UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
|
FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2008
OR
o
|
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 000-21571
SES
SOLAR INC.
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
|
|
33-0860242
|
(STATE
OR OTHER JURISDICTION OF
|
|
(IRS
EMPLOYER
|
INCORPORATION
OR ORGANIZATION)
|
|
IDENTIFICATION
NUMBER)
|
129,
route de Saint-Julien, 1228 Plan-les-Ouates, Geneva,
Switzerland
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES)
+41-22-884-1484
(REGISTRANT'S
TELEPHONE NUMBER, INCLUDING AREA CODE)
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 period that the registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes
þ
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See
the definitions of “large accelerated filer”, “accelerated filer” and smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
¨
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller
reporting company
þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
þ
The
number of shares outstanding of each of the issuer's classes of stock as of
August 8, 2008 is 73,081,168 shares of common stock, par value $.001 per
share.
TABLE
OF CONTENTS
PART
I.
FINANCIAL
INFORMATION
ITEM
1.
FINANCIAL
STATEMENTS
SES
SOLAR INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
(in
$, except per share amounts)
|
|
June
30,
|
|
December
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
(in $)
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
6,414,000
|
|
|
3,429,033
|
|
Receivables,
net of allowance for doubtful accounts of $0 for the periods ended
2008
and 2007
|
|
|
261,030
|
|
|
47,356
|
|
Due
from related party
|
|
|
93,919
|
|
|
84,938
|
|
Inventory
|
|
|
1,341,870
|
|
|
271,794
|
|
Other
current assets
|
|
|
276,608
|
|
|
639,763
|
|
Total
current assets
|
|
|
8,387,427
|
|
|
4,472,884
|
|
Long-Term
Assets:
|
|
|
|
|
|
|
|
Deferred
expense
|
|
|
60,000
|
|
|
180,000
|
|
Advance
payments for machinery
|
|
|
425,241
|
|
|
396,432
|
|
Total
other long-term assets
|
|
|
485,241
|
|
|
576,432
|
|
Property
and Equipment, at cost,
|
|
|
486,236
|
|
|
437,493
|
|
Solar
Plant
|
|
|
0
|
|
|
3,785,521
|
|
Building
construction
|
|
|
8,903,635
|
|
|
5,398,153
|
|
Less
accumulated depreciation and amortization
|
|
|
(404,008
|
)
|
|
(339,014
|
)
|
Total
fixed assets
|
|
|
8,985,863
|
|
|
9,282,153
|
|
Total
long-term assets
|
|
|
9,471,104
|
|
|
9,858,585
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
17,858,531
|
|
|
14,331,469
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Short-term
loan
|
|
|
4,420,350
|
|
|
6,147,728
|
|
Accounts
payable
|
|
|
890,591
|
|
|
3,711,775
|
|
Billings
in excess of cost and estimated earnings
|
|
|
975,065
|
|
|
507,044
|
|
Total
current liabilities
|
|
|
6,286,006
|
|
|
10,366,547
|
|
Long-Term
Liabilities:
|
|
|
|
|
|
|
|
Loan
payable
|
|
|
952,310
|
|
|
0
|
|
Construction
loan
|
|
|
6,412,539
|
|
|
7,563
|
|
Total
long-term liabilities
|
|
|
7,364,849
|
|
|
7,563
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value;
|
|
|
73,081
|
|
|
73,081
|
|
100,000,000
shares authorized;
|
|
|
|
|
|
|
|
73,081,168
shares issued and outstanding
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
8,050,093
|
|
|
8,050,093
|
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(645,743
|
)
|
|
(395,447
|
)
|
Year
end accumulated deficit
|
|
|
(3,269,755
|
)
|
|
(3,770,368
|
)
|
Total
stockholders' equity (deficit)
|
|
|
4,207,676
|
|
|
3,957,359
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
17,858,531
|
|
|
14,331,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and the notes to the financial
statements.
SES
SOLAR INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in
$, except per share amounts)
|
|
For
the Three Months
|
|
For
the Six Months
|
|
|
|
Ended
June 30,
|
|
Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
32,592
|
|
|
1,165,035
|
|
|
32,592
|
|
|
1,165,035
|
|
Cost
of goods sold (exclusive of depreciation shown separately
below)
|
|
|
1,757
|
|
|
969,972
|
|
|
1,757
|
|
|
969,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
143,816
|
|
|
86,779
|
|
|
282,243
|
|
|
172,164
|
|
Rent
and leases expenses
|
|
|
39,552
|
|
|
32,382
28,991
|
|
|
76,303
|
|
|
65,152
|
|
Research
& Development
|
|
|
67,755
|
|
|
58,963
|
|
|
220,587
|
|
|
169,436
|
|
Other
General & Administrative Expenses
|
|
|
204,316
|
|
|
301,442
|
|
|
405,358
|
|
|
492,067
|
|
Depreciation
and amortization
|
|
|
18,435
|
|
|
12,145
|
|
|
85,091
|
|
|
24,741
|
|
Total
costs and expenses
|
|
|
473,874
|
|
|
491,711
|
|
|
1,069,582
|
|
|
923,560
|
|
Other
Income and Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(101,854
|
)
|
|
(16,037
|
)
|
|
(219,997
|
)
|
|
(29,006
|
)
|
Interest
income
|
|
|
16,544
|
|
|
46,788
|
|
|
39,189
|
|
|
95,288
|
|
Other
gain
|
|
|
1,134,915
|
|
|
0
|
|
|
1,134,915
|
|
|
0
|
|
Foreign
exchange gain/(loss)
|
|
|
(58,020
|
)
|
|
(30,270
|
)
|
|
337,523
|
|
|
(25,569
|
)
|
Total
other income
|
|
|
991,585
|
|
|
481
|
|
|
1,291,630
|
|
|
40,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before taxes from continuing operations
|
|
|
548,546
|
|
|
(296,167
|
)
|
|
252,883
|
|
|
(687,784
|
)
|
Income
taxes
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from continuing operations
|
|
|
548,546
|
|
|
(296,167
|
)
|
|
252,883
|
|
|
(687,784
|
)
|
Income
from discontinued operations before taxes
|
|
|
164,592
|
|
|
0
|
|
|
247,730
|
|
|
0
|
|
Income
taxes
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from discontinued operations
|
|
|
164,592
|
|
|
0
|
|
|
247,730
|
|
|
0
|
|
Net
income (loss)
|
|
|
713,138
|
|
|
(296,167
|
)
|
|
500,613
|
|
|
(687,784
|
)
|
Other
Comprehensive loss/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
102,407
|
|
|
17,263
|
|
|
(250,296
|
)
|
|
13,547
|
|
Comprehensive
income (loss)
|
|
|
815,545
|
|
|
(278,904
|
)
|
|
250,317
|
|
|
(674,237
|
)
|
Basic
and diluted weighted average shares
|
|
|
73,081,168
|
|
|
48,937,761
|
|
|
73,081,168
|
|
|
48,937,761
|
|
Basic
and diluted net income (loss) per share from continuing
operations
|
|
|
0.008
|
|
|
(0.006
|
)
|
|
0.004
|
|
|
(0.014
|
)
|
Basic
and diluted net income (loss) per share from discontinuing
operations
|
|
|
0.002
|
|
|
0
|
|
|
0.003
|
|
|
0
|
|
Basic
and diluted net income (loss) per share
|
|
|
0.010
|
|
|
(0.006
|
)
|
|
0.007
|
|
|
(0.014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
2007
amounts have been reclassified to reflect discontinued operations. There was
no
income or expense from discontinued operations.
See
accompanying summary of accounting policies and the notes to the financial
statements.
SES
SOLAR INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
$, except per share amounts)
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net
income (loss)
|
|
|
500,613
|
|
|
(687,784
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
85,091
|
|
|
24,741
|
|
Stock
compensation for options
|
|
|
0
|
|
|
31,647
|
|
Gain
on sale of power plant
|
|
|
(1,134,915
|
)
|
|
0
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Receivables,
including Due from Related Party
|
|
|
(202,555
|
)
|
|
0
|
|
Inventory
|
|
|
(1,010,838
|
)
|
|
0
|
|
Other
current assets
|
|
|
418,025
|
|
|
44,866
|
|
Deferred
Expenses
|
|
|
120,000
|
|
|
120,000
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
124,690
|
|
|
19,432
|
|
Billings
in excess of cost and estimated earnings
|
|
|
402,272
|
|
|
251,834
|
|
Net
cash used in operating activities
|
|
|
(697,617
|
)
|
|
(195,264
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
Proceed
on sale of solar plant
|
|
|
4,970,752
|
|
|
0
|
|
Property,
plants and equipment
|
|
|
(6,001,074
|
)
|
|
(201,941
|
)
|
Advance
payments for machinery
|
|
|
0
|
|
|
(88,854
|
)
|
Net
cash used in investing activities
|
|
|
(1,030,322
|
)
|
|
(290,795
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
Proceed
of construction loan
|
|
|
6,216,608
|
|
|
0
|
|
Bank
loan
|
|
|
(1,383,347
|
)
|
|
0
|
|
Net
cash provided by financing activities
|
|
|
4,833,261
|
|
|
0
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
3,105,322
|
|
|
(486,059
|
)
|
Effect
of exchange rate changes on cash
|
|
|
(120,355
|
)
|
|
7,978
|
|
Cash
and cash equivalents, beginning of the quarter
|
|
|
3,429,033
|
|
|
6,016,666
|
|
Cash
and cash equivalents, end of the quarter
|
|
|
6,414,000
|
|
|
5,538,585
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
219,997
|
|
|
29,006
|
|
Supplemental
disclosure of non-cash operating and investing activities
|
|
|
|
|
|
|
|
Non
cash Activities, Issuance of stock options for services
|
|
|
0
|
|
|
31,647
|
|
Non
cash transaction, Property, plants and equipment in account
payable
|
|
|
395,351
|
|
|
0
|
|
See
accompanying summary of accounting policies and the notes to the financial
statements.
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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.
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.
SES
USA,
through its wholly owned operating subsidiary, SES Switzerland, has experienced
losses from operations and anticipates incurring operating losses in the near
future. SES Switzerland has, however, developed and patented a new assembly
technology for solar panels that allow higher quality electrical contacts,
better performance and reduced manufacturing costs resulting from increased
automation processes.
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 panels or
modules and solar tiles at a lower cost. These activities require the Company
to
design and manufacture prototype panels, have them approved in accordance with
European and other standards, manufacture in series and sell them in the main
markets for solar photovoltaic cells. Costs incurred in manufacturing prototype
panels have been expensed as research and development costs.
SES
USA
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
consolidated interim financial statements included herein are unaudited and
have
been prepared by the Company pursuant to the rules and regulations of the United
States Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States, or GAAP,
have been omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented
not
misleading. The consolidated interim financial statements include the accounts
of the Company and its wholly owned subsidiary, SES Switzerland. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
These
statements reflect all normal recurring adjustments that, in the opinion of
management, are necessary for fair presentation of the information contained
herein. These consolidated interim financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007. The Company adheres to the same accounting policies in preparation of
its
interim financial statements. As permitted under GAAP, interim accounting for
certain expenses, including income taxes, are based on full year assumptions.
Such amounts are expensed in full in the year incurred. For interim financial
reporting purposes, income taxes are recorded based upon estimated annual income
tax rates.
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4.
|
Summary
of Significant Accounting
Policies
|
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, SES Switzerland. All significant inter-company accounts
and transactions have been eliminated in the consolidation.
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 US dollar ($) whereas SES Switzerland’s
functional currency is the Swiss Franc (CHF). The financial statements of SES
Switzerland are translated to U.S. dollar equivalents under the current method
in accordance with 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
|
|
2008
|
|
2007
|
|
|
|
CHF
|
|
CHF
|
|
$
|
|
|
1.04873
|
|
|
1.22743
|
|
|
|
2008
|
|
2007
|
|
Balance
Sheet period-end rates
|
|
CHF
|
|
CHF
|
|
$
|
|
|
1.01802
|
|
|
1.12566
|
|
Earnings
(Loss) Per Share
-
Earnings (Loss) per share is presented in accordance with the provisions of
SFAS
No. 128, “Earnings Per Share.” Basic and diluted loss per share for the six
months ended June 30, 2007 does not include the effects of warrants and 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 they have a dilutive effect,
commitments to issue common stock and common stock issuable upon exercise of
warrants for periods in which the warrants exercise price is lower than the
Company’s average share price for the period. The six months ended June 30, 2008
also does not include the effects of warrants outstanding for the period because
their exercise price exceeded the average price for the three and six months
ended June 30, 2008.
|
|
Six
Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Basic
Weighted average shares outstanding
|
|
|
73,081,168
|
|
|
48,937,761
|
|
Diluted
weighted average shares outstanding
|
|
|
73,081,168
|
|
|
48,937,761
|
|
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
:
Due to
the net loss in 2007, the calculation of the effect of common stock equivalents
due to issuance of warrants is excluded because of anti-dilution. For 2008
the
warrants were excluded from the earnings per share calculations because their
exercise price exceeded the average price for the three and six months ended
June 30, 2008. The number of shares of common stock excludes 1,500,000
shares of common stock potentially issuable upon exercise of 1,500,000 common
share purchase warrants. Each common share purchase warrant is exercisable
until
November 22, 2010 at an exercise price of $0.90 per share. As of the June 30,
2008 balance sheet date, the warrants had not been exercised.
Revenue
Recognition
- The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No.
104, "Revenue Recognition" ("SAB 104"). SAB 104 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
six months ended June 30, 2008 and 2007, the Company has no billed or unbilled
amount representing claims or other similar items subject to uncertainty
concerning their determination or ultimate realization.
Between
January 2008 and June 2008, the Company recognized sales of photovoltaic
electricity produced by solar modules
on the
roof 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 power plant as of June 30, 2008.
Impact
of Recently Issued Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141(R),
“
Business
Combinations.” SFAS 141(R) requires all business combinations completed
after the effective date to be accounted for by applying the acquisition method
(previously referred to as the purchase method). Companies applying this method
will have to identify the acquirer, determine the acquisition date and purchase
price and recognize at their acquisition-date fair values the identifiable
assets acquired, liabilities assumed, and any noncontrolling interests in the
acquiree. In the case of a bargain purchase the acquirer is required to
reevaluate the measurements of the recognized assets and liabilities at the
acquisition date and recognize a gain on that date if an excess remains.
SFAS 141(R) becomes effective for fiscal periods beginning after
December 15, 2008. The Company is currently evaluating the impact of
SFAS 141(R).
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 157, “Fair Value Measurements” (SFAS No. 157).
SFAS No. 157 defines fair value for financial accounting and reporting
purposes, establishes a framework for measuring fair value and expands
disclosures about fair value measurements but does not change the requirements
to apply fair value in existing accounting standards. Under SFAS No. 157,
fair value refers to the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants
in
the principal or, in the absence of a principal, the most advantageous market.
The standard clarifies that fair value should be based on the assumptions market
participants would use when pricing the applicable asset or
liability.
SFAS
No. 157 was effective and adopted by the Company as of January 1,
2008. The provisions of SFAS No. 157 are being applied prospectively. The
adoption of SFAS No. 157 did not have a material impact on the Company’
results of operations, cash flows or financial positions. See Note 17 — Fair
Value of Financial Assets and Liabilities for additional information regarding
the adoption of SFAS No. 157.
In
February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, “Effective
Date of FASB Statement No. 157” (FSP FAS 157-2), which delays the effective
date of SFAS No. 157 for all nonrecurring fair value measurements of
nonfinancial assets and liabilities until fiscal years beginning after
November 15, 2008. The Company have elected to defer the adoption of the
nonrecurring fair value measurement disclosures of nonfinancial assets and
liabilities. The adoption of FSP FAS 157-2 is not expected to have a material
impact on the Company’s results of operations, cash flows or financial
positions.
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In
February 2007, the FASB issued SFAS No. 159,
“
The
Fair
Value Option for Financial Assets and Liabilities - including an amendment
to
FASB Statement No. 115” (SFAS No. 159). This statement permits
entities to choose to measure many financial instruments and certain other
items
at fair value in order to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently. SFAS No. 159 is
effective for the Company’s fiscal year beginning January 1, 2008. The
Company has not adopted the fair value option for its current financial assets
or liabilities. Accordingly, the adoption of SFAS No. 159 did not have an
impact on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (SFAS No. 160). SFAS No. 160
clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS No. 160 requires that changes in a
parent's ownership interest in a subsidiary be reported as an equity transaction
in the consolidated financial statements when it does not result in a change
in
control of the subsidiary. When a change in a parent's ownership interest
results in deconsolidation, a gain or loss should be recognized in the
consolidated financial statements. SFAS No. 160 must be applied
prospectively as of January 1, 2009, except for the presentation and
disclosure requirements, which are required to be applied retrospectively for
all periods presented. The adoption of SFAS No. 160 will not have a
material impact on the Company’s results of operations, cash flows or financial
positions; however, it could impact future transactions entered into by the
Company.
In
March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS No. 161). SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133), by requiring enhanced disclosures about
how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its
related interpretations, and how derivative instruments and related hedged
items
affect an entity's financial position, financial performance, and cash flows.
SFAS No. 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures
about
credit-risk-related contingent features in derivative agreements. SFAS
No. 161 will be effective for the Company as of January 1, 2009. As
SFAS No. 161 provides only disclosure requirements, the adoption of this
standard will not have a material impact on the Company’s results of operations,
cash flows or financial positions.
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Inventory
is summarized as follows:
|
|
|
Six
Months Ended
|
|
|
Twelve
Months Ended
|
|
|
|
|
June
30,
2008
|
|
|
December
31, 2007
|
|
|
|
|
$
|
|
|
$
|
|
Raw
Materials and Others
|
|
|
1,142,614
|
|
|
97,159
|
|
Finished
Goods
|
|
|
199,256
|
|
|
174,635
|
|
Total
Inventory
|
|
|
1,341,870
|
|
|
271,794
|
|
6.
|
Borrowings
Under Revolving Credit Facility, Short and Long-Term
Loans
|
|
|
|
Six
Months Ended
|
|
|
Twelve
Months Ended
|
|
Short-Term
Loan
|
|
|
June
30,
2008
|
|
|
December
31, 2007
|
|
|
|
|
$
|
|
|
$
|
|
Geneva
(Switzerland) State Department of Energy
|
|
|
0
|
|
|
861,248
|
|
Geneva
(Switzerland) State Department of Energy
|
|
|
4,420,350
|
|
|
3,997,665
|
|
UBS
|
|
|
0
|
|
|
1,288,815
|
|
|
|
|
4,420,350
|
|
|
6,147,728
|
|
|
|
|
Six
Months Ended
|
|
|
Twelve
Months Ended
|
|
Long-Term
Loan
|
|
|
June
30,
2008
|
|
|
December
31, 2007
|
|
|
|
|
$
|
|
|
$
|
|
Banque
Cantonale de Genève
|
|
|
5,430,239
|
|
|
7,563
|
|
Geneva
(Switzerland) State Department of Energy
|
|
|
1,934,610
|
|
|
0
|
|
|
|
|
7,364,849
|
|
|
7,563
|
|
On
November 6, 2003, SES Switzerland received a loan from the Geneva (Switzerland)
State Department of Energy (“ScanE”) of up to CHF1,000,000 ($982,300). The loan
bears interest at a rate of 4%. SES Switzerland used CHF969,470 ($952,310)
of
this loan as of June 30, 2008, and CHF969,470 ($861,248) as of December 31,
2007. This loan matured on March 31, 2008. On April 2, 2008, the Company filed
a
request with ScanE to renew the loan for a period of 24 months on the same
terms
and conditions. By decision dated May 19, 2008, ScanE accepted the Company’s
request that the loan be extended for a period of 24 months on the same terms
and conditions. The new maturity date for the loan is March 31, 2010. Pursuant
to the Canton Geneva Escrow Agreement dated September 15, 2006, Christiane
Ernè,
Jean-Christophe Hadorn and Claudia Rey personally pledged 10,000,000 of their
issued SES USA common shares as a guarantee for the original loan entered into
on November 6, 2003. These shares now serve as a guarantee for the renewed
loan
dated May 19, 2008. The Company does not currently have any plans to repay
the
loan before its March 31, 2010 maturity date.
On
January 21, 2004, ScanE granted the Company a credit facility of CHF1million
($982,300) to finance the construction of the Company’s new manufacturing
facility. Release of these loan proceeds was contingent upon the Company
satisfying certain conditions precedent, which were satisfied as of November
13,
2007. As of January 8, 2008, we had utilized the full amount of the 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 CHF1,000,000 ($982,300) on the
manufacturing facility. The loan will be reimbursed in 20-equal annual
installments of CHF73,581 (approximately $72,279).
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On
September 18, 2007, we signed a six month credit facility for CHF4,500,000
($4,420,350 as of June 30, 2008) with ScanE. The loan bears interest at 5%.
The
proceeds were received on October 1, 2007 and became due on March 17, 2008.
ScanE extended the loan until June 20, 2008 under the same terms and conditions
as the existing loan agreement. On June 20, 2008, SES announced the sale of
its
photovoltaic power station to Services Industriels de Geneve
(“SIG”).
The
Company received substantially all of the proceeds from the sale on June 30,
2008 and used a portion of the proceeds to reimburse this loan in full as of
July 2, 2008.
SES
Switzerland also has a revolving credit line with UBS in the principal amount
of
CHF3,000,000 ($2,946,897) used mainly to cover short-term cash needs. The
revolving credit line is secured by short-term deposits denominated in US
dollars with UBS, amounting to $3,155,000 as of June 30, 2008. The credit line
bears interest at 4.75%. The credit line can be cancelled by either party at
any
time. The balance of the credit facility was CHF0 ($0) as of June 30, 2008
and
CHF1,450,764 ($1,288,815) as of December 31, 2007.
SES
Switzerland also has a Construction Credit Agreement with Banque Cantonale
de
Genève (BCGE) dated December 20, 2006 in the amount of CHF4.8 million
($4,715,035), which is used to finance construction of our new manufacturing
facility. The loan was amended on November 13, 2007 and increased from CHF4.8
million to CHF8.5 million ($8,349,541). The amended agreement must be drawn
down
no later than the date of completion of construction on the new manufacturing
facility or December 11, 2008. We used CHF5,528,086 ($5,430,239) of the loan
as
of June 30, 2008 and CHF8,513 ($7,563) as of December 31, 2007. The loan bears
interest at a rate of 3.5% and is secured by a second lien exclusive mortgage
certificate of CHF9,000,000 ($8,840,691) on the manufacturing
facility.
7.
|
Commitments
and Contingencies
|
Operating
Leases
-
Lease expenses for the six months ended June 30, 2008 and 2007 were $76,303
and
$65,152, respectively.
The
following table presents future minimum lease commitments (concerning the lease
of a vehicle) under operating leases at June 30, 2008:
|
|
|
Operating
Leases
|
|
|
|
|
$
|
|
2008
|
|
|
8,527
|
|
2009
|
|
|
14,289
|
|
Thereafter
|
|
|
0
|
|
Total
|
|
|
22,816
|
|
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 CHF52,572 ($50,129) per year.
The
initial lease term ended on February 28, 2008. The lease has been renewed with
the same conditions for the next 12 months.
SES
Switzerland also leases a 1,654 square meter industrial facility in H’rkingen,
Switzerland. The monthly fixed rent is CHF7,232 (approximately $6,896). The
lease has no specific termination date. The lease may be cancelled with six
months notice at the end of the month, except for December, which requires
an
additional month’s notice.
On
May
27, 2005, we received authorization from the State of Geneva to build a
manufacturing facility on their property in Plan-les-Ouates, Switzerland and
we
received a lease for the land in February 2007. The lease for use of the land
is
for 60 years commencing on July 1, 2006.
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following are the lease commitments:
|
|
|
Use
of Land
|
|
|
|
|
$
|
|
2008
|
|
|
34,358
|
|
2009
|
|
|
68,717
|
|
2010
|
|
|
68,717
|
|
2011
|
|
|
68,717
|
|
2012
|
|
|
68,717
|
|
Thereafter
|
|
|
3,676,350
|
|
Total
|
|
|
3,985,576
|
|
SES
Switzerland has no non-cancellable operating leases.
Litigation
- The
Company is from time to time subject to routine litigation incidental to its
business. There is no such litigation currently pending.
Capital
Commitments
- At
June 30, 2008, the Company has an outstanding purchase order of EUR448,600
($708,734) 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 ($425,241) for the purchase of this machine. The
balance due will be paid upon delivery of the machine. At June 30, 2008, the
Company signed purchase agreements for the building of the new plant for
CHF5,655,000 ($5,554,901). An advance payment of CHF1,899,855($1,866,226) was
made on July 1, 2008, the remaining amount will be paid at the end of the
construction.
As
December 31, 2007, all of the Company’s operations were conducted through its
wholly owned subsidiary, SES Switzerland, and were limited to the assembly
and
installation of photovoltaic panels in Switzerland. Commencing January 2008,
the
Company also began selling electricity produced by its photovoltaic power
station on the roof of its new manufacturing facility, which we refer to as
the
Solar Plant, to a local utility in Geneva. As previously reported, the Solar
Plant was sold in June 2008. As a result, the Company’s operations are again
limited to the assembly and installation of photovoltaic panels.
9.
|
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. No restatements were necessary for the fiscal year
2007
due to the fact that the Company sold photovoltaic 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 net income from discontinued operations are from the former
electricity producing business segment. The Solar Plant and the six month credit
facility of CHF4.5 million dated September 18, 2007 are the sole assets and
liabilities, respectively, that comprise the electricity producing business
segment.
The
net
income from discontinued operations during the six-month period ended June
30,
2008 was the revenue of $247,730 and for the three-month period ended June
30,
2008 $164,592. In 2008, the Company had no expenses from discontinued
operations. In 200,7 there was no income or expense from discontinued
operations.
Common
Stock
- The
Company has 100,000,000 shares of common stock authorized, par value $0.001
per
share, and 73,081,168 shares issued and outstanding.
During
the six-month period ended June 30, 2008, no stock purchase warrants were
exercised.
SES
SOLAR INC. AND SUBSIDIARY
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warrant
transactions consisted of the following during the quarter ended June 30,
2008.
|
|
|
Exercisable
Warrants
|
|
|
Strike
Price
($)
|
|
Warrants
outstanding as of December 31, 2007
|
|
|
1,500,000
|
|
$
|
0.90
|
|
Exercise
of warrants
|
|
|
0
|
|
|
0
|
|
Warrants
outstanding as of June 30, 2008
|
|
|
1,500,000
|
|
$
|
0.90
|
|
Warrants
outstanding expire as follows:
Year
|
|
|
Warrants
Expiring
|
|
|
Strike
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 recorded the
total amount as of June 30, 2008, as deferred expense and amortizes the amount
over the 24 months of the consulting agreement.
As
of
August 8, 2008, the Company formed a new Swiss wholly owned subsidiary, SES
Prod. SA (“SES Prod”). 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, the property management activities required
to manage the Company’s manufacturing facility will be conducted by SES
Switzerland.
ITEM
2.
MANAGEMENT'S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
You
should read the following discussion of our financial condition and results
of
operations together with the audited financial statements and the notes thereto
included in our Annual Report on Form 10-KSB for the year ended December 31,
2007. The following discussion contains forward-looking statements that reflect
our plans, estimates and beliefs. Our actual results may differ materially
from
those anticipated in these forward-looking statements, including those set
forth
in our Annual Report on Form 10 KSB.
SES
Solar
Inc., a Delaware corporation (the “Company,” “SES USA,” “our,” “we,” and “us”)
based in Geneva, Switzerland, is engaged in the business of designing,
engineering, producing and installing solar panels or modules and solar tiles
for generating electricity. We have developed a new assembly technology for
solar panels that allow 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 a
new
assembly line 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
panels produced by third parties and by responding to quotations for our solar
tiles to electric companies, local governmental agencies and private home
owners.
Overview
and Plan of Operation
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.
SES
Switzerland, our wholly owned subsidiary, has developed and patented a new
assembly technology for solar panels or modules and solar tiles. Our business
plan includes the development 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 panels or 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
panels or 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,
manufacture the prototypes and have them tested and licensed during the fourth
quarter of 2008, and to commence production and sale of our new products by
June
2009.
To
date,
we have generated only limited revenue from the sale of solar panels or modules
and solar tiles manufactured by third parties and the related engineering
services required to design and install the same. In addition, during the period
from January 2008 to June 2008, the Company also generated revenue from the
sale
of electricity produced by the solar PV modules on the roof of its new
manufacturing facility, which we refer to as the Solar Plant, to a local
utility in Geneva. As of June 30, 2008, the Company no longer expects to
generate revenue from the sale of electricity produced by the solar PV modules
on the roof of its new manufacturing facility as the roof was sold during June
2008.
Once
our
manufacturing capabilities are operational, we will have available a product
line for our SunTechTile® and
SwissTile®
solar
tiles and, in the future, for high power rated solar modules. Historically,
we
have relied upon third party vendors to supply us with component parts such
as
cells in order to manufacture and produce our products. As a result of our
new
manufacturing facility and our new proprietary technology for module assembly,
we believe that we are positioning ourselves to manufacture and produce on
a
much larger scale solar products that are competitive in the solar energy
market.
We
have
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
panels or modules and solar tiles using an early stage technology. We anticipate
incurring operating losses over the next few years as we complete the
development, testing, prototypes and licensing of our new products and commence
production. Our research and development costs and costs incurred in
manufacturing prototype panels to date have been expensed. We do not believe
that we can achieve profitability
until
development, implementation and commercialization of our new products
manufactured through the new assembling processes are operational.
We
believe the demand for solar panels and solar tiles ultimately will be
substantial. According to the Energy Information Administration, global demand
for electricity is expected to increase from 16.4 trillion kilowatt hours in
2004 to 30.3 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,
over 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 recently enacted laws. 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. Anticipated reductions of the feed-in tariff
in
Germany and Switzerland by 9% and 8%, respectively, per year could affect our
sales. Spain has already spoken of decreasing the tariff during 2008 by
20%. 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 will be Switzerland, which recently enacted a new 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. The tariff will decrease for new entrants by 8% every year
starting in 2010.
Worldwide,
annual installations by the PV industry grew from 0.4GW in 2002 to 1.7GW in
2006, representing an average annual growth rate of over 42%, and 2.9 GW at
the
end of 2007, representing a 70% increase in one year. Cumulative installed
capacity reached just below 10GW at the end of 2007. Despite this growth, solar
electricity still represents 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
market. 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 area, it is possible that
developments in thin films or nanoscience could reduce the cost of PV cells
or
that continued 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 construction of
our
manufacturing facility, which is expected to be fully operational during the
first half of 2009.
During
the six months ended June 30, 2008, we continued to market our solar tiles
and
to quote our solar PV turn-key installations to prospects. In addition, we
generated revenue of $32,592 and incurred costs of goods sold of $1,757.
The
decrease in revenue and corresponding decrease in cost of goods sold are
attributable to management’s increased focus on completing our manufacturing
facility and producing our solar products on a large scale and away from smaller
custom installation projects.
As
of the
end of fiscal year 2007, the Solar Plant
,
which
is housed on the roof of our manufacturing facility,
is
operational, and, as of January 2008, we generated revenue of $
247,730
from
the
sale of electricity
.
As of
the end of June 2008, we no longer generate this revenue due to the sale of
the
Solar Plant to Services Industriels de Geneve (“SIG”).
Based
on current and planned custom installation projects that will be completed
during the third and fourth quarters of 2008, we believe that our cash flow
from
operating activities for the remainder of fiscal year 2008 will be greater
than
our cash flow from operating activities during 2007. As previously reported,
and
in light of these projects, we believe that our operating expenses in fiscal
2008 will be approximately $2 million, which we anticipate financing through
revenue generated from operating income and with available cash. Management
anticipates total capital expenditures of approximately $14 million for the
new
manufacturing facility and $3.5 million for the assembly line and related
machinery during the remainder of 2008 and the first half of 2009.
We
anticipate financing these capital expenditures through available cash, loans
and lines of credit, but we will likely also need additional financing to expand
our operations once our manufacturing facility is fully operational as well
as
to secure long-term silicon supply contracts.
We
do not
have any current agreements in place to secure such financing. In addition,
we
entered into a credit facility of CHF4,500,000 ($4,420,350) on September 18,
2007 with ScanE. The proceeds were received on October 1, 2007 and became due
on
March 17, 2008. On June 20, 2008, the Company announced the sale of its Solar
Plant for gross proceeds of CHF5,716,788 ($5,496,383), inclusive of
VAT.
SES
Switzerland received substantially all of the proceeds from this sale on June
30, 2008 and used a portion of the proceeds to repay in full the CHF4,500,000
loan as of July 2, 2008.
We
expect
to continue to experience losses from operations until we can generate 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.
Selected
Financial Data
|
|
|
June
30,
|
|
|
December
31,
|
|
Balance
Sheets
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
(in
$)
|
|
Total
current assets
|
|
|
8,387,427
|
|
|
4,472,884
|
|
Total
long-term assets
|
|
|
9,471,104
|
|
|
9,858,585
|
|
Total
current liabilities
|
|
|
6,286,006
|
|
|
10,366,547
|
|
Total
long-term liabilities
|
|
|
7,364,849
|
|
|
7,563
|
|
Total
liabilities and stockholders' equity
|
|
|
17,858,531
|
|
|
14,331,469
|
|
|
|
|
For
the Three Months Ended
|
|
Statement
of Operations
|
|
|
June
30,
|
|
(unaudited)
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in
$)
|
|
Total
revenues
|
|
|
32,592
|
|
|
1,165,035
|
|
Total
cost of goods sold (exclusive of depreciation shown separately
below)
|
|
|
(1,757
|
)
|
|
(969,972
|
)
|
Personnel
|
|
|
143,816
|
|
|
86,779
|
|
Rent
and lease expenses
|
|
|
39,552
|
|
|
32,382
|
|
Research
and development
|
|
|
67,755
|
|
|
58,963
|
|
Depreciation
and amortization
|
|
|
18,435
|
|
|
12,145
|
|
General
and administrative expenses
|
|
|
204,316
|
|
|
301,442
|
|
Interest
expense
|
|
|
(101,854
|
)
|
|
(16,037
|
)
|
Interest
income
|
|
|
16,544
|
|
|
46,788
|
|
Other
gain
|
|
|
1,134,915
|
|
|
0
|
|
Foreign
exchange gain (loss)
|
|
|
(58,020
|
)
|
|
(30,270
|
)
|
Total
other income
|
|
|
991,585
|
|
|
481
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from continuing operations
|
|
|
991,585
|
|
|
(296,167
|
)
|
Income
from discontinued operations
|
|
|
164,592
|
|
|
0
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from discontinued operations
|
|
|
164,592
|
|
|
0
|
|
Net
income (loss)
|
|
|
713,138
|
|
|
(296,167
|
)
|
Other
comprehensive income: translation adjustment
|
|
|
102,407
|
|
|
17,263
|
|
Comprehensive
income (loss)
|
|
|
815,545
|
|
|
(278,904
|
)
|
RESULTS
OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED JUNE 30, 2008 AND
2007
Net
Income (Loss)
Our
net
income for the three months ended June 30, 2008 was $713,138 compared to a
net
loss of $296,167 for the three months ended June 30, 2007. The net income during
the period ended June 30, 2008 was due primarily to the $1,134,915 gain
generated by the sale of our Solar Plant and a decrease in operating expenses
($68,626), offset by a foreign exchange loss of $58,020 due to the increase
in
the currency exchange rate between the Swiss franc and the US dollar and an
increase of $85,867 in interest expense due to increased
borrowings.
Revenues
and Cost of Goods Sold
The
Company recognizes revenue on the completed-contract method, and therefore
when
projects are completed. During the three months ended June 30, 2008, we
generated total revenue of $32,592 as compared to $1,165,035 for the three
months ended June 30, 2007.
Cost
of
goods sold for the three months ended June 30, 2008 was $1,757 compared to
cost
of goods sold of $969,972 for the three months ended June 30,2007.
The
decrease in revenue and corresponding decrease in cost of goods sold are
attributable to management’s increased focus on completing our manufacturing
facility and producing our products on a large scale and away from smaller
custom installation projects.
Operating
Expenses
Operating
expenses for the three months ended June 30, 2008 and 2007 were $473,874
and $491,711, respectively, which represents a 4% decrease. Personnel,
rent, research and development, general and administrative expenses, and
depreciation and amortization expenses constitute the components of our
operating expenses.
The
majority of the decrease was related to personnel costs to develop the new
activities of our operating subsidiary (increase of $57,037) and additional
research and development expenses (increase of $8,792), partially offset by
decrease in general and administrative expenses, including expenses associated
with the preparation and SEC compliance of various public filings (decrease
of
$97,126) and an increase of $6,290 in depreciation and amortization
expense.
We
expect
that as we continue to implement our business plan these expenses will increase
accordingly.
Other
Income (Expense)
Interest
expense increased to $101,854 for the three months ended June 30, 2008 compared
with $16,037 for the three months ended June 30, 2007. The increase in interest
expense was primarily attributable to the increase in loans from ScanE and
from
Banque Cantonale de Genève (“BCGE”).
Interest
income for the three months ended June 30, 2008 was $16,544 compared to $46,788
for the three months ended June 30, 2007. The interest income earned during
the
period was received from time deposits.
The
one
time net gain generated by the sale of our Solar Plant to SIG was $1,134,915.
This amount mostly covers research and development costs of the Solar Plant
that
had been previously expensed.
Foreign
exchange loss for the three months ended June 30, 2008 was $58,020 as compared
to $30,270 for the three months ended June 30, 2007. Our wholly owned
subsidiary, SES Switzerland, conducts substantially all its business and incurs
substantially all its costs in Swiss francs. The foreign exchange loss reflects
the increase in the currency exchange rate between the Swiss franc and the
US
dollar.
Net
Income (Loss) from Discontinued Operations, net of tax
Our
electricity producing segment was sold in June 2008. The Solar Plant has been
operational since the end of 2007, and as of January 2008, has generated revenue
through the sale of electricity. For the three months ended June 30, 2008,
we
recorded net income from discounted operations from such sales in the amount
of
$164,592. Due to the sale of the Solar Plant at the end of June 2008, no further
revenue from the sale of electricity will be recognized in future
periods.
Statement
of Operations
|
|
|
For
the Six Months Ended
June
30,
|
|
(unaudited)
|
|
|
2008
|
|
|
2007
|
|
|
|
|
in
$
|
|
Total
revenues
|
|
|
32,592
|
|
|
1,165,035
|
|
Total
cost of goods sold (exclusive of depreciation shown separately
below)
|
|
|
(1,757
|
)
|
|
(969,972
|
)
|
Personnel
|
|
|
282,243
|
|
|
172,164
|
|
Rent
and lease expenses
|
|
|
76,303
|
|
|
65,152
|
|
Research
and development
|
|
|
220,587
|
|
|
169,436
|
|
Depreciation
and amortization
|
|
|
85,091
|
|
|
24,741
|
|
General
and administrative expenses
|
|
|
405,358
|
|
|
492,067
|
|
Interest
expense
|
|
|
(219,997
|
)
|
|
(29,006
|
)
|
Interest
income
|
|
|
39,189
|
|
|
95,288
|
|
Other
gain
|
|
|
1,134,915
|
|
|
0
|
|
Foreign
exchange gain /(loss)
|
|
|
337,523
|
|
|
(25,569
|
)
|
Total
other income (expense)
|
|
|
1,291,630
|
|
|
40,713
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from continuing operations
|
|
|
252,883
|
|
|
(687,784
|
)
|
Income
from discontinued operations
|
|
|
247,730
|
|
|
0
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from discontinued operations
|
|
|
247,730
|
|
|
0
|
|
Net
income (loss)
|
|
|
500,613
|
|
|
(687,784
|
)
|
Other
comprehensive income: translation adjustment
|
|
|
(250,296
|
)
|
|
13,547
|
|
Comprehensive
income (loss)
|
|
|
250,317
|
|
|
(674,237
|
)
|
RESULTS
OF OPERATIONS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 2008 AND
2007
Net
Income (Loss)
Our
net
income for the six months ended June 30, 2008 was $500,613 as compared to a
net
loss of $687,784 for the six months ended June 30, 2007. The net income during
the period ended June 30, 2008 was due primarily to the $1,134,915 gain
generated by the sale of our Solar Plant partially offset by an increase of
$190,991 in interest expense due to increased borrowings.
Revenues
and Cost of Goods Sold
We
recognize revenue on the completed-contract method, and therefore, only when
projects are completed. During the period January 1 to June 30, 2008, we
generated total revenue of $32,592 as compared to $1,165,035 for the six months
ended June 30, 2007.
Cost
of
goods sold for the six months ended June 30, 2008 was $1,757 compared to cost
of
goods sold of $969,972 for the six months ended June 30, 2007.
Operating
Expenses
Operating
expenses for the six months ended June 30, 2008 were $1,069,582 compared to
operating expenses of $923,560 for the six months ended June 30, 2007.
Personnel, rent, research and development, general and administrative, and
depreciation and amortization expenses constitute the components of our
operating expenses. The majority of the increase was related to personnel costs
to develop the new activities of our subsidiary (increase of $110,079), and
additional research and development expenses (increase of $51,151), partially
offset by a decrease in general and administrative expenses associated with
preparation and SEC compliance of various public filings (decrease of $86,709).
We expect that as we continue to implement our business plan these expenses
will
increase accordingly.
Other
Income (Expense)
Interest
expense increased to $219,997 for the six months ended June 30, 2008 as compared
to $29,006 for the six months ended June 30, 2007. The increase in interest
expense was primarily attributable to the increase in the amount of the loan
from ScanE and from BCGE.
Interest
income for the six months ended June 30, 2008 was $39,189 as compared to $95,288
for the period ended June 30, 2007. The interest income earned during the period
was received from time deposits.
The
one
time net gain generated by the sale of our Solar Plant to SIG was $1,134,915.
This amount mostly covers research and development costs of the Solar Plant
that
had been previously expensed.
Foreign
exchange gain for the six months ended June 30, 2008 was $337,523 compared
to
foreign exchange loss of $25,569 for the six months ended June 30, 2007.
Historical financial statements prior to September 27, 2006, the date of the
reverse acquisition, are those of SES Switzerland, which conducts substantially
all its business and incurs substantially all its costs in Swiss francs.
Net
Income (Loss) from Discontinued Operations, net of tax
Our
electricity producing segment was sold in June 2008. The Solar Plant, which
is
housed on the roof our manufacturing facility, has been operational since the
end of 2007, and as of January 2008, has generated revenue through the sale
of
electricity. For the six months ended June 30, 2008, revenue generated from
such
sales totaled $247,730. Due to the sale of the Solar Plant at the end of June
2008, no further revenue from the sale of electricity will be recognized in
future periods.
Liquidity
and Capital Resources
Our
principal cash requirements are for operating expenses, including consulting,
accounting and legal costs, staff costs, and accounts payable.
As
of
June 30, 2008, we had working capital of $2,101,421 compared to $4,102,538
as of
June 30, 2007, and our cash and cash equivalents increased to $6,414,000 as
of
June 30, 2008 compared to $5,538,585 as of June 30, 2007. This decrease of
working capital is the result of increased short-term borrowings and accounts
payable over the comparable periods. The increase in available cash and cash
equivalents is attributable to the sale of our Solar Plant.
As
of
June 30, 2008, we had accounts payable of $890,591 compared to
$3,711,775
as
of
December 31, 2007. This large decrease is the result of amounts paid to
creditors for construction costs relating to our manufacturing facility. We
made
these payments utilizing loan proceeds received from BCGE and
ScanE.
At
June
30, 2008, we had short-term debt in the amount of $4,420,350 compared to
$6,147,728 as of December 31, 2007.
We
currently have several loans outstanding with ScanE. The first such loan in
the
amount of up to $982,300 was made on November 3, 2003 and carries a principal
balance of $952,310. The loan bears interest at 4%. Although the loan matured
on
March 31, 2008, we filed a request on April 2, 2008 with ScanE to renew the
loan
for a period of 24 months on the same terms and conditions. On May 19, 2008,
ScanE granted our Company’s request that the loan be extended for a period of 24
months on the same terms and conditions. The new maturity date for the loan
is
March 31, 2010.
On
January 21, 2004, we obtained a CHF1 million ($982,300) credit facility from
ScanE to finance the construction of our new manufacturing facility. Release
of
the loan proceeds was contingent upon the Company satisfying certain conditions
precedent, which were satisfied by November 13, 2007. As of January 8, 2008,
we
had utilized the full amount of the loan, which bears a fixed annual interest
rate of 4%.
A
new six
month credit facility of CHF4,500,000 ($4,420,350) was signed on September
18,
2007 with ScanE. The loan bears interest at 5%. The proceeds were received
on
October 1, 2007 and were to be reimbursed on March 17, 2008. ScanE extended
the loan under the existing loan agreement until June 20, 2008. On June 20,
2008, the Company announced that it had agreed to sell its PV power plant on
the
roof of its manufacturing facility to Services Industriels de Geneve
(“SIG”).
The
Company received substantially all of the proceeds from this sale on June 30,
2008 and used a portion of the proceeds to reimburse the CHF4,500,000 loan
in
full as of July 2, 2008.
SES
Switzerland also has a revolving credit line with UBS, which was increased
from
CHF100,000 ($98,230) to CHF3,000,000 ($2,946,897) as of January 31, 2008, used
mainly to cover short-term cash needs. The revolving credit line is secured
by
short term deposits denominated in US dollars with UBS, amounting to $3,155,000
as of June 30, 2008. The credit line bears interest at the rate of 4.75%. The
credit line can be cancelled by either party at any time. The credit facility
had a balance CHF0 ($0) as June 30, 2008 and CHF1,450,764 ($1,288,815) as of
December 31, 2007.
SES
Switzerland also has a Construction Credit Agreement with BCGE dated December
20, 2006 in the amount of $4,715,035 (CHF4.8 million), which is intended for
financing the construction of our new manufacturing facility. The loan was
amended on November 13, 2007 and increased from CHF4.8 million to CHF8.5 million
($8,349,541). The amended loan amount must be drawn down no later than the
date
of completion of the construction or December 11, 2008. We used $5,430,239
(CHF5,528,086) of this financing as of June 30, 2008, and $7,563 (CHF8,513)
as
of December 31, 2007. The loan bears interest at a rate of 3.5% and is secured
by a second lien exclusive mortgage certificate of CHF9,000,000 ($8,840,691)
on
the manufacturing facility.
Our
ability to meet our financial commitments in the near term will be primarily
dependent upon continued revenue from the sale of custom manufactured solar
panels or modules when available and solar tiles and the related engineering
services required to design and install the same, the sale of electricity
produced by the solar roof on our manufacturing facility, and the continued
extension of credit from existing or new lenders.
Management
believes that our cash and cash equivalents, cash provided by operating
activities, and cash available from existing loans will be sufficient to meet
our working capital requirements for the next twelve months. 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 additional 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 $697,617 for the six months ended June 30,
2008
as compared to $195,264 of net cash used in operating activities for the six
months ended June 30, 2007. In local currency, use of funds for operating
activities was larger during this period compared to the same period in 2007.
However, exchange rate volatility has greatly offset the difference. Billings
in
excess of cost and estimated earnings increased by $150,438 due to advances
received for new projects. Additionally, inventory of our new PV SwissTile®
products increased by $1,010,838. Finally operating activities include a net
gain of $1,134,915 from the sale of the solar plant.
Investing
Activities
Net
cash
used in investing activities was $1,030,323 during the six months ended June
30,
2008 as compared to $290,795 used in investing activities during the six months
ended June 30, 2007. The increase in investing activities is mostly due to
investments for the construction of our manufacturing plant. Net cash is
comprised of cash received from the sale of the Solar Plant for $4,970,752
and
the use of cash to pay creditors for the construction of the building and plant
in the amount of $6,001,074.
We
continue to expect total capital expenditures of approximately $17,500,000
as we
build our new manufacturing facility and purchase additional
equipment.
Financing
Activities
Net
cash
provided by financing activities was $4,833,261 for the six months ended June
30, 2008 as compared to $0 for the six months ended June 30, 2007.
The
increase financing was received from bank loans granted to build the new plant
from BCGE and ScanE. During 2008, the amount represents a net financing between
use of bank loans for $6,216,608 and the reimbursement of our line of credit
with UBS for $1,383,347.
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
June
30, 2008, we had an outstanding purchase order of EUR448,600 ($708,734), using
the exchange rate of 0.63296 as of June 30, 2008 for the future
construction of a new machine to be used in the new manufacturing plant for
solar modules production. We made an advance of EUR269,160 ($425,241) for
the purchase of this machine. The balance due will be paid upon delivery of
the
machine.
ITEM
3.
QUALITATIVE
AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable to “smaller reporting companies” under Item 305(e) of Regulation
S-K.
ITEM
4T.
CONTROLS
AND PROCEDURES
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed in Company reports filed or
submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed
to
ensure that information required to be disclosed in Company reports filed under
the Exchange Act, is accumulated and communicated to management, including
the
Company’s principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.
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.
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in the Company’s internal controls over financial reporting that
occurred during the quarter ended June 30, 2008 that have materially affected,
or are reasonably likely to materially affect, the internal control over
financial reporting.
PART
II
OTHER
INFORMATION
ITEM
6.
EXHIBITS
Exhibits
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Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated:
August 14, 2008
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SES
SOLAR INC.
(Registrant)
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By:
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/s/
SANDRINE CRISAFULLI
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Sandrine
Crisafulli
Chief
Financial Officer and Chief Operating Officer
(principal
financial officer and principal accounting
officer)
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