- Market conditions continue to adversely affect financial results, but there are positive signs of an upturn as shipments of PV cells increase 26% from 2009 first quarter

- Company signs term sheet for $10 million of equity financing to be available as required

- Discussions continue with potential strategic partners for completion of Kitchener silicon plant

- Systems Division awaiting release of final Feed-in-Tariff details in Ontario, which will enable pending projects to proceed, and exploring opportunities in Germany

- Conference call and webcast to be held Thursday, August 13, 8:30am (Eastern)

WATERLOO - ARISE Technologies Corporation, which is dedicated to becoming a leader in high-performance, high-quality, cost-effective solar technology, today reported its financial results for the second quarter ended June 30, 2009. Financial results conform to Canadian generally accepted accounting principles (GAAP) and all currency amounts are in Canadian dollars.

"As expected, the market conditions affecting the global solar industry since late last year persisted through the first half of 2009, resulting in a further decline in pricing for PV (photovoltaic) cells. At the same time, the pricing of our raw material, silicon wafers, continued to trend downward and helped offset some of the PV cell price reduction. These factors continued to affect ARISE's financial results," said Vern Heinrichs, President and Chief Executive Officer.

"Our shipments of PV cells rose more than 26% in the second quarter compared with the level of the first quarter. This is an encouraging sign of progress, the second quarter is historically the weakest quarter of the year in the solar industry due to seasonality factors," he continued.

"While this is a difficult period across the solar business, the industry still is expecting a further upturn in the second half of this year going into 2010, and the long-term outlook for solar is unquestionably very exciting. ARISE continues to deal with the short-term consequences of the weak global economic environment, but we also continue to make progress in our operations, positioning us to benefit from improving demand in the future.

"We have made progress in our PV cell manufacturing, PV R&D, our Silicon development, and our Systems Division, and toward taking advantage of our ability to benefit from the evolving vertical integration of these three core strengths of ARISE. We also are encouraged by the generally cooperative spirit being shown by our customers and our suppliers as we all work our way through this period. As a result, we have agreed with our customers to align our pricing of PV cells with current market levels, while we are achieving cost reductions from key silicon wafer suppliers that are consistent with the decline in PV cell prices being experienced," Mr. Heinrichs said.

Operating Highlights

- Second-quarter 2009 shipments of PV cells from the company's Bischofswerda, Germany plant amounted to 2.9MW or $6.6 million, bringing first-half 2009 shipments to 5.2MW or $13.4 million. While the shipments of PV cells increased by 26.1 percent in the 2009 second quarter, compared with the first quarter. PV cell revenues decreased slightly from the 2009 first quarter ($6.8 million in the first quarter), reflecting the further softening in industry pricing. The company made its first customer shipments of PV cells in June 2008 and sales for the 2008 second quarter amounted to less than one- half million dollars.

- Following the initial production test runs in early March of PV cells on Line 2 at the Bischofswerda plant, ARISE produced more than 100,000 cells during the commissioning process leading up to completion of the Site Acceptance Tests (SAT). On July 9, the company announced that it had completed the SAT on schedule. The initial target rate of 17% efficiency was achieved. When fully optimized, Line 2 is expected to achieve efficiencies of up to 18%. ARISE has shipped PV cells from Line 2 to customers for their evaluations. Commercial production and ramping up of output will take place as demand from ARISE's customers requires it.

- The company also continued to make significant progress in its manufacturing operations at the Bischofswerda plant with a further reduction in the scrap rate to at or below industry levels. In the 2009 second quarter the company reduced the scrap rate by a further 37%, following 16% and 20% reductions achieved in the 2009 first quarter and 2008 fourth quarter, respectively. The company expects that its manufacturing experience gained on Line 1 will contribute to its performance in ramping up production on Line 2.

- On June 19, ARISE welcomed Ontario's then Minister of Research and Innovation, John Wilkinson, to its Waterloo operations. The visit gave ARISE's executives an opportunity to discuss with the minister its progress and strategic plans in the development of PV cells and silicon refining, as well as the company's enthusiasm for the Ontario government's Green Energy and Green Economy Act, including the Feed- in-Tariff (FIT), which is expected to stimulate the adoption of solar systems in the province.

Second-Quarter and First-Half Financial Highlights

ARISE's financial results reflect the June 2008 manufacturing start-up and commencement of commercial shipments of PV cells to its customers.

Second-quarter 2009 sales amounted to $6.6 million, compared with $0.7 million in the 2008 period; first-half 2009 sales were $13.8 million, compared with $0.9 million in the first six months of 2008. PV cells accounted for 99.5% of 2009 second-quarter sales and 97% for the first six months, with the balance in both periods being generated by the company's Systems Division. Installations of new PV systems in Ontario decreased pending the approval of the new FIT. Sales for the 2008 second quarter and first half of the year were mainly generated by systems as the company only began commercial shipment of PV cells in June 2008.

Sales and gross profit in 2009 have been significantly affected by the industry-wide downward trend in the pricing of PV cells. On a per-watt basis, cell prices have declined an estimated 30% since the end of 2008. Prices are expected to decline further in the second half of 2009, resulting in a predicted year-over-year decline of about 40-45%. The impact of this pricing decline on profitability is expected to be offset by a similar drop in the cost of silicon wafers. Wafer pricing is forecast to decline by about 45-55% in 2009 compared with the prices charged in 2008.

Gross profit for the second quarter of 2009 was a negative $8.1 million (an improvement from the negative gross profit of $10.2 million in the 2009 first quarter), compared with a negative $1.3 million in the 2008 period. The negative gross profit for the 2009 quarter is due mainly to a $6.3 million write-down of raw material and finished goods inventory to net realizable value as the result of the declines in pricing for PV cells and silicon wafers. For the first six months of 2009, the negative gross profit was $18.3 million, compared with a negative $1.3 million in the first half of 2008. The negative gross profit for the first half of 2009 reflects a $9.1 million write-down of raw material and finished goods inventory and a $6.0 million write-down of prepayments made for silicon wafer purchases and scrap costs.

ARISE continues to focus on tightly managing its costs. Operating expenses for the 2009 second quarter were $5.7 million, compared with $5.7 million in the 2008 period. For the first half of 2009, operating expenses were $10.8 million, down from $11.0 million in the 2008 period. Operating expenses comprise research and development, general and administrative, selling and marketing, and depreciation and amortization.

R&D expenses increased to $2.6 million in the 2009 second quarter and $4.3 million for the first six months, compared with $1.5 million and $3.0 million in the compared 2008 periods. In the 2009 second quarter, $0.9 million of government assistance that had been recognized during the fourth quarter of 2008 and the first quarter of 2009 was reversed. The reversal was triggered by the deferral of the completion of the 50-tonnes per year Kitchener silicon plant, which represents the company's fifth milestone for Sustainable Development Technology Canada (SDTC). The SDTC funding will be recognized as progress is made toward meeting the fifth milestone. ARISE's R&D programs are aimed at advancing its PV silicon and PV cell capabilities.

General and administrative (G&A) expenses declined to $2.3 million in the 2009 second quarter ($4.8 million in the first six months), compared with $3.5 million in the 2008 second quarter ($6.6 million in the first six months) mainly due to reduced stock-based compensation costs. Selling and marketing expenses for the 2009 second quarter and first six months were $0.4 million and $0.7 million, respectively, compared with $0.5 million and $1.0 million in the comparative prior-year periods. The decreases were the result of the company's focus on containing costs and lower consulting and feasibility expenses.

Net Interest expense for the second quarter was $0.6 million, compared with $0.3 million in the 2008 period. Interest expense remained virtually unchanged during the second quarter of 2009 compared with the first quarter of 2009. The impact of lower EONIA and EURIBOR interest rates was offset by increased borrowing. All third-party debt of ARISE is denominated in Euros and subject to floating interest rates based on EONIA or EURIBOR. For the six months of 2009, interest expense was $1.2 million, compared with $44,787 in the first half of 2008. The increase in interest expense is the result of increased borrowing from Commerzbank AG. At June 30, 2009, the company had bank loans and long-term debt totaling $46.6 million ($33.7 million at June 30, 2008).

Other income and expenses in the 2009 second quarter, includes a foreign exchange gain of $0.6 million, compared with a foreign exchange gain of $0.9 million in the same quarter of 2008. Other income and expenses in the first six months of 2009 includes a foreign exchange gain of $1.4 million, compared with a foreign exchange gain of $0.5 million in the 2008 period. The largest component of the foreign exchange gain resulted from the translation into Canadian dollars of financial liabilities of ARISE Germany, which are denominated in Euros. The foreign exchange gain realized in the 2009 second quarter was due to the strengthening Canadian dollar compared to the Euro; during the quarter, the Canadian dollar strengthened by 2.5% compared with the Euro; it increased by 4.4% in the first half of 2009.

ARISE recorded a net loss for the second-quarter 2009 of $13.6 million (a loss of $0.11 per basic and diluted share), compared with a net loss $6.5 million (a loss of $0.05 per basic and diluted share) in the 2008 quarter. For the first half of 2009, the net loss amounted to $28.3 million (a loss of $0.22 per basic and diluted share), compared with a net loss of $11.9 million (a loss of $0.10 per basic and diluted share) in the 2008 first six months.

Liquidity and Capital Resources

As at June 30, 2009, ARISE had negative working capital of $27.1 million consisting of current assets of $35.5 million less current liabilities of $62.6 million. This compares with negative working capital at the 2009 first quarter of $11.1 million (current assets of $52.7 million and current liabilities of $63.8 million). The decline in working capital reflects the write-downs taken in the 2009 second quarter, and decreased cash, accounts receivables, and inventories, partially offset by decreased liabilities.

Cash and cash equivalents and restricted cash at the end of the 2009 second quarter totaled $3.0 million, a decrease of $4.2 million since the end of the 2009 first quarter. Restricted cash, which comprises funds held in escrow for the completion of leasehold improvements for the Kitchener silicon plant, amounted to $0.3 million at the end of the 2009 second quarter ($0.6 million at the end of the first quarter). Current liabilities include deferred revenue of $8.9 million, which primarily represents customer deposits ($8.6 million at March 31, 2009).

The decrease in cash and cash equivalents during the 2009 second quarter primarily is the result of funding the operating loss, reducing long-term debt and bank loans, increasing working capital items, and funding capital expenditures related to the Kitchener silicon plant and the Bischofswerda PV cell production Line 2.

Subsequent to the end of the second quarter, on August 7, ARISE announced it has reached an agreement with Commerzbank AG to extend a (euro)10.0 million secured bank-credit facility to December 31, 2009. The facility is available to provide working capital to the company's manufacturing operations in Germany.

ARISE also announced that the remaining (euro)2.0 million secured bank-credit facility with Commerzbank intended for the pre-financing of VAT refunds in Germany related to the construction of the German PV cell manufacturing plant, which matured on June 30, 2009, was repaid as the VAT refunds were received.

Commerzbank also agreed to defer by one year quarterly repayments of the company's (euro)12.55 million long-term debt facility. The debt was incurred for financing the construction of the PV cell manufacturing plant in Germany. The quarterly installment payments of (euro)627,500, which began March 31, 2009, now are deferred to begin June 30, 2010 for a total deferral of (euro)2.51 million for the period.

As previously announced, in view of the current global economic recession and the impact it has had on the demand and pricing of solar products and systems as well as on the availability of capital, ARISE has been focusing on reducing its costs and restricting its planned capital investments where possible.

As previously disclosed, ARISE has been exploring options for obtaining additional financing. As a result, ARISE has signed a term sheet with an investment fund under which the fund would provide up to $10 million of equity financing advanced as required by ARISE. ARISE would have discretion as to the timing and amount of each advance. In exchange for the funds, as they are drawn, ARISE would issue common shares to the fund based on an average price less a discount to the market price and subject to a minimum price at which the company is willing to issue its shares. ARISE is preparing to file a preliminary shelf prospectus regarding the planned financing concurrent with the filing of the company's second quarter 2009 financial results. In addition, ARISE is exploring a number of possible small private-placement financings.

Outlook

In view of the uncertain economic climate in general and demand and pricing within the solar energy industry in particular, ARISE continues to believe that it cannot provide reliable guidance regarding its financial or operating expectations for the balance of 2009.

"We are pleased that we have been successful in our discussions with Commerzbank regarding our working capital line and the one year deferral of payments on the long term debt provided by them. We are also pleased to have reached an agreement to obtain additional financing that will be available as we require it. These were important accomplishments with respect to our liquidity," said Mr. Heinrichs.

"We are gaining confidence that the worst of the slump in the solar industry seems to be over and the positive trends that we began to see gradually emerge during the 2009 second quarter may continue," said Mr. Heinrichs.

"Our customers for PV cells are indicating that their orders will continue to strengthen, as they did in the second quarter following the sluggish start to the year. While pricing for PV cells likely will continue to decline, we expect that our materials costs will as well at a rate at least as great. We also should benefit from the further improvements being made in our manufacturing operations. " he said.

"With respect to our planned 50-tonnes silicon plant in Kitchener, discussions with potential strategic partners and financial backers continue. While this process is taking somewhat longer than we had hoped, it is really not surprising given the economic environment. We are encouraged both by the level of interest expressed and the progress in our negotiations, Mr. Heinrichs said.

"Our System Division is poised to move ahead quickly in Ontario once the provincial government has issued the final details of the Feed-in-Tariff (FIT) under its Green Energy and Green Economy Act. It seems clear that demand for solar systems in Ontario is building and projects will flow quickly once the FIT is finalized.

"We also are now working to develop a systems business with partners in Germany, which would position ARISE as both a supplier and as a customer for module makers and for our own PV cells. The rules for systems installation in Germany are already in place and we currently are considering a number of potential partnerships and initial projects," Mr. Heinrichs said.