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CRNSF > SEC Filings for CRNSF > Form 10-Q on 14-Feb-2014All Recent SEC Filings

Show all filings for CORONUS SOLAR INC.

Form 10-Q for CORONUS SOLAR INC.


14-Feb-2014

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 December 17, 2013, the San Bernardino County Board of Supervisors adopted an ordinance, effective January 16, 2014, amending Chapter 84.29 of the County Development Code (the "Ordinance"). The purpose of the Ordinance is to prevent establishment of commercial solar energy generation projects that are incompatible with existing land uses. The Ordinance requires the County Planning Commission to make 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. Coronus projects 29-Palms North, Yucca Valley East, Joshua Tree East, Apple Valley East, and 29-Palms Morongo are subject to the Ordinance. Coronus project Adelanto West is not. There is no assurance the Ordinance will not materially and adversely affect those Coronus projects subject to the Ordinance. As a consequence of the Ordinance, 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 Ordinance.

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 closingon 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.

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,was 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-PalmsMorongo was our sole remaining solar PV project under development. On December 4, 2013, we terminated the project, as a result of revised findings by Southern California Edison, in respect of their interconnection study results for the project. The revised findings reflected a cost estimate to interconnect the project of $7.538 million, making the project non-viable.

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.

Results of Operations

Three Months Ended December 31, 2013 compared to December 31, 2012

Amortization, tangible and intangible assets, expense decreased by $596 or 98% from $607 for the three months ended December 31, 2012 to $11 for the three months ended December 31, 2013. The reason for the decrease was that the Business Plan was fully amortized as of October 31, 2012.

We incurred no accretion expense ($nil) on promissory note for the three months ended December 31, 2013, as compared to $3,228 in accretion expense on promissory note for the three months ended December 31, 2012. In the previous quarter, the $3,228 was the amortized portion of the deferred financing fees 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.

Consulting fees expense increased by $9,748 or 34% from $28,700 for the three months ended December 31, 2012 to $38,448 for the three months ended December 31, 2013. In the current quarter, the consulting fees expense relates to the Earthlight and RenewTrek consultancies. In the previous quarter, the consulting fees expense relates to the cultural resources assessments and biological habitat assessments we undertook for several properties during that quarter.


Interest and bank charges expense decreased by $2,122 or 73% from $2,893 for the three months ended December 31, 2012 to $771 for the three months ended December 31, 2013. In the previous quarter, the principal reason for the expenses was the accrual of the interest owing on the senior secured promissory 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 $25,298 in imputed interest expense for the three months ended December 31, 2013, as compared to no imputed interest expense ($nil) for the three months ended December 31, 2012. The imputed interest expense relates to the development expenses to be incurred over the quarter 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 decreased by $10,521 or 68% from $15,487 for the three months ended December 31, 2012 to $4,966 for the three months ended December 31, 2013. The principal reason for the decrease was that in the previous quarter, we paid incorporation and registration fees and property taxes in respect of the portfolio of project companies and related properties Redwood acquired from us on September 19, 2013.

Professional fees expense decreased by $2,570 or 18% from $14,161 for the three months ended December 31, 2012 to $11,591 for the three months ended December 31, 2013. The principal reason for the decrease was the decrease in activity of the Company due to the disposal of Coronus on September 19, 2013.

We incurred no salaries and wages expense ($nil) for the three months ended December 31, 2013, as compared to $24,218 in salaries and wages expense for the three months ended December 31, 2012. 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 a CAD$8,000 per month salary.

We incurred no travel expense ($nil) for the three months ended December 31, 2013, as compared to $1,224 in travel expense for the three months ended December 31, 2012. In the current quarter, we did not visit the Coronus portfolio of sites in California.

We incurred no feasibility study expense ($nil) for the three months ended December 31, 2013, as compared to $27,250 in feasibility study expense for the three months ended December 31, 2012. In the previous quarter, the expense relates to the expensed portion of the numerous deposits Coronus paid to SCE for interconnection studies. In the current quarter, there were no such studies.

We incurred $1,385 in foreign exchange loss for the three months ended December 31, 2013, as compared to a foreign exchange gain of $216 for the three months ended December 31, 2012. The difference 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 December 31, 2013, as compared to $919 in write-off on discount of convertible notes expense for the three months ended December 31, 2012. The write-off of $919 was attributable to the fluctuation of the USD/CAD exchange rate.

We achieved $126,490 in imputed interest income for the three months ended December 31, 2013, as compared to no imputed interest expense ($nil) for the three months ended December 31, 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 incurred $2,612 in write-down land related costs for the three months ended December 31, 2013, as compared to no write-down land related costs ($nil) for the three months ended December 31, 2012. The $2,612 cost in the current quarter relates to the write-off of the option payments previously paid on the 29-Palms Morongo Vacant Land Purchase Agreement, as we opted to terminate the project.


Nine Months Ended December 31, 2013 compared to December 31, 2012

Amortization, tangible and intangible assets, expense decreased by $4,188 or 99% from $4,211 for the nine months ended December 31, 2012 to $23 for the nine months ended December 31, 2013. The reason for the decrease was that the Business Plan was fully amortized as of October 31, 2012.

Accretion expense on promissory note increased by $143,340 or 4,440% from $3,228 for the nine months ended December 31, 2012 to $146,568 for the nine months ended December 31, 2013. 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.

Consulting fees expense increased by $121,652 or 424% from $28,700 for the nine months ended December 31, 2012 to $150,352 for the nine months ended December 31, 2013. The increase is due to the focused biological surveys we undertook for several properties during the current period, as well as the Earthlight and RenewTrek consultancies.

We incurred no interest on shareholder loan expense ($nil) for the nine months ended December 31, 2013, as compared to $435 in interest on shareholder loan expense for the nine months ended December 31, 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 $86,837 or 727% from $11,947 for the nine months ended December 31, 2012 to $98,784 for the nine months ended December 31, 2013. The principal reason for the increase was the accrual of the interest owing on the senior secured promissory note.

We incurred $28,474 in imputed interest expense for the nine months ended December 31, 2013, as compared to no imputed interest expense ($nil) for the nine months ended December 31, 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 $15,927 or 38% from $41,552 for the nine months ended December 31, 2012 to $57,479 for the nine months ended December 31, 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.

Professional fees expense increased by $39,634 or 62% from $63,629 for the nine months ended December 31, 2012 to $103,263 for the nine months ended December 31, 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.

Salaries and wages expense decreased by $34,424 or 46% from $74,400 for the nine months ended December 31, 2012 to $39,976 for the nine months ended December 31, 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.

Travel expense increased by $8,518 or 696% from $1,224 for the nine months ended December 31, 2012 to $9,742 for the nine months ended December 31, 2013. The increase was due to increased visits to our portfolio of sites in California.


Feasibility study expense decreased by $117,552 or 82% from $143,407 for the nine months ended December 31, 2012 to $25,855 for the nine months ended December 31, 2013. The decrease was due to the expensed portion of the numerous deposits Coronus paid over the previous periods to SCE for interconnection studies largely completed in the previous period.

Foreign exchange loss expense decreased by $8,222 or 100 from $8,241 for the nine months ended December 31, 2012 to $19 for the nine months ended December 31, 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 nine months ended December 31, 2013, as compared to $81,156 in write-off on discount of convertible notes expense for the nine months ended December 31, 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, with $919 was attributable to the fluctuation of the USD/CAD exchange rate.

We achieved $142,370 in imputed interest income for the nine months ended December 31, 2013, as compared to no imputed interest expense ($nil) for the nine months ended December 31, 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 nine months ended December 31, 2013, as compared to $1,717,024 in gain on sale of assets for the nine months ended December 31, 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 nine month period ended December 31, 2012.

We achieved $3,420,612 in gain on disposal of subsidiaries for the nine months ended December 31, 2013, as compared to no gain on disposal of subsidiary ($nil) for the nine months ended December 31, 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.

We incurred $10,370 in write-down land related costs for the nine months ended December 31, 2013, as compared to no write-down land related costs ($nil) for the nine months ended December 31, 2012. The $10,370 cost in the current period relates to the loss on transfer of the two properties, 29-Palms North (Original) and Newberry Springs from Coronus to the Company, prior to the sale of Coronus to Redwood. In addition, the cost relates to the write-off of the option payments previously paid on the 29-Palms Morongo Vacant Land Purchase Agreement, as we opted to terminate the project.

Assets and Liabilities at December 31, 2013 compared to March 31, 2013

Cash and cash equivalents decreased by $265,690 or 93% from $284,989 at March 31, 2013 to $19,299 at December 31, 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 $23,759 or 72% from $34,529 at March 31, 2013 to $10,770 at December 31, 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 $27,500 or 96% from $27,666 at March 31, 2013 to $166 at December 31, 2013. The decrease is due to a comparative decrease in current, prepaid expenses in relation to utility interconnection studies.


We had $1,296,430 in receivable - debenture, net - current at December 31, 2013, as compared to no receivable - debenture, net - current ($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 December 31, 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 $3,196,615 in receivable - debenture - long term at December 31, 2013, as compared to no receivable - debenture - long term ($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 80%, per solar PV system, less the net book value of assets sold.

We had no project assets ($nil) at December 31, 2013, as compared to $3,477,920 in project assets at March 31, 2013. These assets were sold to Redwood as part of the Coronus sale on September 19, 2013.

We had no senior secured promissory note ($nil) at December 31, 2013, as compared to $2,902,100 in senior secured promissory note at March 31, 2013. This liability was assumed by Redwood as part of the Coronus sale on September 19, 2013.

Current notes payable decreased by $194,983 or 84% from $232,084 at March 31, 2013 to $37,101 at December 31, 2013. But for the current notes payable in relation to the Newberry Springs encumbrance, these liabilities were assumed by Redwood as part of the Coronus sale on September 19, 2013.

We had $267,350 in deferred expenses - current at December 31, 2013, as compared to no deferred expenses - current ($nil) at March 31, 2013. The deferred expenses - current relate to the current portion of the additional development costs, in respect of the Coronus sale, the Company anticipates incurring, equivalent to approximately 20% of the total sales proceeds of the subsidiaries in order to earn the related sales proceeds, after adjusting for an imputed annual discount rate of 12% and probability of success ratio ranging from 25% to 80%, per solar PV system.

We had no long-term notes payable ($nil) at December 31, 2013, as compared to $579,014 in long-term notes payable at March 31, 2013. These liabilities were assumed by Redwood as part of the Coronus sale on September 19, 2013.

We had $639,323 in deferred expenses - long term at December 31, 2013, as compared to no deferred expenses - long term ($nil) at March 31, 2013. The . . .

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