Carmanah Announces Financial Results for Q3 2004

Revenues of $4.6 Million and Profit of $418,000

Vancouver, BC, Canada - (October 21, 2004) - Carmanah Technologies Corporation (TSX VE: CMH, Berlin and Frankfurt Stock Exchanges: QCX),is pleased to announce its third quarter results for the nine months ended September 30, 2004 and 2003.

Highlights for the Quarter

  • Record Q3 2004 revenues of $4,628,383, representing a 98% increase over Q3 2003
  • Record 2004 year-to-date revenues of $12,246,176, representing a 109% increase over the same nine-month period in 2003
  • Net earnings for the quarter of $418,592, as compared to $120,585 for Q3 2003
  • Year-to-date net earnings of $631,895, as compared to a net loss of $69,836 for the same nine-month period in 2003
  • Year-to-date gross profit margin at 54%, as compared with 54% for fiscal 2003

"This has been the strongest quarter in our Company's history," stated Art Aylesworth, Carmanah's CEO. "We are currently experiencing significant sales momentum in every market sector we are targeting, including those of subsidiary, Carmanah Signs (formerly AVVA Light Corporation). It is also very encouraging to see that our emerging markets are now providing the highest gains, consistent with our sales strategy for 2004."

MANAGEMENT DISCUSSION AND ANALYSIS

Revenues

Carmanah's total revenues for the three months ended September 30, 2004 were $4,628,383, representing a 98% increase over the same period in 2003 at $2,340,810. Total revenues for the nine months ended September 30, 2004 were $12,246,176, representing a 109% increase over the same period in 2003 at $5,855,312.

Carmanah's revenues were derived from the sale of solar-powered LED lighting and illumination products manufactured by the Company's operating subsidiary, Carmanah Technologies Inc. ("CTI"), as well as from the sale of LED edge-lit signs through the Company's operating subsidiary, Carmanah Signs Inc. ("CSI").

Contribution from Carmanah Technologies Inc.

CTI contributed $10,605,901 to the Carmanah's overall revenues for the first nine months of 2004, as compared to $5,855,312 for the same period in 2003. This increase in revenues is attributed primarily to sales growth in the aviation and transit market sectors. These two market sectors combined, contributed over $6 million in revenue during the first nine months of 2004, compared to approximately $1.7 million in revenue for the same period in 2003.

Contribution from Carmanah Signs Inc.

(formerly AVVA Light Corporation)

CSI contributed $1,640,275 to Carmanah's overall revenues for the first nine months of 2004. The Company has no CSI comparatives for the first nine months of 2003 because the acquisition of CSI took effect October 1, 2003. CSI sales had a slower than anticipated start in the 2004 year which resulted in a shortfall in meeting sales targets. The Company addressed the challenges affecting sales growth in the second quarter and is seeing positive results with increased sales momentum through the third quarter. Revenue for the three months ended September 30, 2004 was $640,000, representing an increase of approximately 28% over each of the previous two quarters. In addition, CSI had more than $300,000 in outstanding sales orders at the close of September 30, 2004 that are scheduled for fulfillment during the fourth quarter.

Cost of Sales and Gross Profit

Cost of sales was $2,190,807 (47% of revenue) for the three months ended September 30, 2004, resulting in a gross profit margin of 53%. Cost of sales was $5,647,938 (46% of revenue) for the nine months ended September 30, 2004, resulting in a 54% gross profit margin for the year to-date. Cost of sales includes labor, material, material burden and other manufacturing costs.

There are a number of factors that affect the Company's gross profit levels ranging from the ratio of direct sales versus distributor sales, purchasing volumes and practices, and foreign exchange fluctuations. All of these factors are monitored closely in an effort to protect or enhance the Company's ongoing profit margins. The Company has continued to maintain stable gross profit levels, notwithstanding the increase in value of the Canadian dollar relative to the US dollar.

Wages and Benefits

Wages and benefits expense for the three months ended September 30, 2004 increased 99% to $853,789, compared with $429,402 for the same period in 2003. For the nine months ended September 30, 2004, wages and benefits expense also increased 99% to $2,599,810, compared with $1,307,571 for the same period in 2003. The increase of $1,292,239 for the nine months ended September 30, 2004 over the same period in 2003 is the result of approximately $500,000 in additional wage expenses from CSI staff, a $99,000 severance expense for the termination of some executive and sales personnel, and an increase in sales and administrative staff in support of overall sales growth.

Staffing levels for the entire Company at September 30, 2004 were 97 full time employees, as compared to 54 at September 30, 2003. As a percentage of sales, total wages and benefits for the nine months ended September 30, 2004 represented 21% of total sales, compared to 22% for the same period 2003.

The Company booked a stock-based compensation expense for the three months ended September 30, 2004 in the amount of $69,097, and for the nine months ended September 30, 2004 in the amount of $167,315. This is the result of a new regulatory requirements that stipulates stock options be expensed direct on the income statement. In prior periods, this was reported on a pro forma basis within the notes to the financial statements.

Office and Administration

Office and administration expenses for the three months ended September 30, 2004 were $310,746, representing a 96% increase over 2003 at $158,432. For the nine months ended September 30, 2004, they were $813,631, representing a 62% increase over 2003 at $503,698. The increase for the three and nine month periods is primarily due to the addition of CSI's office and administration costs as a result of the CSI acquisition. Office and administration expense for the nine months ended 2004 represent 7% of total sales, as compared to 9% of total sales for the same period ended 2003.

Research and Development

Research and development expenses consist of engineering labor and material expenses in support of product development and research activities. During the first nine months of 2004, research and development expenses of $1,063,134 represented a 65% increase over the previous year's $642,891 (net of a $125,000 recovery under a Sustainable Development Technology Canada grant). This increase was the result of increased investment in development of new product offerings into new market sectors, as well as enhancements to current products that enable increased sales into other market sectors. This focus through much of 2003 and 2004 to-date has resulted in release of new products, including solar-powered LED bus stops, shelters and crosswalks. It also resulted in the release of the solar-powered LED aviation light, which is a modified version of CTI's marine light. As a percentage of sales, research and development expenses for the nine-month period ending 2004 are 9%, down from 11% for the same period in 2003.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2004 were $337,287, compared to $180,979 for the same period in 2003. For the nine months ended September 30, 2004, sales and marking expenses were $1,000,832, compared to $477,946 in 2003. The increased expenses are due in part to the acquisition of CSI, as well as increased sales and marketing by CTI. Much of the Company's sales and marketing resources have been and continue to be invested in emerging markets, such as transit, aviation, roadways and LED edge-lit signage. These markets have begun to realize significant revenues for 2004, and are expected to continue to grow in the future.

Net Earnings

Net earnings for the three months ended September 30, 2004 were $418,592, compared to $120,585 for the same period in 2003. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $529,812, compared with $172,156 for the same three-month period in 2003. For the nine months ended September 30, 2004, net earnings were $631,895 (EBITDA $938,370), compared to a net loss of $69,836 (EBITDA $62,367) for the same comparative period.

The Company utilized a portion of its carry forward investment tax credits, tax losses and SRED pools in order to minimize any current tax expense. The future income tax effect arising from the use of these items has been offset against available tax losses not previously recognized.

Cash and Liquidity

The Company's cash and cash equivalents at September 30, 2004 were $7,068,976, compared to $1,693,069 at December 31, 2003. This $5,375,907 increase in cash is primarily the result of net inflows of cash provided from net income in the amount of $631,895; completion of a private placement for the issuance of 3,484,848 units at a price of $1.65 per unit for gross proceeds of $5,750,000; $468,125 and $324,672 raised from the exercise of stock options and warrants respectively, less cash used for inventory of $534,247, capital assets of $515,091, and repayment of bank line of credit and long-term debts in the amount of $521,992.

The Company's net working capital at September 30, 2004 was $10,701,424 (current ratio of 7.37:1), compared to $4,168,728 (current ratio of 2.91:1) at December 31, 2003.

About Carmanah

Carmanah is an award-winning manufacturer specializing in proprietary solar-powered LED lighting solutions for commercial applications in the marine, aviation, transit, roadway, industrial worksite, and illuminated signage markets. The Company currently has more than 100,000 units installed in 110 countries. The shares of Carmanah Technologies Corporation are publicly traded on the TSX Venture Exchange under the symbol "CMH" and on the Berlin and Frankfurt Stock Exchanges under the symbol "QCX". For more information, please visit www.carmanah.com.

On Behalf of the Board of Directors

Carmanah Technologies Corporation

Praveen Varshney, Director

CARMANAH TECHNOLOGIES CORPORATION

Consolidated Interim Balance Sheets

September 30, 2004 and December 31, 2003

(Unaudited - Prepared by Management)

    Sept 30, December 31,
2004 2003
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 7,068,976 $ 1,693,069
Accounts receivable, net 2,751,017 2,698,061
Inventories 2,439,119 1,904,872
Prepaid expenses and deposits 121,396 53,376
12,380,508 6,349,378
Equipment and leasehold improvements, net 1,107,590 871,683
Intangible assets, net 173,143 190,320
Goodwill 3,072,173 3,072,173
Future Income taxes 190,114 190,114
$16,923,528 $10,673,668
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
  accrued liabilities
1,581,839 1,648,841
Deferred Revenue 71,988 71,228
Current portion of obligations
  under capital lease
26,017 55,435
Bank loan - 383,332
Current portion of
  long-term debt
- 21,848
1,679,084 2,180,650
Obligations under capital lease 17,553 71,656
Long-term debt - 33,325
1,696,637 2,285,631
Shareholders' equity:
Share capital 14,870,989 8,831,345
Contributed surplus 639,214 471,899
Deficit (283,312) (915,207)
15,226,891 8,388,037
$16,923,528 $10,673,668

CARMANAH TECHNOLOGIES CORPORATION

Consolidated Interim Statements of Operations and Deficit

For the nine months ended September 30, 2004 and 2003

(Unaudited - Prepared by Management)

  3 months ended 9 months ended
  September 30 September 30
    2004 2003 2004 2003
Sales 4,628,383 2,340,810 12,246,176 5,855,312
Cost of sales 2,190,807 1,075,276 5,647,938 2,683,907
  2,437,576 1,265,534 6,598,238 3,171,405
Operating expenses:
Wages and
     benefits
853,789 429,402 2,599,810 1,307,571
Research and
     development
365,153 298,170 1,063,134 642,891
Sales and
     marketing
337,287 180,979 1,000,832 477,946
Office and
     administration
310,746 158,432 813,631 503,698
Stock-based
    compensation
    expense
69,097 12,288 167,315 132,737
Bank charges 20,682 32,847 76,821 71,896
Amortization of:
   Equipment and
      leasehold
      improvements
100,962 49,367 276,464 125,226
   Patents and
     other intang-
     ible assets
10,258 2,204 30,011 6,977
2,067,974 1,163,689 6,028,018 3,268,942
Operating income
     (loss) for the
     period
369,602 101,845 570,220 (97,537)
Interest and other
     income
48,990 18,740 61,675 27,701
Net earnings (loss)
     before income
     taxes
418,592 120,585 631,895 (69,836)
Income tax expense
     (recovery):
       
  Current income
     taxes
185,000 - 455,000 -
  Future income taxes (185,000) - (455,000) -
Net earnings (loss)
     for period
418,592 120,585 631,895 (69,836)
Deficit, beginning
     of period
(701,904) (834,320) (741,505) (764,348)
Adjustment to reflect
     change in
     accounting for
     employee stock
     options
- (144,914) (173,702) (24,465)
Deficit, beginning
     of period,
     restated
(701,904) (979,234) (915,207) (788,813)
Deficit, end of period (283,312) (858,649) (283,312) (858,649)
Earnings (loss) per share        
  Basic $0.014 $0.005 $0.021 $(0.003)
  Diluted $0.013 $0.005 $0.020 $(0.003)
Weighted average
     # of shares
     outstanding
       
  Basic 30,646,336 22,897,055 29,731,267 22,832,186
  Diluted 32,853,390 22,667,682 31,938,321 22,832,186

This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are described under the caption "Note Regarding Forward-looking Statements" and "Key Information - Risk Factors" and elsewhere in Carmanah's Annual Report for the fiscal year ended December 31, 2003, as filed with the U.S. Securities and Exchange Commission and which are incorporated herein by reference. These risks and uncertainties are also described under the caption "Risk Factors" in Carmanah's Annual Information Form dated December 31, 2003, as filed with the British Columbia Securities Commission and which are incorporated herein by reference. Carmanah does not assume any obligation to update the forward-looking information contained in this press release.