14th May 2010 07:00
`
14 MAY 2010
TURBO POWER SYSTEMS INC. (TPS) ANNOUNCES RESULTS FOR
THE FIRST QUARTER ENDED 31 MARCH 2010
Highlights
·; Production and development income increased by 16% for the quarter at £3.11 million (2009: £2.70 million)
·; Production revenues in the quarter increased by 87% to £2.58 million (2009: £1.38 million)
·; EBITDA profit for the quarter of £0.01 million (2009: loss of £0.06 million)
·; Net profit in the quarter of £0.02 million (2009: net loss £0.37 million)
·; Operating cash inflow in the quarter of £0.09 million (2009: outflow of £0.46 million)
Paul Summers, CEO, said:
"We continued to make progress during the period in balancing the costs and activities of the business in order to achieve a sustainable profitable trading position in the foreseeable future.
The order intake for the quarter was less satisfying with a several orders being delayed, including the next tranche of motors for our HVAC Customer. However, the Board believes that the business is well positioned to achieve an increased order book by the end of the year.
As previously announced, a noteworthy achievement for the quarter was the reduction in the total level of debt by 30% through a negotiated settlement with the 2005 Loan Note Holders.
Strengthening the balance sheet in order to maintain sufficient working capital to allow the business to achieve its growth targets, operate efficiently and have sufficient cash reserves to mitigate the risks posed by timing fluctuations in customer receipts and supplier payments remain an important issue. As indicated in the 2009 Annual Report, the Board is looking to address this important matter in the near term."
For further information, please contact:
Turbo Power Systems Tel: +44 (0)20 8564 4460
Richard Bayliss, Finance Director
Alan Baird, Marketing Communications
Company Website: www.turbopowersystems.com
Kreab Gavin Anderson (financial public relations) Tel: +44 (0)20 7074 1800
Ken Cronin
Michael Turner
finnCap (NOMAD, broker and financial advisor) Tel: +44 (0)20 7600 1658
Marc Young
Henrik Persson
NOTES TO EDITORS
About Turbo Power Systems
Turbo Power Systems Inc (TSX:TPS.TO AIM:TPS.L) is a leading UK based designer and manufacturer of innovative power solutions. The Company's products are all based on its core technologies of power electronics and high speed motors and generators and are sold into a number of market sectors including aerospace, rail, and various industrial sectors. The Company's products provide improved efficiency and reduced energy consumption compared to existing technologies.
Turbo Power System's existing customers include blue chip companies such as Bombardier Transportation, McQuay International and Eaton Aerospace.
Forward looking statements
This press release contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, and underlying assumptions and other statements that are other than statement of historical fact. These statements are subject to uncertainties and risks including, but not limited to, the ability to meet ongoing capital needs, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition, the need to protect proprietary rights to technology, government regulation, and other risks defined in this document and in statements filed from time to time with the applicable securities regulatory authorities.
Definition of non-GAAP financial measures
EBITDA is calculated as the net loss for the period less financial interest income and charges, foreign exchange gains and losses, tax charges and receipts, depreciation, amortization, and stock compensation charges. The Company believes that EBITDA is useful supplemental information as it provides an indication of the operational results generated by its business activities prior to taking into account how those activities are financed and taxed and also prior to taking into consideration asset amortization. EBITDA is not a recognised measure under GAAP and, accordingly, should not be construed as an alternative to operating income or net loss determined in accordance with GAAP as an indicator of financial performance or of liquidity and cash flows. EBITDA does not take into account the impact of working capital changes, capital expenditures and other sources and uses of cash which are disclosed in the consolidated statement of cash flows. The Company's method of calculating EBITDA may differ from other issuers and may not be comparable to similar measures provided by other companies.
Notice of no auditor review of interim financial statements
Under Canadian National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying un-audited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
OPERATIONAL REVIEW
This review has been prepared as at 13 May 2010.
Business of the Company
Turbo Power Systems ('TPS') designs and manufactures:
·; high-speed permanent magnet based motors and generators for industrial, transport, power generation and military applications, where technical performance, energy efficiency and power density requirements cannot be met by conventional technology.
·; power electronics products, including variable frequency drives and inverters, which combine with the Company's electrical machines to create an integrated solution, and a range of rugged power conversion products for rail and industrial applications.
Business Summary
Strategic Direction
TPS's primary focus is on the following markets:
·; Transport
o Power Electronics for the Rail Industry
·; Energy
o Grid Link Inverters
o Motors & Generators
·; Industrial Equipment
o Motors & Generators
o Power Supplies
·; Defence
o Power Electronics
o Motors & Generators
Whilst the business will continue to service existing programmes in other areas (e.g. aerospace and automotive) it will behave in a reactive manner to these markets and only engage in new programmes that meet the requirements of the business in terms of risk, cash flow and profitability.
The vision for the business can be summarised as follows:
"To be a world class provider of specialist Power Electronics and Electrical Machines maximising stakeholder benefit"
The business aims to achieve this through:
·; Market leading technologies and programme delivery
·; Long term partnerships with our customers
·; Strong year on year organic growth
·; A culture of continuous improvement of individual and business performance and capability
In terms of the development of the business this means we intend to:
·; Develop technological advantage and customer partnerships in the following business sectors:
o Transport
o Energy
o Industrial
o Defence
·; Be a preferred supplier to a limited number of key blue chip customers
·; Balance business activities across development, production and after sales
Current Operating Climate
The spread of markets in which TPS operates has provided a degree of resilience to the global downturn during 2009 into 2010; indeed we have managed to grow the business despite the poor economic climate. We see this spread being of further benefit as and when the global economic climate improves.
The industrial sector is recovering well with confirmation of increased production requirements for the remainder of this year and into next year for our laser power suppliers and motors/drives for other industrial applications.
Governments are continuing to invest in infrastructure projects and, indeed, see transport initiatives such as new rail programmes as a way of helping to sustain their industries whilst providing necessary public transportation and having a positive effect on the environment.
Defence expenditure in both the US and UK is relatively static but have specialist pockets of growth potential in areas where TPS technology can be applied. We will continue to investigate this market further and hope to see increased activity during the coming years.
As a result of the many 'green initiatives' the energy sector is still seeing significant growth and we have been positioning ourselves in several areas in order to gain a share of this growth. We see this sector as offering substantial growth potential.
Current Programmes
The Company operates with two reportable segments. The Power Electronics Division is involved in the development and manufacture of electrical power supply and control systems, encompassing rail and aerospace transport activities, power conditioning within the renewable energy area and industrial power supplies. The Electrical Machines Division is involved in the development and commercialisation of high speed electrical machines which are currently marketed within the renewable energy, industrial and defence markets.
·; Transport
o Rail
Deliveries continue on the major programmes (Bombardier Chicago Transit Authority and Bombardier Toronto). The Bombardier KL Programme was completed in the quarter. Deliveries on our smaller rail programmes continue to be made to customer call off requirements.
o Aerospace
The Jettison Fuel Pump motor drives for Eaton Aerospace continue to be delivered in line with the customer's call-off rate.
·; Energy
o Renewable Energy
There has been continued European funded R&D work in this area relating to Grid Linked Inverters and we anticipate further R&D grant funded work being secured related to charging systems for Electric Vehicles. Along with European partners we have progressed development work on a 6kW combined heat and power generator for use in the domestic gas boiler market. These programmes and capabilities, combined with our compact and power-dense high speed generator units, are being used as the basis for our business development activities for our future in the energy sector.
·; Industrial
o Laser Power Supplies
Our customer has now confirmed an increased demand for their product and our power supply units are now being produced again. Our customer has confirmed requirements for quantities similar in scale to those experienced in 2007/8.
o Industrial Motors and Drives
Deliveries to our Industrial Motors and Drives OEM (McQuay International) have continued during the quarter and are now expected to complete with quarter 2. However, the customer has indicated that there will then be a gap in production until the end of the year whilst our delivered units are utilized in finished product.
Work has also commenced on the next motor development under the exclusive development agreement finalised with McQuay in Q3 2009.
We have also re-started the production of the SKF Laser Blower products with confirmation that there will be continuing demand for these units during 2010.
·; Defence
o 1MW High-Speed Generator
Having successfully delivered our high-speed generator, under the contract awarded during 2008 by SAIC (a major US defence contractor), the complete system has now completed system trials. SAIC continue to indicate that further orders are likely later in the year.
Financial Performance
Total revenues in the quarter ended 31 March 2010 of £3.11 million were 16% greater than in the first quarter of the 2009 financial year (2009: £2.70 million), primarily due to increased production volumes.
Research and product development costs and administrative costs have both decreased further following our ongoing operational cost review programmes.
The Company recorded a profit before interest, tax, depreciation, amortization, foreign exchange gains and losses and stock compensation for the quarter of £0.15 million (2009: loss of £0.06 million) as a result of increased revenues and controlled operational costs.
The Company also recorded an operating cash inflow before working capital movements of £0.41 million for the quarter (2009: £0.03 million), but after adjusting for changes in working capital items and purchases of property, plant and equipment suffered an overall cash outflow of £0.30 million (2009: £0.47 million). The majority of the cash outflow during the quarter was the result of the payment of £0.26 million to settle the outstanding 2005 loan notes in January 2010.
The Company finished the quarter with an unrestricted cash balance of £0.35 million and held further cash of £0.90 million associated with performance bonds.
During the quarter ended 31 March 2010 the Company had no transactions with related parties and there are no further proposed transactions to disclose.
Going Concern
The Critical Accounting Estimates included within these statements are assessed on an unchanged basis from the prior year and as disclosed in the Company's Financial Statements for the year ended 31 December 2009.
These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 31 March 2010 the Company had net cash outflows therefore may require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £72.95 million as at 31 March 2010.
At 31 March 2010 the Company had an unrestricted cash balance of £0.35 million and held further cash of £0.90 million associated with performance bonds. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, that would be necessary if the "going concern" assumption were not appropriate
Management regularly reviews and considers the current and forecast activities of the Company in order to satisfy itself as to the viability of operations. These ongoing reviews include consideration of current order book and future business opportunities, current development and production activities, customer and supplier exposure and forecast cash requirements and balances. Based on these evaluations management consider that the Company is able to continue as a going concern.
Securing sufficient working capital to allow the business to achieve its growth targets, operate efficiently and have sufficient cash reserves to mitigate the risks posed by timing fluctuations in customer receipts and supplier payments remains an important issue.
As indicated in the 2009 Annual Report the Board is looking to address this important matter in the near term.
Summary of Quarterly Results
The following table sets forth selected quarterly consolidated financial information of the Company for the last eight quarters;
|
All amounts in £'000 |
Revenue |
Research and product development |
General and administrative |
Net profit/ (loss) |
Profit/ (loss) per share |
Net cash flow from operating |
Net cash flow from capital investment |
|
|
|
|
|
|
|
|
|
|
June 2008 |
1,711 |
1,470 |
1,049 |
(2,276) |
(0.7) |
(2,479) |
(57) |
|
September 2008 |
1,246 |
1,363 |
1,025 |
(1,849) |
(0.6) |
(1,527) |
(10) |
|
December 2008 |
1,862 |
841 |
816 |
(3,151) |
(1.0) |
167 |
(8) |
|
|
|
|
|
|
|
|
|
|
March 2009 |
1,383 |
881 |
916 |
(368) |
(0.1) |
(458) |
(23) |
|
June 2009 |
1,235 |
199 |
812 |
(234) |
(0.1) |
(151) |
(13) |
|
September 2009 |
1,453 |
579 |
654 |
(344) |
(0.1) |
(165) |
(26) |
|
December 2009 |
3,193 |
743 |
845 |
211 |
0.1 |
(93) |
(10) |
|
|
|
|
|
|
|
|
|
|
March 2010 |
2,581 |
619 |
676 |
21 |
0.0 |
89 |
(37) |
Research and development expenditure has remained at a decreased level compared with previous years reflecting the reduction in development activities on the Bombardier Chicago and Toronto rail programmes, together with the reduced development requirement as a result of the transition agreement on the Hamilton Sundstrand contract for the Boeing 787. R&D tax credits recognized further reduce the net Research and Product Development spend as analysed below.
|
All amounts in £'000 |
Research and Product Development |
||
|
|
Gross |
Tax Credits |
Net |
|
|
|
|
|
|
June 2008 |
1,514 |
(44) |
1,470 |
|
September 2008 |
1,413 |
(50) |
1,363 |
|
December 2008 |
1,248 |
(407) |
841 |
|
|
|
|
|
|
March 2009 |
881 |
- |
881 |
|
June 2009 |
761 |
(562) |
199 |
|
September 2009 |
829 |
(250) |
579 |
|
December 2009 |
743 |
- |
743 |
|
|
|
|
|
|
March 2010 |
694 |
(75) |
619 |
Reconciliation of net loss to EBITDA result
|
|
|
|
|
Quarter ended 31 March |
||
|
|
|
|
|
|
2010 |
2009 |
|
|
|
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Net profit/( loss) |
|
|
|
|
21 |
(368) |
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
Interest income |
|
|
|
|
- |
(1) |
|
Interest expense |
|
|
|
|
169 |
201 |
|
Finance (gain)/charge |
|
|
|
|
(175) |
17 |
|
Foreign exchange gain |
|
|
|
|
(48) |
(125) |
|
Amortisation |
|
|
|
|
152 |
168 |
|
Stock Compensation |
|
|
|
|
29 |
44 |
|
|
|
|
|
|
---------- |
---------- |
|
EBITDA profit/(loss) |
|
|
|
|
148 |
(64) |
|
|
|
|
|
|
---------- |
---------- |
Copies of Quarterly and Annual Results
The Company's full Financial Results and Managements' Discussion and Analysis for 2009, together with the First Quarter 2010 Financial Results and Managements' Discussion and Analysis are available on www.sedar.com and full 2009 financial statements will be mailed to shareholders during May 2010.
Copies of the quarterly and annual results are available from the Company's office at Unit 3 Summit Centre, Hatch Lane, West Drayton, Middlesex, UB7 0LJ, United Kingdom or available to view from the Company's website at www.turbopowersystems.com
Review of the quarter ended 31 March 2010
Production revenue
Production revenue in the quarter ended 31 March 2010 was £2.58 million compared with £1.38 million in 2009
2010 2009
£'000 £'000
Power electronics 1,629 1,383
Electrical machines 952 -
_____ _____
2,581 1,383
Revenues at both divisions increased compared with 2009 as the general industrial economy improved and customer requirements started to recover.
Development income
Development income in the quarter was £0.53 million compared with £1.31 million in 2009. The reduction principally related to the sale of access rights to certain engineering design and methods that was made during 2009.
2010 2009
£'000 £'000
Development income 532 1,312
Production costs
The cost of production revenues in the quarter amounted to £1.70 million (2009: £1.01 million).
2010 2009
£'000 £'000
Power electronics 1,075 860
Electrical machines 624 146
_____ _____
1,699 1,006
Production costs include certain facilities costs attributable to the manufacturing operation.
Research and product development
Research and product development expenditure in the quarter was £0.88 million compared with £0.88 million in 2009, and comprised
2010 2009
£'000 £'000
Research and product development expenditure 694 881
R&D Tax credits (75) -
_____ _____
Total expenditure 619 881
General and administrative
General and administrative costs in the quarter of £0.68 million (2009: £0.92 million) consist mainly of staff costs, facilities costs and the costs associated with the Company's public listings.
Amortisation
Amortisation was £0.15 million compared with £0.17 million in 2009.
Interest income
Interest income during both quarters was insignificant due to low cash balances maintained.
Interest expense and finance charges
Interest expenses arise from the issue of convertible bonds in March 2005 and June and August 2008 and comprise
2010 2009
£'000 £'000
Interest payable 153 159
Accretion of debt 16 42
_____ _____
169 201
Cash flows for the quarter ended 31 March 2010
Cash outflow from operating activities
Operating cash inflow before movements in working capital was £0.41 million for the quarter (2009: £0.03 million)
Movements in working capital produced a net cash inflow of £0.09 million during the quarter (2009: outflow of £0.46 million).
Investing activities
Cash outflows from capital investments in the quarter were £0.04 million compared with £0.02 million in 2009.
Financing activities
Cash outflows in the quarter of £0.26 million relate to the repayment and settlement of the outstanding 2005 Loan Notes (2009: £nil).
Overall cash outflow for the period
Overall the cash outflow during the quarter was £0.30 million. This compares with an overall cash outflow of £0.47 million for the first quarter of 2009.
Balance sheet as at 31 March 2010
The Company ended the period with an unrestricted cash balance of £0.35 million compared with £0.65 million at 31 December 2009. Substantially all of the Company's cash balances are denominated in Sterling.
In addition the Company had restricted cash amounts of £0.90 million principally relating to performance bonds entered into as part of contracts with the Toronto Transit Commission and Bombardier (2009: £0.81 million).
Long term assets excluding restricted cash have decreased from £1.06 million at 31 December 2009 to £0.95 million at 31 March 2010, after depreciation charges of £0.15 million.
Long term liabilities have increased to £3.64 million at 31 March 2010 compared to £3.49 million at 31 December 2009, reflecting the increase in the value of the debt element of the Loan Notes and the interest accruing during the quarter.
Net working capital at 31 March 2010, excluding restricted cash balances, was £1.20 million, compared with £0.88 million as at 31 December 2009.
As at 31 March 2010, the Company had 354,421,478 common shares issued and outstanding and 115,000,000 A ordinary shares issued and outstanding. As at that date there were 25,310,000 outstanding share options and 12,857,142 outstanding warrants.
Contractual Obligations
|
|
Payments due by period £'000 |
||||||
|
|
Total |
2010 |
2011
|
2012 |
2013 |
2014 |
2015 and thereafter |
|
Trade and other payables Convertible notes |
2,612 4,350 |
2,612 - |
- 4,350 |
- - |
- - |
- - |
- - |
|
Operating leases |
3,716 |
398 |
534 |
537 |
304 |
230 |
1,713 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
10,678 |
3,010 |
4,884 |
537 |
304 |
230 |
1,713 |
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
Shareholders' equity
The movement in shareholders' equity comprised
2010
£'000
As at 1 January (13,651)
Profit for the quarter 21
Stock compensation expense 29
Share conversions 55
______
As at 31 March (13,546)
As at 13 May 2010 the Company had 354,421,478 common shares issued and outstanding. As at that date there were 25,310,000 outstanding share options and 12,857,142 outstanding warrants.
Liquidity
Cash, cash equivalents and short-term investments at 31 March 2010 were £0.35 million, compared with £0.65 million at 31 December 2009.
Restricted cash at 31 March 2010 was £0.90 million, compared with £0.81 million at 31 December 2009.
The Company reported a profit in the quarter of £0.02 million and has a cumulative deficit of £72.95 million. The Company's ability to continue as a going concern depends on its ability to generate positive cash flows from operations or secure additional debt or equity financing.
The Company has not changed its approach to Currency risk and Interest rate risk management from that of the prior year and as disclosed in the annual statements at 31 December 2009.
Currency risk management
Principally all of the Company's expenditure is denominated in Sterling, which is funded from Sterling cash balances. Exchange differences, which arise on consolidation of the Company's Canadian operations, are included in exchange adjustments within the income statement. At 31 March 2010 the Sterling equivalent of Canadian Dollar denominated net assets amounted to £46,000 (31 December 2009: net liabilities £31,000).
Interest rate risk management
The analysis of the Company's financial assets and borrowings analysed between floating and fixed interest rates is shown below;
Mar 2010 Dec 2009
£'000 £'000
Floating rate financial assets 1,254 1,463
Fixed rate borrowings 2005 Bond - (1,054)
Fixed rate borrowings 2008 Bond (3,000) (3,000)
The fixed rate borrowings for the 2005 Bond are at 6.5% per annum, and for the 2008 Bond are at 15% per annum.
The Company invests surplus cash funds in short term money market deposits with financial institutions and cash funds which have at least a short term credit rating of F1. The maturity of the deposits is between one and three months.
Convertible bonds
Convertible notes are considered to be compound financial instruments, and the liability component and the equity component must be presented separately, as determined at initial recognition. The Company has valued the equity component of these notes using the residual value of equity component method, whereby the liability component is valued first using the current market rate for comparable instruments, at the time of issuance. The difference between the proceeds of the bonds issued and the fair value of the liability is assigned to the equity component.
On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement with institutional investors ("2005 loan note holders"). The financing comprised unsecured convertible notes and warrants. The convertible notes have a term of five years plus one day and bear interest at a rate of 6.5% per annum. They are convertible, at the option of the holder, into an aggregate of 66,666,667 Common Shares in Turbo Power Systems Inc. at a conversion price of £0.12 per share. The warrants have a term of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Power Systems Inc. at an exercise price of £0.15 per share. The convertible notes are unsecured.
On 19 June 2008 the Company completed a financing agreement with institutional investors for potential financing of up to £3,000,000 (gross) comprised of secured convertible notes and warrants ("2008 loan note holders"). The convertible notes were issuable in £750,000 increments over a three year period from the date of the agreement. The Company issued £1,500,000 of convertible notes under the agreement on 19 June 2008. The financing comprised secured convertible notes and warrants. The convertible notes bear interest at 15% per annum and are convertible into an aggregate of 75,000,000 of either Common Shares in Turbo Power Systems Inc. or A-Ordinary shares in Turbo Power Systems Limited at an exercise price of £0.04 per share. The notes required quarterly interest and quarterly principal payments commencing March 2009.
On 15 August 2008 the Company amended the terms of the 19 June 2008 loan agreement and issued an additional £1,500,000 of convertible notes under the amended terms. The new terms result in all interest and principal repayments being deferred until maturity on 19 June 2011, and provide that if at any time, including once the convertible notes governed by the 19 June 2008 agreement have been fully repaid, there is a change in control of the Company, or its subsidiaries or substantially all of its assets, the holders of the convertible notes will be entitled to receive a risk premium, calculated according to the enterprise value ascribed to the Company, under the transaction after deducting any balance of the convertible notes and/or interest outstanding. This risk premium will be equal to an initial payment of £1,500,000 plus 75% of the next £6,000,000 of enterprise value and 50% of the remainder. The amendment was treated as a debt extinguishment and, as a result, the Company recorded a debt extinguishment charge of £115,000. A key original term of the loan notes, which was amended on 15 August 2008 was that if at any point during the time at which the loan notes are in issue the unrestricted cash balance of the Company falls below £750,000, the loan notes are repayable on demand at the request of the majority of the loan note holders. On 30 April 2010 the 2008 loan note holders agreed to extend a waiver removing the requirement for the Company to maintain unrestricted cash balances above £750,000 until 1 July 2010.4
On 23 December 2009 the Company reached an agreement with the remaining holders of the 2005 loan notes whereby the conversion rate was modified from £0.12 per share to £0.0215 per share, and the Company became entitled to redeem the outstanding notes on or before the 31 January 2010, at a reduced rate of 20% of the principal value, in full and final settlement. This amendment has been treated as a debt extinguishment and, as a result, the Company recorded a debt extinguishment gain of £504,000.
On 24 December 2009 certain 2005 loan note holders elected to convert their loan notes into equity. In total 21,162,792 Common Stock shares were issued as a result of the conversion of £455,000 of 2005 loan note principal.
On 28 January 2010 a further 9,069,769 Common Stock shares were issued as a result of the conversion of a further £195,000 of 2005 loan note principal, and on 8 February 2010 3,953,488 Common Stock shares were issued as a result of the conversion of £85,000 of 2005 loan note principal.
On 29 January 2010 the Company elected to repay the remaining 2005 loan note holders at the agreed redemption rate of 20%, resulting in a payment of £210,800 in full and final settlement of the outstanding principal value of £1,054,000.
Financial instruments
There has been no change in the classifications adopted by the Company regarding its financial instruments and full analysis is provided in the Company's financial statements for the year ended 31 December 2009.
The Company's financial assets and liabilities consist primarily of the cash and cash equivalents, restricted cash, trade receivables, investments, trade payables, convertible notes and currency option contracts.
Classification and carrying amount
Held-for Loans and Other carrying
31 March 2010 £'000 trading receivables liabilities amount
Asset (liability)
Cash and cash equivalent 354 - - 354
Restricted cash 900 - - 900
Trade receivables - 1,033 - 1,033
Trade payables - - (2,612) (2,612)
Convertible notes - - (3,543) (3,543)
------- ------ --------- --------
Total 1,254 1,033 (6,155) (3,868)
Held-for Loans and Other carrying
31 December 2009 £'000 trading receivables liabilities amount
Asset (liability)
Cash and cash equivalent 649 - - 649
Restricted cash 814 - - 814
Trade receivables - 1,657 - 1,657
Trade payables - - (2,887) (2,887)
Convertible notes - - (3,647) (3,647)
------- ------ --------- --------
Total 1,463 1,657 (6,534) (3,414)
Carrying value and fair market value
31 March 2010 31 December 2009
£'000 £'000
Carrying Carrying
amount Fair value amount Fair value
Asset (liability)
Cash and cash equivalent 354 354 649 649
Restricted cash 900 900 814 814
Trade receivables 1,033 1,033 1,657 1,657
Trade payables (2,612) (2,612) (2,887) (2,887)
Convertible notes (3,543) (3,543) (3,647) (3,647)
------- -------- -------- --------
Total (3,868) (3,868) (3,414) (3,414)
Related Party Transactions
There were no related party transactions during the quarter ended 31 March 2010 or the quarter ended 31 March 2009.
Critical accounting estimates
The consolidated financial statements are prepared in accordance with Canadian Generally Accepted Accounting, which require estimates and assumptions to be made that affect the amounts reported in the consolidated financial statements.
The consolidated financial statements and this discussion and analysis have been recorded and reported in GBP Sterling.
The preparation of these financial statements requires estimates and assumptions to be made that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Research & Development tax credits receivable
The Company accrues for tax credits receivable relating to certain research and development expenditure incurred by the Company. These amounts are based on determinations by management of expenditures that qualify for the related tax credits. The nature and amount of these accruals are subject to measurement uncertainty and the effect on the consolidated financial statements of resulting adjustments in future periods could be significant. Adjustments, if any, will be reflected in the period that the relevant taxation authorities assess the tax claims. As at 31 March 2010, tax debtors recoverable included £425,000 (31 December 2009: £ 350,000) of accrued tax credits.
Warranty provision
In establishing the accrued warranty liability, estimates are made of the likelihood that products sold will experience warranty claims. The estimates are based on the number of units subject to warranty, the likely failure rate and associated costs of replacement and the nature of the contract. Should these estimates prove to be incorrect, the actual costs incurred may be different from those provided for in the warranty provisions. As at 31 March 2010, provisions for warranty claims were £100,000 (31 December 2009: £ 100,000).
Review of the carrying value of long-term assets
The Company regularly reviews the carrying value of all of its long-term assets to determine whether or not any write down is required for impairment in the carrying value of these assets. The carrying values are based on the higher of the asset's net realisable value and the value from utilisation of the asset in the ongoing operations of the Company. The determination of the net realisable value requires estimates to be made of future revenues. If future revenues are significantly lower than these estimates, then the Company may be required to make additional impairment provisions in future periods.
Intangibles
Intangible assets including patent rights and designs and deferred development expenditures are considered to have a finite life and as such are amortised on a straight-line basis over their estimated useful life. The carrying value is reviewed for impairment by applying a fair value test at least annually. In determining fair value the future cash flows, discounted at 12% per annum, expected to be generated resulting from the patent and deferred development assets over the expected application life of those assets are compared with the carrying value of the assets. If the carrying value exceeds the fair value an impairment is recognised.
Stock-based compensation
Assumptions that affect the Company's application of the fair value method to expense employee options and warrants issued in connection with the debt offering include the determination of volatility factors and the life of the options issued.
Allowance for doubtful accounts
The Company reviews the status of its customer accounts at least monthly, and recognises a provision against any balance which is considered to be doubtful. At 31 March 2010 a provision of £14,000 was required (31 December 2009: £14,000).
Changes in Accounting Policies
Section 3064 Goodwill and Intangible Assets
In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets, effective for interim and annual financial statements relating to fiscal years beginning on or after 1 October 2008. Section 3064, which replaces Section 3062 Goodwill and Other Intangible Assets, and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. This new standard was effective for the Company's fiscal year commencing 1 January 2009. The adoption of this standard has not affected the Company's consolidated financial statements.
Section 1000 Financial Statement Concepts
On 1 January 2009, the Company adopted the new recommendations of CICA Handbook Section 1000, Financial Statement Concepts, to clarify the criteria for recognition of an asset and the timing of expense recognition. The new requirements are effective for annual financial statements relating to fiscal years beginning on or after 1 October 2008. The adoption of this standard has not affected the Company's consolidated financial statements.
Credit Risk and the Fair Value of Financial Assets and Liabilities
On 20 January 2009 the CICA's Emerging Issue Committee ("EIC") issued abstract EIC-173, Credit and the Fair Value of Financial Assets and Liabilities, which requires entities to take both counterparty credit risk and their own credit risk into account when measuring the fair value of financial assets and liabilities, including derivatives. EIC-173 was to be applied retrospectively without restatement of prior periods in all financial assets and liabilities measured at fair value in interim and annual financial statements ending on or after the date of issuance of this abstract. The adoption of this standard has not affected the Company's consolidated financial statements.
Recent accounting pronouncements
New or updated CICA Handbook sections that have been issued but are not yet effective, and have a potential implication for the Company, are as follows:
Section 1582 Business combinations
This section replaces Section 1581 Business Combinations and applies prospectively to business combinations for which the acquisition date is on or after the first annual reporting period of the Company beginning on or after 1 January 2011. Section 1582 is not expected to have a significant impact on the Company's consolidated financial statements.
Section 1601 Consolidated Financial Statements
In January 2009, the CICA issued Handbook Section 1601, Consolidated Financial Statements, which replaces Handbook Section 1600, Consolidated Financial Statements carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. The section establishes the standards for preparing consolidated financial statements and is effective for fiscal years beginning on or after 1 January 2011. The Company may elect to early adopt this section and if so, will be required to early adopt Section 1582, Business Combinations and Section 1602, Non-controlling Interests. Section 1601 is not expected to have a significant impact on the Company's consolidated financial statements.
Section 1602 Non-controlling Interests
In January 2009, the CICA issued new Handbook Section 1602, Non-controlling Interests, which establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. This standard is effective for fiscal years beginning on or after 1 January 2011. The Company may elect to early adopt this section and if so, will be required to early adopt Section 1582, Business Combinations and Section 1601, Consolidated Financial Statements. Section 1602 is not expected to have a significant impact on the Company's consolidated financial statements.
Multiple Deliverable Revenue Arrangements
In December 2009, the EIC issued a new abstract concerning multiple deliverable revenue arrangements, EIC 175, "Multiple Deliverable Revenue arrangements" ("EIC 175") which amended EIC 142, "Revenue Arrangements with Multiple Deliverables" ("EIC 142"). The objective of issuing this abstract is to harmonize EIC 142 with amendments made to US generally accepted accounting principles. These amendments require a vendor to allocate arrangement consideration at the inception of the arrangement to all deliverables using the relative selling method, thereby eliminating the use of the residual value method. The amendments also change the level of evidence of the standalone selling price required to separate deliverables when more objective evidence of the selling price is not available. EIC 175 should be adopted prospectively to revenue arrangements entered into or materially modified in the first annual fiscal period beginning on or after January 1, 2011, with early adoption permitted. EIC 142 continues to be effective until that date. The Company is assessing the impact of the new standards on its consolidated financial statements.
Harmonizing of Canadian and International Financial Reporting Standards (IFRS)
In February 2008, the Accounting Standards Board of the CICA confirmed its strategic plan which will abandon Canadian GAAP and affect a complete convergence to the International Financial Reporting Standards. These new standards will be effective for the Company's interim financial statements commencing 1 January 2011.
The Company has designated the Chief Financial Officer as the executive responsible for the implementation of IFRS, with authority over staffing, external consultancy and resources to complete. The Chief Financial Officer and the Company believe that there are adequate and appropriate resources to successfully conclude this change programme.
The Company has concluded the initial phase of this change, which has identified Company personnel, appointed external advisors, obtained relevant reference materials and planned the conversion activity.
In planning the conversion activity the Company has reviewed the IFRS standards to be adopted and compared them to the Company's current accounting policies and disclosure. This stage is nearing completion, and the Company has been able to identify that there are a limited number of areas where a change to current accounting treatment will be required. The principal changes identified to date are identified below, and numerical impact and further identified changes will be updated in subsequent MD&A reports as the conversion is progressed through 2010.
As each standard is fully analysed the Company will be rolling out amendments to the data collection, processing procedures and internal controls in use at each site, in order to allow easier IFRS compliant reporting from the site submitted data. These changes are expected to occur throughout the remainder of 2010.
Commencing 2011 the Company plans to modify the internal control processes and the monitoring and evaluation of these systems to ensure that the financial data maintains IFRS compliance.
Outlined below are the areas where the Company has currently identified potential differences in treatment, and the current expectation as to impact on the financial statements. This information is subject to change as the Company continues its detailed conversion activities and is based on its current understanding of IFRS which may be subject to revision prior to 2011.
Revenue Recognition
The Company expects that limited changes may be required to its policy regarding sales revenue where longer term warranties are provided as part of the product sale. The Company intends to apply the requirement to account for these transactions as multiple element revenue transactions, and accordingly, there will be adjustments required to the level of revenue and deferred income currently recognized, and changes to the warranty provision maintained by the Company.
First Time Adoption of IFRS
The Company's adoption of IFRS will require the application of IFRS1, First-Time Adoption of International Reporting Standards, which provides guidance regarding the initial adoption of IFRS. Generally, IFRS 1 requires the Company to retrospectively adopt all IFRS effective to the end of its first IFRS reporting period. However, IFRS1 does provide certain mandatory exceptions and some limited optional exemptions in specified areas of certain standards. The Company currently expects to adopt the following optional exemptions in its first IFRS statements.
- Business Combinations - the Company does not intend to restate any business combinations that have occurred prior to 1 January 2010.
- Borrowing Costs - the Company does not intend to apply the requirements of IAS23, Borrowing Costs, to periods prior to 1 January 2010.
Risks and uncertainties
Strengthening the balance sheet in order to maintain sufficient working capital to allow the business to achieve its growth targets, operate efficiently and have sufficient cash reserves to mitigate the risks posed by timing fluctuations in customer receipts and supplier payments remains an important issue. As indicated in the 2009 Annual Report, the Board is looking to address this important matter in the near term.
The development and commercialisation plans for the Group's products presented in this Management's Discussion & Analysis are forward-looking statements and as such are subject to a number of risks and uncertainties including those detailed below.
Our business entails risks and uncertainties that affect our outlook and eventual results of our business and commercialisation plans. The primary risks relate to meeting our product development and commercialisation milestones, which require that our products exhibit the functionality, cost, durability, and performance required in a commercial product.
There is a risk that the markets for certain of our products may never develop, or that market acceptance might take longer to develop than anticipated. Our business planning process recognises and, to the extent possible, attempts to manage these risks by pursuing diverse markets for each of our products. Within these markets our commercialisation plan is focused on products that we believe have a competitive advantage.
We develop both subsystems and complete systems across our high speed motors and generators and power electronics product ranges and these development programmes are subject to risk. These risks include problems or delays due to technical difficulties and inability to meet design performance goals, including power output, life and reliability. We mitigate these risks to the extent possible through detailed project management, formal design reviews, reviews by external experts, contingency plans which anticipate likely problems, safety reviews, training and testing programs related to the operation and maintenance of the products.
We seek to maintain our technology lead through our strong intellectual property position, which will act as a barrier against competitors, and by continuing to invest in technology development. However, there can be no assurance that our present or future issued patents will protect our technology lead. We also rely upon know-how and trade secrets to maintain our technology lead. However, there is no assurance that this information can be completely protected.
Another market driver for products is the development of government policy related to the environment. Unfavourable decisions related to environmental policies (such as noise and exhaust emission levels) could result in delays in the introduction of our distributed power generation products. We mitigate, to the extent possible, the effects of changes in government regulations by developing products for diverse geographic locations.
We cannot predict with certainty our future revenues or results from our operations. If we experience significant cost overruns on any of our programmes and we cannot obtain additional funds to cover such overruns or additional cash requirements, certain research and development activities may be delayed, resulting in changes or delays to our commercialisation plans. We may be required to raise additional capital through the issuance of equity or debt. We seek to mitigate this risk by securing funding commitments from a variety of sources and through adjustments to our development plans, by maintaining a substantial cash reserve, by being financially conservative in our expenditures and by maintaining good communications with investors and investment bankers to assist us should we need to access the public or private capital markets.
We are also subject to normal operating risks such as credit risks and foreign currency risks. Foreign currency sales and purchases are made in Sterling, Euros, Canadian and US Dollars. Over time, currency balances are matched, to the extent possible, to planned currency purchases.
Internal Control
The Board of Directors has overall responsibility for the accounting policies and ensuring that the Group maintains an adequate system of internal financial control to provide them with reasonable assurance that assets are safeguarded and of the reliability of financial information used for the business and for publication. There are inherent limitations in any system of internal financial control and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance with respect to the preparation of financial information and the safeguarding of assets.
Management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, is also responsible for establishing and maintaining adequate internal controls over financial reporting within the Company. Management have designed and evaluated the effectiveness of the Company's Internal Controls over Financial Reporting to provide reasonable assurance that the financial reporting is reliable and that the consolidated financial statements are prepared in accordance with Canadian GAAP. Based on the latest evaluation, management has concluded that the following potential weaknesses existed as at 31 March 2010, but that they are sufficiently mitigated through appropriately designed controls. Management has determined that these controls are effective and provide reasonable assurance that the financial reporting is reliable and in accordance with Canadian GAAP.
Limited resources
Given the Company's size, we have limited resources within the finance department. This impacts on our ability to provide comprehensive knowledge in certain areas of financial accounting, as detailed below. The Company is highly reliant on the knowledge of a limited number of employees and on the performance of mitigating procedures during its financial close and consolidation process to ensure that the consolidated financial statements are presented fairly and in all material respects. The Company will continue to recruit resources and enhance its current knowledgebase, as necessary, to further strengthen the internal controls over financial reporting.
Income taxes
Income tax law is a highly technical area that requires an in-depth understanding of national, international, federal and provincial tax laws and the Company's accounting staff has only a fair and reasonable knowledge of the rules related to income tax accounting and reporting. Although this represents a weakness in the Company's control environment the Company retains and will continue to retain the services of external experts to provide advice and guidance on income tax accounting and disclosures. The Company does not consider that this weakness in control environment has resulted in any material misstatements of the financial statements.
Complex and non-routine transactions
At times the Company records complex and non-routine transactions which are extremely technical in nature and require an in-depth understanding of GAAP. The Company's accounting staff has a fair and reasonable knowledge of the rules related to GAAP. There is potential that these transactions could be recorded incorrectly resulting in potential material misstatement of the financial statements of the Company. Where the Company identifies a transaction as potentially complex or non-routine it will utilize the services of external experts to provide guidance and advice.
Disclosure controls
Our management has evaluated, under the supervision and with the participation of the Chief Executive Officer and the Finance Director, the design and effectiveness of the Company's disclosure controls and procedures during the period ended 31 March 2010. Management has concluded that these controls, as defined in Multilateral Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings are effective and that material information relating to the Company was made known to them and was recorded, processed and reported within the applicable time periods.
|
TURBO POWER SYSTEMS INC. |
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF PROFIT/(LOSS) AND COMPREHENSIVE PROFIT/(LOSS) |
|
||||
|
|
|
||||
|
|
Notes |
|
Quarter ended 31 March |
||||||
|
|
|
|
|
|
|
2010 |
2009 |
||
|
|
|
|
|
|
|
£'000 |
|
£'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
3,4 |
|
|
|
|
|
2,581 |
|
1,383 |
|
Development income |
3,4 |
|
|
|
|
|
532 -------- |
|
1,312 -------- |
|
|
|
|
|
|
|
|
3,113 |
|
2,695 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
Production costs |
|
|
|
|
|
|
(1,699) |
|
(1,006) |
|
Research and product development |
5 |
|
|
|
|
|
(619) |
|
(881) |
|
General and administrative |
|
|
|
|
|
|
(676) |
|
(916) |
|
Amortisation
|
|
|
|
|
|
|
(152) -------- |
|
(168) -------- |
|
|
|
|
|
|
|
|
(3,146) |
|
(2,971) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss before interest, restructuring, finance charges and foreign exchange |
|
|
|
|
|
|
(33) |
|
(276) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
- |
|
1 |
|
Interest expense |
6 |
|
|
|
|
|
(169) |
|
(201) |
|
Finance income/(charge) |
|
|
|
|
|
|
175 |
|
(17) |
|
Foreign exchange gain |
|
|
|
|
|
|
48 -------- |
|
125 -------- |
|
|
|
|
|
|
|
|
54 |
|
(92) |
|
|
|
|
|
|
|
|
-------- |
|
-------- |
|
Net profit/(loss) and Comprehensive profit/(loss) |
|
|
|
|
|
|
21 ===== |
|
(368) ===== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) per share - basic |
10 |
|
|
|
|
|
(0.0) p |
|
(0.1) p |
|
Profit/(loss) per share - diluted |
10 |
|
|
|
|
|
(0.0) p
|
|
(0.1) p
|
|
Weighted average basic number of shares outstanding |
|
|
|
|
348,852,722
|
318,571,062 |
|||
|
Weighted average diluted number of shares outstanding |
|
|
|
|
|
577,019,864
|
318,571,062 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The results for the quarters ended 31 March 2010 and 31 March 2009 related to continuing activities |
|||||||||
The accompanying notes are an integral part of these financial statements
|
TURBO POWER SYSTEMS INC. |
|
|
|
|
|
||
|
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
|
|
|
||||
|
|
Notes |
As at 31 March |
As at 31 December |
||||
|
|
|
2010 |
2009 |
||||
|
|
|
|
£'000 |
|
£'000 |
||
|
Current assets |
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
Cash and cash equivalents |
|
|
354 |
|
649 |
||
|
Restricted cash |
|
|
580 |
|
645 |
||
|
Trade and other receivables |
|
|
1,033 |
|
1,657 |
||
|
Stock and work in progress |
|
|
2,088 |
|
1,943 |
||
|
Investments |
|
|
- |
|
- |
||
|
Prepayments |
|
|
379 |
|
435 |
||
|
R&D tax credits receivable |
|
|
425 -------- |
|
350 -------- |
||
|
|
|
|
4,859 -------- |
|
5,679 -------- |
||
|
Long-term assets |
|
|
|
|
|
||
|
Restricted cash |
|
|
320 |
|
169 |
||
|
Intangible assets |
11 |
|
- |
|
- |
||
|
Property, plant and equipment |
11 |
|
951 -------- |
|
1,066 -------- |
||
|
|
|
|
6,130 ===== |
|
6,914 ===== |
||
|
Liabilities and shareholders' deficit |
|
|
|
|
|
||
|
Creditors: amounts falling due within one year |
|
|
|
|
|
||
|
Trade and other payables |
|
|
2,612 |
|
2,887 |
||
|
Convertible notes |
14 |
|
- |
|
261 |
||
|
Deferred income |
|
|
111 -------- |
|
621 -------- |
||
|
|
|
|
2,723 -------- |
|
3,769 -------- |
||
|
Creditors: amounts falling due after more than one year |
|
|
|
|
|
||
|
Warranty provision |
|
|
100 |
|
100 |
||
|
Convertible notes |
14 |
|
3,543 -------- |
|
3,386 -------- |
||
|
|
|
|
3,643 -------- |
|
3,486 -------- |
||
|
Non controlling interest |
|
|
|
|
|
||
|
A Ordinary share capital |
13 |
|
13,310 |
|
13,310 |
||
|
|
|
|
|
|
|
||
|
Capital and reserves |
|
|
|
|
|
||
|
Common share capital |
12 |
|
56,951 |
|
56,225 |
||
|
Contributed surplus |
|
|
2,453 |
|
3,095 |
||
|
Deficit |
|
|
(72,950) ---------- |
|
(72,971) ---------- |
||
|
Shareholders' deficit |
|
|
(13,546) --------- |
|
(13,651) --------- |
||
|
|
|
|
6,130 ====== |
|
6,914 ====== |
||
The accompanying notes are an integral part of these financial statements
|
TURBO POWER SYSTEMS INC. |
|
|
|||
|
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
Common Share capital |
Contributed surplus |
Deficit |
Total Deficit |
||
|
|
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
||
|
|
|
|
|
|
|
|
|
||
|
|
Balance at 1 January 2009 |
|
|
55,804 |
2,349 |
(72,236) |
(14,083) |
||
|
|
Net loss |
|
|
|
|
(735) |
(735) |
||
|
|
Stock compensation |
|
|
|
128 |
|
128 |
||
|
|
Equity portion on revaluation of convertible notes |
|
|
|
927 |
|
927 |
||
|
|
Share conversion |
|
|
398 |
(309) |
|
89 |
||
|
|
Issue of shares |
|
|
23 |
|
|
23 |
||
|
|
|
|
|
--------- |
--------- |
--------- |
--------- |
||
|
|
Balance at 31 December 2009 |
|
|
56,225 |
3,095 |
(72,971) |
(13,651) |
||
|
|
Net profit |
|
|
|
|
21 |
21 |
||
|
|
Stock compensation |
|
|
|
29 |
|
29 |
||
|
|
Share conversion |
|
|
289 |
(234) |
|
55 |
||
|
|
Expiry of warrants |
|
|
437 |
(437) |
|
- |
||
|
|
|
|
|
--------- |
--------- |
--------- |
--------- |
||
|
|
Balance at 31 March 2010 |
|
|
56,951 ===== |
2,453 ===== |
(72,950) ====== |
(13,546) ===== |
||
The accompanying notes are an integral part of these financial statements
|
TURBO POWER SYSTEMS INC. |
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
||||
|
|
|
|
||||
|
|
|
|
Quarter ended 31 March |
|||||||
|
|
|
|
|
|
|
|
2010 |
2009 |
||
|
|
|
|
|
|
|
|
£'000 |
|
£'000 |
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
Net profit/(loss) |
|
|
|
|
|
|
21 |
|
(368) |
|
|
Items not involving cash |
|
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
152 |
|
168 |
|
|
Accretion of debt |
|
|
|
|
|
|
16 |
|
42 |
|
|
Deferred finance charges |
|
|
|
|
|
|
28 |
|
- |
|
|
Stock compensation charges |
|
|
|
|
|
|
29 |
|
44 |
|
|
Movement in loan interest accrual |
|
|
|
|
|
|
113 |
|
142 |
|
|
Equity adjustment on loan note conversion |
|
|
|
|
|
55 |
|
- |
||
|
|
|
|
|
|
|
|
--------- |
|
--------- |
|
|
Cash in/(out)flow before movements in working capital |
|
|
|
|
414 |
|
28 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in working capital items |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, prepayments and R&D tax credits |
|
|
|
|
605 |
|
80 |
|||
|
Stock and work in progress |
|
|
|
|
|
|
(145) |
|
(250) |
|
|
Accounts payable and deferred income |
|
|
|
|
|
|
(785) |
|
(316) |
|
|
|
|
|
|
|
|
|
--------- |
|
--------- |
|
|
Net cash (out)/inflow from operating activities |
|
|
|
|
89 |
|
(458) |
|||
|
|
|
|
|
|
|
|
--------- |
|
--------- |
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
|
|
|
(37) |
|
(23) |
||
|
Movement in restricted funds |
|
|
|
|
|
|
(86) |
|
9 |
|
|
|
|
|
|
|
|
|
--------- |
|
--------- |
|
|
Cash in/(out)flow from investing activities |
|
|
|
|
(123) --------- |
|
(14) --------- |
|||
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
Settlement of financing |
|
|
|
|
|
|
261 |
|
- |
|
|
|
|
|
|
|
|
|
--------- |
|
--------- |
|
|
Cash in/(out)flow from financing activities |
|
|
|
|
- --------- |
|
- --------- |
|||
|
Increase/(decrease) in cash in the period |
|
|
|
|
|
|
(295) ====== |
|
(472) ====== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
|
|
|
|
649 ---------- |
|
1,054 ---------- |
|
|
End of period |
|
|
|
|
|
|
354 ====== |
|
582 ====== |
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
|
|
|
|
(50) |
|
(26) |
|
|
Cash received as interest |
|
|
|
|
|
|
- |
|
1 |
|
The accompanying notes are an integral part of these financial statement
1. Basis of preparation and going concern
The consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality and within the framework of the significant accounting policies summarised in the Company's financial statements for the year ended 31 December 2009, and the subsequent changes in accounting policies as detailed in Note 2 below.
The Company's interim financial statements do not conform in all respects to the requirements of Canadian GAAP for annual financial statements. The Company's interim statements should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2009.
The Company's functional and reporting currency is Pound Sterling.
Going concern
These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 31 March 2010 the Company had net cash outflows therefore may require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £72.95 million as at 31 March 2010.
At 31 March 2010 the Company had an unrestricted cash balance of £0.35 million and held further cash of £0.90 million associated with performance bonds. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, that would be necessary if the "going concern" assumption were not appropriate.
Management regularly reviews and considers the current and forecast activities of the Company in order to satisfy itself as to the viability of operations. These ongoing reviews include consideration of current order book and future business opportunities, current development and production activities, customer and supplier exposure and forecast cash requirements and balances. Based on these evaluations management consider that the Company is able to continue as a going concern
2. Changes in accounting policies and recent accounting pronouncements
Section 3064 Goodwill and Intangible Assets
In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets, effective for interim and annual financial statements relating to fiscal years beginning on or after 1 October 2008. Section 3064, which replaces Section 3062 Goodwill and Other Intangible Assets, and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. This new standard was effective for the Company's fiscal year commencing 1 January 2009. The adoption of this standard has not affected the Company's consolidated financial statements.
Section 1000 Financial Statement Concepts
On 1 January 2009, the Company adopted the new recommendations of CICA Handbook Section 1000, Financial Statement Concepts, to clarify the criteria for recognition of an asset and the timing of expense recognition. The new requirements are effective for annual financial statements relating to fiscal years beginning on or after 1 October 2008. The adoption of this standard has not affected the Company's consolidated financial statements.
Credit Risk and the Fair Value of Financial Assets and Liabilities
On 20 January 2009 the CICA's Emerging Issue Committee ("EIC") issued abstract EIC-173, Credit and the Fair Value of Financial Assets and Liabilities, which requires entities to take both counterparty credit risk and their own credit risk into account when measuring the fair value of financial assets and liabilities, including derivatives. EIC-173 was to be applied retrospectively without restatement of prior periods in all financial assets and liabilities measured at fair value in interim and annual financial statements ending on or after the date of issuance of this abstract. The adoption of this standard has not affected the Company's consolidated financial statements.
Recent accounting pronouncements
New or updated CICA Handbook sections that have been issued but are not yet effective, and have a potential implication for the Company, are as follows:
Section 1582 Business combinations
This section replaces Section 1581 Business Combinations and applies prospectively to business combinations for which the acquisition date is on or after the first annual reporting period of the Company beginning on or after 1 January 2011. Section 1582 is not expected to have a significant impact on the Company's consolidated financial statements.
Section 1601 Consolidated Financial Statements
In January 2009, the CICA issued Handbook Section 1601, Consolidated Financial Statements, which replaces Handbook Section 1600, Consolidated Financial Statements carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. The section establishes the standards for preparing consolidated financial statements and is effective for fiscal years beginning on or after 1 January 2011. The Company may elect to early adopt this section and if so, will be required to early adopt Section 1582, Business Combinations and Section 1602, Non-controlling Interests. Section 1601 is not expected to have a significant impact on the Company's consolidated financial statements.
Section 1602 Non-controlling Interests
In January 2009, the CICA issued new Handbook Section 1602, Non-controlling Interests, which establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. This standard is effective for fiscal years beginning on or after 1 January 2011. The Company may elect to early adopt this section and if so, will be required to early adopt Section 1582, Business Combinations and Section 1601, Consolidated Financial Statements. Section 1602 is not expected to have a significant impact on the Company's consolidated financial statements.
Multiple Deliverable Revenue Arrangements
In December 2009, the EIC issued a new abstract concerning multiple deliverable revenue arrangements, EIC 175, "Multiple Deliverable Revenue arrangements" ("EIC 175") which amended EIC 142, "Revenue Arrangements with Multiple Deliverables" ("EIC 142"). The objective of issuing this abstract is to harmonize EIC 142 with amendments made to US generally accepted accounting principles. These amendments require a vendor to allocate arrangement consideration at the inception of the arrangement to all deliverables using the relative selling method, thereby eliminating the use of the residual value method. The amendments also change the level of evidence of the standalone selling price required to separate deliverables when more objective evidence of the selling price is not available. EIC 175 should be adopted prospectively to revenue arrangements entered into or materially modified in the first annual fiscal period beginning on or after January 1, 2011, with early adoption permitted. EIC 142 continues to be effective until that date. The Company is assessing the impact of the new standards on its consolidated financial statements.
Harmonizing of Canadian and International Financial Reporting Standards (IFRS)
In February 2008, the Accounting Standards Board of the CICA confirmed its strategic plan which will abandon Canadian GAAP and affect a complete convergence to the International Financial Reporting Standards. These new standards will be effective for the Company's interim financial statements commencing 1 January 2011.
3. Segmental analysis
The Company's two reportable segments are the power electronics segment, which is involved in the development and manufacture of electrical power supply and control systems and the electrical machines segment, which is involved in the development and commercialisation of high speed electrical machines.
Corporate charges relating to the financing of the Company and other related management activities are allocated between the two reportable segments.
The power electronics and electrical machines systems segments both operate in the United Kingdom. Except for the Investments held by the Company which are located in Canada, all of the Company's assets are located in the United Kingdom.
|
|
Power electronics |
Electrical machines |
Total
|
|||
|
|
2010 |
2009 |
2010 |
2009 |
2010 |
20089 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Quarter ended 31 March |
|
|
|
|
|
|
|
Revenue |
1,629 |
1,383 |
952 |
- |
2,581 |
1,383 |
|
Development income |
532 |
36 |
- |
1,276 |
532 |
1,312 |
|
|
2,161 |
1,419 |
952 |
1,276 |
3,113 |
2,695 |
|
|
|
|
|
|
|
|
|
Amortisation |
(101) |
(57) |
(51) |
(111) |
(152) |
(168) |
|
Interest income |
- |
- |
- |
1 |
- |
1 |
|
Interest expense |
(84) |
(100) |
(85) |
(101) |
(169) |
(201) |
|
Profit/(Loss) for the period |
223 |
(693) |
(202) |
325 |
21 |
(368) |
|
|
-------- |
-------- |
-------- |
-------- |
--------- |
-------- |
|
Property, plant and equipment |
(9) |
(21) |
(28) |
(2) |
(37) |
(23) |
|
|
Power electronics |
Electrical machines |
Total
|
|||
|
|
Mar 2010 |
Dec 2009 |
Mar 2010 |
Dec 2009 |
Mar 2010 |
Dec 2009 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Total assets |
3,833 |
3,853 |
2,297 |
3,061 |
6,130 |
6,914 |
|
Property, plant and equipment |
323 |
365 |
628 |
701 |
951 |
1,066 |
|
Total liabilities |
(3,653) |
(4,035) |
(2,713) |
(3,220) |
(6,366) |
(7,255) |
|
Total revenue |
|
|
Quarter ended 31 March
|
|||
|
|
|
|
|
|
2010 |
2009 |
|
|
|
|
|
|
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
UK |
|
|
|
|
261 |
224 |
|
USA |
|
|
|
|
2,526 |
2,310 |
|
Canada |
|
|
|
|
314 |
24 |
|
Rest of World |
|
|
|
|
12 |
137 |
|
|
|
|
|
|
_____ |
______ |
|
|
|
|
|
|
3,113 |
2,695 |
4. Significant customers
In the quarter ended 31 March 2010, 62% of the Company's sales were derived from two customers (31 March 2009: 72% from three customers), each of whom represented 10% or more of the Company's sales.
5. Research and product development
Quarter ended
31 March
2010 2009
£'000 £'000
Sales of prototypes and development contributions 532 1,312
Research and product development expenditure 694 881
Total tax credits 75 -
________ ________
Total expenditure 619 881
In accordance with the Company's accounting policy, tax credits for research and development expenditures are netted against the related expenditure.
At 31 March 2010 the Company had accrued tax credits amounting to £425,000 ( 31 December 2009: £350,000 ).These amounts are based on determinations by management of expenditures that qualify for the related tax credits. The nature and amount of these accruals are subject to measurement uncertainty and the effect on the consolidated financial statements of resulting adjustments in future periods could be significant. Adjustments, if any, will be reflected in the period that these are assessed by the relevant taxation authorities.
6. Interest expense
Quarter ended
31 March
2010 2009
£'000 £'000
Interest 153 159
Accretion of debt 16 42
169 201
7. Financial instruments
The Company's financial assets and liabilities consist primarily of the cash and cash equivalents, restricted cash, trade receivables, investments, trade payables, convertible notes and currency option contracts.
Classification and carrying amount
Held-for Loans and Other carrying
31 March 2010 £'000 trading receivables liabilities amount
Asset (liability)
Cash and cash equivalent 354 - - 354
Restricted cash 900 - - 900
Trade receivables - 1,033 - 1,033
Trade payables - - (2,612) (2,612)
Convertible notes - - (3,543) (3,543)
------- ------ --------- --------
Total 1,254 1,033 (6,155) (3,868)
Held-for Loans and Other carrying
31 December 2009 £'000 trading receivables liabilities amount
Asset (liability)
Cash and cash equivalent 649 - - 649
Restricted cash 814 - - 814
Trade receivables - 1,657 - 1,657
Trade payables - - (2,887) (2,887)
Convertible notes - - (3,647) (3,647)
------- ------ --------- --------
Total 1,463 1,657 (6,534) (3,414)
Carrying value and fair market value
31 March 2010 31 December 2009
£'000 £'000
Carrying Carrying
amount Fair value amount Fair value
Asset (liability)
Cash and cash equivalent 354 354 649 649
Restricted cash 900 900 814 814
Trade receivables 1,033 1,033 1,657 1,657
Trade payables (2,612) (2,612) (2,887) (2,887)
Convertible notes (3,543) (3,543) (3,647) (3,647)
------- -------- -------- --------
Total (3,868) (3,868) (3,414) (3,414)
8. Financial Risk Management
The Company has exposure to counterparty credit risk, liquidity risk and market risk associated with its financial assets and liabilities. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Board of Directors has established the Audit Committee which is responsible for developing and monitoring the Company's compliance with risk management policies and procedures. The Audit Committee regularly reports to the Board of Directors on its activities.
The Company's risk management programme seeks to minimize potential adverse effects on the Company's financial performance and ultimately shareholder value. The Company manages its risks and risk exposures through a combination of insurance and sound business practices.
The Company's financial instruments and the nature of the risks which they may be subject to are set out in the following table.
Foreign Interest
Credit Liquidity Exchange Rate
Risk Risk Risk Risk
Cash and cash equivalents Yes Yes Yes
Restricted cash Yes Yes Yes
Trade receivables Yes Yes
Trade payables Yes Yes
Convertible notes Yes
(a) Credit Risk
Credit risk arises from cash held with banks and credit exposure to customers, including outstanding accounts receivables. The maximum exposure to credit risk is equal to the carrying value (net of allowances) of the financial assets. The objective of managing counterparty credit risk is to prevent losses on financial assets. The Company assesses the credit quality of counterparties, taking into account their financial position, past experience and other factors.
Cash and cash equivalents
Cash and cash equivalents consist of bank balances and short-term investments with terms of less than three months or less. Credit risk associated with cash and cash equivalents is minimized substantially by ensuring that these financial assets are investment in debt instruments of highly rated financial institutions. As at 31 March 2010 the Company had cash and cash equivalents consisting of cash on hand and deposits with banks of £354,000 (31 December 2009 - £649,000. As at 31 March 2010, the Company does not expect any counterparties to fail to meet their obligations.
Restricted cash
In 2004 the Company committed cash bonds in support of contracts placed by the Toronto Transit Commission for the CLRV and H6 programmes. The associated contracts required the bonds to remain in place until two years after all equipment was delivered. According to the current contract schedule that would result in the cash related to the H6 programme of £116,000 being under the performance bond restriction until Quarter 2 2010 (December 2009: £206,000).
During March 2007 the Company committed cash bonds totalling USD$800,000 in support of contracts placed by Bombardier Transportation for the CTA and TTC programmes. The associated contracts require the bonds to remain in place until after development and the prototype equipment is delivered. At 31 March 2010 the unreleased element of these bonds totalled £464,000 (December 2009: £439,000).
The Company has also provided a property lease guarantee bond which is held in escrow and totals £320,000 (December 2009: £169,000).
At 31 March 2010 cash subject to restrictions totaled £900,000 (31 December 2008: £814,000).
Trade receivables
Trade receivables consist primarily of trade accounts receivable from billings of product sales and development income. The Company's credit risk arises from the possibility that a counterparty which owes the Company money is unable or unwilling to meet its obligations in accordance with the terms and conditions in the contracts with the Company, which would result in a financial loss for the Company. This risk is mitigated through established credit management techniques, including monitoring counterparty' creditworthiness, setting exposure limits and monitoring exposure against these customer credit limits. However, due to the limited number of potential customers in each market this is not always possible. In these cases the Company reduces its exposure by obtaining up-front payments from the end customer prior to delivery of goods.
The carrying amount of accounts receivable are reduced through the use of an allowance for doubtful accounts and the amount of the loss is recognized in the statement of operations in other expenses. When a receivable balance is considered uncollectable, it is written off against the allowance for accounts receivable. Subsequent recoveries of amounts previously written off reduce other expenses in the statement of operations.
Significant debtors at 31 March 2010 comprised £621,000 due from four customers, representing 67% of the outstanding balance (31 December 2009: £1,069,000 due from two customers, representing 67% of the outstanding balance). Consequently, the Company has concentrations of credit risk with respect to its accounts receivable.
|
|
|
March 2010 |
|
December 2009 |
||
|
|
|
Balance |
% |
|
Balance |
% |
|
|
|
£'000 |
|
|
£'000 |
|
|
|
|
|
|
|
|
|
|
Customer 1 |
|
221 |
24 |
|
702 |
44 |
|
Customer 2 |
|
160 |
17 |
|
367 |
23 |
|
Customer 3 Customer 4
Other Total |
|
123 117 ------ 621 ------ 298 ------ 919 |
13 13 ---- 67 ---- 33 ---- 100 |
|
- - ------ 1,069 ------ 509 ------ 1,578 |
- - ---- 67 ---- 33 ---- 100 |
The following table outlines the details of the aging of the Company's receivables and related allowance for doubtful accounts as at 31 March 2009 and 31 December 2008:
Mar Dec
2010 2009
£'000 £'000
Trade 919 1,578
Other miscellaneous receivables 114 233
------- -------
1,033 1,255
------- -------
Not past due 711 730
Past due for over one day but not more than 30 days 99 187
Past due for over 30 days but not more than 60 days 102 98
Past due for over 60 days 21 46
Less: allowance for doubtful accounts (14) (39)
------- -------
Total accounts receivable, net 919 1,578
------- -------
£'000
Allowance for doubtful accounts
Balance, 1 January 2010 (14)
Increase in provision for doubtful accounts -
-------
Balance, 31 March 2010 (14)
-------
(b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meets its financial obligations as they fall due. The Company manages exposure to liquidity risk by close monitoring of supplier and other liabilities and by focusing on debtor collection and conversion of working capital held in stock balances. When considered necessary the Company has obtained equity and long term debt investment to provide short term liquid working capital in order to meet its obligations.
The following tables details the Company's contractual maturities for its financial liabilities, including interest payments and operating lease commitments, as at 31 March 2010:
|
|
Payments due by period |
||||||
|
|
Total |
2010 |
2011
|
2012 |
2013 |
2014 |
2015 and thereafter |
|
Trade and other payables Convertible notes |
2,612 4,350 |
2,612 - |
- 4,350 |
- - |
- - |
- - |
- - |
|
Operating leases |
3,716 |
398 |
534 |
537 |
304 |
230 |
1,713 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
|
10,678 |
3,010 |
4,884 |
537 |
304 |
230 |
1,713 |
|
______ |
______ |
______ |
______ |
______ |
______ |
______ |
|
(c) Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the fair value of recognized assets and liabilities or future cash flows or the Company's results of operation.
Foreign exchange
The Company's currency exposure, being those exposures arising from transactions, the net currency gains and losses from which will be recognised in the profit and loss account, is shown below.
|
|
|
US dollar denominated |
|
Canadian dollar denominated |
|
|
|
£'000 |
|
£'000 |
|
|
|
|
|
|
|
Cash |
|
572 |
|
3 |
|
Accounts receivable |
|
586 |
|
73 |
|
Accounts payable |
|
3 |
|
30 |
Included in net loss for the quarter ended 31 March 2010 is approximately £87,000 of foreign exchange loss resulting from the translation of the financial statements of Turbo Power Systems Inc. (31 December 2009: loss of £36,000). The rates used to translate the assets and liabilities as at 31 March 2010 was USD $1.5072:£1 and CDN $1.5362:£1 (31 December 2009 USD $1.5938:£1 and CDN $1.672:£1).
Sensitivity analysis
A summary of the Company's estimates of the impact of a 10% change in exchange rates, on its revenues and monetary assets and liabilities is presented below:
Effect of a +/- 10% change in the
foreign currency exchange rate USD CDN Total
£'000 £'000 £'000
Revenue 252 31 283
Cash 57 - 57
Accounts receivable 59 - 59
Accounts payable - 3 3
The analysis assumes that the volume and quantity of foreign transactions is unaffected by the change in foreign exchange rate.
Interest rate
Floating rate financial assets of £1,254,000 at 31 March 2010 (31 December 2009: £1,463,000) comprised Sterling interest bearing bank accounts, money market deposits and cash funds including restricted cash.
At 31 March 2010, the increase or decrease in net earnings for each 1% change in interest rates on net financial assets was approximately £13,000 per annum (31 December 2009: £15,000).
As at 31 March 2010 the Company does not have any variable rate financial liabilities and is not exposed to interest rate risk on its fixed rate convertible notes. The Company may be exposed to interest rate risk in the future as the fixed rate convertible notes mature.
9. Capital management
The Company defines capital that it manages as the aggregate of convertible notes and equity comprising share capital, contributed surplus and deficit. Its objectives when managing capital are to ensure that the Company will continue as a going concern, so that it can provide services to its customers and returns to its shareholders.
The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will make changes to its capital structure as deemed appropriate under the specific circumstances.
The Company is not subject to any externally imposed capital requirements and the Company's overall strategy with respect to management of capital remains unchanged from the year ended 31 December 2009.
10. Profit/(loss) per share
Earnings per common share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The treasury stock method was used in determining the weighted average number of shares outstanding for each period.
|
|
|
|
Quarter ended 31 March
|
|||
|
|
|
|
|
|
2010 |
2009 |
|
|
|
|
|
|
|
|
|
Numerator for basic EPS calculation: |
|
|
|
|
|
|
|
Net profit/(loss) |
|
|
|
|
£21,000 |
(£368,000) |
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
For basic net earnings - weighted average shares outstanding |
|
|
|
348,852,722 |
318,571,062 |
|
|
For diluted net earnings - weighted average shares outstanding |
|
|
|
577,019,864 |
318,571,062 |
|
Details of potential dilutive securities outstanding at March 31 are as follows:
|
|
2010 |
2009 |
|
Common shares potentially issuable: |
|
|
|
- pursuant to warrants |
12,857,142 |
23,357,142 |
|
- under stock options |
25,310,000 |
17,606,300 |
|
- pursuant to loan note conversions |
75,000,000 |
89,908,333 |
|
- pursuant to A Ordinary stock conversion |
115,000,000 |
115,000,000 |
|
|
____________ |
____________ |
|
|
228,167,142 |
245,871,775 |
|
|
____________ |
____________ |
As the Company experienced a loss in the Quarter ended 31 March 2009 all potential common shares outstanding from dilutive securities are considered anti-dilutive and have been excluded from the calculation of loss per share.
11. Long term assets
|
|
|
|
|
|
|
|
|
|
|
Cost |
Amortisation |
Net book value |
|
|
|
|
£'000 |
£'000 |
£'000 |
|
|
At 31 March 2010: |
|
|
|
|
|
|
Intangible assets |
|
769 |
769 |
- |
|
|
Property, plant and equipment |
|
9,059 |
8,108 |
951 |
|
|
|
|
-------- |
-------- |
-------- |
|
|
Total long term assets |
|
9,828 ===== |
8,877 ===== |
951 ===== |
|
|
At 31 December 2009: |
|
|
|
|
|
|
Intangible assets |
|
769 |
769 |
- |
|
|
Property, plant and equipment |
|
9,021 |
7,955 |
1,066 |
|
|
|
|
-------- |
-------- |
-------- |
|
|
Total long term assets |
|
9,790 ===== |
8,724 ===== |
1,066 ===== |
12. Share capital - issued shares
Authorised
At 31 March 2010 and 31 December 2009, the authorised share capital of the Company comprised an unlimited number of common shares and an unlimited number of preferred shares, issuable in series, without nominal or par value.
Issued
Common
Number £'000
At 1 January 2009 318,571,062 55,804
Shares issued 22,827,160 421
--
At 31 December 2009 341,398,222 56,225
Shares issued 13,023,256 289
--
At 31 March 2010 354,421,478 56,514
Common Shares
On 14 July 2009 the Company issued 1,664,368 common shares to holders of its 2005 series Convertible Loan Notes, in consideration for the interest due on those loan notes for the period 1 January 2009 to 30 June 2009, at a price of 1.4p per share.
On 24 December 2009 the Company issued 21,162,792 common shares as a result of the conversion of £455,000 of 2005 Convertible Loan Notes, at a conversion price of 2.15p per share.
On 28 January 2009 the Company issued a further 9,069,769 common shares, and on 8 February 2009 a final 3,953,488 common shares as a result of additional conversions of £280,000 of 2005 Convertible Loan Notes, at a conversion price of 2.15p per share.
No options or warrants were exercised during the quarter ended 31 March 2010 or the year ended 31 December 2009.
13. A Ordinary equity
Number £'000
At 1 January 2009 115,000,000 13,310
At 31 December 2009 and 31 March 2010 115,000,000 13,310
Holders of A Ordinary Shares of Turbo Power Systems Limited carry no voting rights, cannot attend any shareholder meetings and, in the event of winding-up of the Limited Company are entitled to a maximum distribution of £500,000 in aggregate, to rank before the Common Shares. The A Ordinary shares are convertible into an equal number of Common Shares of Turbo Power Systems Inc. on request by the holder, having given 61 days notice. Under certain take over or change in control events, the Ordinary Shares are exchangeable under "super exchange" rights, converting for 3 common shares of Turbo Power Systems Inc. for every Ordinary Share held.
As the A Ordinary Shares are non-participating interests in Turbo Power Systems Limited and are non-voting, no current year or cumulative net losses has been allocated to the A Ordinary Shares.
14 Convertible notes and warrants
Convertible notes are considered to be compound financial instruments, and the liability component and the equity component must be presented separately, as determined at initial recognition. The Company has valued the equity component of these notes using the residual value of equity component method, whereby the liability component is valued first using the current market rate for comparable instruments, at the time of issuance. The difference between the proceeds of the bonds issued and the fair value of the liability is assigned to the equity component.
On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement with institutional investors ("2005 loan note holders"). The financing comprised unsecured convertible notes and warrants. The convertible notes have a term of five years plus one day and bear interest at a rate of 6.5% per annum. They are convertible, at the option of the holder, into an aggregate of 66,666,667 Common Shares in Turbo Power Systems Inc. at a conversion price of £0.12 per share. The warrants have a term of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Power Systems Inc. at an exercise price of £0.15 per share. The convertible notes are unsecured.
On 19 June 2008 the Company completed a financing agreement with institutional investors for potential financing of up to £3,000,000 (gross) comprised of secured convertible notes and warrants ("2008 loan note holders"). The convertible notes were issuable in £750,000 increments over a three year period from the date of the agreement. The Company issued £1,500,000 of convertible notes under the agreement on 19 June 2008. The financing comprised secured convertible notes and warrants. The convertible notes bear interest at 15% per annum and are convertible into an aggregate of 75,000,000 of either Common Shares in Turbo Power Systems Inc. or A-Ordinary shares in Turbo Power Systems Limited at an exercise price of £0.04 per share. The notes required quarterly interest and quarterly principal payments commencing March 2009.
On 15 August 2008 the Company amended the terms of the 19 June 2008 loan agreement and issued an additional £1,500,000 of convertible notes under the amended terms. The new terms result in all interest and principal repayments being deferred until maturity on 19 June 2011, and provide that if at any time, including once the convertible notes governed by the 19 June 2008 agreement have been fully repaid, there is a change in control of the Company, or its subsidiaries or substantially all of its assets, the holders of the convertible notes will be entitled to receive a risk premium, calculated according to the enterprise value ascribed to the Company, under the transaction after deducting any balance of the convertible notes and/or interest outstanding. This risk premium will be equal to an initial payment of £1,500,000 plus 75% of the next £6,000,000 of enterprise value and 50% of the remainder. The amendment was treated as a debt extinguishment and, as a result, the Company recorded a debt extinguishment charge of £115,000. A key original term of the loan notes, which was amended on 15 August 2008 was that if at any point during the time at which the loan notes are in issue the unrestricted cash balance of the Company falls below £750,000, the loan notes are repayable on demand at the request of the majority of the loan note holders.
On 23 December 2009 the Company reached an agreement with the remaining holders of the 2005 loan notes whereby the conversion rate was modified from £0.12 per share to £0.0215 per share, and the Company became entitled to redeem the outstanding notes on or before the 31 January 2010, at a reduced rate of 20% of the principal value, in full and final settlement. This amendment has been treated as a debt extinguishment and, as a result, the Company recorded a debt extinguishment gain of £504,000.
On 24 December 2009 certain 2005 loan note holders elected to convert their loan notes into equity. In total 21,162,792 Common Stock shares were issued as a result of the conversion of £455,000 of 2005 loan note principal.
On 28 January 2010 a further 9,069,769 Common Stock shares were issued as a result of the conversion of a further £195,000 of 2005 loan note principal, and on 8 February 2010 3,953,488 Common Stock shares were issued as a result of the conversion of £85,000 of 2005 loan note principal.
On 29 January 2010 the Company elected to repay the remaining 2005 loan note holders at the agreed redemption rate of 20%, resulting in a payment of £210,800 in full and final settlement of the outstanding principal value of £1,054,000.
15. Stock options, warrants and compensation expense
The number of options and warrants outstanding as at 31 March 2010, and the movement during the three months then ended, are as follows:
|
|
|
|
Options |
Warrants |
|
|
|
|
|
Number |
Number |
|
|
|
|
|
|
|
|
|
|
Outstanding at 1 January 2010 |
|
25,485,700 |
23,357,142 |
|
|
|
Issued |
|
- |
- |
|
|
|
Cancelled |
|
(175,700) |
10,500,000 |
|
|
|
|
|
------------- |
------------ |
|
|
|
Outstanding at 31 March 2010 |
|
25,310,000 ======== |
12,857,142 ======= |
|
The stock based compensation expense for the three months ended 31 March 2009, included in Production costs was £3,000 (2009: £nil), in Research and product development was £8,000 (2009: £20,000), and in General and administrative costs was £18,000 (2009: £24,000).
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected price volatility. The Company uses expected volatility rates, which are based on historical volatility rates trended into future years. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options
16. Subsequent event
On 30 April 2010 the 2008 loan note holders agreed to extend their waiver that removed the requirement for the Company to maintain such unrestricted cash balances above £750,000 until 1 July 2010.
Although the Company anticipates that it will be able to meet the requirement to maintain such unrestricted cash balances from that date, if the Company is not able to do so the Company would be in default of its agreement with the 2008 loan note holders at that time. In such event that the Company is unsuccessful in extending its waiver, amending its financial covenants or obtaining alternative financing the Company's debt obligation could become accelerated. Such events would likely have a material adverse effect on the Company.
Related Shares:
TPS.L