PROSPECTUS DATED MAY 27, 2003
This prospectus constitutes a public offering of these securities only in jurisdictions where they may be lawfully
offered for sale and therein only by persons permitted to sell such securities. No securities regulatory authority has
expressed an opinion about these securities and it is an offence to claim otherwise.
Initial Public Offering
ARISE TECHNOLOGIES CORPORATION
Minimum: 1,200,000 Units ($900,000) – Maximum: 4,000,000 Units ($3,000,000)
Price: $0.75 per Unit
This prospectus qualifies the Offering (the "Offering") for sale to purchasers resident in the provinces of Alberta,
British Columbia and Ontario of a minimum of 1,200,000 Units (the "Minimum Offering"), and a maximum of
4,000,000 Units, (the "Maximum Offering"), of ARISE Technologies Corporation ("ARISE" or the "Company"), at
a price of $0.75 per Unit (the "Offering Price"), pursuant to an agency agreement (the "Agency Agreement")
between the Company and Northern Securities Inc. ("Northern" or the "Agent"), acting as agent in connection with
the Offering. Each Unit consists of one common share in the capital of ARISE (the "Common Shares") and one-half
share purchase warrant of ARISE (the "Warrants"). Each whole Warrant entitles the holder thereof to purchase one
Common Share at a price of $1.00 per Common Share exercisable at any time on or before 4:00 p.m. (Eastern time)
for a period of 24 months from the date (the "Initial Closing Date") of the Initial Closing (as hereinafter defined).
The price of the Units was determined by negotiation between the Agent and ARISE.
Per Unit…………………………...
Price to
Public
Agent's
Commission 1
Net Proceeds to
the Company 2
$0.75
$0.075
$0.675
Minimum Total…………………...
$900,000
$90,000
$810,000
Maximum Total…………………..
$3,000,000
$300,000
$2,700,000
1.
2.
The Agent will receive a commission (the "Agent’s Commission") equal to 10% of the gross proceeds raised under the Offering. The
Company will also issue to the Agent brokers warrants ("Brokers Warrants") exercisable into 10% of the Units sold pursuant to the
Offering, at an exercise price of $0.75 with a term of 24 months from the issuance of the Brokers Warrants. The distribution of the
Brokers Warrants is also qualified under the prospectus to the extent permitted under applicable provincial securities laws.
Net proceeds were determined before deducting the expenses of the Offering estimated to be $200,000 which was paid or is payable by the
Company.
There is currently no market through which the Common Shares or Warrants may be sold and purchasers
may not be able to resell the Common Shares or Warrants purchased under this prospectus.
THE COMPANY WILL LIKELY REQUIRE ADDITIONAL FINANCING FOLLOWING COMPLETION
OF THE OFFERING IN ORDER TO FUND ITS BUSINESS STRATEGY AND TO SATISFY ITS
LIQUIDITY NEEDS. AN INABILITY TO ARRANGE SUFFICIENT FINANCING COULD ADVERSELY
AFFECT THE COMPANY’S LIQUIDITY AND ITS ABILITY TO IMPLEMENT ITS BUSINESS
STRATEGY. INVESTORS SHOULD CAREFULLY CONSIDER THIS RISK FACTOR AND OTHER
1
RISKS DISCLOSED UNDER THE HEADING "RISK FACTORS". AN INVESTMENT IN THE UNITS
SHOULD BE REGARDED AS HIGHLY SPECULATIVE AND SHOULD ONLY BE CONSIDERED BY
THOSE INVESTORS ABLE TO AFFORD A COMPLETE LOSS OF THEIR INVESTMENT. See "Risk
Factors".
The TSX Venture Exchange Inc. ("TSX Venture Exchange" or "TSXVN") has conditionally approved the
listing of the Common Shares, provided that if the gross proceeds subscribed for at the Initial Closing Date
do not exceed $1,200,000, listing of the Common Shares will, in addition to ARISE fulfilling other listing
requirements (including distribution of Common Shares to a minimum number of public security holders),
be conditional upon the closing of the amalgamation (the "Amalgamation") of ARISE and Intercedent
Ventures Ltd ("IVL"). See "The Company - Amalgamation with IVL”
The Agent conditionally offers the Units for sale on a best efforts basis subject to prior sale if, as and when issued
and delivered by the Company and accepted by the Agent in accordance with the conditions contained in the
Agency Agreement referred to under "Plan of Distribution". Subject to the Minimum Offering being attained, the
initial closing ("Initial Closing") of the Offering may be held prior to the date upon which shareholders of ARISE
and IVL vote upon the Amalgamation (the "Amalgamation Vote Date"). If the Minimum Offering is attained but
subscriptions for gross proceeds are less than $1,200,000 the Agent and the Company may conduct the Initial
Closing prior to the Amalgamation Vote Date. In such an event, the Initial Closing will occur in escrow (the "Initial
Escrow Closing") and the Agent will hold the gross proceeds in respect of the Initial Escrow Closing (the "Initial
Escrow Closing Funds") together with the Units issued on the Initial Closing (the "Initial Escrow Closing Units") in
escrow until the earlier to occur (each an "Escrow Release Event") of (i) the Closing of the Amalgamation and the
Agent being satisfied that listing conditions of the TSXVN with respect to the Common Shares have been
substantially met; (ii) the occurrence of a subsequent closing (the "Subsequent Closing") where the gross proceeds
resulting from the Subsequent Closing together with the Initial Escrow Closing Funds exceed $1,200,000 and the
Agent being satisfied that the listing conditions of the TSXVN with respect to the Common Shares have been
substantially met and (iii) the Distribution Deadline Date (as defined herein). If either Escrow Release Event in (i)
or (ii) above occur, the Agent shall release the Initial Escrow Closing Funds to the Company and the Initial Escrow
Closing Units to the subscribers of the Offering on the business day following the date of the Escrow Release Event;
if the Escrow Release Event in (iii) above occurs the Agent shall return the Initial Escrow Closing Funds to the
subscribers (without interest) and will return to the Company for cancellation the Initial Escrow Closing Units. If
the Initial Closing does not occur prior to the Amalgamation Vote Date, the Initial Closing may be held thereafter
subject to: (i) the Minimum Offering being attained and the approval of the Amalgamation by the shareholders of
ARISE and IVL having occurred; or (ii) subscriptions for gross proceeds of at least $1,200,000 being received if the
Amalgamation is not approved and completed. All subscription funds will be held in trust by the Agent until a
closing occurs and the TSXVN listing conditions with respect to the Common Shares have been substantially met,
and in any event, no later than 90 days after a Mutual Reliance Review System ("MRRS") Decision Document is
issued for this prospectus, unless each subscriber has consented to a continuation of such time period (the
"Distribution Deadline Date"). The Company and the Agent reserve the right to hold subsequent closings after the
Initial Closing until the Maximum Offering is achieved. Except in respect of an Initial Escrow Closing, the
definitive certificates for the Common Shares and the Warrants which make up the Units will be available for
delivery on the applicable closing date. See "Plan of Distribution".
IT IS NOT ANTICIPATED THAT TRADING IN THE COMMON SHARES WILL COMMENCE ON THE
TSXVN UNTIL AFTER THE AMALGAMATION VOTE DATE WHICH IS SCHEDULED FOR JUNE 26,
2003. IF THE AMALGAMATION IS NOT COMPLETED, TRADING IN THE COMMON SHARES WILL
NOT COMMENCE ON THE TSXVN PRIOR TO THE COMPLETION OF THE OFFERING FOR GROSS
PROCEEDS OF NOT LESS THAN $1,200,000. SEE "PLAN OF DISTRIBUTION".
You should rely only on the information contained in this prospectus. The Company has not authorized
anyone to provide you with information different from that contained in this prospectus. The Company is
offering to sell, and seeking offers to buy, Units only in jurisdictions where, and to persons whom, offers and
sales are lawfully permitted. The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any sale of Units. In this
prospectus, the "Company", "ARISE", "ARISE Technologies", "we", "us" and "our" refer to ARISE
Technologies Corporation.
2
Certain information contained in this prospectus concerning the Company’s competitors has been derived
from publicly available sources. Neither the Company nor the Agent makes any representation with respect
to the accuracy of this information. Information contained in the Company’s websites (www.arisetech.com
and www.solarsense.com) shall not be deemed to be part of this prospectus or incorporated herein by
reference and should not be relied upon by prospective investors for the purposes of determining whether to
invest in the Units offered hereunder.
Certain legal matters concerning this Offering have been reviewed on behalf of the Company by Gowling
Lafleur Henderson LLP, Kitchener, Ontario and certain legal matters on behalf of the Agent by Borden
Ladner Gervais LLP, Calgary, Alberta.
3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus under the captions "Prospectus Summary", "Risk Factors", "Use of
Proceeds", "Business", "Management’s Discussion and Analysis of Financial Condition and Results of Operations"
and elsewhere in this prospectus, and in certain documents incorporated by reference in this prospectus, constitute
"forward-looking statements". When used in this prospectus, the words "may", "would", "could", "will", "intend",
"plan", "anticipate", "believe", "estimate", "expect" and similar expressions, as they relate to the Company or
management, are intended to identify forward-looking statements. Such statements reflect the current views of
ARISE with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors
could cause the actual results, performance or achievements to be materially different from any future results,
performance or achievements that may be expressed or implied by such forward-looking statements, including,
among others, those which are discussed under the heading "Risk Factors" in this prospectus. Should one or more of
these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove
incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed,
estimated or expected. ARISE does not intend, and does not assume any obligation, to update these forward-looking
statements.
SPECIAL NOTE REGARDING FINANCIAL STATEMENTS, CANADIAN DOLLARS AND GAAP
Financial statements contained in this prospectus are reported in Canadian dollars and are prepared in accordance
with Canadian generally accepted accounting principles, or Canadian GAAP. All dollar amounts in this prospectus
are expressed in Canadian dollars, except where otherwise indicated. References to "$" or "CAD" are to Canadian
dollars and references to "USD" or "US $" are to United States dollars. On December 11, 2001, the Company
changed its fiscal year end from May 31 to December 31. The financial statements of the Company included
elsewhere in this prospectus for the fiscal periods ended May 31, 1999, May 31, 2000, May 31, 2001 and December
31, 2001 have been audited by Simon McWhinnie Riediger and Meredith LLP. Deloitte & Touche LLP have been
engaged as the Company’s auditors in connection with the Company’s financial statements for the year ended
December 31, 2002. Simon McWhinnie Riediger and Meredith LLP informed the Company that they would resign
from being the Company’s auditors because they do not audit public companies as a matter of policy. References to
any fiscal year of the Company, except for the fiscal year ended December 31, 2001, are references to the 12 month
period ended on May 31 of the referenced calendar year. The statement of loss and retained earnings (deficit) data
in respect of the Company for the fiscal periods ended May 31, 1999, May 31, 2000, May 31, 2001, December 31,
2001 and December 31, 2002 and the balance sheet data as of May 31, 1999, May 31, 2000, May 31, 2001,
December 31, 2001 and December 31, 2002 are derived from these financial statements. The financial statements of
Intercedent Ventures Ltd. included elsewhere in this prospectus for the fiscal period ended December 31, 2001, and
December 31, 2002 have been audited by Grant Thornton LLP. Historical results are not necessarily indicative of
the results that may be expected for any future period or for a full year.
ELIGIBILITY FOR INVESTMENT
In the opinion of Gowling Lafleur Henderson LLP, the Common Shares, if issued on the date hereof, would be
qualified investments for trusts governed by registered retirement savings plans, registered retirement income funds
and deferred profit sharing plans under the Income Tax Act (Canada) and the regulations there under.
Northern Securities Inc.
150 York Street, Suite 1814, Toronto, Ontario, M5H 3S5
Tel: 416 644-8100, Fax: 416 644-0270 www.northernsi.com
4
TABLE OF CONTENTS
DIVIDEND POLICY..........................................45
PLAN OF DISTRIBUTION ...............................45
USE OF PROCEEDS..........................................48
ESCROWED SHARES.......................................48
PRINCIPAL SHAREHOLDERS........................50
INTEREST OF MANAGEMENT AND OTHERS
IN MATERIAL TRANSACTIONS....................50
PROMOTERS.....................................................50
INVESTOR RELATIONS ..................................51
RISK FACTORS.................................................51
LEGAL MATTERS ............................................53
MATERIAL CONTRACTS ...............................54
LEGAL PROCEEDINGS ...................................54
AUDITORS, TRANSFER AGENT AND
REGISTRAR.......................................................54
PURCHASER’S STATUTORY RIGHTS..........54
TECHNICAL TERMS GLOSSARY .....................6
SUMMARY..............................................................8
COMPANY OVERVIEW.....................................8
SOLAR ENERGY INDUSTRY ...........................8
ARISE STRATEGY .............................................9
SUMMARY OF THE AMALGAMATION .......11
OFFERING .........................................................10
SUMMARY FINANCIAL DATA......................12
SOLAR ENERGY INDUSTRY............................13
SOLAR ENERGY TECHNOLOGY ..................15
SOLAR ENERGY ECONOMICS ......................18
PHOTOVOLTAIC (PV) MODULE MARKET .19
THE COMPANY...................................................21
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION,
COMPANY HISTORY AND RESULTS OF
OPERATIONS.......................................................55
CORPORATE HISTORY...................................21
ARISE STRATEGIES ........................................22
ARISE PRODUCTS AND SERVICES ..............23
TEAM GOVERNMENT FUNDING..................26
ARISE PROPRIETARY TECHNOLOGIES......28
UNIVERSITY OF TORONTO RESEARCH .....29
AMALGAMATION WITH IVL ........................30
FACILITIES .......................................................33
EMPLOYEES .....................................................33
COMPETITION..................................................34
DIRECTORS AND OFFICERS SUMMARY ....35
ADVISORY COUNCIL .....................................38
EXECUTIVE COMPENSATION ......................40
COMPENSATION OF DIRECTORS ................41
STOCK OPTION PLAN.....................................41
AUDITED FINANCIAL STATEMENTS OF
ARISE TECHNOLOGIES CORPORATION ..F-1
AUDITED FINANCIAL STATEMENTS FOR
INTERCEDENT VENTURES LTD ................F-19
UNAUDITED PRO FORMA FINANCIAL
STATEMENTS OF ARISE ..............................F-26
CERTIFICATES ................................................ C-1
CERTIFICATE OF THE COMPANY..............C-1
CERTIFICATE OF THE PROMOTER............C-1
CERTIFICATE OF THE AGENT ....................C-2
COMPANY SHARE CAPITAL...........................42
DESCRIPTION OF SHARE CAPITAL .............42
COMMITMENTS TO ISSUE SECURITIES .....44
5
TECHNICAL TERMS GLOSSARY
AC Electricity (Alternating Current Electricity): The
type of electrical current that is typically used in buildings
and is produced by electric utilities.
Fossil Fuel: Fuels that contain primarily carbon, including
oil, coal or natural gas and result in CO2 emissions when
burnt.
aSi (Amorphous Silicon): A very thin layer of silicon that
is deposited on a substrate (glass, metal or plastic) in a
manner to create a PV module.
FreezeSafe™: ARISE patented technology that allows
water to freeze in a solar thermal collector and not damage
the collector.
Backup Power: Backup power systems provide power to
an electrical system in the event that utility power goes out.
Grid: A network of electric power lines and connections.
Grid-Connected: See "Grid-Tied".
Balance of System (B.O.S.): Term used to describe all
components of a solar electric system except for the PV
modules required for such a system.
Grid-Tied: Term used to refer to a solar electric system or
other generator that is connected to the utility grid allowing
electricity to be fed into the electrical network.
BP Statistical Review: The statistical review by British
Petroleum PLC, available at www.bp.com.
IEA: The International Energy Agency (www.iea.org),
based in Paris, is an autonomous agency linked with the
Organization for Economic Co-operation and Development
(OECD). The IEA is the energy forum for 26 member
countries (including Canada, U.S., Japan and U.K.). IEA
member governments are committed to taking joint
measures to meet oil supply emergencies. They have also
agreed to share energy information, to co-ordinate their
energy policies and to co-operate in the development of
national energy programs.
Building Integrated Photovoltaics (BIPV): PV modules
that are integrated into a building’s structure.
Canadian Electricity Association: An electricity industry
association whose members include electrical generation
companies and manufacturers of products for the electricity
industry see www.canelect.ca.
CanSIA: Canadian Solar Industries Association, a trade
association of Canadian solar energy companies.
IEA Report: "Key World Energy Statistics" 2001 Edition,
see www.iea.org.
CdTe (Cadmium Telluride): A thin film PV technology.
CIGS (Copper Indium Gallium Diselenide): A thin film
PV technology.
Inverter: An inverter converts DC electricity into AC
electricity. Utility interconnected inverters have additional
functionality to allow them to be used in grid-tied systems.
CO2 (Carbon Dioxide): Many scientists believe that CO2
is a major contributor to climate change.
IRAP: The Industrial Research Assistance Program run by
the Government of Canada.
Crystalline PV Modules: PV modules that incorporate
crystalline or polycrystalline silicon. There are several
manufacturing processes, with each manufacturer usually
using a unique aspect to their process. These modules had
a 90% market share in 2001.
kW (Kilowatt):
power.
Each kilowatt equals 1000 watts of
kWh (Kilowatt hour): A kilowatt hour is the unit of
energy where 1000 watts of power is used over a one hour
period.
DC Electricity (Direct Current Electricity): The type of
electrical current that is typically produced from batteries
and solar electric PV modules.
Kyoto Protocol: The Kyoto Protocol was adopted by the
United Nations for the United Nations Framework
Convention on Climate Change in 1997. The protocol
outlines targets for signatory countries to reduce their
greenhouse gas emissions by 2008-2012 to 1990 levels.
Distributed Energy: Term used to describe energy
produced by smaller than usual generating units.
Mtoe: Million tonnes of equivalent oil.
DOE/EPRI Report: Renewable Energy Technology
Characterizations (TR-109496) is a topical report dated
December 1997, prepared by Office of Utility
Technologies, Energy Efficiency and Renewable Energy,
U.S. Department of Energy (D.O.E.) and EPRI (Electric
Power Research Institute).
MW (Mega Watt): Each MW equals 1,000,000 watts of
power.
Natural Resources Canada (NRCan):
NRCan is the
Canadian federal government department most involved in
6
solar energy in Canada. Information referred to in "ARISE
Products and Services Installed Systems" can be found in
"Solar Water Heating Systems, "A Buyer’s Guide", and for
pool heating see
those remaining reserves would last if production were to
continue at that level.
PV/T: A combination photovoltaic (PV), solar thermal (T)
solar energy collection device that converts solar energy
into useable electrical energy and useable heat energy for
applications in buildings.
www.nrcan.gc.ca/es/erb/reed/swhs/solarpool/e_consider.html.
Net Metering: The process by which an on-site generator
(such as a roof mounted solar energy system) operating
independently of the utility electrical grid, can be interconnected to the grid. The electrical meter will show the
difference between what is generated on site to what is
supplied by the grid.
Renewable Energy World: A European trade magazine.
Information referred to in this prospectus is based on the
following articles: Solar Thermal July-Aug. 2001, page
220.
Shell Renewables: A division of Shell Oil Company, see
www.shell.com.
NRCan PV Report: Report titled "Photovoltaics for
Buildings, Opportunities for Canada" published by Natural
Resources Canada (M39-76/2001E).
Solar Electric Systems: Electricity generating systems
that use PV modules to convert solar energy into DC
electricity and other components called the Balance of
Systems (B.O.S.) to store such electricity or convert such
electricity into AC electricity for use.
NYSE: New York Stock Exchange.
OEM: Original Equipment Manufacturer.
Solar Energy: The energy output from the sun that the
earth receives.
Passive Solar Techniques: Solar technology that conducts
the heat from sunlight into a building. The technology can
reduce, or in some cases, eliminate the need for more
conventional space heating technologies such as furnaces.
Solar Thermal (ST): The use of solar energy to heat
liquid or air to provide part or all of the energy required for
space heating, domestic hot water, swimming pool heating,
agricultural heat and industrial heat applications.
Photovoltaic (PV): A device that converts sunlight
directly into DC electricity, typically using semi-conductor
materials such as silicon. The solar cell is the basic
photovoltaic device that generates electricity when exposed
to light.
A module is the smallest complete,
environmentally protected assembly of interconnected solar
cells. A panel is an assembly of modules, mechanically
fastened together and pre-wired to form a self-contained
unit. The array is a mechanical integrated assembly of
panels with a support structure and foundation, tracking,
thermal control, and other components as required, to form
a direct-current power producing unit. Solar photovoltaic
systems refers to the total components and subsystems that
in combination convert solar energy into electrical energy
suitable for connection to a utilization load. PV modules
are typically 20 to 120 Wp but can be as large as 315 Wp
and less than 1 Wp for specialized applications. PV system
size is only limited by available space and funds.
Solar Thermal Domestic Hot Water Systems (SDHW):
These systems convert solar energy into usable heat to heat
the hot water used in a building.
SR&ED:
Scientific Research and Experimental
Development tax credit program is administered by the
Canadian federal government.
Thin Film PV: A thin photovoltaic module that use aSi,
CdTe or CIGS.
TWh (Terawatt hours): One billion kilowatt hours.
Utility Interactive: See "Grid-Tied".
Utility Interconnected: See "Grid-Tied".
Power Manager™: An ARISE product that is the centre
of a plug and play solar electric portable system to manage
the various power inputs, storage and outputs.
Watt: The scientific unit of electric power. A typical light
bulb is rated 40, 60 or 100 watts, meaning that it consumes
that amount of power when illuminated.
Proven Reserves: Proven reserves of oil are generally
taken to be those quantities that geological and engineering
information indicates with reasonable certainty can be
recovered in the future from known reservoirs under
existing economic and operating conditions. If the reserves
remaining at the end of any year are divided by the
production in that year, the result is the length of time that
Wp: Standard measure of a PV module’s output in watts
measured at the peak power point under standard test
conditions.
A kWp is 1,000Wp and a MWp is
1,000,000Wp.
7
SUMMARY
The following is a summary of the principal features of this distribution and should be read together with the more
detailed information and financial statements contained elsewhere in this prospectus. In addition to this summary,
you are urged to read carefully the entire prospectus, especially the discussion of the risks of investing in the
Common Shares under "Risk Factors" before deciding whether to invest. For the definitions of certain technical
terms used in this prospectus, see "Glossary".
COMPANY OVERVIEW
ARISE (Appropriate, Renewable, Intelligent, Sustainable Energy) is an energy technology company dedicated to
making solar energy available in mainstream markets, through a complete range of solar energy products and
systems. This includes small portable plug and play systems, mid-sized installed systems and complete solar energy
systems for homes and buildings. The Company’s systems are based on a combination of proprietary technology,
standard industry components and in-depth systems engineering knowledge. ARISE plans to provide consumers
with products and systems that are cost effective, convenient to install and use, and backed up by a superior
customer support system. Over the last six years, ARISE has built an experienced team of employees, management,
directors and advisors dedicated to making ARISE a market leader in the solar industry.
SOLAR ENERGY INDUSTRY
World energy demand is growing at a rate that is slightly below economic growth in the developed world and
slightly above economic growth in the developing world. ARISE estimates the annual global energy market to be
US $3-4 trillion, or 7-10% of the world’s economy. Much of that energy demand is for electric power, estimated to
be a US $1 trillion market. This power has traditionally been provided by conventional technologies such as
hydroelectric, fossil fuel and nuclear generation. While these continue to play a leading role in the market, a variety
of factors are contributing to demand for renewable technologies such as solar energy:
1.
2.
3.
4.
5.
6.
7.
Environmental concerns about emissions, habitat destruction and waste handling associated with conventional
technologies are prompting a re-evaluation of their net benefits.
Deregulation in established markets is creating an opportunity for more technology providers to compete for
market share.
Ageing infrastructure in established markets is providing an opportunity to introduce new technology to replace
existing facilities.
People have concerns about energy security because our reliance on fossil fuel reserves potentially has serious
risks for our economic prosperity.
Governments and industry are identifying how to diversify supply options, reducing dependence on any one
source of energy, to reduce energy price volatility.
Innovations in emerging technologies such as solar energy are making them more reliable and affordable.
There is a growing awareness of, and satisfaction with, the superiority of new technologies such as solar energy
for many applications.
The demand for alternatives such as solar energy is, in ARISE’s view, effecting a significant transition from the
centrally planned fossil fuel based economy of the 20th century to much more diverse and distributed energy
technologies in the future. ARISE is not alone in this view. For example, the Royal/Dutch Shell Group of
companies estimates that over US $20 trillion will be invested in energy projects over the next 20 years and that
micro-power technologies like solar will continue to attract a growing share of the investment. In fact, Royal/Dutch
Shell estimates solar energy to be one of the fastest growing energy segments.
ARISE believes that solar energy will become a mainstream technology in several key markets this decade. Over
the last 25 years, solar energy has been proven in many commercial applications and technology demonstration
projects. ARISE believes this has contributed to what is estimated to be a US $5 billion commercial market,
growing at 25% per year. ARISE believes that solar energy, with its broad range of applications and virtually
unlimited free fuel supply, has the potential to become one of the largest segments in the energy market as measured
in annual sales. ARISE’s market research, however, has demonstrated that this strong market position will be
dependent upon cost effective, simple to use, reliable solar energy systems in which customers have confidence.
8
ARISE STRATEGY
Since its inception, the Company’s efforts with solar energy have been focused on research directed to the
development of proprietary technology, products and systems. ARISE has recently put an increased emphasis on
growing revenue in the emerging solar energy market with initial sales growth predominately from portable plug
and play solar electric systems. The Company’s business strategy is composed of seven key elements.
1.
A Systems Approach: ARISE continues to develop a full range of solar energy solutions from small portable
systems to complete solar homes. A strong systems approach is key to delivering convenient, cost effective
solutions in which customers have confidence. ARISE has developed high quality systems integration and
engineering capability providing it with the ability to integrate new technology components (like solar energy)
into existing energy systems.
2.
Proprietary Technology: The Company continues to research and develop proprietary technology in the power
electronics, solar thermal and PV areas. ARISE owns one patent, has a patent pending for a second one and has
entered into a definitive agreement to acquire two more; see "University of Toronto Research". Where ARISE
believes it can expand its competitive advantage, it will develop or acquire more products/components.
3.
Distribution Network: The Company’s initial target markets are central Canada (due to proximity to the
Company’s headquarters) and the southwest United States (due to market opportunity). A dealer network is
being established in these areas, beginning with Ontario. The Company has already sold components, portable
systems and larger installed systems to over 1,000 customers. To increase revenue and accelerate establishing a
dealer network, ARISE has acquired the marketing assets of Prometheus Energy, an Ontario-based renewable
energy products distributor. ARISE has also become a regional distributor for Sharp Solar, the largest PV
manufacturer in the world and Kyocera Solar Inc., the third largest PV manufacturer in the world.
4.
A Careful Balance of R&D and Revenue: Developing proprietary technology provides ARISE with important
advantages in the marketplace, resulting in potentially superior profit margins. Growing revenue today by
developing our value added distributor business increases cash flow, provides direct market insight and
develops distribution channels for future proprietary products. ARISE believes that attaining the optimum
balance for these complementary strategies is very important to increasing shareholder value.
5.
Strategic Relationships: ARISE has been able to build strong relationships with universities, governments,
suppliers, and strategic shareholders. ARISE believes that these relationships improved the Company’s access
to talented people, government research and funding, volume purchasing arrangements, and opportunities for
joint technology development.
6.
Selective Acquisitions and Technology Licensing: ARISE’s management successfully completed seven
acquisitions and technology licensing agreements. ARISE will look for opportunities to expand faster with
disciplined selective acquisitions with an initial emphasis on acquiring distribution companies which have
strong system design capabilities. Licensing technology has assisted ARISE in getting products to market
faster, with less expense than developing products from inception. The Company does not currently have any
commitments or agreements with respect to any potential acquisition.
7.
Build a Strong Team: ARISE has an experienced team of motivated management and staff. The Company has
an independent board of directors with a broad range of experience. ARISE has also developed a group of
advisors to assist management and the board in a number of areas. This team is committed to taking solar
mainstream.
The Company’s rationale for becoming a public company is based on the requirement for additional capital to
implement its business plan, attract and retain key people and to have publicly traded shares to use as an acquisition
currency to attract and use for possible strategic acquisitions.
9
OFFERING
Issue:
1,200,000 Units (Minimum Offering) – 4,000,000 Units (Maximum Offering)
Price:
$0.75 per Unit
Amount:
$900,000 (Minimum Offering) - $3,000,000 (Maximum Offering)
Units:
Each Unit consists of 1 Common Share and ½ Warrant. Each whole Warrant
entitles the holder to purchase an additional Common Share.
Warrant Term:
24 months from the Initial Closing Date.
Warrant Exercise Price:
$1.00
Common Shares Outstanding:
7,094,907 Common Shares as of May 27, 2003.
Use of Proceeds:
The estimated net proceeds to the Company from the Offering, after deducting
the Agent’s Commission, and the other estimated expenses of the Offering, will
be approximately $610,000 if the Minimum Offering is achieved ($860,000
including the IVL Minimum Cash infusion of $250,000) and approximately
$2,500,000 if the Maximum Offering is achieved. If the gross proceeds
subscribed for do not exceed $1,200,000, the Offering will only close if the
Amalgamation has been approved by the shareholders of ARISE and IVL. The
Amalgamation, at a minimum, is expected to provide the IVL Minimum Cash
infusion of $250,000 and will result in the cancellation of $175,000 in debt that
ARISE currently owes IVL. As of April 30, 2003 the Company had a working
capital deficiency of $622,000. If the Offering had been completed as of April
30, 2002, after applying a portion of the proceeds equal to $361,000 to repay
bridge financing, the working capital deficiency as at April 30, 2003 would have
been reduced to a deficiency of approximately $261,000. The Company has
negotiated extended repayment terms with respect to certain of its accounts
payable and expects to maintain a modest working capital deficiency in the near
term. The following table shows, in respect of the Minimum Offering, the funds
from both the Offering and the Amalgamation. The Company intends to apply
the net proceeds as follows:
Use of Available Funds to
ARISE
1. Research and development
2. Sales and marketing
3. Fund potential acquisitions
4. Repayment of bridge financing
5. Towards working capital
Total
Minimum Offering
(including IVL
Minimum Cash)
$300,000
60,000
0
361,000
139,000
$860,000
Gross Proceeds of
$1,200,000
(not including IVL
Minimum Cash)
$300,000
60,000
0
361,000
159,000
$880,000
Maximum Offering
(not including IVL
Minimum Cash)
$850,000
400,000
400,000
361,000
489,000
$2,500,000
See "Use of Proceeds".
Risk Factors:
An investment in the securities offered by this prospectus should be considered
highly speculative due to the nature of the Company’s business and its present
stage of development.
THE COMPANY WILL LIKELY REQUIRE ADDITIONAL FINANCING FOLLOWING COMPLETION OF
THE OFFERING IN ORDER TO FUND ITS BUSINESS STRATEGY AND TO SATISFY ITS LIQUIDITY
10
NEEDS. AN INABILITY TO ARRANGE SUFFICIENT FINANCING COULD ADVERSELY AFFECT THE
COMPANY’S LIQUIDITY AND ITS ABILITY TO IMPLEMENT ITS BUSINESS STRATEGY. INVESTORS
SHOULD CAREFULLY CONSIDER THIS RISK FACTOR AND OTHER RISKS DISCLOSED UNDER THE
HEADING "RISK FACTORS". AN INVESTMENT IN THE UNITS SHOULD BE REGARDED AS HIGHLY
SPECULATIVE AND SHOULD ONLY BE CONSIDERED BY THOSE INVESTORS ABLE TO AFFORD A
COMPLETE LOSS OF THEIR INVESTMENT. See "Risk Factors".
SUMMARY OF THE AMALGAMATION
On November 16, 2002 ARISE entered into an amalgamation agreement (the "Amalgamation Agreement") with
IVL which is a capital pool company listed on the TSXVN. The amalgamation (the "Amalgamation") with ARISE
will constitute IVL's Qualifying Transaction pursuant to the TSXVN Policy 2.4 (the "Qualifying Transaction"). As
part of the Qualifying Transaction, IVL and ARISE will amalgamate and the effective date of the Amalgamation
will be the same as the closing date of the Qualifying Transaction (the "QT Closing"). Prior to signing the
Amalgamation Agreement, ARISE and IVL had, on August 6, 2002, executed a letter of intent relating to the
proposed Amalgamation which was extended as of November 16, 2002. The Amalgamation Agreement was
amended on January 3, 2003 and March 21, 2003 to extend some of the dates set out therein.
Pursuant to the Amalgamation, each Common Share will be exchanged for one common share of the amalgamated
entity ("Amalco") and 4.875 IVL Common Shares will be exchanged for one Amalco common share ("Amalco
Common Share") and one-half of an Amalco share purchase warrant ("Amalco Share Purchase Warrant"). See
"Amalgamation with IVL – Exchange Ratio". The Qualifying Transaction is complementary to the Offering and is
meant to provide ARISE with additional funding upon completion of the Amalgamation plus a shareholder base that
is expected to provide increased liquidity. According to IVL's audited financial statements, as of December 31,
2002, IVL had working capital of $495,565, total assets of $532,708 and total liabilities of $12,142. As of April 30,
2003, on an unaudited basis, IVL had a cash balance of $358,454, total assets of $516,420 and total liabilities of
$608, for total net assets of $515,812. As a condition of closing the Amalgamation, IVL is required to have a
minimum net current assets of $250,000, (the "IVL Minimum Cash"); see "Amalgamation with IVL". As of May 20,
2003 IVL has lent ARISE $175,000. Upon completion of the Amalgamation, before giving effect to the Offering,
Amalco will have 8,017,983 common shares outstanding compared to the current number of outstanding ARISE
Common Shares of 7,094,907. See "Amalgamation with IVL". The Amalgamation is anticipated to close on or
about June 30, 2003.
11
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for the Company as at the dates or for the periods indicated.
The following summary financial data should be read in conjunction with, and is derived from, the financial
statements and the related notes, and "Management’s Discussion and Analysis of Financial Condition, Company
History and Results of Operations" and the Financial Statements and Notes for ARISE Technologies Corporation
included elsewhere in this prospectus.
ARISE TECHNOLOGIES CORPORTION
Statements of Loss and Retained Earnings (Deficit)
In Canadian Dollars (000’s)
Year ended May 31
Year ended
Dec. 31, 2002
7 Months ended
Dec. 31, 2001
Revenue……….……………………..
$1,200
$308
$345
$249
$102
Cost of sales….……..…………….…
915
231
291
203
58
Gross profit...…………………….….
285
77
54
46
44
Gross research and development…...
175
168
360
434
215
Less: Investment tax credits and other
government assistance………..
(56)
(184)
(246)
(190)
(66)
Net research and development…….
119
(16)
114
244
149
General and administrative…………
717
258
404
287
236
Sales and marketing………………...
Depreciation of capital assets……...
356
28
103
9
216
18
404
18
136
15
(Gain) on disposal of assets………...
0
0
(6)
0
0
1,220
354
746
953
536
Operating loss……..……………..….
(935)
(277)
(692)
(907)
(492)
Net interest income (expense)……….
(72)
(4)
(4)
8
(2)
Non-cash interest (expense)…………
(28)
0
0
0
0
Net loss for the period………………
(1,035)
(281)
(696)
(899)
(494)
Retained earnings, (deficit)
beginning of period………………….
Deficit, end of period………………..
(2,335)
(3,370)
(2,054)
(2,335)
(1,358)
(2,054)
(459)
(1,358)
35
(459)
Cash & cash equivalents…………….
52
89
217
169
179
Current assets………………………..
777
450
376
355
429
Total assets…………………………..
839
518
430
434
483
Total liabilities………………………
1,260
275
228
173
65
Shareholders’ equity (capital deficiency)……..
(421)
243
202
261
418
2001
2000
1999
Expenses
Selected Balance Sheet Data:
12
SOLAR ENERGY INDUSTRY
WORLD ENERGY CONSUMPTION
World energy consumption continues to grow. In order to meet this demand, according to the IEA Report, the total primary
energy supply increased to 9,958 Mtoe (million tonnes of equivalent oil) in 2000 from 6,036 Mtoe in 1973, a yearly increase
of 1.8%. In 2000, the primary energy came from oil (34.8%), coal (23.1%), natural gas (20.7%), combustible renewables and
waste (11.0%), nuclear (6.8%), hydro (2.3%) and other (0.5%) which includes geothermal, solar and wind. The IEA Report
also states that 14,764 TWh of electricity were consumed in 2000 with the generation sources being coal (38.1%), hydro
(17.5%), nuclear (17.2%), natural gas (17.1%), oil (8.5%), and other (1.6%) which includes geothermal, solar electric and
wind.
WORLD SOLAR ENERGY POTENTIAL
According to the Canadian Electricity Association’s website, energy consumption in Canada is expected to continue to grow
at approximately 1.3-1.6% per annum – lower than economic growth but higher than population growth. This assumes
continued improvements in energy efficiency. ARISE believes that comparable growth is occurring in the U.S. This is
slightly lower than global growth rates, reflecting the fact that the developing world is increasing its energy use at a higher
rate than developed countries. However, 1.3-1.6% is significant when combined with the need to replace existing plants
approaching the end of their useful life. ARISE estimates that this equates, over the next 20 years, to an electricity generating
capacity requirement of approximately 40,000 megawatts which is equivalent to 1/3 of Canada’s current generating capacity.
In the United States the need is comparable, which would mean, given the proportionately larger U.S. generation portfolio,
the need for 250,000-300,000 megawatts of new generation capacity, since the U.S. generation portfolio is approximately
seven times the size of the Canadian system.
Growing demand, environmental concerns, deregulation, ageing infrastructure, depleting fossil fuel reserves, new
technologies, Middle East political instability and volatile pricing are each contributing to what ARISE believes is a
fundamental shift in the energy industry.
ARISE believes that solar energy will start to become a mainstream energy source in this decade. Although this transition
will take years, ARISE believes that in this decade the industry will see high growth. Solar generated electricity was
originally developed in the United States space program for satellites. It emerged on a practical basis for earth-based
applications along with solar thermal in the 1970’s in response to the oil embargo related energy crisis. Solar energy has also
started to be used as a cost saving and reliability improving technology for small remote applications. The basic attribute of
solar is that solar energy equipment harvests free energy from the sun after the initial capital investment is made in the
equipment. There is also no shortage of solar energy, according to the Renewable Energy Technology Characterisations
Report:
"The solar resource base of the continental U.S. is over 1016 kWh/year. U.S. electricity use is about 2.5
x 1012 kWh/year. Thus, the U.S., an intense user of energy, has about 4,000 times more solar energy
than its annual electricity use. This same number is about 10,000 worldwide. Thus PV could in
principle provide all the globe’s electricity. In particular, if only 1% of land area were used for PV,
more than ten times the global energy could be produced (without impacting water and other important
resources). The potential of PV to displace major amounts of conventional energy, ultimately depends
on the technical viability of cost-competitive PV technologies, storage and transmission."
Solar energy has billions of years of supply. Shell Renewables states that: "The earth receives as much energy from sunlight
in 20 days as there is stored in the planet’s entire reserves of oil, coal and natural gas."
13
WORLD ENERGY ISSUES AND THE SOLAR ENERGY SOLUTION
The issues facing the energy industry pose significant problems for the status quo of conventional generation technologies.
With respect to each of these, solar energy continues to increase its role as part of the solution.
Energy Issue
Growing
demand
Environmental
concerns
Deregulation
Ageing
infrastructure
Uncertainty
associated
with fossil fuel
reserves
Volatile
energy pricing
Emerging
technologies
Public interest
Current Status
World energy demand growth averaged 1.8%
annually in the 1973-1999 period which is
exceeding the ability of the developed world to
build generating plants (given various hurdles
to new large plant construction). The situation
is even worse for the developing world where
grid infrastructure is so limited.
According to the IEA, fuel consumption is
producing 23,172 million tonnes of CO2
annually.
Conventional technologies have
significant environmental issues around
emissions, habitat and species destruction, and
waste management.
Established markets are deregulating with
varying degrees of success, often creating
concern for regulators, industry players and
consumers.
Conventional generation, transmission and
distribution infrastructure all have a fixed life
and will eventually have to be decommissioned
and replaced.
According to the BP Statistical Review, world
proven reserves/production ratio at the end of
2000 is 39.9 years for oil, 61 years for natural
gas and 227 years for coal. The Middle East
has 65% of the proven oil reserves, which has
influenced regional political instability.
Solar Energy
Solar offers a distributed energy solution that
complements existing plants, offers quicker build
times and, for the developing world, and can be
developed without the same infrastructure
requirements.
Conventional technology fuels are subject to a
variety of market pressures – geo-political
(because of location of supply), technical
(because of limitations of supply network),
economic and others.
There are new technologies such as fuel cells,
on-site hydrogen generation, large wind turbine
and micro turbines as well as others. Each has
its own strengths and weaknesses.
There is growing public interest in renewable
energy technologies but consumers have
limited knowledge of how they can have a
direct impact.
Solar’s strongest advantage is free and ample
supply – intermittent daily but consistent on a
yearly basis. Therefore, future energy costs can
be relatively easily planned for.
14
The operation of solar systems involves no
emissions, no waste production, and because of
its distributed installation focus, limited impact
on the physical environment.
Solar energy has been, and can continue to be,
implemented successfully in both regulated and
deregulated environments.
Solar energy systems can be installed quickly, are
modular, long lasting and can be easily
maintained and replaced, providing opportunity
to diversify supply options.
The sun could provide a significant portion of the
electrical energy requirements for the foreseeable
future. Solar energy offers part of the solution to
energy security concerns around foreign supply.
Solar energy is one of many technologies that
will play a role in the world’s energy future. Its
low on-going cost, ease of deployment and robust
reliability make it a valuable contributor.
Solar is almost unique in offering the consumer a
power facility "in their backyard", or more likely,
on their roof.
SOLAR ENERGY TECHNOLOGY
The three main types of solar technologies in use today are:
1) solar electric,
2) solar thermal, and
3) solar building technology.
Based on its solar energy market estimates, ARISE believes that the worldwide solar energy market was about US $5 billion in
2002. The Company’s market research and other public domain studies indicate that consumers believe that solar energy is the
best energy source for many energy applications because of the superior environmental, high reliability and free fuel attributes.
The cost of solar energy equipment continues to decrease, removing price barriers and making solar energy cost effective for
more applications. The Company’s market research has shown that cost effective can mean affordable to some customers
where the important economic factor is that they have access to the capital or financing arrangements like leasing to install a
system. Other customers are most concerned about economic return such as simple payback or return on investment. Still
others are prepared to pay a reasonable premium today for the benefits that solar energy has beyond traditional economics and
are most concerned about performance and reliability. Solar energy technology has demonstrated over the last 40 years, with
over 2,363 MWp of installed capacity, that solar:
•
•
•
•
•
is one of the most environmentally responsible energy sources,
is very reliable, proven, long lasting, modular and expandable with common components used in a range of systems
and applications,
is powered by free ‘fuel’ from the sun, which is intermittent daily but consistent on a yearly basis,
has very low maintenance costs with long warranty periods (10-25 years), and
is economical for specific niche markets today.
1) Solar Electric Technology
Solar electricity is generated by using PV modules to capture solar energy and convert that energy into DC electricity. The
rest of the components used in a system store the electricity for later use, convert DC electricity into AC electricity and
address safety and installation requirements. The adoption of solar electric technology has historically been limited by the
cost of the PV modules used to capture solar energy. According to a leading market research firm, Strategies Unlimited, in
real dollars, the cost of PV modules has declined ten-fold over the last 25 years. The NRCan PV Report indicates that costs
for solar energy have consistently dropped at an average rate of 18% for every doubling of installed capacity. PV has been
cost effective when powering satellites and orbiting spacecraft since the beginning of the United States space program. As
costs have dropped, new niche market opportunities have emerged. Today, as examples, PV is the most cost effective energy
solution for road signs, marine buoys and several other remote applications. In the future, studies by Renewable Energy
World (a major trade magazine) and PV News (a major industry consulting service and newsletter) are predicting that
residential solar electric systems interconnected with the electrical utility grid will be the largest growth segment for solar
energy. With growth rates for PV module shipments achieving an average of 30% annually since 1996 and solar energy
currently providing less than 1/100 of 1% of the world's energy, the market for solar applications has the potential to be very
large. The Royal/Dutch Shell Group of companies has predicted that 10% of all energy in the world will come from solar
energy in 2050. ARISE believes that it will happen sooner because of increasing environmental concerns, resulting in a
serious commitment by governments to meet the Kyoto accord. ARISE estimates that the solar electric markets totalled over
US $3.8 billion a year in 2002.
2) Solar Thermal Technology
Solar thermal technology uses solar energy to heat liquid or air to provide part or all of the energy required for applications
such as space heating, domestic hot water, swimming pool heating, agricultural heat and industrial heat application.
According to Renewable Energy World, in 1999 there were 885,400 m2 of solar thermal collectors installed in Europe.
ARISE estimates that a typical system is approximately 6 m2 in size, resulting in an estimated 145,000 systems installed. In
1999, in the U.S. there were 38,460 m2 of solar thermal or approximately 6,000 systems. In China, there were 5,000,000 m2
of solar thermal collectors with a typical Chinese system using one 3 m2 collector resulting in an estimated 1.6 million
systems installed in 1999.
15
3) Solar Building Technology
Solar building technology, which includes passive solar, natural cooling, day lighting and energy conservation can
substantially reduce the amount of traditional energy required in buildings and at the same time, based on the Company’s
experience, make them more comfortable. A building utilizing solar building technology with radiant floor heating is the
most comfortable form of heating in the winter, without the dryness of forced air. Natural ventilation keeps the building cool
in the summer without the inferior air quality of an air conditioned space and natural day lighting provides higher quality
light than artificial light. How solar electric and solar thermal technology integrate with buildings is critical for the highest
reliability, optimum performance, most cost effective approach, and best aesthetics. ARISE has invested significant time and
resources to better understand these issues. There are three important groups that affect how solar energy is deployed on
buildings: architects, homebuilders and consulting engineering firms. Demonstration homes have been built that are heated
exclusively with passive solar, not requiring any space heating from a furnace. These systems were first developed in the
1970’s, and with the advent of powerful computer software programs, these systems can be simulated during the design stage
and once the building is constructed will work quite successfully. Most homebuilders, architects and consulting engineering
firms have had little experience with the technology, but ARISE is working on programs to help these groups deploy solar
energy on buildings. The size of this market is difficult to measure because the technology is in the design, not the materials
and the design is usually part of the cost of the overall design.
SOLAR ENERGY MARKET AND SEGMENTS
There are several market segments for solar electric, solar thermal and solar building technologies. The industry has very
good data on the amount of PV measured by power rating, but little data on the amount shipped from a dollar standpoint.
From ARISE’s experience, and based on information from the Canadian government, the retail cost of solar electric systems
is about 2.5 times the cost of PV modules from the factory. This includes the other equipment required to make a solar
electric system (batteries, inverters, charge controllers, etc.), distribution, marketing, installation and support costs. Paul
Maycock, a leading industry consultant, reports that shipments were 560 MWp in 2002. This represents a 31% growth in
production over 2001 production of 390 MWp. Paul Maycock estimates that the average wholesale price at the end of 2002
was US$3.00 a watt from the factory in medium to large volume. This would value the PV shipments at US $1.53 Billion
and using the 2.5 times multiplier, ARISE estimates that the total solar electric market was valued at US $3.8 Billion in 2002.
Adding to this the Company's estimate of US $1.2Billion for the solar thermal market, the overall solar energy market was
US $5.0 Billion in 2002. This does not take into account the solar building technology market. In 2002, with production
increasing 31%, and with pricing dropping about 10%, the resulting solar energy market grew 20% in 2002. ARISE estimates
that the grid-connected market segment grew from 204 MWp in 2001 to 336 MWp in 2002. The largest installed base of grid
connect PV with 56% of all installed capacity is in Japan. The average sized system in Japan is 3.73 kWp therefore the total
number of equivalent Japanese sized homes installed base world wide in 2002 was 205,000 up from 132,000 in 2001. See the
graph below for more details.
Grid-Tied Solar Electric Systems
Technology developed in the 1980’s permits electricity
generated from PV modules to flow into the electrical
utility grid, running the electricity meter backwards.
Installations of grid-tied systems are usually designed to
supplement, not replace, conventional energy sources.
Reports by PV News and Renewable Energy World have
indicated that residential grid-tied solar is the fastest
growing solar market segment and has the greatest
potential for future growth.
Number of Grid Connected Solar Electric Homes Equivalent to Average Japanese size of 3.73 kWp DC
250,000
200,000
US
Rest of the World
150,000
Japan
100,000
Building Integrated Photovoltaics (BIPV)
In a BIPV installation, the PV panels are integrated with
50,000
the physical structure, replacing building materials
otherwise required. In Europe, BIPV has replaced
expensive granite facades for certain applications. For
residential applications, solar modules can become the
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
roof instead of being placed on top of a roof. BIPV is
widely accepted in Europe as an architectural design
element in institutional and commercial buildings and are usually grid-connected. Both grid-tied and off-grid systems can be
building integrated but most BIPV systems are grid-tied.
16
Portable Solar Electric Systems
Due to inherent design and installation requirements, solar applications tend to be fixed in place. There are security and theft
concerns with fixed systems that can be stolen if left unattended in remote situations. Smaller portable systems allow the
user to move the system where it is required, but ease of installation and tear down must be addressed. This is a relatively
new market due to the current lack of viable product offerings.
Off-Grid Solar Electric Systems
Historically solar energy has been used to provide power where it is otherwise unavailable. Outer space, mountain top
telecommunications and other remote location requirements have long been cost effective applications for solar energy.
Recently road signs, telecom systems and marine buoys utilizing solar power have become commonplace. Cottages and rural
homes install solar energy where transmission line cost is prohibitive or very little electricity is required.
Other Solar Electric Applications
There are several other applications for solar electric systems. At the high end, the outer space market continues to be a large
and very specialized market segment. The U.S. $600 million solar generating system for the international space station was
the largest solar array installed in outer space to date. There continue to be many applications in outer space because
virtually all satellites are powered by solar electricity. At the other end of the market, solar electricity is being used in many
consumer applications such as calculators, wristwatches and flashlights.
Solar Electric Balance of Systems
Balance of Systems (B.O.S.) is the solar industry term for everything else in both off-grid and grid-tied solar installation,
excluding PV panels. The many small components such as charge controllers, racking, fuses and wiring generally represent
10-20% of an installation cost. Non-solar companies such as electrical distributors can supply some of these products. Solar
panels generate DC electricity that can be connected to DC batteries for storage purposes. Inverters convert the DC
electricity stored in the batteries into AC electricity allowing standard household AC appliances to be used. Xantrex
Technology Inc. dominates the North American inverter industry due to recent acquisitions of major competitors. The
Shell/Siemens Solar group and SMA Regelsystame GMbH are large in Europe. Inverters require extensive proprietary
knowledge to manufacture.
Solar Thermal Domestic Hot Water (SDHW)
According to a Canadian government study, 21% of the energy used in Canadian homes is used to heat water. Solar energy
has been used successfully for several decades in countries that are close to the equator for heating water. In these countries,
the freezing of water is not an issue and the cost of fossil fuels is quite expensive, thus, solar energy is cost effective and in
many cases the only practical way to heat water. Systems installed in colder climates require an approach to dealing with
freezing temperatures. Several different approaches can be utilized to avoid collector damage due to freezing including
ARISE’s "Freezesafe" approach which uses water in a collector that is designed to withstand freezing. Other approaches
include using non-freezing heat transfer fluids such as a food grade glycol, a "drain back" approach, or shutting down the
system in the winter. In colder climates, because of the freezing issue, the systems are more complex and less reliable.
According to Natural Resources Canada, a SDHW system, for a typical application, could reduce water heating costs 4050%. ARISE believes that there is a significant untapped market for SDHW systems in the more northern climates.
Solar Thermal Space Heating
Solar space heating requires a more custom installation than SDHW and has been demonstrated in many installations in
Europe and North America. Unlike solar domestic hot water, there is little application for space heating in countries that are
close to the equator. The challenge with space heating is that solar energy space heating systems generate more heat in the
summer when it’s not required compared to the wintertime. Seasonal storage systems, although demonstrated in several
experimental systems, are not cost effective. One approach that can be used for solar space heating is that if there is a pool
requiring heating, a combination SDHW, pool heating and space heating system can use the solar energy harvested all year.
Solar Thermal Pool Heating
Swimming pools are currently the largest solar thermal segment in North America. According to Natural Resources Canada,
solar pool heating is the most cost effective solar thermal application. Based on ARISE’s experience, these applications
typically have a simple payback of three years. The systems used in the more northern climates are very simple in their
operation, can provide years of high quality heat for the pool and can extend the swimming season because the pool is
comfortable to use earlier and later in the season.
17
SOLAR ENERGY ECONOMICS
A major factor which has, in the past, prevented solar energy from becoming a mainstream energy technology is the
economics. As costs continue to decline, solar energy becomes cost effective for more applications compared to the
traditional energy sources. Solar energy is now the most economical solution for many specialized applications. The
following analysis is focused on solar electricity but is applicable to solar thermal and solar building technology markets. The
economics of solar energy is very dependent on the specific application. Some applications are very cost effective while others
require significant cost reduction to achieve cost effectiveness. The basic economic trade-off with solar energy is typically an
increased initial cost and lower on-going costs compared to traditional energy approaches. There can also be many specific
issues that need to be identified in order to determine which approach is the most economical. ARISE believes that to
determine the best solution, it is important to take into account the following factors:
Factor
Equipment costs
Installation costs
Financing costs
Maintenance costs
Tax treatment
Fuel costs
Government incentives
Price volatility
Amount of solar energy
Replacement/hybrid/
Supplement
Environmental benefits
Societal costs
Issues
What is the capital cost of the equipment? Typically, solar is more expensive. What is the
replacement cost? For example, a small gas generator may be much less expensive but needs to
be replaced every couple of years in some cases.
Installation costs can be similar to other options. In some cases with remote sites, conventional
technology can be much more expensive. With grid-tied systems, solar energy can be more
expensive.
Financing costs are directly tied to interest rates. Given the currently low interest rates, solar
continues to become more cost effective. Interest deductibility benefits are directly tied to the
tax situation in particular countries.
Maintenance requirements of systems need to be understood. Solar energy is typically very
reliable and for many applications, more reliable than many other alternatives. For example,
with other options where system reliability requirements are high, there may be the requirement
to purchase a second piece of equipment for backup where solar energy would not require a
second system.
What is the applicable tax depreciation rate on the equipment? The Canadian government now
has accelerated depreciation for solar energy equipment compared to traditional energy
generation equipment.
Solar has no on-going fuel costs. What is the total cost of the fuel for traditional energy
generation techniques including transportation and storage?
In Japan, Germany and the U.S., there are significant government incentives. Following the
Japanese lead, these incentive programs decrease over time as the solar energy industry grows.
What is the historical price volatility of the alternative fuels? Solar energy costs are very stable
because most of the costs are determined up front while traditional energy sources continue to
see large price fluctuations.
How much solar is available annually and seasonally? Are there long periods of cloud or shade?
In many situations, combining solar energy with traditional energy sources can be the best
solution that provides the benefits of both approaches in a complementary manner.
What are the environmental benefits and how do we qualify them from an economic standpoint?
To meet the Kyoto Accord requirements, emission trading is a likely solution. Academics have
suggested that carbon credit prices of US $10-20 per tonne of CO2 is the likely market rate
providing a US $100-$400 annual cash benefit for a typical home.
What is the cost to our society of the environmental issues caused by traditional energy sources?
With the growing complexity of traditional and renewable energy options, ARISE believes that solar energy use is increasing
because it is the most economical solution for a growing list of specific applications.
18
PHOTOVOLTAIC (PV) MODULE MARKET
PV modules at factory pricing would typically constitute 40% of the cost of an installed solar energy system. The rest of the
cost for a system is for B.O.S. components, system engineering, distributors of the components, installers and various markups through the value chain. Manufacturers of PV modules are typically multinationals or large oil companies. The
manufacturing output over the last four years of the top ten largest PV manufactures as reported by PV News are provided in
the following table. These companies have typically been manufacturing focused and tend to sell product via independent
national distributors or have their own distribution business and sell to installer/dealers.
T o p T e n P V M a n u fa c tu r e r s b y S h ip m e nts in M W p p e r y e a r
A ll O t h e rs
P ho to w att (A T S )
1999
M it s u b u s h i
2000
Is o f o t o n
2001
A S E (R W E )
2002
A s t ro p o w e r
Sany o
S h e ll / S ie m e n s
K y o c e ra
B P S o la r
S h a rp
-
20
40
60
80
100
120
140
The most common PV modules (about 93% of the market) are the ribbon silicon, mono-crystalline, and poly-crystalline
modules. Tempered glass panels are required to encapsulate the brittle silicon PV cells. The other main technology is thin
film PV such as amorphous silicon technology, which can be deposited on glass or on a flexible substrate. Thin film PV
modules are more shade tolerant, have a lower negative heat co-efficient and some products have lighter weight. Thin film is
less efficient for a given surface area of the module, therefore it typically takes twice the surface area to generate the same
amount of energy. Consumers pay by the rated watt of output and it depends on the specific application to determine which
modules are the best. ARISE utilizes both crystalline and thin film modules in its systems. PV technology continues to
evolve with development in several crystalline/polycrystalline processes, thin film (aSi, CdTe, CIGS) and several novel
approaches such as triple junction thin film (Uni-Solar), spheral solar (ATS), organic (Konarka) and hybrid amorphous over
crystalline (Sanyo). PV module manufacturing is capital intensive and proprietary in nature. ARISE continues to research
the various technology developments in the industry.
The following table shows the increase in production of PV from about 1 MWp in 1975 to 560 MWp in 2002. The
manufacturer’s factory pricing to major distributors and large projects has dropped from US $47.00 Wp in 1975 to US $3.00
Wp in 2002 over the same period. (Source: Paul Maycock, PV News).
Since 1996, the average growth rate in production has been greater than 30% per year. If that annual growth rate of 30%
continues over the next ten years, the production will increase to 4,000 MWp per year in 2010. Continuing on the current
price reduction curve and other industry estimates, the NRCan PV Report states, based on several industry studies, which
estimates that the wholesale price of PV would drop from US $3.00 a Wp today to US $1.80-$2.00 Wp range in 2010 - 2012.
This could result in solar energy starting to be a worldwide mainstream business with sales in the US $20B range. The
Japanese market is a mainstream market now, with production growing 46% in 2002. Over 29,389 solar homes were built in
2001 and ARISE estimates that over 40,000 will have been built in 2002 resulting in over 120,000 built since a government
sponsored incentive program started in 1993.
19
World PV Factory Production
$50
PV Price US$ per Wp
550
$40
Total PV Production in MWp
500
$35
Off-grid Application in MWp
$30
Grid-connected Application in MWp
Factory Price per Wp in US$
$45
450
400
350
$25
300
$20
250
200
$15
150
$10
100
$5
50
$-
Total Factory Production in MWp
600
1975
1980
1985
1990
1995
2000
Several studies have reviewed the historical cost trend of PV modules over the last 25 years. The U.S. Department of
Energy’s Renewable Energy Technology Characterization Report ("DOE/EPRI Report") states:
"Empirical progress in manufacturing processes is frequently displayed by means of a "learning" or
"experience" curve. Conventionally, such curves are plotted using logarithmic axes, to show per-unit
cost versus cumulative production volume. Most often, such a plot will produce a straight line over a
very large range of actual production volumes and unit costs. The slope of that line, expressed as the
percent of cost remaining after each doubling in volume, is called the "progress ratio". Most
manufactured goods are found to yield progress ratios between 70% and 90%, but there appears to be no
generally applicable rule for assigning a priori expectations of progress ratios for a given process.
Figure 2 below shows the experience curve over the past 20-some years for PV module prices versus
total sales. Price and total sales are used as proxies for cost and manufactured volume because the
actual cost and production information for the entire industry is not available. Note that, although the
plotted data comprise a number of technologies, the dominant technology – crystalline silicon – has set
the pace for the price-volume relation. Therefore, this figure most closely represents an experience
curve for crystalline silicon PV, and this curve was used within the Technology Characterization ("TC")
for residential PV systems. The [progress ratio of] 82% value falls within the range typical for
manufactured goods and the projections of crystalline-silicon module sales and prices provided within
that TC are further supported by a "bottom up" analysis of the industry."
The following graph shows that since 1975, the factory price of PV has continued to drop. As PV manufacturing plants
continue to increase in size, the effects of economies of scale and experience should continue to reduce the price of PV. This
graph is based on a similar graph in the DOE/EPRI Report but has been updated with data from PV News for 1997-2002.
The data from 2003-2012 are projections by ARISE based on the Company’s estimate of a continued 30% annual growth in
the shipment of PV modules and a projection of a reduction to $1.77 per Wp in 2012.
20
PV Experience Curve
$100.00
1975, $47.80 per Wp
PV Cost per Wp
Actual (1975-2002)
Predicted (2003-2012)
1980, $12.40 per Wp
1990, $6.45 per Wp
$10.00
2000, $3.50 per Wp
2010, $1.95 per Wp
$1.00
1
10
100
1,000
Cumulative PV Produced in MWp
10,000
100,000
THE COMPANY
ARISE is an energy technology company with a vision to be a leader in taking solar energy mainstream. ARISE will provide
customers with a complete range of products to meet their energy needs, from small portable solar energy systems to
complete solar energy systems for homes and buildings. ARISE believes that customers require systems that are convenient
to install and use, cost effective, and delivered by a company they have confidence in. The Company’s approach is to
provide market driven solutions that combine its proprietary technology with industry standard components.
ARISE’s mission is to:
• Market Appropriate, Renewal, Intelligent, Sustainable Energy (ARISE) systems that meet customer needs and
provide clear benefits to customers.
• Deliver products and systems that provide ARISE with unique competitive advantages based on proprietary
products, technologies and integrated business approaches.
• Provide the foundation for success through strong relationships with strategic partners, successful acquisitions and
quality employees.
Although most of the Company's efforts since inception have been on research and the development of proprietary
technology, products and systems, ARISE has recently signed distribution agreements with major manufacturers of solar
energy products that have generated a significant increase in revenues beginning in 2002. See "ARISE Products and Services
– Plug and Play Portable Systems"
CORPORATE HISTORY
ARISE Technologies Corporation was incorporated by way of articles of incorporation under the name CVCC Holdings Inc.
("CVHI") pursuant to the provisions of the Company Act of the Province of British Columbia on October 6, 1993. CVHI
changed its name to ARISE Technologies Corporation on March 12, 1997 once the Company decided to focus on solar
energy after completing over a year of industry consulting, as well as due diligence and investigation of the industry. On
February 14, 2002, ARISE amended its articles by removing the prohibitions in the articles preventing the Company from
offering its shares to the public and altered its memorandum to cancel all but one share of each of the authorized classes of
shares of ARISE except the Common Share class. On July 5, 2002, the Company altered its articles to delete all classes of
shares other than its Common Share class. The Company’s registered office is located at Suite 2300 – Bentall IV, 1055
Dunsmuir St., P.O. Box 49122, Vancouver, British Columbia, V7X 1J1. The principal business office of the Company is
located at 321 Shoemaker Street, Kitchener, Ontario N2E 3B3.
21
ARISE STRATEGIES
ARISE's overall strategic approach to this opportunity is as follows:
1.
Systems Approach: Typically, consumers have purchased individual components separately, such as PV modules,
inverters and charge controllers to create a system. The frequent result is mismatched components and complexity of
installation. Having high quality systems integration and engineering capability provides the ability to develop certain
components that better fit into systems than existing components. ARISE has seen first hand that performance,
reliability and cost effectiveness of solar energy solutions are as much a systems issue as a specific component issue.
National and international involvement in standard-setting committees, industry development advisory groups, intragovernmental committees, solar energy task forces and conferences will keep ARISE abreast of industry developments.
Products and systems using these core technologies will be distributed through dealers, OEMs or directly to consumers.
2.
Proprietary Technology: In improving its systems, ARISE will provide feedback to suppliers in order for them to
improve components to better fit into the Company’s systems. If the Company feels that it can gain a unique competitive
advantage and have potentially patentable technology, in select cases ARISE will develop these products itself. ARISE is
currently developing proprietary technology in the power electronics, solar thermal and PV areas. ARISE owns one
patent, has applied for a second one (ARISE received a notice of allowance on March 19, 2003) and has an agreement to
acquire two more. ARISE’s efforts to develop customer focused proprietary products are designed to provide increased
customer satisfaction, add value and improve resulting profit margins.
3.
Distribution Network: ARISE is currently developing a full range of solar energy solutions, from small portable systems
to complete solar homes. The Company is developing distribution channels to most effectively reach various market
segments. The Company’s initial focus has been on selling small portable systems to more than 1,000 customers over the
Internet. ARISE has also marketed larger installed systems to the local market area of south-western Ontario. To
accelerate establishing its dealer network, ARISE acquired the marketing assets of Prometheus Energy, an Ontariobased, renewable energy products distributor. ARISE has also become the regional distributor in central and eastern
Canada for Sharp Solar and Kyocera Solar Inc. and is serving its existing dealer base. These events form the beginning
of the ARISE Value Added Distribution Division. Sharp is now the largest PV manufacturer in the world. Kyocera is
the third largest PV manufacturer in the world and a wholly-owned subsidiary of NYSE listed, Japan-based Kyocera
Corporation. ARISE aims to provide the best systems that combine proprietary technology with standard components
that meet customer needs. ARISE believes that plug and play features, improved reliability and other engineered
features will help to expand today’s solar energy market.
4.
Balance Revenue and Research: Market feedback provides information from the marketplace on what technology the
Company should be researching and products they should be developing. Dealing with customers on a daily basis has
provided active market research, resulting in having unique products that better satisfy customers and provides ARISE
with sustainable competitive advantages. By becoming a public company, ARISE believes that it will have a greater
ability to raise funds to expand its research to provide more proprietary technology. Developing proprietary technology
provides ARISE with important advantages in the marketplace, resulting in potentially superior profit margins. Growing
revenue today by developing our value added distributor business increases cash flow, provides direct market insight and
develops distributed channels for future proprietary products. Getting the optimum balance for these complementary
strategies is very important to increasing shareholder value.
5.
Strategic Relationships: ARISE has been able to build strong relationships with universities, governments, suppliers and
strategic shareholders. ARISE believes that these relationships improve the Company’s access to talented people,
government research, funding, volume purchasing arrangements and potential joint technology development. Examples
include the University of Waterloo, University of Toronto, NRCan, Sharp, Kyocera, Uni-Solar and Xantrex.
6.
Selective Acquisitions and Technology Licensing: ARISE management has successfully completed several acquisitions
and technology licensing agreements. The Company will look for opportunities to continue to expand with selective
acquisitions. Licensing technology has assisted ARISE in getting products to market quicker, with less expense than
developing products from inception. ARISE has completed five technology licensing agreements, two small acquisitions
and several distribution agreements since its inception. ARISE is also involved with research in PV technology at the
University of Toronto. ARISE will continue to look for acquisition opportunities, with an initial emphasis on acquiring
distribution companies which have strong system design capabilities. ARISE does not currently have any commitments
or agreements with respect to any potential acquisition. As there is no certainty as to which companies are to be acquired,
22
the impact of such acquisitions is indeterminable. ARISE anticipates additional fundraising activity and requirements
beyond those stated in this prospectus, in the event a major acquisition is identified.
7.
Build a Strong Team: ARISE has an experienced team of motivated management and staff. The Company has an
independent board of directors with a broad range of experience. ARISE has also developed a group of advisors to assist
management and the board in a number of areas. This team is committed to taking solar mainstream.
ARISE PRODUCTS AND SERVICES
ARISE’s systems approach has led to the development of a product line that spans from small portable systems to complete
solar homes. Dealers may purchase pre-engineered system bundles or select from a range of ARISE proprietary components
and industry standard components to engineer a custom system with or without the Company’s engineering expertise.
Products may be divided into three major groups: (1) Plug and Play portable systems, (2) Installed systems, and (3) ARISE
solar homes.
1) "Plug and Play" Portable Systems
ARISE believes that the Nomad and SolarSense family of plug and play solar energy systems offers superior convenience
and a cost effective approach for portable solar energy applications such as lighting, backup power, water pumping and
electric fencing. The Nomad line starts with the Nomad 300 for light requirements (starting at US $299 retail), through the
Nomad 1500, which is capable of running microwaves and refrigerators (starting at US $849). All Nomad products can be
interconnected and are readily expandable. The SolarSense systems provide for larger PV applications. ARISE has been
selling the Nomad product line and related components since September 1999 through SolarSense.com. Customers contact
ARISE/SolarSense sales personnel through a 1-800 number. Awareness has been achieved through print ads, trade shows,
web site and word of mouth. In Ontario, local media attention on ARISE has provided wide exposure.
Nomad 300
ARISE Power Manager
SolarSense 1500
The larger Nomads feature the Power Manager which were developed by ARISE to provide plug and play convenience for
portable solar energy systems by providing charge control protection and multiple PV inputs. This feature offers maximum
ease of installation and future expansion. The fully interchangeable and expandable Nomad system uses the xPower line of
inverter and battery combination products produced by Xantrex Technology Inc. A U.S. patent was applied for with respect
to the Power Manager technology in January 2001. A notice of allowance was received on March 19, 2003. The Power
Manager is essential to the larger Nomad plug and play system, as active PV panels can overcharge batteries without the
charge control protection resulting in poor performance and shortened battery life. ARISE believes that the pre-engineered
configuration is ideal for inexperienced consumers and remote applications where a lack of qualified electrical expertise is a
significant issue. ARISE will seek distribution opportunities in order to deliver the Power Manager or complete systems in
higher volumes. ARISE intends to reduce costs of the Power Manager through design changes, component tooling and
achievement of higher production volumes.
23
ARISE is currently working on the product line extensions and adding features to the Nomad products. Such applications can
provide increased emphasis on designing for specific applications such as water pumping, electric fencing and telecom.
ARISE is developing small solar charged battery systems for remote locations that are specifically designed for a high level
of reliability and to replace thermal electric generators that are used in remote applications such as telecommunications that
require high reliability.
In other markets, promotion will increasingly be through development of a network of dealers. The www.arisetech.com web
site will highlight educational material on solar to help inform customers. Dealer and reseller programs across North America
are being organized to provide additional volume opportunities and increase geographical reach. Qualified dealers may
provide future installation capabilities for products requiring greater levels of installation and support. Nomad products have
provided most of the initial sales and brand recognition that the Company believes has started to lead to repeat purchases of
larger systems. ARISE believes that the portability and convenient features of the Nomad product family have the potential
for various applications in developing countries. According to Renewable Energy World, North American markets today
represent only 17% of world wide solar markets.
2) Installed Systems
ARISE installed solar systems include solar thermal domestic hot water systems (SDHW), pool heating systems, car wash
systems, small photovoltaic (PV) systems and large PV/conventional generator hybrid systems. They typically are applied in
retrofit applications and are usually not building integrated but attached with some form of mounting assembly. ARISE has
designed a number of standard solar energy systems that require professional installation. These systems will be installed by
the Company’s growing dealer network, marketed by the Value Added Distribution Division of ARISE. The Company will
install systems locally and will assist our dealers with more complex installations remotely. ARISE has designed a SDHW
system suitable for higher end light commercial and residential applications and is planning to distribute SDHW systems
manufactured for the mass market. Design efforts were focused on developing a system with superior reliability
characteristics compared to other SDHW systems. A PV driven pump can be used to pump the heated fluid from the
collector to the hot water load and is available in case of utility power outages. ARISE is also currently selling and installing
pool heating systems. Pool heating is typically the most cost-effective solar application. Of all solar energy applications for
residential and commercial customers, pool heating provides the fastest and most readily observable payback on the original
investment.
Large Solar Pool System
Solar Thermal Domestic Hot Water System
The main components of grid-tied solar electric systems are the PV modules connected together to form a PV array, which is
then connected to a utility interconnected inverter to convert the DC electricity from the PV array into AC electricity
compatible with the electric utility grid. The ARISE GX5000 5 kW utility interconnected inverter optimizes ease of
installation with advanced features to maximize actual AC output. Utilizing technology originally developed by Statpower
Technologies Corporation (now owned by Xantrex) and designed for the Japanese market, ARISE licensed the base
technology for its GX5000 in 1997 to modify it for the North American market. Since that time, ARISE has further
developed this utility interactive inverter and has done extensive engineering enhancements. Electricity produced by solar
systems is direct current or DC, while household power is alternating current, or AC. The inverter converts the DC
electricity to household AC electricity and delivers it to the AC load. The inverter allows solar generated electricity to flow
into the electrical grid and the installed location’s load. A system can be large enough to power a typical home and excess
electricity during the day is redirected to the utility electricity grid so that the electric meters run in reverse.
24
Either the Canadian Standard Association (CSA) or Electrical Safety Authority (ESA) has individually certified the inverters
for field installation in several locations in Ontario, Alberta and Saskatchewan. ARISE intends to further test, redesign and
cost reduce the inverter before applying for Underwriter Laboratory (UL) approval. The GX5000 provides Digital Signal
Processing (DSP) based, Maximum Power Point Tracking (MPPT), plug in modular design, and extensive monitoring
capabilities through its LCD service display.
GX5000 Utility Interconnected
Photovoltaic Inverter
ARISE licensed a 1 kW grid-connected inverter design from Ontario Power Generation Inc. The Company believes that this
technology has the potential for a high volume and low cost design. ARISE has direct distribution agreements for the major
components of the Nomad product line, including Uni-Solar thin film PV modules, Kyocera crystalline PV modules, UniRac
racking, Xantrex Technology Inc. inverters and several other component product lines. These direct relationships with
suppliers, resulting from the Value Added Distribution Division volumes, enable ARISE to earn superior margins on Nomad
systems and offer competitive pricing for high volume component sales also enabling ARISE dealers to achieve appropriate
margins on their sales to end users.
Grid-tied Solar Electric System
ARISE installed a solar thermal pre-heat system on a Sunoco car wash in August 2002. The system pre-heats water to the
extent possible and displaces conventional heating requirements. Sunoco have indicated that they will monitor the system for
one year before deciding whether to purchase and install additional systems.
3) ARISE Solar Homes
The ARISE solar home concept is based on a systems engineering approach. Several energy design aspects are incorporated
to provide a complete solution that supplements conventional energy sources. The ARISE solar home could include
aesthetically pleasing, building integrated PV, solar thermal or SDHW systems, the ARISE GX5000 inverter, passive solar
techniques, energy conservation approaches and backup power systems in case of utility power failure. Due to the inherent
flexibility of solar energy, consumers may tailor a system to their requirements and budgets.
ARISE solar homes are expected to appeal to people who wish to:
•
•
•
•
•
Be more environmentally responsible.
Reduce their utility bills.
Reduce the impact of volatile energy prices.
Enjoy a more comfortable home.
Have a solar energy system which fits in with the architecture of the home.
25
To the right is a picture of the ARISE
Alpha One solar home that has been
harvesting solar energy since February
2000. Built in Waterloo, Ontario, (as
an addition on the President and
CEO’s home, See "Interest of
Management and Others in Material
Transactions") it is a demonstration
project to provide ARISE engineers
with a full-scale prototype of the
technologies
that
ARISE
is
researching and a platform for ongoing
research. Some of these concepts are
available in products today and some
require
more
research
to
commercialize.
A custom designed ARISE solar home
uses a systems engineering approach
where all of the energy aspects of the
home work together with the design to
provide a complete solution. This
home includes:
ARISE Solar Home (Waterloo, Ontario)
•
•
•
•
•
•
•
•
A building integrated solar roof that harvests electrical and heat energy from the sun.
PV panels are interconnected to the utility grid on a net metering basis. On sunny days, the PV may produce more
electricity than the home requires, resulting in the electric meter running in reverse.
Passive solar, natural day lighting, natural cooling, a superior building envelope, radiant floor heating and other
energy conservation techniques to make the home more comfortable.
An electrical system that may have an optional backup power system in case of utility power failure.
5 kW of grid connected PV (using the ARISE GX5000 inverter).
20 kW equivalent of solar thermal (using the ARISE FreezeSafe design) for all of the pool heating, most of the
domestic hot water and some of the space heating requirements.
Several energy conservation approaches.
Monitoring and control by the HP48000 technology running on proprietary software developed at ARISE.
TEAM GOVERNMENT FUNDING
On March 26, 2002, ARISE entered into an "Efficiency and Alternative Energy Program Contribution Agreement" (the
"TEAM Agreement") with the Canadian Department of Natural Resources ("NRCan") pursuant to which NRCan has
committed to provide up to $924,800 in funding as contributions towards ARISE’s project for the demonstration of the
viability of solar homes in Canada (the "TEAM Project"). The total budgeted cost of the TEAM Project for ARISE, together
with its project participants, NRCan and homebuyers, is $1,994,190 and is scheduled for completion not later than March 25,
2004. Expenditures which are reimbursable by NRCan are reimbursed as incurred on a predetermined fixed percentage basis
subject to completion of various TEAM Project requirements.
The TEAM Agreement between ARISE and NRCan has been entered into to market and develop new technologies and
methods of integrating photovoltaics into residential homes (the "TEAM Project"). The Canadian federal government, under
the Technology Early Action Measures (TEAM) component of the Climate Change Action Fund, and NRCan, is partially
sponsoring the pilot program. The aim of the TEAM Project is to accelerate the acceptance of PV technologies into the new
residential home market and to develop a framework for expanding the program to other regions of Canada. In conjunction
with the TEAM Project, the Company will install 45 kW of PV on approximately ten to fifteen homes in a single
development in Waterloo, Ontario. ARISE expects that the homes will export excess power to Waterloo North Hydro. The
first model home was completed on April 30, 2003 and the solar roof option has been installed. A second model home is
under construction and will be used as the grand prize for the Kitchener Rotary Club's "Dream Home" fundraising raffle.
26
In addition to NRCan, the TEAM Project
arrangement includes Cook Homes, Waterloo North
Hydro, the City of Waterloo, Professor Ian
Rowlands of the University of Waterloo, Genstar
Development Company and the Canadian Imperial
Bank of Commerce. The TEAM Project includes a
cash contribution by NRCan of up to $924,800
toward development of the systems required to
make the homes "solar ready," and in kind
contributions of $100,200 toward project review and
consulting. The contributions are repayable as a
royalty from future product sales which royalty
equals 1% on BIPV systems sold and 2% on sales of
components developed under the TEAM Project and
is payable from April 1, 2005 until the earlier of
March 31, 2014 or the date upon which all of the
NRCan funding has been repaid. Each participant
in the TEAM Project will contribute expertise
toward supporting the development and analyzing
the effects of widespread solar energy application in
residential neighbourhoods.
TEAM model home, (under construction as of April 10, 2003)
ARISE believes that early intervention in the planning stages of a subdivision will greatly improve the prospects for
implementing solar technology on residences and reducing costs of such implementation. ARISE also believes that energy
efficient home design, together with photovoltaics, can not only reduce the home’s operating costs but can also improve the
profitability of the electrical utility which receives the excess power generated by the home.
In connection with the TEAM Project, on March 4, 2002, ARISE, Ian Cook and Ian Cook Construction Limited ("Cook
Homes") entered into an agreement (the "Cook Homes Agreement") whereby Ian Cook agreed to become an advisor to
ARISE and Cook Homes agreed to provide certain services under the TEAM Project and a loan facility to ARISE for a
maximum of $50,000 in respect of certain Cook Homes costs of the TEAM Project. In addition, Cook Homes provided a
short term loan to ARISE in the amount of $75,000, which is recorded as a note payable in the Company's September 30,
2002 financial statements and which will be repaid from the proceeds of the Offering. See "Use of Proceeds". Pursuant to the
Cook Homes Agreement, Ian Cook was granted options to acquire 20,000 Common Shares at an exercise price of $1.25, and
was issued 100,000 Common Shares which were deposited in escrow and are subject to be released at a rate of 10,000
Common Shares per home built under the TEAM Project . In addition, 50,000 share purchase warrants were issued to Cook
Homes which warrants are exercisable until March 4, 2004 at an exercise prices of $1.25. Up to 40,000 additional Common
Shares may be issued to Cook Homes as repayment for the TEAM Project $50,000 loan facility.
Industry and Government Programs
ARISE has maintained active involvement and membership with the following committees in order to have code compliant
product ready before the standards are completed and promote solar energy in general:
•
•
•
•
•
•
•
•
The Canadian Electrical Code subcommittee for section 50.
The CSA committee that revised CSA 107.1 to include PV generation, the CSA Technical Committee on
Renewables C420, and Multiple CSA renewable energy standard-setting subcommittees.
Represent Canada on the International Energy Agency’s (IEA) Task Force 28 on Sustainable Solar Housing
(experience with Task Force 28 has confirmed to management that ARISE’s direction concerning solar homes is
consistent with best practices elsewhere in the world).
The IEC-TC82 committee representing Canada on grid-tied inverter standards.
Presenter of solar educational seminars and Board member of CanSIA.
Presentations to the Ontario Select Committee on alternative fuel sources.
Submissions to the Ontario Energy Board regarding net metering and electrical deregulation.
Consultations with various government led committees.
27
ARISE PROPRIETARY TECHNOLOGIES
ARISE engineering efforts are focused on developing proprietary products designed to meet customer needs and on
developing complete systems that are optimized, easy to install and meet real customer needs. Production of components in
higher volumes will be outsourced to specialist manufacturers, while assembly and testing of systems will be completed inhouse where value can be added. ARISE currently employs two professional engineers, a technologist, two experienced
technicians plus support staff. Current engineering efforts include advanced research, custom engineering designs, contract
research for government where it complements ARISE’s future product development and improvements to existing systems.
ARISE believes that its success will be based on getting the right balance of proprietary technology for use in its systems
while using industry standard components. Consistent with this strategy, ARISE has developed and is continuing to refine,
three core technologies which will be the backbone of its solar systems. These technologies are in the solar thermal, PV, and
power electronics areas. The Nomad product line is planned to be expanded to include applications that integrate with the
Power Manager system to provide an additional solution. These applications include water pumping, electric fencing and
telecom solutions. Engineering efforts will also focus on developing superior reliable solar energy products and further cost
reducing the Power Manager and GX5000.
Technology
Area
Solar Thermal
and PV
Proprietary Technologies and Patents
•
•
•
•
PV
•
•
Power
Electronics
•
•
•
U.S. patent #6,119,729 granted for FreezeSafeTM technology that allows water to be used as
a heat transfer fluid in a solar thermal collector and allows that water to freeze in the winter
without damaging the collector.
Solar thermal domestic hot water systems (SDHW) designed by ARISE for commercial,
residential and specialized developments such as solar car wash water pre-heating systems.
HP48000 data acquisition and control technology licensed from the Hewlett Packard
Company (HP). System control algorithms developed for the 48000 currently monitoring
and controlling the ARISE solar home, along with proprietary system control software
written by ARISE.
Internal investigation to combine solar thermal and PV into a PV/T combination system.
PV/T collectors combine into a single solar electric module to provide electricity (PV) and
solar thermal to provide low to mid-grade heat (T). This has the potential to provide
improved aesthetics and lower costs in high volumes. ARISE will explore the application
of the patented Freezesafe technology for PV/T collectors.
Research into improving PV effectiveness through better building integration technology
with potential patentable concepts. Research contract with the Canadian government to test
PV under various operating conditions.
Agreement, conditional on the closing of the Offering, to purchase two PV process patents
aimed at reducing PV costs with basic research to be conducted at the University of
Toronto with process development to be conducted at ARISE for a low cost thin film PV.
See "Corporate Development and Strategic Alliances".
U.S. patent pending Power Manager technology that provides plug and play convenience
for portable solar energy systems.
Grid-tied inverter technology based on technology licensed from Xantrex Technology Inc.
and extensively modified by ARISE for use in the ARISE GX5000.
Grid-tied inverter technology licensed from Ontario Power Generation, further
advancement of the GX5000 inverter and completion of UL certification.
Trademarks and Patented Technology
The Company has registered its "SolarSense" trademark in Canada (TMA558,170) and has applied to register it in the United
States. U.S. patent #6,119,729 was granted on September 19, 2000 for ARISE’s FreezeSafe technology that allows water to
be used as a heat transfer fluid within solar thermal collectors in a manner that allows the water to freeze. Water is a concern
in solar thermal applications in northern climates due to the effects of freezing and the potential damage caused by freezing to
the solar thermal collector. Water is preferred as a heat transfer fluid due to its superior heat transfer properties, is
environmentally benign, plentiful and inexpensive. FreezeSafe was successfully used in test installations and on a largescale demonstration site known as the ARISE Alpha One Solar Home. The FreezeSafe technology is used to heat the
domestic hot water system year round, to preheat the radiant floor heating system in winter and provide all of the in-ground
28
swimming pool heating in the summer. ARISE believes that the FreezeSafe patent has potential for use in conjunction
with PV/T (Photovoltaic Thermal) technology. A PV/T collector would be a unified panel that harvests both electricity (PV)
and thermal heat (T). Conventional practices have two distinct sole purpose collectors that are aesthetically different.
ARISE is currently researching the use of FreezeSafe with a PV/T approach although research efforts for a PV/T collector
are not expected to result in a commercial product for several years.
Under the terms of the NexxDigm Agreement (see "University of Toronto Research") the performance of which agreement is
conditional upon the Common Shares becoming listed on the TSXVN, ARISE will acquire two process patents, U.S. patent
#5,039,376 and Canadian patent # 1,341,184.
ARISE received notice on January 29, 2003 that the U.S. Patent Office has issued a Notice of Allowance related to the
Company’s Solar Power Management System patent application. This technology is an integral aspect to the ARISE Power
ManagerTM that provides for multiple DC electricity inputs, such as from multiple PV modules, to be subject to the electrical
protection of a single charge controller. The Notice of Allowance provides that upon ARISE paying the appropriate fees to
the US Patent Office, the patent for the Solar Power Management System will be issued in due course.
UNIVERSITY OF TORONTO RESEARCH
Pursuant to an agreement dated May 14, 2002 among ARISE, Nazir Kherani and Stefan Zukotynski (the "NexxDigm
Agreement"), ARISE has agreed to acquire U.S. and Canadian patents on a technology that can be used for thin film
photovoltaic production. The closing of the sale is conditional upon ARISE becoming a "reporting issuer" under the
Securities Act (Ontario) (which occurred on June 11, 2002) and the listing of the Common Shares on TSXVN. ARISE has
agreed to issue 650,000 Common Shares over a three year period, issue options to acquire up to 100,000 Common Shares at
$1.25 a share with the same terms as the Revised Plan. ARISE has also agreed to pay $27,600 as part of the consideration for
the patents (see "Commitments to Issue Securities"). On September 30, 2002 ARISE paid a deposit of $5,000 pursuant to an
addendum to the NexxDigm Agreement which extended the closing date for the asset purchase under the NexxDigm
Agreement. See "Stock Option Plan". These options become exercisable only upon achievement of certain milestones. In
addition, ARISE has agreed to pay a royalty over the next 20 years of between 0.25% - 5.0% on revenues earned from
components which rely on the patents which royalty rate is dependent upon the total amount of investment in the technology
from all sources.
Pursuant to a research collaboration agreement dated May 15, 2002 with the University of Toronto ("U of T"), Materials and
Manufacturing Ontario ("MMO"), and Stefan Zukotynski (a professor at the U of T) (the "Research Collaboration
Agreement") ARISE will contribute to ongoing research into the photovoltaic production technology. The Research
Collaboration Agreement is subject to certain milestones being met at the U of T and provides to ARISE an exclusive licence
of the intellectual property which is developed. On the closing of the NexxDigm Agreement, ARISE will grant to NexxDigm
Technologies Inc. ("NexxDigm") certain exclusive rights to the patents purchased under the NexxDigm Agreement and to the
intellectual property developed in the U of T research project for non-photovoltaic applications which grant includes royalties
payable to ARISE by NexxDigm. ARISE will support the research with an annual contribution of $250,000 per year for up
to three years toward the project's research budget, funded in part from the proceeds from this Offering as part of the
Company's R&D budget. MMO has contributed $150,000 to the first year of research, and has agreed to contribute an
additional $300,000 of funding conditional on ARISE making its contribution subject to negotiation of additional research
agreements based on successful completion of the first year of research.
In May 2002 ARISE committed to certain funding requirements pursuant to the terms of the Research Collaboration
Agreement and the NexxDigm Agreement in anticipation of completing the Offering by September 2002. The delay in
completing the Offering has resulted in ARISE failing to meet these funding obligations in accordance with the terms of the
agreements. The parties to the agreements have not made any formal demands for payment by ARISE nor have they taken
steps to terminate the agreements. On May 16, 2003, the NexxDigm Agreement was amended to provide that the closing of
the purchase of the NexxDigm assets must occur prior to July 15, 2003, in connection with this amendment, the Company
made a $5,000 advancement to the University of Toronto. Upon completion of the Offering, ARISE expects to either amend
the agreements or bring ARISE back into compliance with their terms. As part of the Research and Development budget, a
portion of the proceeds of the Offering will be used to fund ARISE’s obligations under the NexxDigm Agreement ($22,600)
and the Research Collaboration Agreement ($250,000). See "Use of Proceeds".
29
DC Saddle-Field Thin Film Process
ARISE believes that the University of Toronto DC Saddle-Field Thin Film Deposition Process has the potential to provide
customers with lower cost, higher performance and a greater range of photovoltaic products compared to products
manufactured with traditional Radio Frequency (RF) deposition technologies. Lower PV costs provides ARISE with the
option of attaining higher profit margins from sales for PV products using this technology. The main characteristics,
advantages and benefits of the DC Saddle-Field Thin Film Deposition Process compared to current industry practise are
described in the following table.
Characteristic
DC Process
Larger size of
PV cells
More
controllable
Wider
temperature
range
Wider range
of materials
Batch or
continuous
Characteristic Description
The plasma field is excited with a DC electrical source
versus a radio frequency source. This results in a more
stable plasma.
The DC process produces a more uniform plasma field
which allows for a larger area PV cell to be deposited
with a more uniform coverage.
Improved deposition parameter control will allow ion
impact energy levels to be adjusted and result in
improved micro- and nano-structures. It will also allow
new silicon alloys to be investigated to improve spectral
response and electrical conductivity. These alloys are
expected to result in improved multi-junction designer
band gap amorphous photovoltaic cells.
The process has been demonstrated to work at
temperatures as low as 150o C. This allows the use of
plastics as a substrate where light weight, roll to roll
process and low cost is required.
Due to the above mentioned characteristic, a wide range
of materials can be used resulting in similar results that
other processes get with more exotic materials. Low cost
carbon deposition investigations are intended to lead to
new robust and low cost encapsulation techniques.
The controlled process and flexible substrates should
allow manufacturing of thin films in a continuous
process on a roll. This is desirable because it should
reduce product handling, as well as speed up the
production process, compared to the usual batch process.
Advantage
• Lower capital
equipment costs
• Higher process uptime
• More scalable
Benefit
• Lower Cost
• Designer alloys
• Higher yields
• Higher efficiency PV
cells
• Tune surface
characteristics for
applications like PV/T
• Lower Cost
• Higher
performance
• Greater
range of
products
• Greater range of
materials
• Lower Cost
• Greater
range of
products
• Lower Cost
• Greater
range of
products
• Lower cost materials
used
• More environmentally
responsible materials
can be used
• Production flexibility
• Greater economies of
scale range
• Lower Cost
• Lower Cost
Combined PV and Solar Thermal Collectors
ARISE believes that the DC Saddle-Field technology may be suitable for applications that combine both PV and Solar
Thermal technologies in a single combined collector, known in the industry as PV/T collectors. This research may also lead
to deploying the ARISE FreezeSafeTM solar thermal technology with thin film photovoltaics to create PV/T collectors that
collect both heat energy and electrical energy with a combined efficiency that is greater than a single PV or solar thermal
collector.
AMALGAMATION WITH IVL
On November 16, 2002 ARISE entered into the Amalgamation Agreement with IVL. IVL is a capital pool company listed on
the TSXVN and the Amalgamation will constitute IVL’s Qualifying Transaction pursuant to the TSXVN Policy 2.4. As part
of the Qualifying Transaction, IVL and ARISE will amalgamate and the effective date of the Amalgamation will be the same
as the closing date of the Qualifying Transaction. Prior to signing the Amalgamation Agreement, ARISE and IVL had, on
August 6, 2002, executed a letter of intent relating to the proposed Amalgamation which was extended as of November 16,
2002. The Amalgamation Agreement was amended on January 3, 2003 and March 21, 2003 to extend some of the dates set
out therein. The Amalgamation Agreement has been amended to provide that the Amalgamation must take place on or prior
to June 30, 2003, or the Amalgamation Agreement will become null and void.
30
The Qualifying Transaction is complementary to the Offering and is meant to provide Amalco with additional funding upon
completion of the Amalgamation which is anticipated to close on or about June 30, 2003, plus a shareholder base that is
expected to provide increased liquidity in the trading of Amalco’s common shares. According to IVL's audited financial
statements, as of December 31, 2002, IVL had working capital of $495,565, total assets of $532,708 and total liabilities of
$12,142. As of April 30, 2003, on an unaudited basis, IVL had a cash balance of $358,454, total assets of $516,420 and total
liabilities of $608, for total net assets of $515,812. As a condition of closing the Amalgamation, IVL is required to have the
IVL Minimum Cash of $250,000. IVL has lent ARISE $175,000 which will be eliminated upon completion of the
Amalgamation. See "Financial Statements of IVL".
Qualifying Transaction
The proposed Qualifying Transaction ("QT") will be structured such that upon the QT Closing, IVL and ARISE will
amalgamate as provided for in the Canada Business Corporations Act and, subject to the satisfaction of the TSXVN
conditions for listing, be listed on the TSXVN. Amalco will be named ARISE Technologies Corporation and will be operated
by the current ARISE management. The directors of Amalco shall be the current directors of ARISE.
Exchange Ratio
The Amalgamation Agreement provides that upon completion of the Amalgamation each 4.875 common shares of IVL will
be exchanged for one (1) Amalco Common Share and one-half (1/2) of an Amalco Share Purchase Warrant. Under the terms
of the Amalgamation Agreement, each Common Share will be exchanged for one Amalco Common Share; each outstanding
ARISE share purchase warrant shall be exchanged for one Amalco Share Purchase Warrant with the same expiry date and
exercise price as the ARISE warrant and each outstanding ARISE stock option shall be exchanged for one Amalco stock
option with the same vesting schedule, exercise price, expiry date and other terms as the original ARISE stock option. The
exchange ratios above are based upon IVL being valued as a corporation at $692,308 and Common Shares being valued at
$0.75 being the offering price of the Units in this Offering. Each Amalco Share Purchase Warrant will be exercisable for
twelve (12) months from issue into one Amalco Common Share upon payment of the exercise price of $1.00. Outstanding
options to purchase 250,000 common shares of IVL will be exchanged for options to purchase Amalco Common Shares on
the applicable basis described above subject to TSXVN rules. See "Company Share Capital- Fully Diluted Share Capital".
Necessary Approvals
The parties have agreed to work together to obtain all requisite approvals and consents as may be required to complete the
proposed Qualifying Transaction. These approvals include regulatory and shareholder approvals by each of IVL and ARISE.
If such approvals are not obtained, the parties have agreed that the Amalgamation Agreement shall be of no force and effect.
IVL is in the process of submitting the required documentation to the TSXVN for the approval of the Qualifying Transaction.
Conditions Precedent
ARISE has no obligation to complete the Amalgamation unless:
(a)
IVL has obtained, on or before the QT Closing, the approval of its board of directors and the approval, by
special resolution (66 ⅔% of the votes cast), of the holders of issued and outstanding IVL shares for the
execution of the Amalgamation Agreement;
(b)
All consents, approvals, orders and authorizations of, from or notifications to any persons or governmental
authorities required in connection with the Amalgamation Agreement have been obtained on or before the
effective date of the Amalgamation;
(c)
There were no material adverse changes to the business, assets or financial condition of IVL between the
date of IVL’s audited financial statements for the year dated December 31, 2001 and the effective date of
the Amalgamation; and
(d)
IVL has delivered to ARISE on the effective date of the Amalgamation an officer's certificate (which
attaches a bank statement dated no earlier than one business day prior to the effective date) certifying that
as of the effective date the net current assets of IVL are not less than $250,000.
31
IVL has no obligation to complete the Amalgamation unless:
(a)
ARISE has completed its Offering raising funds sufficient to obtain the final approval of the TSXVN for
the listing of ARISE on Tier 2 of the TSXVN, or has raised funds which together with funds provided by
IVL will be sufficient to obtain the final approval of the TSXVN for such listing;
(b)
ARISE has obtained final approval of its listing on the TSXVN, subject only, as the case may be, to
completion of the Amalgamation;
(c)
ARISE has completed the continuation of its corporate charter from British Columbia to Canadian federal
jurisdiction;
(d)
On or before the QT Closing, ARISE shall have obtained the approval of its board of directors and the
approval, by special resolution (75 % of the votes cast) of the holders of issued and outstanding ARISE
shares, for the execution of the Amalgamation Agreement and the completion of the transactions
contemplated in that agreement, including but not limited to: (i) the continuation into the Canadian federal
jurisdiction; and (ii) the Amalgamation;
(e)
All consents, approvals, orders and authorizations of, from or notifications to any persons or governmental
authorities required in connection with the Amalgamation Agreement have been obtained on or before the
effective date of the Amalgamation; and
(f)
There were no material adverse changes to the business, assets or financial condition of ARISE between the
date of ARISE’s audited financial statements for the year dated December 31, 2001 and the effective date
of the Amalgamation.
According to Policy 2.4 of the TSXVN, the Amalgamation must also be approved by a majority of the minority shareholders
of IVL. For the purposes of determining the minority shareholders of IVL, those shareholders of IVL who are non-arm’s
length to either IVL or ARISE are not included as minority shareholders. Such persons include all directors, officers,
promoters and 10% or more shareholders in either IVL or ARISE.
Information Circular
IVL and ARISE shall prepare a joint information circular for the meetings of their respective shareholders which shall
contain full, true and plain disclosure of all material facts relating to particular matters to be acted upon by shareholders,
including the Continuance and the Amalgamation.
Due Diligence
Each of IVL and ARISE and their advisors will provide to the other and its advisors all information, books, records and
property that such party considers necessary or appropriate in connection with its due diligence review in respect of the
proposed Qualifying Transaction. Such review shall include, without limitation, legal, financial, fiscal, health and safety, tax,
technology and business conduct investigations. Each party will make available to the other such employees, managers,
consultants, advisors and others as requested for meetings and discussions concerning the proposed Qualifying Transaction.
Costs
IVL will be responsible for all expenses associated with receiving necessary IVL shareholder, regulatory and stock exchange
approvals for the Qualifying Transaction including legal, IVL printing and mailing costs relating to the Qualifying
Transaction, excepting that each party will be responsible for commissioning such professional services, and paying all
associated expenses, as are necessary to effect its responsibilities in relation to completing the transaction.
Deposit and Loan
As permitted by the TSXVN Policy 2.4, IVL provided to ARISE a deposit in the amount of $25,000 on August 10, 2002 (the
"Deposit"). The Deposit is secured by a General Security Agreement on the assets of ARISE and is fully refundable in all
circumstances. On August 22, 2002 IVL provided to ARISE a loan in the amount of $75,000 (the "Loan"). On May 16, 2003
IVL provided to ARISE an additional loan in the amount of $75,000 (the "Additional Loan"). The Loan and the Additional
Loan are non-interest bearing and is secured by a General Security Agreement on the assets of ARISE. If the Amalgamation
is not completed, the Deposit, the Loan and the Additional Loan will become due and payable on June 30, 2003.
32
Rights of Dissent
ARISE Shareholders registered as such on the Record Date (defined below) set for the purpose of the ARISE shareholders
meeting may exercise rights of dissent (i) in respect of the special resolution to continue into the jurisdiction of the Canada
Business Corporations Act pursuant to and in the manner set forth in Section 207 of the British Columbia Company Act and
(ii) in respect of the special resolution for the Amalgamation pursuant to and in the manner set forth in Section 190 of the
Canada Business Corporations Act provided that the notice of dissent is received by ARISE in accordance with the
requirements of either the Canada Business Corporations Act or the British Columbia Company Act. Shareholders who duly
exercise such rights of dissent: (a) are entitled to be paid fair value for their Common Shares and will be deemed to have had
their Common Shares cancelled on the date of the Amalgamation; or (b) if they are not entitled to be paid fair value, for any
reason, for their Common Shares will be deemed to have participated in the Amalgamation on the same basis as any nondissenting ARISE Shareholders and will ultimately receive Amalco Common Shares on the basis determined in accordance
with the Amalgamation Agreement. The management of ARISE has reserved the discretion not to proceed with the
Continuance and/or the Amalgamation if more than 1% of ARISE shareholders entitled to dissent, exercise their dissent right.
Direct Effects of the Qualifying Transaction on Prospectus Disclosure
The information relating to the Qualifying Transaction from the previous section will affect the content of the Prospectus
section entitled "Commitments to Issue Securities". Upon approval of the Qualifying Transaction by both the shareholders of
IVL and the shareholders of ARISE, Amalco will issue Amalco Common Shares and Amalco warrants in exchange for IVL
and Common Shares and warrants, according to the terms outlined in the "Exchange Ratio" section above.
Continuance of ARISE from the Jurisdiction of British Columbia to the Federal Jurisdiction (the "Continuance")
In order for the Qualifying Transaction to take place, it is necessary to execute the Continuance of ARISE as a corporation
currently incorporated in British Columbia into a corporation incorporated pursuant to the Canada Business Corporations
Act. ARISE will seek the necessary shareholder approval for the Continuance.
Shareholder Approval of the Continuance and the Qualifying Transaction
The completion of the Qualifying Transaction is contingent on both IVL and ARISE obtaining all the necessary consents and
approvals from directors and shareholders of both parties. ARISE will be seeking the shareholder approval for the
Continuance and the Qualifying Transaction at a special meeting of shareholders, called for this purpose. The ARISE
shareholders who will qualify to vote will be determined as of the record date (the "Record Date") that will be fixed by the
ARISE directors. The Record Date will be fixed according to the provisions of the Canada Business Corporations Act and
will precede the date of the closing of the Offering.
The effect of the fixing of the Record Date is that the prospective purchasers of the securities issued under the
Offering will not have the right to receive notice of the shareholders’ meeting with respect to the approval of the
Continuance and the Amalgamation.
FACILITIES
ARISE moved to its current location in June 2001. ARISE occupies all of the 10,200 square foot building located at 321
Shoemaker Street, Kitchener ON, N2E 3B3. The lease expires on May 31, 2004 with an option to renew the lease for an
additional two years and 10 months ending March 30, 2007. This facility is considered adequate for the duration of the lease
unless the Company is involved with a substantial acquisition at which point the Company may use multiple locations. The
total annual base rent for these facilities is approximately $53,000.
EMPLOYEES
As of May 27, 2003, ARISE had 11 permanent full-time employees, three permanent part-time employees and three summer
student employees. Of these 17 employees, six are employed in engineering and manufacturing, six in sales and marketing,
and five in management, corporate development, accounting and administration. During the peak summer period, the
Company utilizes summer students and contract employees as required. Permanent employees are offered a competitive
salary, stock options, a group health benefit program and a flexible work environment. It is anticipated that a group pension
plan and a new stock purchase plan will be implemented. All employees must sign a non-disclosure and trade secrecy
agreement.
33
COMPETITION
Major Companies
In the North American market, according to a major supplier to ARISE, there are approximately 1,000
dealers/installers/systems integrators/solar engineering firms. They range in size from small, part-time owner/operator
businesses to larger companies with over 100 people. With this early stage solar market, channels of distribution are still
being developed. In some cases manufacturers sell to both dealers, distributors and direct to the final customer.
Current solar energy companies world wide include:
1.
2.
3.
4.
5.
Divisions of large, multi-nationals manufacturing PV modules – Sharp, Kyocera, BP Solar, Shell, ATS/Photowatt,
Sanyo, Bekaert ECD/United Solar
"Pure play" PV module companies – Astropower, Evergreen, Pacific Solar
Specialized component manufacturers – Xantrex, SMA, Omnion, Advanced Energy, UniRac, Morningstar
Distributors – SunWize, Soltek Powersource, Kyocera, BP Solar
Systems integrators, engineering firms and installer/dealers – Solar Design Associates, Independent Energy
Solutions, Northern Lights Energy Systems, Muskoka Solar.
Canadian Competition
ARISE is unique in Canada due to its emphasis on both our system and proprietary products development. There are many
small firms that compete on a retail basis. The market for standard solar energy products, including PV panels and inverters,
is very competitive and price sensitive. Firms are beginning to introduce pre-packaged grid-tied PV systems designed by the
major PV manufacturers. Competitors can install Uni-Solar BIPV systems. SDHW has been available for many years. A
London, Ontario company, Enerworks, is developing a low cost SDHW system that ARISE expects to distribute. ARISE
believes that a rapidly growing industry will allow many competitors to succeed. ATS of Cambridge, Ontario through their
subsidiary Matrix Solar, is developing a new spheral solar PV that ARISE is considering using in its systems once the
product is available. As a new PV technology, this may compete with thin film PV technologies to be acquired and
developed through a tentative University of Toronto research agreement. The main distributors in the Canadian market in
2002 are believed to be ARISE, Generation PV, Soltek Powersource, Rayonac and Rozon Batteries.
U.S. Competition
The U.S. solar industry is more advanced than the Canadian industry due to higher energy costs and greater government
support. There are now competitive products to the Nomad 300 line of plug and play solar systems. Other companies offer
many different portable solar systems and each has their advantages and disadvantages. For a given product description,
ARISE is not aware of a competing portable system in the price range of the Nomad 1500 products. In the short term,
ARISE will focus on providing unique engineered products into the U.S. In the longer term, ARISE expects to develop a
U.S. presence through acquisitions. The industry continues to increase its investment in advancing PV technologies and
applications. A joint venture between Astropower (a PV manufacturer) and Home Depot selling residential solar energy kits
will help to advance the industry and increase homeowner awareness. ARISE believes that most residential solar kits on the
market require a high level of electrical expertise that make systems difficult to install. Several firms have government
support (mainly Department of Energy) or relationships with large companies. Many firms that focus on PV manufacturing,
such as BP Solar, Shell, Kyocera and Sharp, are extremely well financed. There are no known advanced developments of
PV/T technology.
Xantrex Technology Inc. of Burnaby, BC and SMA of Germany are the main competitors in American markets for the gridtied inverter technology. Each of these firms has greater financial resources and currently sells more products than ARISE.
Reliability of the inverter has been the historic weakness of solar energy systems. Most of the U.S. solar industry is
comprised of small dealers that retail, service and install standard solar energy products. There are many small firms that
provide SDHW systems that are similar to the ARISE SDHW system. The largest solar energy segment today in the U.S. is
for low tech and low cost pool heating systems. Pool water is pumped through the collectors, heated up and returned to the
pool. ARISE is working with a manufacturer of pool collectors and installing pool heating systems in the local market.
34
DIRECTORS AND OFFICERS
The names of the directors and senior officers of the Company, their municipalities of residence, their positions within the
Company and their principal occupations within the five preceding years are set out below.
Name and
Municipality of
Residence
Position Held in
the Company
Principal Occupation During Last Five
Years
Position
Held
Since
Harold Alexander(1)
King City, ON
Director
President of Robintide Investments Inc.
since 1980
1998(7)
Vern Heinrichs(2)(3)
London, England
Director
Businessman, professional engineer.
President, The Vace Group
2001
Hal Merwald(3)
North Vancouver,
BC
Director and
Chairman of the
Board
National Executive Director for Young
Life Canada , a charity focused on
supporting youth
1998(7)
Ian MacLellan(3)
Waterloo, ON
Director, President
and CEO
President of ARISE since 1993
1993
1,849,070(5)
Bart Tichelman(2)
Duluth, GA
Director
President, New Paradigm Partners Inc.
(Dec. 2001 to present), previously COO
Xantrex Technology Inc. (2000 to 2001).
CEO Statpower Technologies Corporation
(1996 to 1999)
2000
2,752 (6)
Alan Winter(1) (2)
West Vancouver,
BC
Director
President, WINTECK Consulting Inc.
President of COMDEV Space Group,
(1997 to 1999). President of MPR Teltech
Ltd. (1992 to 1996)
2000
13,634
Michael Ben
Waterloo, ON
SecretaryTreasurer, CFO
and Operations
Manager
Chartered Accountant, CFO of ARISE full
time since Feb 1999. Previously
Controller, Custom Trim Ltd. (1997 to
1999). CFO, Manufacturing Division of
Howden Fans (1995 to 1997)
1997
399,199
Patrick Cusack
Plattsville, ON
Vice-President,
Engineering
P. Eng. Engineering Manager of ARISE
since Oct 1998. Director Engineering,
Fasco Motors (1994 to 1998)
1998
208,739
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Ownership
or Control
over Voting
Securities
25,862
0(4)
456,428
Member of the Audit Committee.
Member of the Compensation Committee.
Member of the Corporate Governance Committee
Vern Heinrichs is nominated by DeVijver B.V. which owns 750,675 Common Shares
These shares are owned by Ian MacLellan and MacLellan Management Ltd. Pursuant to an agreement between Ian MacLellan and certain other ARISE
shareholders, Mr MacLellan has agreed to transfer up to 80,000 Common Shares to such shareholders upon certain conditions being satisfied.
Bart Tichelman was originally nominated by Xantrex Technology Inc. which owns 300,000 Common Shares. Xantrex no longer has any right to
nominate a director of the Board.
Harold Alexander and Hal Merwald were Directors of the Company from Sept. 21, 1994 to Nov. 30, 1995 and they rejoined the Board on May 29,
1998.
35
OFFICERS
Ian MacLellan, President and CEO (46), Ian has 26 years experience in sales, engineering, venture capital, acquisitions
and the running of a public company, Pachena Industries Ltd. Ian is a leading solar expert with seven years in the industry.
He graduated from Ryerson Polytechnical University as an Electrical Engineering Technologist. He spent a year with
Motorola as a Technologist and then starting in 1981, he spent seven years with Hewlett Packard in several sales positions
including the Bell Northern Research Account Manager. In 1988 he joined Oracle as a District Manager. In late 1989 he
founded Creation Venture Capital (VCC) Corporation ("Creation VC"). Over the next six years, Creation VC and related
companies (which included CVHI/ARISE) invested in several companies including Pachena Industries Ltd. These
investments provided all the shareholders with a positive return on their investment. He sold his interest in 1995 to partners.
In 1996, he consulted for Solar Design Associates ("SDA") and a related company, Advanced Energy Systems ("AES")
where he became the Chairman of the Board of AES. In 1997, after completing his work with SDA and AES, he changed
CVHI’s name to ARISE and focused on solar energy. Ian is a full time employee of the company and is a party to a
confidentiality agreement with the Company.
Michael Ben, CFO, Secretary-Treasurer, Operations Manager (43), Michael has 21 years experience in public
accounting, multinational financial control, turnarounds and operations management. Michael graduated from the University
of Toronto in 1982 with a B.Comm. Earning his Chartered Accountant designation in 1984, he did his early auditing work at
Price Waterhouse (now PricewaterhouseCoopers) and Clarkson Gordon (now Ernst & Young). Hired by Electrohome
Limited of Kitchener in 1986, he had increasing levels of responsibility over eight years under changing corporate ownership,
first with Hawker Siddeley (as Fasco Motors Limited) and then with BTR (now Invensys). From 1995-1997, Michael was
CFO of the Manufacturing Division of Howden Fan Limited. In 1997 Michael joined the automotive firm Custom Trim Ltd.
as Controller. In February 1999, Michael joined ARISE as a full time employee, having consulted to the Company since
1996 and is a party to a confidentiality agreement with the Company.
Patrick Cusack, Vice-President, Engineering (39), Pat is a Professional Engineer with 14 years of engineering and
management experience with General Electric, BTR (now Invensys) and ARISE. Prior to joining ARISE as a full time
employee in October 1998, he was Director of Engineering at automotive parts supplier Fasco DC Motors (a subsidiary of
Invensys PLC) located in Michigan and Ontario. He graduated with a M.Sc. Electrical Engineering from Queen’s University
in 1990. He completed the Edison Engineering and Advanced Course in Engineering programs at GE. He worked at GE
Motors in Peterborough and GE Power Systems in Schednectady, NY before joining Fasco in Cambridge, ON in 1994 and is
a party to a confidentiality agreement with the Company.
Proposed Officer
Brad Ball (42), ARISE has entered into an agreement with Brad Ball pursuant to which he agreed to become Vice-President
– Marketing of ARISE upon completion of the Maximum Offering, Brad is currently a consultant to the Company. Brad has
over 16 years of global experience in senior marketing, sales and service positions with Hewlett-Packard, BICC plc, Gemini
Networks, Kraft Foods and high-tech start-ups. In 1999, he co-founded IntellectMarket, Inc. of Santa Rosa, California, a
venture capital and angel backed collaborative software development company, which was acquired by San Francisco based
CollabNet in December 2001. Brad recently returned to Canada after five years in Silicon Valley. He has presented at
numerous marketing and technology conferences, as well as written articles on customer relationship management and
database marketing for various publications. He obtained his MBA from McMaster University and holds and undergraduate
degree in Marketing from the University of Manitoba.
BOARD OF DIRECTORS
ARISE currently has a Board of Directors comprised of six directors. The shareholders authorized the Board of Directors to
add one more director as it sees fit. The President is the only Officer or employee of the Company represented on the Board.
A director position has been left available in the event a significant new investor desires a Board seat. Each director holds
office until the next annual meeting of shareholders or until his successor is elected or appointed, whichever is sooner, unless
his office is vacated.
Harold Alexander (76), is a businessman and Chartered Accountant. After leaving public accounting he was chief
management executive for The Muttart group of companies, a conglomerate in manufacturing, distribution, construction and
finance. Since 1965 he has pursued entrepreneurial interests in distribution, construction, marketing and finance as a principal
in Konvey Construction Company Ltd., Robintide Investments Ltd., Arquin Systems Ltd., and various real estate projects.
36
He was a director of Pachena Industries Ltd. when CVHI/ARISE was the controlling shareholder (1993-1995). He graduated
from University of Toronto with a B.A.
Vern Heinrichs (69), is a businessman and a professional Engineer. Upon graduating from the University of Toronto with a
B.Sc. and MBA, he worked for Shell Oil’s economics department for 5 years. He then joined a leading mortgage consulting
and brokerage firm, and after 5 years left to join one of his clients, the Toronto based developer Orlando Realty Corporation
as Executive Vice President. Since 1973 he has worked internationally. In Denver, Colorado he, together with partners,
undertook the development of several residential and business parks including the Denver Tech Center. Mr. Heinrichs
moved to London, England in 1991 and has been on corporate boards of eight technology based companies in Canada, USA,
England, Holland and Switzerland. These companies include Specialty Technical Publishers, Intelex, Ingenuity Works, and
Intertrans Logistics Solutions.
Ian MacLellan (46), President & CEO of ARISE is also a director of the Company.
Hal Merwald (68), Chairman, was the Chairman of the Board of Pachena Industries Ltd. (1994-1995) when CVHI/ARISE
was the controlling shareholder (1993-1995). Mr. Merwald is the national Executive Director of Young Life Canada and has
been involved with various executive leadership positions with that organization since 1963. He has served as the CEO of
Young Life in Brazil, United States and Canada. Mr. Merwald’s experience internationally, leadership development skills
and mentorship skills have made an important contribution to the leadership of the ARISE Board. He has a B.A. from
Wheaton College and M.Div. from Wheaton Graduate School.
Bart Tichelman (47), is President of New-Paradigm Partners Inc., an investment firm that specializes in corporate turnaround
situations. Previously, he was COO of Xantrex Technology Inc., and prior to its acquisition by Xantrex, was President &
CEO of Statpower Technologies Corporation. He was also with Cott Corporation (President, Eastern U.S.), Unitel
Communication (various positions, last being VP and GM General Business Market) and IBM Canada (various positions, last
being Branch Manager). Bart has a B.Sc (Chemistry) from the University of British Columbia.
Alan Winter (55), is President of WINTECK Consulting Inc., a management consulting company in Vancouver. He was
President of COMDEV Space Group, and was President and CEO of MPR Teltech Ltd. He is a director of several
technology companies in Canada. He holds a Ph.D. in electrical engineering from Queen’s University, Kingston, Ontario.
APPOINTMENT OF BRIAN SMITH TO THE BOARD OF DIRECTORS OF ARISE
The Board of Directors of ARISE (the "Board") has appointed Brian R.D. Smith to the Board and Mr. Smith has consented to
such appointment which will be effective as of the completion of the Offering. The Company will also nominate Brian R.D.
Smith for election as a director of ARISE at the next annual or special shareholder's meeting of ARISE.
Brian R.D. Smith, Q.C., (68) Brian has extensive experience in private industry and in public service. Brian worked in
private law practice from 1961 to 1979 and from 1988 to 1989. After serving in various municipal elected offices, he became
a member of the Legislature of British Columbia from 1979 to 1989. During that time, he served as Minister of Education
and Minister of Energy & Mines. He was Attorney General of British Columbia from 1983 to 1988. Brian founded the first
Canadian Commercial Arbitration Centre in Vancouver in 1986. Through the 1980s, Brian was a representative of the
Government of British Columbia in most of the First Ministers’ meetings involving constitutional and aboriginal issues.
Brian served as full-time Executive Chair of Canadian National Railways from 1989 to 1994. He helped prepare the railway
for privatization, which occurred in 1995. In 1996, Brian was appointed Chair of BC Hydro and served in that position for
six years. He is the past Chair of Tennis Canada and he serves on the Royal Winnipeg Ballet National Advisory Committee.
He has served on the boards of several U.S. private companies. He currently serves on the board of the TSX company
Ontario Energy Savings Corp. Brian joined Gowling Lafleur Henderson LLP's Toronto office on November 1, 2001.
37
ADVISORY COUNCIL
ARISE has recently established a formal Advisory Council to provide the Company with advice on the latest trends and
issues in the solar energy industry, home building industry, academia, and the broader energy industry. This group will
individually and collectively provide advice and are compensated with stock options. Each member of the Advisory Council
has entered into an agreement to provide consulting services to the Company as an Advisory Council member. In some
cases, the company will enter into specific consulting contracts when more in-depth involvement of a council member is
required.
ADVISORY COUNCIL MEMBERS
Ian Cook, Ian is the founder and President of Cook Homes Limited. The company has constructed numerous housing units
across a broad range of housing types, from small starter homes to large custom executive dwellings, and has been involved
in commercial property development and residential land development. In 1992, Ian was the President and driving force of
the Waterloo Green Home, one of the Advanced House projects assisted by CANMET. ARISE believes that the Green
Home was one of the most successful Advanced Houses completed, with a strong partnership between both private and
public sector stakeholders. In 1994, Ian acted as the project developer for Canada’s first C-2000 office project. Ian's past
acknowledgements include Kitchener-Waterloo Home Builders Association Builder of the Year, C.H.B.A. William McCance
Technical Achievement Award, K-W Chamber of Commerce Outstanding Environmental Business Award, Region of
Waterloo Environmental Achievement Award, and the Recycling Council of Ontario Outstanding Business Award.
Timothy Egan, Timothy is the President of the High Park Advocacy Group Incorporated, a Toronto-based consulting firm
focusing on energy, environment and human rights issues. He is a graduate of the University of Ottawa (BA), and McGill
University (Common and Civil Law Degrees). He has worked for municipal, provincial, and federal governments on
environmental issues, and for a range of corporate clients on energy and environmental matters. Through his firm he works
particularly closely with the Canadian electricity industry, and represents the industry on issues before the Government of
Canada and in the United States. He is a former Board Member of the Solar Energy Society of Canada, and has been an
ARISE shareholder since 2000.
Douglas P. Lorriman, Doug is a professional architect with significant experience in business and in the solar industry. In
1985 he helped to found Solarchem Environmental Systems. From 1988 to 1996, Doug was the operating agent for the
Advanced Active Solar Systems Task Force of the Solar Heating and Cooling Programme of the International Energy
Agency (IEA). He served as a director of the Solar Energy Society of Canada (SESCI) for twenty years, including two terms
as President. For nine years he was a director of the International Solar Energy Society (ISES) including a term as President.
Doug has been a director of the Energy Council of Canada and the Ontario Chapter of the Canadian Environmental Industries
Association. He has served on a number of solar related committees of the Canadian Standards Association and chaired one
of them. Since the sale of Solarchem in 1996, Doug has been involved in a number of small businesses, most recently
through an association with Arete Corporation, a Washington D.C. based venture capital organization. In this capacity, he
has monitored nine of Arete’s investee companies sitting on or as an observer of the boards of five of those companies. Most
of the companies are in energy related fields.
Nazir P. Kherani, Nazir has 16 years of industrial experience in research and development, innovation, engineering and
project management. He graduated from the University of Toronto with a B.A.Sc.(Hon.) in Engineering Science in 1982 and
a M.A.Sc. in Nuclear Reactor Physics in 1983. While maintaining his R&D responsibilities at Ontario Hydro Research
Division (later OHT), Nazir pursued his Ph.D. in Solid State Physics at the University of Toronto from 1990-1993. During
this time and in collaboration with Stefan Zukotynski he pursued interests in thin film hydrogenated amorphous
semiconductors, complementing his research in hydrogen-material interactions and energy systems. Since 1994, he has been
a member of the Department of Electrical and Computer Engineering at the University of Toronto. Nazir has over 40
publications and 4 patents. He will be an associate professor at the University of Toronto commencing July 1, 2002. Nazir
co-founded NexxDigm Technologies in 2000. He has been a Professional Engineer since 1984. In connection with the sale
of patents discussed under " University of Toronto Research", Nazir has become a consultant to ARISE.
Brian R.D. Smith, Q.C., Brian is currently an advisor. See "Appointment of Brian Smith to the Board of ARISE".
Steven Strong, Steven is regarded as the pre-eminent authority on integration of renewable energy systems in buildings in
North America. Drawing on his background in architecture and engineering, he has earned a reputation for pioneering
integration of renewable energy systems - especially solar electricity - with environmentally responsive building design. In
38
1984, working with New England Electric, he completed the world's first PV-powered neighbourhood in central
Massachusetts. In 1996, he worked with Olympic village architects in Atlanta to power the Natatorium Complex at the 1996
Summer Games with solar electricity using the world's largest roof-top PV power system. His firm consults to architects in
the integration of solar electricity, and to industry leaders on product development for building integration. Steven is the US
Representative to the International Energy Agency's expert working group on PV in buildings. Articles about him and his
work have appeared in over 100 publications. In the spring of 1999, TIME magazine named Steven an environmental "Hero
for the Planet." In the spring of 2001, the American Solar Energy Society presented him with its Charles Greeley Abbot
Award - the Society's highest honour, for outstanding achievement in the advancement of solar energy.
Stefan Zukotynski, Stefan has over 33 years of experience in research and development, innovation, engineering, teaching
and small company management and manufacturing. He graduated from the University of Warsaw with a B.Sc. in physics in
1961 and a Ph.D. in physics in 1966. He was an NRC Postdoctoral Fellow in the Department of Physics at the University of
Alberta from 1966 to 1968. In 1968, Stefan joined the Department of Electrical and Computer Engineering at the University
of Toronto to pursue his research interests in semiconductor device physics. He has worked in the field of amorphous silicon
based solar cells since 1980. Stefan has 120 publications and 5 patents. Stefan co-founded and is the President and CEO of
Torion Plasma Corporation (1988), which manufactures electronic instrumentation, and Zumo Software Inc. (2001), which
provides course management software. He has been a Professional Engineer since 1973. In connection with the sale of
patents discussed under " University of Toronto Research", Stefan has become a consultant to ARISE.
Addition to Advisory Council
On October 31, 2002, all the IVL directors agreed to join the ARISE Advisory Council. The following are the current
directors of IVL.
Paul W. Cooper, is a Corporate Finance Associate with Dominick & Dominick Securities Inc. and President, CEO and a
Director of IVL. He was previously Vice President of Intercedent Limited, and a Manager in the corporate finance
department of the Schroder Investment Bank based in Hong Kong and Shanghai. Mr. Cooper is called to the bar in the
Province of Ontario.
John Gruetzner, is Executive Vice President, Chief Operating Officer and Director of Intercedent Limited and a Director of
IVL. He is Chairman of Paige Innovations, a Director of Intercedent Asia (Pte.) Limited, Intercedent International Limited,
Sino Financial Data Limited and the North American-Mongolian Business Council. He was formerly Manager of the
Canada-China Business Council.
Dr. John S. MacDonald O.C., is the co-founder and a former CEO and Chairman of MacDonald Dettwiler & Associates Ltd.
("MDA"). MDA is a profitable TSX listed company with sales of $540M over the last 12 months. He is currently Chairman
and CEO of Day4 Energy Incorporated, Chairman of the Institute for Pacific Ocean Science and Technology, a consultant to
businesses and a Director of IVL. He is also a member of several Advisory Councils at the University of British Columbia,
as well as a member of the National Satellite Land Remote Sensing Data Archive Advisory Committee for the United States
Department of the Interior. Dr. MacDonald currently serves as a director of First Step Ventures Corporation, Norsat
International Inc., ST Systems Inc., Ucounsel Corporation and Analytical Spectral Devices Inc.
Dr. William G. Saywell C.M, is Vice Chairman of Intercedent Limited and Chairman of IVL. Dr. Saywell was President and
Chief Executive Officer of the Asia Pacific Foundation of Canada and a director of Spar Aerospace Limited and Westcoast
Energy Inc. He was also President and Vice Chancellor of Simon Fraser University. Dr. Saywell serves as director of
several public and private companies including Western Garnet International Ltd. and the Bank of Tokyo-Mitsubishi
(Canada).
39
EXECUTIVE COMPENSATION
Pursuant to the regulations made under the Securities Act (Ontario), a "Named Executive Officer" of a corporation means the
chief executive officer, or the "CEO" of a corporation (or an individual acting in a similar capacity) regardless of the
compensation paid to the CEO and the four most highly compensated executive officers of a corporation, provided that the
total annual compensation paid to each officer other than the CEO (including salary and bonus) exceeds $100,000. A
summary of the compensation paid to each Named Executive Officers, during the fiscal year ended December 31, 2002, the
seven months of the fiscal year ended December 31, 2001 and fiscal years ended May 31, 2001 and May 31, 2000 is set forth
below.
Summary Compensation Table
Annual Compensation
Name and
Principal Position
Ian MacLellan,
President and
CEO
Patrick Cusack,
Vice President,
Engineering
Michael Ben,
CFO, Operations
Manager
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Fiscal
Year
Ending
May 31
2002 (6)
2001(2)
2001
2000
2002 (6)
2001(2)
2001
2000(3)
2002 (6)
2001(2)
2001
2000(4)
Bonus
($) (5)
Salary
($)
Cash
78,001
60,667
80,000
80,000
114,600
72,917
125,000
85,333
102,000
59,500
75,000
35,965
Shares(1)
8,666
15,167
50,000
50,000
0
0
0
29,667
0
0
32,000
54,035
Other Annual
Compensation
($) (7)
Total
86,667
75,834
130,000
130,000
114,600
72,917
125,000
115,000
102,000
59,500
102,000
95,000
Long-Term Compensation
Awards
Payouts
-
43,333
10,400
-
Securities Under
Options Granted (#)
Restricted Shares or
Restricted Share
Units ($)
25,000
65,000
4,000
46,000
13,800
38,000
-
LTIP
Pay
outs
($)
-
All
Other
Compensation
($)
-
Equivalent value of Common Shares earned. Shares were issued based on equivalent share values each year as approved by the Board of Directors.
Equivalent Common Share prices (by year) were 1999-$0.50, 2000-$0.85, 2001-$0.85, 2001-7 month-$1.06. To encourage employees to participate in
the shares for services program, employees are provided a 15% discount to the cash offering price.
Fiscal year ended December 31, 2001, a seven month period.
Pat Cusack joined ARISE on October 8, 1998.
Michael Ben worked part time for ARISE from December 1996 to February 22, 1999 when he became employed full time.
The Company intends to establish an executive bonus plan tied to meeting specific company goals for the fiscal year ending December 31, 2003.
Fiscal year ended December 31, 2002.
Other Annual Compensation reflects deferred salary, repayable from the proceeds of the Offering and subject to payment of an additional amount equal
to 10% of the deferred salary plus 2% interest per each month outstanding as consideration for the deferral. See "Use of Proceeds". The 10% payment
and interest is not included in "Other Annual Compensation".
No stock options were granted to any of the Named Executive Officers during the fiscal period ended December 31, 2002 or
prior to the date of this prospectus. The following table sets forth information concerning the exercise of options during the
financial year ended December 31, 2002 by each of the Named Executive Officers and the financial year end value of
unexercised options and SARs, on an aggregate basis.
Aggregated Option/SAR Exercises during the Financial Period
Ended December 31, 2002 and Financial Year-End Option/SAR Values
Name
Ian MacLellan
Patrick Cusack
Michael Ben
(1)
Securities,
Acquired
on Exercise
(#)
Nil
Nil
Nil
Aggregate
Value
Realized ($)
Nil
Nil
Nil
Unexercised Options/SARs
at FY-End
(#)
Exercisable Unexercisable
49,000
41,000
29,200
20,800
28,720
23,080
Value of Unexercised
in-the-Money Options/SARs at
FY-end(1)
Exercisable
Unexercisable
$0
$0
$0
$0
$0
$0
The value of options is based on the price of the Units offered hereunder (ascribing all of the price of the Offering to the Common Share component of the
Offering), less the exercise price. All options outstanding at December 31, 2002 have an exercise price of at least $1.00 per Common Share.
40
COMPENSATION OF DIRECTORS
During the 12 month period ended December 31, 2002, each director of ARISE received accrued compensation in the form of
$5,000 cash (except for the Chair of the Board of Directors, Hal Merwald, who received $10,000) for their services in their
capacity as directors from the period of January 1, 2002 to December 31, 2002. The directors of ARISE are entitled to be
reimbursed for out-of-pocket expenses for attendance to company business. An aggregate of $801 was paid to directors in
respect of such out-of-pocket expenses during the fiscal year ended December 31, 2002.
During the 12 month period ended December 31, 2001, each director of the Company received compensation in the form of
8,634 Common Shares (except for the Chair of the Board of Directors, Hal Merwald, who received 17,268 Common Shares)
for their services in their capacity as directors from the period of June 1, 2000 to December 31, 2001. Bart Tichelman did not
receive any compensation up to November 30, 2001 as he represented Xantrex Technology Inc. on the Board. With his
departure from Xantrex, Mr. Tichelman will continue on the Board but will receive the standard director fees and options.
The directors of the Company are entitled to be reimbursed for out-of-pocket expenses for attendance to company business.
An aggregate of $1,137 was paid to directors in respect of such out-of-pocket expenses during the fiscal year ended
December 31, 2001.
STOCK OPTION PLAN
The Company maintains a stock option plan, or the Plan, the purpose of which is to provide eligible officers, directors,
employees of, or any other person, advisor, firm or corporation engaged in management or consulting services for, the
Company or any of its subsidiaries, or, collectively, the Participants, to acquire shares of the Company. On June 5, 2002 the
Board of Directors approved a 2002 Amended and Restated Stock Option Plan (the "Revised Plan") which corresponds to the
requirements of the TSXVN. Pursuant to the Revised Plan, the Board of Directors is authorized, in its sole discretion, to
grant options, (or "Options"), to acquire Common Shares of the Company to the Participants at such price as may be
determined by the Board of Directors which shall not be less than the last closing price of the Common Shares on the
TSXVN on the trading day immediately preceding the grant, less up to the maximum discount permitted by the TSXVN.
The Revised Plan provides that the aggregate number of Common Shares issuable upon the exercise of Options may not
exceed the number of Common Shares which is equal to 10% of the Common Shares which will be outstanding upon final
closing of the Offering and the aggregate number of Common Shares reserved for issuance under an Option and any other
option arrangement at any time to any one individual must not exceed 5% of the Common Shares issued and outstanding (on
a non-diluted basis). In the event that greater than 50% of the issued and outstanding Common Shares are acquired by a
person other than Ian MacLellan or an affiliate of Ian MacLellan, all outstanding Options which are not otherwise exercisable
become immediately exercisable.
Options granted under the Revised Plan are non-assignable and are exercisable for a term not exceeding five years. The
Revised Plan limits the number of Common Shares granted to each consultant and persons employed in investor relations
activities on behalf of the Company to 2% of the outstanding Common Shares at the time of the grant. Under the Revised
Plan, if an optionee ceases to be a director, officer or employee for any reason other than death, his options shall terminate 90
days after such cessation. The Revised Plan specifies that the options granted under the plan shall vest over a period of not
less than 18 months and in equal quarterly instalments. In addition, all options granted under the Revised Plan and all
Common Shares issued on the exercise of such options will be subject to a four-month TSXVN hold period from the date the
options are granted. Upon completion of the Amalgamation, the Revised Plan will become the Amalco stock option plan.
41
As of April 30, 2003, options under the Revised Plan to purchase up to 774,170 Common Shares were outstanding, as set
forth below.
Options Granted
Date of Grant
(yyyy/mm/dd)
Expiry Date(1)
(yyyy/mm/dd)
Number
of
Common
Shares
Under
Option
Exercise
Price Per
Common
Share
Market
Value of
Common
Shares on
Date of
Grant
Vesting Dates of
Outstanding
Options
(yyyy to yyyy)
(a) Current Executive Officers
(3 persons)
2000/06/01
2010/05/31
42,800
$1.00
$1.00
2001 to 2005
(3 persons)
2009/05/31
149,000
$1.00
$1.00
2000 to 2005
70,000
$1.25
$1.25
2002
1999/06/01
(b) Directors who are not listed under (a), as a group
(1 person)
2002/10/25
2012/10/24
(6 persons)
2002/05/15
2012/05/14
128,000
$1.25
$1.00
2002
(1 person)
2001/12/01
2011/11/30
16,000
$1.25
$1.25
2001
(1 person)
2001/10/10
2011/10/09
16,000
$1.25
$1.25
2001
(3 persons)
2000/11/22
2010/11/22
65,000
$1.00
$1.00
2000
(c) All other current and past employees who are not listed under (a) or (b), as a group
(1 person)
2002/11/29
2012/11/28
20,000
$1.25
$1.00
2002
(4 persons)
2002/10/25
2012/10/24
80,000
$1.25
$1.00
2002
(6 persons)
2002/05/15
2011/12/31
96,920
$1.25
$1.00
2002 to 2006
(4 persons)
2002/01/01
2011/12/31
17,440
$1.25
$1.25
2002 to 2006
(4 persons)
2001/06/01
2011/05/31
16,600
$1.25
$1.25
2002 to 2006
(4 persons)
2000/06/01
2010/05/31
8,210
$1.00
$1.00
2001 to 2005
(1 person)
2000/11/22
2010/11/22
20,000
$1.00
$1.00
2000 to 2005
(4 persons)
1999/06/01
2009/05/31
28,200
$1.00
$1.00
2000 to 2005
Total
(1)
(2)
774,170
Pursuant to the requirements of the TSXVN, the outstanding option agreements of each option holder have been amended or as a condition to the
listing of Common Shares on the TSXVN will be amended to amend the expiration date to the longer of the current expiration date and the
maximum expiration date permitted by the TSXVN. For TSXVN Tier II companies the maximum expiration date is currently 5 years from
issuance.
Pursuant to the Amalgamation Agreement each option to acquire Common Shares shall, upon completion of the Amalgamation will become an
option to acquire the same number of Amalco Common Shares.
CONSOLIDATED CAPITALIZATION
As at the date of this Prospectus, no material changes have been made to the share and loan capital of ARISE, since
December 31, 2002, the date of the comparative financial statements for its most recently completed fiscal year contained in
this prospectus except for (i) the issuance of the loan from IVL on May 16, 2003 in the amount of $75,000, see
"Amalgamation With IVL – Deposit and Loan" and (ii) the Company has obtained a $75,000 bank line of credit as of May
13, 2003.
DESCRIPTION OF SHARE CAPITAL
The Company is authorized to issue up to 100,000,000 common chares ("Common Shares") of which 7,094,907 shares are
issued and outstanding as of May 27, 2003. Each Common Share carries one vote at all general meetings of the Company
whether extraordinary or ordinary, participates in any dividends declared by the Directors of the Company and carries the
42
right to receive a proportionate share of the Company’s assets available for distribution to the holders of Common Shares
upon liquidation, dissolution or winding up of the Company. The Common Shares carry no special liquidation, pre-emptive
or conversion rights.
On February 14, 2002 the Company amended its memorandum to cancel all but one share of each of its class B voting
Common Shares, Class C non-voting Common Shares, Class D non-voting Common Shares and Class E redeemable and
retractable voting preferred shares. On July 5, 2002, the Company amended its articles to eliminate all classes of shares
except the Common Shares.
Under applicable securities laws, Common Shares issued and outstanding prior to the date of the (final) prospectus may not
be sold or otherwise disposed of for value, except pursuant to certain discretionary or statutory exemptions available in
specific limited circumstances, until the Company has been a reporting issuer for at least 12 months. The Company became a
reporting issuer on June 11, 2002.
See "Amalgamation with IVL" with respect to the impact on the authorized and issued capital of the proposed Continuance
and Amalgamation.
Prior Sales of ARISE
In the past 12 months, ARISE has issued an aggregate of 445,463 Common Shares, the particulars of which are set out in the following
table:
Type of Transaction
Cash Investment
Exercise of Special Warrants
Shares for services
Shares for services
Shares for services
Shares for services
Total
Date of Issuance
November, 2002
June, 2002
May, 2002
May, 2002
May, 2002
May, 2002
Number of
Common
Shares
23,335
280,000
3,895
112,498
8,569
17,166
445,463
Price Per
Share
$1.25(1)
1.00
0.85
1.25
1.06
1.00
Cash
Consideration
Service
$ 29,169
nil (2)
$
$ 29,169
3,310
140,624
9,082
17,166
$170,182
(1)
Pursuant to the terms of these investments, in the event that the offering price for Units in the Offering was less than the acquisition cost paid by the
investor ARISE agreed to issue to the investors additional ARISE Common Shares for nominal consideration such that the acquisition cost per
Common Share paid by the investors would equal the Offering price less $0.25. As of March 31, 2003, to reflect the Offering Price of $0.75, ARISE
will be issuing an additional 23,335 ARISE Common Shares in the future.
(2)
No additional consideration was paid on the exercise of the Special Warrants. The Special Warrants were issued on June 3, 2002 at a price of $1.00 per
Special Warrant for gross proceeds of $280,000. See "Special Warrants".
Special Warrants
On June 3, 2002, ARISE issued to institutional investors and other qualified purchasers, 280,000 special warrants ("Special
Warrants"), each at a price of $1.00 per Special Warrant. The Special Warrants were issued under prospectus exemptions
contained in the applicable securities legislation. All of the Special Warrants were exercised on June 18, 2002 into one
Common Share and one underlying share purchase warrant per Special Warrant. Each underlying share purchase warrant
entitles the holder thereof to purchase one Common Share (an "Underlying Share") at a price of $1.25 if exercised prior to
4:00 p.m. (Toronto time) on the earlier of (i) the date which is 24 months from the date of the listing of the Underlying Shares
on the TSXVN and (ii) December 3, 2004. The net proceeds to ARISE from the sale of the Special Warrants, after deducting
Roche Securities Limited’s fee and the other expenses, were approximately $235,000. ARISE applied the net proceeds as
follows, approximately $100,000 was used for sales and marketing initiatives, approximately $75,000 for general
administration expenses, approximately $25,000 on research and development and the remainder of the net proceeds for
general working capital.
Under the Special Warrant Agency Agreement Roche Securities Limited acted as the exclusive agent of the Company in
respect of the sale of 280,000 Special Warrants for gross proceeds of $280,000 and was paid an aggregate fee of $25,683 and
received 25,683 non-transferable Special Warrant broker's warrants, exercisable to acquire, at no additional cost, 25,683 nontransferable warrants (the "Previous Agent Warrants"). Each Previous Agent's Warrant is exercisable upon payment of $1.00
per Previous Agent's Warrant until June 3, 2004, each entitling the holder to acquire one Common Share and one share
purchase warrant per Previous Agent's Warrant.
43
Outstanding Warrants
As of April 30, 2003, there were outstanding warrants to purchase an aggregate of 827,366 Common Shares. The following
table sets out all such outstanding warrants:
Date of Issue
November 25, 2002
November 25,2002
November 15, 2002
November 8, 2002
June 18, 2002
May 15, 2002
May 15, 2002
May 15, 2002
April 26, 2002
February 1, 2002
October 19, 2001
Total
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Exercise Price per
Warrant
$0.75
$1.25
$1.00
$1.00
$1.00
$1.25
$1.25
$1.25
$1.25
$0.75
$0.75
Date of Expiry
(1)
May 25, 2004
(3)
(5)
(4)
March 4, 2004
(2)
(7)
April 26, 2005
(1)
(1)
Number of Common
Shares Issuable
55,000
50,000
75,000
1,000
331,366
50,000
40,000
40,000
20,000
40,000
125,000
827,366
Danehill Trading Limited extended ARISE a line of credit facility of up to $165,000 and was granted conversion rights on the outstanding line of
credit balance at the lesser of $1.25 per share and the price for Units in the Offering. These conversion rights expire when the line of credit is paid
in full. The line of credit extends to October 2007. As at February 1, 2002, there was $165,000 outstanding on the line.
At the option of the warrant holder, these warrants are for a term of 30 or 48 months from March 4, 2002.
On November 15, 2002, ARISE entered into a Convertible Loan Agreement with Colmac Power Inc. ("Colmac") whereby Colmac loaned ARISE
$150,000 (the "Colmac Loan") which Convertible Loan Agreement was amended on May 16, 2003. Pursuant to this agreement, Colmac received
75,000 share purchase warrants (the "Colmac Warrants") where each warrant carries the right to purchase one (1) Common Share and is exercisable
before the earlier of (i) the date which is the second anniversary of the Initial Closing of the Offering and (ii) November 15, 2005, at a price of $1.00
(CAD) per Common Share. Colmac has the right to convert the amount owed under the Colmac Loan into Units at a conversion price of $0.75 per
Unit up until the Initial Closing.
Share purchase warrants issued in the ARISE Special Warrant Offering and the Previous Agent Warrants. Each warrant entitles the holder thereof to
purchase one ARISE Common Share at a price of $1.25 if exercised prior to 4:00 p.m. (Toronto time) on the earlier of (i) the date which is 24
months from the date of the listing of the underlying shares on the TSXVN and (ii) December 3, 2004.
Earlier of November 8, 2004 and the first anniversary of the closing of the Offering.
IVL shareholders will be issued share purchase warrants pursuant to the Amalgamation Agreement. See “Commitments to Issue Securities”. Each
option to acquire Common Shares shall, upon completion of the Amalgamation, become an option to acquire the same number of Amalco Common
Shares.
Three months from the date of hire of the grantee.
Colmac Loan
On November 15, 2002, ARISE entered into a Convertible Loan Agreement with Colmac Power Inc. ("Colmac") whereby
Colmac loaned ARISE $150,000 (the "Colmac Loan") which Convertible Loan Agreement was amended on May 16, 2003.
The Colmac Loan (as amended) is repayable on the earlier of the day following the date on which ARISE receives the net
proceeds of the Offering and September 15, 2003. On maturity of the Colmac Loan ARISE is obligated to pay Colmac the
principal amount of the Colmac Loan plus a bonus amount of $15,000. Interest on the Colmac Loan accrues monthly at a
rate of 1.00% per month. The Colmac Loan is convertible into Units of the Offering on a dollar for dollar basis at the
Offering Price at the election of Colmac. Colmac received 75,000 share purchase warrants exercisable at $1.00 per share
before the earlier of the second anniversary of the Initial Closing Date and November 15, 2005.
COMMITMENTS TO ISSUE SECURITIES
Pursuant to the terms of the NexxDigm Agreement (see "University of Toronto Research"), ARISE has agreed to issue
200,000 Common Shares to the vendors of the assets purchased pursuant to the NexxDigm Agreement. In addition, the
Company has agreed to issue an additional 450,000 Common Shares, over the next three years, subject to certain
adjustments. Also, upon closing, the Company will issue options to Nazir Kherani and Stefan Zukotynski to acquire up to
100,000 Common Shares, which vest upon completion of certain milestones.
Under the terms of the Research Collaboration Agreement, the Company has agreed to issue MMO, the University of
Toronto and the inventors of the technology, 53,333 Common Shares in return for licence rights granted by MMO. In
addition, the Company has agreed to issue an aggregate of 10,000 Common Shares MMO, the University of Toronto and the
inventors of the technology for each United States patent application filed and 500 Common Shares for each Patent Co-
44
Operation Treaty Patent application filed based on inventions which arise from the research conducted pursuant to the
Research Collaboration Agreement.
Under the terms of the Amalgamation Agreement, Amalco will exchange the existing 4,500,000 IVL shares for 923,077
Amalco Common Shares and 461,538 Amalco Warrants. See "Company – Amalgamation with IVL".
DIVIDEND POLICY
ARISE has not declared or paid any dividends during its history. The payment of dividends in the future will depend on
earnings, capital requirements, operating and financial conditions and on such other factors as the Board of Directors may
consider appropriate. ARISE currently expects to use all available funds to finance the future development and expansion of
its business and does not anticipate paying dividends in the foreseeable future.
PLAN OF DISTRIBUTION
UNIT OFFERING
Pursuant to an Agency Agreement dated May 27, 2003 between the Company and the Agent, the Agent has been appointed
as agent of the Company to offer for sale, on a best efforts basis, the Minimum Offering of 1,200,000 Units, and the
Maximum Offering of 4,000,000 Units, at a price of $0.75 per Unit, subject to the terms and conditions of the Agency
Agreement. Each Unit consists of one Common Share and one-half Warrant. Each whole Warrant entitles the holder thereof
to purchase one Common Share at a price of $1.00 per Common Share exercisable at any time on or before 5:00 p.m.
(Eastern time) for a period of 24 months from the Initial Closing. See "Plan of Distribution - Warrants".
Subject to the Minimum Offering being attained, the initial closing ("Initial Closing") of the Offering may be held prior to the
date upon which shareholders of ARISE and IVL vote upon the Amalgamation (the "Amalgamation Vote Date"). If the
Minimum Offering is attained but subscriptions for gross proceeds are less than $1,200,000 the Agent and the Company may
conduct the Initial Closing prior to the Amalgamation Vote Date. In such an event, the Initial Closing will occur in escrow
(the "Initial Escrow Closing") and the Agent will hold the gross proceeds in respect of the Initial Escrow Closing (the "Initial
Escrow Closing Funds") together with the Units issued on the Initial Closing (the "Initial Escrow Closing Units") in escrow
until the earlier to occur (each an "Escrow Release Event") of (i) the Closing of the Amalgamation and the Agent being
satisfied that listing conditions of the TSXVN with respect to the Common Shares have been substantially met; (ii) the
occurrence of a subsequent closing (the "Subsequent Closing") where the gross proceeds resulting from the Subsequent
Closing together with the Initial Escrow Closing Funds exceed $1,200,000 and the Agent being satisfied that the listing
conditions of the TSXVN with respect to the Common Shares have been substantially met and (iii) the Distribution Deadline
Date. If either Escrow Release Event in (i) or (ii) above occur, the Agent shall release the Initial Escrow Closing Funds to
the Company and the Initial Escrow Closing Units to the subscribers of the Offering on the business day following the date of
the Escrow Release Event; if the Escrow Release Event in (iii) above occurs the Agent shall return the Initial Escrow Closing
Funds to the subscribers (without interest) and will return to the Company for cancellation the Initial Escrow Closing Units.
If the Initial Closing does not occur prior to the Amalgamation Vote Date, the Initial Closing may be held thereafter subject
to: (i) the Minimum Offering being attained and the approval of the Amalgamation by the shareholders of ARISE and IVL
having occurred; or (ii) subscriptions for gross proceeds of at least $1,200,000 being received if the Amalgamation is not
approved and completed. All subscription funds will be held in trust by the Agent until a closing occurs and the TSXVN
listing conditions have been substantially met, and in any event, no later than 90 days after a Mutual Reliance Review System
("MRRS") Decision Document is issued for this prospectus, unless each subscriber has consented to a continuation of such
time period. The Company and the Agent reserve the right to hold subsequent closings after the Initial Closing until the
Maximum Offering is achieved. The definitive certificates for the Common Shares and the Warrants which make up the
Units will be available for delivery on the applicable closing date.
IT IS NOT ANTICIPATED THAT TRADING IN THE COMMON SHARES WILL COMMENCE ON THE TSXVN
UNTIL AFTER THE AMALGAMATION VOTE DATE WHICH IS SCHEDULED FOR JUNE 26, 2003. IF THE
AMALGAMATION IS NOT COMPLETED, TRADING IN THE COMMON SHARES WILL NOT COMMENCE
ON THE TSXVN PRIOR TO THE COMPLETION OF THE OFFERING FOR GROSS PROCEEDS OF NOT LESS
THAN $1,200,000.
The Agent (or such sub-agents as may be directed by the Agent) will receive a commission of 10% of the gross proceeds of
the Offering. The Company will also issue to the Agent broker warrants ("Broker Warrants"), with a term of two years,
exercisable into up to 10% of the Units offered pursuant to the Offering, at an exercise price of $0.75. All of the Broker
Warrants are being qualified for distribution by this prospectus in Alberta and British Columbia. An amount equal to 50% of
45
the Broker Warrants are being qualified for distribution by this prospectus in Ontario. The Agent is not obligated to purchase
any Units and is entitled to retain sub-agents for the purposes of conducting this Offering. The Offering Price for the Units
distributed under this prospectus was determined by negotiation between the Agent and the Company.
WARRANTS
A total of up to 2,000,000 Warrants are issuable pursuant to this Offering. Each whole Warrant will entitle the holder to
acquire one Common Share upon payment of $1.00 for a period of 24 months from the Initial Closing, subject to the terms of
the Warrant Indenture to be entered into with Equity Transfer Services Inc. (the "Warrant Trustee"). Warrants will be issued
in registered form under and will be governed by, a share purchase warrant indenture (the "Warrant Indenture") to be entered
into between the Company and the Warrant Trustee. The Corporation has appointed the principal offices of the Warrant
Trustee in Toronto, Ontario, as the location at which Warrants may be surrendered for exercise or exchange.
The Warrant Indenture will contain provisions to the effect that, in the event of any subdivision, consolidation, change,
reclassification, or alteration of the Common Shares, or in the event of the consolidation, amalgamation, or merger of the
Company with another corporation, a proportionate adjustment or change will be made in the number and kind of securities
issuable on exercise of the Warrants. The Warrant Indenture will also provide that the exercise price per Common Share is
subject to adjustment in certain events including:
(a)
the subdivision, redivision, change, reduction, combination, consolidation of the Common Shares or the issue of
Common Shares or securities convertible or exchangeable into Common Shares to all or substantially all of the
holders of Common Shares by way of a stock dividend, other than an issue of Common Shares to such holder as a
"dividend paid in the ordinary course" (to be defined in the Warrant Indenture);
(b)
the issue of rights or warrants to all or substantially all the holders of Common Shares entitling them within a
period of no longer than 45 days after such date of issue to acquire Common Shares at less than 95% of the
"current market price" (to be defined in the Warrant Indenture) of the Common Shares; and
(c)
the distribution to all or substantially all of the holders of Common Shares of any other class of any corporation or
of rights, options, or warrants (other than those referred to above) or of evidences of indebtedness or of assets,
excluding "dividends paid in the ordinary course of business" (to be defined in the Warrant Indenture).
No adjustment to the exercise price of the Warrants will be required to be made unless the cumulative effect of such adjustments
would change the exercise price of the Warrants by at least one (1%) percent. "Current market price" will be defined in the
Warrant Indenture to mean at any date the simple average closing price per Common Share for the 20 trading days immediately
preceding such date on the principal stock exchange on which the Common Shares are then listed. The Company shall not be
required, upon the exercise of any Warrants, to issue fractions of Common Shares. In lieu of fractional Common Shares, the
Company shall pay to the holder who would otherwise be entitled to receive fractional Common Shares, an amount equal to the
"Current Market Price" multiplied by an amount equal to the fractional interest of Common Shares such holder would otherwise
be entitled to receive upon such exercise, provided the Company shall not be required to make any payment that is less than $5.00.
The Warrant Indenture will be dated on the closing of the Offering and a copy will also be available for examination at the head
office of the Company. The foregoing is subject to the detailed provisions of the Warrant Indenture. Copies of the Warrant
Indenture may be reviewed at the locations identified under "Material Contracts".
46
Diluted Share Capital
The following table sets out the diluted share capital of Amalco upon completion of the Offering and the completion of the
Amalgamation. See "Commitments to Issue Securities" for commitments to issue securities as required under the NexxDigm
Agreement.
Number of Amalco
Common Shares on
completion of the
Minimum Offering and
the Amalgamation
Securities to be issued by Amalco to IVL shareholders (1)
Securities to be issued by Amalco to ARISE shareholders (2)
Number of Amalco
Common Shares on
completion of the
Maximum Offering and
the Amalgamation
923,076
7.62%
923,076
5.52%
7,094,907
58.58%
7,094,907
42.40%
Minimum Offering
1,200,000
9.91%
-
-
Maximum Offering
-
-
4,000,000
23.91%
Securities to be issued by ARISE as part of the Offering (3) :
Securities reserved for future issuance:
Securities reserved for issuance upon the exercise of the following
options:
IVL options when converted into Amalco options (7)
51,282
0.42%
51,282
0.31%
774,170
6.39%
774,170
4.63%
Amalco’s Share Purchase Warrants issued to IVL shareholders pursuant to
the Amalgamation
461,538
3.81%
461,538
2.76%
Minimum Offering Warrants
600,000
4.95%
-
-
2,000,000
11.95%
Other outstanding Amalco warrants (4)
776,000
6.41%
776,000
4.64%
Special Warrant Broker's Warrants (5)
51,366
0.42%
51,366
0.31%
Broker's warrants issuable upon Minimum Offering (6)
180,000
1.49%
-
-
Broker's warrants issuable upon Maximum Offering (6)
-
-
600,000
3.59%
12,112,339
100.00%
16,732,339
100.00%
ARISE options issued up to April 30, 2003
Securities reserved for issuance upon the exercise of the following
warrants:
Maximum Offering Warrants
TOTAL (8)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
There were 4,500,000 outstanding IVL Common Shares as of November 22, 2002. Pursuant to the Amalgamation Agreement IVL Common Shares are
exchangeable at the ratio of 4.875 IVL Common Share for one Amalco Common Share and one-half Amalco Share Purchase Warrant, exercisable into
one Amalco Common Share.
There are 7,094,907 Common Shares outstanding as of April 30, 2003. Upon Amalgamation, these will be exchanged for Amalco Common Shares on
a one for one basis.
The Minimum Offering in conjunction with the Amalgamation is 1,200,000 Units which include 1,200,000 Common Shares and 600,000 Share
Purchase Warrants exercisable into the same number of Common Shares. The Maximum Offering is 4,000,000 Units which include 4,000,000
Common Shares and 2,000,000 Share Purchase Warrants exercisable into the same number of Common Shares.
See "Description of Share Capital - Outstanding Warrants".
See "Description of Share Capital - Outstanding Warrants". There are 25,683 Special Warrant Broker's Warrants issued which are exercisable into
25,683 Common Shares and 25,683 share purchase warrants (exercisable into the same number of Common Shares).
The Agent is entitled to receive 120,000 Brokers Warrants upon completion of the Minimum Offering and 400,000 Brokers Warrants upon the
Maximum Offering. These Brokers Warrants are exercisable into Units upon payment of the exercise price of $0.75 per Unit.
There are currently 250,000 outstanding IVL options. Upon the completion of the Amalgamation, these will be exchanged into 51,282 Amalco options
(at an exchange ratio of 4.875 as set out in the Amalgamation Agreement).
Does not include the Amalco Common Shares potentially issuable upon conversion of the indebtedness owed by ARISE to Danehill Trading Limited
(a maximum of 220,000 Amalco Common Shares) and upon the conversion of the Colmac Loan (a maximum of 200,000 Amalco Common Shares).
47
USE OF PROCEEDS
The net proceeds of the Offering, together with IVL Minimum Cash of $250,000, after deducting the Agent’s Commission
and other estimated expenses in connection with the Offering, are estimated to be $860,000 if the Minimum Offering is
completed and $2,500,000 if the Maximum Offering is completed (not including the IVL Minimum Cash). References to
"Minimum Offering" herein refer to (i) if the Initial Closing results in the sale of at least 1,600,000 Units, a Minimum
Offering size of $1,200,000 in gross proceeds from the sale of Units, and (ii) if the Initial Closing results in the sale of less
than 1,600,000 Units, a Minimum Offering size of $900,000 in gross proceeds from the sale of Units, together with $250,000
of funds resulting from the Amalgamation. The Company's working capital deficiency as of April 30, 2003 was $622,000. If
the Offering had been completed as of April 30, 2003, after applying a portion of the proceeds equal to $361,000 to repay
bridge financing, the working capital deficiency as at April 30, 2003 would have been reduced by a deficiency of
approximately $261,000. The Company has negotiated extended repayment terms with respect to certain of its accounts
payable and expects to maintain a modest working capital deficiency in the near term.
The Company intends to apply the net proceeds of the Offering together with its currently available working capital as
follows (assuming completion of the Minimum Offering): (i) approximately $300,000 (or approximately $850,000 if the
Maximum Offering is achieved) will be used to fund further research and development of the Company’s products, including
to fund ARISE's obligations under the U of T Research Collaboration Agreement with MMO as well as under the NexxDigm
Agreement; (ii) approximately $60,000 (or approximately $400,000 if the Maximum Offering is achieved) will be used for
the Company’s sales and marketing functions; (iii) nil funds (or approximately $400,000 if the Maximum Offering is
achieved) will be used to fund potential acquisitions (iv) $361,000 will be used to repay bridge financing from certain
shareholders, outstanding indebtedness to a non shareholder and a portion of 2002 salaries deferred by certain management
personnel (see "Executive Compensation") and (v) $139,000 (or approximately $489,000 if the Maximum Offering is
achieved) will be applied to general working capital including accounts payable. The Company’s actual use of the net
proceeds of the Offering may vary depending on the Company’s operating and capital needs from time to time. Pending
application of the net proceeds as described above, or in the event that any funds are not immediately required, all or some of
the net proceeds of the Offering will be invested in interest-bearing securities.
Use of Available Funds to
ARISE
1. Research and development
2. Sales and marketing
3. Fund potential acquisitions
4. Repayment of bridge financing
5. Towards working capital
Total
Gross Proceeds of $1,200,000
(not including IVL
Minimum Cash)
$300,000
60,000
0
361,000
159,000
$880,000
Minimum Offering
(including IVL
Minimum Cash)
$300,000
60,000
0
361,000
139,000
$860,000
Maximum Offering
(not including IVL
Minimum Cash)
$850,000
400,000
400,000
361,000
489,000
$2,500,000
All subscription funds will be held in trust by the Agent until the earlier of (i) Initial Closing; (ii) any subsequent closing and
(iii) 90 days after receipt of an MRRS Decision Document in connection with this prospectus. If the Minimum Offering does
not occur within 90 days of receipt of an MRRS Decision Document, the funds held in trust will be returned to the
subscribers without interest or deductions unless the subscribers have otherwise instructed the Agent. The Company and the
Agent, reserve the right to hold subsequent closings after the Initial Closing.
ESCROWED SHARES
Under the applicable policies and notices of the Canadian Securities Administrators, securities held by Principals (as defined
below) are required to be held in escrow in accordance with the national escrow regime applicable to initial public
distributions. Equity securities owned or controlled by Principals (except for 10% of each Principal's holdings of Common
Shares and Common Shares issuable pursuant to incentive stock options) are subject to the escrow requirements. Principals
include all persons or companies that, on the completion of the Offering, fall into one of the following categories:
(1)
directors and senior officers of the Company or of a material operating subsidiary of the Corporation, as listed in this
Prospectus;
(2)
promoters of the Company during the two years preceding the Offering;
48
(3)
those who own and/or control more than 10% of the Company's voting securities immediately after completion of the
Offering if they also have appointed or have the right to appoint a director or senior officer of the Company or of a
material operating subsidiary of the Company;
(4)
those who own and/or control more than 20% of the Company's voting securities immediately after completion of the
Offering; and
(5)
associates and affiliates of any of the above.
The Principals of the Company are all of the directors and senior officers of the Company (as listed under "Directors and
Officers"). Pursuant to agreements (the "Escrow Agreement") dated as of June 5, 2002 among the Company and Equity
Transfer Services Inc. (the "Escrow Agent") and the Principals of the Company, the Principals agreed to deposit into escrow
their Common Shares (the "Escrowed Common Shares") with the Escrow Agent. The Escrowed Common Shares will be
deposited into escrow by the Principals prior to the completion of the Offering. The Escrow Agreement sets out the terms
and conditions upon which the Escrowed Common Shares will be released from escrow. The release schedule provides for a
portion of the Escrowed Common Shares to be released every six months over a three-year period. The Company is an
"emerging issuer" as defined in the applicable policies and notices of the Canadian Securities Administrators and if the
Company achieves "established issuer" status during the term of the Escrow Agreement, it will "graduate" resulting in a
catch-up release and an accelerated release of any securities remaining in escrow under the 18 month schedule applicable to
established issuers as if the Company had originally been classified as an established issuer. Pursuant to the terms of the
Escrow Agreement, the securities subject to the agreement may not be transferred or otherwise dealt with during the term of
the Agreement unless the transfers or dealings with escrow are:
(1)
transfers to continuing or, upon their appointment, incoming directors and senior officers of the Company or a material
operating subsidiary, with approval of the Company's Board of Directors;
(2)
transfers to an RRSP or similar trusteed plan provided that the only beneficiaries are the transferor or the transferor's
spouse or children;
(3)
transfers upon bankruptcy to the trustee in bankruptcy, and
(4)
pledges to a financial institution as collateral for a bona fide loan, provided that upon a realization the securities
remain subject to escrow. Tenders of escrowed securities to a take-over bid are permitted provided that, if the tender
is a Principal of the successor company upon completion of the take-over bid, securities received in exchange for
tendered escrowed securities are substituted in escrow on the basis of the successor company's escrow classification.
The following table sets forth details of the issued and outstanding Common Shares that are subject to the Escrow
Agreement:
Name
MacLellan Management Ltd. (3)
Hal Merwald
Michael Ben
Patrick Cusack
Harold Alexander
Alan Winter
Bart Tichelman
TOTAL
Number of ARISE
Escrowed Shares
1,849,070
456,428
399,199
208,739
25,862
13,634
2,752
2,955,684
Percentage after
Minimum Offering (1)
22.29%
5.50%
4.81%
2.52%
0.31%
0.16%
0.03%
35.63%
Percentage after
Maximum Offering (2)
16.67%
4.11%
3.60%
1.88%
0.23%
0.12%
0.02%
26.64%
(1)
The percentage that the ARISE Escrowed Shares will represent of the total issued and outstanding ARISE Common Shares upon the completion of
the Offering assuming completion of the Minimum Offering which is 8,294,907.
(2)
The percentage that the ARISE Escrowed Shares will represent of the total issued and outstanding ARISE Common Shares upon the completion of
the Offering assuming completion of the Maximum Offering which is 11,094,907.
(3)
These shares are owned by Ian MacLellan and MacLellan Management Ltd. Pursuant to an agreement between Ian MacLellan and certain other
ARISE shareholders, Mr MacLellan has agreed to transfer up to 80,000 Common Shares to such shareholders upon certain conditions being
satisfied. To the extent that such Common Shares are subject to the Escrow Agreement, such transfer may require approval of the Escrow Agent
and certain regulatory authorities.
49
The 100,000 Common Shares issued under the Cook Home Agreement are subject to an escrow agreement, and are
releasable therefrom as to 10,000 Common Shares upon the completion of each house under the TEAM Project.
PRINCIPAL SHAREHOLDERS
To the knowledge of the Company, Ian MacLellan and his management company MacLellan Management Ltd. and DeVijver
B.V. are the only persons who own beneficially or of record, directly or indirectly, 10% or more of the Common Shares of
the Company as of the date hereof (prior to the Offering), as follows:
Name (1)
Type of Ownership
MacLellan Management
DeVijver, B.V. (2)
(1)
(2)
(3)
Direct
Direct
Number of Common
Shares
1,849,070(3)
750,675
Percentage of Common Shares(1)
Prior to
Minimum
Maximum
Offering
Offering
Offering
26.1%
22.3%
16.7%
10.6%
9.0 %
6.8%
All of the current shareholders of ARISE have attorned to a shareholders’ agreement dated May 29, 1998 (the "Shareholders’ Agreement") which
limits their rights to deal with their Common Shares. The Shareholders’ Agreement will automatically terminate on the Initial Closing Date.
DeVijver B.V. is a European based privately held investment company managed by La Hougue Financial Management Services.
Pursuant to an agreement between Ian MacLellan and certain other ARISE shareholders, Mr. MacLellan has agreed to transfer up to 80,000 Common
Shares to such shareholders upon certain conditions being satisfied.
The directors and senior officers of the Company, as a group, beneficially own 3,706,359 Common Shares representing
approximately 44.7% of the Company’s outstanding Common Shares, assuming completion of the Minimum Offering
representing 33.4% of the Company’s outstanding Common Shares assuming completion of the Maximum Offering.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other than as described below, there were no material interests, either direct or indirect, of directors, senior officers, any
person who beneficially owns directly or indirectly or exercises control or direction over securities carrying more than 10%
of the voting rights attaching to the voting shares of the Company, or any known associate or affiliate of these persons, in any
transaction within the three years prior to the date hereof or in any proposed transaction that has materially affected or will
materially affect the Company or any of its subsidiaries.
At the personal residence of Ian MacLellan, ARISE has installed a large solar energy system for testing and marketing
purposes at ARISE’s expense (the Alpha One solar home). The Board of Directors pre-approved the installation and the
matter was also approved by the shareholders. ARISE is committed to replacing the current prototype solar thermal system
with a commercial system when it becomes available. The shareholder loan of $20,000 on the Company’s balance sheet as
of December 31, 2002 is payable to Ian MacLellan and will be applied against the cost of the commercial system upon
installation.
On April 8, 2003, ARISE entered into an agreement (the "Inventory Financing Agreement") with Hal Merwald, the chairman
of the board of directors of the Company whereby Mr. Merwald provided certain short term financing to the Company
through an inventory financing arrangement. Pursuant to the Inventory Financing Agreement ARISE sold US $80,000 of its
inventory (the "Merwald Inventory") to Mr. Merwald as of the date of the agreement. Mr. Merwald paid a deposit of US
$70,000 for the inventory which funds had been used by ARISE to purchase additional inventory. ARISE is permitted under
the Inventory Financing Agreement to replace items of the Merwald Inventory with items from the ARISE inventory of
similar value in order to accommodate customer orders. The Company has purchased additional Inventory with the funds
received. Under the terms of the Inventory Financing Agreement, ARISE is obligated to repurchase the Inventory within one
week of the closing of the Offering for U.S.$77,000 plus interest at 1% per month until the date of repurchase.
PROMOTERS
Ian MacLellan may be considered to be a promoter of the Company under applicable securities laws by reason of having
taken the initiative in founding and organizing the business and enterprise of the Company. Except as set forth elsewhere
herein, Mr. MacLellan has not received, and it is not presently intended that he shall receive, directly or indirectly from the
Company, anything of value, including money, property, contracts, options or rights of any kind. In addition, the Company
50
has not acquired any assets during the two years prior to the date hereof, and it is not presently intended that the Company
will acquire any assets, from Mr. MacLellan. See "Directors and Officers", "Interests of Management and Others in Material
Transactions" and "Stock Options". For information on the security holdings of Mr. MacLellan see "Principal Shareholders".
INVESTOR RELATIONS
On November 29, 2002 ARISE entered into an agreement with Ciris International Inc. ("Ciris") whereby Ciris agreed to
provide investor relation services to ARISE. ARISE has agreed to pay Ciris a monthly fee not to exceed $4,500 and to issue
Ciris options to acquire 20,000 Common Shares at an exercise price of $1.25 a share for a term equal to the lesser of five
years or 90 days after termination of the agreement with Ciris. Ciris is based in Toronto, Ontario and was established in 1991
and provides investor relation and corporate communications services to its clients. Ciris does not currently own any
securities of ARISE except for the rights to be issued the aforementioned options. Ciris has been retained by ARISE on a
month-to-month basis to provide investor relations and communications services including developing an investor relations
plan and strategy and to raise ARISE's profile with registered brokers and salespersons.
RISK FACTORS
There is currently no market through which the Common Shares or Warrants may be sold and purchasers may not be
able to resell the Common Shares or Warrants purchased under this prospectus.
THE COMPANY WILL LIKELY REQUIRE ADDITIONAL FINANCING FOLLOWING COMPLETION OF THE
OFFERING IN ORDER TO FUND ITS BUSINESS STRATEGY AND TO SATISFY ITS LIQUIDITY NEEDS. AN
INABILITY TO ARRANGE SUFFICIENT FINANCING COULD ADVERSELY AFFECT THE COMPANY’S
LIQUIDITY AND ITS ABILITY TO IMPLEMENT ITS BUSINESS STRATEGY. INVESTORS SHOULD CAREFULLY
CONSIDER THIS RISK FACTOR AND OTHER RISKS DISCLOSED IN THIS SECTION. AN INVESTMENT IN
THE UNITS SHOULD BE REGARDED AS HIGHLY SPECULATIVE AND SHOULD ONLY BE CONSIDERED BY
THOSE INVESTORS ABLE TO AFFORD A COMPLETE LOSS OF THEIR INVESTMENT.
An individual should carefully consider the risks and uncertainties described below before making an investment decision.
These risks and uncertainties are not the only ones facing ARISE. Additional risks and uncertainties not presently known
to the Company or that ARISE currently deem immaterial may also impair business operations. If any of the following
risks actually occur, the business, financial condition and operating results could be materially harmed.
Limited Operating History and Sales
To date, ARISE has generated limited revenue from the sale of products. Limited operating history relating to the sale of
products makes it difficult to predict future operating results.
History of Operating Losses
ARISE has incurred significant net losses since it started working on solar energy in 1997. Due to the emphasis of
maintaining research and development costs, operating losses are expected to continue in future periods. ARISE will need to
generate significantly greater revenue than achieved to date in order to attain and maintain profitability. There is no
assurance that revenue will increase sufficiently or that ARISE will be profitable in any future period.
Requirement for Additional Financing
ARISE may be unable to fully complete its business strategy or meet its financial obligations without additional financing.
There can be no assurance that such additional financing will be available, and if available, there can be no assurance that the
cost of obtaining such financing will be on standard commercial terms or that it will not result in substantial dilution to
shareholders
Government or Utility Barriers
Net metering legislation that permits a solar energy installation to transfer electricity produced by photovoltaics to the local
electrical utility does not exist in Ontario. Without enabling legislation, the transfer of electricity to the utility is on a case by
case basis. Special permission has been granted by local utilities to date, but even with this precedent it may not continue.
Net metering legislation is common practice in most U.S. states, as well as European and Japanese jurisdictions. As an
Ontario based company, a lack of favourable government legislation or utility regulation could adversely effect the
Company’s business, results of operations, and financial condition.
51
Dependence on Key Personnel
ARISE operations are dependent on the abilities, experience and efforts of a number of key personnel, including senior
management and product development personnel. Should any of these persons be unable or unwilling to continue in
ARISE’s employ, the business, results of operations and financial condition could be materially adversely affected. In
addition, the Company’s success is highly dependent on the continuing ability to identify, hire, train, motivate and retain
highly qualified management, technical and sales and marketing personnel. Competition for such personnel is intense and
there is no assurance that ARISE will be able to attract and retain such qualified technical and managerial personnel in the
future. The inability to attract and retain the necessary technical and sales and marketing personnel could have a material
adverse affect on business, results of operations and financial condition.
Economic Fluctuations
Major expenditures such as solar energy systems may be dependent on healthy economic conditions. Uncertain economic
conditions may result in customers delaying their purchase decisions or extending their order time frames that might
adversely affect ARISE’s performance.
Competition
ARISE operates in an emerging and immature industry. As the market for solar energy products continues to develop,
additional competitors with more established and larger technical and marketing resources than ARISE may enter the market
and competition may intensify. In addition, current competitors may develop products that are superior to ARISE’s products
or achieve greater market acceptance due to pricing, sales channels or other factors. The solar energy industry has many
business segments and niches that have varying degrees of competitiveness. As a relatively small company, ARISE intends
to avoid directly competing against well-established competitors and to develop engineered products that are designed to
provide unique features to reduce direct competitive threats. Many such competitors have substantially greater financial
resources, sales and marketing experience, distribution channels and human resources. ARISE distributed products may also
be sold by many competitors and do not have any competitive advantages except for its efforts to provide superior service
and support. Due to the potential for rapid technological changes, some future competitors may not have yet emerged.
Examples could include variations of fuel cell systems or a new technology. Any new technology, however, would take
several years to become established.
Technological Change, New Products and Standards
To remain competitive, ARISE must continue to enhance and improve its current line of products. The solar energy industry
is characterized by competing electrical standards, changes in user and customer requirements and preferences, tendencies to
overlook electrical code requirements, and practices that could render existing products and systems obsolete. ARISE
products embody technology that may not always be compatible with current and evolving technical standards and products
developed by others. Failure or delays by ARISE to meet or comply with the requisite and evolving industry or user
standards could have a material adverse affect on business, results of operations and financial condition. The ability to
anticipate changes in technology, technical standards and product offerings will be a significant factor in the ability to
compete. There can be no assurance that ARISE will be successful in identifying, developing, manufacturing and marketing
products that will respond to technological change or evolving standards. Business may be adversely affected if there are
delays in developing new products or enhancements or if such products or enhancements do not gain market acceptance. In
addition, there can be no assurance that products or technologies developed by others will not render ARISE products or
technologies non-competitive or obsolete.
Limited Market Acceptance
The market for ARISE products is at an early stage of development. To date, there has been limited market acceptance of
ARISE products and, as is typical for newly introduced products, future demand and market acceptance are subject to a high
level of uncertainty. If adequate market demand for ARISE products does not develop, it’s business results of operations and
financial condition will be materially adversely affected.
Reliance on Third Party Manufacturers
ARISE relies on certain material suppliers and is therefore dependent upon their continued ability to adequately supply
ARISE. There can be no assurance that these manufacturers will be able to meet ARISE’s manufacturing needs in a
satisfactory and timely manner or that ARISE can obtain additional manufacturers when and if needed. A significant price
increase, an interruption of supply from one or more such manufacturers loss of exclusive or other distribution arrangements,
or the ability to obtain additional manufacturers when and if needed could have a material adverse affect on the business,
results of operation and financial condition.
52
Expansion of Sales and Support Infrastructure
The future revenue growth of the Company will depend in large part on the ability to successfully expand a dealer network
and distribution channels. ARISE may not be able to successfully manage the expansion of such functions or to recruit and
train additional direct sales and customer support personnel. If unable to acquire sufficient distribution channels, ARISE may
not be able to increase revenues to the extent necessary to achieve profitability or meet customer demands.
Dependence on Proprietary Technology and Limited Patent and Trademark Protection
Unauthorized parties may attempt to copy aspects of ARISE’s products or to obtain and use information regarded as
proprietary. Policing unauthorized use of products is difficult, time consuming and costly as is the pursuing of patents in
various jurisdictions. There is no assurance that the means of protecting proprietary rights will be adequate or that
competitors will not independently develop similar technology, the effect of either of which may be materially adverse to
business, results of operations and financial condition.
Risk of Third Party Claims for Infringement
ARISE is not aware of any product infringement on the proprietary rights of third parties. There can be no assurance,
however, that third parties will not claim such infringement by ARISE. Any such claims, with or without merit, could be
time consuming, result in costly litigation, cause product shipment delays or require ARISE to enter into royalty or licensing
agreements which, if required, may not be available on acceptable terms. Any of the foregoing could have a material adverse
affect on business, results of operations or financial condition.
Management of Growth
ARISE expects to experience a period of significant growth in the number of personnel that will place a strain upon its
management systems and resources. The future will depend in part on the ability of officers and other key employees to
implement and improve financial and management controls, reporting systems and procedures on a timely basis and to
expand, train and manage the employee workforce. There can be no assurance that ARISE will be able to effectively manage
such growth. Failure to do so could have a material adverse effect upon business, prospects, and results of operations and
financial condition.
Risk of Product Defects
There can be no assurance that defects and errors will not be found in ARISE products. Any such defects and errors could
result in adverse customer reactions, negative publicity regarding the Company and its product or damages. Consequently,
there could be a material adverse effect on business, results of operations and financial condition. While ARISE has product
liability insurance, there is a risk that the amounts may be inadequate.
No Dividends
ARISE does not anticipate paying any dividends on outstanding Common Shares in the foreseeable future. See "Dividend
Policy".
Lack of Liquidity
The Common Shares are not listed on any stock exchange or quoted in any quotation system and there is no assurance that
the Common Shares will be so listed or quoted. Accordingly, prior to this Offering, there has been no market for the
Common Shares, and there can be no assurance that an active market for the Common Shares will develop or be sustained
after this Offering. The Offering Price has been determined by negotiation between the Company and the Agent based upon
several factors, including the history of, and prospects for, the Company's business, the industry in which it operates and an
assessment of the Company's management, operations and earnings. Factors such as the Company's and its competitors'
financial results and general conditions in the industry, the overall economy and financial markets could cause significant
fluctuations in the price and trading volume of the Common Shares
LEGAL MATTERS
Certain legal matters relating to this Offering will be passed upon on ARISE’s behalf by Gowling Lafleur Henderson LLP
Kitchener, Ontario and on behalf of the Agent by Borden Ladner Gervais LLP, Calgary, Alberta. As at the date of this
prospectus, the partners and associates of Gowling Lafleur Henderson LLP, together with their associates and affiliates, did
not own, directly or indirectly, any securities of the Company and its associates and affiliates, save and except that an affiliate
of Gowling Lafleur Henderson LLP holds warrants to acquire Common Shares representing less that 1% of the outstanding
shares. No person or company whose profession or business gives authority to a statement made by such person or company
and who is named as having prepared or certified a part of this prospectus, or prepared a certified report or evaluation
53
described or included in this prospectus, has received or shall receive a direct or indirect interest in the property of the
Company or of any associate or affiliate of the Company. In addition, no director, officer or employee of one of the
aforementioned persons or companies is or is expected to be elected, appointed or employed as a director, officer or
employee of the Company or of any associates or affiliates of the Company.
MATERIAL CONTRACTS
Other than contracts entered into in the ordinary course of business, the following are the only material contracts that have
been entered into by the Company within the two years prior to the date of this prospectus:
1) Loan Agreement with Danehill Trading Limited.
Statements.
See note 5 of the December 31, 2002 Audited Financial
2) Agency Agreement. See "Plan of Distribution".
3) Warrant Indenture to be entered into prior to the Initial Closing. See "Plan of Distribution".
4) Special Warrant Agency Agreement dated June 3, 2002 with Roche Securities Limited. See "Description of Share
Capital – Special Warrants"
5) The TEAM Agreement. See "Corporate Development and Strategic Alliance – TEAM Funding".
6) The NexxDigm Agreement. See "University of Toronto Research".
7) The Research Collaboration Agreement. See "University of Toronto Research".
8) The Colmac Loan with Colmac. See "Outstanding Warrants – Colmac Loan".
9) The Amalgamation Agreement with IVL. See "Amalgamation with IVL".
10) The Inventory Financing Agreement. See “Interest of Management and Others in Material Transactions”
Copies of these agreements may be examined by investors at the registered office of the Company during normal business
hours during the distribution of Units under this prospectus.
LEGAL PROCEEDINGS
There are no material legal proceedings involving the Company, or any of its property as at the date of this prospectus, and
no such proceedings are known by the Company to be contemplated.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The Company’s auditors since fiscal year 1998 have been Simon McWhinnie Riediger and Meredith LLP, Kitchener,
Ontario. They have been engaged for the reporting requirements of the prospectus. For the audit of the financial statements
for the fiscal year ended December 31, 2002, the Company changed auditors because the policy of Simon McWhinnie
Riediger and Meredith LLP is not to audit public companies. The new auditors as in connection with the Company’s
financial statements for the fiscal year ended December 31, 2002 are Deloitte & Touche LLP, of Kitchener, Ontario. Equity
Transfer Services Inc. at its offices in Toronto, Ontario has agreed to become transfer agent and registrar for the Company's
Common Shares. The Company currently acts as its own registrar and transfer agent. Transfers of the Warrants may be
recorded at the offices of the Warrant Trustee in Toronto, Ontario. Upon completion on the Amalgamation, Amalco will
retain the Company’s auditor and transfer agent.
PURCHASER’S STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement
to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus
and any amendment. In several of the provinces, the securities legislation further provides a purchase with remedies for
rescission or, in some jurisdictions, damages, if the prospectus and any amendment contains a misrepresentation or is not
delivered to the purchaser, provided that the remedies for rescission or damages are exercise by the purchaser within the time
limit prescribed by the securities legislation of the purchaser’s province. The purchaser should refer to any applicable
provisions of the securities legislation of the purchaser’s province for the particulars of these rights or consult with a legal
adviser.
54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
COMPANY HISTORY AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the financial statements and related notes
appearing elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. The actual financial condition and results of operations could differ materially from
those that may be contemplated by these forward-looking statements as a result of those risks, uncertainties and
assumptions. For additional information regarding those risks, uncertainties and assumptions, please see "Risk
Factors" and "Special Note Regarding Forward-Looking Statements".
Overview
ARISE was incorporated in British Columbia on October 6, 1993 as CVCC Holdings Inc. The name was changed to
ARISE Technologies Corporation on March 12, 1997. From February 1996 to late 1999, ARISE operated
predominately as a research and development firm researching, consulting and developing solar energy
technologies. Sales efforts were secondary to the research efforts of the Company. In late 1999, the Company
started to balance the need for developing proprietary products with the need to increase revenues from operations as
it evolved into a manufacturer and distributor of solar energy products. Highlights since inception are as follows:
• Technology for a 5 kW grid connected inverter was licensed from Statpower Technologies Corporation of
Burnaby, BC in September 1997.
• ARISE licensed the Hewlett Packard HP48000 data acquisition and control technology in September 1998.
• Initial company revenues in 1998 were predominately related to the Soft Thermometer, manufactured by
ARISE under a licence agreement with Sensorsoft Corporation which had trademarked the device.
• In June 1999, an agreement venture was initiated between ARISE and Statpower (now Xantrex) to market
solar products over the Internet as SolarSense.com.
• The Nomad 300, a portable plug and play solar energy system was introduced by SolarSense in September
1999. In February 2000, ARISE acquired Xantrex Technology Inc.’s 50% ownership in SolarSense. The
remaining sales functions were transferred to Waterloo in December 2000. The Company moved to its
current location of 10,200 square feet in Kitchener in June 2001.
• ARISE installed Canada’s largest grid-connected solar home at the residence of Ian MacLellan (Alpha 1).
• U.S. patent #6,119,729 was formally granted on September 19, 2000 for FreezeSafe technology that
allows water to be used as a heat transfer fluid within solar thermal applications.
• The Power Manager was developed to provide plug and play convenience for portable solar energy
systems. A U.S. patent was applied for in January 2001 and a Notice of Allowance was received on January
29, 2003.
• The Nomad 600 and 1500 were launched.
• The marketing assets of Prometheus Energy, Canada’s oldest supplier of solar energy equipment, were
acquired in December 2001.
• In December 2001, ARISE became the exclusive distributor for central and eastern Canada for Kyocera
Solar Inc., the largest U.S. solar energy distributor.
• Signed Letters of Intent for a research and technology licence agreement with NexxDigm Technologies Inc.,
two University of Toronto professors and the University of Toronto which resulted in an Asset Purchase
Agreement (May 14, 2002) to purchase two PV technology patents and the Research Collaboration
Agreement (May 15, 2002) with the University of Toronto which Materials and Manufacturing Ontario will
contribute $150,000 for the first year of the research. See "University of Toronto Research".
• An application for Canadian federal government support of $924,800 for building eight to ten large
residential solar energy systems which funding commitment was received on March 26, 2002 (and resulted
in the TEAM Agreement) and publicly announced on April 22, 2002.
• ARISE was approved to become an Authorized Xantrex Service Centre on December 16, 2002
• Over the last seven years, as of March 31, 2003, ARISE has raised $3,085,281 in cash which was added to
the $200,000 of retained earnings from a previous venture. In addition, $1,395,904 of equity was issued for
services to employees, directors, advisors and consultants. The Company has also secured $934,146 of
government funding, mostly through IRAP and SR&ED refundable tax credits.
• In April 2003, ARISE became the exclusive solar distributor for eastern Canada for Sharp Solar, the largest
PV manufacturer in the world.
• The first TEAM model home was opened on April 30, 2003.
55
QUARTERLY FINANCIAL DETAIL
The following table presents certain condensed, unaudited quarterly financial information for each of the 14 quarters
from June 1, 1998 through November 30, 2001, the one month of December 2001 and 4 quarters from January 1,
2002 through December 31, 2002. The information has been restated to conform with current accounting policies.
This information is derived from the unaudited financial statements that include, in ARISE’s opinion, all
adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results of
operations when read in conjunction with the financial statements and the related notes to the financial statements
appearing elsewhere in this prospectus. The quarterly operating results have historically fluctuated due to seasonal
patterns and may continue to fluctuate significantly as a result of numerous external factors. Past operating results
and period-to-period comparisons should not be relied upon as an indication of future performance.
Three Months Ended
Total
Revenues
Profit
(Loss) From
Operations
Net Profit
(Loss)
Ending
Shares
Outstanding
Net Profit
(Loss)
Per Share
(Unaudited – in Canadian Dollars)
Fiscal 1999:
August 31, 1998
42,751
(97,421)
(97,348)
2,927,334
($0.033)
November 30, 1998
16,847
(131,876)
(131,876)
3,276,162
($0.040)
February 28, 1999
18,094
(156,691)
(157,523)
3,524,408
($0.045)
May 31, 1999
24,285
(106,690)
(107,718)
4,412,946
($0.024)
August 31, 1999
12,349
(251,083)
(249,475)
4,551,009
($0.055)
November 30, 1999
93,328
(147,981)
(145,200)
4,690,052
($0.031)
February 29, 2000
87,777
(249,575)
(248,136)
5,302,814
($0.047)
May 31, 2000
55,345
(258,798)
(256,711)
5,533,423
($0.046)
August 31, 2000
86,547
(206,373)
(206,003)
5,568,423
($0.037)
November 30, 2000
54,645
6,427
(183)
5,698,423
$0.000
120,237
(203,988)
(202,917)
5,718,423
($0.035)
83,610
(287,481)
(286,701)
6,214,620
($0.046)
August 31, 2001
127,525
(181,022)
(180,807)
6,348,820
($0.028)
November 30, 2001
141,100
(179,493)
(182,571)
6,376,820
($0.028)
39,555
83,808
81,933
6,602,779
$0.012
March 2002
192,082
(212,765)
(219,874)
6,995,455
($0.031)
June 2002
384,958
(269,073)
(282,514)
7,071,572
($0.040)
September 2002
408,980
(173,907)
(193,232)
7,094,907
($0.027)
December 2002
213,967
(275,337)
(339,508)
7,094,907
($0.048)
Fiscal 2000:
Fiscal 2001:
February 28, 2001
May 31, 2001
Seven Months to December
31, 2001 (1)
One Month Ended
December 31, 2001
Fiscal 2002:
(1)
On December 11, 2001 the Board of Directors changed the Company’s fiscal year end from May 31 to December 31.
56
YEAR OVER YEAR FINANCIAL COMPARISIONS
Financial statements contained in this prospectus are reported in Canadian dollars and are presented in accordance
with Canadian generally accepted accounting principles, or Canadian GAAP. On December 11, 2001, the Company
changed its year end to December 31. As of December 31, 2002, the Company has six audited financial periods.
December 31, 2002 (12 months), December 31, 2001 (7 months), May 31, 2001 (12 months), May 31, 2000 (12
months), May 31, 1999 (12 months) and May 31, 1998 (12 months). The financial statements in this Prospectus
combine the last five audited periods into one set of financial statements. Investors should be aware that historical
financial results are not likely to be meaningful for assessments of future business operations, opportunities or
prospects. Other factors, including the ability to capitalize on existing and prospective sales opportunities, success
in developing commercial products, success in raising sufficient capital, government support, the elimination of
regulatory barriers, the expansion and management of strategic alliances, will be more significant to the future
success of the Company and should be carefully considered. See "ARISE Strategies", "Competition" and "Risk
Factors".
Net Losses and Cash Flow
ARISE has incurred a net operating loss in each year since developing a solar energy focus. The accumulated
deficit as at December 31, 2002 was $3,370,553. ARISE expects to incur continued net losses and operating losses
on both an annual and quarterly basis for the foreseeable future as the business is grown by hiring additional
personnel and increasing marketing and product development commitments. Given the rapidly evolving and
emerging nature of ARISE’s business and the solar energy industry, operating results are difficult to forecast and
accordingly, an individual should be aware that the historical financial results may not be meaningful assessments of
future business operations or prospects. As a result of significant tax loss carry-forwards, ARISE does not expect to
pay any significant corporate income taxes in Canada in the foreseeable future.
Liquidity and Capital Resources
Since ARISE initiated its solar energy focus in 1997, growth and expenditures have been financed primarily through
advances from shareholders and investors. The Company intends to adjust its business plan and cash requirements in
accordance with amounts raised in the Offering. For the foreseeable future, continued investment is required for
ARISE to remain viable. As of December 31, 2002, ARISE had a working capital deficiency of $325,368 and total
assets of $838,765 and total liabilities of $1,259,877. Certain liabilities and financing arrangements will be paid out
from the proceeds of the Offering. These will include loans by Colmac ($165,000), Cook Homes ($75,000), Brenda
Ben ($30,000), deferred salary ($70,000), bridge financing interest ($19,000) and a loan with a director ($2,000).
The requirement to repay the $175,000 loan from IVL shall be eliminated upon the Amalgamation. With the
completion of the Minimum Offering, net of the Agent’s Commission and expenses of the Offering, working capital
is expected to exceed $200,000. With the completion of the Maximum Offering, net of the Agent’s Commission and
expenses of the Offering, but not including IVL Minimum Cash, working capital is expected to exceed $1,750,000.
Due to the high degree of seasonality for the Canadian solar market, working capital requirements are highest in
early summer due to increased inventory and receivable levels. The Company is typically able to draw down these
working capital balances in the fall and winter months. In order to assist in ensuring sufficient inventory was on
hand at the beginning of its busiest season of the year, as a short term financing arrangement, the Company entered
into an Inventory Financing Agreement on April 8, 2003 with Hal Merwald, the chairman of ARISE, whereby
ARISE sold US $80,000 of inventory at cost in exchange for a deposit of US $70,000. The Agreement provides that
the sold inventory remains on Company premises and allows the Company to substitute the sold inventory with
alternate inventory at equivalent cost in order to accommodate customer orders. The Company has purchased
additional sold inventory with the funds received, but is committed to repurchase the sold inventory for US $77,000
plus 1% per month.
FISCAL YEAR ENDED DECEMBER 31, 2002 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2001
Revenue for the year ended December 31, 2002 was $1,199,987 compared to $308,180 for the fiscal seven month
period ended December 31, 2001. A seven month fiscal period in 2001 was created by the change of the Company’s
year end from May 31 to December 31. In the solar energy industry, revenue tends to be higher during the summer
months, so pro-rated comparisons can be misleading. Revenues that resulted from the acquisition of Prometheus
Energy and the Kyocera distribution rights commenced in January 2002 and were responsible for the majority of the
increase. Revenue from the federal government TEAM contract commenced in April 2002 and totalled $172,976.
57
Installed systems also experienced a large increase, notably from a $72,000 sale to Sunoco for a solar car wash preheat system. The Company’s sales are very seasonal, with the large majority of sales occurring in the second and
third quarters. The high seasonality is due to accessibility issues at remote and off grid locations typically suitable
for solar installations.
Gross profits of $285,291 (23.8% of Sales) for the year ended December 31, 2002 increased from $77,486 (25.1% of
Sales) in the prior seven month fiscal period. The TEAM contract contributed $90,004 in 2002, primarily due to the
excess of labour billings in excess of actual labour costs. Gross profit is net of all direct labour, production and
warehouse expenses but before administrative and overhead costs. The Sunoco system resulted in negative gross
profit, but if Sunoco decides to proceed with additional systems there is an expectation of future cost reductions due
to anticipated design changes.
Expenses of $1,219,930 for the year ended December 31, 2002 increased from $354,193 for the seven months ended
December 31, 2001. R&D expenses of $118,806 in 2002 are net of government investment tax credits of $56,608,
while the R&D expenses of ($15,714) in 2001 is net of a larger government investment tax credit of $183,497. This
large credit relates to efforts incurred in the prior fiscal year ended May 31, 2001. Company policy has been to
recognize the government investment tax credit only after positive confirmation from the government or third party
has been received. Engineering staff increased their focus on revenue related activities or the TEAM project in 2002
compared to prior periods. Commitments of $187,500 to the University of Toronto PV research program have not
been accrued in the financial statements pending the satisfactory outcome of the Offering. General and
administrative costs of $716,538 increased from $258,360 due to higher building expenses in the new location and
additional employees hired to manage increased activity. Sales and marketing costs increased to $356,248 from
$102,406 due to employee costs related to the value added distribution business. Non-cash costs associated with
expenses related to the issuance of warrants totalled $41,864 in the fiscal year ended December 31, 2002. The
Company initiated the policy of determining an expense related to the issuance of warrants effective January 1,
2002. The Net Loss of $1,035,128 for the year ended December 31, 2002 compares to a Net Loss of $281,445 in the
seven months ended December 31, 2001.
Current assets of $776,969 as at December 31, 2002 compare to $449,986 as at December 31, 2001, an increase of
$326,983. Inventory of $311,911, stated net of reserves, increased by $213,152 as a result of initiating the
distribution business. Receivables of $70,694 were $51,599 higher than a year earlier. Investment tax credits and
other government assistance of $92,499 (December 31, 2001 – $183,497) reflect outstanding TEAM invoices
immediately due from the federal government and R&D tax credit refunds related to the fiscal year ended December
31, 2001. These receivables have been collected. Prepaid expenses of $249,815 as at December 31, 2002
(December 31, 2001 - $49,963) includes $198,397 of capitalized legal and agent costs incurred related to the
Offering process, compared to the prior year total of $35,630. The Company will allocate these costs of the
Offering against common stock at the Closing of the Offering.
Current liabilities of $1,102,337 as at December 31, 2002 compare to $150,446 as at December 31, 2001. As a
result of delays in completing the Offering, the Company needed to secure various debt financings. Current notes
payable of $357,000 as at December 31, 2002 (December 31, 2001 – nil) include short term financing from Colmac
Power Inc. ($150,000), Cook Homes ($75,000), Brenda Ben ($30,000), and IVL ($175,000). These current note
payables will be due and paid off from the proceeds of the Offering or the expected amalgamation with IVL. The
Company will consider repayment of the long term note payable of $165,000 (December 31, 2001 - $125,000) to
Danehill Trading Limited based on the amount of the net proceeds of the Offering. The later than originally
anticipated completion of the Offering resulted in growing short-term liabilities and lengthened supplier payment
terms. The Inventory Agreement, discussed in “Liquidity and Capital Resources” helped to address this issue. Trade
accounts payables have also increased due to increased activity in the distribution business. The large majority of
suppliers have been understanding given the poor stock market conditions since June 2002. The Company has been
consistently able to secure inventory as required, but the proceeds of the Offering are needed to fund increased
business activities.
FISCAL PERIOD ENDED DECEMBER 31, 2001 COMPARED TO FISCAL YEAR ENDED MAY 31, 2001
Revenue for the seven months ending December 31, 2001 was $308,180 compared to $345,039 for the 12 months
ending May 31, 2001. Revenue for the unaudited calendar year 2001 increased to $495,325 compared to the
unaudited calendar year 2000 revenue of $236,325 or 110% growth. SolarSense.com revenue in the unaudited
58
calendar year ending December 31, 2001 was 78% of the total revenue compared to 86% in the prior unaudited
calendar period. All product areas experienced strong growth in the December 31, 2001 fiscal period. In the seven
month fiscal period, the Company introduced pool heating systems, SDHW systems and the Nomad 1500 system.
Net income (loss) of ($281,455) in the fiscal period ending December 31, 2001 compares to ($695,804) in the fiscal
year ending May 31, 2001. Gross profit of $77,486 or 25.1% compares to $54,598 or 15.8% in the fiscal year
ending May 31, 2001. Standard gross margins continue to improve on SolarSense.com related sales. Expenses were
$354,193 in the fiscal period ending December 31, 2001 compared to $746,016 in the fiscal year ending May 31,
2001. On a pro-rated basis, expenses declined slightly. Selling expenses were relatively lower due to the full period
effect of closing the Burnaby, BC SolarSense.com location. Engineering expenses were relatively lower due to the
reduction of one full-time engineer. General and Administration increased due to higher rent in the new Kitchener
location and higher salary expenses due to reduced amounts of shares for services issued to employees. Government
assistance of $183,497 in the fiscal period ending December 31, 2001 was netted against Research and Development
expenses compared to $222,902 netted in the prior year.
Current assets of $449,986 at December 31, 2001 compared to $376,245 at May 31, 2001. A SR&ED receivable of
$183,497 was set up at December 31, 2001 with no comparable balance at May 31, 2001. Cash balances decreased
to $88,672 from $217,038. Other assets of $39,081 at December 31, 2001 compared to $21,025 at May 31, 2001.
The increase was due to the acquisition of the marketing assets of Prometheus Energy ($20,000). Total liabilities of
$275,446 at December 31, 2001 compared to $227,635 at May 31, 2001. As at December 31, 2001 a promissory
note of $125,000 with a five year term was provided by Danehill Trading Limited. The non-trade debt of $52,471
due to Xantrex Technology Inc. was related to the SolarSense joint venture. As at December 31, 2001, ARISE had
an accumulated deficit of $2,335,425 and a net book value of $242,899. ARISE has accumulated federal tax loss
carry forwards and unused research and development expenditures for tax purposes, of approximately $2.3 million.
There is a risk that some of these losses may expire before being utilized.
FISCAL YEAR ENDED MAY 31, 2001 COMPARED TO FISCAL YEAR ENDED MAY 31, 2000
Revenue for the fiscal year ended May 31, 2001 was $345,039 compared to $248,799 for the prior fiscal year ended
May 31, 2000 for an increase of 38.7%. 86% of revenue ($298,167) was through the retail activities of SolarSense.
The breakdown of SolarSense revenue was Nomad products (61.7%), Xantrex inverters (13.8%), PV panels
(11.8%), Sensorsoft products (3.5%) and other (9.2%). 14% of revenue ($46,872) was ARISE branded revenue
comprised of GX5000 inverter sales, consulting services and service work. The SolarSense joint venture with
Xantrex Technology Inc. was initiated with the introduction of the Nomad 300 in late summer of calendar 1999 and
benefited greatly from Y2K inspired fears. It is estimated that Y2K was responsible for an estimated $100,000 in
additional sales in calendar fourth quarter 1999. The Nomad 600 product line was launched in January 2001 and the
Nomad 1500 was launched in August 2001.
Net income (loss) of ($695,804) in fiscal 2001 compares to ($899,522) in fiscal 2000. Gross profit of $54,598 or
15.8% of revenue compares to $46,356 or 18.6% of revenue in fiscal 2000. Adjusting for an inventory write-off of
non-solar related products, gross margins in fiscal 2001 would have improved to $82,170 or 23.8% of revenue. This
improvement over fiscal 2000 was due to price increases on the Nomad 300 product and higher margins achieved on
the Nomad 600 due to the proprietary Power Manager. Margins are typically higher on complete solar systems
and lower on non-proprietary components such as PV and inverters.
Research and development costs were $113,946 in fiscal 2001 compared to $243,997 in fiscal 2000. The large
majority of expenses relate to salary costs. The major expenditure in fiscal 2000 was the Alpha One system
installed in Waterloo at a cost of $96,491. There were no comparable major projects in fiscal 2001. Fiscal 2001
costs were further reduced by the recognition of a warranty credit of $29,376 from the Alpha One PV supplier due to
substandard PV panels. As a direct result of lower R&D expenditures, however, the federal and Ontario SR&ED tax
credits for the year was reduced to $183,497 from $222,902 in fiscal year 2000. The majority of this tax credit was
received in April 2002. Government assistance in fiscal 2001 was $246,369, including $222,902 for SR&ED (re:
fiscal 2000) and $21,467 for IRAP grants. Government assistance in fiscal 2000 was $189,824, including $128,675
for SR&ED and $60,149 for IRAP.
Sales and marketing expenses were $216,602 in fiscal 2001 compared to $404,550 in fiscal 2000. SolarSense
operating costs were all charged to sales and marketing. After Y2K, advertising expenditures (primarily print
59
publications) were significantly reduced. In December 2000, the Burnaby SolarSense office, previously co-located
with Xantrex Technology Inc., was shut down as a cost saving measure. Three employees were released and one
new replacement employee was hired in Ontario.
General and administration expenses were $403,745 in fiscal 2001 compared to $286,727 in fiscal 2000. Most of
the increase related to changes in salaries due to employee adjustments in sweat equity and take home pay. The
Chief Financial Officer did not draw a salary until December 1999 resulting in an additional six months salary
impact in fiscal 2000. A May 2001 year-end accrual of deferred salaries related to shares for services program and
take home pay adjustments resulted in an additional expense of $63,471 over fiscal 2000.
Current assets of $376,245 in fiscal 2001 compared to $355,326 in fiscal 2000. Cash balances of $217,038
increased from $168,964. ARISE collects the majority of revenue by credit cards and maintains a conservative
credit policy. The large majority of Inventory relates to PV and Nomad solar system components. Prepaid expenses
at May 31, 2001 primarily relate to prepaid rent and insurance. Net capital assets of $32,745 comprising mainly of
computers and office equipment declined through depreciation from $41,545 in fiscal 2000 as new capital
expenditures were minimal. Patent costs relating to the PCT patent application for FreezeSafe previously
included in Other Assets were written off. The remaining Patent costs relate to the successful U.S. patent
applications plus the Power Manager application in process.
Current liabilities of $227,635 compared to $172,768 in fiscal 2000. Trade payables were current in both periods.
New accruals in fiscal 2001 relate to employee salary deferrals ($63,471) and Deferred Revenue ($12,891).
Balances due to Xantrex Technology Inc. relate to the SolarSense joint venture when ARISE assumed full
ownership in exchange for Xantrex’s equity ownership in ARISE. Amounts due to Xantrex were paid in full on
September 1, 2001. As at May 31, 2001, ARISE had an accumulated deficit of $2,053,980. ARISE had
accumulated federal tax non-capital loss carry forwards and unused research and development expenditures for tax
purposes of approximately $2.1 million.
FISCAL YEAR ENDED MAY 31, 2000 COMPARED TO FISCAL YEAR ENDED MAY 31, 1999
Revenue for the fiscal year ended May 31, 2000 was $248,799 compared to $101,977 for the fiscal year ended May
31, 1999, representing an increase of 144%. SolarSense commenced selling the Nomad 300 in late summer of 1999.
In fiscal 1999, revenue was primarily derived from Sensorsoft soft thermometers $63,789 and PV sales of $24,156.
The accounting policy concerning freight out expenses billed to customers was changed in fiscal 2001 and
retroactively adjusted. All financial statements now reflect freight out recovered within Sales with corresponding
freight out costs included in Cost of Sales.
The gross margin declined from 43.0% in fiscal 1999 to 18.6% in fiscal 2000 due to the significant shift in product
mix. As the manufacturer, the Company’s Sensorsoft products were sold at much higher margins directly to end
user customers compared to PV panels and Nomad systems where ARISE acts as a distributor. Sales and marketing
expenses were $404,550 in fiscal 2000 compared to $136,293 for fiscal 1999. This reflects the increased activity of
the SolarSense office in Burnaby. Fiscal 1999 marketing costs were limited to royalty payments to Sensorsoft and
one sales employee.
Research and development expenses were $433,821 in fiscal 2000 compared to $215,174 for fiscal 1999. The large
increase was due to the Alpha One expenditures and additional salary costs, notably the full year of the Engineering
Manager in fiscal 2000. General administration expenses were $286,727 in fiscal 2000 compared to $235,946 for
fiscal 1999. The increase was due to higher salary expenses. Government assistance in fiscal 2000 was $189,824,
including $128,675 for SR&ED and $60,149 for IRAP grants. Government assistance in fiscal 1999 was $65,751,
comprised of $39,692 for SR&ED and $26,059 for IRAP.
SolarSense.com was initiated as a joint venture between ARISE and Statpower Technologies Corporation in June
1999. An agreement was reached on February 29, 2000 with Xantrex Technology Inc. (successor to Statpower) that
ARISE would retroactively assume all responsibilities for SolarSense.com. In exchange, Xantrex received Common
Shares in ARISE based on their financial contribution to SolarSense. This allowed ARISE to provide improved
support and focus, streamline decision-making and reduce costs.
60
AUDITED FINANCIAL STATEMENTS OF ARISE TECHNOLOGIES CORPORATION
Auditors’ Report
To the Directors of ARISE Technologies Corporation
We have audited the balance sheet of ARISE Technologies Corporation as at December 31, 2002 and the statements of loss
and deficit and of cash flows for the year then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at
December 31, 2002 and the results of its operations and its cash flows for the year then ended in accordance with Canadian
generally accepted accounting principles.
The financial statements of ARISE Technologies Corporation for the periods preceding the year ended December 31, 2002
were audited by other auditors whose report, dated January 17, 2002, expressed an unqualified opinion on those statements.
(signed) Deloitte & Touche LLP, Chartered Accountants
Kitchener, Ontario
February 21, 2003, except for Note 15 a), 15 b), 15 c), 15 d), and 15 e) which are as of April 8, 2003, May 13, 2003, May 16,
2003, May 16, 2003 and May 27, 2003, respectively.
To the Directors of ARISE Technologies Corporation
We have audited the balance sheets of ARISE Technologies Corporation as at December 31, 2001, May 31, 2001, May 31,
2000 and May 31, 1999 and the statements of loss and deficit, and cash flows for the periods then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at
December 31, 2001, May 31, 2001, May 31, 2000 and May 31, 1999 and the results of its operations and its cash flows for
the periods then ended in accordance with Canadian generally accepted accounting principles.
(signed) Simon McWhinnie Riediger and Meredith LLP, Chartered Accountants
Kitchener, Ontario
January 17, 2002
F-1
ARISE TECHNOLOGIES CORPORATION
BALANCE SHEETS
December 31,
2002
May 31,
2001
2001
2000
1999
217,038 $
168,964 $
179,216
4,381
45,755
ASSETS
Current assets
Cash and cash equivalents
$
52,050 $
88,672 $
Accounts receivable
70,694
19,095
Investment tax credits and other government
assistance receivable
92,499
183,497
-
-
39,692
-
10,000
-
25,000
78,000
Inventory
311,911
98,759
111,416
156,458
86,234
Prepaid expenses
249,815
49,963
27,709
523
405
776,969
449,986
376,245
355,326
429,302
Capital assets (Note 2)
29,579
29,278
32,745
41,545
38,358
Other assets (Note 3)
32,217
39,081
21,025
37,210
15,245
Share subscriptions receivable
$
838,765 $
518,345 $
20,082
430,015 $
434,081 $
482,905
155,164 $
78,635 $
44,346
LIABILITIES
Current liabilities
Accounts payable and accruals
$
Shareholder advances (Note 4)
Due to Xantrex Technology Inc. (Note 4)
Current portion of notes payable (Note 5)
Notes payable (Note 5)
768,629 $
130,446 $
20,000
20,000
20,000
20,000
20,140
-
-
52,471
74,133
-
313,708
-
-
-
-
1,102,337
150,446
227,635
172,768
64,486
157,540
125,000
-
-
-
1,619,489
877,073
Commitments (Note 10)
S H A R E H O L D E R S ' E Q U I T Y (D E F I C I E N C Y)
2,805,941
Capital stock (Note 6)
Contributed surplus
Warrants (Notes 5 and 7)
$
19,637
-
-
-
-
-
-
-
-
(2,335,425)
(2,053,980)
(1,358,176)
(458,654)
(421,112)
242,899
202,380
261,313
418,419
838,765 $
518,345 $
430,015 $
434,081 $
482,905
Approved by the Board:
(Signed) Ian MacLellan
Director
(Signed) Harold Alexander
Director
2,256,360
123,863
(3,370,553)
Deficit
2,578,324
F-2
ARISE TECHNOLOGIES CORPORATION
STATEMENTS OF LOSS AND DEFICIT
Year ended
December
31,
2002
Sales
$
1,199,987 $
7 months
ended
December
31, 2001
Year ended May 31,
2001
2000
308,180 $
345,039 $
248,799 $
1999
101,977
Cost of goods sold
914,696
230,694
290,441
202,443
58,150
Gross profit
285,291
77,486
54,598
46,356
43,827
175,414
167,783
360,315
433,821
215,174
government assistance
(56,608)
(183,497)
(246,369)
(189,824)
(65,751)
Net research and development
118,806
(15,714)
113,946
243,997
149,423
General and administrative
716,538
258,360
403,745
286,727
235,946
Selling and marketing
356,248
102,406
216,602
404,550
136,293
28,338
9,141
18,058
18,305
14,843
1,219,930
354,193
(6,335)
746,016
214
953,793
536,505
(934,639)
(276,707)
(691,418)
(907,437)
(492,678)
(72,450)
(4,738)
(4,386)
7,915
(1,787)
(28,039)
(100,489)
(4,738)
(4,386)
7,915
(1,787)
(1,035,128)
(281,445)
(695,804)
(899,522)
(494,465)
(2,335,425)
(2,053,980)
(1,358,176)
(458,654)
35,811
Expenses
Gross research and development
Less: Investment tax credits and other
Depreciation of capital assets
Loss (gain) on disposal of capital assets
Operating loss
Other income (expense)
Net interest income (expense)
Non-cash interest expense (Note 5)
Net loss for the period
Retained earnings (deficit),
beginning of period
Deficit, end of period
$
(3,370,553) $
(2,335,425) $
(2,053,980) $
Loss per share – basic and diluted
$
(0.15) $
(0.05) $
(0.12) $
F-3
(1,358,176) $ (458,654)
(0.19) $
(0.15)
ARISE TECHNOLOGIES CORPORATION
STATEMENTS OF CASH FLOWS
Year ended May 31,
7 months
ended
December 31,
2001
Year ended
December 31,
2002
2001
2000
1999
Cash flows from operating activities
Net loss for the period
$
(1,035,128)
$
(281,445)
$
(695,804)
$
(899,522) $
(494,465)
Items which do not involve cash:
Depreciation of capital assets
28,338
9,141
Amortization of other assets
6,864
-
-
-
41,864
-
Loss (gain) on disposal of capital assets
Non-cash expenses associated with warrants
18,058
18,305
(6,335)
-
14,843
-
-
214
-
-
-
Decrease (increase) in:
Accounts receivable
(51,599)
Investment tax credits receivable and other
government assistance receivable
Share subscriptions receivable
Inventory
Prepaid expenses
987
-
81,066
(37,151)
-
(39,682)
(183,497)
10,000
(10,000)
25,000
53,000
(15,500)
(213,152)
12,657
45,042
(70,224)
(64,740)
(5,838)
Accounts payable and accruals
(15,701)
90,998
13,376
(27,186)
638,183
(24,718)
76,529
34,289
(118)
20,729
8,429
(489,470)
(463,499)
(602,059)
(708,857)
(607,547)
Cash flows from financing activities
Issuance of capital stock
Initial public offering costs
Proceeds from notes payable
Increase (decrease) in shareholder advances
Amount due to Xantrex Technology Inc.
247,254
321,964
636,871
742,416
526,638
(162,767)
(35,630)
-
-
-
397,000
125,000
-
-
-
-
481,487
-
-
(140)
(4,566)
(52,471)
(21,662)
74,133
-
358,863
636,871
742,276
522,072
(10,923)
(22,806)
(15,570)
8,000
1,100
-
-
181,436
Cash flows from investing activities
Purchase of capital assets
(28,639)
Proceeds on sale of capital assets
-
Decrease in investments
-
Decrease (increase) in other assets
-
Net cash flow
Cash and cash equivalents, beginning of period
(5,674)
-
-
(18,056)
16,185
(21,965)
(15,245)
(28,639)
(23,730)
13,262
(43,671)
150,621
(36,622)
(128,366)
48,074
(10,252)
65,146
88,672
217,038
168,964
179,216
114,070
$
52,050
$
88,672
$
217,038
$
168,964
$
179,216
Interest paid
$
8,888
$
-
$
10,121
$
-
$
-
Income taxes paid
$
-
$
-
$
-
$
-
$
-
Cash and cash equivalents, end of period
Supplemental disclosures of cash flows:
F-4
ARISE TECHNOLOGIES CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002, THE SEVEN MONTHS ENDED DECEMBER 31, 2001
AND FOR THE YEARS ENDED MAY 31, 2001, MAY 31, 2000 AND MAY 31, 1999
1.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation – future operations
These financial statements have been prepared in accordance with Canadian generally accepted
accounting principles using the going concern assumption, which presumes the realization of assets and
discharge of liabilities in the normal course of business for the foreseeable future. The Company is in the
development stage, continues to incur losses from operations and does not currently have the financial resources
to sustain operations in the long-term. If the Company’s planned initial public offering is unsuccessful, there is
substantial doubt as to the ability of the Company to continue operations as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability in the future to achieve
profitable operations and to obtain the necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they become due. External financing, predominately by the issuance of
equity to the public, will be sought to finance the operations of the Company; however, there is no assurance
that sufficient funds will be raised.
These financial statements do not include any adjustments to the amounts and classification of assets and
liabilities that might be necessary should the Company not be able to continue as a going concern.
Cash and cash equivalents
Cash and cash equivalents include short-term deposits and marketable debt securities with original maturities of
three months or less.
Inventory
Inventory, which is comprised of finished goods, is valued at the lower of cost, determined using a weighted
average cost assumption, and net realizable value.
Capital assets
Capital assets are stated at cost and depreciation is recorded on the straight line basis over 10 years for furniture and
fixtures, 3 years for office and computer equipment, 5 years for manufacturing equipment, and 5 years for vehicles.
Other assets
Deferred patent costs, licenses and marketing assets, which consist primarily of acquired customer lists, are stated at
cost. Amortization of deferred patent costs will begin once the related patents are obtained. Amortization for
license and marketing assets is provided for using the straight-line method over 3 years.
F-5
Revenue recognition
Revenue from product sales is recognized upon delivery provided that all significant contractual obligations have
been satisfied and collection is reasonably assured. The Company also generates service revenues from consulting,
a product service centre and installation and maintenance services. Service revenues are recognized when the
applicable services are completed.
Stock-based compensation plan
The Company maintains a discretionary employee stock option plan which is described in Note 8. No
compensation expense is recognized for this plan when stock or stock options are issued to employees. Any
consideration paid by employees on exercise of stock options or purchase of stock is credited to share capital.
Effective January 1, 2002, the Company adopted the CICA Handbook Section 3870 “Stock-based Compensation
and Other Stock-based Payments” (“Section 3870”). Section 3870 establishes accounting standards for the
recognition, measurement, and disclosure of stock-based compensation and other stock-based payments made in
exchange for goods and services and applies to transactions, in which an enterprise grants common shares, stock
options, or other equity instruments, or incurs liabilities based on the price of common shares or other equity
instruments. Section 3870 prescribes a fair value based method of accounting required for certain stock-based
transactions, effective January 1, 2002 and applied to awards granted on or after that date. Section 3870 also
requires pro forma disclosures that illustrate the impact of fair value accounting for stock- based employee awards.
Government assistance and investment tax credits
Investment tax credits and government assistance associated with research activities are recorded as a reduction of
the expense or the cost of the asset acquired to which the assistance or incentive applies. Government assistance
associated with the TEAM project (see Note 13) is recorded as revenue. The benefits are recognized when the
Company has complied with the terms and conditions of the approved grant program or the applicable tax
legislation and when the realization of the benefits is certain.
Research and development costs
Research costs are expensed as incurred. Development costs are deferred and amortized when technical feasibility
has been established, the Company has identified a market for the product and intends to market the developed
product; otherwise, these costs are expensed as incurred. Since its inception, the Company has not capitalized any
development costs.
Income taxes
The Company provides for income taxes using the liability method. This approach recognizes the amount of
taxes payable or refundable for the current year, as well as future income tax assets and liabilities for the future
tax consequences of events recognized in the financial statements and tax returns. Future income taxes are
adjusted to reflect the effects of substantively enacted changes in tax laws. The Company recognizes future
income tax assets to the extent that they are more likely than not to be utilized.
Initial public offering costs
The costs incurred by the Company in connection with its initial public offering have been recorded in prepaid
expenses until such time as the offering is complete. The costs associated with a successful offering will be
reclassified as a deduction from equity. The costs will be expensed if the offering is discontinued.
F-6
Use of estimates
In preparing the Company’s consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements, and reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comparative figures
Certain of the comparative figures have been reclassified for consistency with the presentation adopted in the
current period.
2.
CAPITAL ASSETS
December 31,
2002
May 31,
2001
2001
2000
1999
Cost
Furniture and fixtures
$
14,171
$
10,741
$ 10,741 $
10,741 $
10,741
Equipment
Office and computers
86,049
63,218
57,544
46,621
31,128
Manufacturing
13,930
13,930
13,930
16,630
12,100
2,378
-
-
8,403
8,403
116,528
87,889
82,215
82,395
62,372
5,322
3,962
3,335
2,261
1,187
Office and computers
69,552
45,600
38,711
25,369
15,765
Manufacturing
11,835
9,049
7,424
5,628
2,712
240
-
-
7,592
4,350
86,949
58,611
49,470
40,850
24,014
32,745
$ 41,545 $
38,358
Vehicles
Accumulated depreciation
Furniture and fixtures
Equipment
Vehicles
$
29,579
F-7
$
29,278
$
3.
OTHER ASSETS
December 31,
2002
Patent costs
May 31,
2001
2001
2000
1999
14,828
14,358
14,358
27,210
5,245
1,389
4,723
6,667
10,000
10,000
16,000
20,000
-
-
-
32,217 $
39,081
License – Ontario Power
Generation Inc.
Marketing assets –
Prometheus Energy
$
$ 21,025 $
37,210 $
15,245
Patent costs consist of legal fees incurred to obtain patents for technology developed by the Company. The
license represents the cost of entering into a Technology License Agreement with Ontario Power Generation
Inc. to manufacture and sell 1 kilowatt grid-connected inverters. In addition, the Company purchased exclusive
rights to all marketing assets of Heliotronic Energy Systems Inc., doing business as Prometheus Energy.
4.
SHAREHOLDER ADVANCES
The amount owed to Ian MacLellan, the Company’s chief executive officer, is non-interest bearing and has no
fixed terms of repayment.
Xantrex Technology Inc. is a shareholder of the Company. The amounts owing at May 31, 2001 and 2000
consisted of expenses paid by Xantrex on behalf of the Company in connection with the SolarSense.com
division.
5.
NOTES PAYABLE
December 31,
2002
Intercedent Ventures Limited
$
100,000 $
2001
-
Ian Cook Construction Limited
75,000
-
Brenda Ben
30,000
-
150,000
-
2,000
-
165,000
125,000
522,000
125,000
50,752
-
471,248
125,000
313,708
-
Colmac Power Inc.
Hal Merwald
Danehill Trading Limited
Unamortized discount related to warrants and conversion rights issued
Less: current portion (net of unamortized discount of $43,292)
Notes payable (net of unamortized discount of $7,460)
F-8
$
157,540 $
125,000
The balance of the unsecured promissory notes payable to Danehill Trading Limited (“Danehill”) is repayable
on October 31, 2007. The interest rate is currently 2.25% per month. All principal amounts outstanding are
convertible at the option of Danehill to common shares at the lesser of $1.25 per share and the price per share at
the planned initial public offering price within two weeks of receipt of ARISE’s intention to pay any
outstanding balance (See Note 7).
The interest free note payable to Intercedent Ventures is due and payable in the event the proposed
amalgamation (see Note 10) with the Company does not occur. The note is secured by a general security
agreement covering all assets of the Company.
The unsecured promissory note payable to Ian Cook Construction Limited dated March 4, 2002 is payable
within forty-eight hours of the Company receiving unencumbered proceeds of the Company’s initial public
offering. Interest is accruing at 12% per year. In conjunction with this transaction, Ian Cook Construction
Limited was issued 50,000 warrants on May 15, 2002 (See Note 7).
The demand loan payable to Brenda Ben dated April 26, 2002 is payable within thirty days of ARISE receiving
unencumbered proceeds of the planned initial public offering. It is secured by a general security agreement
covering the inventory of the Company. Interest is accruing at 10% per year. Brenda Ben was also issued
20,000 warrants (see Note 7). Brenda Ben is the spouse of the Company’s chief financial officer.
The convertible loan payable to Colmac Power Inc. (“Colmac”) dated November 15, 2002 matures on the
earlier of one day following the receipt of funds on completion of the Company’s initial public offering or May
15, 2003. Colmac has the right to convert the amount owed into units at a conversion price of $0.75 per unit up
until the date of the Company’s initial public offering. Each unit issued in connection with the Company’s
initial public offering consists of one common share and one-half of a share purchase warrant that is exercisable
during the one year period following the offering date at a price of $1.00 per share. In connection with the loan,
Colmac was issued 75,000 warrants (see Note 7 and Note 15d).
The demand loan payable to Hal Merwald dated November 8, 2002 matures on the earlier of one day following
the receipt of funds upon the Company’s initial public offering or May 8, 2003. Interest is compounding at 1%
per month. Hal Merwald was also issued 1,000 warrants (see Note 7). Hal Merwald is the chair of the board of
directors of the Company.
The estimated value of the warrants and conversion rights issued in connection with the above debt instruments
has been determined using the Black-Scholes option pricing model and recorded as a discount. The following
assumptions were used to estimate the value of the warrants issued: dividend yield of 0%; expected volatility of
95%; risk-free interest rate of 4.5%; and a weighted average expected life of six months to 2 years, depending
on the debt instrument’s terms. The combined issue date value of the warrants and conversion rights was
determined to be $78,791 of which $28,039 has been amortized to interest expense.
F-9
6.
CAPITAL STOCK
The Company’s authorized capital stock consists of 100,000,000 common shares.
Regular
Escrow
Escrow to be
Total
Cancelled
Shares
Amount
Balances, May 31, 1998
948,668
3,997,332
1,998,666
2,947,334
$ 350,435
Issued for cash and subscribed
645,565
323,802
161,901
807,466
516,751
Shares issued for services
327,534
661,224
330,612
658,146
9,887
1,921,767
4,982,358
2,491,179
4,412,946
877,073
Issued for cash and subscribed
738,590
-
-
738,590
738,522
Shares issued for services
312,464
138,846
69,423
381,887
3,894
2,972,821
5,121,204
2,560,602
5,533,423
1,619,489
Issued for cash and subscribed
546,020
-
-
546,020
635,919
Shares issued for services
135,177
135,177
952
Balances, May 31, 1999
Balances, May 31, 2000
Balances, May 31, 2001
Issued for cash and subscribed
Shares issued for services
Balances, December 31, 2001
Issued for cash and subscribed, net of
expenses
3,654,018
5,121,204
2,560,602
6,214,620
2,256,360
277,300
-
-
277,300
321,250
110,859
-
-
110,859
714
4,042,177
5,121,204
2,560,602
6,602,779
2,578,324
350,000
-
-
350,000
247,168
Shares issued for services
142,128
-
-
142,128
86
Escrow share cancellation
2,560,602
(5,121,204)
(2,560,602)
-
(19,637)
Balances, December 31, 2002
7,094,907
-
-
7,094,907 $ 2,805,941
The Company was incorporated on October 6, 1993 in British Columbia and is extra provincially registered in
Ontario. As at May 28, 1998, Ian and Cathy MacLellan were the only shareholders of the Company. A
Shareholders' Agreement dated May 29, 1998 provided for the involvement of additional shareholders through
the issuance of the common shares. This allowed for the creation of what is collectively known as the
Founders' Group made up of Ian and Cathy MacLellan in one category of investors, and all other new
shareholders in another. Due to uncertainties in determining the fair market value of the Company's shares, an
Escrow Agreement dated May 29, 1998 was signed by all members of the Founders' Group. The purpose of the
Escrow Agreement is to create the mechanism to provide for an equal annualized return on investment for both
categories of investors making up the Founders' Group.
F - 10
All regular common shares issued to Founders' Group members were for cash of $0.98 per share, and two
common shares to be held in escrow were issued at $.01 each for each common share subscribed. Escrow
shares have full voting rights. The Escrow Agreement outlined the process for determining the value of the
Company at a future valuation date, such as an initial public offering of Company shares, the Company is sold
to another company or the majority of shareholders from both categories of the Founders’ Group agree to have a
valuation done. At the valuation date, one half of the escrow shares were to be released to shareholders in the
Founders' Group such that each would receive an equal return on their investment to the valuation date. One
half of the escrow shares would be cancelled. For purposes of calculating the return on investment for
shareholders, the MacLellans' investment was assumed to have been made on May 31, 1996 and May 31, 1998
would be used for all other new shareholders. To recognize the earlier investment by the MacLellans' of
$200,000 residual equity in the form of retained earnings plus uncompensated sweat equity, on June 1, 1997
they were issued 1,028,534 common Shares to be held in escrow which when added to their escrow shares
numbering 1,071,466 at May 31, 1997, gave them additional escrow shares totalling 2,100,000.
During the December 31, 2001 fiscal period the Company raised funds from investors, not employed by the
Company, at a rate of $1.25 for each common Share issued. The Company has a share option program for
employees and directors that provides for options to be issued for the value of services rendered to the
Company, with an option price of $0.01 per share. During the December 31, 2001 fiscal period, options for one
common share were issued for amounts ranging from $0.85 to $1.25 of services rendered. This program is
expected to be discontinued in the event that the Company is no longer a Canadian Controlled Private
Corporation.
The excess value of services rendered over the nominal option price for shares earned under the employee share
option program is not reflected in these financial statements. The value of the services is determined by
management, and for shares issued under the program during the period ended December 31, 2001, the excess
amounts to $110,416. For prior years, the excess was $115,053 (year ended May 31, 2001), $274,745 (year
ended May 31, 2000) and $317,647 (year ended May 31, 1999).
The Company has a share option grant program for employees and directors which was approved in principle at
the 1999 Annual General Meeting. The number of options outstanding under the program at any point in time
cannot exceed 10% of the number of issued and outstanding shares of the Company, including escrow shares.
Employee options are granted on June 1 each year based on salaries and vest over five years, while directors’
options may be granted throughout the year and vest immediately. The option price is based on the most recent
price paid for shares as approved by the Board of Directors. All options currently have an exercise price
ranging from $1.00 to $1.25 per common share.
Effective upon the receipt from the Ontario Securities Commission for the final prospectus on June 11, 2002,
the Company cancelled 2,560,602 shares with a paid in value of $19,637 which related to one half of the
number shares held in escrow and described as Founders’ Group Escrow shares. There was no compensation
granted to the affected shareholders and the paid in value of the shares was allocated to contributed surplus.
F - 11
7.
WARRANTS
As at December 31, 2002, the Company has issued warrants and rights that provide the holder thereof the right
to purchase common shares as follows:
Date of Issue
November 25, 2002
November 25,2002
November 15, 2002
November 8, 2002
June 18, 2002
May 15, 2002
May 15, 2002
May 15, 2002
April 26, 2002
February 1, 2002
October 19, 2001
(1)
(2)
(3)
(4)
(5)
(6)
Exercise Price per
Security
Date of Expiry
(1)
$0.75
$1.25
$1.00
$1.00
$1.00
$1.25
$1.25
$1.25
$1.25
$0.75
$0.75
May 25, 2004
(3)
(5)
(4)
March 4, 2004
(2)
(6)
April 26, 2005
(1)
(1)
Number of Common
Shares Issuable
55,000
50,000
75,000
1,000
331,366
50,000
40,000
40,000
20,000
40,000
125,000
827,366
The Company has issued Danehill Trading Limited (“Danehill”) promissory notes totalling $165,000 (see Note 5) and granted to Danehill
conversion rights on the outstanding balance at the lesser of $1.25 per share and the issue price for units in the Company’s initial public
offering. These rights expire when the promissory notes are paid in full.
At the option of the warrant holder, these warrants are for a term of 30 or 48 months from March 4, 2002.
On November 15, 2002, the Company entered into a Convertible Loan Agreement with Colmac Power Inc. ("Colmac") (see Note 5)
whereby Colmac loaned the Company $150,000 (the "Colmac Loan"). Pursuant to this agreement, Colmac received 75,000 share purchase
warrants (the "Colmac Warrants") where each warrant carries the right to purchase one (1) common share and is exercisable before the
earlier of (i) the date which is the first anniversary of the initial public offering and (ii) November 15, 2004, at a price of $1.00 per common
share (see Note 15a).
Share purchase warrants issued in the Company’s Special Warrant Offering. Each warrant entitles the holder thereof to purchase one
common share at a price of $1.25 if exercised prior to 4:00 p.m. (Toronto time) on the earlier of (i) the date which is 24 months from the
date of the listing of the underlying shares on the TSXVN and (ii) December 3, 2004.
Earlier of November 8, 2004 and the first anniversary of the closing of the initial public offering.
Three months from the date of hire of the grantee.
Certain of the above warrants were issued for services to third parties. The estimated value of the 90,000
warrants issued in connection with services received has been determined using the Black-Scholes option
pricing model and this value is being recorded as an expense over the vesting period of the related warrants.
The following assumptions were used to estimate the value of the warrants issued: dividend yield of 0%;
expected volatility of 95%; risk-free interest rate of 4.5%; and a weighted average expected life of 18 months to
4 years, depending on the warrant terms. The combined issued date value of the warrants was determined to be
$45,072 of which $13,825 has been charged to expense during the year ended December 31, 2002.
8.
STOCK COMPENSATION PLAN
The purpose of the Company’s stock option plan is to provide eligible officers, directors, employees of, or any
other person, advisor, firm or corporation engaged in management or consulting services for, the Company or
any of its subsidiaries, or, collectively, the Participants, to acquire shares of the Company. On June 5, 2002 the
Board of Directors approved a 2002 Amended and Restated Stock Option Plan (the "Revised Plan"), which
corresponds to the requirements of the TSXVN. Pursuant to the Revised Plan, the Board of Directors is
authorized, in its sole discretion, to grant options, (or “Options”), to acquire common shares of the Company to
the Participants at such price as may be determined by the Board of Directors which shall not be less than the
last closing price of the common shares on the TSXVN on the trading day immediately preceding the grant, less
up to the maximum discount permitted by the TSXVN.
F - 12
The Revised Plan provides that the aggregate number of common shares issuable upon the exercise of Options
may not exceed the number of common shares which is equal to 10% of the common shares which will be
outstanding upon final closing of the Offering and the aggregate number of common shares reserved for
issuance under an Option and any other option arrangement at any time to any one individual must not exceed
5% of the common shares issued and outstanding (on a non-diluted basis). In the event that greater than 50% of
the issued and outstanding common shares are acquired by a person other than Ian MacLellan or an affiliate of
Ian MacLellan, all outstanding Options which are not otherwise exercisable become immediately exercisable.
Options granted under the Revised Plan are non-assignable and are exercisable for a term not exceeding five
years. The Revised Plan limits the number of common shares granted to each consultant and persons employed
in investor relations activities on behalf of the Company to 2% of the outstanding common shares at the time of
the grant. Under the Revised Plan, if an optionee ceases to be a director, officer or employee for any reason
other than death, his options shall terminate 90 days after such cessation. The Revised Plan specifies that the
options granted under the plan shall vest over a period of not less than 18 months and in equal quarterly
instalments. In addition, all options granted under the Revised Plan and all common shares issued on the
exercise of such options will be subject to a four-month TSXVN hold period from the date the options are
granted.
A summary of the status of the Company’s stock option plan as of December 31, 2002 and December 31, 2001 and
changes during the years then ended is as follows:
2002
Options
2001
Weighted
Average
Exercise
Price
Outstanding, beginning of period
Granted
Exercised
Forfeited / expired
Outstanding, end of period
430,850
433,000
(83,600)
780,250
$
Exercisable, end of year
393,380
$
Options
1.03
1.25
Weighted
Average
Exercise
Price
$
1.08
1.15
419,181
55,000
(1,020)
(42,311)
430,850
1.00
1.25
1.00
1.00
1.03
1.12
252,980
$
1.04
A summary of the options issued and exercisable as at December 31, 2002 is as follows:
Exercise Price
$1.00
$1.25
F - 13
Number of
Options
Outstanding
Weighted
Average
Remaining
Contractual
Life (years)
Number of
Options
Exercisable
317,850
462,400
780,250
1.97
4.45
3.44
203,780
189,600
393,380
If the Company had determined compensation cost related to its stock option plan based on the fair value at the
grant dates for awards granted during the year ended December 31, 2002, the Company’s net loss and net loss per
share would have been reported at the pro forma amounts indicated below:
Net loss as reported
Net loss – pro forma
$
$
(1,035,128)
(1,185,907)
Basic loss per share as reported
Basic loss per share – pro forma
$
$
(0.15)
(0.17)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants during the period: dividend yield of 0%; expected
volatility of 95%; risk-free interest rate of 4.5%; and a weighted average expected life of 5 years.
9.
EARNINGS PER SHARE
Year ended
December
31, 2002
7 months
ended
December
31, 2001
Earnings available to common
shareholders
$ (1,035,128)
Weighted average common
shares outstanding during the
year – basic
6,866,139
Loss per share – basic
$ (0.15)
Year ended May 31,
2001
2000
1999
$ (281,445)
$(695,804)
$(899,522)
$(494,465)
6,334,990
5,733,515
4,805,924
$ (0.04)
$ (0.12)
$ (0.19)
3,259,20
$ (0.15)
Diluted loss per share has not been presented, as the inclusion of dilutive securities is antidilutive to loss per
share.
10. COMMITMENTS
The Company leases space and equipment under long-term operating leases, the annual rents for which are
$59,195, $62,145 and $28,957 for 2002, 2003 and 2004, respectively.
The Company intends to pursue research into photovoltaic technologies with the University of Toronto.
Pursuant to the terms of an Agreement with NexxDigm Technologies Inc., the Company has agreed to issue
200,000 common shares to the vendors of the assets purchased. In addition, the Company has agreed to issue
an additional 450,000 common shares, over the next three years, subject to certain adjustments. Also, upon
closing, the Company will issue options to Nazir Kherani and Stefan Zukotynski to acquire up to 100,000
common shares, which vest upon completion of certain milestones. Furthermore, the Company has agreed to
pay a royalty over the next 20 years of between 0.25% and 5% on revenues earned on components which rely
on patents developed under this agreement.
F - 14
Under the terms of a Research Collaboration Agreement, the Company has agreed to issue Materials and
Manufacturing Ontario (“MMO”), the University of Toronto and the inventors of the photovoltaic technology,
53,333 common shares in return for licence rights granted by MMO. In addition, the Company has agreed to
issue an aggregate of 10,000 common shares to MMO, the University of Toronto and the inventors of the
technology for each United States patent application filed and 500 common shares for each Patent Co-Operation
Treaty Patent application filed based on inventions which arise from the research conducted pursuant to the
Research Collaboration Agreement. ARISE will support the research with an annual contribution of $250,000
per year for up to three years toward the project's research budget, funded in part from the proceeds from this
Offering as part of the Company's R&D budget.
The Company intends to amalgamate with Intercedent Ventures Ltd. (“IVL”) pursuant to a Letter of Intent
executed on August 9, 2002. IVL is a Capital Pool Corporation, listed on the TSX Venture Exchange (TSXVN)
under the symbol IVL. As at December 31, 2002, IVL had working capital of $495,565, total assets of $532,708
and liabilities of $12,142. As of December 31, 2002, IVL has advanced the Company a $25,000 refundable
deposit and a $75,000 non-interest bearing loan. Both amounts are secured by separate general security
agreements. The proposed share exchange ratio is 4.875 common shares of IVL for one common share of the
Company and one-half share purchase warrant. Each full warrant is exercisable into one common share of the
Company at an exercise price of $1.00 per share.
11. SEGMENTED REPORTING
The Company operates in one solar energy business segment from its sole location in Kitchener, Ontario. The
majority of sales outside of Canada are into the United States through the Company’s Internet site
SolarSense.com.
Year ended
December 31, 2002
$
990,694
207,260
$ 1,199,987
Sales to Canadian customers
Sales to customers outside of Canada
7 months ended
December 31, 2001
$ 121,743
184,398
$ 308,180
12. INCOME TAXES
The Company is not currently taxable. Consequently, no tax provision is reflected on the statement of loss and
deficit. The income tax provision differs from the amount expected by applying the Canadian statutory rate to
earnings before income taxes for the following reasons:
Year ended
December 31, 2002
Loss before income taxes:
$
Expected tax recovery at the combined basic Canadian
federal and provincial income tax rates of 38.6% (200140.6%)
Benefit of tax losses not recorded
Non-temporary differences and other
Income tax provision
$
F - 15
(1,035,128)
7 months ended
December 31, 2001
$
(281,445)
(399,600)
(114,300)
339,600
60,000
-
144,800
30,500
-
$
These financial statements do not reflect potential income tax reductions available through the application of
losses being carried forward for income tax purposes against future earnings otherwise subject to income taxes,
and the deduction of unclaimed research and development expenditures in the amount of $464,700 which can
be carried forward indefinitely. The losses can be carried forward for seven taxation periods from the period
incurred, and expire as follows:
2004
2005
2006
2007
2008
2009
$
60,164
171,878
703,022
631,274
354,842
865,537
$
2,786,717
13. GOVERNMENT ASSISTANCE
The Company has received assistance in connection with its research and development activities and the TEAM
Project. Investment tax credits resulting from claims filed by the Company are shown on the statement of loss
and deficit.
On March 26, 2002, ARISE entered into an “Efficiency and Alternative Energy Program Contribution
Agreement” (the “TEAM Agreement”) with the Canadian Department of Natural Resources (“NRCan”)
pursuant to which NRCan has committed to provide up to $924,800 in funding as contributions towards the
Company’s project for the demonstration of the viability of solar homes in Canada (the “TEAM Project”). The
Canadian federal government, under the Technology Early Action Measures (“TEAM”) component of the
Climate Change Action Fund, and NRCan, is partially sponsoring the program. The total budgeted cost of the
TEAM Project for the Company, together with its project participants, NRCan and homebuyers, is $1,994,190
and is scheduled for completion not later than March 25, 2004. Expenditures which are reimbursable by
NRCan are reimbursed as incurred on a predetermined fixed percentage basis subject to completion of various
TEAM Project requirements.
The contributions are repayable as a royalty from future product sales. The royalty equals 1% on systems sold
and 2% on sales of components developed under the TEAM Project and is payable from April 1, 2005 until the
earlier of March 31, 2014 or the date upon which all of the NRCan funding has been repaid.
Included with sales is $172,976 of revenues resulting from the TEAM Project.
F - 16
14. FINANCIAL INSTRUMENTS
Fair value
At December 31, 2002, the fair values of the Company’s short-term financial assets and financial liabilities
approximate their book values given the short-term nature of these items. The fair value of the unsecured note
payable to Danehill (see Note 5) approximates its carrying value as the note was recently amended by the
parties.
Foreign currency risk
The Company is exposed to foreign currency risks due to its sales to customers in the United States. This risk is
partially offset by purchases in United States dollars.
Credit and concentration risk
The Company is not exposed to significant credit risk relating to trade accounts receivable given the size of
individual customer amounts owed to the Company.
15. SUBSEQUENT EVENTS
a)
On April 8, 2003, as a short term financing arrangement, the Company entered into an Inventory
Agreement with Hal Merwald, the chairman of ARISE, whereby ARISE sold U.S. $80,000 of inventory at
cost in exchange for a deposit of U.S. $70,000. The agreement provides that the sold inventory remains on
Company premises and allows the Company to substitute the sold inventory with alternate inventory at
equivalent cost in order to accommodate customer orders. The Company has purchased additional
inventory with the funds received, but is committed to repurchase the inventory for U.S. $77,000 plus 1%
per month.
b) On May 13, 2003, the Company obtained a $75,000 line of credit with a Canadian chartered bank from an
interest rate of prime plus 0.75% per annum. This line of credit is secured by a general security agreement
on the Company's assets and the personal guarantee of Ian MacLellan.
c)
On May 16, 2003, IVL advanced the Company $75,000, secured by a general security agreement on the
Company's assets. These funds will be eliminated upon completion of the proposed amalgamation with
IVL. As a result of this advance, IVL's minimum required cash balance to complete the amalgamation was
reduced from $325,000 to $250,000. IVL has advanced a total of $175,000 to the Company. In the event
the amalgamation does not proceed, these funds will be due and payable with an additional 10% bonus to
IVL.
d) On May 16, 2003, the Company executed an amendment to the Colmac loan agreement (see Note 5)
whereby the loan matures on the earlier of i) the date which is one day following the receipt by the
Company of the funds on completion of the Company’s initial public offering and ii) September 15, 2003.
In addition, the expiration term of the 75,000 warrants that were previously issued to Colmac was extended
by one year (see Note 7).
e)
On May 27, 2003, the Company filed a prospectus dated May 27, 2003 in respect of its initial public
offering.
F - 17
Grant Thornton LLP
Chartered Accountants
Management Consultants
Auditors' Report
To the Directors of
Intercedent Ventures Ltd.
We have audited the balance sheets of Intercedent Ventures Ltd. as at December 31, 2002 and
2001 and the statements of operations and deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with Canadian generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2002 and 2001 and the results of its operations and
its cash flows for the years then ended in accordance with Canadian generally accepted
accounting principles.
Toronto, Canada
May 2, 2003, except for note 13, which is as of May 16, 2003
Royal Bank Plaza
19th Floor, South Tower
200 Bay Street, Box 55
Toronto, Ontario
M5J 2P9
T (416) 366-0100
F (416) 360-4949
E [email protected]
W www.GrantThornton.ca
Canadian Member of Grant Thornton International
F - 18
Grant Thornton LLP
Chartered Accountants
Intercedent Ventures Ltd.
Statements of Operations and Deficit
Years Ended December 31
Revenue
Interest
$
Expenses
Professional fees
Travel and entertainment
Rent
General and adminstrative
Transfer agent fees
Bank charges
2002
2001
8,094
$ 22,353
25,707
9,325
12,000
7,781
5,468
131
60,412
34,203
18,061
12,000
1,053
2,231
132
67,680
Net loss
$ (52,318)
$ (45,327)
Loss per share (Note 6)
$
(0.012)
$
(0.010)
Deficit, beginning of year
$ (54,845)
$
(9,518)
Net loss
Deficit, end of year
(52,318)
(45,327)
$ (107,163)
$ (54,845)
See accompanying notes to the financial statements.
F - 19
Intercedent Ventures Ltd.
Balance Sheets
December 31
Assets
Current
Cash and cash equivalents
Interest receivable
Receivables and prepaids (Note 3)
Loan receivable (Note 4)
2002
2001
$ 376,433
1,270
55,005
75,000
507,708
$ 531,767
2,975
27,462
562,204
25,000
25,000
$ 532,708
$ 587,204
$
$
Long term investment (Note 5)
Liabilities
Payables and accruals
Shareholders’ Equity
Capital stock (Note 6)
Deficit
12,142
627,729
(107,163)
520,566
$ 532,708
Commitment (Note 12)
Subsequent event (Note 13)
On behalf of the Board
Signed, William G. Saywell
Director
Signed, Paul W. Cooper
Director
See accompanying notes to the financial statements.
F - 20
14,320
627,729
(54,845)
572,884
$ 587,204
Intercedent Ventures Ltd.
Statements of Cash Flows
Years Ended December 31
2001
2002
Increase (decrease) in cash and cash equivalents
Operating activities
Net loss
Changes in non-cash operating working capital (see below)
$
Investing activities
Acquisition of shares in a private company
Loan receivable
$
(45,327)
(16,588)
(61,915)
(75,000)
(75,000)
(25,000)
(25,000)
(155,334)
(86,915)
531,767
618,682
$ 376,433
$ 531,767
$
(27,543)
1,705
(2,178)
$
(26,802)
4,913
5,301
$
(28,016)
$
(16,588)
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(52,318)
(28,016)
(80,334)
Supplemental cash flow information
Changes in non-cash operating working capital:
Receivables and prepaids
Interest receivable
Payables and accruals
See accompanying notes to the financial statements.
F - 21
Intercedent Ventures Ltd.
Notes to the Financial Statements
December 31, 2002 and 2001
1.
Nature of operations
Intercedent Ventures Ltd. (the “Company”) was incorporated under the Canadian Business Corporations Act
on January 26, 2000. The Company’s shares are listed on the Canadian Venture Exchange.
The Company is classified as a Capital Pool company as defined by the Canadian Venture Policy 2.4. The
principal business of the Company is to identify and evaluate assets and businesses which, if acquired,
would provide the basis for listing on the Canadian Venture Exchange as a venture company. The
Company currently has no business or assets other than working capital and a portfolio investment.
2.
Summary of significant accounting policies
The financial statements have been prepared by management in accordance with accounting principles
generally accepted in Canada.
Use of estimates
In preparing the financial statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenue and expenses during the period. Actual
results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, balances with banks and short term deposits with original
maturities of one year or less. Bank borrowings, if any, are considered to be financing activities.
Investments
Investments in companies in which the Company does not have a controlling interest and does not exercise
significant influence, are recorded at cost and treated as portfolio investments.
F - 22
Intercedent Ventures Ltd.
Notes to the Financial Statements
December 31, 2002 and 2001
2.
Summary of significant accounting policies (continued)
Income taxes
Future income tax assets are recognized on temporary timing differences between reported and taxable
income and on losses incurred more likely than not to be carried forward to reduce future taxable income.
Future income tax liabilities are recognized on temporary timing differences between reported and taxable
income which will increase future taxable income.
Earnings (loss) per common share
The Company has adopted the recommendations of the Canadian Institute of Chartered Accountants with
respect to the calculation of earnings (loss) per common share. The main effect of this standard is the use of
the treasury-based method of calculating diluted earnings per common share instead of the imputed interest
method.
Basic earnings (loss) per common share is calculated based on the weighted average number of common
shares outstanding for the period. The calculation of earnings per common share on a diluted basis
considers the potential exercise of outstanding options and warrants.
3.
Receivables and prepaids
The Company has a refundable deposit of $25,000 which is due from ARISE Technologies Corporation
(“ARISE”) which is included in receivables and prepaids and is secured by a general security agreement.
4.
Loan receivable
The loan receivable from ARISE is non interest bearing, matures June 30, 2003, and is secured by a
general security agreement.
5.
Long term investment
UCounsel Corporation, a privately-held British Columbia-based healthcare technology company, provided
the Company with 50,000 common shares at $0.50 a share, an arm's-length price, as compensation for a
$25,000 deposit received from the Company in anticipation of a qualifying transaction that was not
consummated.
See accompanying notes to the financial statements.
F - 23
Intercedent Ventures Ltd.
Notes to the Financial Statements
December 31, 2002 and 2001
6.
Capital stock
Authorized:
The Company is authorized to issue an unlimited number of preferred and common shares, without par
value.
Shares
Amount
Shares issued for cash in 2000, net of issue costs of $72,271
4,500,000
$ 627,729
Outstanding at December 31, 2001 and 2002
4,500,000
$ 627,729
Common shares issued
7.
Common stock options
The Company has granted stock options to its directors to purchase up to 250,000 common shares,
exercisable at a price of $0.20 per share until September 13, 2005.
8.
Per share information
The weighted average number of common shares outstanding in 2002 and 2001 used in computing per
share amounts was 4,500,000.
9.
Related party transactions
The Company was charged rent of $12,000 (2001 - $12,000) and cost recoveries of $8,638 (2001 $16,704) by Intercedent Limited, a significant shareholder of the Company.
Payables and accruals included $144 (2001 - $10,008) payable to Intercedent Limited.
10.
Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, receivables, loan receivable,
long term investment, and payables and accruals. The Company estimates that the fair value of these
financial instruments, other than the long term investment, included in the balance sheet approximate the
carrying values. It is not practicable within the constraints of timeliness or cost to determine the fair value of
the long term investment. Information about this investment is provided in Note 5.
The Company is not exposed to significant interest, currency or credit risks arising from these financial
instruments.
See accompanying notes to the financial statements.
F - 24
Intercedent Ventures Ltd.
Notes to the Financial Statements
December 31, 2002 and 2001
11.
Income taxes
The following table reconciles the expected income tax recovery at the statutory income tax rate to the
amounts recognized in the statements of operations.
2001
2002
Net loss reflected in the statement of operations
$ 52,318
$
45,327
Expected income tax recovery at statutory rate
Share issuance costs claimed for income tax purposes
$
Non-capital losses not recognized
$ 20,200
6,000
26,200
(26,200)
18,000
6,000
24,000
(24,000)
Income tax recovery recognized
$
$
-
-
The following table reflects future income tax assets at December 31, 2002 and 2001.
2001
2002
Unclaimed non-capital losses
Share issuance costs
Valuation allowance
$ 60,200
10,800
71,000
(71,000)
$
$
$
-
34,000
17,000
51,000
(51,000)
-
At December 31, 2002, the Company had unclaimed share issuance costs of $28,000 and unclaimed noncapital losses carried forward of $109,200.
12.
Commitment
On November 15, 2002, the Company signed an amalgamation agreement with ARISE. The amalgamation
is subject to ARISE completing their Initial Public Offering prior to June 30, 2003 as well as approval from
shareholders of the Company.
13.
Subsequent event
On May 16, 2003, the Company made a further loan of $75,000 to ARISE. The loan is non interest bearing,
matures June 30, 2003, and is secured by a general security agreement.
See accompanying notes to the financial statements.
F - 25
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF ARISE
COMPILATION REPORT
To the Directors of ARISE Technologies Corporation
We have reviewed, as to compilation only, the accompanying pro forma consolidated balance sheet of ARISE
Technologies Corporation as at December 31, 2002 and the pro forma consolidated statement of loss for the year then
ended, which have been prepared for inclusion in the prospectus dated May 27, 2003 relating to the sale and issue of
units. In our opinion, the pro forma consolidated balance sheet and pro forma consolidated statement of loss have been
properly compiled to give effect to the proposed transactions and assumptions described in notes thereto.
Deloitte & Touche LLP
Chartered Accountants
Kitchener, Ontario
May 27, 2003
F - 26
ARISE Technologies Corporation
Unaudited Pro Forma Consolidated Balance Sheet
As at December 31, 2002
ARISE
Current assets
Cash and cash equivalents
$
Accounts receivables
Investment tax credits and other
government assistance receivable
Loan receivable
Inventory
Prepaid expenses
52,050
Pro Forma
Adjustments
IVL
$
376,433
610,000
(361,000)
(25,000)
3c
3c
3a
(75,000)
3a
70,694
56,275
92,499
311,911
249,815
776,969
75,000
507,708
(168,687)
(19,687)
Capital assets
29,579
-
-
Other assets
32,217
25,000
Current liabilities
Accounts payable and accruals
$
838,765
$
532,708
$
768,629
$
12,142
Shareholder advances
Current portion of notes payable
Notes payable
Capital stock
Pro Forma
Consolidated
Note
$
92,499
311,911
81,128
1,264,990
3e
29,579
57,217
$
(19,687)
$
(104,000)
250,000
3c
3d
3a
3c
20,000
313,708
-
1,102,337
12,142
(100,000)
(213,708)
(167,708)
157,540
-
-
2,805,941
627,729
520,566
610,000
(168,687)
(627,729)
Deficit
$
946,771
157,540
3b
3c
3e
3b
3,767,820
19,637
123,863
(3,370,553)
(107,163)
(421,112)
520,566
838,765
1,351,786
926,771
20,000
19,637
123,863
Contributed surplus
Warrants
677,483
101,969
$
F - 27
532,708
107,163
(43,292)
(250,000)
148,021
$
(19,687)
3b
3c
3d
(3,663,845)
397,267
$
1,351,786
ARISE Technologies Corporation
Unaudited Pro-Forma Consolidated Statement of Loss
For the Year Ended December 31, 2002
ARISE
Sales
$ 1,199,987
Cost of goods sold
914,696
Gross profit
285,291
Expenses
Net research and development
General and administrative
Selling and marketing
Amortization of capital assets
Pro Forma
Adjustments
IVL
$
-
60,412
(60,412)
Net interest income (expense)
(100,489)
8,094
1,199,987
285,291
118,806
776,950
356,248
28,338
1,280,342
(995,051)
60,412
$ (1,035,128) $
(52,318) $
6,866,139
$
$
-
Operating loss
Weighted average shares outstanding
Loss per share – basic and diluted
Pro Forma
Consolidated
914,696
118,806
716,538
356,248
28,338
1,219,930
(934,639)
Net loss for the year
Note
28,039 3c
21,500 3c
49,539
(42,856)
$
2,123,076 3f
(0.15)
8,989,215
$
F - 28
(1,037,907)
(0.12)
ARISE TECHNOLOGIES CORPORATION
Notes to the Unaudited Proforma Consolidated Balance Sheet
and Unaudited Pro Forma Consolidated Statement of Operation
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statement of loss of
ARISE Technologies Corporation ("ARISE") have been prepared by management in accordance with Canadian generally
accepted accounting principles to give effect to the proposed amalgamation with Intercedent Ventures Ltd. ("IVL") as if such
amalgamation, and other related transactions indicated below, had occurred on December 31, 2002 and on January 1, 2001,
respectively. The pro forma consolidated financial statements have been prepared from information derived from the audited
financial statements of ARISE and IVL as at, and for the year ended, December 31, 2002. In the opinion of management of
ARISE, the unaudited pro forma consolidated financial statements include all adjustments necessary for fair presentation of the
proposed amalgamation of the two companies and the issuance of common shares described in Note 2 below.
The amalgamation of ARISE and IVL has been accounted for using purchase accounting. The carrying value of the net assets
acquired of IVL was deemed to be the purchase price as the fair value of the net assets of IVL is equal to the stated carrying
value since the net assets of IVL are represented primarily by cash.
The unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statement of loss should be read in
conjunction with this prospectus. The unaudited pro forma consolidated financial statements are not necessarily indicative of
the financial position which would have resulted if the proposed amalgamation had actually occurred on the date indicated and
ARISE successfully completed the Minimum Offering of an IPO.
2. PRO FORMA ASSUMPTIONS
The unaudited pro forma consolidated balance sheet and an unaudited pro forma consolidated statement of loss assume that the
following transactions associated with the amalgamation of ARISE and IVL occurred as at December 31, 2002 and January 1,
2002, respectively and ARISE successfully completed the Minimum Offering of an IPO:
a) The completion of the amalgamation in which ARISE has acquired all of the issued and outstanding shares of IVL at a
ratio of 4.875 shares of IVL for 1.0 shares of ARISE.
b) The cancellation of 4,500,000 shares of IVL reflecting all issued and outstanding shares; and
c) The issuance of 923,076 shares of ARISE to existing IVL shareholders based on an ARISE share price of $0.75 per
share.
This amalgamation is being considered as the Qualifying Transaction of IVL pursuant to Policy 2.4 of the TSXVN and is
subject to regulatory and shareholder approval. Due to the conditional listing granted to ARISE for their IPO on the TSXVN,
all shares held by IVL shareholders will be cancelled in exchange for shares of ARISE.
3. PRO FORMA ADJUSTMENTS
The following adjustments were made to the unaudited pro forma consolidated balance sheet and unaudited pro forma
consolidated statement of loss to give effect to the amalgamation transactions as if the amalgamation had occurred on
December 31, 2002 and January 1, 2002, respectively:
a) The advances represented by a loan of $75,000 and a deposit of $25,000 previously provided to ARISE by IVL were
cancelled.
b) The equity accounts of IVL were eliminated.
c) The Minimum Offering pursuant to the IPO was achieved, providing net proceeds of $610,000 ($900,000 less costs of
$290,000) plus assets of IVL. The estimated costs of the amalgamation were deducted from the capital stock account
of ARISE. In addition, the company made cash disbursements totalling $361,000 to settle notes payable, deferred
salaries and accrued interest. The settlement of the debt obligations resulted in the write-off of a portion of
unamortized debt discount totalling $43,292. The interest expense previously recorded by the Company totalled
$21,500 in respect of the associated notes payable. The discount amortization previously recorded by the Company
totalled $28,039 during the year ended December 31, 2002.
d) Pursuant to the agreement with University of Toronto and Materials and Manufacturing Ontario, the $250,000
contribution required by that agreement is recognized as a liability upon completion of the IPO.
e) Accrued IPO costs in Prepaid Expenses are eliminated against Capital Stock.
f) Loss per share is determined using a weighted average number of shares outstanding of 8,989,215 shares which
assumes that the shares issued to IVL shareholders totalling 923,076 shares and the shares issued in the Minimum
Offering totalling 1,200,000 shares were issued on January 1, 2002.
F - 29
CERTIFICATES
CERTIFICATE OF THE COMPANY
Dated: May 27, 2003
The foregoing constitutes full, true and plain disclosure of all material facts relating to the securities offered by this
Prospectus as required by Part 9 of the Securities Act (British Columbia), Part XV of the Securities Act (Ontario)
and Part 8 of the Securities Act (Alberta) and the regulations thereunder.
(signed) Ian MacLellan
President and Chief Executive Officer
(signed) Michael Ben
Secretary-Treasurer, Operations Manager and
Chief Financial Officer
On Behalf of the Board of Directors
(signed) Vern Heinrichs
Director
(signed) Harold Alexander
Director
CERTIFICATE OF THE PROMOTER
The foregoing constitutes full, true and plain disclosure of all material facts relating to the securities offered by this
Prospectus as required by Part 9 of the Securities Act (British Columbia), Part XV of the Securities Act (Ontario)
and Part 8 of the Securities Act (Alberta) and the regulations thereunder.
(Signed) Ian MacLellan
C-1
CERTIFICATE OF THE AGENT
Dated: May 27, 2003
To the best of our knowledge, information and belief, the foregoing constitutes full, true and plain disclosure of all
material facts relating to the securities offered by this Prospectus as required by Part XV of the Securities Act
(Ontario), Part 9 of the Securities Act (British Columbia) and Part 8 of the Securities Act (Alberta) and the
regulations thereunder.
NORTHERN SECURITIES INC.
Per: (signed) Rickard Vernon
C-2
Northern Securities Inc.
150 York Street, Suite 1814, Toronto, Ontario, M5H 3S5
Tel: 416 644-8100, Fax: 416 644-0270 www.northernsi.com