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 SEPTEMBER 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
INCORPORATION
OR ORGANIZATION)
|
|
(IRS
EMPLOYER
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
November 6, 2008 is 73,081,168 shares of common stock, par value $.001 per
share.
TABLE
OF
CONTENTS
|
|
Page
|
PART I.
|
FINANCIAL
INFORMATION
|
1
|
ITEM 1.
|
FINANCIAL
STATEMENTS
|
1
|
ITEM 2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS
|
13
|
ITEM 3.
|
QUALITATIVE
AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
|
20
|
ITEM 4T.
|
CONTROLS
AND PROCEDURES
|
20
|
|
|
|
PART II.
|
OTHER
INFORMATION
|
21
|
ITEM 6.
|
EXHIBITS
|
21
|
PART
I. FINANCIAL INFORMATION
ITEM
1.
FINANCIAL
STATEMENTS
SES
SOLAR INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
|
|
September 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
(in $)
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
1,256,972
|
|
|
3,429,033
|
|
Receivables,
net of allowance for doubtful accounts of $0 for the periods ended
2008
and 2007
|
|
|
17,144
|
|
|
47,356
|
|
Due
from related party
|
|
|
87,179
|
|
|
84,938
|
|
Inventory
|
|
|
1,486,761
|
|
|
271,794
|
|
Other
current assets
|
|
|
356,789
|
|
|
639,763
|
|
Total
current assets
|
|
|
3,204,845
|
|
|
4,472,884
|
|
Long-Term
Assets:
|
|
|
|
|
|
|
|
Deferred
expense
|
|
|
0
|
|
|
180,000
|
|
Advance
payments for machinery
|
|
|
388,901
|
|
|
396,432
|
|
Total
other long-term assets
|
|
|
388,901
|
|
|
576,432
|
|
Property
and Equipment, at cost
|
|
|
451,344
|
|
|
437,493
|
|
Solar
Plant
|
|
|
0
|
|
|
3,785,521
|
|
Building
construction
|
|
|
10,294,462
|
|
|
5,398,153
|
|
Less
accumulated depreciation and amortization
|
|
|
(391,481
|
)
|
|
(339,014
|
)
|
Total
fixed assets
|
|
|
10,354,325
|
|
|
9,282,153
|
|
Total
long-term assets
|
|
|
10,743,226
|
|
|
9,858,585
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
13,948,071
|
|
|
14,331,469
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Short-term
loan
|
|
|
0
|
|
|
6,147,728
|
|
Accounts
payable
|
|
|
1,073,840
|
|
|
3,711,775
|
|
Billings
in excess of cost and estimated earnings
|
|
|
1,323,249
|
|
|
507,044
|
|
Total
current liabilities
|
|
|
2,397,089
|
|
|
10,366,547
|
|
Long-Term
Liabilities:
|
|
|
|
|
|
|
|
Loan
payable
|
|
|
883,972
|
|
|
0
|
|
Construction
loan
|
|
|
7,154,917
|
|
|
7,563
|
|
Total
long-term liabilities
|
|
|
8,038,889
|
|
|
7,563
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value;
|
|
|
|
|
|
|
|
100,000,000
shares authorized;
|
|
|
|
|
|
|
|
73,081,168
shares issued and outstanding
|
|
|
73,081
|
|
|
|
|
Additional
paid-in capital
|
|
|
8,050,093
|
|
|
8,050,093
|
|
Accumulated
other comprehensive income (loss)
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
(484,923
|
)
|
|
(395,447
|
)
|
Year
end accumulated deficit
|
|
|
(4,126,158
|
)
|
|
(3,770,368
|
)
|
Total
stockholders' equity (deficit)
|
|
|
3,512,093
|
|
|
3,957,359
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
13,948,071
|
|
|
14,331,469
|
|
See
accompanying summary of accounting policies and the notes to the financial
statements.
SES
SOLAR INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in
$)
|
|
For the Three Months
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
1,569
|
|
|
90,240
|
|
|
34,161
|
|
|
1,255,275
|
|
Cost
of goods sold (exclusive of depreciation shown separately
below)
|
|
|
1,335
|
|
|
69,524
|
|
|
3,092
|
|
|
1,039,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
123,714
|
|
|
91,433
|
|
|
405,957
|
|
|
263,597
|
|
Rent
and leases expenses
|
|
|
36,653
|
|
|
34,184
|
|
|
112,956
|
|
|
99,336
|
|
Research
& Development
|
|
|
58,952
|
|
|
152,738
|
|
|
279,539
|
|
|
322,174
|
|
Other
General & Administrative Expenses
|
|
|
267,805
|
|
|
340,821
|
|
|
673,163
|
|
|
832,888
|
|
Depreciation
and amortization
|
|
|
16,527
|
|
|
14,264
|
|
|
50,829
|
|
|
39,005
|
|
Total
costs and expenses
|
|
|
503,651
|
|
|
633,440
|
|
|
1,522,444
|
|
|
1,557,000
|
|
Other
Income and Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(102,523
|
)
|
|
(20,953
|
)
|
|
(322,520
|
)
|
|
(49,959
|
)
|
Interest
income
|
|
|
7,567
|
|
|
44,808
|
|
|
46,756
|
|
|
140,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange gain/(loss)
|
|
|
(258,030
|
)
|
|
188,274
|
|
|
79,493
|
|
|
162,705
|
|
Total
other income (loss)
|
|
|
(352,986
|
)
|
|
212,129
|
|
|
(196,271
|
)
|
|
252,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before taxes
|
|
|
(856,403
|
)
|
|
(400,595
|
)
|
|
(1,687,646
|
)
|
|
(1,088,379
|
)
|
Income
taxes
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from continuing operations
|
|
|
(856,403
|
)
|
|
(400,595
|
)
|
|
(1,687,646
|
)
|
|
(1,088,379
|
)
|
Income
(loss) from discontinued operations before taxes (Note 9)
|
|
|
0
|
|
|
0
|
|
|
1,331,856
|
|
|
0
|
|
Income
taxes
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from discontinued operations
|
|
|
0
|
|
|
0
|
|
|
1,331,856
|
|
|
0
|
|
Net
income (loss)
|
|
|
(856,403
|
)
|
|
(400,595
|
)
|
|
(355,790
|
)
|
|
(1,088,379
|
)
|
Other
Comprehensive loss/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustment
|
|
|
160,820
|
|
|
(99,100
|
)
|
|
(89,476
|
)
|
|
(85,553
|
)
|
Comprehensive
income (loss)
|
|
|
(695,583
|
)
|
|
(499,695
|
)
|
|
(445,266
|
)
|
|
(1,173,932
|
)
|
Basic
and diluted weighted average shares
|
|
|
73,081,168
|
|
|
52,121,504
|
|
|
73,081,168
|
|
|
50,002,908
|
|
Basic
and diluted net income (loss) per share from continuing
operations
|
|
|
(0.012
|
)
|
|
(0.008
|
)
|
|
(0.023
|
)
|
|
(0.022
|
)
|
Basic
and diluted net income (loss) per share from discontinuing
operations
|
|
|
0
|
|
|
0
|
|
|
0.018
|
|
|
0
|
|
Basic
and diluted net income (loss) per share
|
|
|
(0.012
|
)
|
|
(0.008
|
)
|
|
(0.005
|
)
|
|
(0.022
|
)
|
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 SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
$)
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(355,790
|
)
|
|
(1,088,379
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
152,407
|
|
|
39,005
|
|
Gain
on sale of Solar Plant
|
|
|
(1,185,704
|
)
|
|
0
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
Receivables,
including Due from Related Party
|
|
|
32,678
|
|
|
(20,498
|
)
|
Inventory
|
|
|
(1,182,401
|
)
|
|
0
|
|
Other
current assets
|
|
|
311,550
|
|
|
(83,374
|
)
|
Deferred
Expenses
|
|
|
180,000
|
|
|
180,000
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
8,840
|
|
|
(114,566
|
)
|
Billings
in excess of cost and estimated earnings
|
|
|
833,879
|
|
|
440,455
|
|
Net
cash used in operating activities
|
|
|
(1,204,541
|
)
|
|
(647,357
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
Proceeds
on sale of Solar Plant
|
|
|
5,065,460
|
|
|
0
|
|
Property,
plant and equipment
|
|
|
(7,784,613
|
)
|
|
(1,916,939
|
)
|
Advance
payments for machinery
|
|
|
0
|
|
|
(369,738
|
)
|
Net
cash used in investing activities
|
|
|
(2,719,153
|
)
|
|
(2,286,677
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
8,341,781
|
|
|
(417,035
|
)
|
Repayment
of long-term debt
|
|
|
(6,554,015
|
)
|
|
960,102
|
|
Net
cash provided by financing activities
|
|
|
1,787,766
|
|
|
543,067
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(2,135,928
|
)
|
|
(2,390,967
|
)
|
Effect
of exchange rate changes on cash
|
|
|
(36,133
|
)
|
|
(99,426
|
)
|
Cash
and cash equivalents, beginning of the quarter
|
|
|
3,429,033
|
|
|
6,016,666
|
|
Cash
and cash equivalents, end of the quarter
|
|
|
1,256,972
|
|
|
3,526,273
|
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
322,520
|
|
|
49,959
|
|
Supplemental
disclosure of non-cash operating and investing activities
|
|
|
|
|
|
|
|
Non
cash transaction, Property, plants and equipment in account
payable
|
|
|
748,924
|
|
|
0
|
|
See
accompanying summary of accounting policies and the notes to the financial
statements.
SES
SOLAR INC. AND SUBSIDIARIES
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.
As
of
July 31, 2008, the Company formed a new Swiss wholly owned subsidiary, SES
Prod
SA (“SES Prod”), 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.
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 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 primary markets
for
solar photovoltaic cells. Costs incurred in manufacturing prototype panels
have
been expensed as research and development costs.
SES
USA
does not believe it can achieve profitability until development, implementation,
and commercialization of its 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 subsidiaries, SES Switzerland and SES Prod.
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 SUBSIDIARIES
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 subsidiaries, SES Switzerland and SES Prod. 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 U.S. 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
|
|
$
|
|
|
1.05588
|
|
|
1.19894
|
|
|
|
2008
|
|
2007
|
|
Balance
Sheet period-end rates
|
|
CHF
|
|
CHF
|
|
$
|
|
|
1.09672
|
|
|
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
nine months ended September 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 nine months ended
September 30, 2008 also does not include the effect of warrants outstanding
for
the period because their exercise price exceeded the average price for the
three
and nine months ended September 30, 2008.
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
Basic
Weighted average shares outstanding
|
|
|
73,081,168
|
|
|
50,002,908
|
|
Diluted
weighted average shares outstanding
|
|
|
73,081,168
|
|
|
50,002,908
|
|
SES
SOLAR INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
:
Due
to
the net loss, the calculation of the effect of common stock equivalents due
to
issuance of warrants is excluded because of anti-dilution. The number of shares
of common stock listed as beneficially owned by one stockholder includes
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 September 30, 2008 and December 31, 2007 balance sheet dates, the
warrants were not yet exercised. Also, they are not included in the computation
of diluted loss per share because their effect was anti-dilutive.
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
nine months ended September 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 has 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 SUBSIDIARIES
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 SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Inventory
is summarized as follows:
|
|
Nine
Months Ended
September
30,
2008
|
|
Twelve
Months Ended
December 31,
2007
|
|
|
|
|
|
$$
|
|
Raw
Materials and Others
|
|
|
1,301,803
|
|
|
97,159
|
|
Finished
Goods
|
|
|
184,958
|
|
|
174,635
|
|
Total
Inventory
|
|
|
1,486,761
|
|
|
271,794
|
|
6.
|
Borrowings
Under Revolving Credit Facility, Short and Long-Term
Loans
|
Short-Term
Loan
|
|
Nine
Months Ended
September 30,
2008
|
|
Twelve
Months Ended
December 31,
2007
|
|
|
|
|
|
$$
|
|
Geneva
(Switzerland) State Department of Energy
|
|
|
0
|
|
|
861,248
|
|
Geneva
(Switzerland) State Department of Energy
|
|
|
0
|
|
|
3,997,665
|
|
UBS
|
|
|
0
|
|
|
1,288,815
|
|
|
|
|
0
|
|
|
6,147,728
|
|
Long-Term
Loan
|
|
Nine
Months Ended
September 30,
2008
|
|
Twelve
Months Ended
December 31,
2007
|
|
|
|
|
|
$$
|
|
Banque
Cantonale de Genève
|
|
|
6,243,107
|
|
|
7,563
|
|
Geneva
(Switzerland) State Department of Energy
|
|
|
1,795,782
|
|
|
0
|
|
|
|
|
8,038,889
|
|
|
7,563
|
|
SES
SOLAR INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On
November 6, 2003, SES Switzerland received a loan from the Geneva (Switzerland)
State Department of Energy (“ScanE”) of up to CHF1,000,000 ($911,810). The loan
bears interest at a rate of 4%. SES Switzerland used CHF969,470 ($883,972)
of
this loan as of September 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
($911,810) 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 ($911,810) on the
manufacturing facility. The loan will be reimbursed in 20-equal annual
installments of CHF73,581 (approximately $69,688).
SES
SOLAR INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On
September 18, 2007, we signed a six month credit facility for CHF4,500,000
($4,103,144) 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 had a revolving credit line with UBS in the principal amount
of
CHF3,000,000 ($2,735,429) used mainly to cover short-term cash needs. The
revolving credit line was secured by short-term deposits denominated in US
dollars with UBS, amounting to $3,155,000. The credit line bears interest at
4.75%. On August 13, 2008, $ 3,000,000 of the short-term deposit were used
to
offset the credit line. The balance of the credit facility was CHF0 ($0) as
of
September 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
($4,376,687), 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 ($7,750,383). 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 CHF6,846,938 ($6,243,107) of the loan
as
of September 30, 2008 and CHF8,513 ($7,563) as of December 31, 2007. The loan
bears interest at a rate of 3.75% and is secured by a second lien exclusive
mortgage certificate of CHF9,000,000 ($8,206,288) on the manufacturing
facility.
7.
|
Commitments
and Contingencies
|
Operating
Leases
-
Lease expenses for the nine months ended September 30, 2008 and 2007 were
$112,956 and $99,336, respectively.
The
following table presents future minimum lease commitments (concerning the lease
of a vehicle) under operating leases at September 30, 2008:
|
|
Operating
Leases
|
|
|
|
$
|
|
2008
|
|
|
4,239
|
|
2009
|
|
|
14,192
|
|
Thereafter
|
|
|
—
|
|
Total
|
|
|
18,431
|
|
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 ($49,790) 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
är
kingen,
Switzerland. The monthly fixed rent is CHF7,232 (approximately $6,849). 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 SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The
following are the lease commitments:
|
|
Use of Land
|
|
|
|
$
|
|
2008
|
|
|
17,063
|
|
2009
|
|
|
68,252
|
|
2010
|
|
|
68,252
|
|
2011
|
|
|
68,252
|
|
2012
|
|
|
68,252
|
|
Thereafter
|
|
|
3,651,456
|
|
Total
|
|
|
3,941,527
|
|
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
September 30, 2008, the Company has an outstanding purchase order of EUR448,600
($648,169) 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 ($388,901) for the purchase of this machine. The
balance due will be paid upon delivery of the machine. At September 30, 2008,
the Company signed purchase agreements for the building of the new plant for
CHF6,979,077($6,363,591). An advance payment of CHF3,138,500($2,861,715) was
made on October 1, 2008, the remaining amount will be paid at the end of the
construction planned before year end.
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 began selling electricity produced by its photovoltaic power station
(the “Solar Plant”) on the roof of its new manufacturing facility 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. 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 is 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 nine-month period ended September
30, 2008 was $1,331,856 (gain on disposal of $1,185,704, revenue of $247,730
and
expenses of $101,578). No income was recorded for the three-month period ended
September 30, 2008. In 2007 there was no income or expense from discontinued
operations.
|
|
Nine months ended September 30, 2008
|
|
|
|
|
|
Revenue
|
|
|
247,730
|
|
Operating
expenses
|
|
|
(101,578
|
)
|
Gain
(loss) on sale
|
|
|
1,185,704
|
|
Income
tax (expense) recovery
|
|
|
-
|
|
Net
earnings (loss) from discontinued operations
|
|
|
1,331,856
|
|
Common
Stock
- The
Company has 100,000,000 shares of common stock authorized, par value $0.001
per
share, and 73,081,168 shares issued and outstanding.
During
the nine-month period ended September 30, 2008, no stock purchase warrants
were
exercised.
SES
SOLAR INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Warrant
transactions consisted of the following during the quarter ended September
30,
2008.
|
|
Exercisable
Warrants
|
|
Strike
Price ($)
|
|
Warrants
outstanding as of December 31, 2007
|
|
|
1,500,000
|
|
$
|
0.90
|
|
Exercise
of warrants
|
|
|
0
|
|
|
0
|
|
Warrants
outstanding as of September 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 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.
Other
than as disclosed herein, no major events have occurred since September 30,
2008.
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. 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 Production” refer
to our wholly owned subsidiaries, unless the context requires
otherwise.
SES
Solar
Inc. is 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 panels 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 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
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 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
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 in December
2008 and commence production and sale of our new products in the first or second
quarter of 2009.
To
date,
we have generated only limited revenue from the sale of solar 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, we generated revenue from the sale of electricity
produced by our Solar Plant. As of June 30, 2008, we no longer expect to
generate such revenue from the sale of electricity, as we sold the Solar Plant
to a third party in June 2008.
Once
our
manufacturing capabilities are operational, we will have available a product
line consisting of our SunTechTile® and SwissTile®
solar
tiles and, in the future, our high power rated solar modules. 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. As a result of
our
new manufacturing facility and our proprietary technology for module assembly,
we believe that we are positioning ourselves to manufacture and produce our
solar products on a much larger scale and one that is 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
modules and solar tiles using an early stage technology. We anticipate incurring
additional 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 the costs incurred in
manufacturing prototypes have been expensed to date. We do not believe that
we
can achieve profitability until development, implementation and
commercialization of our solar products manufactured through our new assembling
processes are operational.
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 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 2.9GW 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 nine months ended September 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 $34,161 and incurred costs of goods sold of $3,092. The
decrease in revenue and corresponding decrease in cost of goods sold over this
period 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. The Solar Plant, which is housed
on the roof of our manufacturing facility and operational since December 2007,
generated revenue of $247,730 through June 30, 2008. As of the end of June
2008,
we no longer generate such 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. During the
remainder of 2008 and the first half of 2009, management anticipates total
capital expenditures of approximately $18 million for the new manufacturing
facility, of which we have already financed $10.5 million, and $3.5 million
for
the assembly line and related machinery, of which we have already financed
$389,000. 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 2 megawatts of solar tiles. We anticipate financing the remaining
capital expenditures on the facility and assembly line through available cash,
loans and lines of credit, but we will likely also need additional financing
in
order to purchase such raw materials and expand our operations once our
manufacturing facility is fully operational. We will also require enhanced
liquidity in order to secure long-term silicon supply contracts. We do not
have
any current agreements in place to secure such financing.
We
entered into a credit facility of CHF4,500,000 ($4,13,144) on September 18,
2007
with the Geneva (Switzerland) State Department of Energy (“ScanE”). The proceeds
were received on October 1, 2007 and became due on March 17, 2008. On June
20,
2008, we announced the sale of our Solar Plant for gross proceeds of
CHF5,716,788 ($5,496,383), inclusive of VAT. We 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
|
|
September 30,
|
|
December 31,
|
|
Balance Sheets
|
|
2008
|
|
2007
|
|
|
|
(unaudited)
|
|
|
|
|
|
(in
$)
|
|
Total
current assets
|
|
|
3,204,845
|
|
|
4,472,884
|
|
Total
long-term assets
|
|
|
10,743,226
|
|
|
9,858,585
|
|
Total
current liabilities
|
|
|
2,397,089
|
|
|
10,366,547
|
|
Total
long-term liabilities
|
|
|
8,038,889
|
|
|
7,563
|
|
Total
liabilities and stockholders' equity
|
|
|
13,948,071
|
|
|
14,331,469
|
|
|
|
For the Three Months Ended
|
|
Statement of Operations
|
|
September 30,
|
|
(unaudited)
|
|
2008
|
|
2007
|
|
|
|
(in $)
|
|
Total
revenues
|
|
|
1,569
|
|
|
90,240
|
|
Total
cost of goods sold (exclusive of depreciation shown separately
below)
|
|
|
(1,335
|
)
|
|
(69,524
|
)
|
Personnel
|
|
|
123,714
|
|
|
91,433
|
|
Rent
and lease expenses
|
|
|
36,653
|
|
|
34,184
|
|
Research
and development
|
|
|
58,952
|
|
|
152,738
|
|
Depreciation
and amortization
|
|
|
16,527
|
|
|
14,264
|
|
General
and administrative expenses
|
|
|
267,805
|
|
|
340,821
|
|
Interest
expense
|
|
|
(102,523
|
)
|
|
(20,953
|
)
|
Interest
income
|
|
|
7,567
|
|
|
44,808
|
|
Other
gain
|
|
|
0
|
|
|
0
|
|
Foreign
exchange gain (loss)
|
|
|
(258,030
|
)
|
|
188,274
|
|
Total
other income
|
|
|
(352,986
|
)
|
|
212,129
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from continuing operations
|
|
|
(856,403
|
)
|
|
(400,595
|
)
|
Income
from discontinued operations
|
|
|
0
|
|
|
0
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from discontinued operations
|
|
|
0
|
|
|
0
|
|
Net
income (loss)
|
|
|
(856,403
|
)
|
|
(400,595
|
)
|
Other
comprehensive income: translation adjustment
|
|
|
160,820
|
|
|
(99,100
|
)
|
Comprehensive
income (loss)
|
|
|
(695,583
|
)
|
|
(499,695
|
)
|
RESULTS
OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
Net
Income (Loss)
Our
net
loss for the three months ended September 30, 2008 was $856,403 as compared
to a
net loss of $400,595 for the three months ended September 30, 2007. The net
loss
during the period ended September 30, 2008 was due primarily to the foreign
exchange loss of $258,030 resulting from the increase in the currency
exchange rate between the Swiss franc and the US dollar, a decrease of $37,241
in interest income due to decreased time deposits and an increase of $81,570
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 September 30, 2008, we
generated total revenue of $1,569 as compared to $90,240 for the three months
ended September 30, 2007.
Cost
of
goods sold for the three months ended September 30, 2008 was $1,335 compared
to
cost of goods sold of $69,524 for the three months ended September 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 September 30, 2008 and 2007 were $503,651
and $633,440, respectively, which represents a 20% decrease. Personnel,
rent, research and development, general and administrative expenses, and
depreciation and amortization expenses constitute the components of our
operating expenses.
The
overall decrease is explained by a decrease of $93,786 in research and
development expense and a decrease of $73,016 in general and administrative
expenses, including expenses associated with the preparation and SEC compliance
of various public filings, partially offset by an increase of $32,281 in
personnel costs to develop the new activities of our operating subsidiary and
an
increase of $2,263 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 $102,523 for the three months ended September 30, 2008
compared with $20,953 for the three months ended September 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 September 30, 2008 was $7,567 compared to
$44,808 for the three months ended September 30, 2007. The interest income
earned during the period was received from time deposits.
Foreign
exchange loss for the three months ended September 30, 2008 was $258,030
compared to foreign exchange gain of $188,274 for the three months ended
September 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 had been
operational since the end of 2007, and as of January 2008, generated revenue
through the sale of electricity. 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 Nine Months Ended
September 30,
|
|
(unaudited)
|
|
2008
|
|
2007
|
|
|
|
in
$
|
|
Total
revenues
|
|
|
34,161
|
|
|
1,255,275
|
|
Total
cost of goods sold (exclusive of depreciation shown separately
below)
|
|
|
(3,092
|
)
|
|
(1,039,496
|
)
|
Personnel
|
|
|
405,957
|
|
|
263,597
|
|
Rent
and lease expenses
|
|
|
112,956
|
|
|
99,336
|
|
Research
and development
|
|
|
279,539
|
|
|
322,174
|
|
Depreciation
and amortization
|
|
|
50,829
|
|
|
39,005
|
|
General
and administrative expenses
|
|
|
673,163
|
|
|
832,888
|
|
Interest
expense
|
|
|
(322,520
|
)
|
|
(49,959
|
)
|
Interest
income
|
|
|
46,756
|
|
|
140,096
|
|
|
|
|
|
|
|
|
|
Foreign
exchange gain (loss)
|
|
|
79,493
|
|
|
162,705
|
|
Total
other income (expense)
|
|
|
(196,271
|
)
|
|
252,842
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from continuing operations
|
|
|
(1,687,646
|
)
|
|
(1,088,379
|
)
|
Income
(loss) from discontinued operations
|
|
|
1,331,856
|
|
|
0
|
|
Taxes
|
|
|
0
|
|
|
0
|
|
Net
income (loss) from discontinued operations
|
|
|
1,331,856
|
|
|
0
|
|
Net
income (loss)
|
|
|
(355,790
|
)
|
|
(1,088,379
|
)
|
Other
comprehensive income (loss): translation adjustment
|
|
|
(89,476
|
)
|
|
(85,553
|
)
|
Comprehensive
income (loss)
|
|
|
(445,266
|
)
|
|
(1,173,932
|
)
|
RESULTS
OF OPERATIONS - COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
2007
Net
Income (Loss)
Our
net
loss for the nine months ended September 30, 2008 was $355,790 as compared
to a
net loss of $1,088,379 for the nine months ended September 30, 2007. The net
loss during the period ended September 30, 2008 was due primarily to an increase
of $272,561 in interest expense resulting from increased borrowings, a
decrease of $83,212 in foreign exchange gain due to the increase in the currency
exchange rate between the Swiss franc and the US dollar and a decrease of
$93,340 in interest income due to decreased time deposits, offset by the
$1,185,704 gain generated from the sale of our Solar Plant.
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 September 30, 2008,
we
generated total revenue of $34,161 as compared to $1,255,275 for the nine months
ended September 30, 2007.
Cost
of
goods sold for the nine months ended September 30, 2008 was $3,092 compared
to
cost of goods sold of $1,039,496 for the nine months ended September 30,
2007.
As
noted
above, 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 nine months ended September 30, 2008 were $1,522,444 compared
to operating expenses of $1,557,000 for the nine months ended September 30,
2007. Personnel, rent, research and development, general and administrative,
and
depreciation and amortization expenses constitute the components of our
operating expenses. The slight decrease in operating expenses is attributable
to
an increase in personnel costs to develop the new activities of our subsidiary
(increase of $142,360), offset by a decrease in general and administrative
expenses associated with preparation and SEC compliance of various public
filings (decrease of $159,725). We expect that as we continue to implement
our
business plan these expenses will increase accordingly.
Other
Income (Expense)
Interest
expense increased to $322,520 for the nine months ended September 30, 2008
as
compared to $49,959 for the nine months ended September 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 nine months ended September 30, 2008 was $46,756 as compared
to
$140,096 for the period ended September 30, 2007. The interest income earned
during the period was received from time deposits.
Foreign
exchange gain for the nine months ended September 30, 2008 was $79,493 compared
to foreign exchange gain of $162,705 for the nine months ended September 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, had been operational since the
end of 2007, and from January 2008, generated revenue through the sale of
electricity. For the nine months ended September 30, 2008, revenue generated
from such sales totaled $247,730. The one time net gain generated by the sale
of
our Solar Plant was $1,185,704. This amount mostly covers research and
development costs of the Solar Plant that had been previously expensed. 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
September 30, 2008, we had working capital of $807,756 compared to $1,558,361
as
of September 30, 2007, and our cash and cash equivalents decreased to $1,256,972
as of September 30, 2008 compared to $3,526,273 as of September 30, 2007. This
decrease in working capital is the result partially of increased billings in
excess of cost and estimated earnings and accounts payable over the comparable
periods. The decrease in available cash and cash equivalents is attributable
to
repayment of short-term loans.
As
of
September 30, 2008, we had accounts payable of $1,073,840 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
September 30, 2008, we had short-term debt in the amount of $0 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 $911,810 was made on November 3, 2003 and carries a principal
balance of $883,972. 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 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 ($911,810) credit facility from
ScanE to finance the construction of our new manufacturing facility. Release
of
the loan proceeds was contingent upon our satisfying certain conditions
precedent, which we did as of November 13, 2007. As of January 8, 2008, we
had
utilized the full amount of this loan, which bears a fixed annual interest
rate
of 4%.
A
new six
month credit facility of CHF4,500,000 ($4,103,144) 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, we announced the sale of our Solar Plant on the roof of its manufacturing
facility. We 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 in the principal amount
of
CHF3,000,000 ($2,735,429) used mainly to cover short-term cash needs. The
revolving credit line was secured by short-term deposits denominated in US
dollars with UBS, amounting to $3,155,000. The credit line bears interest at
4.75%. On August 13, 2008, $3,000,000 of the short-term deposit was used to
offset the credit line. The balance of the credit facility was CHF0 ($0) as
of
September 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 $4,376,687 (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
($7,750,383). The amended loan amount must be drawn down no later than the
date
of completion of the construction or December 11, 2008. We used $6,243,107
(CHF6,846,938) of this financing as of September 30, 2008, and $7,563 (CHF8,513)
as of December 31, 2007. The loan bears interest at a rate of 3.75% and is
secured by a second lien exclusive mortgage certificate of CHF9,000,000
($8,206,288) 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 our manufactured solar panels
or modules, when available, and solar tiles and the related engineering services
required to design and install the same 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, if any, 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 $1,204,541 for the nine months ended September
30, 2008 compared to $647,357 of net cash used in operating activities for
the
nine months ended September 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 $393,424 due
to
advances received for new projects. Additionally, inventory of our new PV
SwissTile® products increased by $1,182,401. Operating activities also include a
net gain of $1,185,704 from the sale of the Solar Plant.
Investing
Activities
Net
cash
used in investing activities was $2,719,153 during the nine months ended
September 30, 2008 as compared to $2,286,677 used in investing activities during
the nine months ended September 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 $5,065,460 and the use of cash to pay creditors for the
construction of the building and plant in the amount of $7,784,613.
During
the remainder of 2008 and the first half of 2009, management anticipates total
capital expenditures of approximately $18 million for the new manufacturing
facility, of which we have already financed $10.5 million, and $3.5 million
for
the assembly line and related machinery. In addition, 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 megawatts of solar
tiles.
Financing
Activities
Net
cash
provided by financing activities was $1,787,766 for the nine months ended
September 30, 2008 as compared to $543,067 for the nine months ended September
30, 2007.
The
increase in financing activities is due to 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 $3,161,756 and the reimbursement of our line
of
credit with UBS for $1,373,990.
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
September 30, 2008, we had an outstanding purchase order of EUR448,600
($648,169), using the exchange rate of 0.6921 as of September 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 ($388,901) 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 September 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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31.1
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Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
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Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32.1
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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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32.2
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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:
November 7, 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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