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CRNSF > SEC Filings for CRNSF > Form 10-Q on 13-Nov-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.


13-Nov-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

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from the estimates.

Trends Affecting Our Business

In the past four and one-half 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 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, Apple Valley East, and 29-Palms Morongo 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.

On October 17, 2013, in respect of the moratorium, the San Bernardino County Land Use Services Department presented a proposed ordinance amending the Development Code to the San Bernardino County Planning Commission, to establish required findings when considering approval of commercial solar energy generation facilities, to guide the appropriate siting of these facilities to protect sensitive natural resources, safeguard existing and future neighborhoods and rural residential uses, and promote a vibrant tourist economy. The Planning Commission recommended approval, but with final action by the Board of Supervisors.

As a consequence of the moratorium extension, Coronus Energy Corp. ("Coronus"), our previously owned, wholly-owned subsidiary, formally withdrew its SCE interconnection requests for Coronus solar photovoltaic ("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 CREST power purchase agreements in respect of these two projects. There is no assurance the outcome of the moratorium, or delay arising therefrom, will not materially and adversely affect those Coronus projects subject to the moratorium. Nor is there any assurance the presence of the moratorium will not limit our ability to access the capital markets to meet liquidity and capital expenditure requirements. As a consequence of the moratorium, we have assigned a probability of success ratio ranging from 25% to 80%, per solar PV system, in respect of those systems and related projects subject to the moratorium.

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Plan of Operation for the Next Twelve Months

On August 9, 2013, we and Coronus Energy Corp. ("Coronus"), our previously owned, wholly-owned subsidiary, entered into a share purchase and development services agreement (the "Share Purchase and Development Services Agreement") with Redwood Solar Development LLC ("Redwood"). On September 19, 2013, the parties closed on the Share Purchase and Development Services Agreement.

On December 20, 2012, Coronus and Coronus' wholly-owned subsidiaries, conducted a non-brokered private placement, issuing a senior secured, promissory note (the "Note") to Clean Focus Financing Company, LP ("Clean Focus"), for proceeds of up to $4,000,000 (the "Loan").

Under the Share Purchase and Development Services Agreement, we 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 photovoltaic ("PV") projects of Coronus, which held Power Purchase Agreements under the CREST Program, for $8,775,000 (the "Contract Price"). Redwood was to pay the Contract Price by issuing a non-interest bearing, secured debenture (the "Redwood Debenture") to us. On September 19, 2013, at closing, Redwood issued the Redwood Debenture to us.

In respect of the Contract Price, and related Redwood Debenture, we recorded a gain of $3,420,612. The gain relates to the net present value of the sales proceeds of the Coronus sale to Redwood, according to projected collection dates after adjusting for an imputed annual discount rate of 12% and probability of success ratio ranging from 25% to 80%, per solar PV system, less the net book value of assets sold and the additional development costs of approximately 20% of the proceeds to be incurred.

Our obligation to complete the sale was 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. On September 19, 2013, at closing, we received the release from Clean Focus in respect of any further obligations under or in connection with the Loan. On September 16, 2013, at the annual general & special meeting of our shareholders (the "Shareholder Meeting"), we obtained 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 was 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 the Shareholder Meeting, Redwood received lock-up agreements and proxies from twelve of our shareholders holding 80.6% of our shares. On September 16, 2013, at the Shareholder Meeting, we obtained the approval of the Share Purchase and Development Services Agreement by our shareholders holding not less than 80% of our shares.

At closing, on the transfer of Coronus to Redwood, all then outstanding advances under the Loan, together with all accrued but unpaid interest, were assumed as part of the transfer.

The Contract Price, based on an agreed upon price of dollars per peak installed watt, 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 was paid to us on closing on September 19, 2013;
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; 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.

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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, Redwood agrees to fund, and the Contract Price reflects Redwood funding, certain development expenses that are separate and aside from the Contract Price. The Redwood Debenture security interests received by us are 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.

Effective September 1, 2013, we engaged Earthlight Solar Inc. ("Earthlight") as a consultant (the "Earthlight Engagement"), with Earthlight providing us with advisory and consulting services (the "Earthlight Services") in respect of our solar PV business. Under the Earthlight Engagement, we were to pay Earthlight CAD$10,000 per month for the Earthlight Services. Mark Burgert, a control person of us, is the president and a control person of Earthlight. On November 4, 2013, the parties amended the Earthlight Engagement (the "Amended Earthlight Engagement"). Under the Amended Earthlight Engagement, we are to pay Earthlight CAD$10,000 per month for the Earthlight Services up to November 30, 2013. Effective December 1, 2013, we are to pay Earthlight 10% of the cash value received of the Redwood Debenture, in return for performing those certain development services in respect of the twelve anticipated, utility-scale, solar PV projects under the Share Purchase and Development Services Agreement.

Effective September 1, 2013, we engaged RenewTrek Solar Inc. ("RenewTrek") as a consultant (the "RenewTrek Engagement"), with RenewTrek providing us with advisory and consulting services (the "RenewTrek Services") in respect of our solar PV business. Under the RenewTrek Engagement, we were to pay RenewTrek CAD$10,000 per month for the RenewTrek Services. Jeff Thachuk, our president, principal executive officer, secretary, treasurer, principal financial officer, principal accounting officer, and a member of our board of directors, is the president and a control person of RenewTrek. On September 1, 2013, our board of directors approved the RenewTrek Engagement. As a director of our company, Mr. Thachuk declared his interest in the transaction and abstained from voting on the approval of the RenewTrek Engagement. On November 4, 2013, the parties amended the RenewTrek Engagement (the "Amended RenewTrek Engagement"). Under the Amended RenewTrek Engagement, we are to pay RenewTrek CAD$10,000 per month for the RenewTrek Services up to November 30, 2013. Effective December 1, 2013, we are to pay RenewTrek 10% of the cash value received of the Redwood Debenture, in return for performing those certain development services in respect of the twelve anticipated, utility-scale, solar PV projects under the Share Purchase and Development Services Agreement. As a director of our company, Mr. Thachuk declared his interest in the transaction and abstained from voting on the approval of the Amended RenewTrek Engagement.

Coronus project 29-Palms Morongo, a 1.5 MW ground-mount, fixed-tilt, solar PV project, is owned directly by us, through our wholly-owned subsidiary, Coronus 29-Palms Morongo LLC, and was not part of the Share Purchase and Development Services Agreement with Redwood. As all other Coronus solar PV projects were transferred to Redwood under the Share Purchase and Development Services Agreement, Coronus project 29-Palms Morongo is our sole remaining solar PV project under development. As we have completed a system impact utility study for this project, and we have secured the land for this project pursuant to an option to purchase, we are eligible to pursue a Power Purchase Agreement for this project under the Renewable Market Adjusting Tariff ("Re-MAT"). Formerly CREST, Re-MAT implements the renewable resource feed-in tariff program pursuant to California Public Utilities Code Section 399.20 and California Public Utilities Commission Decisions (D.) 12-05-035, D.13-01-041, and D.13-05-034.

In addition to the above, we are presently evaluating further vacant lands, ranging in size between 20 and 50 acres, for purchase, for solar project development.

Additionally, we are presently evaluating corporate action options in respect of going private.

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Results of Operations

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

Amortization, tangible and intangible assets, expense decreased by $1,793 or 100% from $1,801 for the three months ended September 30, 2012 to $8 for the three months ended September 30, 2013. The reason for the decrease was that the Business Plan was fully amortized as of October 31, 2012.

We incurred $46,565 in accretion expense on promissory note for the three months ended September 30, 2013, as compared to no accretion expense ($nil) on promissory note for the three months ended September 30, 2012. The $46,565 was 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. On the transfer of Coronus to Redwood, on September 19, 2013, all then outstanding advances under the note, together with all accrued but unpaid interest, were assumed as part of the transfer.

We recovered $36,243 in consulting fees expense for the three months ended September 30, 2013, as compared to no consulting fees expense ($nil) for the three months ended September 30, 2012. This expense relates to 1) the focused biological surveys we undertook for several properties during the current and previous period, 2) the Earthlight consultancy, and 3) the RenewTrek consultancy.

Interest and bank charges expense increased by $44,534 or 2,410% from $1,847 for the three months ended September 30, 2012 to $46,381 for the three months ended September 30, 2013. The principal reason for the increase was the accrual of the interest owing on the senior secured promissory note in the amount of $45,028.

We incurred $3,176 in imputed interest expense for the three months ended September 30, 2013, as compared to no imputed interest expense ($nil) for the three months ended September 30, 2012. The imputed interest expense relates to the development expenses to be incurred over the period for the disposal of the subsidiaries in respect of the Coronus sale to Redwood. It was calculated at 12% per annum.

Office and miscellaneous expense increased by $16,661 or 142% from $11,728 for the three months ended September 30, 2012 to $28,389 for the three months ended September 30, 2013. The principal reason for the increase was the accrual of the California franchise tax of $13,600 for the current quarter for Coronus, Coronus' limited liability company project subsidiaries, and Coronus 29-Palms Morongo LLC.

Professional fees expense increased by $24,641 or 128% from $19,214 for the three months ended September 30, 2012 to $43,855 for the three months ended September 30, 2013. The principal reason for the increase was the increase in activity of the Company, in particular, the disposal of Coronus and the addition of the senior secured promissory note. Legal fees increased by $19,300 and accounting and audit fees increased by $5,300.

Salaries and wages expense decreased by $9,885 or 39% from $25,290 for the three months ended September 30, 2012 to $15,405 for the three months ended September 30, 2013. The reason for the decrease is that effective September 1, 2013, although our principal executive officer continues to serve as our principal executive officer, we no longer pay our principal executive officer the CAD$8,000 per month salary.

We incurred $3,050 in travel expense for the three months ended September 30, 2013, as compared to no travel expense ($nil) for the three months ended September 30, 2012. The increase was due to visits to our portfolio of sites in California.

Feasibility study expense decreased by $71,035 or 97% from $72,857 for the three months ended September 30, 2012 to $1,822 for the three months ended September 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 largely completed in the past year.

We achieved $15,880 in imputed interest income for the three months ended September 30, 2013, as compared to no imputed interest expense ($nil) for the three months ended September 30, 2012. The imputed interest income relates to the receivable debenture on the remaining proceeds to be received over the period for the disposal of Coronus. It was calculated at 12% per annum.

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We achieved no gain on sale of assets ($nil) for the three months ended September 30, 2013, as compared to $908,030 in gain on sale of assets for the three months ended September 30, 2012. Pursuant to the Sycamore Solar PV Asset Sale Agreement, we recorded a gain of $908,030 in respect of the sale of Coronus Hesperia West 2 LLC in the three month period ended September 30, 2012.

We achieved $3,420,612 in gain on disposal of subsidiaries for the three months ended September 30, 2013, as compared to no gain on disposal of subsidiary ($nil) for the three months ended September 30, 2012. The gain relates to the net present value of the sales proceeds of the Coronus sale to Redwood, according to projected collection dates after adjusting for an imputed annual discount rate of 12% and probability of success ratio ranging from 25% to 80%, per solar PV system, less the net book value of assets sold and the additional development costs to be incurred.

Six Months Ended September 30, 2013 compared to September 30, 2012

Amortization, tangible and intangible assets, expense decreased by $3,588 or 100% from $3,604 for the six months ended September 30, 2012 to $16 for the six months ended September 30, 2013. The reason for the decrease was that the Business Plan was fully amortized as of October 31, 2012.

We incurred $146,568 in accretion expense on promissory note for the six months ended September 30, 2013, as compared to no accretion expense ($nil) on promissory note for the six months ended September 30, 2012. The $146,568 was 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. On the transfer of Coronus to Redwood, on September 19, 2013, all then outstanding advances under the note, together with all accrued but unpaid interest, were assumed as part of the transfer.

We incurred $111,904 in consulting fees expense for the six months ended September 30, 2013, as compared to no consulting fees expense ($nil) for the six months ended September 30, 2012. This expense relates to 1) the focused biological surveys we undertook for several properties during the current and previous period, 2) the Earthlight consultancy, and 3) the RenewTrek consultancy. This expense was offset from us receiving a $92,025 refund from Redwood, on the transfer of Coronus to Redwood on September 19, 2013, for payments made by us earlier in respect of the focused biological surveys.

We incurred no interest on shareholder loan expense ($nil) for the six months ended September 30, 2013, as compared to $430 in interest on shareholder loan expense for the six months ended September 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 $88,959 or 983% from $9,054 for the six months ended September 30, 2012 to $98,013 for the six months ended September 30, 2013. The principal reason for the increase was the accrual of the interest owing on the senior secured promissory note.

We incurred $3,176 in imputed interest expense for the six months ended September 30, 2013, as compared to no imputed interest expense ($nil) for the six months ended September 30, 2012. The imputed interest expense relates to the development expenses to be incurred over the period for the disposal of the subsidiaries in respect of the Coronus sale to Redwood. It was calculated at 12% per annum.

Office and miscellaneous expense increased by $26,448 or 101% from $26,065 for the six months ended September 30, 2012 to $52,513 for the six months ended September 30, 2013. The principal reason for the increase was the accrual of the California franchise tax of $13,600 for the current period for Coronus, Coronus' limited liability company project subsidiaries, and Coronus 29-Palms Morongo LLC.

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Professional fees expense increased by $42,204 or 85% from $49,468 for the six months ended September 30, 2012 to $91,672 for the six months ended September 30, 2013. The principal reason for the increase was the increase in activity of the Company, in particular, the disposal of Coronus and the addition of the senior secured promissory note. Legal fees increased by $23,984 and accounting and audit fees increased by $18,220.

Salaries and wages expense decreased by $10,206 or 20% from $50,182 for the six months ended September 30, 2012 to $39,976 for the six months ended September 30, 2013. The reason for the decrease is that effective September 1, 2013, although our principal executive officer continues to serve as our principal executive officer, we no longer pay our principal executive officer the CAD$8,000 per month salary.

We incurred $9,742 in travel expense for the six months ended September 30, 2013, as compared to no travel expense ($nil) for the six months ended September 30, 2012. The increase was due to visits to our portfolio of sites in California.

Feasibility study expense decreased by $90,302 or 78% from $116,157 for the six months ended September 30, 2012 to $25,855 for the six months ended September 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 largely completed in the past year.

Foreign exchange loss expense decreased by $9,827 or 116% from an exchange loss of $8,457 for the six months ended September 30, 2012 to an exchange gain of $1.370 for the six months ended September30, 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 six months ended September 30, 2013, as compared to $80,237 in write-off on discount of convertible notes expense for the six months ended September 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 $15,880 in imputed interest income for the six months ended September 30, 2013, as compared to no imputed interest expense ($nil) for the six months ended September 30, 2012. The imputed interest income relates to the receivable debenture on the remaining proceeds to be received over the period for the disposal of Coronus. It was calculated at 12% per annum.

We achieved no gain on sale of assets ($nil) for the six months ended September 30, 2013, as compared to $1,717,024 in gain on sale of assets for the six months ended September 30, 2012. Pursuant to the Sycamore Solar PV Asset Sale Agreement, we recorded a gain of $1,717,024 in respect of the sale of Coronus Hesperia West 1 LLC and Coronus Hesperia West 2 LLC in the six month period ended September 30, 2012.

We achieved $3,420,612 in gain on disposal of subsidiaries for the six months ended September 30, 2013, as compared to no gain on disposal of subsidiary ($nil) for the six months ended September 30, 2012. The gain relates to the net present value of the sales proceeds of the Coronus sale to Redwood, according to projected collection dates after adjusting for an imputed annual discount rate of 12% and probability of success ratio ranging from 25% to 80%, per solar PV system, less the net book value of assets sold and the additional development costs to be incurred.

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

Cash and cash equivalents decreased by $190,367 or 67% from $284,989 at March 31, 2013 to $94,622 at September 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.

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Other receivables decreased by $27,268 or 79% from $34,529 at March 31, 2013 to $7,261 at September 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 $24,532 or 89% from $27,666 at March 31, 2013 to $3,134 at September 30, 2013. The decrease is due to a comparative decrease in current, prepaid expenses in relation to utility interconnection studies.

We had $1,270,551 in receivable - debenture, net - current at September 30, 2013, as compared to no receivable - debenture, net - current ($nil) at March 31, 2013. The receivable - debenture, net - current relates to the current portion of the Redwood Debenture securing the sales proceeds of the Coronus sale to Redwood, according to projected collection dates after adjusting for an imputed annual discount rate of 12% and probability of success ratio ranging from 25% to 80%, per solar PV system, less the net book value of assets sold.

We had no long-term prepaid expenses and deposit ($nil) at September 30, 2013, as compared to $564,150 in long-term prepaid expenses and deposit at March 31, 2013. These assets were sold to Redwood as part of the Coronus sale on September 19, 2013.

We had $3,096,003 in receivable - debenture - long term at September 30, 2013, as compared to no receivable - debenture - long term ($nil) at March 31, 2013. The receivable - debenture - long term relates to the long term portion of the Redwood Debenture securing the sales proceeds of the Coronus sale to Redwood, according to projected collection dates after adjusting for an imputed annual discount rate of 12% and probability of success ratio ranging from 25% to . . .

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