"2011 was a very challenging year for the entire PV industry. Unfortunately we are not immune to these challenges. Sudden adverse changes in government policies towards solar energy in some of the key markets have combined with global PV hardware over-supply to create perhaps the most difficult PV market since the global financial crisis of late 2008. What is further concerning is that the outlook for 2012 appears to be equally volatile," noted George Rubin, President and CEO of Day4 Energy.
The company's fourth quarter revenues of $9.4 million declined fromS$57.7 million or 84% from the same period in 2010 and by 35% from the prior quarter. The total revenue for the fiscal year 2011 was $66.1 million which was a decrease of $100.6 million or a drop of 60% compared to 2010. The gross loss, according to the company, was $0.3 million for 4Q2011 compared to the prior quarter's $3.0 million gross loss and a gross margin of $4.7 million in 4Q2010. Full year gross losses for 2011 were $7.6 million or 12% compared to gross margins of $9.0 million or 5% in 2010.
The negative margins in 2011 were due to several factors including decreasing sales prices, downward inventory adjustments to market and fixed charges from our outsourced manufacturer.
Expenses
For the fourth quarter of 2011, general and administrative (G&A) expenses were $6.0 million, an increase of $3.3 million and $2.9 million from expenses of $2.7 million for the prior quarter and $3.1 million for the same period in 2010, respectively. The increase is mostly due to fewer equipment construction projects ongoing in the fourth quarter of 2011 and the resulting allocation of idle plant expenses to G&A.
G&A expenses were $13.1M for the full year ended December 31, 2011 and $10.5M for 2010. The addition of EcoTec's G&A expenses was offset by overall decrease in G&A expenses. As a result, the consolidated G&A expenses have increased slightly compared to the prior year.
Sales and marketing expenses of $2.4 million for the fourth quarter 2011 compared to $1.3 million in the same period in 2010 and $2.0 million in the third quarter 2011. The increase is mainly related to the addition of $0.7 million provision for PV module warranties in the fourth quarter of 2011.
Sales and marketing expenses for the full year ended December 31, 2011 were $5.9 million compared to $4.1 million for the prior year. The higher 2011 expenses are mostly due to the addition of the equipment construction segment's S&M activities since acquisition and higher accrual for PV module warranties.
R&D expenses in the fourth quarter were $1.1 million compared to $1.3 million for the prior quarter and $1.3 million for same period in 2010.
For the full year ended December 31, 2011 R&D expenses were $5.1 million compared to $5.3 million in the prior year. The decrease in R&D expenses in 2011 was a result of the overall cost-cutting measures across the Company in 2011, which was offset by the addition of the equipment construction segment's R&D expenses since acquisition.
Loss per Share
The net loss for the fourth quarter 2011 was $18.8 million ($0.39 per share) compared to $9.3 million ($0.20 per share) in the prior quarter and a net loss of $1.3 million ($0.04 per share) for the same period in 2010. The increase in the net loss is a direct result of the deteriorated PV market conditions. The net loss in the fourth quarter of 2011 was also increased by the significant writedowns of tangible and intangible assets.
The net loss for fiscal 2011 was $40.7 million ($0.90 per share) compared to $9.8 million ($0.26 per share) for the prior year. The higher net loss in fiscal 2011 is mainly due to the significant downturn in the PV industry in 2011.
Cash and Short-Term Investments
Working capital was negative $4.0 million at the end of the fourth quarter and full year ended December 31, 2011, a decrease of $6.0 million compared to the previous quarter. Cash, cash equivalents and restricted cash totaled $7.2 million at December 31, 2011, an increase of $4.2 million from $3.0 million at September 30, 2011; a decrease of $5.1 million from $12.3 million at December 31, 2010. Cash and cash equivalents have decreased since December 31, 2010 primarily due to the utilization of funds to finance operations.
During the year PV manufacturing industry operated in a period of substantial over-capacity. The combination of reduced demand and over-capacity has resulted in rapid declines in PV wafer, cell and module prices across the global industry. Mounting market pressure has forced a number of PV cell and PV module manufacturing companies to announce various forms of restructuring plans over the course of the last few months and notable failures from some of the oldest PV companies. These deteriorated market conditions have further resulted in most PV cell and module manufacturers reducing or delaying their equipment investment decisions originally scheduled for 2011. Today, while we continue to see customer demand for Day4 DNA PV modules, depressed market prices leave little room for profit margins. At the same time, while we were successful in securing license agreements with a number of manufacturing partners as well as completing the sale of 60 MW of existing manufacturing equipment for PV cell and PV module manufacturing to Ever Energy, overall industry downturn has had its negative impact on our own PV equipment business at Day4 EcoTec. Overall, the Company has not yet realized profitable operation, continues to experience negative margins and has relied upon debt and equity to fund operations to date.
With the objective of improving overall liquidity and profitability, management has implemented or is in the process of implementing a number of measures including a reduction in staff as well as certain non-payroll operating costs for a total estimated amount of approximately $5 million per annum. The company was further successful in securing a sale of certain existing manufacturing equipment for a total amount of approximately $4 million CDN and securing a private placement from Wangs Brother Motor Company for $1.9 million CDN.
Continued lack of market visibility and limited financial resources demanded an additional strategic adjustment to the Company's operations. In response to this challenge, Company's management has developed two independent strategies designed to reduce operating costs while maintaining the ability to pursue the long-term objective of building a technology platform for PV power generation products.
On the manufacturing equipment side of the business we continue to lack visibility into the timing of the recovery in the PV equipment market. In order to address the situation management has put in place the following actions:
- Take advantage of the intangibles, such as customer relationships and technical knowledge gained through the Day4 EcoTec business, within Day4 Energy's R&D and engineering operations in Canada;
- Allow Day4 ecoTec to peruse otherwise non-core but revenue generating opportunities in the automotive industry; and
- Evaluate the possibility of selling all or partial the equity ownership in our equipment manufacturing activities to a third party.
Recently, we have secured interest from a company controlled 100% by a director of Day4 Energy Inc. to acquire a 100% share ownership of Day4 ecoTec. If such sale is completed, it would help to significantly reduce our monthly operating costs as well as our long and short term debt.
In parallel, the Company has a non-binding Letter of Intent with Ever Energy to combine their operations through a plan of arrangement that contemplates an exchange of shares. This agreement is subject to negotiation of a definitive agreement, due diligence, board of directors' approval, shareholder, court and regulatory approvals and the continued listing of the combined company is subject to Toronto Stock Exchange (TSX) approval. While both companies maintain interest in the transaction, under current market conditions in the industry the parties have mutually agreed to postpone the final negotiations in respect of the merger until such time when short and mid-term industry particularly in respect of European market becomes clearer. There can be no assurance that the proposed transaction will be contemplated as proposed or at all. Ever Energy remains our largest licensed manufacturing partner. The two companies continue to work together in order to deliver Ever Energy manufactured Day4 DNA products to Day4's PV system integration customers around the world.
During Q4, 2011, board member Mr. Anil Wirasekara resigned and Mr. Milton Wong, a long time member of Day4's board of directors, passed away. "Both of these gentlemen will be missed, in light of the very important contributions they made to the development of Day4 Energy during their tenure on our board of directors." said Dr. John MacDonald, Chairman of the board. In addition, Mr. John Wang, CEO of Ever Energy, was added to Day4's board of directors during the Company's 4th quarter of 2011.
