Attached files
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| EX-21 - SES SOLAR INC. | v179657_ex21.htm |
| EX-32.1 - SES SOLAR INC. | v179657_ex32-1.htm |
| EX-31.2 - SES SOLAR INC. | v179657_ex31-2.htm |
| EX-32.2 - SES SOLAR INC. | v179657_ex32-2.htm |
| EX-31.1 - SES SOLAR INC. | v179657_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the Fiscal Year Ended December 31, 2009
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the Transition Period From
to
Commission
File Number 000-49891
SES
Solar Inc.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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33-0860242
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(State
or Other Jurisdiction of Incorporation
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(I.R.S.
Employer
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Organization)
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Identification
No.)
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129,
route de Saint-Julien, 1228 Plan-les-Ouates
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Geneva,
Switzerland
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(Address
of Principal Executive Offices)
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(Zip
Code)
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+41-22-884-1484
Registrant’s
telephone number, including area code
Securities
registered pursuant to Section 12(b) of the Exchange Act:
None
Securities
registered pursuant to Section 12(g) of the Exchange Act:
Common
Stock, par value $0.001 per share
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes ¨ No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined in Rule 12b-2 of the Act).
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in defined
in Rule 12b-2 of the Act). Yes ¨ No x
The
aggregate market value of the common stock held by non-affiliates of the
registrant, as of June 30, 2009, was $15,744,413. As of January 21, 2010,
2010, there were 72,984,168 shares of our common stock
outstanding.
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Page
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1
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We have
made forward-looking statements which relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by words such as “may,” “should,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential” or “continue” or the negative
of these words or other comparable terms. Forward-looking statements involve
risks and uncertainties that may cause our actual results or performance to be
materially different from those expressed in or implied by the forward-looking
statements. These uncertainties include, among others, our need to raise
additional financing; risks related to the development and implementation of our
new manufacturing processes and facility; risks related to completion,
refinement and management of our supply chain and distribution channels; risks
related to current and future research and development; risks related to
customer acceptance of our products; risks related to competition in the solar
energy field; risks related to the availability of public subsidies; our history
of losses; the historical volatility of our stock prices; general market
conditions; and the risks in the section entitled “Risk Factors” that may cause
our historical and actual results, level of activity and performance to be
materially different from future results, level of activity, or performance as
expressed in or implied by these forward-looking statements.
Except as
may be required by applicable law, we do not undertake or intend to update or
revise our forward-looking statements, and we assume no obligation to update any
forward-looking statement as a result of new information or future events or
developments.
As used
herein, the terms “company,” “SES USA,” “our,” “we,” and “us” refer to SES Solar
Inc. and its subsidiaries on a consolidated basis, and the terms “SES
Switzerland” and “SES Prod” refer to our wholly owned subsidiaries, unless the
context requires otherwise.
We are a
Delaware corporation engaged in the business of designing, engineering,
producing and installing solar panels or modules and solar tiles for generating
electricity. We conduct our operations through two wholly owned subsidiaries,
SES Prod. S.A. (“SES Prod”) and SES Société d’Energie Solaire S.A. (“SES
Switzerland”). Our shares are quoted on the OTC Bulletin Board under the symbol
“SESI.OB”.
Overview
We are a
renewable energy company that offers products and services focused on the
design, development and commercialization of a portfolio of solar products and
technologies capable of delivering alternative energy solutions. To date, we
have produced and installed custom photovoltaic (“PV”) solar products for
commercial, industrial and residential use. Based on the specific needs of our
customers, we manufacture our solar modules and solar tiles using cells,
components and other raw materials that are supplied to us from third-parties.
We also offer comprehensive engineering services for PV projects. As an
engineering service provider, we design new methods of manufacturing PV
modules.
We are
actively engaged in transforming our business from an engineering PV service
company into a producer and manufacturer of solar modules and tiles using our
proprietary assembly processes at our new manufacturing facility in Geneva,
Switzerland, which we believe will allow for higher quality electrical contacts,
better performance and reduced costs. Our efforts over the past 12
months have been focused largely on completing construction at our new facility,
moving the machines from our former plant and designing our future production
lines. We anticipate commencing full scale production during Summer
2010. Until such time, we will continue to partner with
subcontractors and to manufacture our solar products on a manual and semi-manual
basis.
The
Photovoltaic Solar Industry
Renewable
energy sources for electric power generation include hydroelectric, biomass,
geothermal, wind and solar. Among renewable sources of electricity production,
solar energy has the most potential to meet the world’s growing electricity
needs. According to the U.S. Department of Energy, the sun is the only source of
renewable energy that has a large enough resource base to meet a significant
portion of the world’s electricity needs.
Solar
electricity is generated using either PV or solar thermal technology to extract
energy from the sun. PV electricity generating systems directly convert the
sun’s energy into electricity, whereas solar thermal systems heat water or other
fluids that are then used as sources of energy. PV systems are either
grid-connected systems or off-grid systems. Grid-connected systems are connected
to the electricity transmission and distribution grid and feed solar electricity
into the end-user’s electrical system and/or the grid. These systems are
commonly mounted on the rooftops of buildings, integrated into building facades
or installed on the ground using support structures, and they range in size from
2 to 3 kilowatts to multiple gigawatts (GW) and megawatts (MW). Off-grid PV
systems are typically much smaller and are frequently used in remote areas where
they may be the only source of electricity for the end-user.
1
Solar
thermal technology advancements have been underway in Europe since 1990 and in
China since 2000. PV technology is gaining ground in part to the
aggressive policies of certain countries, especially in Europe, to reduce
dependence on fossil energy.
PV
systems are currently the most widely used method of transforming sunlight into
electricity.
Growth in
installed solar power systems has been stimulated by long-term government
subsidies, tax incentives and feed-in tariffs that require public service
companies and utilities to buy back excess power generated by privately owned PV
systems. Over time, we expect costs to decline as a result of new manufacturing
techniques, the development of PV cell technologies that use alternative
lower-cost materials, reductions in the amount of silicon used in PV cells
(partly through the development of thin film technologies), improvements in
module performance as a result of greater PV cell energy efficiency, lower
direct manufacturing costs, and economies of scale as silicon production volumes
continue to rise.
The solar
PV market has demonstrated an aggregated global growth rate of more than 40% per
annum over the last 10 years. Production costs are likely to decrease and become
more economically sustainable, while production capacity must continue to grow
in order for PV to become a significant player in the global energy
market.
World
solar PV market installations reached a record high of 5.95GW in 2008,
representing growth of 110% over the previous year. In its recently published
report, “The World Market for PV Cells and Modules,” IMS Research reports that
PV module shipments grew by over 25% in 2009, to more than 8GW. However,
IMS Research’s ongoing survey of integrators and installers and its analysis of
grid-connection statistics also revealed that new installations grew by a much
more modest 5% to 10%, but exceeded 6GW for the first time.
Installations
in Europe were realized relatively quickly in the second half of 2009. Germany
led the way, installing around 3GW of new PV capacity. The collapse of the
Spanish market, combined with a difficult economic climate, caused a significant
drop in demand and prices plummeted by 40% as a result. Average prices were also
driven down further by thin-film modules continuing to account for an increasing
proportion of shipments. Consequentially, PV module revenues declined by over
20% in 2009.
Silicon
spot prices peaked at over $500 per kg in 2008, but fell to almost one-tenth of
that price during 2009. In the long-term, price reduction is good for the
industry because it allows solar based energy to compete with the going rate for
retail electricity.
Even
though the recent financial crisis has severely impacted production as well as
development of PV projects in Europe, the future potential of the technology
remains high. According to our estimates, European markets will continue to
experience new heights beyond 2010, with total installed capacity expected to
reach 80GW by 2015, representing a Compound Annual Growth Rate (CAGR) of 35%, or
10GW of new capacity each year.
Advantages
and Disadvantages of Solar Energy
Solar
energy generated through PV systems has several advantages compared to
conventional and other renewable sources of electricity, including security,
system reliability, low maintenance, modularity and flexibility of design, as
well as significant environmental benefits. PV systems also support the trend
toward distributed (point-of-use) power generation. We believe that capacity
constraints, increased demand for power reliability, and the challenges of
building new centralized power plants will increase the demand for distributed
power generation.
Solar
energy generated through PV systems also has certain disadvantages. Perhaps the
most significant is the high initial cost of individual PV systems. Solar power
can cost twice as much as grid power. This is due almost entirely to the high
cost of PV cells, which depends on the cost and availability of semiconductor
grade silicon and on production technologies. While technical developments are
underway in thin film, membrane and other non-crystalline based materials, over
90% of the industry currently relies on crystalline silicon cells.
As the
cost of producing electricity from grid connected PV installations is higher
than the current cost of electricity from fossil or nuclear plants, the PV
market relies heavily on government subsidies and regulation concerning
independent power producers. These regulations favor PV electricity in some, but
not all, countries. Existing regulations are subject to change due to local
political factors affecting the energy market, especially in Europe, where the
process has been ongoing for 10 years.
2
Description
of Our Products
To date,
we have produced and installed custom PV solar products for commercial,
industrial and residential use. Based on the specific needs of our customers, we
manufacture our solar tiles using cells, components and other raw materials
supplied to us by third-parties. The design, production and installation of
these customized solar products require that we offer comprehensive engineering
services. As an engineering service provider, we design new methods of
manufacturing PV modules, and we incorporate these modules into the specific
architectural and building applications of our customers. As we reach completion
of our manufacturing facility and implement our proprietary manufacturing
processes, as more fully described below, we will focus our attention less on
custom design and installation projects and more on mass manufacturing,
producing and offering the following products:
Solar
Tiles: SunTechTile® and SwissTile®
We have
developed a new technology for the production, distribution and sale of a next
generation solar tile that we intend to market under the SunTechTile® trademark
on the international market and under the SwissTile® trademark in Switzerland.
SunTechTile® and SwissTile® share the same design but will be branded under
different names in order to distinguish their targeted markets. The SunTechTile®
and SwissTile® solar tiles maximize power output by utilizing high performance
PV cells with an innovative connector that we believe makes the tiles easier to
install and less expensive to produce than competitive models. Our connector
design also reduces power loss, thereby maximizing efficiency. These tiles will
be manufactured on our fully automated production lines commencing during Summer
2010, which will allow for a shorter manufacturing cycle and lower production
cost. Until such time as our fully automated production lines are
operational, we will continue to partner with subcontractors and to
manufacture these tiles on a manual and semi-manual production line
basis.
High
Power Rated Modules
We also
intend to manufacture and distribute PV modules, which are packaged
inter-connected assemblies of PV cells. Our modules will incorporate high
quality cells that have reduced visibility and therefore increased architectural
appeal.
Description
of Our Proprietary Manufacturing Processes
We have
developed and patented a new assembly process based on our proprietary
technology that will allow us to produce solar modules and solar tiles at a
lower cost and in a more time efficient manner, thereby resulting in more
attractively priced products. Our new facility in Geneva will showcase our
new production lines and, we believe, will enable us to successfully demonstrate
our manufacturing capabilities to produce solar PV modules with our new
connection process for back-contact cells.
Our
proprietary production process, which we expect to be fully operational during
Summer of 2010, consists of an automated assembly technology that we believe
guarantees a more reliable and efficient manufacturing process. This is
because our new technology allows for back-contact PV cells and soldering to
occur during only one production run. As a result of this
new assembly technology, we anticipate our production lines will be
significantly faster and smaller than traditional production lines that use
standard tabbing and stringing machines. We further believe that our new
manufacturing process has numerous advantages over existing assembly techniques,
including easier and faster electrical connections between cells and strings in
a module and fewer manufacturing steps. Our automated manufacturing
process also significantly reduces manual labor requirements, a substantial cost
component in the PV industry, which will result in greater capital productivity,
lower costs, and more reliable connections.
In
addition to the above described assembly technique, our patent also applies to
the connection of modules (of any cell type) to junction boxes in a more
efficient manner, resulting in a 1% to 3% reduction in the use of glass material
and encapsulate, depending on the type of module.
We plan
to use our patented manufacturing process and back-connection techniques at our
new facility to produce PV modules and our next generation of integrated roof
tiles. In the future, we may also consider licensing this technology to other PV
module producers as well as selling complete production lines that we develop
with third parties.
With its
low heating demand and large PV roof, we believe that our manufacturing facility
will be a showcase for PV technology, with special solar windows on one facade
and a roof generating more than enough power to satisfy the facility’s energy
requirements. In January 2008, we received confirmation that the building
project meets the MINERGIE
® standard, which is a sustainability brand for new and
refurbished buildings that is mutually supported by the Swiss Confederation, the
Swiss Cantons along with Trade and Industry and is registered in Switzerland and
around the world. The final MINERGIE ® certificate
is expected to be delivered upon completion of the building. In September 2008,
the building was awarded the 2008 Swiss Solar Award for architectural
integration of PV solutions. We were also awarded the 2008 European Solar Award
in December 2008. We manage this facility through our wholly owned subsidiary,
SES Switzerland.
Sales
and Marketing
Although
the solar energy market is at a relatively early stage of development, energy
experts and associations forecast a CAGR of 30% for the solar PV market between
2009 and 2010. To date, our operations have consisted of providing custom
manufactured solar tiles and related engineering services to customers in
Switzerland. As such, we have primarily focused our marketing and sales efforts
in Switzerland.
3
Once we
complete construction of our manufacturing facility and our automated production
lines are fully operational, our expansion plans and target markets will include
Germany, France, Spain, Italy and the U.S. However, the solar energy market is
still at a relatively early stage of development. Its future growth could be
different from expectations, and the extent to which our products will be
adopted is uncertain.
We intend
to promote our PV solutions through trade publications, attendance at key
industry trade shows, direct mail campaigns, online advertising and relationship
marketing to our expanding network of dealers and solar integrators. Our
marketing activities will be of greater importance once our production lines
become fully operational.
Customers
Most of
our revenue to date has been generated by sales of custom manufactured solar
modules and tiles and related engineering services to customers, which have
included:
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suppliers
of modules (i.e., either integrator PV systems or cell manufacturers
willing to outsource the module production to us, using our proprietary
technology to assemble components in a module) to end-user
consumers;
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engineering
firms, installers, distributors or end users (public or private) of our
solar tiles;
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architects,
public authorities or end users of our engineering services in PV turnkey
installations; and
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potential
module manufacturers licensing our
technology.
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For the
fiscal year ended December 31, 2009, sales criteria for certain projects had not
been fully met, and we were only able to recognize revenue of $1,336,188. During
this period, sales to our two largest customers accounted for approximately 80%
and 17%, respectively, of our total net sales. For the fiscal year ended
December 31, 2008, sales to our two largest customers accounted for
approximately 69% and 18% of our total net sales of $33,416. The loss of one or
more of our largest customers or their default in payment could significantly
reduce our revenues and harm our operating results.
Suppliers
and Process Equipment Providers
We rely
on several companies to supply certain components and materials used to
manufacture and produce our PV modules and tiles. For module and tile
production, we depend on a limited number of suppliers for back contact cells.
We believe that due to increased demand for back contact cells, additional
suppliers have already entered the market. We acquire cells on a purchase order
basis and do not have long-term supply contracts with any suppliers, although we
may enter into such contracts in the future. We purchase slates from Swiss
Eternit, with whom we have a long-standing commercial relationship. We do not
believe a risk of inventory shortage exists with respect to tiles, although if
one did, we believe alternate suppliers exist. Recent changes in the dimensions
of some solar cells, however, could require larger slates, which exist only at
the prototype level from our suppliers and whose availability on a large
scale is not yet proven.
Our
manufacturing processes use both off-the-shelf and custom-built equipment. Our
equipment providers have had difficulty finalizing our order for certain
custom-built machinery to be installed in our new facility. Based on our
patented technology, the manufacturing concept we will employ in our facility is
new and an important machine that we expected to have in 2009 has yet to be
delivered. Delays delivering this machine by the supplier have postponed
production at our manufacturing facility. As a result of this ongoing delay, we
have reconfigured our production capabilities so that we are able to continue
producing our tiles on a manual and semi-manual basis using existing equipment
and partnering with subcontractors. We expect that this machine will
be delivered and tested during the second quarter of 2010 and that full scale
automated production will commence soon thereafter.
We
are in ongoing discussions with strategic partners, including cell
manufacturers, PV line manufacturers and special manufacturers to assist us with
our new technology for module assembly.
Competition
We face
competition from domestic and international companies actively engaged in the
manufacturing and distribution of solar PV systems, as well as from emerging
technology companies that may become viable in the next several years. The best
funded and most established producers of PV cells and modules include Sharp
Corporation, Kyocera Corporation, Sunpower, Suntech, Qcells, Solarworld, Schott
Solar, BP Solar, Shell, Tenesol, Isofoton, Powerlight and GE Solar (formerly
AstroPower). Because most, if not all, of our competitors have substantially
greater capital resources and more experience in research and development,
manufacturing and marketing than we do, we may not succeed in the continued
commercialization and development of our products. We believe, however, that our
building-integrated solar roofing products have advantages over most other PV
product offerings. In most cases, competitors produce modules that must be rack
mounted externally to a building, creating potential damage to the structure,
generating maintenance problems and detracting from their visual appearance. Our
PV product offerings differ in this respect because they maximize power output
using the latest generation PV cells in an innovative design that incorporates
ultra-thin, invisible connectors between cells. This new connector design
reduces power loss and increases efficiency.
4
Both the
traditional and the alternative energy industries are highly competitive.
Numerous entities in the U.S. and elsewhere compete with us to develop new and
different alternative and/or renewable energy technologies. Competitors also
include fossil fuel companies such as Exxon, Shell, BP, and Total and companies
active in electronics, such as Applied Materials and Cypress. We face, and
expect to continue to face, competition from these entities to the extent that
they develop products that function similarly or identically to our
technologies.
Barriers
to entering the PV module and tile manufacturing industry include the technical
know-how required to produce solar cells that maintain acceptable efficiency
rates at competitive production costs. In addition, any new PV solar technology
requires successful demonstration of reliability testing prior to widespread
market acceptance. We believe the principal competitive factors in the market
for solar electric power products are: price per watt, long-term stability and
reliability, conversion efficiency and other inherent performance measures, ease
of handling and installation, product quality, reputation, and environmental
factors.
Research and Development
Our
research and development expense consists primarily of salary and personnel
related costs and the cost of products, materials and outside services used in
our research and development processes and product development activities.
During the fiscal years ended December 31, 2009 and 2008, we spent $251,822 and
$337,761, respectively, on research and development. We expect our research and
development expense to increase in absolute terms in the future, especially
during 2010, as we increase personnel and research and development activity at
our new facility. We intend to devote a substantial amount of our future cash
flows to research and development due to the new and evolving nature of the PV
industry. Over time, we expect research and development expense to decline as a
percentage of net sales and on a cost-per-watt basis as a result of economies of
scale.
Intellectual Property
We rely
on a combination of copyright, trade secret, trademark and contractual
protections to establish and protect our proprietary rights. We require our
customers to enter into confidentiality and nondisclosure agreements before we
disclose any sensitive aspects of our solar technologies or strategic plans, and
we typically enter into proprietary information agreements with employees and
consultants. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our technology. It is
difficult to monitor unauthorized use of technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as laws
in the U.S. In addition, our competitors may independently develop technology
similar to ours. Our precautions may not prevent misappropriation or
infringement of our intellectual property.
We have
filed a patent application for our new assembly technology. The application was
filed with the World Intellectual Property Organization on July 3, 2006. On
October 24, 2007, the international report on our PCT/IB2007/000428 was issued.
The report recognizes that 12 of the 14 patent claims are new and that all have
potential for industrial application.
Government
Regulation
Currently
the cost of solar electricity substantially exceeds the retail price of
electricity in every significant market in the world. To nurture the development
of solar electricity, many countries, most notably Germany, Italy, Spain,
France, South Korea, Japan, Canada and the U.S., provide some level of subsidies
in the form of feed-in tariffs, net metering programs, renewable portfolio
standards, rebates, tax incentives and low interest loans.
Under a
feed-in tariff subsidy, the government sets prices that regulated utilities are
required to pay for renewable electricity generated by end-users. The prices are
set above market rates and may be differentiated based on system size or
application. Net metering programs enable end-users to sell excess solar
electricity to their local utility in exchange for a credit against their
utility bills. Net metering programs are usually combined with rebates and do
not provide cash payments if delivered solar electricity exceeds utility bills.
Under a renewable portfolio standard, the government requires regulated
utilities to supply a portion of their total electricity in the form of
renewable electricity. Some programs further specify that a portion of the
renewable energy quota must be from solar electricity.
5
Tax
incentive programs exist in the U.S. at both the federal and state level, and
can take the form of investment tax credits, accelerated depreciation and
property tax exemptions. In February 2009, the American Recovery and
Reinvestment Act of 2009 (ARRA) was signed into law. In addition to adopting
certain fiscal stimulus measures that could benefit on-grid solar electricity
applications, ARRA created a new program, through the Department of the
Treasury, which provides cash grants equal to 30% of the cost of the system for
solar installations that are placed into service during 2009 and 2010 and for
certain solar installations for which construction begins prior to
December 31, 2010. This cash grant is available in lieu of receiving the
30% federal investment tax credit (ITC) that the US Congress extended for an
eight year period in October 2008. The intent of this program was to ensure that
investors who had historically supported renewable energy programs would not be
constrained from investing in these transactions by tax losses they may have
suffered during the recent credit crisis. Other measures adopted by ARRA include
the following: (1) a Department of Energy loan guarantee program for
renewable energy projects, renewable energy manufacturing facilities and
electric power transmission projects and (2) a 50% bonus depreciation for
solar installations placed in service during 2009. Various legislation has been
proposed to extend and slightly modify the ITC incentives to continue to ensure
short-term investor tax positions do not limit future investment in renewable
energy projects. In addition, legislation is being proposed which could extend
the bonus depreciation benefit for projects completed in 2010. However,
enactment of the extension or enhancement of such incentives is highly
uncertain.
In
Europe, renewable energy targets, in conjunction with feed-in tariffs,
have contributed to the growth in PV solar markets and several European
countries facilitate low interest loans for PV systems, either through direct
lending, credit enhancement or other programs. We believe that the
near-term growth in the solar energy industry depends significantly on the
availability and size of these government subsidies and on the ability of the
industry to reduce the cost of generating solar electricity. The market for
solar energy products is, and will continue to be, heavily dependent on public
policies that support growth of solar energy and, as a result, the continuation
of such policies and level of support present the greatest uncertainties for our
products. For example, Germany, the world's biggest solar market by installed
capacity, has proposed a cut in solar feed-in tariffs by 15%, putting pressure
on industry participants. Should Germany decide to cut its solar subsidies in
the second quarter of 2010, this will make installations less attractive for the
country's consumers, which could have a major impact on the solar PV market and
adversely affect our growth prospects. Other countries, such as Italy and
Greece, have established incentives to increase solar PV energy production,
creating new opportunities for PV products, although there is no guarantee this
will occur or that such incentives will be available to us.
Switzerland
enacted a federal feed-in tariff subsidy effective May 2008. Due to overwhelming
demand, final subsidy decisions by the relevant Swiss grid authority regarding
remuneration for electricity generated by solar power installations have been
delayed. As a result of this delay, most solar power producers in Switzerland,
including our prospective and potential customers, are awaiting determination by
the Swiss grid authority before undertaking new solar power installations in
order to learn whether their respective installations will qualify for
remuneration. While we expect that decisions will be made during 2010 and that
we will have at least one large installation accepted by the Swiss grid, any
additional significant delays could impact our projected growth
plans.
Employees
As of
December 31, 2009, we had five full-time employees, two of whom are engineers.
We periodically hire consultants as independent contractors. As of December 31,
2009, we had two such consultants. We intend to hire approximately 10 additional
employees upon the completion of our new manufacturing facility.
Corporate
History
SES Solar
Inc. is the result of a reverse acquisition accomplished on September 27, 2006
between SES USA, a Delaware company, which had no operations and net assets of
$39,069, and Société d’Energie Solaire SA (“SES Switzerland”), a Swiss company.
SES USA acquired all of the outstanding shares of SES Switzerland. For
accounting purposes, the acquisition has been treated as a recapitalization of
SES Switzerland with SES Switzerland as the acquirer (reverse acquisition). SES
Switzerland acquired 10,668,000 of SES USA in the transaction. The historical
financial statements prior to September 27, 2006 are those of SES Switzerland.
The reverse acquisition resulted in a change of control of SES USA, with the
former stockholders of SES Switzerland owning approximately 70% of SES USA and
SES Switzerland becoming SES USA’s wholly owned subsidiary, and we ceased being
a “shell company” as such term is defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).
As of
July 31, 2008, we formed a new Swiss wholly owned subsidiary, SES Prod, also
located in Geneva. It is expected that in the future, all of our manufacturing
activities now being conducted by SES Switzerland will be conducted by SES Prod.
At such time, SES Switzerland’s primary activity will be managing our
manufacturing facility and marketing intellectual property.
Available
Information
Our
principal executive offices are located at 129 Route de Saint-Julien, 1228
Plan-les-Ouates, Geneva, Switzerland, and our telephone number is
+41.22.884.14.84. Our website address is www.sessolar.com. The content of our
website is not part of this Annual Report on Form 10-K and should not be relied
upon with respect thereto.
6
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any reports, statements or other information
that we file at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information regarding the public reference facility. The SEC maintains a website
at www.sec.gov that contains current and periodic reports,
proxy statements, information statements and other information regarding
registrants that file electronically with the SEC, including us.
An
investment in our common stock involves a high degree of risk. You
should carefully consider the following material risks, together with the other
information contained in this Annual Report on Form 10-K, before you decide to
buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition would likely
suffer. In these circumstances, the market price of our common stock
could decline, and you may lose all or part of your investment.
Risks
Related to Our Business
We
are an early stage company with a limited operating history.
We are an
early stage company that seeks to take advantage of a proprietary automation
process to produce solar modules and solar tiles at a lower cost. We have
experienced losses from our early stage operations, which have involved
developing and testing our new solar panel technology, construction of our
manufacturing facility, and commencement of the sales and distribution portions
of our business by manufacturing, selling, and installing solar tiles and
modules. We anticipate incurring additional losses over the next few years as we
complete the development and testing of prototypes and the licensing of our new
products and commence production and distribution. There is limited historical
financial or other information available upon which you can base your evaluation
of our business and prospects. Although we have begun manufacturing our products
on a manual and semi-manual basis, we have not commenced full scale commercial
production of solar modules and solar tiles using our proprietary automation
process, and at this stage of our business plan, we have less insight into how
market and technology trends may affect our business than we expect to have in
the future. The revenue and income potential of our business is unproven. As a
result, you should consider our business and prospects in light of our limited
operating history and the challenges that we will face as an early stage company
seeking to develop a new manufacturing process. If we are unable to develop our
business, we will not be able to achieve our goals and could suffer economic
loss, in which case you may lose your entire investment.
We
have incurred losses during prior fiscal periods and anticipate that we will
incur future losses until development, implementation and commercialization of
our products manufactured through our new assembly processes are
operational.
We have
incurred losses during prior fiscal periods, including a loss from continuing
operations of $1.2 million in 2009 and $1.8 million in 2008, and we have
negative cash flows from operations. During the period ended June 30,
2008, we recorded net income for the first time, although this was largely due
to a one time gain from the sale of the Solar Plant on the roof of our
manufacturing facility. Although we plan to enter into full scale commercial
production of our products during Summer 2010, and have commenced production
activities on a manual and semi-manual basis, we expect to incur additional
losses until Summer 2011, when our automated production line will reach
sufficient production capacity. Furthermore, we expect to continue to make
significant capital expenditures and anticipate that our expenses will increase
as we continue to develop our manufacturing processes and our sales and
distribution network, implement internal systems and infrastructure, and hire
additional personnel. As we do not expect to become profitable until Summer
2011, we will be unable to satisfy our current obligations solely from cash
generated from operations.
Because
of our history of losses and our current financial condition, the report of our
Independent Registered Public Accounting Firm includes an explanatory paragraph
referring to substantial doubt about our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from
the outcome of this substantial doubt, as discussed in Note 2 to our financial
statements for the fiscal year ended December 31, 2009. See also the
“Liquidity and Capital Resources” section to Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
We
will require significant additional financing to fund expansion of our
operations, the availability of which cannot be assured, and if we are unable to
obtain such financing, our business may fail.
To date,
we have generated only limited revenue from the sale of solar tiles manufactured
by us and third parties and the related engineering services required to design
and install the same. We have depended on sales of our equity securities and
debt financings to meet our cash requirements. Our ability to expand our
operations and to develop our technologies will depend upon our ability to
continue to generate revenue as well as to raise significant additional
financing. If we are unable to obtain such financing, we will not have the
liquidity necessary to develop our business. Specifically, we will need to raise
additional funds to:
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·
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support
our planned growth and carry out our business
plan;
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·
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complete
construction of our new manufacturing facility and purchase related
equipment;
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7
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·
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continue
the research and development of our
technologies;
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·
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protect
our intellectual property;
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·
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hire
top quality personnel for all areas of our
business;
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·
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address
competing technological and market developments;
and
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·
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market
and develop our technologies.
|
We may
not be able to obtain additional equity or debt financing as required. Even if
financing is available, it may not be on terms that are acceptable or favorable
to us or in sufficient amounts to satisfy our requirements. If we require, but
are unable to obtain, additional financing in the future, we may be unable to
implement our business plan and growth strategies, respond to changing business
or economic conditions, withstand adverse operating results or compete
effectively. More importantly, if we are unable to raise additional financing
when required, we may be forced to scale down our operations and our ability to
generate revenue may be reduced.
We
have a significant amount of debt, and several loans that we have entered into
have either matured or will soon be maturing. If we are unable to
successfully negotiate extensions of the maturity dates of these loans or if we
are unable to repay them, then the parties with whom we have entered into these
loans may declare us in default and opt to exercise certain security interests
that we have granted them.
As of
December 31, 2009, we had short-term loans totaling $16.3 million, of which
$13.0 million had been used to finance construction of our new
manufacturing facility. All of our existing loans have been entered
into with the State Department of Energy Geneva (Switzerland) (“ScanE”) or with
Banque Cantonale de Genève (“BCGE”). Certain of these loans are
secured by junior mortgages on our manufacturing facility or by shares of our
common stock that we have agreed to hold in escrow. One such loan
with ScanE, dated November 3, 2003, in the amount of $911,810 matured on March
31, 2010. Another loan with ScanE, dated July 1, 2009, in the
amount of CHF5 million matured on November 7, 2009. A CHF8.5 million
construction credit loan that we entered into with BCGE, dated December 20,
2006, matures upon the completion of our manufacturing facility, but no later
than December 31, 2008, and as a result, this loan has also
matured. Our business plan is predicated upon the successful
completion of our manufacturing facility and the revenue that we expect to
generate once we are able to produce our solar products at full
capacity. At the time that our manufacturing facility is completed,
which we expect to occur in Summer 2010, we anticipate refinancing and
consolidating all of our existing construction loans into a single long-term
loan. In the past, we have successfully negotiated with our existing
lenders for the extension of additional credit to finance ongoing construction
at our manufacturing facility as well as for extensions of the maturity dates of
our construction related loans with them. To this end, we are
currently negotiating with ScanE to extend the maturity dates of our loans dated
November 3, 2003 and July 1, 2009 until March 31, 2012 and July 1, 2010,
respectively. We are also negotiating with BCGE to postpone repayment
of our loan dated December 20, 2006 until such time as our manufacturing
facility is completed and our construction loans have been refinanced and
consolidated. See Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources. If, however, we are not able to successfully
negotiate maturity date extensions for these loans, we may be forced to repay
them prior to our planned debt consolidation, and, if we are unable to make such
repayment, ScanE and/or BCGE may decide to perfect their security interests in
certain of our assets, including our manufacturing facility.
We
may be unable to complete our development, manufacturing and commercialization
plans on schedule and failure to do so will significantly harm our business
plans, prospects, results of operations and financial condition.
Commercializing
our new solar products and processes depends on a number of factors,
including:
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·
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further
product and manufacturing process
development;
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·
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development
and implementation of certain critical tools and large scale production
capabilities;
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·
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completion,
refinement and management of our supply
chain;
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·
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completion,
refinement, and management of our distribution
channels;
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·
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completing
construction to our manufacturing facility and building and operating our
production line; and
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·
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demonstrating
efficiencies that will make our products attractively
priced.
|
Further,
we have focused primarily on research and development and on our manufacturing
processes and capabilities. We do not know whether the processes or products we
have developed will be capable of supporting large-scale manufacturing that
meets the requirements for cost, schedule, quality, engineering, design,
production standards, field certification, and supply demands.
8
If
we continue to experience significant delays, cost overruns or technical
difficulties installing equipment in our new manufacturing facility, our
business plans, prospects, results of operations and financial condition will
suffer.
Completing
the installation of equipment at our manufacturing facility is subject to
significant risks, including risks of delays, equipment failure, cost overruns
and other start-up and operating difficulties. Our manufacturing processes use
both off-the-shelf and custom-built equipment. To date, we have experienced
delivery and installation delays by one of our suppliers of a key piece of
equipment in our new facility. If we continue to experience such a delay or
encounter similar difficulties, we may be unable to complete our manufacturing
facility either in a timely manner or at all. Without our manufacturing
facility, we would likely have no manufacturing capacity and you could lose your
entire investment.
Our
products have never been sold on a mass market commercial basis, and we do not
know whether they will be accepted by the market.
The solar
energy market is at a relatively early stage of development and the extent to
which solar modules will be widely adopted is uncertain. If our products are not
accepted by the market, our business plans, prospects, results of operations and
financial condition will suffer. Moreover, demand for solar modules in our
targeted markets, including Switzerland, Germany, France, the United States and
Italy, may not develop or may develop to a lesser extent than we anticipate. The
development of a successful market for our proposed products and our ability to
sell our products at a lower price per watt may be affected by a number of
factors, many of which are beyond our control, including, but not limited
to:
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·
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our
failure to produce solar power products that compete favorably against
other solar power products on the basis of cost, quality and
performance;
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·
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competition
from conventional energy sources and alternative distributed generation
technologies, such as wind energy;
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·
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our
failure to develop and maintain successful relationships with suppliers,
distributors, systems integrators and other resellers, as well as
strategic partners; and
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·
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customer
acceptance of our products.
|
If our
proposed products fail to gain sufficient market acceptance, our business plans,
prospects, results of operations and financial condition will
suffer.
We
depend upon a limited number of third-party suppliers for key materials and any
disruption from such suppliers could prevent us from manufacturing and selling
cost-effective products.
We
purchase the PV cells that we need for our proprietary technology and
manufacture our products using materials and components procured from a limited
number of third-party suppliers. We do not currently have in place any supply
contracts. If we fail to maintain our relationships with these suppliers, or
fail to secure additional supply sources from other PV cell suppliers that meet
our quality, quantity and cost requirements in a timely manner, we may be unable
to manufacture our products or our products may be available only at a higher
cost or after a long delay. We may be unable to identify new suppliers or
qualify their products for use on our production lines in a timely manner and on
commercially reasonable terms. Materials and components from new suppliers also
may be less suited for our technology and yield PV modules with lower conversion
efficiencies, higher failure rates and higher rates of degradation than PV
modules manufactured with the materials and components from our current
suppliers. Any of these factors could prevent us from delivering our products to
our customers within required timeframes, resulting in potential order
cancellations and lost revenue.
We
have relied on a small number of customers for substantially all of our sales
and the loss of, or a significant reduction in, orders from any of these
customers could significantly reduce our sales and operating
results.
We have
historically sold our custom manufacturing services to only a few customers. In
the fiscal year ended December 31, 2009, planned sales levels have not been
fully met and only limited revenue of $1,336,188 ($33,416 during 2008) was
recognized. During this period, sales to our two largest customers accounted for
approximately 80% and 17%, respectively, of our total net sales. In
the fiscal year ended December 31, 2008, sales to our two largest customers
accounted for approximately 69% and 18%of our total net
sales. Although we continued to market our solar tiles and to quote
our solar PV turn-key installations to prospects during the year ended December
31, 2009, we have been increasingly focused on completing our manufacturing
facility and producing our solar products on a large scale and less on smaller
custom installation projects. To the extent that we are able to successfully
manufacture and sell our products on a large scale, we may still be exposed to
the risks associated with reliance on one or a few major customers. The loss of
one of these potential customers or their default in payment could significantly
reduce our revenues and harm our operating results in the future. Moreover, our
customer relationships to date have been developed over a relatively short
period of time, and we cannot guarantee that we will continue to receive
significant revenues from these customers over the long term.
9
We
likely will face intense competition from manufacturers of crystalline silicon
solar modules, thin film solar modules and solar thermal and concentrated PV
systems, all of which represent direct substitutes for our
products.
The solar
energy and renewable energy industries are both highly competitive and
continually evolving as participants strive to distinguish themselves within
their markets and compete with the larger more established electric power
industry. We believe that our main sources of competition are crystalline
silicon solar module manufacturers, thin film solar module manufacturers, and
companies developing solar thermal and concentrated PV
technologies.
At the
end of 2009, the global PV industry consisted of more than 150 manufacturers of
PV cells and solar modules. Within the PV industry, we face competition from
crystalline silicon PV cell and solar module manufacturers, including Trina
solar, Kyocera, Motech, QCells, Renewable Energy Corporation, Sanyo, Schott
Solar, Sharp, Mitsubishi, SolarWorld, GE Energy, Sunpower, Photowatt, Isofoton
and Suntech. We also face competition from thin film solar module manufacturers,
including Antec, Alwitra, UNI-Solar, Kaneka, Mitsubishi Heavy Industries, Shell
Solar, United Solar and several crystalline silicon manufacturers that are
developing thin film technologies. We may also face competition from
semiconductor manufacturers and semiconductor equipment manufacturers, or their
customers, several of which have already announced their intention to start
production of PV cells, solar modules or turnkey production lines or have bought
players in the PV industry. In addition to manufacturers of PV cells and solar
modules, we face competition from companies developing solar tiles or
equivalent, including Solar Century, Imerys, Atlantis and others. Most, if not
all, of our competitors across each of these segments are more established,
benefit from greater market recognition and have substantially greater
financial, development, manufacturing and marketing resources than us. If we are
unable to effectively compete for customers and suppliers, our financial
condition and results of operations will suffer.
Technological
changes in the solar power industry could render our products obsolete, which
could prevent us from achieving sales and market share.
Our
failure to refine our technology and to develop and introduce new products could
cause our products to become uncompetitive or obsolete, which could prevent us
from increasing our sales and becoming profitable. The solar power industry is
rapidly evolving and highly competitive. Our development efforts may be rendered
obsolete by the technological advances of others, and other technologies may
prove more advantageous for the commercialization of solar power
products. In addition, there is currently an oversupply of PV
products on the market that could render our manual and semi-manual production
process too expensive unless we are able to successfully bring our automated
production lines into operation. If this occurs or persists, and we
are further delayed in our efforts to manufacture our products on a fully
automated basis, our sales and profits could be diminished. See also,
the risk factor titled “If we continue to experience significant delays, cost
overruns or technical difficulties installing equipment in our new manufacturing
facility, our business plans, prospects, results of operations and financial
condition will suffer.”
Failure
to protect our proprietary technology and intellectual property rights against
infringement could seriously impact our competitiveness and any litigation
related to protection of such intellectual property rights would be time
consuming and costly.
Our
success and ability to compete depends to a significant degree on our
proprietary technology, which consists of a combination of copyright, trademark,
and an international patent. If any of our competitors copy or otherwise gain
access to our proprietary technology or develop similar technologies
independently, we may not be able to compete as effectively. The measures we
have implemented to protect our proprietary technology and other intellectual
property rights are currently based upon a combination of a patent application,
contractual protections and trade secrets. These measures may not be adequate to
prevent the unauthorized use of our proprietary technology and our other
intellectual property rights. Further, the laws of various countries in which we
expect to offer our products may provide inadequate protection of such
intellectual property rights.
We
may be exposed to infringement or misappropriation claims by third parties that
if determined adversely to us, could cause us to pay significant damage awards
or prohibit us from the manufacture and sale of our solar modules and tiles or
the use of our manufacturing technology.
Our
success depends largely on our ability to use and to develop our technology and
know-how without infringing or misappropriating the intellectual property rights
of third parties. The validity and scope of claims relating to PV technology
patents involve complex scientific, legal and factual considerations and
analysis and, therefore, may be uncertain. We may be subject to litigation
involving claims of patent infringement or violation of intellectual property
rights of third parties. The defense and prosecution of intellectual property
suits can be costly and time consuming. An adverse determination in any
litigation or proceeding could subject us to significant liability, require us
to seek licenses from third parties that may not be available on reasonable
terms, require us to redesign our solar modules and tiles, or subject us to
injunctions prohibiting the manufacture and sale of our solar modules and tiles
or the use of our technologies.
Christiane
Erné, our interim Chief Executive Officer and a member of our board of
directors, controls a substantial interest in us and therefore may control
certain actions requiring a stockholder vote.
Christiane
Erné, a member of our board of directors since 2006 and our interim Chief
Executive Officer since 2009, beneficially owns 66% percent of our outstanding
common stock. Christiane Erné is married to Daniel Erné, another of our
directors. As a result, Christiane Erné and Daniel Erné will be able to
determine the outcome of any decision upon which our stockholders
vote.
10
All
of our assets and all of our directors and officers reside outside of the United
States, which means that it may be difficult for investors to enforce within the
United States any judgments obtained against us or any of our directors or
officers.
Although
we are organized under the laws of the State of Delaware, our principal business
office is located in Geneva, Switzerland. As such, it may be difficult for
investors to enforce judgments against us that are obtained in the United States
in any action, including actions predicated upon civil liability provisions of
the federal securities laws. In addition, all of our directors and officers
reside outside the United States, and nearly all of the assets of these persons
and us are located outside of the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce against us or such persons judgments predicated
upon the liability provisions of United States securities laws. There is
substantial doubt as to the enforceability against any of our directors and
officers located outside the United States in original actions or in actions of
enforcement of judgments of United States courts or liabilities predicated on
the civil liability provisions of United States federal securities laws. In
addition, as the majority of our assets are located outside of the United
States, it may be difficult to enforce United States bankruptcy proceedings
against us. Under United States bankruptcy laws, courts typically have
jurisdiction over a debtor’s property, wherever it is located, including
property situated in other countries. Courts outside of the United States may
not recognize the United States bankruptcy court’s jurisdiction. Accordingly,
you may have trouble administering a United States bankruptcy case involving a
Delaware company as debtor with most of its property located outside the United
States. Any orders or judgments of a bankruptcy court obtained by you in the
United States may not be enforceable.
Currency
translation and transaction risk may negatively affect our net sales, cost of
sales and gross margins and could result in exchange losses.
Although
our reporting currency is the U.S. dollar, we conduct our business and
incur costs in Swiss francs (CHF). As a result, we are subject to currency
translation and transaction risk. During the year ended December 31, 2009, all
of our sales were made outside of the United States and denominated in Swiss
francs (CHF). We expect substantially all of our sales to be outside of the
United States and denominated in foreign currencies in the future. Changes in
exchange rates between foreign currencies and the U.S. dollar could affect
our revenues and cost of sales and could result in exchange gains or losses. We
cannot accurately predict the impact of future exchange rate fluctuations on our
results of operations.
Risks
Related to Our Industry
The
reduction or elimination of government subsidies and economic incentives for
on-grid solar electricity applications could reduce demand for our solar
products, lead to a reduction in our net sales and harm our operating
results.
The
reduction, elimination or expiration of government subsidies and economic
incentives for on-grid solar electricity could result in the diminished
competitiveness of solar energy relative to conventional and non-solar renewable
sources of energy, which would negatively affect the growth of the solar energy
industry overall and our net sales specifically. We believe that the near-term
growth of the market for on-grid applications, where solar energy is used to
supplement the electricity a consumer purchases from the utility network,
depends significantly on the availability and size of government and economic
incentives. Currently the cost of solar electricity substantially exceeds the
retail price of electricity in every significant market in the world. As a
result, federal, state and local governmental bodies in many countries, most
notably Germany, Italy, Spain, France, South Korea, Japan, Canada, the United
States, and, to a more limited extent, Switzerland, have provided subsidies in
the form of tariffs, rebates, tax write-offs and other incentives to end-users,
distributors, systems integrators and manufacturers of PV products. For example,
Germany has been a strong supporter of PV products and systems, and political
changes in Germany have recently resulted in significant reductions or the
elimination of incentives. Many of these government incentives could expire,
phase-out over time, exhaust the allocated funding or require renewal by the
applicable authority. A reduction, elimination or expiration of government
subsidies and economic incentives for solar electricity could result in the
diminished competitiveness of solar energy, which would in turn hurt our sales
and financial condition.
Existing
regulations and policies and changes to these regulations and policies may
present technical, regulatory and economic barriers to the purchase and use of
PV products, which may significantly reduce demand for our solar
products.
The
market for electricity generating products is heavily influenced by foreign,
federal, state and local government regulations and policies concerning the
electric utility industry, as well as policies promulgated by electric
utilities. These regulations and policies often relate to electricity pricing
and technical interconnection of customer-owned electricity generation. In a
number of countries, these regulations and policies have been modified in the
past and may be modified again in the future. These regulations and policies
could deter end-user purchases of PV products and investment in the research and
development of PV technology. For example, without a mandated regulatory
exception for PV systems, utility customers are often charged interconnection or
standby fees for putting distributed power generation on the electric utility
grid. These fees could increase the cost to our end-users of using PV systems
and make them less desirable, thereby harming our business, prospects, results
of operations and financial condition. In addition, electricity generated by PV
systems mostly competes with expensive peak hour electricity, rather than the
less expensive average price of electricity. Modifications to the peak hour
pricing policies of utilities, such as to a flat rate, would require PV systems
to achieve lower prices in order to compete with the price of electricity
generated using other technologies.
11
Our
principal office is located in Plan-les-Ouates, a suburb of Geneva,
Switzerland.
We were
granted leasehold rights to land in Plan-les-Ouates, for which we paid a
reservation cost of CHF9,053 per quarter, and which we paid for the last eight
quarters a total of CHF72,420. Rent for the entire 60-year term of the lease is
CHF72,065 per year, commencing on July 1, 2006. We received
authorization to build our manufacturing facility on the property from the State
of Geneva on May 27, 2005, and we commenced construction of the facility in the
second half of 2007.
We rented
a 1,654 square meter building in Härkingen, Switzerland. The lease agreement was
terminated on February 28, 2009. The global charge for the period January 1,
2009 to February 28, 2009 was CHF10,631 ($9,819).
We also
rent a 154 square meter office space in Plan-les-Ouates from Cool SA pursuant to
a lease agreement dated March 23, 2001 which was subsequently cancelled and
replaced by a lease agreement dated February 20, 2002. The lease varies annually
on the basis of the Swiss consumer index. For the fiscal year ended December 31,
2009, the cost was CHF54,084 ($49,953). The lease agreement was originally for a
five-year term and is automatically renewed annually unless terminated with one
year’s notice. The lease agreement was renewed in February 2009 on the same
terms and conditions.
We are
not currently a party to, nor is any of our property currently the subject
of, any pending legal proceeding. None of our directors, officers, or affiliates
is involved in a proceeding adverse to our business or has a material interest
adverse to our business.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “SESI.OB”. The
following table sets forth the high and low bid prices per share of our common
stock for the periods indicated.
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High
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Low
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|||||||
|
2008
|
||||||||
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First
Quarter
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$ | 1.20 | $ | 0.59 | ||||
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Second
Quarter
|
0.74 | 0.59 | ||||||
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Third
Quarter
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0.66 | 0.20 | ||||||
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Fourth
Quarter
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0.35 | 0.10 | ||||||
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2009
|
||||||||
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First
Quarter
|
$ | 0.45 | $ | 0.14 | ||||
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Second
Quarter
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0.35 | 0.14 | ||||||
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Third
Quarter
|
0.30 | 0.10 | ||||||
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Fourth
Quarter
|
0.23 | 0.023 | ||||||
The high
and low prices in the table reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions. The source of
the high and low bid information is the OTC Bulletin Board.
Stockholders
The
approximate number of holders of record of our common stock as of January 21,
2010 was 22, inclusive of those brokerage firms and/or clearing houses holding
shares of common stock for their clientele (with each such brokerage house
and/or clearing house being considered as one holder). As of January 21, 2010,
we had 72,984,168 shares of common stock outstanding.
12
Dividend
Policy
We have
never declared or paid dividends on our common stock. We do not intend to
declare dividends in the foreseeable future because we anticipate that we will
reinvest any future earnings into the development and growth of our business.
Any decision as to the future payment of dividends will depend on our results of
operations and financial position and such other factors as our board of
directors, in its sole discretion, deems relevant.
Equity
Compensation Plan Information
We do not
currently have any equity compensation plan.
Issuer
Purchases of Equity Securities
There
were no purchases by us of our common stock during the fourth quarter of the
fiscal year ended December 31, 2009.
RESULTS
OF OPERATIONS
The following discussion should be
read in conjunction with the consolidated audited financial statements and
related notes accompanying this Annual Report on Form 10-K.
As used herein,
the terms “company,” “SES USA,” “our,” “we,” and “us” refer to SES Solar Inc.
and its subsidiaries on a consolidated basis, and the terms “SES Switzerland”
and “SES Prod” refer to our wholly owned subsidiaries, unless the context
requires otherwise.
We are a
Delaware corporation based in Geneva, Switzerland engaged in the business of
designing, engineering, producing and installing solar modules and solar tiles
for generating electricity. We have developed a new assembly technology for
solar tiles that allows for higher quality electrical contacts, better
performance and reduced costs resulting from our proprietary automation
processes. We are constructing a manufacturing facility that will include
assembly lines based on our proprietary technology to complete the development
and testing of our new products. To date, while we have been engaged in
developing and testing our new solar panel assembly technology, we have been
developing the sales and distribution portions of our business by selling solar
tiles manufactured and produced by us and third parties and by responding to
quotations for our solar tiles to electric companies, local governmental
agencies and private home owners.
Our
business was commenced in 2001 by SES Société d’Energie Solaire SA (“SES
Switzerland”), a Swiss-based developer of solar panels and solar roof tiles. On
September 27, 2006, our parent company, SES USA, completed a share exchange
agreement with SES Switzerland in which SES Switzerland became our wholly owned
subsidiary. We then abandoned our previous Internet based auction website
business and the SES Switzerland business of designing, engineering, producing,
and installing solar panels or modules and solar tiles became the sole business
of the combined company. In July 2008, we formed a second wholly owned
subsidiary, SES Prod, to conduct our manufacturing operations. Because SES USA
and its subsidiaries on a consolidated basis are the successor business to SES
Switzerland, and because the operations and assets of SES Switzerland and SES
Prod represent our entire business and operations from the closing date of the
share exchange agreement, the following discussion and analysis is based on SES
Switzerland’s and SES Prod’s financial results for the relevant
periods.
Overview
This
overview addresses our plan of operation and the trends, events, and
uncertainties that have been identified by our management as those that we
believe are reasonably likely to materially affect the comparison of historical
operating results reported herein to either past period results or to future
operating results.
We
have developed and patented a new assembly technology for solar modules and
solar tiles. Our business plan includes the completion of a new assembly line
based on our proprietary technology, using a manufacturing facility in the
suburbs of Geneva, Switzerland that is currently under construction to produce
solar modules and solar tiles at a lower cost. We believe this new facility will
enable us to produce solar photovoltaic (“PV”) modules that are larger than
three square meters.
To
implement our business plan, we will need to complete the design of the solar
modules and solar tiles, manufacture and test the prototype panels, have them
approved in accordance with European and other standards, manufacture them in
series and sell them in major markets in Europe and eventually other countries
around the world. Our plan is to complete the manufacturing facility and
commence full scale production and sale of our new products between the second
and the third quarters of 2010. Once our manufacturing capabilities are fully
operational, we will have available a product line consisting of our
SunTechTile® and SwissTile® solar tiles and, in the
future, PV solar modules.
13
Historically,
we have relied upon third-party vendors to supply us with component parts, such
as PV cells, in order to manufacture and produce our products. While
we await completion of our facility and work to bring our fully automated
production lines into operation, we have reconfigured our production
capabilities to manufacture our solar products on a manual and semi-manual
production basis and in partnership with subcontractors.
To date,
we have generated only limited revenue from the sale of solar modules and solar
tiles manufactured by us and third parties and the related engineering services
required to design and install the same. Although we did generate revenue from
the sale of PV electricity produced by our Solar Plant during the period from
January 2008 to June 2008, we no longer generate such revenue, as we sold the
Solar Plant to a third party in June 2008.
We have
also experienced operating losses from our early stage operations, which have
involved developing and testing our new solar panel technology and commencement
of the sales and distribution portions of our business by selling custom solar
modules and solar tiles using an early stage technology. We
anticipate incurring additional operating losses until Summer 2011 as we
complete the development, testing, prototypes and licensing of our new products
and reach full production capacity. Our research and development costs and the
costs incurred in manufacturing prototypes have been expensed to
date.
We
believe the demand for solar modules and solar tiles will ultimately be
substantial. According to the Energy Information Administration, global demand
for electricity is expected to increase from 18 trillion kilowatt hours in 2006
to 32 trillion kilowatt hours in 2030. Over time, supply constraints, rising
electricity prices, dependence on foreign countries for fuel feedstock and
environmental concerns could limit the ability of many conventional sources of
electricity and other alternative sources to supply this rapidly expanding
global demand. According to the U.S. Department of Energy, solar energy is the
only source of renewable power with a large enough resource base to supply a
significant percentage of the world’s electricity needs over the next several
decades.
However,
in the near term there are significant competitive concerns with solar energy.
As the cost of producing electricity from grid connected PV installations is
higher than the current cost of electricity from fossil or nuclear plants, the
PV market relies heavily on government subsidies and regulation concerning
independent power producers. These regulations favor PV electricity in some, but
not all, countries. Existing regulations are subject to change due to local
political factors affecting the energy market, especially in Europe, where the
process has been ongoing for 10 years. The major PV market in Europe is Germany,
where the EEG law governs. We expect France will play an increasing role in the
future due to current law. Other countries, including Italy, Spain and Greece,
have similar but less favorable laws. The PV market is heavily dependent on
public policies and, as a result, such policies present the greatest
uncertainties for our products. Reductions of the feed-in tariff in Germany by
8% per year could affect our sales. Spain decreased its subsidies by 75% during
2008. Without continued and/or enhanced governmental support in the form of
favorable laws and subsidies, the projected growth of the PV market will not
exist, which could hurt our results of operations.
Our
primary market for our SwissTile® product is Switzerland, which enacted a
feed-in tariff that became effective May 2008. This tariff has 10 different
values depending on PV integration and size. Due to the properties of our
SwissTile® product, we believe that it will receive the highest value, which
will be favorable for us.
Due to
overwhelming demand, final subsidy decisions by the relevant Swiss grid
authority regarding remuneration for electricity generated by solar power
installations have been delayed. As a result of this delay, many of our
prospective and potential solar power production customers have postponed new
solar power installations as they await determination by the Swiss grid
authority whether their respective installations will qualify for remuneration.
The tariff will decrease for new entrants by 8% every year starting in
2010.
Despite
the significant growth of the PV market over the past several years, solar
electricity still represents only a small fraction of the supply of electricity.
So long as governments and the market are focused on the ability of
manufacturers to develop new technologies that reduce the cost of solar
electricity, we believe that the demand for solar energy products will continue
to grow significantly. This growth projection is based on continued governmental
support, on the success of such manufacturing efforts to reduce the gap between
the cost of solar electricity and more conventional and established methods of
generating electricity, and on other developments affecting the world energy
markets. In addition to the uncertainties associated with government subsidies
and these other factors, it is also possible that breakthrough technologies
might emerge in other areas that will reduce demand for new solar energy
products. Furthermore, even within the solar energy sector, it is possible that
developments in thin films or nanoscience could reduce the cost of PV cells or
that future shortages in the supply of polysilicon, an essential raw material in
the production of our PV cells, could impact our proposed new products and
adversely affect our plan of operation.
We are in
ongoing discussions with strategic partners, including cell manufacturers, PV
line manufacturers and special machine manufacturers to assist us with our new
technology for module assembly. We are also progressing with the final stages of
construction at our new manufacturing facility, which is expected to be
completed during Summer 2010.
14
During
the fiscal year ending December 31, 2009, we incurred capital expenditures of
$2.8 million to construct our new manufacturing facility. We also continued
sales of our custom solar panels and solar tiles to customers during the fiscal
year ending December 31, 2009, generating revenue of $1.3 million and a net loss
of approximately $1.2 million.
Based
on current and planned custom installation projects that will be completed
during fiscal year 2010, we believe that our cash flows used in operating
activities for the remainder of fiscal year 2010 will be greater than our cash
flows used in operating activities during 2009. In light of these operating
activities, we believe that our operating expenses in fiscal year 2010 will be
approximately $2 million, which we anticipate financing through revenue
generated from operating income and with available cash and credit facilities.
Management anticipates total capital expenditures of approximately $20 million
for the new manufacturing facility, of which we have already financed $18.4
million, and $2 million for the assembly lines and related machinery, of which
we have already financed $385,795. Depending on our production requirements, we
may also require up to an additional $11 million during the next 12 months to
finance the purchase of raw materials to be used in the production of 2MW of
solar tiles. We anticipate financing the remaining capital expenditures on the
manufacturing facility and assembly lines using available cash, loans and lines
of credit, as well as a planned debt consolidation and refinancing of the
construction loans owed on the facility. We will also require additional
financing in order to purchase raw materials and expand our operations once our
manufacturing facility is fully operational. We do not presently have any
definitive agreements in place to secure any such financings or debt
consolidation.
We expect
to continue to experience losses from operations until we can generate
significant revenue from manufacturing our new products. As a result of our
continuing need to expand our operations and develop and market our new
products, we expect to continue to need additional capital over the long-term in
order to continue as a going concern. See “Liquidity and Capital
Resources.”
Selected
Financial Data
Balance
Sheet
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
($)
|
||||||||
|
Total
current assets
|
4,309,110 | 2,958,153 | ||||||
|
Total
long-term assets
|
19,091,047 | 13,999,944 | ||||||
|
Total
current liabilities
|
20,369,171 | 11,881,948 | ||||||
|
Total
long-term liabilities
|
1,080,966 | 1,800,802 | ||||||
|
Total
liabilities and stockholders’ equity
|
23,400,157 | 16,958,097 | ||||||
Statement of
Operations
|
Year ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
($)
|
||||||||
|
Total
revenues
|
1,336,188 | 33,416 | ||||||
|
Total
cost of goods sold (exclusive of depreciation shown separately
below)
|
(907,664 | ) | (5,417 | ) | ||||
|
Depreciation
and amortization
|
66,208 | 75,516 | ||||||
|
General
and administrative expenses
|
1,621,987 | 1,922,075 | ||||||
|
Interest
expense
|
(40,275 | ) | (155,133 | ) | ||||
|
Interest
Income and other
|
0 | 45,838 | ||||||
|
Foreign
exchange gain
|
84,789 | 272,577 | ||||||
|
Total
other income (expense)
|
44,514 | 163,282 | ||||||
|
Taxes
|
— | — | ||||||
|
Income
(loss) from continuing operations
|
(1,215,157 | ) | (1,806,310 | ) | ||||
|
Income
(loss) from discontinued operations
|
0 | 1,331,856 | ||||||
|
Net
(loss)/profit
|
(1,215,157 | ) | (474,454 | ) | ||||
|
Other
comprehensive income/loss: translation adjustment
|
(86,613 | ) | (207,558 | ) | ||||
|
Comprehensive
loss
|
(1,301,770 | ) | (682,012 | ) | ||||
15
RESULTS
OF OPERATIONS - COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2009 AND
2008
Net
Loss
Our net loss for the year ended
December 31, 2009 was $1,215,157 compared to a net loss of $474,454 for the year
ended December 31, 2008. The increase in net loss during the year ended December
31, 2009 compared to 2008 is due largely to the fact that we generated income
from discontinued operations of $1,331,856 during 2008, which included a gain of
$1,185,704 from the sale of our Solar Plant in June 2008, compared to income of
$0 for the year ended December 31, 2009 from this discontinued
activity. Notwithstanding the significant increase in revenue
generated during the 12 months ended December 31, 2009 compared to 2008, our net
loss for the year ended December 31, 2009 was also impacted by an increase in
personnel cost to develop the activities of our subsidiaries ($81,720), a
reduction by $187,788 in foreign exchange gain due to a decrease in the exchange
rate of the US dollar against the Swiss franc and reduction in interest income
of $45,838, partially offset by a reduction in interest expense of
$114,858.
Revenue
and Cost of Goods Sold
We
recognize revenue on the completed-contract method, and therefore only when
projects are completed. Total revenue for the year ended December 31, 2009 was
$1,336,188, which represents an increase of $1,302,772 compared with total
revenue of $33,416 for the year ended December 31, 2008.
Cost of
goods sold for the year ended December 31, 2009 was $907,664, which represents
an increase of $902,247 compared to cost of goods sold of $5,417 for the year
ended December 31, 2008. The increase in cost of goods sold is entirely
attributable to the projects completed during 2009. Cost of goods sold for the
year ended December 31, 2009 was approximately 68% of total revenues compared
with approximately 16% of total revenues for the year ended December 31,
2008.
Operating
Expenses
Operating
expenses for the twelve months ended December 31, 2009 were $1,688,195 compared
to $1,997,591 for the twelve months ended December 31, 2008, which represents a
16% decrease. Personnel, rent, research and development, general and
administrative, and depreciation and amortization expenses constitute the
components of our operating expenses. We expect that as we continue to
implement our business plan these expenses will increase
accordingly.
Personnel
expenses for the twelve months ended December 31, 2009 were $613,759 compared to
$532,039 for the twelve months ended December 31, 2008. The increase is due to
increase in personnel costs to develop the activities of our new manufacturing
facility.
Rent and
lease expenses decreased $53,233 for the twelve months ended December 31, 2009
due to the termination of the lease in Härkingen during the first quarter of
2009, as discussed in Note 12 to the accompanying financial
statements.
Research
and development expenses decreased $85,939 for the twelve months ended December
31, 2009 due to consulting fees incurred in 2008 related to development of our
production line and products that were not incurred during 2009.
Other
general and administrative expenses decreased $223,839 for the twelve months
ended December 31, 2009 mainly due to consulting fees of $577,848 incurred
during the twelve months ended December 31, 2008 compared to $299,376 incurred
during the same period in 2009.
Other
Income (Expense)
Interest
expense decreased to $40,275 for the twelve months ended December 31, 2009
compared to $155,133 for the twelve months ended December 31, 2008. For the
twelve months ended December 31, 2008, we have incurred interest expense of
$66,014 due to a credit line with UBS Bank, which we cancelled during 2008, and
interest expense of $52,397 in connection with financing of the Solar
Plant.
Interest
income for the year ended December 31, 2009 was $0 compared to $45,838 for the
year ended December 31, 2008. The interest income earned in the year ended
December 31, 2008 was received from time deposits.
Foreign
exchange gain for the year ended December 31, 2009 was $84,789 compared to
$272,577 for the year ended December 31, 2008. We conduct our business and incur
substantially all of our costs in Swiss francs (CHF). The reduction
in foreign exchange gain is due primarily to the decrease in the exchange rate
of the US dollar, which is the company’s reporting currency, against the Swiss
franc. See Note 3 to the accompanying financial
statements.
16
Net
Income (Loss) from Discontinued Operations, net of tax
The Solar
Plant had been operational since the end of 2007. For the twelve
months ended December 31, 2009, we generated no revenue and incurred no expenses
from the Solar Plant, as it was sold in June 2008. For the twelve
months period ended December 31, 2008, this discontinued activity generated
income of $1,331,856 (gain on disposal of $1,185,704, revenue of $247,730 and
expenses of $101,578).
Liquidity
and Capital Resources
Our
principal cash requirements are for operating expenses, including research and
development, personnel, consulting, accounting and legal costs, and accounts
payable.
As of
December 31, 2009, we had negative working capital of $16,060,061 compared with
negative working capital of $8,923,795 as of December 31, 2008, and our cash and
cash equivalents decreased to $311,372 as of December 31, 2009 compared to
$765,694 as of December 31, 2008. This increase in negative working capital is
the result of advance financing for work in progress together with continuing
financing of our new manufacturing facility. We believe that our negative
working capital situation is temporary, as we expect in the near term to
restructure our construction financing arrangements into longer term loans with
more favorable terms.
As of
December 31, 2009, we had accounts payable of $3,452,094 compared to $526,168 as
of December 31, 2008. This large increase is primarily the result of amounts
owed to creditors for construction costs related to our manufacturing facility
($1,798,419) and our work in progress ($1,191,453).
At
December 31, 2009, we had short-term debt in the amount of $16,345,611 compared
to $9,907,190 as of December 31, 2008, which increase is the result largely of
additional borrowings during the year ended 2009 to finance ongoing projects, as
discussed below.
We
currently have several loans outstanding with the Geneva (Switzerland) State
Department of Energy (“ScanE”) and with Banque Cantonale de Genève
(“BCGE”).
ScanE
Loans
On
November 3, 2003, we entered into a loan with ScanE in the amount of up to
$911,810. The loan bears interest at 4%. As of December 31, 2009, this loan
carried a principal balance of CHF969,470 ($933,987). In connection
with entry into this loan, we agreed to escrow 10,000,000 shares of our common
stock issued to certain of our stockholders to secure its
repayment. See Part III –Item 13. “Certain Relationships and Related
Transactions.” Although this loan matured on March 31, 2010, we are
in current discussions with ScanE to extend the maturity date until March 31,
2012.
On
January 21, 2004, ScanE granted us a credit facility of CHF1.0 million to
finance the construction of our new manufacturing facility. Release of the
proceeds from this credit facility was contingent upon satisfaction of certain
conditions, which were achieved as of November 13, 2007. As of January 8, 2008,
we had utilized the full amount of this loan, which has a fixed annual interest
rate of 4%. The loan has a duration of 20 years and is secured by a
mortgage certificate of CHF1.0 million on the manufacturing facility. The loan
is paid in 20-equal annual installments of CHF73,581, which amount includes
principal and interest. As of December 31, 2009, the principal balance on this
loan was $931,047, thereof $68,640 is reflected as short-term loan and $862,407 as long-term
loan, respectively.
On
October 27, 2008, we signed a six month credit facility for CHF5.0 million with
ScanE to finance improvements on the manufacturing facility. The loan is secured
by a fourth ranked mortgage on the facility. On July 1, 2009, we entered
into an amendment to the credit facility pursuant to which ScanE agreed to
extend the maturity date to November 7, 2009 and to reduce the interest
rate from 4% to 3% per annum, commencing May 7, 2009. We are currently in
negotiations with ScanE to further extend the maturity date of this loan until
July 2010. As of December 31, 2009, the full amount of the loan had been
used to finance ongoing construction at the facility.
BCGE
Loans
Our
wholly owned subsidiary, SES Switzerland, entered into a Construction Credit
Agreement with BCGE, dated December 20, 2006, in the amount of CHF4.8
million to finance construction of the manufacturing facility. The loan was
amended on November 13, 2007 and increased from CHF4.8 million to CHF8.5
million. Pursuant to the amended agreement, the full amount of the loan must be
drawn down by the date construction is completed on the manufacturing facility,
but in any event, no later than December 31, 2008. Because construction is still
ongoing, we are in negotiations with BCGE to postpone repayment of this loan
until July 2010, at which time we anticipate being able to refinance and
consolidate this and our other construction-related credit agreements into a
single long-term loan. As of December 31, 2009, we had used
CHF8,538,300 ($8,225,799) of the loan. The loan bears interest at a rate of
3.75% and is secured by a second lien exclusive mortgage certificate of CHF9.0
million on the manufacturing facility.
17
On July
22, 2009, we entered into a loan agreement with BCGE for CHF29,430 to
finance production equipment. The loan has a duration of 36 months and is
reimbursed in 36-equal monthly installments of CHF871, which amount
includes principal and interest of 4.54%. The first installment was paid in
August 2009, and as of December 31, 2009, the principal balance had been reduced
to approximately $25,401, thereof $9,902 is reflected as short term
loan.
On August
13, 2009, we entered into a loan agreement with BCGE for CHF245,557 to finance
the certification of our SwissTile® product. The loan has a duration of 36
months and is reimbursed in 36-equal monthly installments of CHF7,188, which
amount includes principal and interest of 3.8%. The first installment was paid
in September 2009, and as of December 31, 2009, the principal balance had been
reduced to approximately $217,946, thereof $82,740 is reflected as short term
loan.
On
September 15, 2009, we entered into a separate loan agreement with BCGE for
CHF86,200 to finance certain production equipment. The loan has a duration of 36
months and is reimbursed in 36-equal monthly installments of CHF2,520
(approximately $2,428), which amount includes principal and interest of 3.72%.
The first installment was paid in October 2009, and as of December 31, 2009, the
principal balance had been reduced to approximately $78,689, thereof $28,969 is
reflected as short term loan.
On
September 18, 2009, we entered into a construction loan with BCGE for up to
CHF3.0 million to finance the construction of a new solar power plant,
which will be sold to a third party upon completion. The loan matures
on June 30, 2010 and bears interest at a rate of 5.75% per annum. The
loan, which is secured by, among other things, the proceeds from the sale of the
new solar power plant, may only be used to finance the stated project. As of
December 31, 2009, we had used CHF2,250,990 ($2,168,604) of the proceeds, which
amount is reflected as short term loan.
On
October 7, 2009, we entered into a loan agreement with BCGE for CHF29,947 to
finance production equipment. The loan has a duration of 36 months and is
reimbursed in 36-equal monthly installments of CHF885, which amount includes
principal and interest of 4.48%. The first installment was paid in November
2009, and as of December 31, 2009, the principal balance had been reduced to
approximately $28,103, thereof $9,970 is reflected as short term
loan.
Our
ability to meet our financial commitments in the near term will be primarily
dependent upon revenue from the future sale of our manufactured solar modules
and from the continued sale of our solar tiles and the related engineering
services required to design and install the same as well as from the continued
extension of credit from existing or new lenders and the successful
implementation of our planned debt consolidation and refinancing of our existing
construction loans.
We are is
in ongoing negotiations with lenders to refinance all of our existing
construction credit facilities relating to our manufacturing facility, with the
objective being to consolidate all such credit facilities under a single loan
guaranteed by a mortgage on the building. As part of these negotiations, we must
demonstrate that the rental income from a portion of the facility will be
adequate to secure interests on this single consolidated loan. Based on current
market rates, we must rent 50% of the facility to secure the refinancing. We are
currently in negotiations with several interested third parties to rent part of
the facility, and therefore we believe we will be able to refinance our existing
credit facilities under a single consolidated loan within the next six
months.
If
we are unable to secure additional financing and successfully implement our
planned debt consolidation and refinancing of our existing construction loans,
management does not believe that our cash and cash equivalents, cash provided by
operating activities, and the cash available from existing loans and lines of
credit will be sufficient to meet our working capital requirements for the next
twelve months, and we will not be able to continue as a going
concern. Due to our current financial situation and history of
losses, there is substantial doubt about our ability to continue as a going
concern, as discussed in Note 2 to our financial statements for the year
ended December 31, 2009. If our future revenues do not increase
significantly to a level sufficient to cover our net losses, we will continue to
need to raise additional funds to expand our operations. In addition, we may
need to raise funds sooner than anticipated to respond to competitive pressures,
to develop new or enhanced products or services, to fund our expansion or to
make acquisitions. We may not be able to find financing on acceptable terms
or at all.
Operating
Activities
Net cash
used in operating activities was $2,620,340 for the year ended December 31, 2009
compared to $1,330,884 of net cash used in operating activities for the year
ended December 31, 2008. Work in progress/billings in excess of cost and
estimated earnings increased to $2,560,399 due to ongoing projects. Inventory of
our SwissTile® product decreased to $113,497 due to completion of projects
during the period.
18
Net cash
provided by discontinued operating activities was $247,730 for year ended
December 31, 2008 and reflects the net income from discontinued operations of
$1,331,856, adjusted for depreciation on the Solar Plant of $101,578 and a gain
on the sale of the Solar Plant of $1,185,704. There was no cash used
in or provided by discontinued operating activities for the year ended December
31, 2009.
Investing
Activities
Net cash
used in continuing investing activities was $2,829,759 during the year ended
December 31, 2009 as compared to $11,047,735 used in investing activities
during the year ended December 31, 2008. Net cash used in investing
activities was $5,982,275 during the year ended December 31, 2008, and was
mostly due to investments for the construction of the manufacturing plant of
$11,047,735 and the proceeds from the sale of the Solar Plant of
$5,065,460. The decrease in investing activities during the year
ended December 31, 2009 is mostly due to reduced investments for the
construction of our manufacturing plant. Net cash used in continuing activities
is comprised of the use of cash to pay creditors for the construction of the
building and the future plant in the amount of $2,829,759 and advances on
machinery of $108,748.
Management
anticipates total capital expenditures of approximately $20 million for the new
manufacturing facility of which we have already financed $18.4 million, and $2
million for the assembly lines and related machinery, of which we have already
financed $385,795. In addition, and depending on our production
requirements, we may require during the next 12 months up to an additional $11
million to finance the purchase of raw materials to be used in the production of
2 MWs of solar tiles.
Financing
Activities
Net cash
provided by continuing financing activities was $5,268,252 for the year ended
December 31, 2009 compared to financing activities which provided cash of
$5,030,987 for the year ended December 31, 2008. The new financing
activity is due to bank loans received from BCGE and ScanE for
$5,317,387. During the year ended December 31, 2009, we used $23,557
of available cash to repurchase 97,000 shares of our common stock in open market
transactions. We also used $25,578 to pay down certain loans relating to
equipment production and certification.
There was
no cash used in or provided by discontinued financing activities for the year
ended December 31, 2009.
Off-Balance
Sheet Arrangements
We have
no outstanding derivative financial instruments, interest rate swap transactions
or foreign currency contracts. We do not engage in trading activities involving
non-exchange traded contracts.
At
December 31, 2009, we had an outstanding purchase order of EUR448,600 ($632,988)
for the future construction of a new machine to be used in the new plant for
solar module production. We made an advance payment of EUR269,160 for the
purchase of this machine. The balance due will be paid upon delivery of the
machine.
Critical
Accounting Policies
Financial
Reporting Release No. 60 requires all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our accounting policies are described in Note 3 of the Notes to our
Consolidated Financial Statements included in this Form 10-K for the fiscal year
ended December 31, 2009. The methods, estimates and judgments we use in applying
our most critical accounting policies have a significant impact on the results
we report in our financial statements. We evaluate our estimates and judgments
on an ongoing basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the circumstances. Our
experience and assumptions form the basis for our judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Actual results may vary from what we anticipate, and different
assumptions or estimates about the future could materially change our reported
results. We believe the following accounting policies are the most critical to
us, in that they are important to the portrayal of our financial statements and
they require our most difficult, subjective or complex judgments in the
preparation of our financial statements. The Consolidated Financial Statements
include the accounts of SES USA and its wholly owned subsidiaries, SES
Switzerland and SES Prod. All significant inter-company accounts and
transactions have been eliminated in the consolidation.
19
Foreign
Currency Translation
The
reporting currency of SES USA is the U.S. dollar ($) whereas the functional
currency SES Switzerland and SES Prod is the Swiss Franc (CHF). The financial
statements of SES Switzerland and SES Prod are translated to U.S. dollar
equivalents under the current method in accordance with FASB ASC 830, “Foreign
Currency Matters” (prior authoritative literature: SFAS No. 52, “Foreign
Currency Translation”). Assets and liabilities are translated into
U.S. dollar equivalents at rates of exchange in effect at the balance sheet
date. Average rates for the year are used to translate revenues and expenses.
The cumulative translation adjustment is reported as a component of accumulated
other comprehensive income (loss). Foreign currency differences from
inter-company receivables and payables are recorded as Foreign Exchange
Gains/Losses in the Statement of Operations.
Cash
Equivalents
We
consider cash and all highly liquid securities with an original maturity of
three months or less to be cash equivalents.
Receivables
and Credit Policies
Our
accounts receivable primarily consist of trade receivables. Management reviews
accounts receivable on a monthly basis to determine if any receivables will
potentially be uncollectible. We use estimates to determine the amount of the
allowance for doubtful accounts necessary to reduce accounts receivable and
unbilled receivables to their expected net realizable value. We estimate the
amount of the required allowance by reviewing the status of past-due receivables
and analyzing historical bad debt trends. Actual collection experience has not
varied significantly from estimates, due primarily to credit policies,
collection experience and our stability as it relates to our current customer
base. We recorded no bad debt expense during the years ended
December 31, 2009 and 2008 for trade receivables.
Product
Inventory
Our
product inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method and includes certain charges directly and
indirectly incurred in bringing product inventories to the point of sale.
Inventory is accounted for at the lower of cost or market, and as a result,
write-offs/write-downs occur due to damage, deterioration, obsolescence, changes
in prices and other causes.
Property
and Equipment
Property
and equipment is stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives of 3 to 20 years. Expenditures
for maintenance and repairs, which do not materially extend the useful lives of
property and equipment, are charged to operations as incurred. When property or
equipment is retired or otherwise disposed of, the property accounts are
relieved of costs and accumulated depreciation and any resulting gain or loss is
recognized
Long-Lived
Assets
We
account for long-lived assets in accordance with the provisions of FASB ASC 360,
"Property, Plant and Equipment" (prior authoritative literature: SFAS No.144,
“Accounting for the Impairment or Disposal of Long-lived Assets”). The statement
requires the company to evaluate its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. When the sum of the undiscounted future net cash flows
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount, impairment may exist. To determine the amount of
impairment, the company compares the fair value of the asset to its carrying
value. If the carrying value of the asset exceeds its fair value, an impairment
loss equal to the difference is recognized.
Warranties
Since the
commencement of our operations, we have had no warranty claims. Our production
has been low and components have been purchased from subcontractors for PV
installations, all of which have their own warranties. Since we have not yet
started producing our own PV cells and warranty claims can be thus exercised
against our suppliers, we do not believe that discussion of warranties
is a critical accounting policy, currently, but this may become so in the
future.
Revenue
Recognition
We
recognize revenue in accordance with FASB ASC 605, "Revenue Recognition" (prior
authoritative literature: SAB 104, “Revenue Recognition”), which requires that
four basic criteria be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services
rendered; (3) the seller's price to the buyer is fixed and determinable; and (4)
collection is reasonably assured.
20
Revenues
and profits from general management of construction-type contracts are
recognized on the completed-contract method and therefore when the project is
completed. A contract is considered complete when all costs except insignificant
items have been incurred and the installation is operating according to
specifications or has been accepted by the customer. Contract costs include all
direct materials and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs and depreciation
costs. Costs in excess of amounts billed are classified as current assets under
Work in Progress. Billings in excess of cost are classified under current
liabilities as Billings in Excess of Cost and Estimated Earnings. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. No unbilled revenue has been recognized so far.
For the
years ended 2009 and 2008, the company had no billed or unbilled amount
representing claims or other similar items subject to uncertainty concerning
their determination or ultimate realization. Amounts outstanding as at year end
are expected to be collected in 2010.
Between
January 2008 and June 2008, the company recognized sales of PV electricity
produced by solar modules on the roof (“Solar Plant”) of its new manufacturing
facility to a local electricity provider in Geneva. Revenue from such sales were
recognized monthly based on the amount of electricity produced. As further
explained below, such revenue has ceased due to the sale of the Solar Plant as
of June 30, 2008.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Foreign
Exchange Risk
Our Swiss
operations accounted for 100% of our sales in fiscal years 2009 and 2008. In
such periods, all of our international sales were denominated in Swiss francs
(CHF).
Interest
Rate Risk
Our
exposure to market risks for changes in interest rates relates primarily to our
outstanding loan obligations and any possible construction loan. If the interest
rate ultimately fixed by our bankers for the construction loan financing is
higher than we currently anticipate this will increase the cash used for
operating activities.
The full
text of our audited Consolidated Financial Statements for the years ended
December 31, 2009 and December 31, 2008 begins on page F-1 of this Annual
Report on Form 10-K.
ACCOUNTING
AND FINANCIAL DISCLOSURE
Not
Applicable.
As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that the
company’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and which also
are effective in ensuring that information required to be disclosed by the
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
MANAGEMENT’S
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the (i)
effectiveness and efficiency of operations, (ii) reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles, and (iii) compliance
with applicable laws and regulations. Our internal controls framework
is based on the criteria set forth in the Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
21
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management’s
assessment of the effectiveness of the company’s internal control over financial
reporting is as of the fiscal year ended December 31, 2009. We believe that our
internal control over financial reporting is effective. We have not identified
any current material weaknesses considering the nature and extent of our current
operations and any risks or errors in financial reporting under current
operations.
This
Annual Report on Form 10-K does not include an attestation report of the
company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the company to provide only management’s report in this Annual
Report.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was
no change in our internal control over financial reporting that occurred during
the fiscal quarter ended December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
None
MANAGEMENT
Our
directors hold office until the next annual meeting of stockholders or until
their successors have been elected and qualified. Our officers are appointed by
our board of directors and hold office until their death, resignation or removal
from office.
|
Name
|
Position with our Company
|
Age
|
Date First
Elected or Appointed
|
|||
|
Christiane
Erné
|
Interim
Chief Executive Officer and Director
|
56
|
September
27, 2006
|
|||
|
Sandrine
Crisafulli
|
Chief
Financial Officer and
Chief
Operating Officer
|
51
|
September
14, 2006
|
|||
|
Daniel
Erné
|
Director
|
54
|
September
27,
2006
|
Christiane
Erné
Ms. Erné
currently serves as our interim Chief Executive Officer, a position she has held
since April 2009, and as a member of our board of directors since September
2006. Ms. Erné also serves on the board of directors of our wholly
owned subsidiary, SES Switzerland. Since 2001, Ms. Erné has been
active in the development of renewable energies and associated technologies
through SES Switzerland. From 1981 to 1984, Ms. Erné worked in public
relations and then as hotel director for Societe d’Exploitation et Gestion
Hoteliere. Ms. Erné received a diploma in economics from the University of
Geneva in 1974. Ms. Erné’s experience in the development of renewable
energies and related technologies makes her an ideal member on our board, and
her extensive management and leadership background serves us well in her
capacity as interim Chief Executive Officer.
22
Daniel
Erné
Mr. Erné
has served as a member of our board of directors since 2006 and as a director of
our wholly owned subsidiary, SES Switzerland, since October 2006. Mr.
Erné has over 25 years of experience in international trade, having worked as a
consultant for the Conseil Général of the Haute Savoie Department, France;
Breitling, a Swiss watch manufacturing company; BMS Automotives Ltd., a United
Kingdom design, engineering and turnkey supplier of automotive manufacturing
plants and a car import company; Casino Ruhl, a French casino; and several hotel
groups. In addition, Mr. Erné manages several different private car, retail,
security and hotel companies in France and acts as a consultant to companies
engaged in international trade, including Securiguard since 2000. Mr. Erné’s
prior consulting engagements include Daniel.L (1980-1992), a restructuring and
new market developments company and Delta Automobiles (1992-1999), a car
retailer and a solar car development company. As a long standing
member of our board of directors, Mr. Erné’s breadth of consulting, managerial,
financial and international trade experience assures that we have the leadership
skills necessary to guide us through our development stage activities and to
bring our business model and strategy to fruition.
Sandrine
Crisafulli
Ms. Crisafulli has been our Chief
Financial Officer and Chief Operating Officer since 2006. Prior to
the formation of SES USA, Ms. Crisafulli also served as chief financial officer
and chief operating officer of SES Switzerland, since 2001. From 1995
to 2001, she served as administrative director and finance chief officer at N.E.
Achille, a retail company. Ms. Crisafulli received a certificate of
commerce in commercial studies from Lemania College in Lausanne,
Switzerland. Given her extensive background in financial and
administrative management, Ms. Crisafulli is ideally situated to oversee our
company’s financial and operational matters.
Committees
of the Board
All
proceedings of our board of directors are conducted by resolutions consented to
in writing by all the directors and filed with the minutes of the proceedings of
the directors. Such resolutions consented to in writing by the directors
entitled to vote on that resolution at a meeting of the directors are, according
to the corporate laws of the State of Delaware and the bylaws of our company, as
valid and effective as if they had been passed at a meeting of the directors
duly called and held.
Our
company currently does not have nominating, compensation or audit committees or
committees performing similar functions nor does our company have a written
nominating, compensation or audit committee charter. Our board of directors does
not believe that it is necessary to have such committees because it believes
that the functions of such committees can be adequately performed by the board
of directors.
Our
company does not have any defined policy or procedure requirements for
stockholders to submit recommendations or nominations for directors. The board
of directors believes that given the early stage of our development a specific
nominating policy would be premature and of little assistance until our business
operations develop to a more advanced level. Our company does not currently have
any specific or minimum criteria for the election of nominees to the board of
directors and we do not have any specific process or procedure for evaluating
such nominees. The board of directors assesses all candidates, whether submitted
by management or stockholders, and makes recommendations for election or
appointment.
A
stockholder who wishes to communicate with our board of directors may do so by
directing a written request addressed to our chief executive
officer.
Audit
Committee Financial Expert
Our board
of directors has determined that we do not have a board member that qualifies as
an “audit committee financial expert” as defined in Item 407(d) of Regulation
S-K.
We
believe that our board of directors is capable of analyzing and evaluating our
financial statements and understanding internal controls and procedures for
financial reporting. Our board of directors does not believe that it is
necessary to have an audit committee because we believe that the functions of an
audit committee can be adequately performed by our board of directors. In
addition, we believe that retaining an independent director who would qualify as
an “audit committee financial expert” would be overly costly and burdensome and
is not warranted in our circumstances given the early stages of our
development.
Family
Relationships
Except
for Daniel Erné and Christiane Erné, who are husband and wife, there are no
family relationships between any of our directors, executive officers, or
persons nominated or chosen by us to become directors or executive
officers.
23
Code
of Ethics
We have
adopted a code of ethics that is applicable to our officers, directors and
employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. The code of ethics can be found under the heading “Code of
Business Conduct and Ethics” on our website at www.sessolar.com. We will supply
to any person without charge, upon request and in the manner described above, a
copy of our code of ethics.
The
following Summary Compensation Table sets forth certain information regarding
the compensation of our executive officers for services rendered in all
capacities to us for the years ended December 31, 2009 and
2008.
Summary
Compensation Table
|
Name
and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
All
Other
Compensation
($)
|
Total
($) (1)
|
|||||||
|
Christiane
Erné,
|
2009
|
—
|
—
|
—
|
—
|
—
|
|||||||
|
Interim
Chief Executive Officer
|
2008
|
—
|
—
|
—
|
—
|
—
|
|||||||
|
Sandrine
Crisafulli,
|
|||||||||||||
|
Chief
Financial Officer and
|
2009
|
138,543
|
—
|
—
|
—
|
138,543
|
|||||||
|
Chief
Operating Officer
|
2008
|
138,966
|
—
|
—
|
—
|
138,966
|
|||||||
|
|
|||||||||||||
|
Jean-Christophe
Hadorn,
|
(2)
|
||||||||||||
|
Former
Chief Executive Officer
|
2009
|
—
|
—
|
—
|
0
|
0
|
|||||||
|
2008
|
—
|
—
|
—
|
87,739
|
87,739
|
|
(1)
|
Amounts
paid in Swiss francs (CHF). The dollar figures reflected in the table were
calculated using the average exchange rate in effect for the fiscal year
2009 (CHF 1.08270). The dollar figures for 2008 were calculated using the
exchange rate of CHF 1.07940 as per Note 3 to our audited consolidated
financial statements for the fiscal year ended December 31,
2008.
|
|
(2)
|
We
had a one-year consulting agreement with Base Consulting pursuant to which
Base Consulting provided us with strategic, managerial, marketing and
business development leadership. The services provided by Base Consulting
were performed by Mr. Hadorn, our former chief executive officer. Other
than pursuant to this consulting agreement, we did not compensate Mr.
Hadorn in his capacity as chief executive officer. Mr. Hadorn resigned as
chief executive officer effective April 2, 2009, and no compensation was
made or is due to Mr. Hadorn for 2009 through the date of his
resignation.
|
Stock Option Plan
We do not
have a stock option plan in favor of any director, officer, consultant or
employee.
Stock
Options/Stock Awards
We have
not granted any options or stock awards.
Director
Compensation
We did not pay fees or other cash
compensation for services rendered by our directors during the fiscal years
ended December 31, 2009 or 2008. We have no current plans to
compensate our directors in their capacities as such in the future. We do
reimburse our directors for reasonable out-of-pocket expenses incurred in
connection with attending board meetings.
Employment
Agreements
We
entered into an employment agreement with Sandrine Crisafulli dated September
14, 2006. Pursuant to the terms of the agreement, Ms. Crisafulli receives an
annual salary of $138,543. The term of the agreement is five (5) years. If Ms.
Crisafulli’s employment is terminated without cause, we are obligated to pay her
an amount equal to two years’ salary for each completed three years of
service.
24
SES
Switzerland entered into an employment agreement with Daniel Erné dated October
3, 2006. Pursuant to this agreement, Mr. Erné assists with our day-to-day
managerial and operating activities, including serving as a consultant with
respect to financing opportunities, budgetary matters, and oversight of
construction on our new manufacturing facility. Mr. Erné receives an annual
salary of $120,071 in consideration for these services.
RELATED
STOCKHOLDER MATTERS
Principal
Stockholders
The
following table sets forth certain information regarding our common stock
beneficially owned as of January 21, 2010 for (i) each stockholder we know to be
the beneficial owner of 5% or more of our outstanding common stock, (ii) each of
our executive officers and directors, and (iii) all executive officers and
directors as a group. In general, a person is deemed to be a beneficial owner of
a security if that person has or shares the power to vote or direct the voting
of such security, or the power to dispose or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which the person has the right to acquire beneficial ownership within 60
days.
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership (1)
|
Percentage
of Class (1)
|
||||||
|
Christiane
Erné
|
48,286,817 | 66.2 | % | |||||
|
Daniel
Erné
|
48,286,817 | (2) | 66.2 | % | ||||
|
Sandrine
Crisafulli
|
— | — | % | |||||
|
SG
Private Banking (Suisse) S.A.
Avenue
de Rumine 20
Case
Postale 220
Ch-1001
Lausanne, Switzerland
|
5,193,057 | 7.1 | % | |||||
|
Directors
and Executive Officers as a Group (3 persons)
|
48,286,817 | 66.2 | % | |||||
|
(1)
|
Based
on 72,984,168 shares of common stock outstanding as January 21, 2010.
Except as otherwise indicated, we believe that the owners of the common
stock listed above have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with SEC rules and
generally includes voting or investment power with respect to securities.
Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
option or warrants, but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
|
|
(2)
|
Daniel
Erné is the husband of Christiane Erné and therefore may be deemed to
beneficially own the shares held by his wife. Mr. Erné expressly disclaims
ownership over these shares.
|
Employment
Agreements
For a
description of the employment agreements between us and certain of our executive
officers and directors, please see the descriptions included in Part III –
Item 11. Executive Compensation under the heading “Employment
Agreements.”
25
Long
Term Escrow Agreement
In
connection with the closing of the share exchange agreement with SES Switzerland
and the stockholders thereof whereby we agreed to acquire SES Switzerland, we
entered into the Long Term Escrow Agreement, dated September 1, 2006, with
Christiane Erné, Jean-Christophe Hadorn (our former CEO and director), and
Claudia Rey. Pursuant to the terms of the Long Term Escrow Agreement, we agreed
to escrow certain shares of common stock issued to Ms. Erné, Mr. Hadorn, and Ms.
Rey until September 27, 2008, the second anniversary of the closing of the share
exchange agreement. As of September 27, 2008, these shares have been released
from escrow and refunded to the named stockholders. In connection
with the closing of the share exchange agreement, we also agreed to escrow
10,000,000 shares of common stock issued to Ms. Erné (9,000,000 shares), Mr.
Hadorn (500,000 shares) and Ms. Rey (500,000 shares) in order to secure partial
repayment of our loan dated November 3, 2003 with ScanE, which shares remain in
escrow under the Long Term Escrow Agreement.
Consulting
Agreement with Flannel Management
SES
Switzerland has a consulting agreement with Flannel Management dated October 1,
2006. Flannel Management receives a monthly consulting fee of $18,472,
calculated based on the exchange rate of CHF 1.08270 as in effect on December
31, 2009. The contract is for a guaranteed 10-year term and, if earlier
terminated, we must pay the consulting fee for the full term. Flannel
Management’s consulting services are rendered by Philippe Crisafulli, the
husband of Sandrine Crisafulli, our Chief Operating Officer and Chief
Financial Officer. Pursuant to this agreement, Flannel Management, through Mr.
Crisafulli, provides us with the research and development, production,
manufacturing and operational support necessary to bring our new manufacturing
facility and solar products into production. During the fiscal years ended
December 31, 2009 and 2008, we paid to Flannel Management $221,668
and $222,346, respectively.
Audit
Fees
The
aggregate fees billed for professional services rendered by our principal
accountants BDO Ltd. for the audits of our financial statements included in
Forms 8-K and 10-Q and for the financial statements included in our Annual
Report on Form 10-K as well as services related to responding to SEC comment
letters on our Forms 8-K and 10-Q were approximately $103,445 for the year
ended December 31, 2009 and $144,763 for the year ended December 31, 2008. BDO
Ltd. did not perform any audit work for 2005 before the reverse merger in
2006.
Audit-Related
Fees
The
aggregate fees billed for assurance and related services by our principal
accountants, BDO Ltd., that are reasonably related to the performance of the
audit and review of the company’s financial statements were $0 and $0 for 2009
and 2008, respectively.
Tax
Fees
The
aggregate fees billed for tax compliance, tax advice and tax planning and other
products and services by our principal accountants, BDO Ltd., were $0 and $0 for
2009 and 2008, respectively.
All
Other Fees
BDO Ltd.
has not rendered any professional services other than those covered in the
Sections captioned “Audit Fees”, “Audit-Related Fees” and “Tax Fees” for the
company’s 2009 and 2008 fiscal years, respectively.
Audit
Committee Pre-Approval Policies and Procedures
The
company does not have an Audit Committee. The board of directors approves all
audit, audit-related and permissible non-audit services provided by the
independent auditors in order to assure that the provision of such services does
not impair the auditor’s independence. These services may include audit
services, audit-related services, tax services and other
services.
26
Exhibits
Copies of
the following documents are included as exhibits to this Annual Report on Form
10-K pursuant to Item 601 of Regulation S-K:
|
Exhibit Number
|
Description
|
|
|
2.1
|
Share
Exchange Agreement dated August 31, 2006, among our company, Société
d’Energie Solaire and the shareholders of Société d’Energie Solaire
(incorporated by reference from our Form 8-K filed on September 1,
2006).
|
|
|
3.1
|
Articles
of Incorporation (incorporated by reference from our Schedule 14C filed on
March 11, 2004).
|
|
|
3.2
|
Bylaws
(incorporated by reference from Schedule 14C filed on March 11,
2004).
|
|
|
3.3
|
Certificate
of Ownership (incorporated by reference from our Form 8-K filed on June
21, 2006).
|
|
|
3.4
|
Certificate
of Ownership (incorporated by reference from our Form 8-K filed on August
25, 2006).
|
|
|
10.1
|
Long-Term
Escrow Agreement dated September 1, 2006, among SES Solar Inc., Christiane
Erné, Jean- Christophe Hadorn, Claudia Rey and Clark Wilson LLP
(incorporated by reference from our Form 8-K filed on October 4,
2006).
|
|
|
10.2
|
Employment
Agreement dated September 14, 2006 between Société d’Energie Solaire S.A.
and Sandrine Crisafulli (incorporated by reference from our Form 8-K filed
on October 4, 2006).
|
|
|
10.3
|
Consultancy
Agreement dated October 3, 2006, as amended February 16, 2007, between
Daniel Erné and SES Société d’Energie Solaire S.A. (incorporated by
reference from our registration statement Form SB-2 filed on November 9,
2007)
|
|
|
10.4
|
Convention
(Voting Trust Agreement) dated September 12, 2005 between Christiane Erné
and Claudia Rey (incorporated by reference from our Form 8-K/A filed on
November 16, 2006).
|
|
|
10.5
|
Convention
(Voting Trust Agreement) dated February 22, 2006 between Christiane Erné
and Jean-Christophe Hadorn (incorporated by reference from our Form 8-K/A
filed on November 16, 2006).
|
|
|
10.6
|
Assignment
of Rights Agreement dated August 31, 2006 between SES Société d’Energie
Solaire S.A. and Jean-Christophe Hadorn (incorporated by reference from
our Form 8-K/A filed on November 16, 2006)
|
|
|
10.7
|
Assignment
of Rights Agreement dated August 31, 2006 between SES Société d’Energie
Solaire S.A. and Olivier Ouzilou (incorporated by reference from our Form
8-K/A filed on November 16, 2006)
|
|
|
10.8
|
Assignment
of Rights Agreement dated August 31, 2006 between SES Société d’Energie
Solaire S.A. and Sandrine Crisafulli (incorporated by reference from our
Form 8-K/A filed on November 16, 2006).
|
|
|
10.9
|
Assignment
of Rights Agreement dated September 15, 2006 between SES Société d’Energie
Solaire S.A. and Sylvere Leu (incorporated by reference from our Current
Report on Form 8-K/A filed on November 16, 2006).
|
|
|
10.10
|
Construction
Credit Agreement dated December 30, 2006 between SES Société d’Energie
Solaire S.A. and Banque Cantonale de Genève (incorporated by reference
from our Annual Report on Form 10-KSB filed on May 16,
2007).
|
27
|
10.11
|
Amendment
dated November 13, 2007 to Construction Credit Agreement, dated December
20, 2006, between SES Société d’Energie Solaire S.A. and Banque Cantonale
de Genève (incorporated by reference from our Current Report on Form 8-K
filed on November 16, 2007).
|
|
|
10.12
|
Form
of Share Purchase Warrants and Warrant Agreement between SES Solar Inc.
and Lansing Securities Corp. (incorporated by reference from our
registration statement on Form SB-2 filed on December 21,
2007).
|
|
|
10.13
|
Consulting
Agreement dated October 1, 2006 between SES Société d’Energie Solaire S.A.
and Flannel Management Sàrl (incorporated by reference from our
Annual Report on Form 10-KSB filed on March 26, 2007).
|
|
|
10.14
|
Credit
Facility, dated October 27, 2008, between SES Solar Inc. and the Geneva
(Switzerland) State Department of Energy of Energy
(incorporated by reference from our Annual Report on Form 10-K filed on
March 31, 2009).
|
|
|
10.15
|
Amended
Credit Facility between SES Solar Inc. and the Geneva (Switzerland) State
Department of Energy of Energy (incorporated by reference from
our Current Report on Form 8-K filed on July 6, 2009).
|
|
|
10.16
|
Construction
Loan Agreement, dated September 18, 2009, between SES Solar Inc. and
Banque Cantonale de Genève (incorporated by reference from our Quarterly
Report on Form 10-Q filed on November 20, 2009).†
|
|
|
21*
|
Subsidiaries
of SES Solar Inc.
|
|
|
24.1
|
Power
of Attorney (included in the signature page hereto)
|
|
|
31.1*
|
Rule
13a-14 and 15d-14 Certification of Chief Executive
Officer
|
|
|
31.2*
|
Rule
13a-14 and 15d-14 Certification of Chief Financial
Officer
|
|
|
32.1*
|
Section
1350 Certification of Chief Executive Officer
|
|
|
32.2*
|
Section
1350 Certification of Chief Financial
Officer
|
* Filed
herewith
† Portions
of this exhibit have been omitted pursuant to a request for confidential
treatment.
28
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
SES
SOLAR INC.
|
||
|
Date:
April 13, 2010
|
By:
|
/s/ Christiane
Erne
|
|
Christiane
Erne
Interim
Chief Executive Officer
|
||
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Christiane Erne and Sandrine Crisafulli as their true
and lawful attorney-in-fact and agent, with the full power of substitution for
them, and in his or her name and in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming that said attorney-in-fact and agent or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
NAME
|
TITLE
|
DATE
|
||
|
/s/ Christiane Erne
|
||||
|
Christiane
Erne
|
Interim
Chief Executive Officer and Director
|
April
13, 2010
|
||
|
(Principal
Executive Officer)
|
||||
|
/s/ Sandrine Crisafulli
|
||||
|
Sandrine
Crisafulli
|
Chief
Financial Officer
|
April
13, 2010
|
||
|
(Principal
Accounting Officer)
|
||||
|
/s/ Daniel Erné
|
||||
|
Daniel
Erné
|
Director
|
April
13, 2010
|
29
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
SES Solar
Inc.
We have
audited the accompanying consolidated balance sheets of SES Solar Inc. (the
“Company”) as of December 31, 2009 and 2008 and the related consolidated
statements of operations and comprehensive losses, changes in stockholders’
equity and cash flows for each of the two years in the period ended December 31,
2009. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statement, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of SES Solar Inc. at December
31, 2009 and 2008, and the results of its operations and its cash flows for each
of the two years in the periods ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Zurich,
April 13, 2010
BDO
Ltd.
|
/s/
Andreas Wyss
|
/s/ |
Oliver
Berchtold
|
|
Andreas
Wyss
|
Oliver Berchtold | |
|
Auditor
in Charge
|
||
|
Swiss
Certified Accountant / CPA
|
Swiss Certified Accountant | |
F-1
SES
SOLAR INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
(in
$, except per share amounts)
|
December 31st
2009
|
December 31st
2008
|
|||||||||||
|
ASSETS
(in $)
|
||||||||||||
|
Current
Assets:
|
||||||||||||
|
Cash
and cash equivalents
|
6 | 311,372 | 765,694 | |||||||||
|
Receivables,
net of allowance for doubtful accounts of $ 0 for the years ended 2009 and
2008.
|
7 | 12,205 | 12,001 | |||||||||
|
Due
from related party
|
21 | 92,112 | 90,573 | |||||||||
|
Inventory
|
8 | 457,570 | 1,665,699 | |||||||||
|
Work
in progress
|
11 | 3,131,865 | 0 | |||||||||
|
Other
current assets
|
303,986 | 424,186 | ||||||||||
|
Total
current assets
|
4,309,110 | 2,958,153 | ||||||||||
|
Long-Term
Assets:
|
||||||||||||
|
Advance
payments for machinery
|
12 | 385,795 | 379,446 | |||||||||
|
Advance
payments for certification
|
113,432 | 0 | ||||||||||
|
Total
other long-term assets
|
499,227 | 379,446 | ||||||||||
|
Property,
Plant and Equipment, at cost,
|
646,177 | 600,389 | ||||||||||
|
Building
construction
|
18,429,669 | 13,449,460 | ||||||||||
|
Less
accumulated depreciation and amortization
|
(484,026 | ) | (429,351 | ) | ||||||||
|
Total
fixed assets
|
9 | 18,591,820 | 13,620,498 | |||||||||
|
Total
long-term assets
|
19,091,047 | 13,999,944 | ||||||||||
|
Total
Assets
|
23,400,157 | 16,958,097 | ||||||||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||||||
|
Current
Liabilities:
|
||||||||||||
|
Short-term
loan
|
10 | 3,234,172 | 0 | |||||||||
|
Construction
loan
|
10 | 13,111,439 | 9,907,190 | |||||||||
|
Accounts
payable
|
3,452,094 | 526,168 | ||||||||||
|
Billings
in excess of cost and estimated earnings
|
11 | 571,466 | 1,448,590 | |||||||||
|
Total
current liabilities
|
20,369,171 | 11,881,948 | ||||||||||
|
Long-Term
Liabilities:
|
||||||||||||
|
Loan
payable
|
10 | 218,559 | 918,389 | |||||||||
|
Construction
loan
|
10 | 862,407 | 882,413 | |||||||||
|
Total
long-term liabilities
|
1,080,966 | 1,800,802 | ||||||||||
|
Stockholders’
Equity:
|
15 | |||||||||||
|
Common stock, $0.001
par value; 100,000,000
shares authorized; 73,081,168
shares issued and 72,984,168 outstanding (73,081,168 shares issued and
outstanding as of December 31,
2008)
|
73,081 | 73,081 | ||||||||||
|
Additional
paid in Capital
|
8,050,093 | 8,050,093 | ||||||||||
|
Accumulated
other comprehensive loss
|
||||||||||||
|
Translation
Adjustment
|
(689,618 | ) | (603,005 | ) | ||||||||
|
Year
end Accumulated Deficit
|
(5,459,979 | ) | (4,244,822 | ) | ||||||||
|
Less:
Cost of common stock in treasury, 97,000 shares
|
(23,557 | ) | 0 | |||||||||
|
Total
stockholders’ equity
|
1,950,020 | 3,275,347 | ||||||||||
|
Total
Liabilities and Stockholders’ Equity
|
23,400,157 | 16,958,097 | ||||||||||
See accompanying summary of
accounting policies and the notes to the financial
statements.
F-2
SES
SOLAR INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in
$, except per share amounts)
|
Year Ended
December 31,
2009
|
Year Ended
December 31,
2008
|
|||||||||
|
Revenue:
|
||||||||||
|
Revenue
|
5,7
|
1,336,188 | 33,416 | |||||||
|
Cost
of goods sold (exclusive of depreciation shown separately
below)
|
(907,664 | ) | (5,417 | ) | ||||||
|
Costs
and Expenses:
|
||||||||||
|
Personnel
|
613,759 | 532,039 | ||||||||
|
Rent
and Leases Expenses
|
12
|
128,399 | 181,632 | |||||||
|
Research
and Development
|
251,822 | 337,761 | ||||||||
|
Other
General & Administrative Expenses
|
646,804 | 870,643 | ||||||||
|
Gain
on sale of assets, net
|
(18,797 | ) | 0 | |||||||
|
Depreciation
and amortization
|
66,208 | 75,516 | ||||||||
|
Total
costs and expenses
|
1,688,195 | 1,997,591 | ||||||||
|
Other
Income and Expense:
|
||||||||||
|
Interest
expense
|
(40,275 | ) | (155,133 | ) | ||||||
|
Interest
income
|
17
|
0 | 45,838 | |||||||
|
Foreign
Exchange Gain
|
84,789 | 272,577 | ||||||||
|
Total
other income and expenses
|
44,514 | 163,282 | ||||||||
|
Loss
before taxes from continuing operations
|
(1,215,157 | ) | (1,806,310 | ) | ||||||
|
Income
taxes
|
18
|
0 | 0 | |||||||
|
Loss
from continuing operations
|
(1,215,157 | ) | (1,806,310 | ) | ||||||
|
Income
from discontinued operations before taxes (Note 14)
|
0 | 1,331,856 | ||||||||
|
Income
taxes
|
0 | 0 | ||||||||
|
Income
from discontinued operations
|
0 | 1,331,856 | ||||||||
|
Net
loss
|
(1,215,157 | ) | (474,454 | ) | ||||||
|
Other
Comprehensive Loss/Income:
|
||||||||||
|
Translation
adjustment
|
(86,613 | ) | (207,558 | ) | ||||||
|
Comprehensive
loss
|
(1,301,770 | ) | (682,012 | ) | ||||||
|
Basic
and diluted Weighted Average Shares
|
73,014,031 | 73,081,168 | ||||||||
|
Basic
and diluted net income (loss) per share from continuing
operation
|
(0,017 | ) | (0.025 | ) | ||||||
|
Basic
and diluted net income (loss) per share from discontinuing
operation
|
0 | 0.018 | ||||||||
|
Basic
and diluted net income (loss) per share
|
(0.017 | ) | (0.007 | ) | ||||||
See
accompanying summary of accounting policies and the notes to the financial
statements.
F-3
SES
SOLAR INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(in
$, except per share amounts)
|
Common Stock
|
Accumulated Other
Comprehensive
Income
|
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Paid-in
Capital
|
Treasury
Share
|
Retained
Earnings
|
Translation
Adjustment
|
Total
Shareholders’
Equity
|
||||||||||||||||||||||
|
Balance
at January 01, 2008
|
73,081,168 | 73,081 | 8,050,093 | 0 | (3,770,368 | ) | (395,447 | ) | 3,957,359 | |||||||||||||||||||
|
Net
Loss
|
0 | 0 | 0 | 0 | (474,454 | ) | 0 | (474,454 | ) | |||||||||||||||||||
|
Translation
Adjustment
|
0 | 0 | 0 | 0 | 0 | (207,558 | ) | (207,558 | ) | |||||||||||||||||||
|
Balance
at December 31, 2008
|
73,081,168 | 73,081 | 8,050,093 | 0 | (4,244,822 | ) | (603,005 | ) | 3,275,347 | |||||||||||||||||||
|
Net
Loss
|
0 | 0 | 0 | 0 | (1,215,157 | ) | 0 | (1,215,157 | ) | |||||||||||||||||||
|
Translation
Adjustment
|
0 | 0 | 0 | 0 | 0 | (86,613 | ) | (86,613 | ) | |||||||||||||||||||
|
Purchase
during the year
|
0 | 0 | 0 | (23,557 | ) | 0 | 0 | (23,557 | ) | |||||||||||||||||||
|
Balance
at December 31, 2009
|
73,081,168 | 73,081 | 8,050,093 | (23,557 | ) | (5,459,979 | ) | (689,618 | ) | 1,950,020 | ||||||||||||||||||
See
accompanying summary of accounting policies and the notes to the financial
statements.
F-4
SES
SOLAR INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
$, except per share amounts)
|
YEARS ENDED
|
||||||||
|
December 31st 2009 |
December 31st
2008
|
|||||||
|
Cash
Flows from Operating Activities:
|
||||||||
|
Net
income (loss)
|
(1,215,157 | ) | (474,454 | ) | ||||
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||
|
Depreciation
and amortization
|
66,208 | 170,880 | ||||||
|
Gain
on sale of assets
|
(18,797 | ) | 0 | |||||
|
Gain
on sale of power plant
|
0 | (1,185,704 | ) | |||||
|
Changes
in operating assets and liabilities :
|
||||||||
|
(Increase)
decrease in:
|
||||||||
|
Receivables,
including Due from Related Party
|
0 | 37,649 | ||||||
|
Inventory
|
1,171,283 | (1,267,689 | ) | |||||
|
Other
current assets
|
122,154 | 252,330 | ||||||
|
Deferred
Expenses
|
0 | 180,000 | ||||||
|
Increase
(decrease) in:
|
||||||||
|
Accounts
payable and accrued expenses
|
57,312 | (10,596 | ) | |||||
|
Work
in progress/billings in excess of cost and estimated
earnings
|
(2,803,343 | ) | 966,700 | |||||
|
Net
cash used in operating activities
|
(2,620,340 | ) | (1,330,884 | ) | ||||
|
Cash
Flows from Investing Activities:
|
||||||||
|
Proceed
on sale of solar plant
|
0 | 5,065,460 | ||||||
|
Property,
plants and equipment
|
(2,829,759 | ) | (11,047,735 | ) | ||||
|
Advance
payments for certification and machines
|
(108,748 | ) | 0 | |||||
|
Net
cash used in investing activities
|
(2,938,507 | ) | (5,982,275 | ) | ||||
|
Cash
Flows from Financing Activities:
|
||||||||
|
Treasury
shares
|
(23,557 | ) | 0 | |||||
|
Proceed
from loans
|
5,317,387 | 6,809,969 | ||||||
|
Repayment of
loans
|
(25,578 | ) | (1,778,982 | ) | ||||
|
Net
cash provided by financing activities
|
5,268,252 | 5,030,987 | ||||||
|
Decrease
in cash and cash equivalents
|
(290,595 | ) | (2,282,172 | ) | ||||
|
Effect
of exchange rate changes on cash
|
(163,727 | ) | (381,167 | ) | ||||
|
Cash
and cash equivalents, beginning of year
|
765,694 | 3,429,033 | ||||||
|
Cash
and cash equivalents, end of year
|
311,372 | 765,694 | ||||||
|
Supplemental
cash flow information
|
||||||||
|
Cash
paid for interest
|
40,275 | 155,133 | ||||||
|
Supplemental
disclosure of non-cash operating and investing activities:
|
||||||||
|
Non
cash transaction, Property, plants and equipment in accounts
payable
|
2,929,966 | 185,214 | ||||||
See
accompanying summary of accounting policies and the notes to the financial
statements.
F-5
1. Organization and Nature of
Operations
Organization
- SES SOLAR INC. (the “Company,” “SES USA,” “our,” “we” and “us”) is the result
of a reverse acquisition accomplished on September 27, 2006 between SES USA, a
Delaware company, which had no operations and net assets of $39,069, and Société
d’Energie Solaire SA (“SES Switzerland”), a Swiss company. SES USA acquired all
of the outstanding shares of SES Switzerland. For accounting purposes, the
acquisition has been treated as a recapitalization of SES Switzerland with SES
Switzerland as the acquirer (reverse acquisition). SES Switzerland acquired
10,668,000 shares of SES USA in the transaction. The historical financial
statements prior to September 27, 2006 are those of SES Switzerland. The reverse
acquisition resulted in a change of control of SES USA, with the former
stockholders of SES Switzerland owning approximately 70% of SES USA and SES
Switzerland becoming a wholly owned subsidiary of SES USA.
SES
Switzerland was formed in 2001 for the purpose of researching, developing,
manufacturing and selling innovative products to the solar photovoltaic market.
From its inception, SES Switzerland has focused primarily on manufacturing and
installing silicon photovoltaic solar cell panels. The principal source of
revenue for the Company has been the sale of photovoltaic panels in turn-key
installations, manufactured in-house or purchased from subcontractors, to
electric utilities, local government agencies and private
households..
In 2008,
the Company formed a second Swiss wholly owned subsidiary, SES Prod SA (“SES
Prod”), which is also located in Geneva. It is expected that in the future, all
of the Company’s manufacturing activities now being conducted by SES Switzerland
will be conducted by SES Prod. At such time, SES Switzerland’s primary activity
will be managing the Company’s manufacturing facility
2. Future Operations
The
Company has experienced losses from operations and anticipates incurring losses
in the near future. The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. The Company incurred
a net loss of ($1,215,157) and a negative cash flow from operations of
($2,620,340), and had a working capital deficiency of ($16,060,061) as of
December 31, 2009. These matters raise substantial doubt about its ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The
Company has financed the construction of its manufacturing facility with
construction loans (Note 10). The Company intends to convert these construction
loans into a long term mortgage immediately after completion of the facility.
Since the manufacturing facility has not been completed as of December 31, 2009,
no construction loans have been converted into mortgages.
The
Company's ability to continue its operations and market and sell its products
and services will depend on its ability to convert the construction loans into
mortgages and to obtain additional financing. If the Company is unable to obtain
such financing, the Company may not be able to continue its business. Any
additional equity financing may be dilutive to shareholders, and debt financing,
if available, will increase expenses and may involve restrictive covenants. The
Company will be required to raise additional capital on terms that are
uncertain, especially in light of current capital market conditions. Under these
circumstances, if the Company is unable to obtain additional capital or is
required to raise it on undesirable terms, its financial condition could be
adversely impacted
The
Company’s cash and cash equivalents are $311,372 for the year ended December 31,
2009. Based on the Company’s business plan it needs additional
funding from external sources of approximately
$5 million to fund anticipated operating expenses and the completion
of the manufacturing facility.
.
The
Company’s current business plan includes the development of a new assembly line
based on its proprietary technology and the construction of a manufacturing
facility in the suburbs of Geneva, Switzerland to produce solar modules and
solar tiles at a lower cost. These activities require that the Company design
and manufacture prototype panels, have them approved in accordance with European
and other standards, manufacture them in series and sell them in the primary
markets for solar photovoltaic cells. Costs incurred in manufacturing prototype
panels have been expensed as research and development costs.
The
Company does not believe that it can achieve profitability until development,
implementation, and commercialization of new products manufactured through the
new assembling process are operational.
The
Company has a significant amount of debt, and several loans that it has entered
into have either matured or will soon be maturing. As of December 31, 2009, the
Company had short-term loans totaling $16.3 million, of which $13.0 had been
used to finance construction of the new manufacturing facility. If the Company
is unable to successfully negotiate extensions of the maturity dates of these
loans or if it is unable to repay them, then the parties with whom it has
entered into these loans may declare the Company in default and opt to exercise
certain security interests that the Company has granted them. Certain of these
loans are secured by junior mortgages on the manufacturing facility or by shares
of common stock that the Company has agreed to hold in escrow.
One such
loan with State Department of Energy Geneva (Switzerland) (“ScanE”), dated
November 3, 2003, in the amount of $911,810 matured on March 31,
2010. Another loan with ScanE, dated July 1, 2009, in the amount of
CHF5 million matured on November 7, 2009. A CHF8.5 million
construction credit loan that the Company entered into with Banque Cantonale de
Genève (“BCGE”), dated December 20, 2006, matures upon the completion of the
manufacturing facility, but no later than December 31, 2008, and as a result,
this loan has also matured. In the past, the Company has successfully negotiated
with its existing lenders for the extension of additional credit to finance
ongoing construction at its manufacturing facility as well as for extensions of
the maturity dates of the construction related loans with them. To
this end, the Company is currently negotiating with ScanE to extend the maturity
dates of the loans dated November 3, 2003 and July 1, 2009 until March 31, 2012
and July 1, 2010, respectively. The Company is also negotiating with
BCGE to postpone repayment of the loan dated December 20, 2006 until such time
as the manufacturing facility is completed and the construction loans have been
refinanced and consolidated.
The
Company is in current negotiations with lenders to refinance of all its existing
construction credit facilities relating to its manufacturing facility, with the
objective being to consolidate all such credit facilities under one single loan
guaranteed by a mortgage on the building. As part of these negotiations, the
Company must demonstrate that the rental income from a portion of the facility
will be sufficient to secure interests on this single loan. Based on current
market rates, the Company must rent 50% of the facility to secure the
refinancing. The Company is in ongoing negotiations with several interested
third parties to rent part of the facility, and therefore believes it will be
able to refinance its existing credit facilities under a single consolidated
loan within the next six months.
F-6
3. Summary of Significant Accounting
Policies
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, SES Switzerland and SES Prod. All significant
inter-company accounts and transactions have been eliminated in the
consolidation.
All
amounts are presented in $ unless otherwise stated.
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying disclosures. Although these
estimates are based on management’s knowledge of current events and actions that
the Company may undertake in the future, actual results may differ from such
estimates.
Foreign Currency Translation
- The reporting currency of SES USA is the U.S. dollar ($) whereas its wholly
owned subsidiaries’ functional currency is the Swiss Franc (CHF). The financial
statements of the wholly owned subsidiaries are translated to U.S. dollar
equivalents under the current method in accordance with FASB ASC 830, “Foreign
Currency Matters” (prior authoritative literature: SFAS No.52,“Foreign Currency
Translation”). Assets and liabilities are translated into U.S. dollar
equivalents at rates of exchange in effect at the balance sheet date. Average
rates for the year are used to translate revenues and expenses. The cumulative
translation adjustment is reported as a component of accumulated other
comprehensive income (loss). Foreign currency differences from inter-company
receivables and payables are recorded as Foreign Exchange Gains/Losses in the
Statement of Operations.
The
exchange rates used for translating the financial statements are listed
below:
|
Average Rates
|
2009
|
2008
|
||||||
|
CHF
|
CHF
|
|||||||
| $ | 1.08270 | 1.07940 | ||||||
|
Balance Sheet year-end
rates
|
2009
|
2008
|
||||||
|
CHF
|
CHF
|
|||||||
| $ | 1.03799 | 1.05562 | ||||||
Cash Equivalents—The Company
considers all highly liquid debt securities purchased with an original maturity
of three months or less to be cash equivalents.
Receivables and Credit
Policies— The Company’s accounts receivables primarily consists of trade
receivables. Management reviews accounts receivables on a monthly basis to
determine if any receivables will potentially be uncollectible. The Company uses
estimates to determine the amount of the allowance for doubtful accounts
necessary to reduce accounts receivable and unbilled receivables to their
expected net realizable value. The Company estimates the amount of the required
allowance by reviewing the status of past-due receivables and analyzing
historical bad debt trends. Actual collection experience has not varied
significantly from estimates, due primarily to credit policies, collection
experience and the Company’s stability as it relates to its current customer
base. Receivables consist of revenues billed to customers upon achievement of
contractual obligations. Based on the information available, the Company
believes its allowance for doubtful accounts as of December 31, 2009 is
adequate.
Product Inventory—Product
inventory is stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method and includes certain charges directly and
indirectly incurred in bringing product inventories to the point of sale.
Inventory is accounted for at the lower of cost or market, and as a result,
write-offs/write-downs occur due to damage, deterioration, obsolescence, changes
in prices and other causes.
Property and
Equipment—Property and equipment is stated at cost. Depreciation is
computed using straight-line method over estimated useful lives of 3 to 20
years. Expenditures for maintenance and repairs, which do not materially extend
the useful lives of property and equipment, are charged to operations as
incurred. When property or equipment is retired or otherwise disposed of, the
property accounts are relieved of costs and accumulated depreciation and any
resulting gain or loss is recognized.
Long-Lived Assets—The Company
accounts for long-lived assets in accordance with the provisions of FASB ASC
360, "Property, Plant and Equipment" (prior authoritative literature: SFAS
No.144,“Accounting for the Impairment or Disposal of Long-lived Assets”). The
statement requires the Company to evaluate its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. When the sum of the undiscounted future net
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount, impairment may exist. To determine
the amount of impairment, the Company compares the fair value of the asset to
its carrying value. If the carrying value of the asset exceeds its fair value,
an impairment loss equal to the difference is recognized.
F-7
Warranties—Since the
Company’s commencement it has had no warranty claims. The Company’s production
was low and components were purchased for photovoltaic installations, all of
which have their own warranties. Since the Company has not yet started producing
its own photovoltaic cells and warranty claims can be thus exercised against its
suppliers, the Company does not believe that discussion of warranties is a
critical accounting policy currently, but this may become so in the
future.
Revenue Recognition - The
Company recognizes revenue in accordance with FASB ASC 605, "Revenue
Recognition" (prior authoritative literature: SAB 104,“Revenue Recognition”),
which requires that four basic criteria be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred or
services rendered; (3) the seller's price to the buyer is fixed and
determinable; and (4) collection is reasonably assured.
Revenues
and profits from general management of construction-type contracts are
recognized on the completed-contract method and therefore when the project is
completed. A contract is considered complete when all costs except insignificant
items have been incurred and the installation is operating according to
specifications or has been accepted by the customer. Contract costs include all
direct materials and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs and depreciation
costs. Costs in excess of amounts billed are classified as current assets under
Work in Progress. Billings in excess of cost are classified under current
liabilities as Billings in Excess of Cost and Estimated Earnings. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. No unbilled revenue has been recognized so far.
For the
years ended 2009 and 2008, the Company had no billed or unbilled amount
representing claims or other similar items subject to uncertainty concerning
their determination or ultimate realization. Amounts outstanding as at year end
are expected to be collected in 2010.
Between
January 2008 and June 2008, the Company recognized sales of PV electricity
produced by solar modules on the roof (the “Solar Plant”) of its new
manufacturing facility to a local electricity provider in Geneva. Revenues from
such sales were recognized monthly based on the amount of electricity produced.
As further explained below, such revenue has ceased due to the sale of the Solar
Plant as of June 30, 2008.
Income Taxes—The Company
follows FASB ASC 740, “Income Taxes” (prior authoritative literature: SFAS No.
109,“Accounting for Income Taxes”), which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred income
tax assets and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the period in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense (benefit)
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities. The Company’s tax basis for
assets and liabilities is identical for the financial statements and tax
reporting. Accordingly, the only deferred tax position is the benefit with
respect to the net operating loss. The Company records a valuation allowance to
reduce the deferred tax asset to the amount that is estimated to be more likely
than not to be realized.
Comprehensive Income - The
Company accounts for comprehensive income according to FASB ASC 220
“Comprehensive Income” (prior authoritative literature: SFAS No. 130,“Reporing
Comprehensive Income”). Effective for fiscal years beginning after December 15,
1997, ASC 200 states that comprehensive income is net income, plus certain other
items that are recorded directly to shareholders’ equity such as foreign
currency translation adjustments and unrealized gains (losses) on marketable
securities.
Loss Per Share—Loss per share
is presented in accordance with the provisions of ASC 260, “Earnings Per Share”
(prior authoritative literature: SFAS No. 128, “Earnings Per Share”). Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings per share reflects, in periods in
which it has a dilutive effect, commitments to issue common stock and common
stock issuable upon exercise of stock options for periods in which the options’
exercise price is lower than the Company’s average share price for the
period. The Company does not have outstanding any options to issue
common stock.
|
2009
|
2008
|
|||||||
|
Basic
weighted average shares outstanding
|
73,014,031 | 73,081,168 | ||||||
|
Diluted
weighted average shares outstanding
|
73,014,031 | 73,081,168 | ||||||
F-8
Note: The Company issued
warrants to purchase 1,500,000 shares potentially issuable
upon exercise until November 22, 2010 at an exercise price of $0.90
per share. See Note 15 herein. As of the December 31, 2009
and December 31, 2008 balance sheet dates, no warrants had been exercised. Due
to the Company’s net loss, the calculation of the effect of common stock
equivalents due to the issuance of the warrants is excluded because of
anti-dilution.
Research and Development
Costs—Research and development costs are expensed as incurred. Research
and development costs are not disclosed separately in the Notes to the Financial
Statements, but are disclosed separately in the Income Statement.
Capitalization of Interest -
The Company capitalizes interest on projects that qualify for interest
capitalization under FASB ASC 835-20 (prior authoritative literature: SFAS
No. 34, "Capitalization of Interest Costs") as amended.
Capitalized interest is included within construction in progress. For the period
ended December 31, 2009 and 2008, the Company capitalized $519,142 and
$268,897 of interest, respectively.
Fair Value of Financial
Instruments—The estimated fair values for financial instruments are
determined at discrete points in time based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision.
The carrying amounts of cash and cash equivalents, receivables, accounts payable
and accrued liabilities approximate fair value because of the short-term
maturities of these instruments. The fair value of the long-term debt is
estimated based on anticipated interest rates which management believes would
currently be available to the Company for similar issues of debt,
taking into account the current credit risk of the Company and the other market
factors. The fair value approximates carrying value of the long-term
debt.
Reclassifications - Certain
prior period balances have been reclassified to conform to the current year's
presentation. These reclassifications had no impact on previously
reported results of operations or stockholders' equity.
4. Impact of Recently Issued Accounting
Pronouncements
In June
2009, the FASB issued ASC 105-10-65 (prior authoritative literature: SFAS No.
168, “The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162”). On the
effective date of this standard, FASB Accounting Standards Codification (ASC)
will become the source of authoritative U.S. accounting and reporting standards
for nongovernmental entities, in addition to guidance issued by the SEC. FASB
ASC significantly changes the way financial statement preparers, auditors, and
academics perform accounting research but is not intended to change GAAP. This
statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. FASB ASC 105-10-65 was adopted by the
Company as of July 1, 2009 and the principal impact on our financial statements
is limited to disclosures, as all future references to authoritative accounting
literature will be referenced in accordance with the Codification. In order to
ease the transition to the Codification, the Company is providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.
In May
2009, the FASB issued Statement of FASB ASC 855 (prior authoritative literature:
FAS No. 165, “Subsequent Events,”), which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before the financial statements are issued or are available to be
issued. FASB ASC 855 provides guidance on the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. The Company adopted
FASB ASC 855 during the second quarter of 2009, and its application had no
impact on the Company’s condensed consolidated financial statements. See Note 22
herein.
In
August 2009, the FASB issued ASC 820-10 (which amends Fair Value Measurements
and Disclosures – Overall) to provide guidance on the fair value measurement of
liabilities. This update requires clarification for circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
following techniques: 1) a valuation technique that uses either the quoted price
of the identical liability when traded as an asset or quoted prices for similar
liabilities or similar liabilities when traded as an asset; or 2) another
valuation technique that is consistent with the principles in FASB ASC 820 such
as the income and market approach to valuation. The amendments in this update
also clarify that when estimating the fair value of a liability, a reporting
entity is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of the
liability. This update further clarifies that if the fair value of a liability
is determined by reference to a quoted price in an active market for an
identical liability, that price would be considered a Level 1 measurement in the
fair value hierarchy. Similarly, if the identical liability has a quoted price
when traded as an asset in an active market, it is also a Level 1 fair value
measurement if no adjustments to the quoted price of the asset are required.
This update is effective for our fourth quarter 2009. The adoption of ASC 820-10
did not impact the Company's results of operations, financial position, or cash
flow.
F-9
In
January 2010, the FASB issued amendment ASC 505 to its accounting for
distributions to shareholders with components of stock and cash. This new
guidance clarifies that the stock portion of a distribution to shareholders that
allows them to elect to receive cash or shares with a potential limitation on
the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance. This guidance is effective for interim
and annual periods ending on or after December 15, 2009, and should be
applied on a retrospective basis. There was no impact from adoption of this
guidance since we have never declared dividends on our common
stock.
In January 2010, the FASB
issued amendment ASC 810 to its accounting and reporting for decreases in
ownership of a subsidiary. This amendment clarifies the scope of the decrease in
ownership provisions in the consolidation – overall subtopic and related
guidance. This amendment is effective beginning in the period that an entity
adopts the FASB’s guidance on Noncontrolling Interests in
Consolidated Financial Statements, which was effective January 1,
2009 for us. There was no impact from the adoption of this guidance on our
consolidated financial position or results of operations.
Recent
Accounting Pronouncements Not Yet Effective
In June
2009, the FASB issued ASC 470 (prior authoritative literature: EITF Issue No.
09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance” (“EITF 09-1”)), which clarifies that share lending
arrangements that are executed in connection with convertible debt offerings or
other financings should be considered debt issuance costs. The Company does not
believe this statement will have an impact on its consolidated financial
statements. This new standard is effective for us beginning on January 1,
2010.
In
October 2009, the FASB issued amendment ASC 605 to its accounting guidance on
revenue arrangements with multiple deliverables. This new accounting guidance
addresses the unit of accounting for arrangements involving multiple
deliverables and how consideration should be allocated to separate units of
accounting, when applicable. This guidance will be effective for fiscal years
beginning on or after June 15, 2010. Early adoption is permitted. This
guidance will not have a material impact on our consolidated financial position
or results of operations.
In
October 2009, the FASB issued amendment ASC 985 to its accounting guidance on
certain revenue arrangements that include software elements. The new accounting
guidance excludes from software revenue recognition all tangible products
containing both software and non-software components that function together to
deliver the product’s essential functionality. This guidance will be effective
for fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. This guidance must be adopted in the same period that the company
adopts the amended accounting for arrangements with multiple deliverables
described in the preceding paragraph. This guidance will not have a material
impact on our consolidated financial position or results of
operations.
In
December 2009, the FASB issued ASC 810-10 regarding improvements to financial
reporting by enterprises involved with variable interest entities. The new
guidance provides an amendment to its consolidation guidance for variable
interest entities and the definition of a variable interest entity and requires
enhanced disclosures to provide more information about an enterprise’s
involvement in a variable interest entity. This amendment also requires ongoing
assessments of whether an enterprise is the primary beneficiary of a variable
interest entity and is effective for us January 1, 2010. This guidance will
not have a material impact on our consolidated financial position or results of
operations.
In
January 2010, the FASB issued amendment ASC 820 regarding improving disclosures
about fair value measurements. This new guidance requires some new disclosures
and clarifies some existing disclosure requirements about fair value
measurement. The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales,
issuances and settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010 and for interim periods within those fiscal years. We do
not expect adoption of this guidance to have an impact on our consolidated
financial position or results of operations.
5. Sales Contracts under
Completed-Contract Method (CCM)
The
Company enters into contracts for installation of solar cell panels with public
or private building owners. The timeframe between the contract’s signature and
the connection to the electrical network (grid), being the due date for the
contract’s completion, can vary between 6 months and 2 years. The Company
recognizes revenues under the Completed Contract Method (CCM), based on
contractual obligations and deliveries. Until completion of the contract,
advances from customers and advances to suppliers are recorded separately in the
balance sheet.
F-10
During
2009, several projects were completed and $1,336,188 was recognized (2008
$33,416).
6. Cash and Cash
Equivalents
|
$ (held in CHF)
|
$ (held in $)
|
$ (held in EUR)
|
$ TOTAL
2009
|
$ TOTAL
2008
|
||||||||||||||||
|
Cash
on hand
|
292,425 | 2,061 | 16,886 | 311,372 | 765,694 | |||||||||||||||
|
Short-term
Investments
|
- | - | - | - | - | |||||||||||||||
|
Cash
and Cash
|
292,425 | 2,061 | 16,886 | 311,372 | 765,694 | |||||||||||||||
Cash and
cash equivalents are available to the Company, and there is no restriction or
limitation on withdrawal or use of these funds. The Company’s cash equivalents
are placed with highly credit rated financial institutions. The carrying amount
of these assets approximates their fair value.
7. Accounts Receivable and Significant
Customers
At
December 31, 2009 and 2008, the Company’s accounts receivable balances were
$12,205 and $12,001, respectively. Significant customers are summarized
below:
|
Receivables
|
||||||||
|
2009
|
2008
|
|||||||
|
$
|
$ | |||||||
|
A
|
12,205 | 12,001 | ||||||
|
Total
Accounts Receivable
|
12,205 | 12,001 | ||||||
Revenues
for 2009 and 2008 were $1,336,188 and $33,416, respectively. Significant
customers are summarized below:
|
Revenues
|
||||||||
|
2009
|
2008
|
|||||||
|
$
|
$
|
|||||||
|
D
|
0 | 23,161 | ||||||
|
E
|
0 | 6,027 | ||||||
|
G
|
1,078,911 | 0 | ||||||
|
H
|
232,752 | 0 | ||||||
|
Others
|
24,525 | 4,228 | ||||||
|
Total Revenues
|
1,336,188 | 33,416 | ||||||
8. Inventory
Inventory
is summarized as follows:
|
2009
|
2008
|
|||||||
|
$
|
$
|
|||||||
|
Raw
Materials and Others
|
253,416 | 1,473,540 | ||||||
|
Finished Goods
|
204,154 | 192,159 | ||||||
|
Total Inventory
|
457,570 | 1,665,699 | ||||||
The large
decrease in inventory relates mostly to the Company’s SwissTile product. This
decrease in inventory is due to the fact the Company used its SwissTile product
in several completed and ongoing projects during fiscal year
2009.
F-11
9. Property, Plant and
Equipment
Property,
plant and equipment is summarized as follows:
|
2009
|
2008
|
|||||||
|
$
|
$
|
|||||||
|
Machinery
and equipment
|
542,565 | 384,831 | ||||||
|
Office
furniture and equipment
|
88,789 | 87,306 | ||||||
|
Vehicles
|
14,823 | 128,252 | ||||||
|
Equipment
|
646,177 | 600,389 | ||||||
|
Building
construction
|
18,429,669 | 13,449,460 | ||||||
|
Property
and equipment
|
19,075,846 | 14,049,849 | ||||||
|
Less accumulated depreciation and
amortization
|
(484,026 | ) | (429,351 | ) | ||||
|
Property, Plant and Equipment,
net
|
18,591,820 | 13,620,498 | ||||||
Depreciation
and amortization expense of property and equipment for the years ended
December 31, 2009 and 2008 was $66,208 and $75,516, respectively. The
company has defined the following useful lives for fixed assets: Machinery and
equipment: 8 years, Office furniture and equipment: 3 (IT equipment) to 5 years
(office furniture), Vehicles: 4 years.
10. Borrowings Under Revolving Credit
Facility, Short and Long-Term Loan
|
Short-Term Loans
|
2009
|
2008
|
||||||
|
$
|
$
|
|||||||
|
State
Department of Energy Geneva (Switzerland) (1)
|
68,640 | 33,085 | ||||||
|
Banque Cantonale de Genève
(1)
|
8,225,799 | 5,137,555 | ||||||
|
Banque
Cantonale de Genève
|
131,581 | 0 | ||||||
|
Banque
Cantonale de Genève
|
2,168,604 | 0 | ||||||
|
State Department of Energy Geneva
(Switzerland) (1)
|
4,817,000 | 4,736,550 | ||||||
|
State
Department of Energy Geneva (Switzerland)
|
933,987 | |||||||
| 16,345,611 | 9,907,190 | |||||||
|
Long-Term
Loans
|
2009
|
2008
|
||||||
|
$
|
$
|
|||||||
|
Banque
Cantonale de Genève
|
218,559 | 0 | ||||||
|
State
Department of Energy Geneva (Switzerland)
|
0 | 918,389 | ||||||
|
State
Department of Energy Geneva (Switzerland) (1)
|
862,407 | 882,413 | ||||||
| 1,080,966 | 1,800,802 | |||||||
|
Total
Loans as of December 31
|
17,426,577 | 11,707,992 | ||||||
|
Year
|
Repayments
|
|||
|
$
|
||||
|
2010
|
16,345,611 | |||
|
2011
|
162,776 | |||
|
2012
|
130,023 | |||
|
2013
|
39,364 | |||
|
2014
|
40,937 | |||
|
Thereafter
|
707,866 | |||
|
Total
|
17,426,577 | |||
(1) Loans
totaling $13,973,846, relating to amounts used to finance construction of the
Company’s manufacturing facility. The Company intends to refinance such loans on
a long-term basis upon completion of the facility. Negotiations are underway
with several banking institutions interested in granting a long-term mortgage
facility.
On
November 3, 2003, the Company entered into a loan with ScanE in the amount
of up to $911,810. The loan bears interest at 4%. As of December 31, 2009, this
loan carried a principal balance of CHF969,470 ($933,987). In
connection with entry into this loan, the Company agreed to escrow 10,000,000
shares of its common stock issued to certain of its stockholders to secure
repayment. See Note 15 herein. Although this loan matured
on March 31, 2010, the Company is in current discussions with ScanE to extend
the maturity date until March 31, 2012.
F-12
On
January 21, 2004, ScanE granted the Company a credit facility of CHF1.0 million
to finance the construction of its new manufacturing facility. Release of the
proceeds from this credit facility was contingent upon satisfaction of certain
conditions, which were achieved as of November 13, 2007. As of January 8, 2008,
the Company had utilized the full amount of this loan, which has a fixed annual
interest rate of 4%. The loan has a duration of 20 years and is
secured by a mortgage certificate of CHF1.0 million on
the manufacturing facility. The loan is paid in 20-equal annual
installments of CHF73,581, which amount includes principal and interest. As of
December 31, 2009, the principal balance on this loan was $931,047, thereof $68,640 is reflected as short-term loan and $862,407 as long-term
loan, respectively.
On
October 27, 2008, the Company signed a six month credit facility for CHF5.0
million with ScanE to finance improvements on the manufacturing facility. The
loan is secured by a fourth ranked mortgage on the facility. On July 1,
2009, the Company entered into an amendment to the credit facility pursuant to
which ScanE agreed to extend the maturity date to November 7, 2009 and to reduce
the interest rate from 4% to 3% per annum, commencing May 7,
2009. The Company is in negotiations with ScanE to further extend the
maturity date of this loan to July 2010. As of December 31, 2009, the full
amount of the loan had been used to finance ongoing construction at the
facility. The principle balance on
this loan as of December 31, 2009 was $4,817,000. As a result of the
interest rate reduction, the Company evaluated the remaining cash flows of this
facility under FASB ASC 470-50-40, Debt —
Modifications and Extinguishments —Derecognition, to
determine if the facility had been substantially modified as defined by the
guidance. Our analysis indicated that the fair value of the new loan facility
was not materially different from the principal amount of the previous loan
facility. As a result, the Company
did not record any income or loss from this modification of the loan
agreement.
SES
Switzerland entered into a Construction Credit Agreement with BCGE, dated
December 20, 2006, in the amount of CHF4.8 million, to finance construction of
the manufacturing facility. The loan was amended on November 13, 2007 and
increased from CHF4.8 million to CHF8.5 million. Pursuant to the amended
agreement, the full amount of the loan must be drawn down by the date
construction is completed on the manufacturing facility (expected to
occur in Summer 2010), but in any event, no later than December 31, 2008.
Because construction is still ongoing, the Company is in negotiations with BCGE
to postpone repayment of this loan until July 2010, at which time the Company
anticipates that it will be in a position to refinance and consolidate this and
its other construction-related credit agreements into a single long-term
loan. As of December 31, 2009, the Company had used CHF8,538,300
($8,225,799) of the loan. The loan bears interest at a rate of 3.75% and is
secured by a second lien exclusive mortgage certificate of CHF9.0
million on the manufacturing facility.
On July
22, 2009, the Company entered into a loan agreement with BCGE for
CHF29,430 to finance production equipment. The loan has a duration of 36
months and is reimbursed in 36-equal monthly installments of CHF871, which
amount includes principal and interest of 4.54%. The first installment was paid
in August 2009, and as of December 31, 2009, the principal balance had been
reduced to approximately $25,401, thereof $9,902 is reflected as short term
loan.
On August
13, 2009, the Company entered into a loan agreement with BCGE for
CHF245,557 to finance the certification of its SwissTile® product. The loan
has a duration of 36 months and is reimbursed in 36-equal monthly installments
of CHF7,188, which amount includes principal and interest of 3.8%. The first
installment was paid in September 2009, and as of December 31, 2009, the
principal balance had been reduced to approximately $217,946, thereof $82,740 is
reflected as short term loan.
On
September 15, 2009, the Company entered into a separate loan agreement with BCGE
for CHF86,200 to finance certain production equipment. The loan has a
duration of 36 months and is reimbursed in 36-equal monthly installments of
CHF2,520 (approximately $2,428), which amount includes principal and interest of
3.72%. The first installment was paid in October 2009, and as of December 31,
2009, the principal balance had been reduced to approximately $78,689, thereof
$28,969 is reflected as short term loan.
On
September 18, 2009, the Company entered into a construction loan with BCGE for
up to CHF3.0 million to finance the construction of a new solar power
plant, which will be sold to a third party upon completion. The loan
matures on June 30, 2010 and bears interest at a rate of 5.75% per
annum. The loan, which is secured by, among other things, the
proceeds from the sale of the new solar power plant, may only be used to finance
the stated project. As of December 31, 2009, the Company had used CHF2,250,990
($2,168,604) of the proceeds, which amount is reflected as short term
loan.
On
October 7, 2009, the Company entered into a loan agreement with BCGE for
CHF29,947 to finance production equipment. The loan has a duration of 36 months
and is reimbursed in 36-equal monthly installments of CHF885, which
amount includes principal and interest of 4.48%. The first installment was paid
in November 2009, and as of December 31, 2009, the principal balance had been
reduced to approximately $28,103, thereof $9,970 is reflected as short term
loan.
F-13
11. Work in Progress/Billings in Excess of Cost and
Estimated Earnings
|
Work in
Progress/Billings in Excess of Cost and Estimated Earnings
|
2009
|
2008
|
||||||
| $ | $ | |||||||
|
Prepayments
to suppliers
|
0 | 151,363 | ||||||
|
Work
in progress
|
3,131,865 | 134,782 | ||||||
|
Prepayments
from customers
|
(571,466 | ) | (1,734,735 | ) | ||||
| 2,560,399 | (1,448,590 | ) | ||||||
12. Commitments and
Contingencies:
Operating Leases - lease
expenses for the years ended December 31, 2009 and 2008 were $128,399 and
$181,632, respectively.
The
following table presents future minimum lease commitments (concerning the lease
of vehicles) under operating leases at December 31, 2009
|
Operating Leases
|
||||
| $ | ||||
|
2010
|
42,344 | |||
|
2011
|
42,743 | |||
|
2012
|
25,132 | |||
|
Total
|
110,219 | |||
In
addition to the amounts disclosed above, SES Switzerland has an operating lease
for its office located at 129 Route de Saint-Julien, Plan-les-Ouates,
Switzerland (a suburb of Geneva). The rent is CHF54,084 per year. The lease term
ended on February 28, 2009. The lease is automatically renewed at the same
conditions for another 12 months unless cancelled.
SES
Switzerland also leased a 1,654 square meter industrial facility in Härkingen,
Switzerland. The lease was terminated on February 28, 2009. The global charge
for the period January 1, 2009 to February 28, 2009 was CHF10,631
($9,819).
On May
27, 2005, we received authorization from the State of Geneva to build our
manufacturing facility on property located in Plan-les-Ouates, Switzerland, and
we obtained a lease for the land in February 2007. The lease is for 60 years
commencing on July 1, 2006.
The
following are the lease commitments.
|
Use of Land
|
||||
|
$
|
||||
|
2010
|
66,561
|
|||
|
2011
|
66,561
|
|||
|
2012
|
66,561
|
|||
|
2013
|
66,561
|
|||
|
2014
|
66,561
|
|||
|
Thereafter
|
3,427,882
|
|||
|
Total
|
3,760,687
|
|||
SES
Switzerland has no non-cancellable operating leases.
Employment Agreements—As at
year end, SES Switzerland and SES Prod employed 3 employees and 2 executive
officers. The terms of employment are supplemented by Swiss Commercial Law,
which requires in case of termination of the contract, a minimum of one month’s
notice the first year, 2 months’ paid notice the second year and 3 months’ paid
notice of termination thereafter. Ms. Crisafulli and Mr. Erné have written
employment agreements.
F-14
Flannel
Management sarl has a consulting agreement with SES Switzerland effective
October 1, 2006. Flannel Management sarl receives a monthly consulting fee of
CHF20,000 ($18,472) (using exchange rate set forth in Note 3 to the Consolidated
Financial Statements hereto). The contract is for a 10-year term and if earlier
terminated, the Company nevertheless pays the consulting fees for the remainder
of the term. One of Flannel Management sarl’s consultants is Philippe
Crisafulli, the husband of Sandrine Crisafulli, Chief Financial Officer of SES
USA and SES Switzerland.
Litigation—The Company is
from time to time subject to routine litigation incidental to its business.
There are no such litigation currently pending.
Capital Commitments - At
December 31, 2009, the Company has an outstanding purchase order of EUR448,600
($642,988) for the future construction of a new machine to be used in the new
plant for solar module production. The Company has made an advance
payment of EUR269,160 ($385,795) for the purchase of this machine. The
balance due will be paid upon delivery of the machine.
13. Business Segments
As of
December 31, 2009, all of the Company’s operations were conducted through its
wholly owned subsidiaries, SES Switzerland and SES Prod, and were limited to the
assembly and installation of PV panels in Switzerland. Commencing January 2008,
the Company sold electricity produced by its Solar Plant to a local utility
in Geneva. The Solar Plant was sold in June 2008. As a result, the
Company’s operations are again limited to the assembly and installation of PV
panels.
14. Discontinued
Operations
As noted
above, the Company sold its Solar Plant in June 2008. The balance sheet and
income statement have been retrospectively adjusted to reflect the effects of
discontinued operations. The Company sold PV electricity produced by the Solar
Plant to a local electricity provider in Geneva based on a 20-year contract.
This contract was cancelled on June 30, 2008 due to the sale of the Solar
Plant.
The Solar
Plant, which had been operational since the end of 2007, was sold in June
2008. As a result of such sale, revenue from this discontinued
activity totaled $0 for fiscal year 2009. For fiscal year 2008, this
discontinued activity generated income of $1,331,856 (gain on disposal of
$1,185,704, revenue of $247,730 and expenses of $101,578). In 2009, there was no
income or expense from discontinued operations.
15. Stockholders’
Equity:
Common Stock— The Company has
100,000,000 shares of common stock authorized, par value $0.001 per share, and
73,081,168 shares issued and 72,984,168 shares outstanding.
Treasury Stock - A summary of
the Company’s purchases of shares of its common stock during fiscal year 2009 is
as follows:
|
Maximum Number
|
||||||||||||||||
|
|
of Shares (or
|
|||||||||||||||
|
|
Total Number of
|
Approximate
|
||||||||||||||
|
|
Shares Purchased
|
Dollar Value)
|
||||||||||||||
|
|
Total Number
|
Average
|
as Part of Publicly
|
that May
|
||||||||||||
|
|
of Shares
|
Price Paid
|
Announced Plans
|
Yet be Purchased
|
||||||||||||
|
|
Purchased(1)
|
per Share ($)
|
or Programs
|
Under the Plans
|
||||||||||||
|
January
1 — January 31, 2009
|
1,000
|
0.2373
|
—
|
—
|
||||||||||||
|
February
1 — February 28, 2009
|
35,000
|
0.2676
|
—
|
—
|
||||||||||||
|
March
1 — March 31, 2009
|
31,000
|
0.2223
|
—
|
—
|
||||||||||||
|
April
1 – April 30, 2009
|
—
|
—
|
—
|
—
|
||||||||||||
|
May
1 – May 31, 2009
|
10,000
|
0.2429
|
—
|
—
|
||||||||||||
|
June
1 – June 30, 2009
|
10,000
|
0.2064
|
—
|
—
|
||||||||||||
|
July
1 – July 31, 2009
|
10,000
|
0.1939
|
—
|
—
|
||||||||||||
|
Total
|
97,000
|
$
|
0.2364
|
—
|
$
|
—
|
||||||||||
F-15
|
(1)
|
During
the months indicated above, the Company, through a broker, purchased
97,000 shares of its common stock, par value $0.001, in open market
transactions. The Company may, at its discretion, engage in
future share repurchases, although no formal repurchase plan or program
has been adopted by the company at this
time.
|
On
November 22, 2006, the Company issued warrants to purchase 1,500,000 shares of
common stock at an exercise price of $0.90 per share (the “Warrant Shares”). The
warrants expire four (4) years after the date of issuance.
During
the year ended December 31, 2009, no warrants were exercised.
|
Exercisable
|
||||||||
|
Warrants
|
Exercise Price
|
|||||||
|
Warrants
outstanding as of December 31, 2008
|
1,500,000 | $ | 0.90 | |||||
|
Warrants
granted as consideration for agent’s fee
|
0 | $ | 0 | |||||
|
Exercise
of warrants
|
0 | $ | 0 | |||||
|
Warrants
outstanding as of December 31, 2009
|
1,500,000 | $ | 0.90 | |||||
Warrants
outstanding expire as follows:
|
Warrants
|
Exercise
|
|||||||
|
Year
|
Expiring
|
Price
|
||||||
|
2010
|
1,500,000 | $ | 0.90 | |||||
| 1,500,000 | $ | |||||||
The
Company granted registration rights to Lansing Securities, including the right
to include all or any part of the Warrant Shares (the “Registrable Securities”)
in the next registration statement and subsequent registration statements that
the Company files with the SEC from time to time (the “Registration Statement”)
(other than a registration statement on Form S-8 or Form S-4) until all of the
Registrable Securities have been duly registered.
On August
31, 2006, SES USA entered into an agreement with Standard Atlantic to advise SES
USA and its stockholders in connection with the purchase of all of the shares of
SES Switzerland. Pursuant to the terms of a Finder’s Agreement between SES USA
and Standard Financial (the “Finder’s Agreement”) the parties agreed to a
finder’s fee of $228,000 if a transaction were consummated. The Finder’s
Agreement also provided that Standard Atlantic would continue to provide
consulting services to the Company for a period of 24 months regarding investor
relations matters for a monthly fee of $20,000. The two-year consulting fee was
due and was paid to Standard Financial at closing. The Company paid and recorded
initially the total amount as deferred expense and amortized the amount over the
24 months of the consulting agreement, which ended on September
2008.
In
connection with the closing of the share exchange agreement with SES Switzerland
and the stockholders thereof whereby the Company agreed to acquire SES
Switzerland, the Company entered into, among other agreements, the Long Term
Escrow Agreement, dated September 1, 2006, with Christiane Erné, Jean-Christophe
Hadorn (our former CEO and director), and Claudia Rey. Pursuant to the terms of
the Long Term Escrow Agreement, the Company agreed to escrow certain shares of
common stock issued to Ms. Erné, Mr. Hadorn, and Ms. Rey until September 27,
2008, the second anniversary of the closing of the share exchange agreement. As
of September 27, 2008, these shares have been released from escrow and refunded
to the named stockholders. Also in connection with the closing of the
share exchange agreement, the Company agreed to escrow 10,000,000 shares of
common stock issued to Ms. Erné (9,000,000 shares), Mr. Hadorn (500,000 shares)
and Ms. Rey (500,000 shares) in order to secure partial repayment of its loan
dated November 3, 2003 with ScanE, which shares remain in escrow under the Long
Term Escrow Agreement, and which are included in earnings per
share.
16. Employee Benefit
Plans:
Through
SES Switzerland, the Company’s employees are enrolled in a mandatory group
pension plan with Bâloise Assurances. The pension plan is a defined contribution
plan, and payments to the plan are made in equal parts by the employee (through
withholding) and the employer. Contributions are based on the age of the
employee and vary between 8% and 16%. Total amounts paid for 2009 and 2008 were
CH27,714 ($25,597) and CHF18,400, respectively.
17. Interest Income and
Other:
Interest
income for the year ended December 31, 2009 was $0 compared to $45,838 for the
year ended December 31, 2008. The interest income earned in the year ended
December 31, 2008 was received from time deposits originated by additional
funding received during the second half of 2006.
F-16
18. Income Taxes:
The
following tax years remain subject to examination:
|
Jurisdiction
|
Open years
|
|||
|
Switzerland
|
2007-2008-2009 | |||
The
Company has filed all tax returns in due course. Open taxation results only from
the fact that relevant tax authorities have not examined the Company’s tax
returns. The Company does not believe there is any risk or financial impact that
could result from the late review of its tax returns by the relevant tax
authorities.
The
Company’s tax basis for assets and liabilities is identical for the financial
statements and tax reporting. Accordingly, the only deferred tax portion is the
benefit with respect to the net operating loss. The Company records a valuation
allowance to reduce the deferred tax asset to the amount that is estimated to be
more likely than not to be realized.
|
December 31, 2009
|
December 31, 2008
|
|||||||
| $ | $ | |||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carry-forward
|
1,430,514 | 1,112,143 | ||||||
|
Less:
valuation allowance
|
(1,430,514 | ) | (1,112,143 | ) | ||||
|
Net
deferred tax assets
|
- | - | ||||||
The
Company has net losses for financial reporting purposes. Recognition of deferred
tax assets will require generation of future taxable income. There can be no
assurance that we will generate sufficient taxable income in future years.
Therefore, we established a valuation allowance on net deferred tax assets of
$1,430,514 as of December 31, 2009 and $1,112,143 as of December 31,
2008.
The
components of loss before income tax benefit are as follows:
|
For the Years Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
| $ | $ | |||||||
|
United
States
|
0 | 0 | ||||||
|
Switzerland
|
(1,215,157 | ) | (474,454 | ) | ||||
| (1,215,157 | ) | (474,454 | ) | |||||
As of
December 31, 2009, the Company has net operating loss carry forwards for Swiss
tax purposes of $5,459,979, expiring at various times from years ending 2010 to
2015.
|
2009
|
||||
| $ | ||||
|
2010
|
(501,396 | ) | ||
|
2011
|
(505,411 | ) | ||
|
2012
|
(1,239,507 | ) | ||
|
2013
|
(1,524,054 | ) | ||
|
2014
|
(474,454 | ) | ||
|
2015
|
(1,215,157 | ) | ||
|
Total
tax-deductible loss carry forward
|
(5,459,979 | ) | ||
F-17
The tax
provisions differ from the amount computed using the federal statutory income
tax rate as follows:
|
Years Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
| $ | $ | |||||||
|
Income
tax benefit at federal statutory rate
|
(413,153 | ) | (161,314 | ) | ||||
|
Foreign
tax rate differential
|
94,782 | 37,007 | ||||||
|
Increase
in valuation reserve
|
318,371 | 124,307 | ||||||
| - | - | |||||||
19. Concentration of
Risk
The
Company is dependent on third-party equipment manufacturers, distributors and
dealers for all of its supply of photovoltaic cells and panel components. For
fiscal years 2009 and 2008, products purchased from the Company’s top three
suppliers accounted for 86% and 87% of total revenues, respectively. The Company
is dependent on its ability to provide installations on a timely basis and on
favorable pricing terms. Although the Company tries to diversify its source of
supplies, its technology requires certain types of solar cells. The
loss of certain principal suppliers, or the loss of one or more of certain
ongoing affinity relationships, could have a material adverse effect on the
Company.
The
Company’s future results could also be negatively impacted by the loss of
certain customers, or the loss of one or more of certain ongoing affinity
relationships.
20. Related Party
Transactions
As of the
fiscal years ended 2009 and 2008, the Company has a receivable from its major
stockholder in the amount of $92,112 and $90,573, respectively. These amounts
relate to a residential project for the controlling stockholder.
Flannel
Management sarl has a consulting agreement with SES Switzerland effective
October 1, 2006. Flannel Management sarl receives a monthly consulting fee of
CHF20,000 ($18,472) (using exchange rate set forth in Note 3 to the Consolidated
Financial Statements hereto), resulting in CHF240,000 ($221,668) for the year
2009 (CHF240,000 for 2008). The contract is for a 10-year term and if earlier
terminated, the Company nevertheless pays the consulting fees for the remainder
of the term. One of Flannel Management sarl’s consultants is Philippe
Crisafulli, the husband of Sandrine Crisafulli, Chief Financial Officer of SES
USA and SES Switzerland.
SES
Switzerland has entered into an employment agreement with Daniel Erné effective
October 1, 2006. Mr. Erné receives an annual salary of CHF130,000 ($120,070) in
consideration of management services. Mr. Erné is the husband of Christiane Erné
and a director of SES USA and SES Switzerland.
21. Supplemental Cash Flow
Information
Cash paid
for interest during fiscal years 2009 and 2008 totaled $40,275, and $155,133,
respectively.
Assets of
$2,929,966 ($185,214) have been capitalized but not paid as of December 31,
2009. This amount is included in accounts payable as of year end.
22. Subsequent Events
The
Company evaluates events and transactions that occur after the balance sheet
date as potential subsequent events. This evaluation was performed through
the date on which the Company’s financial statements were issued.
F-18