March 19, 2012, Coronus, through its wholly-owned subsidiary, Coronus Hesperia West 1 LLC, entered into a Power Purchase Agreement ("PPA") with SCE. The PPA relates to Coronus' application for interconnection service and the CREST tariff for a 1.2 MW solar PV power system on a 20 acre parcel of vacant land, situated west of Hesperia, in the County of San Bernardino, California, Coronus agreed to acquire pursuant to a vacant land purchase agreement (the "Hesperia West Agreement"). On April 5, 2012, Coronus entered into a Solar Photovoltaic Asset Sale Agreement (the "Sycamore Solar PV Asset Sale Agreement") with Sycamore Physicians Partners LLC ("Sycamore"). Under the Sycamore Solar PV Asset Sale Agreement, Coronus agreed to 1) sell, assign and transfer to Sycamore, Coronus' sole membership in Coronus Hesperia West 1 LLC, 2) assign to Sycamore, the Hesperia West Agreement, and 3) use its best efforts to obtain a second PPA from SCE in relation to the Hesperia West land parcel, and to sell this PPA, relating to a 1.5 MW solar PV system, to Sycamore if obtained.

Under the Sycamore Solar PV Asset Sale Agreement, Sycamore agreed to pay $1,726,219 (the "Basic Price") to Coronus for the sole ownership in Coronus Hesperia West 1 LLC, the assignment of the Hesperia West Agreement, and the second PPA. On executing the Sycamore Solar PV Asset Sale Agreement, Sycamore agreed to pay $817,200 to Coronus, and Coronus agreed to transfer the sole membership in Coronus Hesperia West 1 LLC to Sycamore and to assign the Hesperia West Agreement to Sycamore. Under the Sycamore Solar PV Asset Sale Agreement, Sycamore agreed to pay the balance of the Basic Price, or $909,019, to Coronus on delivery of the second PPA. On April 11, 2012, Sycamore paid the $817,200 to Coronus, and on April 12, 2012, Coronus transferred the sole membership in Coronus Hesperia West 1 LLC to Sycamore and assigned the Hesperia West Agreement to Sycamore.

On August 30, 2012, Coronus, through its wholly-owned subsidiary, Coronus Hesperia West 2 LLC, entered into the second PPA with SCE. Having obtained the second PPA on the Hesperia West land parcel, on September 6, 2012, Sycamore paid the balance of the Basic Price, or $909,019, to Coronus, and Coronus transferred the sole membership in Coronus Hesperia West 2 LLC to Sycamore, thus concluding the Solar PV Asset Sale Agreement.

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On August 30, 2012 (the "Yucca Valley East PPAs Effective Date"), our wholly-owned subsidiaries, Coronus Yucca Valley East 1 LLC and Coronus Yucca Valley East 2 LLC, entered into two PPAs (the "Yucca Valley East PPAs") with SCE. The Yucca Valley East PPAs relate to our applications for interconnection service and the CREST tariff for two 1.5 MW solar PV power systems (the "Yucca Valley East 1 and Yucca Valley East 2 Projects") on the 34.07 acre parcel of vacant land, situated east of Yucca Valley, in the County of San Bernardino, California (the "Yucca Valley East Property"), Coronus acquired on August 17, 2012.

The Yucca Valley East PPAs are standardized, must-take, full buy/ sell, power purchase agreements, where SCE purchases all of the Yucca Valley East 1 and Yucca Valley East 2 Projects' generation, net of station use. The term of the Yucca Valley East PPAs is 20 years. The price SCE pays for the generation shall be premised on the adopted 2011 Market Price Referent, and shall be adjusted according to SCE's time of delivery periods and energy allocation factors, as scheduled in the Yucca Valley East PPAs. Initial operation of the Yucca Valley East 1 and Yucca Valley East 2 Projects must be no later than eighteen months from the Yucca Valley East PPAs Effective Date. The Yucca Valley East PPAs include, but are not limited to, provisions in respect of termination, facility operation, billing and payment, curtailment, and insurance. Additionally, on or before the thirtieth day following the Yucca Valley East PPAs Effective Date, we were required to post and maintain development fees (the "Yucca Valley East Development Securities") equal to $37,604 per Yucca Valley East PPA. If, on or before initial operation, we demonstrate to SCE's satisfaction that we have installed all of the equipment or devices necessary for us to satisfy the gross power rating of the generating facilities, SCE shall return the Yucca Valley East Development Securities to us within thirty days of each facility's initial operation. On September 27, 2012, we paid the Yucca Valley East Development Securities.

On August 30, 2012 (the "29-Palms North PPAs Effective Date"), our wholly-owned subsidiaries, Coronus 29-Palms North 1 LLC, Coronus 29-Palms North 2 LLC, and Coronus 29-Palms North 3 LLC, entered into three PPAs (the "29-Palms North PPAs") with SCE. The 29-Palms North PPAs relate to our applications for interconnection service and the CREST tariff for three 1.5 MW solar PV power systems (the "29-Palms North 1, 29-Palms North 2, and 29-Palms North 3 Projects") on the 160 acre parcel of vacant land, situated north of Twentynine Palms, in the County of San Bernardino, California (the "29-Palms North Re-Site Property"), Coronus acquired on December 28, 2012.

The 29-Palms North PPAs are standardized, must-take, full buy/ sell, power purchase agreements, where SCE purchases all of the 29-Palms North 1, 29-Palms North 2, and 29-Palms North 3 Projects' generation, net of station use. The term of the 29-Palms North PPAs is 20 years. The price SCE pays for the generation shall be premised on the adopted 2011 Market Price Referent, and shall be adjusted according to SCE's time of delivery periods and energy allocation factors, as scheduled in the 29-Palms North PPAs. Initial operation of the 29-Palms North 1, 29-Palms North 2, and 29-Palms North 3 Projects must be no later than eighteen months from the 29-Palms North PPAs Effective Date. The 29-Palms North PPAs include, but are not limited to, provisions in respect of termination, facility operation, billing and payment, curtailment, and insurance. Additionally, on or before the thirtieth day following the 29-Palms North PPAs Effective Date, we were required to post and maintain development fees (the "29-Palms North Development Securities") equal to $38,250 per 29-Palms North PPA. If, on or before initial operation, we demonstrate to SCE's satisfaction that we have installed all of the equipment or devices necessary for us to satisfy the gross power rating of the generating facilities, SCE shall return the 29-Palms North Development Securities to us within thirty days of each facility's initial operation. On September 27, 2012, we paid the 29-Palms North Development Securities. As a consequence of the San Bernardino moratorium on approval of commercial solar energy generation projects, Coronus put a formal request to SCE to terminate the 29-Palms North PPAs in respect of the 29-Palms North 2 and 29-Palms North 3 Projects, and asked SCE to return to Coronus the 29-Palms North Development Securities Coronus posted with SCE, in the amounts of $38,250 and $38,250, respectively.

On December 7, 2012 (the "Joshua Tree East PPAs Effective Date"), our wholly-owned subsidiaries, Coronus Joshua Tree East 1 LLC, Coronus Joshua Tree East 2 LLC, Coronus Joshua Tree East 3 LLC, Coronus Joshua Tree East 4 LLC, and Coronus Joshua Tree East 5 LLC, entered into five identical Power Purchase Agreements (the "Joshua Tree East PPAs") with SCE. The Joshua Tree East PPAs relate to our applications for

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interconnection service and the CREST tariff for five 1.5 MW solar PV power systems (the "Joshua Tree East 1, Joshua Tree East 2, Joshua Tree East 3, Joshua Tree East 4, and Joshua Tree East 5 Projects") on the 56.03 acre parcel of vacant land, situated east of Joshua Tree, in the County of San Bernardino, California (the "Joshua Tree East Property"), Coronus acquired on June 30, 2011.

The Joshua Tree East PPAs are standardized, must-take, full buy/ sell, power purchase agreements, where SCE purchases all of the Joshua Tree East 1, Joshua Tree East 2, Joshua Tree East 3, Joshua Tree East 4, and Joshua Tree East 5 Projects' generation, net of station use. The term of the Joshua Tree East PPAs is 20 years. The price SCE pays for the generation shall be premised on the adopted 2011 Market Price Referent, and shall be adjusted according to SCE's time of delivery periods and energy allocation factors, as scheduled in the Joshua Tree East PPAs. Initial operation of the Joshua Tree East 1, Joshua Tree East 2, Joshua Tree East 3, Joshua Tree East 4, and Joshua Tree East 5 Projects must be no later than eighteen months from the Joshua Tree East PPAs Effective Date. The Joshua Tree East PPAs include, but are not limited to, provisions in respect of termination, facility operation, billing and payment, curtailment, and insurance. Additionally, on or before the thirtieth day following the Joshua Tree East PPAs Effective Date, we were required to post and maintain development fees (the "Joshua Tree East PPAs Development Securities") equal to $36,736 per Joshua Tree East PPA. If, on or before initial operation, we demonstrate to SCE's satisfaction that we have installed all of the equipment or devices necessary for us to satisfy the gross power rating of the generating facilities, SCE shall return the Joshua Tree East PPAs Development Securities to us within thirty days of each facility's initial operation. On January 4, 2013, we paid . . .

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