corp ar 2007 vd - carmanahcarmanah.com/files/l/misc/financial reports/cmh 2007 ar.pdf · gross...

2007 annual report

2 Carmanah Technologies Corporation - Annual Report 2007

section 1: fi nancial highlights

108 kW solar grid-tie system on the Jean Canfi eld Building, Charlottetown, PEI

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Financial Highlights

Forward-looking Statements

Our 2007 Annual Report may contain forward-looking statements made pursuant to applicable securities legislation (including the Safe-Harbour provisions of the United States Private Securities Litigation Reform Act of 1995) that refl ect our current expectations with respect to future events. Forward looking statements typically contain words such as “believes”, “anticipates”, “continue”, “could”, “expects”, “indicates”, “plans”, “will”, “may”, “projects”, “would” or similar expressions suggesting future outcomes or events, although not all forward-looking statements contain these identifying words. Any such statements are based on assumptions that we believe to be current and reasonable based on information currently available to us, and are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on our risks and uncertainties relating to these forward-looking statements, please read our Annual Information Form for the fi scal year ended December 31, 2007, as fi led on SEDAR at www.sedar.com. Investors should not place undue reliance on forward-looking statements, and we undertake no obligation to update our forward-looking statements to refl ect subsequent events or circumstances except to the extent required by law.

section 1: fi nancial highlights

Sales of $59.0 million for 2007, down 5.1% from $62.2 million in 2006

Gross margin of 26.4% for 2007, down from 32.6% in 2006

Net loss of ($8.9) million for 2007 compared to ($0.4) million in 2006

EBITA of ($9.6) million for 2007 compared to $1.6 million in 2006

Positive cash fl ow from operations of $2.0 million, compared to a negative operating cash fl ow in 2006 of $8.4 million

Ended the year debt free with net cash of $4.1 million

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2007 Financial Summary

Sales by Geography

Gross Margins by Technology Division

Solar Lighting Division 32.8%Power Systems Division19.2%LED Signs Division30.7%

South America$866,000Europe$5,680,000Middle East$3,495,000Asia$910,000South Pacifi c$402,000North America$47,656,000

Power Systems Division47%Carmanah Signs Division7%Solar Lighting Division46%

Sales by Technology Division


section 1: business review

US Coast Guard Cutter Juniper upgrades navigational buoys with LED marine lanterns, New York, NY

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Carmanah derives revenue from the manufacturing and sale of solar-powered LED lighting, solar power systems, and LED signage. In 2007, through both direct and distributor sales programs, we served the following markets through our three groups:

Solar-Powered LED Lighting

Marine Navigation and hazard marking lights with one, two, three and four nautical mile ranges.

Transit In 2007, Carmanah offered solar-powered bus stops featuring LED bus signals, area lighting, and edge-lit schedules. (In 2008, this market will be served with Carmanah’s standard area lighting products, such as EverGEN lights).

Aviation Taxiway edge lighting, runway lighting, obstruction lighting, apron lighting, barricade lighting and emergency lighting.

Roadways Pedestrian crosswalk signals, school zone fl ashers, 24-hour roadway beacons, internally illuminated street-name and traffi c signs.

Industrial Warning lights, obstruction lights, equipment-marking lights, railway track warning lights, bridge marking lights.

Solar Power Systems

Off-grid solar power: industrial

Solar systems and “balance of system” (BOS) components for telecommunication, oil and gas and security applications.

Off-grid solar power: mobile

Solar-power systems for RV’s, boats, long-haul trucking and utility fl eet trucks.

Off-grid solar power: residential

In 2007, Carmanah offered solar-power systems for independent homes and cottages. (In 2008, this market will be served, in the US only, through component sales).

Grid-tie solar power Commercial and residential building-integrated photovoltaic systems that use solar power to supplement electricity drawn from the grid.

LED Signs

Point of purchase Corporate identity, branding, identifi cation, gaming and lottery signs.

Architectural Directional, way-fi nding, and corporate identity signs.


Business Review

Company Overview

Performance Summary

Solar LED Lighting Division:

Sales in solar LED lighting were $27.4 million in 2007, up $0.6 million over 2006. Overall sales growth was negatively impacted by the decision to exit the customized transit market. In total, transit sales were $4.9 million in 2007, down from $6.2 million in 2006. The decision to exit the custom transit business was due to the fact that the majority of sales required signifi cant modifi cations for each customer. As a result, the necessary economies of scale could not be obtained to provide suffi cient margins to justify maintaining its current product offering in this business. In the future, the transit customers’ needs will be fulfi lled with a General Illumination portfolio that is suitable for transit shelters and other remote situations. Estimated negative foreign exchange impact on sales for this division was $1.8 million.

Solar Power Systems Division:

Sales in solar power systems were $27.3 million in 2007, down $3.5 million over 2006. This decrease is mainly due to lower sales in the fourth quarter as a result of (1) restructuring within the company’s US distribution which involved replacing key sales staff, which resulted in a $4.5 million drop in sales and (2) the sale of the Home Power vertical which reduced sales by approximately $0.4 million in the fourth quarter. In total, Home Power sales represented approximately $4.2 million of sales in 2007. In 2008, the majority of these sales are expected to discontinue. Estimated negative foreign exchange impact on sales for this division was $2.0 million.

LED Sign Division:

Sales of LED signs were $4.2 million in 2007, which is fairly comparable to $4.4 million recorded in 2006. Sales growth in this market is expected to come from (1) new technologies, such as EVENLIT™ light panels, which are being integrated into the product offering, and (2) expansion into new geographic markets. Estimated negative foreign exchange impact on sales for this division was $0.2 million.


section 1: shareholder address

Carmanah’s executive team (from left): Philippe Favreau – COO, Roland Sartorius – CFO and Ted Lattimore – CEO

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We certainly have the resources to do the job right — in addition to a talented team of industry experts that has helped establish Carmanah as one of the world’s most trusted names in solar technology, we’ve recently had the good fortune to welcome two world-class corporate executives: Philippe Favreau, Chief Operating Offi cer, and Roland Sartorius, Chief Financial Offi cer — both seasoned professionals, and experts in their fi elds. In Q4 2007, our new executive team performed a detailed review of our strategic direction, and developed a strategy that realigns our market verticals, and refocuses our attention on those activities that are key to the company’s long-term success.

Over the past few months we’ve implemented some very positive changes; we’ve sharpened our focus, streamlined processes, controlled costs, and eliminated bank debt. As part of a comprehensive 100-day planning process, we’ve identifi ed where we want to be, and developed the strategy to get us there. During this time, we assessed the many market opportunities open to us, and narrowed our focus to align our expertise with only those opportunities that offer the very best return for our customers and our stakeholders. This increased focus extends to everything we do. To ensure a productive and profi table future, we’re controlling costs, improving effi ciencies, maximizing the quality and utility of every product we make, and of course, maintaining our hard-earned reputation for customer satisfaction.

Carmanah products have a well-earned reputation for being strong, long lasting, and proven to perform in some of the world’s harshest environments. Our customers have learned to trust Carmanah technology in any environment. Among their testimonials, they tell us of marine lanterns chiseled fully functioning from the frozen sea after being submerged for weeks under layers of ice; aviation lights continuing to work even after being run over by a service truck,

or struck into an adjacent fi eld by an aircraft propeller; and an obstruction light crushed into the ground under a falling tower only to emerge fully functioning and ready for the next challenge. Our solar power systems are providing reliable, high-quality electricity in areas where grid power is unavailable (or increasingly, simply unnecessary). And of course, our LED signs are popular around the world as an effi cient, low maintenance and long-lasting display alternative.

As I’m sure you can tell, I have a lot of confi dence in this company; confi dence in the people, the products, and tremendous opportunities ahead. The world needs clean, renewable power, and as a veteran in the fi eld of solar technology, Carmanah is ideally positioned to meet that need.

Looking back over the past year, I see 2007 as a turning point — a point from which we can review how far we’ve come, learn from the challenges of the past, and build a strategy to guide us to the next level. Despite some initial inventory setbacks early in the year and the ever-present pressures from a signifi cant increase in the Canadian dollar throughout the year, we’ve strengthened our fi nancial position, improved cost and working capital management, streamlined our manufacturing process, and made progress toward a return to sustainable, profi table growth.

I am excited about the direction we have set in 2007, and more than confi dent in our ability to achieve our goals in 2008 and beyond.

Ted Lattimore, Chief Executive Offi cer

To our Shareholders

As Carmanah’s new Chief Executive Offi cer, I look forward to sharing our results for 2007. I’ve been with the company for just a few months, yet I’m confi dent in the opportunities before us, and in our ability to achieve the goals we’ve set as part of our new strategic focus. Although 2007 was a year of transition that offered no shortage of challenges to many Canadian businesses, it helped us to assess our strengths, and align our strategic and tactical direction toward a more disciplined and profi table future.

A Message from Ted Lattimore, Chief Executive Offi cer

section 1: shareholder address


A recent strategic review has resulted in the company being structured around two business segments intended to help defi ne the optimal structure for the company going forward:


• Strategic: includes the primary business units of LED lights and beacons and solar power systems for industrial and grid-tie applications. These units will be the main focus of the company going forward over the long term.

• Tactical: includes business units such as energy-effi cient LED edge-lit signage and solar component distribution. These units are important today and are generally stand-alone growth opportunities.

New Business Focus

This optimal go-forward business strategy is expected to emphasize the company’s key revenue-producing activities while accommodating other complementary profi table opportunities within the company’s three technology groups: solar-powered LED lighting, solar power systems and LED-illuminated signage.

Tagline:

we put solar to work™

Corporate Mission

Based on Carmanah’s strategic focus for the future, we revised the corporate mission as follows:

We deliver standalone solar lighting and solar power systems for industrial applications, worldwide.

This enhanced focus has also resulted in a renewal of the corporate web site and marketing materials to refl ect Carmanah’s new vision and values, and reaffi rm its commitment to product quality, customer satisfaction and relevant innovation.

Operations

In the latter half of 2007, we made substantial improvements in our supply chain management and initiated lean manufacturing processes in our manufacturing operations to ensure effi cient and cost-effective processes throughout.

Corporate Governance

We also enhanced our internal controls over fi nancial reporting during 2007 by improving our management reporting and review processes, and making several additional to the fi nance team, including a Manager of Financial Reporting and Compliance.

Management instituted a Whistleblower program as part of its corporate governance in 2007. Procedures are now in place that provide a way for anyone, who has reasonable cause to suspect acts of fraud, accounting irregularities, material omissions of public disclosure, confl icts of interest, or other wrongdoing by Carmanah, to report their suspicions in confi dence.

Strategic and Tactical Focus

Carmanah’s new EverGEN™ solar area lighting system

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Narrowing Market Focus

In 2007, we moved beyond building custom products for the solar home power market and the highly specialized segment of the Transit market to better focus resources on core markets. We then divested of the Home Power business, including inventory and related obligations. By reducing the time, investment, and skilled resources that it takes to manage the Home Power and specialized Transit businesses, we can renew and refresh our focus on the customers, products and businesses that will be more responsible for the revenue, margin and market growth of our planned future.

Market Size

An examination of Carmanah’s key markets reveals considerable opportunity.

Marine - $250 million global market – 75% in 25 countries

Aviation - $1.5 billion global market – 11k paved airports

Roadways - $1.5 billion global market – 400k schools

Obstruction - 2 million cranes worldwide and booming wireless markets

New Product In September 2007, we introduced our newest innovation, the EverGEN™ solar engine, at the Solar Power 2007 conference in Long Beach, California. Available in fi ve models ranging from 10 to 80 watts in power, the EverGEN solar engine is a self-contained, solar-powered energy source that provides dependable, high-quality electricity for lights, sensors, cameras and more - anywhere there’s access to the sun.

Quick and easy to install, the solar engine provides a versatile source of power at a fraction of the cost of a traditional hard-wired connection, without trenching, cabling, permits or a monthly utility bill. All components - including solar panels, rechargeable batteries, sensors and electronics - are integrated within a sleek, compact and durable pole-mounted design.

As a stand-alone power source, the EverGEN solar engine is ideal for locations where the best spot for a camera, sensor or area light may be impractical or impossible due to lack of access to grid power (for example, rural pathways, parks, parking lots, campuses, construction sites, marinas or remote airfi elds).

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Marketing AnalysisStrategic Direction

During the last quarter of 2007, our new executive team performed a detailed review of our strategic direction. Our new strategic direction, fi nalized in early 2008, includes a realignment of our market verticals and re-focuses our attention on those activities that are key to our long term success. As a result, commencing in 2008 we will realign sales and margin reporting, as outlined below:

Solar Lights and Power Systems

These businesses are:Strategically important today and/or tomorrow

The future direction and key to our long term success

Main focus of our senior management team

Market position defi nition and primary basis for our market capital valuation

They include:- Solar lighting- Solar power products- Solar grid-tie projects

Other

These businesses are:Tactically important today

Entrepreneurial - stand alone growth opportunities

Areas for employee development and training

Source for potential new strategic businesses

They include:- Solar component distribution- Solar-powered lights for transit - RV kit and inverter distribution- Non-solar roadways signs- Indoor pop signs- Light-boxes and components

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As a result of the strategy review, we have adopted a new tag line and mission statement as previously stated, and the following strategic objectives:

Strategic Objectives:

1. Build strategic customer relationships in select markets to ensure that we design high value-add solutions for our customers with leading quality and performance.

2. Enhance the customer’s experience by improving quality and making it easy to do business with us.

3. Create a winning, risk-taking culture where everyone has a passion to make a difference, grow, and be rewarded for their contribution.

4. Be the market leader in integrated, industrial, stand-alone solar lighting and power systems.

5. Build R&D capabilities and partnerships to achieve and maintain leadership and differentiation in robust, cost-effective, application-specifi c solutions for solar lights and engines.

2008 Outlook




President & Chief Operating Offi cer, Vodafone Romania

Increased customer base from 700,000 to 5.5 million subscribers in six years

Generated $286 million in shareholder dividends

Sold $226 million high yield bond; managed $300 million loan restructuring

+20 years senior strategic management experience in communication and technology industries — Bell Mobility, Telus

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Philippe Favreau, Chief Operating Offi cer

General Manager, Global Operations, Workfl ow and Prepress Equipment, Kodak Communications Group

Corporate VP Operations, CREO, Inc.

Operations Manager, Schneider Electric

+20 years operations experience — product development, manufacturing and supply chain

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Roland Sartorius, Chief Financial Offi cer

Chief Financial Offi cer, Infosat Communications — Bell Canada

+12 years Chief Financial Offi cer experience with European private equity fund and public and a private international and North American based high growth technology companies

+8 years, KPMG — Corporate Finance and Assurance Services

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section 1: corporate leadership

Corporate Leadership

In 2007, Carmanah introduced a new management team of experienced business professionals:

OutlookOverall sales are expected to approximate 2007 levels due to the lost revenues from exiting the Home Power and Transit businesses. These businesses provided approximately $9.1 million in sales in 2007 ($4.9 million from Transit, and $4.2 million from Home Power). Solar Lights and Power Systems, our strategic businesses, are expected to grow at a greater rate than our tactical businesses in 2008 as a result of an increased customer centric and senior management focus. In early 2008, we have also added several key sales, marketing and business development positions to assist in our sales efforts.

We expect gross margin to signifi cantly improve in 2008 over 2007 levels as a result of not expecting to incur any further non-recurring inventory issue and the exiting of our customized low margin Home Power and Transit businesses. During the later half of 2007, we have also made substantial improvements in our supply chain management and initiated lean manufacturing processes in our operations. These initiatives should further help to increase the gross margins. Our gross margins are also expected to increase in the future as our sales mix increases in favor of our strategic businesses.

We are planning to grow organically and through strategic partnerships with customers, OEM’s and suppliers. We currently have no plans for acquisitions nor do we anticipate any equity fi nancings in the near foreseeable future.

We will continuously update our business outlook in future management discussion and analysis reports.

Changes on the Board of Directors

In May 2007, Robert Logan and Julian Elliott joined the Board of Directors. During this month, Mark Komonoski stepped down as Manager of Investor Relations, and Peeyush Varshney also left the Board to be replaced by Irene Schamhart in the role of Corporate Secretary. In October, Carmanah’s new Chief Executive Offi cer Ted Lattimore joined the Board, and Art Aylesworth, Carmanah Chief Executive Offi cer since 2000, moved to the position of Chairman of the Board to provide continuity and support as the new executive team developed a strong understanding of the business. Carmanah founder David Green stepped down as Chair but remained on the Board. In December, David Egles resigned as a member of the Board of Directors and left the company as part of an agreement to purchase Carmanah’s solar home power business and operate it as a private business.

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section 1: corporate governance

Corporate Governance

Art Aylesworth, Chair of the Board

Art Aylesworth joined Carmanah Technologies as President and Chief Executive Offi cer in 2000 and led the company’s rapid transformation from research and engineering startup, with 12 employees and $1 million revenues, into one of the world’s fastest-growing renewable and energy-effi cient-technology manufacturers, with over 250 employees and $61 million revenues. Art moved to the chair of the board from Chief Executive Offi cer in October 2007.

Kelly Edmison, Director

Kelly Edmison is President and Chief Executive Offi cer of Pender Financial Group, a merchant bank focused on the high technology and healthcare sectors. A graduate of the University of Toronto and Queen’s University, Mr. Edmison has practiced law for over 20 years. He spent his early career in Calgary and Hong Kong before joining Ladner Downs (now Borden Ladner Gervais) in 1985 where he practiced securities and commercial law until 1995. He then established his own practice focused exclusively on representing Vancouver-based junior technology companies.

Julian Elliott, Director

Julian Elliott brings over 25 years of experience in building entrepreneurial organizations and commercializing technology in emerging markets. His broad range of experience includes Chief Executive Offi cer and executive chairman positions at start-up companies in Silicon Valley, as well as Vice President and General Manager of Agilent Technologies, a spin-off of Hewlett Packard. At Agilent/HP, he founded the company’s storage networking products business, growing it from inception into a highly profi table division.

David Green, Director

Dr. David Green is the founder of Carmanah Technologies. A professional engineer experienced in the management and operation of high-tech companies, Dr. Green has also founded or was a founding member of NxtPhase Corporation (1997), Carmanah Research (1993), Seastar Chemicals (1988), SDL Optics (1986), Axys Instruments (1982), Axys Analytical (1980), and Axys Environmental (1974).


Ted Lattimore joined Carmanah as Chief Executive Offi cer in October 2007. Mr. Lattimore brings more than 20 years of entrepreneurial and executive experience in the mobile telecommunications industry, beginning with his involvement in the launch of the industry in Canada in 1985, to President and Chief Operating Offi cer for Vodafone Romania, a subsidiary of Vodafone Group Plc., the world’s largest international mobile telecommunications group, where his achievements include growing the company’s customer base from 700,000 to 5.5 million subscribers in six years. Mr. Lattimore became Chief Executive Offi cer of Carmanah in October 2007.

J. Robert Logan, Director

With more than 20 years of experience in the fi nancial services industry, Robert Logan brings a unique blend of capital markets and corporate fi nance insight to Carmanah’s board. His fi nancial knowledge and experience, gained mostly in New York, London and Toronto, includes senior roles at CIBC and Citigroup Global Markets, where as Managing Director he was responsible for the fi rm’s Canadian fi xed-income capital markets business.

Irene Schamhart, Corporate Secretary

Irene Schamhart is responsible for all aspects of Carmanah’s human resources and administration, including compensation and benefi ts, performance management, training and development, staffi ng and recruitment, employment equity, contract administration, public company administration, and legal. With a background in corporate fi nance and accounting, reporting and budgeting, tax planning and administration, Ms. Schamhart’s professional experience also includes more than 10 years in public practice with a Vancouver-based CGA fi rm. Ms. Schamhart became Corporate Secretary in 2007.

Divesh Sisodraker, Director

Divesh Sisodraker is President and CEO of TheJobMagnet Interactive Inc., a recruitment based social network. He has almost twenty years of business experience, including roles as EVP and CFO of Taleo Corporation, where he led NASDAQ’s second largest software IPO of 2005; and CFO at Pivotal Corporation, listed on NASDAQ and the TSX. Mr. Sisodraker also served as President and CEO of the largest and fastest growing division of CDC Software, a $400 million dollar software company listed on NASDAQ. He obtained his Chartered Accountancy designation working with KPMG.

Praveen K. Varshney, Director

Praveen Varshney is a chartered accountant, having obtained his C.A. designation in 1990. He has been actively involved in the capital markets since 1995, and is a director of Varshney Capital Corp., a merchant banking, venture capital and corporate advisory fi rm. Mr. Varshney is also a director and offi cer of a number of publicly traded companies.

Board Members and Committee Membership 2007–2008


section 1: md&

a - overview

Solar LED warning fl asher increases visibility of traffi c signage

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We are one of the world’s premier suppliers of renewable and energy-effi cient technologies, including solar-powered LED lighting, solar power systems and equipment, and LED illuminated signage.

From our global headquarters in Victoria, British Columbia, Canada, we oversee a network of branch offi ces and sales representatives across Canada, the United States and the United Kingdom. We are a publicly traded company, with common shares listed on the Toronto Stock Exchange under the symbol “CMH” and on the Berlin and Frankfurt Stock Exchanges under the symbol “QCX”.

The growth in our operations over the years, both organically and through acquisition, has resulted in business activities that include the design, manufacture and/or distribution of three technology divisions: solar-powered LED lighting, solar power systems, and LED-illuminated signage. Our Solar LED Lighting division provides a variety of energy-effi cient LED lighting products for marine, aviation, transit, roadway and industrial worksite applications. The Solar Power Systems division offers a wide range of renewable energy system solutions for industrial and recreational power applications. The LED Sign division designs and manufactures energy-effi cient LED edge-lit signs for corporate identity, point of purchase and architectural applications.

We have delivered installations worldwide and our customer list includes a wide range of government, commercial and private users, which are serviced directly by us or one of our regional authorized distributors and/or sales agents.

Management Discussion and AnalysisFor the year ended December 31, 2007

The following discussion and analysis of our fi nancial condition and results of operations has been prepared as at February 29, 2008 and should be read in conjunction with the audited consolidated fi nancial statements and related notes as at and for the years ended December 31, 2007 and 2006, which were prepared in accordance with Canadian generally accepted accounting principles (GAAP). All amounts in this report are in Canadian dollars, unless otherwise stated.

Overview

section 1: md&

a - overview


Sources of sales

We derive revenue from the manufacturing and sale of solar-powered LED lighting, solar power systems, and LED signage.

Cost of sales

Cost of sales consists primarily of direct materials, salaries and other labour-related costs, facilities and other overhead, freight in, as well as services provided by manufacturing subcontractors.

Operating expenses

During the year, we have reclassifi ed our operating expenses to enhance disclosure. The signifi cant costs in each of these categories are discussed below.

Sales and marketing - sales and marketing expense consists primarily of: (a) salaries and benefi ts for sales and marketing staff, (b) commissions on sales, (c) travel and entertainment, (d) the cost of samples provided to customers, (e) marketing and advertising fees, as well as (f) costs incurred to attend tradeshows.

Research, development and engineering – research, development and engineering consists primarily of (a) salaries and benefi ts for engineering staff engaged in either product development or providing other product support and (b) materials and expenditures incurred relating to development. This expense is shown net of the Scientifi c Research and Experimental Development (SR&ED) tax credit.

General and administration – general and administration expense consists primarily of: (a) salaries and benefi ts for administrative staff (purchasing, information systems, human resources, fi nance, executive, product management, etc.), (b) stock compensation, (c) accounting, legal and other professional fees, (d) facilities and related overhead, and (e) bank and merchant fees.

Amortization – consists primarily of amortization of production equipment, information systems and offi ce assets, leasehold improvements and intangibles.

Non-operating expenses

Interest and other (income)/ expenses – consists primarily of interest costs on our line of credit, net of interest earned on cash balances.

Foreign exchange – consists primarily of gains and losses resulting from revaluations and settlements of foreign denominated fi nancial assets (cash and accounts receivable) and liabilities (accounts payable).

NON-GAAP MEASURES

For the quarter and year ended December 31, 2007, we are disclosing EBITA non-GAAP fi nancial measures, as supplemental indicatiors of operating performance. We defi ne EBITA as net income before, interest, income taxes, and amortization. We are presenting the non-GAAP fi nancial measures in our fi lings because we use them internally to make strategic decisions, forecast future results and evaluate our performance and because we believe that our current and potential investors and many analysts use the measure to assess our current and future operating results and to make investment decisions.

EBITA RECONCILIATION FOR THE YEAR ENDED DECEMBER 31 FOR THE QUARTER ENDED DECEMBER 31

($ THOUSANDS) 2007 2006 2007 2006

Net loss $ (8,914) $ (365) $ (4,635) $ (802)

Add/(deduct):

Interest 91 (167) (25) (6)

Income taxes (1,923) 951 (270) 54

Amortization 1,151 1,144 287 354

$ (9,595) $ 1,563 $ (4,643) $ (400)

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section 1: md&

a - overview

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Financial HighlightsAS AT AND FOR THE YEAR ENDED FOR THE QUARTER ENDED

$ THOUSANDS, EXCEPT PER SHARE AMOUNTS DECEMBER 31, 2007 DECEMBER 31, 2006 DECEMBER 31, 2007 DECEMBER 31, 2006

OPERATING RESULTSSALES BY DIVISION (NOTE 1)

Solar LED 27,457 26,861 7,136 6,786 Power Systems 27,346 30,905 5,045 8,147 LED signs 4,206 4,417 833 1,289

59,009 62,183 13,014 16,222 GROSS PROFIT BY DIVISION (NOTE 1)

Solar LED 9,021 11,316 1,560 2,264 Power Systems 5,262 7,445 974 2,003 LED signs 1,294 1,522 (88) 302

15,577 20,283 2,446 4,569 GROSS MARGIN % BY DIVISION (NOTE 1)

Solar LED 32.9% 42.1% 21.9% 33.4%Power Systems 19.2% 24.1% 19.3% 24.6%LED signs 30.8% 34.5% (10.6%) 23.4%

26.4% 32.6% 18.8% 28.2%OPERATING EXPENSES

Sales and marketing 9,032 8,220 1,944 1,983 Research, development and engineering 2,809 2,224 785 604 General and administration 10,127 8,539 2,525 2,557 Amortization 1,151 1,144 287 354

23,119 20,127 5,541 5,498 NON OPERATING EXPENSES

Goodwill impairment 2,000 - 2,000 -Gain on sale of Homepower (259) - (259) -Interest and other 91 (167) (25) (6)Foreign exchange (gain)/loss 1,463 (262) 95 (175)

3,295 (429) 1,811 (181)Tax (1,923) 951 (270) 54 Net income/(loss) (8,914) (365) (4,636) (802)EBITA (9,595) 1,563 (4,643) (400)

BALANCE SHEET INFORMATIONCurrent assets 27,097 37,576

Receivables 11,537 11,882 Inventory 10,608 20,353

Total assets 45,397 55,758 Total liabilities 7,992 10,859 Total equity 37,405 44,899 Current ratio (times) 3.4 3.5 Debt/total assets % - 3.4%

SHARE INFORMATIONShare price - closing ($) 1.19 2.95Market capitalization ($) 51,236 125,468 Outstanding shares Average - Basic and Diluted 42,651,299 41,696,874

End of period 43,055,174 42,531,592 Outstanding warrants - end of period 300,000 300,000 Outstanding options - end of period 4,263,083 3,453,082

Date of preparation - Febuary 29, 2008 Outstanding shares 43,070,174 Outstanding warrants 300,000 Restricted share units (Note 2) 149,254 Performance based share units (Note 2) 55,970 Outstanding options 4,288,083

OTHER INFORMATION# of employees (FTE) - Total 248 235Operations 104 96Sales and marketing 52 55Research, development and engineering 36 29General and administration 56 55

Note 1 - Presentation to change in 2008 - see discussion in 2008 Outlook. Note 2 - Restricted and performanced based share units were issued on January 1, 2008 as a part of our Chief Executive Offi cer’s compensation package.

section 1: md&

a - overview


Overall we faced signifi cant challenges in 2007, a year that combined unfavourable foreign exchanges rates, surplus inventory challenges, and fl attening sales which combined to result in a pretax ($10.8) million loss [($8.9) after tax] for the year. A large part of this loss is attributable to items that are not expected to reoccur:

Foreign exchange In total, the strengthening Canadian dollar (against the US dollar) during the year impacted our net income by approximately $5.5 million. We estimate our sales were reduced by about $4.0 million as a signifi cant amount of our sales are denominated in US dollars. We also incurred $1.5 million in foreign losses on our foreign denominated working capital. During the second half of 2007 we initiated a foreign exchange hedging policy to minimize the impact of negative currency fl uctuations.

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Surplus inventoryAt the end of 2006, we had built up a signifi cant amount of inventory in anticipation of sales growth and expected shortages for raw materials (e.g. PV panels). To clear the excess inventory and reduce our working capital, we provided higher discounts on a variety of our products during the year which ultimately contributed to our overall lower margins. In addition, we incurred signifi cant inventory write downs and adjustments of $1.2 million. As of December 31, 2007, we have no more surplus inventory recorded on our balance sheet.

Goodwill write down At year-end, we wrote off $2.0 million of goodwill associated with our 2003 acquisition of AVVA Technologies Inc., now referred to as our LED’s signs division. The write down was primarily the result of year end changes in our overall strategic direction.

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Sales were $59.0 million, a decrease of $3.2 million from a year ago. This decrease is primarily due to (1) the effects of foreign exchange on our revenues, which we estimate at $4.0 million, (2) restructuring within our US distribution vertical as we replaced key sales staff, which resulted in $4.5 million in reduced sales, and (3) reduced sales from the our transit and home power (residential) market verticals as we transitioned away from those markets.

The year also brought signifi cant changes within the senior management team, as we welcomed a new executive team of proven business professionals to the roles of Chief Executive Offi cer (Ted Lattimore – October 2007), Chief Financial Offi cer (Roland Sartorius – August 2007), and Chief Operating Offi cer (Philippe Favreau – May 2007). Once in place, our new leadership team, working with the Board, undertook a review of, and implemented changes to, our governance procedures, internal processes and controls, and overall business strategy.

2007 HighlightsYear summary

Sales of $59.0 million for 2007, down 5.1% from $62.2 million in 2006;

Gross margin of 26.4% for 2007, down from 32.6% in 2006;

Net loss of ($8.9) million for 2007 compared to ($0.4) million in 2006;

EBITA of ($9.6) million for 2007 compared to $1.6 million in 2006;

Positive cash fl ow from operations of $2.0 million, compared to a negative operating cash fl ow in 2006 of $8.4 million

Ended the year with net cash of $4.1 million.

Fourth quarter summary Sales of $13.0 million for the quarter, compared with $16.2 million in same period in 2006;

Gross margin of 18.8% for the quarter, down from 28.2% in same period in 2006;

Net loss of ($4.6) million for the quarter, compared to ($0.8) million in same period in 2006.

EBITA of ($4.6) million for the quarter, compared to ($0.4) million in same period in 2006;

Positive cash fl ow from operations of $2.1 million in the quarter, compared to a negative operating cash fl ow in 2006 of $3.8 million.

Ended the quarter with net cash of $4.1 million.

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section 1: md&

a - 2007 highlights

Wireless portable airfi eld lights illuminate runways, taxiways, and more

carmanah.com 17

Quarterly Financial Highlights ($ THOUSANDS)

FISCAL 2007 Q4 2007 Q3 2007 Q2 2007 Q1 2007

FISCAL 2006 Q4 2006 Q3 2006 Q2 2006 Q1 2006

Sales 59,009 13,013 15,444 15,366 15,186 62,183 16,222 17,529 15,842 12,590

Gross Profi t 15,577 2,446 4,727 3,106 5,298 20,283 4,569 6,088 5,345 4,281

Gross Margin 26.4% 18.8% 30.6% 20.2% 34.9% 32.6% 28.2% 34.7% 33.7% 34.0%

Operating Costs 23,119 5,541 5,265 6,723 5,590 20,127 5,499 5,284 4,906 4,438

Other expenses/(income) 3,296 1,811 538 696 251 (429) (181) (23) (42) (183)

Tax (1,923) (270) (311) (1,263) (79) 951 54 490 358 49

Net Income (loss) (8,914) (4,636) (765) (3,049) (464) (365) (802) 336 123 (23)

EPS - Basic (0.21) (0.11) (0.02) (0.07) (0.01) (0.01) (0.02) 0.01 - -

EPS - Diluted (0.21) (0.11) (0.02) (0.07) (0.01) (0.01) (0.02) 0.01 - -

We discuss quarterly trends within the results of operations (year over year and fourth quarter) sections.

Results Of Operations – Year Over Year Comparison Sales

Sales for the year ended December 31, 2007 were $59.0 million, down $3.2 million from 2006. A summary of revenues from each of our technology groups is as follows:

SALES BY DIVISION FOR THE YEAR ENDED DECMEBER 31, 2007

($ THOUSANDS) 2007 2006 CHANGE

$ Mix $ Mix $ %

Solar LED Lighting 27,457 46.5% 26,861 43.2% 596 2.2%

Solar Power Systems 27,346 46.3% 30,905 49.7% (3,559) (11.5%)

LED Signs 4,206 7.1% 4,417 7.1% (211) (4.8%)

59,009 100.0% 62,183 100.0% (3,174) (5.1%)

Solar LED Lighting Division - Sales were $27.5 million, up $0.6 million over last year. Overall, the sales growth was negatively impacted by our decision to exit the customized transit market. In total, transit sales were $4.9 million in 2007, down from $6.2 million in 2006. The decision to exit the custom transit business was due to the fact that the majority of sales required signifi cant modifi cations for each customer. As a result, we could not obtain the necessary economies of scale to provide suffi cient margins to justify maintaining our current product offering in this vertical. In the future, we will try to fulfi ll transit customer’s needs with our General Illumination portfolio which is suitable for transit shelters and other remote situations. We estimate the negative foreign exchange impact on sales for this division was $1.8 million.

Solar Power Systems Division - Sales were $27.3 million, down $3.6 million over last year. This decrease is due to lower sales in the fourth quarter as a result of (1) the restructuring within our US distribution business as we replaced key sales staff, which resulted in a $4.5 million drop in sales and (2) the sale of our home power vertical which reduced sales by approximately $0.4 million in the fourth quarter. In total, Home power sales represented approximately $4.2 million of sales in 2007. In 2008, the majority of these sales are expected to discontinue. We estimate the negative foreign exchange impact on sales for this division was $2.0 million.

LED Sign Division - Sales were $4.2 million, which is fairly comparable to $4.4 million recorded in 2006. We estimate the negative foreign exchange impact on sales was $0.2 million. Sales growth in this market is expected to come from (1) new technologies, such as EVENLIT™, which are being integrated into our product offering, and (2) expansion into new geographic markets. Access to the new technology was secured through an agreement signed in January 2007, which includes exclusive distributor rights of certain products within North America.

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section 1: md&

a - 2007 highlights


Our sales by geographical area is outlined below:

SALES BY GEOPGRAHY FOR THE YEAR ENDED DECEMBER 31, 2007


North America 47,656 51,686 (4,030)

South America 866 1,007 (141)

Europe 5,680 6,058 (378)

Middle East 3,495 1,763 1,732

Asia 910 1,014 (104)

South Pacifi c 402 655 (253)

59,009 62,183 (3,174)

The current year increase in Middle Eastern sales is primarily due to US government orders for that region.

Gross Profi t and Margin

We offer product solutions to a variety of market sectors at various gross profi t margins. Our blended gross profi t margin is signifi cantly affected by the ratio of sales contributed by each of the various technological divisions, by the product mix sold, as well as the related market sector.

The following table outlines gross margins by division:

GROSS MARGINS BY DIVISION FOR THE YEAR ENDED DECEMBER 31, 2007


$ MARGIN % $ MARGIN % $

Solar LED Lighting 9,021 32.9% 11,316 42.1% (2,295)

Solar Power Systems 5,262 19.2% 7,445 24.1% (2,183)

LED Signs 1,294 30.8% 1,522 34.5% (228)

15,577 26.4% 20,283 32.6% (4,706)

Our gross profi t was $15.6 million for the year, which is down from $20.3 million in 2006. Overall margins decreased from 32.6% in 2006 to 26.4% in 2007.

All of our division’s gross margins were negatively impacted as a result of lower sales due to the signifi cant 2007 decline in the US dollar, estimated to be approximately $4.0 million, as well as approximately $1.2 million of one time inventory write downs. Other factors that impacted our gross margins are outlined below:

Within the Solar LED Division, there was a change in our sales mix towards lower margin products. The majority of the change in mix came from a shift in product sales from Aviation to Roadways. Sales of higher margin Aviation products were $1.4 million lower in 2007 than in 2006 due to delayed contracts. These reduced aviation market sales were made up by a $2.0 million increase in 2007 sales of lower margin Roadway products.

Within the Solar Power Systems Division, there was a fair amount of discounting certain products in an effort to reduce the surplus inventory that was purchased in late 2006.

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section 1: md&

a - results of operations

Stand-alone solar power technology provides reliable power for remote oil and gas facilities

carmanah.com 19

Operating expenses

Operating expenses in 2007 totaled $23.1 million, $3.0 million or15% higher than $20.1 million incurred in 2006. As a percentage of sales, our operating costs have increased to 39% in 2007 from 32% in 2006. The majority of this increase was incurred in the fi rst half of 2007, when spending was based upon expected sales growth which did not occur. Operating costs peaked in Q2 2007 at $6.7 million and then signifi cantly declined in the latter half of the year as our new management team implemented cost cutting measures (see “QUARTERLY FINANCIAL HIGHLIGHTS” section).

OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2007


$ % OF SALES $ % OF SALES $ %

Sales and marketing 9,032 15.3% 8,220 13.2% 812 9.9%

Research, development and engineering

2,809 4.8% 2,224 3.6% 585 26.3%

General and administrative 10,127 17.2% 8,539 13.7% 1,588 18.6%

Amortization 1,151 1.9% 1,144 1.8% 7 0.6%

23,119 39.2% 20,127 32.4% 2,992 14.9%

Sales and marketing expenses increased by $0.8 million primarily due to additional sales and marketing staff and higher expenditures on samples and shipping, tradeshows, travel and advertising in the fi rst half of 2007. These increases were partially offset by reduced commissions expense due to lower sales. As a percentage of sales, sales and marketing expenditures grew from 13% in 2006 to 15% in 2007.

Research, Development, and Engineering expenses for the year were $2.8 million, net of SR&ED investment tax credits. This is up $0.6 million from 2006 levels. The increase is attributable to lower SR&ED investment tax credits in 2007, as a signifi cant amount of engineering time and resources was allocated to streamlining and implementing our lean manufacturing processes. Actual gross expenditures were fairly comparable year over year with $3.4 million in 2007 versus $3.5 million in 2006. As a percentage of sales, our net research, development, and engineering expenses were 4.8% compared with 3.6% for 2006.

General and administrative expenses for 2007 totaled $10.0 million compared with $8.5 million in 2006. This 19% increase was due to additional administrative and fi nance staff levels, non-recurring executive recruiting costs, additional provisions for bad debts, and higher information systems costs due to general expansion. As a percentage of sales, our general and administrative costs increased to 17% compared with 14% in 2006

Amortization expense of $1.1 million for 2007 is comparable to 2006.

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section 1: md&


A rooftop solar array powers the 100 kW grid-tie system at Exhibition Place, Toronto, ON


Other (income)/expense

NON-OPERATING FOR THE YEAR ENDED DECEMBER 31, 2007



Goodwill impairment 2,000 3.4% - 0.0% 2,000

Gain on sale of Homepower (259) (0.4%) - 0.0% (259)

Interest and other 91 0.2% (167) (0.3%) 258 (154.5%)

Foreign exchange (gain)/loss 1,463 2.5% (262) (0.4%) 1,725 (658.3%)

3,295 5.6% (429) (0.7%) 3,724 (867.2%)

Non-operating costs totaled $3.3 million in 2007 versus a non-operating income of $0.4 million in 2006. This increase is primarily due to:

In the fourth quarter, we incurred a $2.0 million write down of goodwill as a result of our annual impairment analysis. The impaired goodwill related to our 2003 acquisition of AVVA Technologies Inc ,which is now our LED Signs Division. Of the $3.1 million of goodwill acquired, $2.0 million was deemed impaired due to a change in our overall strategic direction. (see “2008 OUTLOOK” section).

At the end of December 2007, we recorded a $0.3 million gain on the sale of certain assets related to our residential Home Power business within the Solar Power Systems Division. The assets we disposed of primarily related to inventory, customer lists, and equipment.

Signifi cant foreign exchange losses of $1.5 million were incurred during 2007. This compares with a gain of $0.3 million during 2006. This is primarily due to the signifi cant decline of the US dollar relative to the Canadian dollar which has negatively affected the value of US dollar-denominated working capital. A signifi cant portion of our sales and purchases are denominated in the US dollar.

Income tax expense/(recovery)

Income tax expense (recovery) for the year was ($1.9) million compared with $0.9 million for 2006. This amount consisted of current and future tax expense (recoveries) of ($0.3) million (2006 - $1.6 million expense) and ($1.6) million (2006 - ($0.6) million), respectively.

INCOME TAX FOR THE YEAR ENDED DECMEBER 31,


$ $ $

Current (289) 1,561 (1,850)

Future (1,634) (611) (1,023)

(1,923) 950 (2,873)

Our effective tax recovery rate is 17.7%, which varies from the statutory rate of 34.12%. The primary difference is due to non-deductible stock compensation ($0.8 million), the write down of goodwill ($2.0 million), as well as revisions to the estimated tax rates utilized in the recovery. The $0.1 million of taxes payable recorded primarily relates to amounts owed by us to US taxation authorities.

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section 1: md&


Solar LED obstruction lights illuminate perimeter fencing for enhanced visibility and security

carmanah.com 21

Results Of Operations – Fourth Quarter Year Over Year Comparison Sales

Sales for the three months ended December 31, 2007 were $13.0 million, down $3.2 million from the same period in 2006.

A summary of revenues from each of our divisions is as follows:

SALES BY DIVISION FOR THE QUARTER ENDED DECEMBER 31, 2007


$ MIX $ MIX $ %

Solar LED Lighting 7,136 54.8% 6,786 41.8% 350 5.2%

Solar Power Systems 5,045 38.8% 8,147 50.2% (3,102) (38.1%)

LED Signs 833 6.4% 1,289 7.9% (456) (35.4%)

13,014 100.0% 16,222 100.0% (3,208) (19.8%)

Solar LED Lighting Division - Sales were $7.1 million during the quarter ended December 31, 2007, up 5.2% over the same period in 2006. We also estimate the negative foreign exchange impact on sales for this Division was $1.0 million.

Solar Power Systems Division - Sales were $5.0 million during the quarter ended December 31, 2007, or $3.1 million lower than the same period in 2006. This 38.1% decrease is primarily due to (1) a restructuring within our US distribution vertical as we replaced key sales staff, which resulted in a $2.5 million drop in sales associated with this business during Q4 2007, and (2) the sale of our home power vertical which reduced sales by approximately $0.4 million in the fourth quarter. We also estimate the negative foreign exchange impact on sales for this Division was $0.7 million.

LED Sign Division - Sales from our LED Sign Division were $0.8 million for the quarter ended December 31, 2007, or 35.4% lower then the same period in 2006. This $0.5 million decrease is primarily due to several larger orders that we received in Q4 2006 which were not replaced in Q4 2007. We also estimate the negative foreign exchange impact on sales for this Division was $0.1 million.

Our sales by geographical area is outlined below:

SALES BY GEOPGRAHY FOR THE QUARTER ENDED DECEMBER 31, 2007


North America 9,546 11,895 (2,349)

South America 251 529 (278)

Europe 2,182 2,303 (121)

Middle East 615 691 (76)

Asia 326 391 (65)

South Pacifi c 93 413 (320)

13,013 16,222 (3,209)

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section 1: md&


EverGEN area lights can provide a versatile and environmentally friendly lighting solution for parks, campuses, and communities


Gross Profi t and Margin

We offer product solutions to a variety of market sectors at various gross profi t margins. Our blended gross profi t margin is signifi cantly affected by the ratio of sales contributed by each of our various technological divisions, by the product mix sold, as well as the related market sector.

The following table outlines gross profi t and margins by each of our groups:

GROSS MARGINS BY DIVISION FOR THE QUARTER ENDED DECMEBER 31, 2007


$ MARGIN % $ MARGIN % $ %

Solar LED Lighting 1,560 21.9% 2,264 33.4% (704) (31.1%)

Solar Power Systems 974 19.3% 2,003 24.6% (1,029) (51.4%)

LED Signs (88) (10.6%) 302 23.4% (390) (129.2%)

2,446 18.8% 4,569 28.2% (2,123) (46.5%)

Our gross profi t was $2.4 million for the quarter, which is down $2.1 million over the same period in 2006. This was primarily due to the signifi cant one time inventory write downs incurred in 2007 as well as additional product discounts offered in our Solar Power Systems division as we completed our reduction of surplus inventory.

Operating expenses

Operating expenses totaled $5.5 million for the quarter and is comparable to the prior period in 2006. As a percentage of sales, the fourth quarter operating costs have increased to 42%, up from 34% in 2006.

OPERATING EXPENSES FOR THE QUARTER ENDED DECMEBER 31, 2007



Sales and marketing 1,944 14.9% 1,983 12.2% (39) (2.0%)

Research, development and engineering

785 6.0% 604 3.7% 181 30.0%

General and administrative 2,525 19.4% 2,557 15.8% (32) (1.3%)

Amortization 287 2.2% 354 2.2% (67) (18.9%)

5,541 42.6% 5,498 33.9% 43 0.8%

Sales and marketing expenses were comparable quarter over quarter. As a percentage of sales, these expenditures grew from 12% in 2006 to 15% in 2007.

Research, Development, and Engineering expenses for the quarter were $0.8 million, net of SR&ED investment tax credits. This is up $0.2 million over the same quarter in 2006. The increase is primarily due to lower SR&ED investment tax credits in 2007 as a result of a signifi cant amount of engineering time and resources being allocated to streamlining and implementing our lean manufacturing processes. Our gross expenditures were $0.8 million in 2007 versus $0.9 million in the same period in 2006. As a percentage of sales, net research, development, and engineering were 6.0% versus 3.7% in the comparable period in 2006.

General and administrative expenses in the fourth quarter of 2007 were $2.5 million, down from $2.6 million in the same period in 2006. As a percentage of sales, our general and administrative costs increased to 19% compared with 16% in 2006.

Amortization expense of $0.3 million for the three months ended September 30, 2007 was down from $0.4 million from the same period in 2006.

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section 1: md&


carmanah.com 23

Other (income)/expense

NON-OPERATING FOR THE QUARTER ENDED DECMEBER 31, 2007



Goodwill impairment 2,000 3.4% - 0.0% 2,000

Gain on sale of Homepower (259) (0.4%) - 0.0% (259)

Interest and other (25) (0.0%) (6) (0.0%) (19) 316.7%

Foreign exchange (gain)/loss 95 0.2% (175) (0.3%) 270 (154.3%)

1,811 3.1% (181) (0.3%) 1,992 (1,100.6%)

Non-operating costs were $1.8 million in the fourth quarter of 2007 versus income of $0.2 million in the same period of 2006. This increase in expense is primarily due to:

In the fourth quarter, we incurred a $2.0 million write down of goodwill as a result of our annual impairment analysis. The impaired goodwill related to our 2003 acquisition of AVVA Technologies Inc which is now our LED Signs Division. Of the $3.1 million of goodwill acquired, $2.0 million was deemed impaired due to a change in our overall strategic direction (see “2008 OUTLOOK” section).

At the end of December 2007, we recorded a $0.3 million gain on the sale of certain assets related to our residential vertical within the Solar power systems Division. The assets disposed of primarily related to inventory, customer lists, and equipment.

Income tax expense/(recovery)

Income tax expense (recovery) for the period totaled ($0.3) million compared to $0.1 million for the comparable period in 2006. This amount consists of current and future tax expense (recoveries) of nil (2006 - $0.5 million expense) and ($0.3) million (2006 - ($0.5) million), respectively.

INCOME TAX FOR THE QUARTER ENDED DECMEBER 31, 2007


$ $ $

Current 2 549 (547)

Future (272) (495) 224

(270) 54 (324)

Select Consolidated Financial Information($ THOUSANDS - EXCEPT PER SHARE AMOUNTS) 2007 2006 2005

Sales 59,009 62,183 38,607

Net income/(loss) (8,914) (365) 681

Basic net income (loss) per share (0.210) (0.009) 0.020

Diluted net income (loss) per share (0.210) (0.009) 0.019

Cash dividends - - -

Total assets 45,397 55,758 49,068

Long-term debt - 4 2,647

The signifi cant increase in sales in 2006 compared to 2005 is due to the July 1, 2005 acquisition of Soltek Powersource Ltd.

The 2007 $10.4 million decrease in total assets is primarily due to reductions in inventory, as discussed in the ‘2007 Highlights’ section

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section 1: md&



Historically, we have fi nanced our operations and met our capital requirements primarily through funds generated from operations, use of our borrowing facilities, and the sale of our capital stock. Our sources of liquidity consisted of our cash and cash equivalents plus short-term investments less bank demand debt. As at December 31, 2007, we had cash of $4.1 million, with no outstanding debt, compared with cash, net of short-term borrowings of $2.3 million at December 31, 2006.

CASH AND CASH EQUIVALENTS AS AT ENDED DECMEBER 31, 2007


Cash, net of short-term borrowings $4,147 $2,335 $1,812

Net working capital $19,104 $26,721 $(7,617)

Current ratio 3.4 3.5

Total debt as % of assets - 3.4%

Our cash and cash equivalents at December 31, 2007 were held for working capital purposes and were invested primarily in overnight interest bearing investments. We do not enter into investments for trading or speculative purposes.

Although we have incurred a net loss of $8.9 million for the year, we have generated $2.0 million in cash from operations. This is due to our increased focus on working capital management, primarily with a reduction in inventory of $9.7 million, including the elimination of the surplus inventory that was purchased in late 2006 but excluding the write-downs of $1.2 million. Partially offsetting this was reduction in accounts payable of $0.6 million. The accounts payable balance at December 31, 2006 was higher due to increased purchasing activity in Q4 2006.

Our investing activities provided $0.8 million and $6.3 million for the years ended December 31, 2007 and 2006, respectively. The sale of short-term investments respectively provided $1.5 million and $8.3 million during the two years. An additional $0.2 million was received in 2007 from the previously discussed Home Power sale. These cash infl ows were offset by our investments in capital and intangible assets of $0.9 million and $2.0 million. Capital spending was signifi cantly higher in 2006 as a result of the completion and opening of our new manufacturing facility in Victoria, British Columbia, Canada.

We used cash of $1.3 million for fi nancing activities during the year ended December 31, 2007 compared to generating $3.0 million cash for the year ended December 31, 2006. The cash generated in 2006 resulted from $1.2 million on issuances of stock options and $1.9 million of bank line of credit fi nancing. We repaid our 2006 line of credit fi nancing of $1.9 million in 2007, while share issuances for the year provided $0.6 million, of which $0.5 million was from a private placement with our new Chief Executive Offi cer In October 2007.

We have an agreement with the Royal Bank of Canada that provides for credit facilities consisting of demand operating loans in the amount of $8.5 million and other credit facilities consisting of term loans and lease lines of credit in the amount of $4.0 million. During the fi rst half of 2007 we only drew on the operating loan line of credit facility. This was repaid in Q3, 2007. The term loans are available once certain covenant targets are achieved. Interest on operating and term loan facilities is at prime plus 0.125%. These credit facilities are secured by general security agreements. At December 31, 2007, we had not drawn on the operating loan.

We believe that our cash and cash equivalents, bank credit facilities and cash fl ow from improved operations going forward will be suffi cient to satisfy our operating cash requirements in the foreseeable future. Long-term cash requirements, other than normal operating expenses, are anticipated for the continued development of new products, fi nancing anticipated growth and possible acquisitions of businesses, products or technologies complementary to our business. On a long-term basis or to complete acquisitions in the short term, we may require additional external fi nancing through credit facilities, sale of additional equity or other fi nancing arrangements. There can be no assurance that we can obtain such fi nancing on favourable terms, if at all.

section 1: md&

a - liquidity and capital

Liquidity and Capital Resources

carmanah.com 25

Our fi nancial statements are prepared in accordance with GAAP. The application of GAAP requires that we make estimates that affect our reported amounts of assets and liabilities and the disclosure of contingencies at the date of the fi nancial statements and the reported amounts of revenues and expenses during the period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ signifi cantly from these estimates.

The signifi cant accounting policies and estimates are discussed below:

Warranty reserve - We calculate a warranty reserve for future returns of products currently sold, as per the terms of our warranty which varies between products. An updated review of historical return rates is completed at each quarter, and is used in determining an estimate future return rate. This is multiplied by an estimated average repair cost to determine the provision. If warranty costs are greater or less than anticipated by us, adjustments to the warranty provision are made as a charge or credit to income in the period that the adjustment to the warranty provision is made. At December 31, 2007, our warranty provision was $0.6 million.

Valuation of inventory - We evaluate inventory balances at each balance sheet date and record a provision as necessary for slow moving or obsolete inventory. In performing this review we consider such factors as forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current inventory

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levels. If future demand or market conditions for our products are less favorable than forecasted or if unforeseen technological changes occur, we may be required to record write-downs which would negatively affect gross margins in the period when the write-downs are recorded and our operating results and fi nancial position could be adversely affected. During the year ended December 31, 2007, we wrote off $1.2 million in inventory determined to be slow moving and obsolete. At December 31, 2007 our inventory reserve was approximately $0.6 million.

Allowance for doubtful accounts - We record an allowance for doubtful accounts related to accounts receivable. This allowance is based on our knowledge of the fi nancial condition of our customers, the aging of the receivables, the current business environment and historical experience. A change in one or more of these factors could impact the estimated allowance and provision for bad debts recorded. At December 31, 2007, our allowance for doubtful accounts was $0.8 million.

Intangibles and Goodwill - Intangible assets, comprised of customer lists and relationships, and goodwill were acquired on the acquisition of AVVA Light Corporation and Soltek Powersource Ltd. At least annually, we review the carrying value of our intangible assets and goodwill for potential impairment. Among other things, this review considers the fair value of the business based on discounted estimated cash fl ows. If circumstances indicate that impairment in the value of these assets has occurred, we would record this impairment in the earnings of the current period. In addition, we estimate the useful life of customer lists and relationships in determining the amortization period for these intangibles.

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During our annual impairment analysis of goodwill, we determined that the goodwill associated with our AVVA Light Corporation acquisition was impaired. Of the $3.1 million of goodwill acquired, $2.0 million was deemed impaired due to a change in the Company’s overall strategic direction which now considers this Division non-core.

Valuation of Future Income Tax and Investment Tax Credit assets - As at December 31, 2007 we have recorded a future income tax asset of $3.2 million which refl ects future tax deductions available against taxable income. It primarily consists of non-capital loss carry forwards and credits related to research and development expenditures in Canada. We have also recorded investment tax credits of $0.8 million which are available to reduce taxes payable.

The calculation of our future income tax and investment tax credit assets involves dealing with uncertainties in application of complex tax laws and regulations as well as assessing likelihood of future realization. It is also possible that tax audits may result in potential reductions of assets and that such adjustments may materially affect the amounts reported for future income tax and investment tax credit assets.

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section 1: md&

a - contractual obligations

Our major lease obligations relate to corporate facilities that we occupy. Additional obligations relate to leased offi ce and production equipment. Of the $2.4 million in lease commitment at December 31, 2007, 85% is renewable within three years. We expect to renew existing lease or contracts for new lease facilities and equipment at prevailing market rates.

Contractual Obligations and Commitments

Application of Critical Accounting Policies and Use of Estimates


Comprehensive Income, Recognition and Measurement of Financial Instruments

Effective January 1, 2007, we adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3251, Equity, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement, CICA Handbook Section 3861, Financial Instruments – Disclosure and Presentation, and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of fi nancial instruments, as well as standards on when and how hedge accounting may be applied. CICA Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive income is defi ned as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with generally accepted accounting principles.

Under these new standards, all fi nancial instruments are classifi ed into one of the following fi ve categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale fi nancial assets or other fi nancial liabilities. All fi nancial instruments, including derivatives, are included on the consolidated balance sheet and are initially measured at fair market value. Subsequent measurement and recognition of changes in fair value of fi nancial instruments depends on their initial classifi cation. Held for trading fi nancial investments are measured at fair value and all gains and losses are included in net income in the period in which they arise. Available-for-sale fi nancial instruments are measured at fair value with revaluation gains and losses included in other comprehensive income until the asset is removed from the balance sheet. Loans and receivables, investments held-to-maturity and other fi nancial liabilities are measured at amortized cost.

The standards require derivative instruments to be recorded as either assets or liabilities measured at their fair value unless exempted

from derivative treatment as a normal purchase and sale. Certain derivatives embedded in other contracts must also be measured at fair value. All changes in the fair value of derivatives are recognized in earnings unless specifi c hedge criteria are met, which requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

The adoption of these standards did not result in any material impact on our fi nancial statements.

Convergence with International Financial Reporting Standards

In 2006, Canada’s Accounting Standards Board ratifi ed a strategic plan that will result in Canadian GAAP, as used by public companies, being evolved and converged with International Financial Reporting Standards (“IFRS”) over a transitional period to be complete by 2011.

Canadian GAAP will be converged with IFRS through a combination of two methods: as current joint-convergence projects of the United States’ Financial Accounting Standards Board and the International Accounting Standards Board are agreed upon, they will be adopted by Canada’s Accounting Standards Board and may be introduced in Canada before the complete changeover to IFRS; and standards not subject to a joint-convergence project will be exposed in an omnibus manner for introduction at the time of the complete changeover to IFRS.

As the International Accounting Standards Board currently, and expectedly, has projects underway that should result in new pronouncements that continue to evolve IFRS, and that this Canadian convergence initiative is very much in its infancy as of the date of these consolidated fi nancial statements, it is premature to currently assess the impact of the Canadian initiative, if any, on the Company.

Future Changes in Accounting Policies

We will adopt the following Handbook Sections commencing January 1, 2008:

Section 3031 “Inventory” replaces Section 3030 and provides guidance on the determination of inventory cost, subsequent recognition as expense, and write-downs to net realizable value. We do not expect application

•

of this section to have a signifi cant impact on our consolidated fi nancial statements.

Section 1535 “Capital Disclosures” establishes standards for disclosing information about our capital and how it is managed. The standard requires disclosures of our objectives, policies and processes for managing capital, the quantitative data about what we regard as capital, whether we have complied with any capital requirements and if we have not complied, the consequences of such non-compliance. We do not expect application of this section to have a signifi cant impact on our consolidated fi nancial statements.

Section 3862 “Financial Instruments” – Disclosures” requires disclosures, by class of fi nancial instrument, that enable users to evaluate the signifi cance of fi nancial instruments for an entity’s fi nancial position and performance, including disclosures about fair value. In addition, disclosure is required for qualitative and quantitative information about exposure to risks arising from fi nancial instruments, including specifi ed minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must also include a sensitivity analysis for each type of market risk to which an entity is exposed, showing how net earnings and other comprehensive income would have been affected by reasonably possible changes in the relevant risk variable. We expect the application of this section to have a signifi cant impact on note disclosures within our consolidated fi nancial statements.

Section 3863 “Financial Instruments” – Presentation” carries forward the existing requirements on presentation of fi nancial instruments, and accordingly, we do not expect application of this section to have a signifi cant impact on our consolidated fi nancial statements.

•

•

•

section 1: md&

a - new accounting policies

New Accounting Policies, Pronouncments and Developments

carmanah.com 27

Market risk represents the risk of loss that may impact our fi nancial position due to adverse changes in fi nancial market price and rates. Our market risk exposure is primarily to fl uctuations in foreign exchange rates and credit. We do not hold or issue fi nancial instruments for trading purposes.

Foreign currency risk – We are exposed to fl uctuations in the exchange rate between the US and Canadian dollar, as a signifi cant portion of our sales denominated in the US dollar. To reduce our risk because of currency fl uctuations, we purchase a large amount of inventory and other cost of sales items in US dollars. If the Canadian dollar rises relative to the United States dollar, our operating results may be negatively impacted. From time to time, we enter into forward foreign exchange contracts to manage this risk. The contracts oblige us to sell U.S. dollars in the future at predetermined exchange rates. The contracts are matched with anticipated future sales in foreign currencies. There were no contracts outstanding at December 31, 2007. An increase of 5% in the value of the Canadian dollar relative to the US dollar for example could reduce our quarterly sales by $0.5 million, assuming no change in geographic revenue mix. Conversely, a decrease of 5% in the value of the Canadian dollar relative to the US dollar, for example, could increase our quarterly sales by $0.5 million.

Credit risk - Our exposure to credit risk consists primarily relates to accounts receivable. We maintain reserves for potential credit losses which, on a historical basis, have been limited due to our ongoing credit granting procedures and the general credit worthiness of our customers. No single customer accounted for more than 6% of our accounts receivable balance at December 31, 2007.

Disclosure Controls and Procedures

We have designed disclosure controls and procedures to ensure the information required to be disclosed in our reports fi led with security authorities is recorded, processed, summarized and reported within prescribed time periods and is accumulated and communicated to our management, including our Chief Executive Offi cer and our Chief Financial Offi cer, as appropriate, to allow timely decisions regarding required disclosure. An evaluation was carried out under the supervision of, and with the participation of, our management, including our Chief Executive Offi cer and our Chief Financial Offi cer, of the effectiveness of our disclosure controls and procedures as of December 31, 2007. Based on that evaluation we believe that our disclosure controls and procedures were effective as of that date.

section 1: md&

a - quantitative and qualitative disclosures

Internal Controls Over Financial ReportingInternal control over fi nancial reporting is a process designed to provide reasonable assurance regarding the reliability of fi nancial reporting and the preparation of fi nancial statements for external purposes in accordance with Canadian GAAP. On March 31, 2007, we reported that there was a material weakness in the design of internal controls over fi nancial reporting. This material weakness related to inventory errors discovered in the fi rst quarter of 2007 relating to 2006.

We evaluated the cause of this weakness and took the following steps to remediate this control weakness:

1. New procedures to detect goods physically received but not recorded,

2. Enhancements to the cycle count program, and

3. Reinforcement of company policies and procedures.

At December 31, 2007, we feel this defi ciency has been fully remediated.

The only other signifi cant change to our internal controls over fi nancial reporting during 2007 related to enhancements made in our management reporting and review processes, as well as several additions to the fi nance team, including a Manager of Financial Reporting and Compliance.

Quantitative and Qualitative Disclosures About Market Risks


CARMANAH TECHNOLOGIES CORPORATION - (Expressed in Canadian dollars)

section 2 - fi nancial statements: auditor’s report

We have audited the consolidated balance sheets of Carmanah Technologies Corporation (the “Company”) as at December 31, 2007 and 2006 and the consolidated statements of operations, comprehensive loss and defi cit, and cash fl ows for the years then ended. These fi nancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these fi nancial statements based on our audit.

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 fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation.

In our opinion, these consolidated fi nancial statements present fairly, in all material respects, the fi nancial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash fl ows for the years then ended in accordance with Canadian generally accepted accounting principles.

Chartered AccountantsVancouver, CanadaMarch 5, 2008

AUDITORS’ REPORT TO THE SHAREHOLDERS

carmanah.com 29


section 2 - fi nancial statements: balance sheet

2007 2006

ASSETS

CURRENT ASSETS:

Cash and cash equivalents $ 4,147,188 $ 2,750,404

Short-term investments - 1,500,000

Accounts receivable, net 11,536,735 11,881,757

Inventories (note 3) 10,608,141 20,352,841

Prepaid expenses and deposits 804,583 1,091,331

27,096,647 37,576,333

Equipment and leasehold improvements, net (note 5) 2,975,834 3,138,982

Intangible assets, net (note 6) 912,173 1,106,803

Goodwill (note 4) 10,368,019 12,368,019

Investment tax credits (note 7) 842,000 -

Future income taxes (note 7) 3,202,582 1,568,315

$ 45,397,255 $ 55,758,452

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Bank demand debt (note 8) $ - $ 1,915,000

Accounts payable and accrued liabilities 7,683,507 8,331,883

Deferred revenue 202,618 369,259

Income taxes payable 101,935 230,439

Current portion of obligations under capital leases 4,097 8,757

7,992,157 10,855,338

Obligations under capital leases - 4,097

7,992,157 10,859,435

SHAREHOLDERS’ EQUITY:

Share capital (note 9) 43,503,656 42,881,857

Contributed surplus (note 9 (e)) 2,822,283 2,023,607

Defi cit (8,920,841) (6,447)

37,405,098 44,899,017

$ 45,397,255 $ 55,758,452

Commitments (note 13)Subsequent event (note 16)See accompanying notes to consolidated fi nancial statements.On Behalf of the Board:

Art Aylesworth Divesh SisodrakerChairman of the Board Director

Consolidated Balance Sheets December 31, 2007 and 2006



2007 2006

SALES $ 59,009,175 $ 62,183,324

Cost of sales 43,432,533 41,900,512

15,576,642 20,282,812

OPERATING EXPENSES:

Sales and marketing 9,032,238 8,220,250

Research, development and engineering, net (note 10) 2,809,028 2,223,806

General and administration 10,126,719 8,538,540

Amortization 1,150,621 1,144,206

23,118,606 20,126,802

Operating income (loss) (7,541,964) 156,010

OTHER (INCOME)/EXPENSE:

Goodwill impairment (note 4) 2,000,000 -

Gain on Homepower assets sale (note 16) (259,283) -

Interest and other 91,861 (166,957)

Foreign exchange 1,462,948 (262,536)

3,295,526 (429,493)

Earnings/(loss) before income taxes (10,837,490) 585,503

INCOME TAX EXPENSE (RECOVERY) (NOTE 7):

Current (288,617) 1,561,492

Future (1,634,479) (610,964)

(1,923,096) 950,528

Loss and comprehensive loss for the year (8,914,394) (365,025)

Retained earnings (defi cit), beginning of year (6,447) 358,578

Defi cit, end of year $ (8,920,841) $ (6,447)

LOSS PER SHARE:

Basic and Diluted $ (0.210) $ (0.009)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

Basic and Diluted 42,651,299 41,696,874

See accompanying notes to consolidated fi nancial statements.

Consolidated Statements of Operation, Comprehensive Loss and Defi citFor the years ended December 31, 2007 and 2006

section 2 - fi nancial statements: operation, loss and defi cit

carmanah.com 31


2007 2006

CASH PROVIDED BY (USED IN):

OPERATIONS:

Net earnings $ (8,914,394) $ (365,025)

Items not involving cash:

Amortization 1,150,621 1,144,206

Loss on disposal of capital assets 30,727 -

Write-down of goodwill 2,000,000 -

Gain on Homepower assets sale (note 16) (259,283) -

Reclassifi cation of previously recorded share issuance costs - 117,000

Stock-based compensation (note 9 (c)) 843,836 970,439

Future income taxes (recovery) (1,634,479) (610,964)

Investment tax credits (842,000) -

Inventory write-down (1,190,000) -

Net changes in non-cash working capital 10,771,443 (9,704,247)

1,956,471 (8,448,591)

INVESTING:

Sale of short-term investments 1,500,000 8,280,000

Proceeds on Homepower sale (note 16) 200,000 -

Purchase of equipment and leasehold improvements (751,865) (1,919,659)

Purchase of intangible assets (160,704) (86,500)

787,431 6,273,841

FINANCING:

Proceeds on share issuance 576,639 1,185,017

Share issuance costs - (34,950)

Issuance/(repayment) of bank demand debt (1,915,000) 1,915,000

Principal payments of obligations under capital leases (8,757) (22,127)

(1,347,118) 3,042,940

Increase in cash and cash equivalents 1,396,784 868,190

Cash and cash equivalents, beginning of year 2,750,404 1,882,214

Cash and cash equivalents, end of year $ 4,147,188 $ 2,750,404

SUPPLEMENTAL CASH FLOW INFORMATION:

CASH DURING THE YEAR FOR:

Bank charges and interest paid $ 438,301 $ 338,770

Income taxes paid 142,369 829,016

See accompanying notes to consolidated fi nancial statements.

Consolidated Statements of Cash FlowsFor the years ended December 31, 2007 and 2006

section 2 - fi nancial statements: cash fl ow

s



Carmanah Technologies Corporation (the “Company” or “CTC”) was incorporated pursuant to the provisions of the Business Corporations Act (Alberta) on March 26, 1996. On June 21, 2002, the Company acquired all the issued and outstanding share capital of Carmanah Technologies Inc. (“CTI”). CTI is in the business of developing and manufacturing solar-powered LED (light emitting diode) lighting solutions and the sale of related products.

On October 1, 2003, the Company acquired all the issued and outstanding share capital, stock options and warrants of AVVA Technologies Inc. (“AVVA”). AVVA’s operating subsidiary, Carmanah Signs Inc. (“CSI”) (formerly AVVA Light Corporation), is in the business of designing, manufacturing and distributing energy effi cient, illuminated sign products for corporate identity, point-of-purchase sales, and architectural and signage applications.

On July 1, 2005, the Company acquired all the issued and outstanding share capital of Soltek Powersource Ltd. (“SPS”), a leading designer, manufacturer and supplier of renewable energy solutions.

1. Signifi cant accounting policies:

The consolidated fi nancial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles. The following is a summary of the signifi cant accounting policies used in the preparation of the consolidated fi nancial statements.

(a) Basis of presentation:These consolidated fi nancial statements include the accounts of the Company and its wholly owned subsidiaries. All signifi cant inter-company transactions and balances have been eliminated.

(b) Cash and cash equivalents:Cash and cash equivalents include highly liquid investments, consisting primarily of term deposits, with terms to maturity of three months or less at the date of purchase.

(c) Short-term investments:Short-term investments are primarily term deposits that will be realized beyond three months but are recorded at the lower of cost and market.

(d) Inventories:Inventories are valued at the lower of cost and net realizable value. A provision for obsolescence for slow moving or non-moving inventory items is estimated by management based on historical and expected future sales and is included in cost of goods sold.

Notes to the Consolidated Financial StatementsFor the years ended December 31, 2007 and 2006

section 2 - fi nancial statements: notes

carmanah.com 33


1. Signifi cant accounting policies (continued):

(e) Equipment and leasehold improvements:Equipment and leasehold improvements are carried at cost less accumulated amortization. Amortization is determined at rates which will reduce original cost to estimated residual value over the useful life of each asset. The annual rates used to compute amortization are as follows:

ASSET BASIS RATE

Computer hardware declining balance 30%

Computer software declining balance 100%

Leasehold improvements straight-line term of lease

Offi ce, production and research equipment declining balance 20%

Tradeshow equipment declining balance 20%

Vehicles declining balance 30%

The cost of repairs and maintenance is expensed as incurred.

(f) Intangible assets:Intangible assets are amortized over their estimated useful lives, which range from 1.5 to 11 years.

(g) Goodwill:Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the identifi able assets acquired less liabilities assumed, based on their fair values. Goodwill is allocated as of the date of the business combination to the Company’s reporting units that are expected to benefi t from the synergies of the business combination.

Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. The impairment test is carried out in two steps. In the fi rst step, the carrying amount of the reporting unit is compared with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is unnecessary. The second step is carried out when the carrying amount of a reporting unit exceeds its fair value, in which case the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the value of goodwill is determined in a business combination described in the preceding paragraph, using the fair value of the reporting unit as if it was the purchase price. When the carrying amount of reporting unit goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to the excess and is presented as a separate line item in the consolidated statements of operations.

All goodwill is assigned to the solar power systems and LED signs segments as outlined in note 4.

Consolidated Notes to Financial StatementsFor the years ended December 31, 2007 and 2006





(h) Warranty provision:A provision for potential warranty claims is recorded at the time of the sale, based on warranty terms and prior experience and is adjusted prospectively based on actual claims experience.

(i) Revenue recognition:Revenue from the sale of products and services is recognized based on the terms of the contract, either when the product is shipped and title passes or when related installation is complete, persuasive evidence exists of a sales arrangement, collection is probable and the price is fi xed or determinable. If there is a requirement for customer acceptance of any products shipped, revenue is recognized only after customer acceptance has been received. Payments received in advance of the satisfaction of the Company’s revenue recognition policies are recorded as deferred revenue.

Provisions are established for estimated product returns and warranty costs at the time revenue is recognized based on historical experience for the product. If the historical data the Company used to estimate product returns does not properly refl ect actual future returns, these estimates are revised. Future returns, if they were higher than estimated, would result in a reduction of revenues.

(j) Research and development:Research costs are expensed as incurred. Development costs are expensed as incurred unless certain stringent criteria for deferral, as specifi ed by the Canadian Institute of Chartered Accountants, have been met. These criteria primarily relate to the establishment of technical feasibility, identifi cation of specifi ed markets, and availability of adequate resources to complete the project under development. No development costs have been deferred as at December 31, 2007 or 2006.

Investment tax credits (“ITCs”) are accounted for as a reduction in the related expenditure when there is reasonable assurance that such credits will be realized. These ITCs are used to reduce current and future income taxes payable.

(k) Loss per share:The Company calculates basic loss per share using the weighted average number of common shares outstanding during the period. Diluted loss per share are calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding assumes that the proceeds to be received on the exercise of dilutive stock options and warrants are applied to repurchase common shares at the average market price for the period in calculating the net dilution impact. Stock options and warrants are dilutive when the Company has income from continuing operations and the average market price of the common shares during the period exceeds the exercise price of the options and warrants. For the year ended December 31, 2007 and 2006, all stock options and warrants were anti-dilutive.



carmanah.com 35



(l) Stock-based compensation:The Company has a stock-based compensation plan which is described in note 9(c). The Company accounts for all stock-based payments and awards under the fair value method.

Under the fair value based method, stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying with or using equity instruments. The cost of stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date.

Under the fair value based method, compensation cost attributable to awards to employees is measured at fair value at the grant date and recognized over the vesting period. Compensation cost attributable to awards to employees that call for settlement in cash or other assets is measured at intrinsic value and recognized over the vesting period. Changes in intrinsic value between the grant date and the measurement date result in a change in the measure of compensation cost. Compensation cost is generally recognized on a straight-line basis over the vesting period. The Company accounts for the value attributable to the granted options on the consolidated statements of operations and is included in the determination of income.

(m) Future income taxes:The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the fi nancial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of future changes in tax rates is recognized in income in the period that included the date of substantive enactment. To the extent that it is not more likely than not that a future tax asset will be realized, a valuation allowance is provided.

(n) Foreign currency transactions:The Company’s functional currency is the Canadian dollar. Monetary assets and liabilities denominated in foreign currency are translated into Canadian dollars at the rate of exchange prevailing at the balance sheet date. Non-monetary items are translated at rates of exchange in effect when the amounts were acquired or obligations incurred. Revenues and expenses are translated at rates in effect at the time of the transaction. Foreign exchange gains and losses are recognized in the determination of net earnings in the year in which they arise.






(o) Derivative fi nancial instruments:The Company uses certain derivative fi nancial instruments, principally forward foreign exchange contracts, to manage foreign currency exposures on export sales. Derivative fi nancial instruments are not accounted for as hedges. The realized and unrealized gains and losses are recognized in operating income of the Company. Fair values are determined using current market rates for the settlement of the derivative instruments.

(p) Use of estimates:The presentation of fi nancial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the fi nancial statements and reported amounts of revenues and expenses during the period. Signifi cant areas requiring the use of estimates include the recognition and valuation of accounts receivable, investment tax credits receivable, future income taxes, inventory, warranty provisions, stock-based compensation, and the recoverability of equipment and leasehold improvements, intangible assets, and goodwill. Actual results could differ from those estimates used in the fi nancial statements.

(q) Impairment of long-lived assets:The Company monitors the recoverability of long-lived assets, including equipment and leasehold improvements, and intangible assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company reviews factors such as current market value, future asset utilization and business climate and compares the carrying value of the assets to the future undiscounted cash fl ows expected to result from the use of the related asset. If such cash fl ows are less than the carrying value, the impairment charge to be recognized equals the excess.

(r) Future changes in accounting standards:The following Handbook Sections will be adopted by the Company commencing January 1, 2008:

Section 3031 “Inventory” replaces Section 3030 and provides guidance on the determination of inventory cost, subsequent recognition as expense, and write-downs to net realizable value. The Company does not expect application of this section to have a signifi cant impact on the consolidated fi nancial statements.

Section 1535 “Capital Disclosures” establishes standards for disclosing information about the Company’s capital and how it is managed. The standard requires disclosures of the Company’s objectives, policies and processes for managing capital, the quantitative data about what the Company regards as capital, whether the Company has complied with any capital requirements and if it has not complied, the consequences of such non-compliance. The Company does not expect application of this section to have a signifi cant impact on the consolidated fi nancial statements.

Section 3862 “Financial Instruments – Disclosures” requires disclosures, by class of fi nancial instrument, that enable users to evaluate the signifi cance of fi nancial instruments for an entity’s fi nancial position and performance, including disclosures about fair value.



carmanah.com 37



(s) Future changes in accounting standards (continued):In addition, disclosure is required for qualitative and quantitative information about exposure to risks arising from fi nancial instruments, including specifi ed minimum disclosures about credit risk, liquidity risk and market risk. The quantitative disclosures must also include a sensitivity analysis for each type of market risk to which an entity is exposed, showing how net earnings and other comprehensive income would have been affected by reasonably possible changes in the relevant risk variable. The Company does not expect application of this section to have a signifi cant impact on the consolidated fi nancial statements.

Section 3863 “Financial Instruments – Presentation” carries forward the existing requirements on presentation of fi nancial instruments, and accordingly, the Company does not expect application of this section to have a signifi cant impact on the consolidated fi nancial statements.

(t) Comparative fi gures:Certain comparative fi gures have been reclassifi ed to conform to the presentation adopted in the current year.

2. Adoption of new accounting standards:

Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3251, Equity, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement, CICA Handbook Section 3861, Financial Instruments – Disclosure and Presentation, and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of fi nancial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also establishes standards for reporting and displaying comprehensive income. Comprehensive income is defi ned as the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income but that are excluded from net income calculated in accordance with generally accepted accounting principles.

Under the new standards, all fi nancial assets are classifi ed as held for trading, held-to-maturity investments, loans and receivables or available-for-sale categories. Also, all fi nancial liabilities must be classifi ed as held for trading or other fi nancial liabilities. All fi nancial instruments are recorded on the consolidated balance sheet at fair value. After initial recognition, the fi nancial instruments are measured at their fair values, except for held-to-maturity investments, loans and receivables and other fi nancial liabilities, which are be measured at amortized cost. The effective interest expense related to the fi nancial liabilities and the gain or loss arising from a change in the fair value of a fi nancial asset or fi nancial liability classifi ed as held for trading are included in net income for the period in which it arises. If a fi nancial asset is classifi ed as available-for-sale, the gain or loss is recognized in other comprehensive income until the fi nancial asset is derecognized and all cumulative gain or loss is then recognized in net income.





2. Adoption of new accounting standards (continued):

The standards require derivative instruments to be recorded as either assets or liabilities measured at their fair value unless exempted from derivative treatment as a normal purchase and sale. Certain derivatives embedded in other contracts must also be measured at fair value. All changes in the fair value of derivatives are recognized in earnings unless specifi c hedge criteria are met, which requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting.

The Company has implemented the following classifi cations: Cash and cash equivalents and short-term investments are classifi ed as held-for-trading and any period change in fair value is recorded through net income.

Accounts receivable are classifi ed as loans and receivables and are measured at amortized costing using the effective interest rate method. Interest income is recorded in net income, as applicable.

Accounts payable and bank demand debt are classifi ed as other fi nancial liabilities and are measured at amortized cost using the effective interest rate method. Interest income is recorded in net income, as applicable.

The adoption of these standards did not result in any material impact on the Company’s fi nancial statements.

3. Inventories:

2007 2006

Raw materials $ 5,424,890 $ 9,556,980

Work-in-process 142,938 117,239

Finished goods 5,040,313 10,678,622

$ 10,608,141 $ 20,352,841

4. Goodwill:

SOLAR POWER SYSTEMS LED SIGNS TOTAL

Balance as of Dec 31, 2005 and 2006 $ 9,258,370 $ 3,109,649 $ 12,368,019

Impairment losses - (2,000,000) (2,000,000)

Balance as of Dec 31, 2007 $ 9,258,370 $ 1,109,649 $ 10,368,019The Company completed its annual impairment test on December 31, 2007 and determined that the goodwill associated with the LED signs segment was partially impaired as a result of a change in the Company’s overall strategic direction.

•

•

•



carmanah.com 39


5. Equipment and leasehold improvements:

2007 COSTACCUMULATED AMORTIZATION NET BOOK VALUE

Computer hardware $ 1,167,228 $ 535,812 $ 631,416

Computer software 945,015 819,139 125,876

Leasehold improvements 1,926,465 695,704 1,230,762

Offi ce equipment 303,389 61,337 242,052

Production equipment 924,342 403,182 521,160

Research equipment 226,709 $ 111,826 114,883

Vehicles 69,104 52,880 16,224

Tradeshow equipment 190,441 96,979 93,462

$ 5,752,693 2,776,859 $ 2,975,834


Computer hardware $ 1,054,142 $ 456,145 $ 597,997

Computer software 796,249 662,671 133,578

Leasehold improvements 1,899,091 580,942 1,318,149

Offi ce equipment 392,089 102,239 289,850

Production equipment 901,275 326,848 574,427

Research equipment 238,000 106,368 131,632

Vehicles 103,825 80,648 23,177

Tradeshow equipment 87,715 17,543 70,172

$ 5,472,386 $ 2,333,404 $ 3,138,982

6.Intangible assets:


Customer relationships $ 1,338,262 $ 642,690 $ 695,572

Patents, trademarks and other 356,886 140,285 216,601

$ 1,784,148 $ 871,975 $ 912,173


Customer relationships $ 1,427,262 $ 421,771 $ 1,005,491

Patents, trademarks and other 196,182 94,870 101,312

$ 1,623,444 $ 516,641 $ 1,106,803





7. Income taxes:

Income tax expense (recovery) differs from the amounts computed by applying the combined federal and provincial tax rates of 34.12% (2006 - 34.12%) to pre-tax income from continuing operations as a result of the following:

2007 2006

Earnings (loss) before income taxes $ (10,837,490) $ 585,503

Computed expected tax expense $ (3,697,752) $ 199,774

Non-deductible expenses 1,007,408 351,851

Change in tax rate 778,799 209,893

Other (11,551) 189,010

$ (1,923,096) $ 950,528Income tax recovery for the year ended December 31, 2007 was $1,923,096 comprised of current income tax recovery of $288,617 plus future income tax recovery of $1,634,479.Non-deductible expenses consist primarily of stock-based compensation and the write down of goodwill. Temporary differences give rise to the following future tax assets and liabilities at December 31:

2007 2006

FUTURE TAX ASSETS:

Warranty reserve $ 148,412 $ 92,070

Share issue costs 151,022 313,117

Losses available for future periods 1,721,842 372,000

Scientifi c research and experimental development 1,154,756 1,174,879

Equipment 841,831 687,153

Other - 25,265

4,017,863 2,664,484

FUTURE TAX LIABILITIES:

Investment tax credits (170,851) (275,293)

Intangible assets (147,430) (323,876)

(318,281) (599,169)

Less valuation allowance (497,000) (497,000)

Net future tax assets $ 3,202,582 $ 1,568,315

The valuation allowance for future tax assets as at December 31, 2007 and December 31, 2006 was $497,000. The ultimate realization of future tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences and unused tax losses are available for deduction.

As at December 31, 2007, the Company has non-capital loss carryforwards of $6,377,000 available to reduce taxable income otherwise calculated in future years. These losses will expire as follows:

NON-CAPITAL LOSSES

2008 $ 200,000

2009 200,000

2010 400,000

2012 and beyond 5,577,000

$ 6,377,000In addition, the Company has a pool of Scientifi c Research & Experimental Development (“SR&ED”) expenditures of approximately $4,200,000 that may be available to reduce future taxable income and investment tax credits of approximately $1,300,000 which may be available to reduce taxes payable.



carmanah.com 41


8. Credit facilities:

The Company has an agreement with the Royal Bank of Canada that provides for credit facilities consisting of demand operating loans in the amount of $8,500,000 and other credit facilities consisting of term loans and lease lines of credit in the amount of $4,000,000. The term loans will be available to the Company once certain covenant targets are achieved. Interest on operating and term loan facilities is at prime plus 0.125%. These credit facilities are secured by general security agreements. At December 31, 2007, the Company had no outstanding balance on its operating loan.

9. Share capital:

(a) Authorized:Unlimited number of common shares without par value.

(b) Issued and outstanding:

NUMBER OF COMMON SHARES AMOUNT

Balance, December 31, 2005 40,473,052 $ 38,772,138

Exercise of options 1,306,664 1,424,239

Share issuance costs, net of tax benefi ts - (23,100)

Adjustment to share issuance costs, net of tax benefi ts - 77,000

Shares issued pursuant to a share purchase agreement 751,876 2,631,580

Balance, December 31, 2006 42,531,592 42,881,857

Exercise of options 138,582 155,949

Private Placement 385,000 465,850

Balance, December 31, 2007 43,055,174 $ 43,503,656

During the year ended December 31, 2007, 138,582 options were exercised resulting in the issuance 138,582 common shares for gross proceeds of $110,789, and a reallocation of $45,160 from contributed surplus to share capital was recorded on the exercise of these options. In addition, a private placement with the newly appointed Chief Executive Offi cer of the Company resulted in the issuance of 385,000 shares at $1.21 for gross proceeds of $465,850.





9. Share capital (continued):

(c) Stock options:The Company maintains a fi xed stock option plan that enables it to grant options to its directors, offi cers, employees and other service providers. Each option agreement with the grantee sets forth, among other things, the number of options granted, the exercise price and the vesting conditions of the options.The Company has reserved 5,104,661 common shares under the plan. The options vest between 18 and 36 months from the date of grant and have a maximum term of fi ve years.A summary of the status of the options outstanding and exercisable follows:

NUMBER OF OPTIONSWEIGHTED AVERAGE

EXERCISE PRICE

Balance, December 31, 2005 3,448,496 $ 1.88

Granted 1,564,000 3.18

Cancelled (222,750) 3.23

Expired (30,000) 0.95

Exercised (1,306,664) 0.91

Balance, December 31, 2006 3,453,082 2.76

Granted 1,801,500 1.90

Cancelled (852,917) 3.17

Exercised (138,582) 0.80

Balance, December 31, 2007 4,263,083 $ 2.38

The following table summarizes the stock options outstanding and exercisable at December 31, 2007:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE

Range of exercise prices

Number outstanding at December 31,

2007

Weighted average

remaining contractual life

Weighted average

exercise price

Number exercisable at December 31,

2007

Weighted average

exercise price

(years)

$0.75 to $1.99 1,457,000 0.24 $ 1.36 415,500 $ 1.12

$2.00 to $2.99 1,572,583 1.20 2.63 874,414 2.76

$3.00 to $3.80 1,233,500 3.47 3.25 821,748 3.26

4,263,083 3.69 $ 2.38 2,111,662 $ 2.63

During the year ended December 31, 2007, under the fair value based method, $843,836 (2006 - $970,439) in compensation expense was recorded in the consolidated statements of operations for options granted to employees.The compensation costs refl ected in the consolidated statements of operations and retained earnings (defi cit) were calculated using the Black-Scholes option pricing model using the following weighted average assumptions:

2007 2006

Risk-free interest rate 4.34% 3.52%

Expected dividend yield 0% 0%

Stock price volatility 39% 44%

Expected life of options 2.6 years 2 yearsThe weighted average fair value of an option granted during the year ended December 31, 2007 is $0.54 (2006 - $0.80) per share.



carmanah.com 43


9. Share capital (continued):

(d) Warrants:During 2005, the Company issued 300,000 warrants as contingent consideration to the principal vendors of SPS. These warrants have an exercise price of $2.79 and expire June 30, 2010. Each warrant entitles the holder to purchase one common share of the Company.

NUMBER OF WARRANTS

WEIGHTED AVERAGE

EXERCISE PRICE

Balance, December 31, 2006 and 2007 300,000 $ 2.79

(e) Contributed surplus:

2007 2006

Balance, beginning of year $ 2,023,607 $ 1,292,390

Stock compensation 843,836 970,439

Transfer to share capital on exercise of options (45,160) (239,222)

Balance, end of year $ 2,822,283 $ 2,023,607

10. Research, development and engineering costs:

2007 2006

Research, developments and engineering costs $ 3,395,028 $ 3,478,889

Investment tax credits (586,000) (1,255,083)

$ 2,809,028 $ 2,223,806

11. Related party transactions:

During the year ended December 31, 2007, the Company paid $35,000 (2006 - $69,673) for research and development services to a director of the Company. In addition, the Company paid $nil (2006 - $29,944) for rent to a company controlled by an offi cer of the Company. The Company has ended its lease commitment for the space being rented.

The Company had an advisory agreement with a company controlled by a director and offi cer of the Company in the amount of $10,000 per month, which expired July 2005. The advisory agreement was on a month-to-month basis until June 1, 2007 when the Company cancelled the arrangement. During the year ended December 31, 2007, the Company paid management fees of $50,000 (2006 - $120,000) under this agreement.As described in note 16, the Company sold certain assets relating to its Solar power systems Division for $1,500,000 to a former director who resigned during the year.





12. Financial instruments:

(a) Fair value:For certain of the Company’s fi nancial instruments, including cash and cash equivalents, short-term investments, accounts receivable, bank indebtedness, and accounts payable and accrued liabilities, the carrying amounts approximate fair values due to their immediate or short-term maturity. The fair value of obligations under capital leases, calculated at the present value of future payments and discounted at the current market rates of interest available to the Company for debt instruments with similar terms and maturity, approximates carrying value.

Fair value estimates are made at a specifi c point in time, based on relevant market information and information about the fi nancial instrument. These estimates are subjective in nature and involve uncertainties and matters of signifi cant judgment and, therefore, cannot be determined with precision. Changes in assumptions could signifi cantly affect the estimates.

(b) Currency risk:A large portion of the Company’s sales are denominated in U.S. dollars. From time to time, the Company enters into forward foreign exchange contracts to manage its foreign currency exposure. The contracts oblige the Company to sell U.S. dollars in the future at pre-determined exchange rates. The contracts are matched with anticipated future sales in foreign currencies.

As at December 31, 2007 and 2006, there were no forward foreign exchange contracts outstanding.

(c) Concentrations of credit risk:Financial instruments that potentially subject the Company to signifi cant concentrations of credit risk consist primarily of cash equivalents, short-term investments and trade accounts receivable. To reduce credit risk, cash equivalents are only held at major fi nancial institutions and management performs ongoing credit evaluations of its customers’ fi nancial condition. The Company maintains reserves for potential credit losses.

13. Commitments:

The Company has operating lease agreements for the rental of premises and equipment. The minimum future annual rental payments under the leases are as follows:

Years ending December 31:

2008 $ 897,890

2009 720,883

2010 461,140

2011 249,896

2012 21,069



carmanah.com 45


14. Segmented information:

The Company is currently focused within three technology groups: solar powered LED lighting; solar power systems; and LED illuminated signage. Management evaluates segment performance based on gross profi t as other expenses are not generally allocated to individual groups. The groups share certain inventory, equipment and leasehold improvements; therefore management does not classify asset information on a segmented basis.

Sales in each Division includes a portion of total freight revenue. Cost of sales in each Division also includes a portion of total freight expense. The accounting policies of each segment are the same as those described in note 1.

(THOUSANDS OF DOLLARS)

2007 SOLAR LED LIGHTING SOLAR POWER SYSTEMS LED SIGNS TOTAL

Sales $ 27,457 $ 27,346 $ 4,206 $ 59,009

Cost of sales 18,436 22,084 2,912 43,432

Gross profi t $ 9,021 $ 5,262 $ 1,294 15,577

Gross margin 32.8% 19.2% 30.7% 26.4%

Expenses 23,119

Operating loss (7,542)

Other expense (3,295)

Loss before income taxes $ (10,837)

(THOUSANDS OF DOLLARS)

2006 SOLAR LED LIGHTING SOLAR POWER SYSTEMS LED SIGNS TOTAL

Sales $ 26,861 $ 30,905 $ 4,417 $ 62,183

Cost of sales 15,545 23,460 2,895 41,900

Gross profi t $ 11,316 $ 7,445 $ 1,522 20,283

Gross margin 42.1% 24.1% 34.5% 32.6%

Expenses 20,127

Operating income 156

Other income 429

Earnings before income taxes $ 585





14. Segmented information (continued):

For geographical reporting, revenues are attributed to the geographic location in which the customer is located as follows:

(THOUSANDS OF DOLLARS) 2007 2006

North America $ 47,656 $ 51,686

South America 866 1,007

Europe 5,680 6,058

Middle East 3,495 1,763

Asia 910 1,014

South Pacifi c 402 655

$ 59,009 $ 62,183

As at December 31, 2007 and 2006, substantially all of the assets related to the Company’s operations were located in Canada except for inventory on hand in the United States of America of $1,482,000 (2006 - $2,931,000) and inventory on hand in the United Kingdom of $19,000 (2006 - $382,000).

15. SmartCan acquisition:

In January 2007, the Company acquired certain assets relating to a lighting distribution business. Purchase consideration of approximately $100,000 was primarily recorded as an intangible asset, which is being amortized over its expected life of 4 years. Under the purchase agreement, there is an additional $900,000 of contingent consideration based primarily on net profi t of the acquired business through to December 31, 2010. The contingent consideration will be expensed as paid. To date, no contingent consideration has been paid.

16. Homepower assets sale:

On December 28, 2007, the Company sold certain assets related to its residential vertical within the Solar power systems Division to a former director of the Company for $1,500,000. The assets disposed of primarily consisted of related inventory, customer lists, and equipment which resulted in a gain on sale of $259,283. Under the terms of the agreement, the Company received cash of $200,000 on December 31, 2007, with a further $1,300,000 recorded as an accounts receivable. On January 9, 2008, $1,000,000 of the related receivable was settled through the return of 869,565 of the Company’s common shares, which were subsequently cancelled and returned to treasury. The remaining balance of $300,000 is expected to be paid in cash on or around March 31, 2008.



Investor RelationsRoland Sartorius, Chief Financial Offi cerToll-Free (N.A.): 1.877.255.8483Telephone: 250 380.0052Fax: 250.380.0062E-mail: [email protected]

Investment Information (as of April, 2008)

Common SharesStock Exchanges:

Toronto Stock Exchange (TSX) Stock Symbol: CMH

Berlin Stock Exchange Stock Symbol: QCX

Security Code No.: WKN 662218Deutsche Börse AG

Stock Symbol: QCXSecurity Code No.: WKN 662218

US Quotation Services: PinkSheets®

Stock Symbol: CMHXF

Issued and Outstanding: 43,070,174 Common Shares

Fully Diluted: 47,863,481 Common Shares

Corporate Financial Year-End: December 31Auditor: KPMG LLP, Victoria, BC, CanadaLegal Counsel: McCarthy Tétrault Suite 1300, Pacifi c Centre 777 Dunsmuir Street Vancouver, British Columbia V7Y 1K2Tel: 604.643.7100Fax: 604.643.7900

Transfer Agent: Pacifi c Corporate Trust Company, Vancouver, BC, CanadaIndustry Classifi cation: Industrial Products – TechnologyCUSIP Number: 143126 10 0

Annual General Meeting

The Annual General Meeting of Carmanah Technologies Corporation will be held on Thursday, May 16, 2008, at 9:00 AM PDT at the Carmanah Production FacilityBuilding 300, 770 Enterprise, Victoria, BC, Canada.

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© 2008 Carmanah Technologies Corp. All rights reserved. Carmanah®, EverGEN™, DuraGEN™, and MICROSOURCE® are trademarks or registered trademarks of Carmanah Technologies Corporation.

Carmanah Technologies Corp. Toll free: 1.877.722.8877 (US & Canada)Worldwide: +1.250.380.0052Fax: +1.250.380.0062Website: carmanah.com

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