Radiant Energy Corporation, (TSX VENTURE: RDT) ("Radiant" or the
"Company") (amounts in U.S. dollars), the developer and marketer of
radiant de-icing systems, announced its results for the third
quarter and nine-months ended July 31, 2008. The results are
available on SEDAR.
For the three-month period ended July 31, 2008, the Company
reported a loss of $769,758, a reduction of $1,794,832 from a loss
of $2,564,590 reported for the comparable three-month period ended
July 31, 2007, which was impacted by the writeoff of a deicing
facility. The current operation is seasonal and there was no
revenue in the third quarter. For the nine-month period ended July
31, 2008, the Company reported a loss of $4,590,299, an increase of
$396,684 from a loss of $4,193,615 for the nine-months ended July
31, 2007. Revenue of $270,760 for the nine-month period was
marginally higher than the prior year period.
About Radiant Energy Corporation
Radiant is the developer and marketer of Radiant Deicing
Systems. The Company's product is the only non-glycol based
alternative approved by the US Federal Aviation Administration for
the pre-flight ground deicing of aircraft. Aircraft deicing with
Radiant's technology offers savings to airports and airlines over
the use of conventional glycol-based deicing systems, reducing
aircraft treatment costs and significantly reducing the negative
impact of glycol on the environment.
This press release contains "forward-looking statements",
including statements regarding the business and anticipated
financial performance of Radiant Energy Corporation, which involve
risks and uncertainties. All statements, other than statements of
historical fact, that address activities, events or developments
that the Company believes, expects or anticipates will or may occur
in the future (including, without limitation, statements, regarding
financial and business prospects and financial outlook) are
forward-looking statements. These forward-looking statements
reflect the current expectations or beliefs of the Company based on
information currently available to the Company. Forward-looking
statements are subject to a number of risks, uncertainties and
assumptions that may cause the actual results of the Company to
differ materially from those discussed in the forward-looking
statements, and even if such actual results are realized or
substantially realized, there can be no assurance that they will
have the expected consequences to, or effects on the Company.
Factors that could cause actual results or events to differ
materially from current expectations include, among other things,
changes in general economic and market conditions, changes to
regulations affecting the Company's activities, and uncertainties
relating to the availability and costs of financing needed in the
future. Any forward-looking statement speaks only as of the date on
which it is made and, except as may be required by applicable
securities laws, the Company disclaims any intent or obligation to
update any forward-looking statement, whether as a result of new
information, future events or results or otherwise. Although the
Company believes that the assumptions inherent in the
forward-looking statements are reasonable, forward-looking
statements are not guarantees of future performance and accordingly
undue reliance should not be put on such statements due to the
inherent uncertainty therein.
RADIANT ENERGY CORPORATION
Consolidated Financial Statements
For the Three and Nine Months Ended July 31, 2008 and 2007
(Unaudited)
(in US dollars)
RADIANT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (in US $)
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As at July 31, 2008 and October 31, 2007
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July 31 October 31
2008 2007
------------ ------------
ASSETS
Current assets
Cash $ 1,626,411 $ 44,062
Accounts receivable 74,268 4,800
Prepaid expenses 130,833 20,122
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1,831,512 68,984
Restricted cash (Note 3) - 625,613
Patents (Note 4) 115,548 137,468
Property and equipment (Note 5) 45,877 110,784
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$ 1,992,937 $ 942,849
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LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 3,251,665 $ 2,287,210
Short-term credit facilities (Note 6) - 2,768,052
Current portion of long-term debt (Note 7) 1,959,128 4,880,257
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5,210,793 9,935,519
Long-term debt (Note 7) - -
Asset retirement obligations (Note 8) - 221,096
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5,210,793 10,156,615
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SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital (Note 9) 29,799,715 20,361,728
Equity portion of long-term debt 1,297,745 1,297,745
Warrants (Note 9) 766,620 -
Contributed surplus 860,188 478,586
Deficit (35,942,124) (31,351,825)
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(3,217,856) (9,213,766)
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$ 1,992,937 $ 942,849
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See accompanying notes to consolidated financial statements
RADIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED) (in US $)
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Three and nine months ended July 31, 2008 and 2007
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Three months ended Nine months ended
July 31 July 31
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2008 2007 2008 2007
----------- ------------ ------------ ------------
Revenue
Revenue from
contracts $ - $ 16,450 $ 270,760 $ 255,081
Other income 12,618 3,095 35,999 13,976
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12,618 19,545 306,759 269,057
Expenses
Contract expenses 41,879 86,098 800,444 445,117
Operating expenses 548,670 327,088 2,018,893 1,051,936
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Loss before the
undernoted (577,931) (393,641) (2,512,578) (1,227,996)
Foreign exchange
(gain) loss 9,678 138,925 (8,943) 319,722
Interest 171,526 156,645 536,315 379,150
Tax Penalty - VAT
Norway (Note 10) - - 1,516,300 -
Write off of de-icing
facility - 1,863,990 - 1,863,990
Amortization of
property and
equipment 3,100 4,516 12,129 12,115
Amortization of patents 7,523 6,873 21,920 20,620
Loss on debt
settlement - - - 370,022
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Loss for the period $ (769,758) $(2,564,590) $(4,590,299) $(4,193,615)
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Loss per common share $ (0.00) $ (0.03) $ (0.03) $ (0.05)
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See accompanying notes to consolidated financial statements
RADIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
(UNAUDITED) (in US $)
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Three and nine months ended July 31, 2008 and 2007
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Equity Portio
n
Share of Long-term
Capital Debt Warrants
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---------------------------------------------------------------------------
Balance, October 31, 2006 $ 17,128,575 $ 695,908 $ -
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Net income (loss) for the year
Issuance of common shares
for cash 2,209,718
Issuance of common shares on
conversion of debentures 1,000,000 (144,680)
Transfers from contributed
surplus 23,435
Stock based compensation
Equity portion of debentures
issued 982,758
Settlement of equity portion
of long term debt (236,241)
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Balance, October 31, 2007 20,361,728 1,297,745 -
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Net income (loss) for the period
Issuance of common shares for
cash, net of issue costs 4,067,020
Issuance of warrants, net of
issue costs 513,095
Issuance of broker warrants 253,525
Issuance of common shares on
conversion of debentures 5,370,967
Stock based compensation
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Balance, July 31, 2008 $ 29,799,715 $ 1,297,745 $ 766,620
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Contributed
Surplus Deficit Total
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Balance, October 31, 2006 $ 414,682 $(24,974,806) $ (6,735,641)
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Net income (loss) for the year (6,255,826) (6,255,826)
Issuance of common shares
for cash 2,209,718
Issuance of common shares on
conversion of debentures 855,320
Transfers from contributed
surplus (23,435)
Stock based compensation 39,831 39,831
Equity portion of debentures
issued 47,508 1,030,266
Settlement of equity portion of
long term debt (121,193) (357,434)
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Balance, October 31, 2007 478,586 (31,351,825) (9,213,766)
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Net income (loss) for the period (4,590,299) (4,590,299)
Issuance of common shares for
cash, net of issue costs 4,067,020
Issuance of warrants, net
of issue costs 513,095
Issuance of broker warrants 253,525
Issuance of common shares on
conversion of debentures 5,370,967
Stock based compensation 381,602 381,602
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Balance, July 31, 2008 $ 860,188 $(35,942,124) $ (3,217,856)
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See accompanying notes to consolidated financial statements
RADIANT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (in US $)
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Three and nine months ended July 31, 2008 and 2007
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Three months ended Nine months ended
July 31 July 31
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2008 2007 2008 2007
------------ ------------- ------------- -------------
Operations
Loss for the period $ (769,758) $ (2,564,590) $ (4,590,299) $ (4,193,615)
Adjustments for
non-cash items
Amortization 10,623 11,389 34,049 32,735
Stock-based
compensation - - 381,602 26,661
Write off of
de-icing facility - 1,863,990 - 1,863,990
Reduction of Asset
retirement
obligations and
related assets - - (158,782) -
Loss on debt
settlement - - - 370,022
Unrealized foreign
exchange (gain) loss 15,730 116,125 155,039 287,023
Accretion 107,436 14,831 245,961 51,542
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(635,969) (558,255) (3,932,430) (1,561,642)
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Net change in working
capital excluding cash
and current portion
of long-term debt
Accounts receivable 36,608 138,127 (69,468) 32,096
Prepaid expenses and
deposits (2,234) 5,129 (131,011) (9,967)
Accounts payable and
accruals (125,223) (1,060,000) 1,347,105 (1,136,323)
Decrease (increase) in
restricted cash 638,455 27,000 638,455 (20,418)
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547,606 (889,744) 1,785,081 (1,134,612)
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(88,363) (1,447,999) (2,147,349) (2,696,254)
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Investing
Purchases of property
and equipment (20,194) (12,101) (20,194) (12,101)
Expenditures for assets
under construction - (51,749) - (140,910)
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(20,194) (63,850) (20,194) (153,011)
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Financing
(Repayment) issuance
of short-term
credit facility - - (183,993) 63,603
Proceeds from
subscription received - (361,435) - -
(Repayment) issuance
of long-term debt (783,374) 1,811,356 (783,374) 1,061,356
Issuance of common
shares for cash, net - 534,499 4,833,641 2,209,717
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(783,374) 1,984,420 3,866,274 3,334,676
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Effect of exchange
rate changes on cash (38,500) - (116,382) -
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Net change in cash (930,431) 472,571 1,582,349 485,411
Cash, beginning of
period 2,556,842 109,343 44,062 96,503
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Cash, end of period $ 1,626,411 $ 581,914 $ 1,626,411 $ 581,914
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See accompanying notes to consolidated financial statements
RADIANT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (in US $)
Three and nine months ended July 31, 2008 and 2007
1. GOING CONCERN
The Company primarily provides services in the aviation industry
through the development, marketing, sale and operation of its
radiant energy deicing technology.
The consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted
accounting principles on a going concern basis, which contemplates
the realization of assets and the discharge of liabilities in the
normal course of business for the foreseeable future. The Company
has incurred significant losses and negative cash flow from
operations. The Company's ability to continue as a going concern is
uncertain and is dependent upon achieving a profitable level of
operations and obtaining additional financing, neither of which is
assured. These consolidated financial statements do not give effect
to any adjustments which might be necessary should the Company be
unable to continue as a going concern and be required to realize
its assets and discharge its liabilities in other than the normal
course of business and at amounts different from those reflected in
the accompanying consolidated financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
These interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principles (GAAP) and follow the same accounting policies and
methods of application as the Company's consolidated financial
statements for the year ended October 31, 2007. Under GAAP,
additional disclosures are required in the annual financial
statements and accordingly, these interim consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements for the year ended October 31,
2007.
The Company's current business activities involve the operation
of deicing facilities. This business is seasonal in nature, as
deicing activity occurs during the winter months.
These consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries, Radiant Aviation
Services, Inc. ("Radiant Aviation"), a U.S. company, and Radiant
Aviation Services Europe AS ("RAS Europe"), a Norwegian
company.
All significant inter-company transactions have been
eliminated.
Foreign Currency Translation
The Company uses the United States dollar as both the functional
currency and the reporting currency.
The Company translates monetary assets and liabilities at the
rate of exchange in effect at the balance sheet date and
non-monetary assets and liabilities at historical exchange rates.
Revenues and expenses are translated at average rates in the period
they occur except for amortization, which is translated at the same
rate as the related assets. Gains and losses on translation are
recorded in the consolidated statement of loss.
The financial statements of the Company's integrated foreign
subsidiaries denominated in currencies other than the functional
currency are translated into United States dollars using the
period-end rate of exchange for monetary assets and liabilities,
the historical rate of exchange for non-monetary assets and
liabilities and the average rate of exchange for revenue and
expenses, except for amortization which is translated at the rate
applicable to the related assets. Gains or losses resulting from
these translation adjustments are included in the consolidated
statement of loss.
Management's Estimates
The preparation of financial statements in accordance with
Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management estimates
relate to the valuation and determination of the useful lives of
long-lived assets, valuation of each of the equity components and
the determination of the asset retirement obligations of the
Company. Management believes that the estimates utilized in
preparing its consolidated financial statements are reasonable and
prudent; however, actual results may differ from those
estimates.
Cash
Cash includes cash on hand and short-term deposits with
maturities when acquired of less than three months.
Patents
Patents are initially recorded at cost and are amortized on a
straight-line basis over the life of the patents (17 years).
Long-lived Assets
Long-lived assets, including patents, deicing facilities and
property and equipment, are reviewed for impairment if events or
changes in circumstances indicate that their carrying amount may
not be recoverable. The recoverability of long-lived assets is
determined by evaluating whether the carrying value of such assets
can be recovered from estimated undiscounted future operating cash
flows. If the sum of the undiscounted future cash flows expected
from use and the residual value is less than the carrying amount,
the long-lived asset is considered impaired. An impairment loss is
measured as the amount by which the carrying value of the
long-lived asset exceeds its fair value.
Property and Equipment
Amortization of property and equipment is provided over their
estimated useful lives as follows:
Newark deicing facility 20 years declining balance
Vehicles 5 years straight-line
Office furniture and equipment 5 years straight-line
Laboratory equipment 5 years straight-line
Asset Retirement Obligations
The Company recognizes the fair value of liabilities for asset
retirement obligations in the period in which a reasonable estimate
of such costs can be made. The asset retirement obligation is
recorded as a liability with a corresponding increase to the
carrying amount of the related long-lived asset. Subsequently, the
asset retirement cost is allocated to expenses using a systematic
method and is also adjusted to reflect period-to-period changes in
the liability resulting from passage of time and revisions to
either timing or the amount of the original estimate of the
undiscounted cash flow.
Revenue Recognition
Sales of deicing facilities
If a complete deicing facility is constructed by the Company for
sale to a customer, sales are accounted for on the
percentage-of-completion basis. The percentage that a sales
contract is complete is determined by management based on completed
engineering milestones. Under this method, the proportion of total
contract revenue that relates to the completed portion of the
contract is recorded as revenue. Revisions in cost and profit
estimates during the course of the work are reflected in the
accounting period in which the revisions become known. At the time
a loss on a contract becomes probable and can be is reasonably
estimated, the entire amount of the estimated ultimate loss is
accrued. Deicing facilities construction costs include all direct
costs including material, labour and subcontracting costs and
certain indirect costs related to contracts.
Sales contracts generally provide that billings are to be made
periodically over the period of construction. Contract receivables
arise principally from the balance of amounts due on progress
billings on jobs under construction. Holdbacks on contract
receivables are amounts due on progress billings, which are
withheld until the customer has accepted the completed project.
Deferred revenue may be generated if the amounts billed to the
customer are in excess of the revenue earned under the
percentage-of-completion method.
Deicing services
The Company recognizes revenue from providing deicing services
when the services have been performed and collection is reasonably
assured. The Company enters into agreements to operate deicing
facilities owned by third parties. The Company records revenues and
expenses depending on the nature of the contract, and to the extent
of the Company's entitlement to revenue and obligation for
expenses.
Earnings (Loss) per share
The calculation of earnings (loss) per common share is based on
the reported income (loss) divided by the weighted average number
of shares outstanding during the period. The weighted average
number of common shares outstanding for the three months ended July
31, 2008 was 188,323,417 (2007 -- 102,290,087) and for the nine
months ended July 31, 2008 was 156,920,451 (2007 --90,841,935).
Diluted earnings per share is computed on the basis of the weighted
average number of common shares outstanding plus the conversion of
long-term debt as if it were converted into common stock and the
conversion of outstanding stock options and warrants using the
treasury stock method. Outstanding share options, warrants and
convertible debentures to purchase shares are not included in the
computation of diluted income (loss) per share if their impact is
anti-dilutive.
Stock-based Compensation Plan
The Company uses the fair value-based method of accounting for
stock options. Accordingly, compensation cost is measured at fair
value at the date of grant and is expensed.
Income Taxes
The Company follows the liability method of income tax
allocation. Under this method, future tax assets and liabilities
are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using the
substantively enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Financial Instruments
The Company adopted the Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3855, Financial Instruments -
Recognition and Measurement, and Section 3861, Financial
Instruments - Disclosure and Presentation on November 1, 2006.
These new sections provide standards for classification and
measurement of financial instruments.
All financial instruments are classified into one of the
following five categories: held-for-trading assets or liabilities,
held-to-maturity investments, loans and receivables,
available-for-sale financial assets or other financial liabilities.
Held-for-trading financial instruments are measured at fair value
and all gains and losses are included in net income in the period
in which they arise. Available-for-sale financial instruments are
measured at fair value with revaluation gains and losses included
in accumulated other comprehensive income until the instruments are
derecognized or impaired. Loans and receivables, investments
held-to-maturity and other financial liabilities are measured at
amortized cost using the effective interest method.
The Company has made the following classifications:
Cash Held for trading
Restricted cash Held for trading
Accounts receivable Loans and receivables
Accounts payable and accrued liabilities Other liabilities
Short-term credit facilities Other liabilities
Long-term debt Other liabilities
Transaction costs are expensed as incurred for financial
instruments classified as held-for-trading. For other financial
instruments, transaction costs are expensed on initial
recognition.
The Company adopted the new standards retrospectively without
restatement. There was no material effect as a result of the change
in policy.
Future Accounting Pronouncements
The CICA issued the following new accounting standards, which
will become effective for fiscal years beginning January 1,
2008.
Section 1535, Capital Disclosures, establishes disclosure
requirements relating to an entity's objectives, policies and
processes for managing capital. The Company is currently evaluating
the impact of this new standard.
Sections 3862, Financial Instruments - Disclosures and 3863,
Financial Instruments - Presentation will replace Section 3861
Financial Instruments - Disclosure and Presentation, revising and
enhancing disclosure requirements on the nature and extent of risks
arising from financial instruments and how a company manages those
risks. The Company is currently assessing the impact of these new
accounting standards on its financial statements. Beyond additional
disclosure, the adoption of these new pronouncements is not
expected to have an effect on the Company's financial position or
results of operations.
Section 3031, Inventory, replaces Section 3030, and establishes
standards for the measurement of inventories, allocations of
overhead, accounting for write-downs and disclosures. The Company
has determined that this new standard will have no material impact
on the financial statements.
3. RESTRICTED CASH
Under the terms of the loans referred to in note 7(c), RAS
Europe was required to provide as security to Innovations Norway a
cash deposit of $574,284 (NOK 3,000,000), held in a Norwegian bank.
In addition, as a part of the agreements for the building of the
deicing facility at the Oslo Airport, RAS Europe was required to
provide a cash deposit of $47,857 (NOK 250,000) to the Airport
Authority at Oslo relating to the potential costs of dismantling
the facility. During the three months ended July 31, 2008,
Innovations Norway demanded re-payment of its loans, and as a
result took possession of its deposit as a payment against the
outstanding loan balance. Having notified RAS Europe that the
deicing facility would be dismantled, the Airport Authority at Oslo
withdrew its deposit in anticipation of the costs to be incurred in
the process. Upon completion of the withdrawals from the deposit
account in accordance with the terms of the agreements, the
remaining accrued interest on the deposited funds of $16,314 (NOK
85,236) was no longer considered as Restricted cash, and as such
the balance at July 31, 2008 was nil (October 31, 2007 - $625,613
(NOK 3,372,757)).
4. PATENTS
Accumulated 2008 2007
Cost Amortization Net Net
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$ 511,592 $ (396,044) $ 115,548 $ 137,468
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Patents relate to the apparatus and processes for deicing aircraft using
the Company's systems.
The patents expire over a period of time depending on when issued in the
particular jurisdiction.
5. PROPERTY AND EQUIPMENT
Accumulated 2008 2007
Cost Amortization Net Net
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Newark deicing facility $ - $ - $ - $ 77,820
Vehicles 20,881 7,482 13,399 16,531
Office furniture
and equipment 29,854 6,721 23,133 5,193
Laboratory equipment 14,999 5,654 9,345 11,240
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$ 65,734 $ 19,857 $ 45,877 $ 110,784
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The cost of the Newark deicing facility represented the cost
associated with he Company's obligation to dismantle the facility
at the completion of its useful life. The facility at Newark is no
longer in use and damaged, and must be dismantled. As such, the net
asset amount of $72,971 and asset retirement obligation of $112,483
were written off during the year. An accrual of $300,000 has been
recorded for the estimated cost to remove the facility.
The Company completed the construction of a deicing facility in
Oslo, Norway in 2007. The Company was not able to secure customers
for the facility, and the Oslo Airport Authority has demanded that
the facility be dismantled. The Company wrote off the entire cost
of the asset and accrued the estimated costs to dismantle the
facility at the end of 2007. It was determined that the asset would
be dismantled or disposed of before the end of the year (Note 16),
and the amount recorded as the asset retirement obligation of
$119,271 was written off in during the year.
6. SHORT-TERM CREDIT FACILITIES
a) Demand Line-of-credit
During the year the Company settled loans with corporations
controlled by two significant shareholders totaling $1,985,800
(CDN$2,000,000) (October 31, 2007 - $2,105,934), plus accrued
interest of $293,234 (CDN$295,014) (October 31, 2007 - $285,123).
The loans were settled through the issuance of 14,814,814 common
shares to the lenders. While outstanding, the loans, which were
secured by a second security position on the deicing facility in
Oslo, Norway, were due on demand and bore interest at the Canadian
prime rate plus 1%.
b) Demand Line-of-credit
As at October 31, 2007 the Company had outstanding loan
agreements with three significant shareholders totaling $662,118
(CDN$629,398), plus accrued interest of $44,650 (CDN$42,413).
During the year $183,993 (CDN184,398) was repaid, and the
remaining $441,819 (CDN$445,000), plus the accrued interest of
$49,045 (CDN$49,398) was settled through the issuance of 3,296,295
common shares of the Company to the lenders. While outstanding, the
loans were are on a demand basis and bore interest at the Canadian
prime rate plus 1%.
7. LONG-TERM DEBT
2008 2007
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Series A unsecured convertible debentures (a) $ 525,000 $ 530,000
Series F secured convertible debentures (b) 263,419 1,114,885
Secured term loan - Innovations Norway (c) 1,170,709 1,669,407
Series E secured convertible debentures (d) - 815,965
Secured convertible term loan (e) - 750,000
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1,959,128 4,880,257
Less: current portion 1,959,128 4,880,257
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$ - $ -
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As the Series A convertible debentures are currently owing, and
Innovations Norway has demanded repayment of the loan, the principal
repayment requirements of long-term debt by fiscal year are as follows:
2008 $ 1,695,709
2009 -
2010 -
2011 400,391
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2,096,100
Less: Equity balance to be accreted (136,972)
---------------------------------------------------------------------------
$ 1,959,128
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a) Series A unsecured convertible debentures, 7.75% interest,
due April 5, 2006
The Company has been in default with respect to these debentures
since 2002 for not making interest and principal payments when due,
and the conversion option expired in 2006. During the year $5,000
of the debentures, along with $3,047 of accrued interest was
settled with one of the lenders through the issuance of 51,913
common shares.
Subsequent to July 31, 2008, the Company settled the outstanding
principal of $500,000 and interest of $303,842 owing to the main
lender of the debentures through a cash payment of $250,000 and the
issuance of 4,140,278 common shares of the Company and 2,070,140
common share purchase warrants, each warrant entitling the holder
to purchase one common share of the company for $0.20 (CDN$0.20)
for 24 months.
b) Series F secured convertible debenture, 8% interest, due
August 20, 2011
The Company issued CDN$1,960,000 of 8% secured convertible
debentures during 2007, of which CDN$1,350,000 was issued to
Company insiders. Certain of the debentures, including some of
those issued to insiders were issued with detachable warrants. At
the time of issue, the value of the conversion feature and the
detachable warrants relating to these debentures were estimated
using the Black-Scholes pricing model to be $943,679 and $65,651,
respectively, and recorded as equity.
During the year, debenture holders representing the
CDN$1,350,000 noted above agreed to convert the principal amount
under the terms of the debentures, and as a result the Company
issued 7,013,514 common shares based on the stipulated conversion
rates which averaged $0.197 per share (CDN$0.193) . In addition,
the Company settled the applicable outstanding accrued interest of
$73,654 (CDN$71,923) by issuing 684,981 shares.
At the date of conversion, the net amount recorded with respect
to the converted debentures was $818,686 (CDN$799,446), represented
by the face amount of $1,382,488 (CDN$1,350,000), and the pro-rata
balance of the equity component to be accreted of $563,803
(CDN$550,554). No gain or loss was recognized on the conversion of
the debentures.
During the three months ended July 31, 2008, debenture holders
representing a principal balance of CDN$200,000 redeemed their
debentures. At the date of redemption, the net amount recorded with
respect to these debentures was $127,677 (CDN$128,954), represented
by the face amount of $198,020 (CDN$200,000), and the pro-rata
balance of the equity component to be accreted of $70,343
(CDN$71,046), which amount has been accreted during the period.
The remaining debentures are redeemable on demand by debenture
holders up to the maturity date, and as such are included in the
current portion of long-term debt. The debentures are secured by a
guarantee by and the assets of Radiant Aviation. The Company had
the right to repay the debentures up to December 31, 2007, under
certain conditions, which were not met. The debentures are
convertible into common shares of the Company based on a rate of
$0.181 (CDN$0.185) per common share in the first two years, $0.20
(CDN$0.205) in the third year, $0.225 (CDN$0.23) in the fourth
year, and $0.254 (CDN$0.26) in the fifth year.
With respect to this issue of these debentures the Company
issued detachable warrants to purchase 1,039,500 common shares at
$0.181 (CDN$0.185) per common share for up to two years after the
date of issuance, all of which remain outstanding. The expiration
dates vary between July 12, 2009 and August 19, 2009.
In conjunction with the issue of these debentures the Company
also issued 405,000 broker warrants to purchase 405,000 common
shares at $0.181 (CDN $0.185) until August 30, 2009. The value of
these warrants was estimated to be $47,508 using the Black-Scholes
pricing model, with such value recorded as an issue cost of the
debentures with an offsetting amount recorded in contributed
surplus.
As of July 31, 2008 and October 31, 2007, the components of the
debentures are as follows:
2008 2007
---------------------------------------------------------------------------
Face value $ 400,391 $ 2,063,370
Balance to be accreted (136,972) (984,485)
---------------------------------------------------------------------------
$ 263,419 $ 1,114,885
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Subsequent to July 31, 2008, debenture holders representing
CDN$75,000 of the principal amount outstanding requested redemption
of their debentures, which was paid.
c) Secured term loan - Innovations Norway
In 2006, RAS Europe entered into a term loan with Innovations
Norway for Norwegian Kroner NOK 9,000,000. The loan was secured by
a first charge on the deicing facility located at the Oslo Airport,
a cash security deposit of NOK 3,000,000, and a guarantee by the
parent Company. The loan has a five-year term, with semi-annual
repayments beginning in 2008, and bears interest at a rate based on
the rate set from time to time by the Government of Norway. The
rate at the end of the period was 8.3% (2007 - 7.5%) per annum.
During the three months ended July 31, 2008, the Company failed
to make a scheduled payment of principal and interest. Upon
submitting a Notice of Default to the Company, the lender demanded
repayment of the outstanding principal and interest under the terms
of the loan agreement. As discussed in Note 3, the lender took
possession of the cash security deposit as partial repayment of the
loan, such that the loan balance outstanding as of July 31, 2008
was $1,170,709 (NOK 6,000,000). As the lender has demanded
repayment of the loan, it has been classified as a current
liability.
Subsequent to July 31, 2008 the Company reached a settlement of
the outstanding loan balance with the lender (Note 16).
d) Series E secured convertible debentures - 6.75% interest, due
August 31, 2011
These debentures resulted from the purchase during 2006 of debt
owing to a third party by three significant shareholders, and the
subsequent agreement to convert the loan to $1,750,000 of
convertible debentures, secured by a first priority security
interest over the patents of Radiant Aviation. The Company repaid
$750,000 to the debenture holders during 2007. When the debentures
were issued in 2006, the Company valued the conversion feature of
the debenture using the Black-Scholes pricing model and recorded a
value of $551,228 as equity, which when a portion of the debenture
was repaid in 2007 resulted in a net realized gain of $23,426,
consisting of a gain on the debt component of $144,619 and a
reduction of the equity component of $121,193.
During the year the debenture holders agreed to convert the
remaining principal amount of $1,000,000 to shares under the terms
of the debentures, and as a result, the Company issued 7,600,000
common shares, based on the stipulated conversion rate of 7.6
shares per US$1.00 of principal. In addition, the Company settled
the outstanding accrued interest of $102,297 by issuing 989,853
shares. At the date of conversion, the net amount recorded with
respect to the debenture was $848,385, represented by the face
amount of $1,000,000, and the balance of the equity component to be
accreted of $151,615. No gain or loss was recognized on the
conversion of the debentures.
As at July 31, 2008 and October 31, 2007, the components of the
convertible debentures were as follows:
2008 2007
---------------------------------------------------------------------------
Face value $ - $ 1,000,000
Balance to be accreted - (184,035)
---------------------------------------------------------------------------
$ - $ 815,965
---------------------------------------------------------------------------
---------------------------------------------------------------------------
e) Secured convertible loan, non-interest bearing, due August
31, 2011
The Company had non-interest bearing loans outstanding to three
directors (or parties related to the directors), for $750,000.
During the year the lenders agreed to convert the loans to shares
under the terms of the loans, and as a result, the Company issued
5,624,998 common shares, based on the stipulated conversion rate of
7.5 common shares per US$1.00 debt. No gain or loss was recognized
on this conversion.
8. ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations consisted of abandonment costs
related to the deicing facilities in Oslo, Norway and Newark,
United States. As these facilities will be dismantled or disposed
of the asset retirement obligations have been written of. The
estimated costs of dismantling the facilities has been accrued.
2008 2007
---------------------------------------------------------------------------
Balance, beginning of period $ - $ 207,520
Accretion of asset retirement obligations - 13,576
---------------------------------------------------------------------------
Balance, end of period $ - $ 221,096
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Prior to the requirement to dismantle the facilities in the near future,
the abandonment costs were estimated to be $200,000 for each facility, and
were expected to be incurred in 2024. These costs were discounted at 7%
per annum to arrive at a fair value of the obligation of $96,972 per
structure.
9. SHARE CAPITAL AND WARRANTS
Common Shares
Authorized
Unlimited number of common shares
Issued and outstanding
Stated
Number capital
of shares $
---------------------------------------------------------------------------
Outstanding at October 31, 2006 76,410,217 17,128,575
Issued for cash (a) 23,268,500 2,209,718
Issued in exchange for debt (b) 4,000,000 1,000,000
Transfers from contributed surplus - 23,435
---------------------------------------------------------------------------
Outstanding at October 31, 2007 103,678,717 20,361,728
Issued for cash (a) 44,568,332 4,067,020
Issued in exchange for debt (b) 40,076,368 5,370,967
---------------------------------------------------------------------------
Outstanding at July 31, 2008 188,323,417 29,799,715
---------------------------------------------------------------------------
---------------------------------------------------------------------------
a) Shares issued for cash
During the nine months ended July 31, 2008, the company has
issued the following common shares for cash proceeds:
On December 31, 2007 the Company issued 12,500,000 common shares
at $0.11 (CDN$0.11) per share through a non-brokered private
placement for gross proceeds of $1,368,198 (CDN$1,375,000). Issue
costs associated with this private placement were $7,382
(CDN$7,375). Insiders of the Company subscribed for 10,681,817 of
the shares.
On February 28 and March 7, 2008, the Company closed a brokered
private placement of 32,068,332 units (the "Units") for gross
proceeds of $3,940,809 (CDN$3,848,200) at $0.123 per Unit (CDN
$0.12). Each Unit consisted of one common share and one-half of one
common share warrant of the Company. Each warrant entitles the
holder to purchase one common share of the Company for $0.293
(CDN$0.30) per share until 18 months from the closing date.
The Company allocated the proceeds between the shares and the
warrants issued, based on the relative value of the components. The
value of the shares was based on the closing value of the Company's
shares on the closing date of $0.128 (CDN$0.125), and a value for
the warrants based on a Black-Scholes model calculation. As a
result, the gross proceeds were allocated as to $3,312,718
(CDN$3,234,869) to Share capital and $628,091 (CDN$613,331) to the
Warrants.
The company incurred cash related issue costs in connection with
the private placement of $467,984 (CDN$456,986), and this amount
has been allocated in the same manner as the gross proceeds, with
$393,396 (CDN$384,151) as a reduction of Share capital and $74,588
(CDN$72,835) as a reduction of the Warrants.
In addition, the company issued 2,565,466 agent's options, each
exercisable for one Unit for a period of 18 months from the closing
date, at a price of $0.117 per option (CDN$0.12), representing
additional issue costs of the private placement. The agent's
options have been valued based on a Black-Scholes model
calculation, at an amount of $253,525 (CDN$247,567), which has been
allocated consistently with other issue costs, with $213,118
(CDN$208,110) as a reduction of Share capital and $40,407
(CDN$39,458) as a reduction of the Warrants.
b) Shares issued in exchange for debt
During the nine months ended July 31, 2008 the Company agreed to
issue shares to settle outstanding debt, including accrued
interest. In accounting for the settlements, the company attributed
to Share capital the carrying value of the related debt, and as
such, no gains or losses were recorded.
On January 24, 2008, the Company settled the following
debts:
The Company issued 3,296,295 common shares to settle principal
and accrued interest totaling $490,864 (CDN$494,398) relating to
short-term loans provided by two significant shareholders and
insiders of the company (Note 6b). The value attributed to the
shares issued as a result of this settlement was $490,864
(CDN$494,398), or $0.149 (CDN$0.15) per share.
The Company issued 14,814,814 common shares to settle principal
and accrued interest totaling $2,279,034 (CDN$2,295,014) relating
to short-term loans provided by two significant shareholders and
insiders of the company (Note 6a). The value attributed to the
shares issued as a result of this settlement was $2,279,034
(CDN$2,295,014), or $0.154 (CDN$0.155) per share.
The Company issued 51,913 common shares to settle principal of
$5,000 and accrued interest of $3,047 relating to its Series A
debentures. The value attributed to the shares issued as a result
of this settlement was $8,047, or $0.156 (CDN$0.157) per share.
On February 28, 2008, the Company settled the following
debts:
The Company settled its Secured convertible loans of $750,000
with lenders who were insiders of the Company, agreeing to convert
the loans to shares under the terms of the loans, and as a result
the Company issued 5,624,998 common shares, based on the stipulated
conversion rate of 7.5 common shares per US$1.00 debt (Note
7e).
The Company's Series E debenture holders agreed to convert the
remaining principal amount of $1,000,000 to shares under the terms
of the debentures, and as a result the Company issued 7,600,000
common shares, based on the stipulated conversion rate of 7.6
shares per US$1.00 of principal (Note 7d). In addition, the Company
settled the outstanding accrued interest of $102,297 by issuing
989,853 shares. At the date of conversion, the net amount recorded
with respect to the debentures was $848,385, represented by the
face amount of $1,000,000, and the balance of the equity component
to be accreted of $151,615.
Debenture holders representing CDN$1,350,000 of the Company's
Series F debentures, who are insiders of the Company, agreed to
convert the principal amount under the terms of the debentures, and
as a result the Company issued 7,013,514 common shares, based on
the stipulated conversion rates which averaged $0.197 per share
(CDN$0.193) (Note 7b). In addition, the Company settled the
applicable outstanding accrued interest of $73,654 (CDN$71,923) by
issuing 684,981 shares. At the date of conversion, the net amount
recorded with respect to the converted debentures was $818,686
(CDN$799,446), represented by the face amount of $1,382,488
(CDN$1,350,000), and the pro-rata balance of the equity component
to be accreted of $563,802 (CDN$550,554).
c) Stock options
The Company has a stock option plan whereby directors, officers,
employees and consultants, subject to certain conditions, may be
granted options to purchase common shares of the Company. During
the period the shareholders of the Company approved an amendment to
the plan to increase the total number of options available in the
plan from 5,000,000 to 10,000,000 share options. As at July 31,
2008 there were 4,245,000 options that have been granted and remain
outstanding, with 5,755,000 options available to be granted under
the plan. Options generally expire after five years, with vesting
provisions stated in the plan.
A summary of the Company's stock option activity during the nine
months ended July 31, 2008 and for the year ended October 31,
2007:
2008 2007
-------------------------- ----------------------------
Weighted-average Weighted-average
Exercise Price Exercise Price
Units US $ CDN $ Units US $ CDN $
---------------------------------------------------------------------------
Options:
Outstanding,
beginning
of period 2,170,000 $0.15 $0.15 3,455,000 $0.15 $0.17
Granted 2,900,000 $0.19 $0.19 450,000 $0.09 $0.10
Exercised - (510,000) $0.11 $0.12
Expired (825,000) $0.19 $0.19 (1,225,000) $0.18 $0.20
---------------------------------------------------------------------------
Outstanding,
end of period 4,245,000 $0.17 $0.17 2,170,000 $0.16 $0.15
---------------------------------------------------------------------------
During the nine months ended July 31, 2008, 500,000 options
exercisable at $0.15 (CDN$0.15) per share, and 2,000,000 options
exercisable at $0.20 (CDN$0.20) were granted. In addition, 400,000
options that had been approved during 2007, exercisable at $0.20
(CDN$0.20) per share, were granted.
The following table summarizes information about options
outstanding as at July 31, 2008:
Weighted -
average Weighted-
remaining average
Range of exercise prices Number contractual exercise price
US $ CDN $ outstanding life US $ CDN $
---------------------------------------------------------------------
$0.10-$0.20 $0.10-$0.20 1,970,000 3.1 years $0.13 $0.13
$0.20-$0.30 $0.20-$0.30 2,275,000 4.2 years $0.21 $0.21
---------------------------------------------------------------------
The fair value of stock options granted during the nine months
ended July 31, 2008 was estimated by management to be $381,602
(2007 - $26,661). These options vested immediately on the grant
date and, accordingly, the amount has been expensed as stock-based
compensation. The fair value of stock options were estimated on the
date of grant using the Black-Scholes option pricing model with the
following assumptions:
January 31 January 1 January 7 February 28
Date of grant 2007 2008 2008 2008
---------------------------------------------------------------------------
Expected life 5 years 5 years 5 years 5 years
Expected volatility 74% 166% 166% 215%
Expected dividend yield Nil Nil Nil Nil
Risk-free interest rate 4.1% 3.8% 3.6% 3.3%
The Black-Scholes option pricing model used by the Company to
determine fair values was developed for use in estimating the fair
value of freely traded options, which are fully transferable and
have no vesting restrictions. Given the nature of the Company and
the relatively small but varying stock trading, which impacts the
assumptions required to be used in the model, there can be
significant variation in the estimate of the fair value of the
options.
d) Warrants Amount
Warrants $
---------------------------------------------------------------------------
Series F Warrants 1,039,000 -
Series F - Broker Warrants 405,000 -
Warrants - Private Placement - Feb 28/08 16,034,166 513,095
Broker Warrants - Private Placement - Feb 28/08 2,565,466 253,525
---------------------------------------------------------------------------
Outstanding at July 31, 2008 766,620
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The Company issued warrants to non-insider Series F debenture
holders at the time of the issue in 2007. The warrants, which allow
for the purchase of 1,039,500 common shares at $0.181 (CDN$0.185)
per common share for up to two years after the date of issuance,
remain outstanding. The expiration dates vary between July 12, 2009
and August 19, 2009 (Note 7b). Amounts in respect of these warrants
were recorded in Contributed Surplus.
The Company issued broker warrants in conjunction with the issue
of the Series F debentures to purchase 405,000 common shares at
$0.181 (CDN$0.185), which expire on August 30, 2009 (Note 7b). The
warrants remain outstanding. Amounts in respect of these warrants
were recorded in Contributed Surplus.
Warrants were issued as part of the private placement on
February 28 and March 7, 2008. Each of the 32,068,332 Units
consists of one common share and one-half of one common share
warrant of the Company, and as such, the Company issued 16,034,166
warrants. Each warrant entitles the holder to purchase one common
share of the Company for $0.293 (CDN$0.30) per share until 18
months from the closing date. An amount of $628,091 (CDN$613,331)
of the total proceeds was allocated to the Warrants, reduced by
portions of the cash issue costs and value of the Broker warrants,
$74,588 (CDN$72,835) and $40,407 (CDN$39,458), respectively.
In addition, the company issued 2,565,466 agent's options, each
exercisable for one Unit for a period of 18 months from the closing
date, at a price of $0.117 (CDN$0.12) per option.
10. TAX PENALTY - VAT NORWAY
The Company was assessed a Value Added Tax penalty by the
Norwegian tax authorities during the year. The tax department is
challenging the basis on which RAS Europe claimed input tax credits
on costs incurred since inception to construct the deicing facility
and conduct its operations. They have demanded repayment of all
previous credits received of $1,511,053 (NOK 7,744,300). In light
of the Company's decision to not pursue further operations in
Norway, the full amount has been accrued.
11. INCOME TAXES
As at October 31, 2007, the Company had accumulated losses for
income tax purposes as follows, of which $700,000 may expire in
2008:
Local
Country US Dollars Currency Currency Expiry Date
---------------------------------------------------------------------------
United States $ 17,317,000 17,317,000 US dollars 2009-2027
Canada 6,239,000 5,927,000 Can. dollars 2008-2027
Norway 903,000 4,869,000 Nor. Kroner 2014-2015
Norway 3,023,000 17,286,000 Nor. Kroner None
---------------------------------------------------------------------------
Total $ 27,665,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
No future tax benefit has been recognized in the accounts for
any of the above noted losses due to the uncertainty of
realization.
12. FINANCIAL INSTRUMENTS
Fair Value
The carrying value of cash, restricted cash, accounts
receivable, accounts payable and accrued liabilities and short-term
credit facilities approximates fair value due to the relatively
short-term maturity of these financial instruments. The fair value
of the long-term debt is indeterminable as a result of the
uncertainty of the repayment.
Risk Disclosures
The main risks the company's financial instruments are exposed
to are credit risk, interest rate risk, foreign currency risk and
liquidity risk each of which is discussed below.
Credit Risk
The company's revenue is relatively minor, but is exposed to
concentration of credit risk relatively few customers. The company
believes that this credit risk is minimized due to the financial
worthiness of it customers.
Interest Rate Risk
The Innovations Norway loan bears interest at floating rates
based on the bank prime rate, and as such, is subject to interest
rate cash flow risk resulting from market fluctuations in interest
rates. The Series F secured convertible debentures bear interest at
a fixed rate of interest, and as such are subject to interest rate
price risk resulting from changes in fair value from market
fluctuations in interest rates.
Foreign Currency Risk
Although the Company's functional currency is in US dollars, it
does incur certain operating costs and has outstanding indebtedness
that is denominated in Canadian dollars and Norwegian Kroner.
Fluctuations in the exchange rates between these currencies could
have a material effect on operations.
Liquidity risk
The Company has significant financial liabilities outstanding
including accounts payable and accrued liabilities and long-term
debt. The Company is exposed to the risk that it may not have
sufficient liquid assets to meet its commitments associated with
these financial liabilities.
13. SEGMENT DISCLOSURES
The Company has three reportable segments based on geographic
areas. Revenue and income for the three and nine month periods
ended July 31, 2008 and 2007, and assets as of July 31, 2008 and
October 31, 2007 are as follows:
---------------------------------------------------------------------------
2008 Canada United States Europe Total
---------------------------------------------------------------------------
Three months ended
July 31:
Revenue $ - $ - $ - $ -
Income (loss) for
the period (509,275) (245,973) (14,510) (769,758)
Nine months ended
July 31:
Revenue - 270,760 - 270,760
Income (loss) for
the period (1,735,137) (1,208,649) (1,646,513) (4,590,299)
Assets - July 31,
2008 1,621,491 350,810 20,636 1,992,937
---------------------------------------------------------------------------
2007 Canada United States Europe Total
---------------------------------------------------------------------------
Three months ended
July 31:
Revenue $ - $ 16,450 $ - $ 16,450
Income (loss) for
the period (116,612) (289,800) (2,158,178) (2,564,590)
Nine months ended
July 31:
Revenue - 255,081 - 255,081
Income (loss) for
the period (361,387) (1,042,090) (2,790,138) (4,193,615)
Assets - October 31,
2007 41,522 272,757 628,570 942,849
14. CONTINGENT LIABILITIES
On May 5, 2003, the Company's subsidiary, Radiant Aviation, was
named in a summons filed with the New York State Secretary of State
pursuant to an obligation to pay utility costs at a previous
deicing facility owned by the Company. The Company's obligation is
contingent on the success of another lawsuit between the operator
of the deicing service centre and the utility provider.
The Company is a defendant in an action by a former consultant
claiming employee equivalent status and claiming damages for
wrongful dismissal, vacation pay and general damages in the amount
of $203,000.
Management does not expect the outcome of any of the above
claims against the Company to be ultimately successful. However,
$50,000 against the New York State claim has been provided.
15. COMMITMENTS
Under terms of an agreement entered into in February, 2005 with
The Port Authority of New York, New Jersey, Radiant Aviation has
committed to operate the deicing facility at JFK airport until
2026. Pursuant to the terms of the agreement, Radiant Aviation is
responsible for providing deicing services and collecting revenue,
and for paying operating costs as defined in the agreement. The
agreement defines a calculation by which gross receipts in excess
of operating costs are shared among the parties, after which
Radiant is entitled to 20% of the net amount. Included in the
calculation are annual amounts owing to JFK, and that if gross
receipts are not sufficient to pay them during the year, will
accumulate and be paid from future gross receipts. As of July 31,
2008, the accumulated shortfall to be paid to JFK from future gross
receipts is approximately $1,370,000.
During 2007, Radiant Aviation entered into an agreement with a
third party to operate this facility on its behalf. Under the terms
of this agreement, Radiant Aviation is required to reimburse the
third party for all costs of operating the facility, which are
primarily fixed in nature, and are estimated to be $500,000 per
annum.
16. SUBSEQUENT EVENTS
Subsequent to July 31, 2008, the Company settled the outstanding
principal of $500,000 and interest of $303,842 owing to the main
lender of the Series A debentures through a cash payment of
$250,000 and the issuance of 4,140,278 common shares of the Company
and 2,070,140 common share purchase warrants, each warrant
entitling the holder to purchase one common share of the company
for $0.20 (CDN$0.20) for 24 months.
During 2008, the Company decided to no longer pursue its
operations in Norway. As described in Note 7c, RAS Europe is in
default of a term loan with Innovations Norway, who has demanded
repayment of the loans of $1,170,709 (NOK 6,000,000). Subsequent to
July 31, 2008, the Company reached a settlement agreement with
Innovations Norway, on behalf of itself and RAS Europe, whereby the
lender would sell the facility on behalf of RAS Europe, using the
proceeds to pay down the loan, and in addition, the Company will
make a payment of $47,780 (NOK 265,000) and issue 3,658,987 common
shares to the lender in full settlement of the outstanding
principal and interest and any related obligations.
Also subsequent to the end of the period, CDN$75,000 of the
CDN$410,000 remaining Series F debenture holders have requested
repayment, in accordance with the terms of the debentures.
17. COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform
with the current year's presentation. The net loss previously
reported has been unaffected by this reclassification.
The TSX Venture Exchange has not reviewed and does not accept
responsibility for the adequacy or accuracy of this press
release.
Contacts: Radiant Energy Corporation Larrie Shepherd President
and Chief Executive Officer (416) 922-8778
Radiant Energy Corp (TSXV:RDT)
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