RNS Number:4505L
Solar Integrated Technologies Inc
25 April 2005
25th April 2005
SOLAR INTEGRATED TECHNOLOGIES, INC.
YEAR-END RESULTS
FOR THE TWELVE MONTHS ENDING 31 DECEMBER 2004
Solar Integrated Technologies, Inc. ("SIT"), the specialized manufacturer and
provider of building integrated photovoltaic (BIPV) roofing systems, is pleased
to announce its unaudited results for the fiscal year ending 31 December 2004.
HIGHLIGHTS
* Turnover of $7.8 million (2003: $8.3 million), representing 1.7 mW of
installed PV roofing systems (2003: 0.9 mW)
* $7.1 million of contracts in progress, representing an additional 1.3 mW of
PV roofing systems in progress at year-end
* Positive gross margins of $0.9 million (2003: $3.3 million)
* Pre-tax losses of $6.1 million (2003: pre-tax profit of $0.1 million)
* Ended 2004 with an order backlog of $80.5 million, representing 8.9 mW
of PV roofing systems
* Completed 30% equity investment in German PV roofing specialist Dachland
GmbH to establish dedicated installation and service capability
* Formal cooperation agreement signed post year-end with Sarnafil for
sales and marketing of SIT branded roofing systems in Germany
* Negotiated a major lease financing program resulting in today's
announcement of our strategic relationship with GE Commercial Finance
Energy Financial Services (GE EFS), including an initial $17 million
project investment and GE EFS's option for $500 million in additional
project investments on a first right of refusal basis
Commenting on the announcement, Chairman David R. W. Potter said: "2004 marked
the first full year of operations for Solar Integrated, during which time we
made significant progress in preparing for rapid growth in the coming year, as
our order book suggests. With the announcement today of the strategic
relationship with GE, the Company's potential for accelerating growth on a
global scale will be greatly enhanced".
For further information, please contact:
Jon W. Slangerup London (020) 7153 3500
Chief Executive Officer Los Angeles +1 323 231 0411
JSlangerup@SolarIntegrated.com
Geza G. Molnar London (020) 7153 3500
Chief Financial Officer Los Angeles +1 323 231 0411
GMolnar@SolarIntegrated.com
Ken Cronin, Deborah Walter London (020) 7554 1400
Gavin Anderson & Company
Notes for Editors:
Solar Integrated Technologies, Inc., based in Los Angeles, California,
manufactures, markets, installs and services building integrated photovoltaic
(BIPV) roofing systems for industrial, municipal and government facilities, as
well as portable structures. Major customers include Coca-Cola, Frito Lay, the
San Diego Unified School District, the U.S. Military, and other blue chip
clients. The Company's proprietary manufacturing process involves fusing
flexible photovoltaic cells onto lightweight industrial roofing and tent fabric,
providing a turn-key BIPV roofing solution that generates renewable electrical
power. By its unique building integrated qualities, Solar Integrated's products
have distinct commercial advantages over conventional crystalline PV systems.
Chief Executive's Review
Review of Results
For the Company's first full year of operations, 2004 was one highlighted by
team efforts to create the foundation for rapid and sustainable growth for 2005
and beyond. The first half of the year resulted in a successful IPO on the
London AIM, followed by intensive efforts in the second half to develop and
negotiate a strategic financing program - the first of its kind in our industry.
These efforts set the stage for today's announcement of our strategic
relationship with GE Commercial Finance Energy Financial Services (GE EFS).
The agreement with GE EFS provides for an initial investment of approximately
$17 million for our San Diego Schools project. More importantly, GE EFS has the
right of first refusal on up to $500 million to fund existing and prospective
solar roofing projects as they come from Solar Integrated. This critical
relationship creates a unique platform from which to deliver our product
portfolio to a wide range of well-established industrial companies, state and
local governments, and a growing list of other customers.
In January 2005, we decided to adopt the strictest standards for financial
reporting, beginning with recognizing revenue only for completed projects versus
our previous method of recognizing revenue for projects on a percentage of
completion basis.
Based on the delay in closing the agreement with GE EFS,lower revenues were
reported in 2004 than originally expected, with a corresponding increase in
finished goods inventory, including a significant number of BIPV roof systems
that were substantially completed and ready for sale to our strategic partner,
GE EFS at December 31, 2004. This resulted in a reported pre-tax loss.
Turnover was $7.8 million compared to $8.3 million in 2003. However, we
installed 1.7 mW of new BIPV roofs, up from 0.9 mW in 2003, with a year-ending
backlog of 8.9 mW of new projects. This resulted in a commercial order book
entering 2005 of $80.5 million.
Significant investments were made in raw materials and finished goods
inventories needed to support rapid anticipated growth in 2005, as well as
substantially completed projects. In addition, more than $1 million in expenses
related to negotiating our strategic agreement with GE EFS. Cash on hand at
year-end was $0.9 million, with approximately $5.9 million in accounts
receivable. Contracts in progress at cost totaled approximately $7.1 million and
inventories totaled approximately $9.0 million.
During the year, the Company focused on cultivating customer relations and
creating new sales opportunities in the expanding U.S. and European markets. We
delivered high-profile projects for Coca-Cola, Frito Lay, the San Diego School
District, the U.S. Air Force, and other key clients. Many of these customers
opted to install our Energy Management System technology, which optimizes the
energy efficiency of their solar-powered facilities.
In Europe, we opened offices in England and Germany, and made a 30 percent
equity investment in Dachland GmbH, a German-based premium quality "green"
roofing company. Since the year-end, we also recently signed a formal
cooperation with Swiss-based Sarnafil Inc. Under the terms of the agreement,
Sarnafil's sales force will sell Solar Integrated's branded roofing systems to
customers in Germany. Our investments in Europe signal our commitment to rapid
expansion into the well-established market for BIPV roofing systems in Germany,
Spain and elsewhere.
On the product development front, Solar Integrated leveraged its ability to fuse
PV cells onto roofing materials by extending this process to other fabrics,
thereby developing the first commercially viable portable and modular PV tent
structures. We believe that this diversification of our core competence will
drive significant growth in high margin sales. This is evidenced by solar tents
delivered to the U.S. Military and movie studios seeking access to mobile
renewable power structures to support field operations. We have also had
significant interest in these new products from disaster relief agencies for
temporary housing, emergency power and mobile medical stations.
Markets
The market for BIPV systems is rapidly expanding on a global scale. In many U.S.
states, there are specific initiatives in place to promote and subsidize the use
of solar power for both industrial and residential applications, led by
California with long-range incentives and subsidies. Other states are following
California's lead, such as New Jersey, Florida, Nevada, Arizona, New Mexico,
Texas, Hawaii and others, who are moving apace toward solar and other renewable
energy solutions.
In Europe, there is a well-established commitment to renewable energy, and the
application of solar power is rapidly expanding. Germany is the world's largest
market for PV products, leading the world in installed solar power capacity,
principally through the use of feed-in tariffs which deliver compelling ROI
opportunities for solar users. Spain and France are following suit, with other
European countries moving forward as well.
Japan, like Germany, has a high commitment to solar power, and leads the Asian
Region in PV applications. The massive and rapidly growing energy demands of
China, India and other Asian nations are beginning to drive growth in renewable
energy, and the opportunity for solar power in this region is significant.
Globally, the three key drivers for renewable energy - and solar power in
particular - are well established and universally accepted:
* Energy security
* Climate change
* Air quality
As PV technology improves and demand continues to rise, significant increases in
PV production capacity will be funded, allowing for the continued expansion of
the market. Over time, as technology and production improves, and the costs of
fossil fuels continue to rise, the comparable cost of solar power will become
increasingly attractive. As this occurs, the long-term need for subsidies will
decline, creating an even greater wave of market opportunity.
Strategy
Solar Integrated has a unique business model based on its proprietary
BIPV systems and the Company's roots in the commercial roofing industry. Our
value proposition is powerful because we understand the roofing business and how
to deliver compelling ROI opportunities to our large base of blue chip
industrial clients. Our strategic relationship with GE EFS further enhances this
value proposition. Because we have evolved from decades in roofing construction
to becoming experts in transforming roof "liabilities" into cost-competitive
renewable energy "assets", we are well positioned to continually expand our
business model to reach existing and emerging markets for BIPV roofs.
For the foreseeable future, we will remain focused on our core market, which
comprises the billions of square feet of existing "big box" roofs around the
world. These include large manufacturing, distribution, retail, public and
military facilities that have large flat roofs. Up to ten percent of these roofs
are in the process of being replaced annually, and all of these replacement
and/or new roofs represent Solar Integrated's opportunity to sell our unique
building-integrated PV solutions. We believe that this niche is the largest
potential segment of the overall BIPV market, and the one that can have the
greatest impact on reaching critical mass for renewable solar power.
Outlook
In 2005, Solar Integrated will focus on "monetizing" a large backlog of BIPV
roofing projects, realized in great part due to our relationship with GE EFS.
We believe that this will generate sufficient cash flow and profits to keep pace
with the rapid growth in our targeted markets. Our Company will also focus on
expanding best practices within operations and staff functions, driving our
commitment to quality and business process improvements.
Jon W. Slangerup
Chief Executive Officer
UNAUDITED BALANCE SHEET
(U.S. Dollars)
ASSETS
December 31,
----------------------------
2004 2003
(Unaudited) (Audited)
----------------------------
$ $
Current assets
Cash and cash equivalents (Note 3) 438,400 29,800
Certificate of deposit - restricted (Note 8) - 500,000
Trade receivables (Notes 4 and 8) 5,875,400 2,997,000
Amount due from related party (note 6) 1,015,100 -
Inventories (Notes 5 and 8) 9,053,900 2,213,800
Contracts in process (Note 17) 7,137,900 -
Prepaid expenses and other current assets 231,700 11,200
----------------------------
Total current assets 23,752,400 5,751,800
Noncurrent assets
Plant and equipment, less accumulated depreciation
of $1,105,400 in 2004 and $422,200 in 2003 (Note 7) 3,811,700 4,127,900
Loan fees, net of amortization - 64,300
Deposits 120,200 47,900
----------------------------
Total assets 27,684,300 9,991,900
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ $
Borrowings under line of credit (Note 8) 6,000,000 1,362,500
Notes payable to bank - current portion (Note 8) 530,000 836,100
Trade and other payables (Note 9) 6,387,400 2,713,500
Billings in excess of costs (Note 17) - 58,800
Amounts due to related party (Note 6) - 2,891,000
----------------------------
Total current liabilities 12,917,400 7,861,900
Notes payable to bank - net of current portion
(Note 10) 2,035,800 1,877,500
----------------------------
Total liabilities 14,953,200 9,739,400
Shareholders' equity
Share capital (Note 11) 20,643,400 2,000,000
Accumulated deficit - beginning of period (1,747,500) (1,876,200)
Current period net income (loss) (6,164,800) 128,700
-----------------------------
Accumulated deficit - end of period (7,912,300) (1,747,500)
-----------------------------
Shareholders' equity 12,731,100 252,500
-----------------------------
Total liabilities and shareholders' equity 27,684,300 9,991,900
=============================
UNAUDITED STATEMENTS OF OPERATIONS
(U.S. Dollars)
Years ended
December 31,
----------------------------
2004 2003
(Unaudited) (Audited)
----------------------------
$ $
Revenue (Note 17) 7,836,300 8,301,600
----------------------------
Cost of sales
Cost of products sold 6,908,300 3,800,000
Cost of services - 1,220,700
Cost of sales 6,908,300 5,020,700
---------------------------
Gross profit 928,000 3,280,900
---------------------------
Operating expenses
Research, development and start-up costs 620,700 412,400
General and administrative expenses 6,059,900 2,647,500
----------------------------
Income (loss) from operating activities (5,752,600) 221,000
Interest expense (Note 12) 412,200 92,200
----------------------------
Income (loss) before income taxes (6,164,800) 128,800
Income tax expense - -
----------------------------
NET INCOME (LOSS) (6,164,800) 128,800
============================
Basic and diluted earnings (loss) per share in (0.29) 129
dollars ============================
Weighted average number of shares outstanding
(basic and diluted) (Note 18) 21,361,127 1,000
============================
UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
(U.S. Dollars)
Years ended December 31, 2004 and 2003
Common Stock Accumulated
----------------
Shares Amount deficit Total
-----------------------------------------------------
$ $ $
Balance at December 31, 2002 1,000 - (1,876,200) (1,876,200)
Capital contribution - 2,000,000 - 2,000,000
Net income for the year ended
December 31, 2003 128,700 128,700
--------------------------------------------------------
Balance at December 31, 2003 1,000 2,000,000 (1,747,500) 252,500
Issuance of common stock 33,461,710 21,657,400 - 21,657,400
Expenses incurred in connection
with the issuance of common
stock (3,014,000) (3,014,000)
Net loss for the year
ended December 31, 2004 - - (6,614,800) (5,619,800)
--------------------------------------------------------
Balance at December
31, 2004 33,462,710 20,643,400 (7,912,300) 13,276,100
=========================================================
The accompanying notes are an integral part of these statements.
UNAUDITED STATEMENT OF CASH FLOWS
(U.S. Dollars)
Year ended
December 31,
--------------------------
2004 2003
(Unaudited) (Audited)
--------------------------
$ $
Cash flows from operating activities:
Income (loss) from operating activities (5,752,600) 222,800
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 683,100 422,200
Increase in warranty provision 13,300 36,700
Amortization of loan fees 64,300 11,900
--------------------------
Operating cash flows before movements
in working capital (4,991,900) 693,600
Changes in assets and liabilities:
Accounts receivable (2,878,400) (2,997,000)
Amount due from related party (1,015,100) -
Inventories (6,840,200) (1,891,900)
Contracts in process (7,137,900)
Prepaid expenses and other assets (292,700) (29,200)
Trade and other payables 3,659,400 2,673,800
Billings in excess of costs (57,600) 58,700
--------------------------
Cash used by operations (19,554,400) (1,492,000)
Interest paid (412,200) (92,200)
--------------------------
Net cash used in operating activities (19,966,600) (1,584,200)
--------------------------
Cash flows from investing activities:
Purchase of certificate of deposit (500,000)
Proceeds from certificate of deposit 500,000
Acquisition of plant and equipment (366,800) (1,896,600)
--------------------------
Net cash used in investing activities 133,200 (2,396,600)
--------------------------
The accompanying notes are an integral part of these statements.
UNAUDITED STATEMENT OF CASH FLOWS - CONTINUED
(U.S. Dollars)
Years ended
December 31,
---------------------------
2004 2003
(Unaudited) (Audited)
---------------------------
$ $
Cash flows from financing activities:
Repayment of bank debt (3,147,900) (286,300)
Proceeds from bank loans 3,000,000 500,000
Borrowings from line of credit 4,637,500 1,362,500
Borrowings from related party 1,565,300
Repayment of amount due to related party (2,891,000) (1,130,800)
Issuance of common stock, net of costs of
$3,014,000 in 2004 18,643,400
Capital contribution 2,000,000
---------------------------
Net cash provided by financing activities 20,242,000 4,010,700
---------------------------
NET INCREASE IN CASH 408,600 29,800
Cash at beginning of period 29,800 -
---------------------------
Cash at end of period 438,400 29,800
===========================
Supplemental disclosure of cash flow information
Cash paid during the period
Interest paid included in cash flows from
operating activities 412,200 92,200
Interest paid capitalized in plant and equipment - 61,600
---------------------------
412,200 153,800
===========================
The accompanying notes are an integral part of these statements.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(U.S. Dollars)
December 31, 2004 and 2003
Note 1: Establishment and operations of the Company. Solar Integrated
Technologies, Inc., (the "Company") was established and incorporated in the
State of Delaware in the United States of America on January 24, 2002.
The Company prepares its financial statements to December 31 of each year.
The Company fabricates a fully bi-functional integrated solar roof system that
both waterproofs the building envelope and generates solar electric power. The
address of the principal place of business of the Company is 1837 E. Martin
Luther King Jr. Blvd, Los Angeles, California, United States of America.
The directors authorized the financial statements for the years ended December
31, 2004 for issuance on April 25, 2005.
Note 2: Summary of significant accounting policies. The financials statements
are prepared in accordance with International Financial Reporting Standards
(IFRS) and under the historical cost convention. These financial statements are
presented in US Dollars since that is the currency in which the majority of the
Company's transactions are denominated.
The significant accounting policies adopted are as follows:
a. Plant and equipment. Plant and equipment are carried at cost less
accumulated depreciation. Plant and equipment are depreciated using the
straight-line method over their respective estimated useful lives as
follows:
Machinery and equipment 7 Years
Furniture, fixtures and office equipment 5 Years
Assets in the course of construction are carried at cost. Depreciation
is charged on these assets from the date on which they are placed in
service.
b. Inventories. Inventories are stated at the lower of cost or net
realizable value. Cost is arrived at using the first-in, first-out
(FIFO)method. Cost comprises invoice value plus applicable landing
charges in the case of raw materials, packing materials, spares and
consumables. Finished goods comprise cost of materials plus attributable
labor and overhead charges that have been incurred in bringing the
inventories to their present location and condition. Net realizable
value is based on estimated selling price less estimated costs to
completion of sale. Provisions are made for obsolete and slow-moving
items.
c. Revenue.
i) Sales of goods
Sales of goods, other than goods supplied as part of construction
contracts, are recognized when goods are delivered and title has
passed.
ii) Construction contracts
For year ended December 31, 2003, where the outcome of a construction
contract could be estimated reliably, the Company recognized revenue
and costs using the percentage of completion method over the period
of installation, which is typically four to eight weeks, as measured
by the proportion that contract costs incurred for work performed and
product installed to date bear to the estimated total contract costs.
Where the outcome of a construction contract could not be estimated
reliably, contract revenue was recognized to the extent of contract
costs incurred that it was probable would be recoverable. To the
extent that billings to date on a project exceeded revenue to be
recognized on a percentage of completion basis, an adjustment was
made to "billings in excess of cost" on the balance sheet.
Conversely, if billings were less than revenue to be recognized,
an adjustment was reflected in "costs in excess of billings" on the
balance sheet. When it is probable that total contract costs would
exceed total contract revenue, the expected loss was recognized as an
expense immediately.
For the year ended December 31, 2004 the Company change its revenue
recognition policy for construction contracts. The Company recognized
revenue and costs using the completed contract method. Costs incurred
related to contracts in progress are included on the balance sheet at
cost.
Since all revenues for the year ended December 31, 2003 were related
to contracts that were completed no restatement of revenues was
required.
d. Income taxes.
The Company filed an election to be taxed as an S Corporation for
Federal tax purposes effective for the year ended December 31, 2003.
The Company has not received final notification from the Internal
Revenue Service (IRS) approving the S Corporation election; however,
the Company believes that they have made a valid S Corporation
election and the IRS will approve the election for fiscal 2003. The
financial statements for the year ended December 31, 2003 have been
prepared assuming the Company has made a valid election. Accordingly,
all Federal taxable earnings of the Company are taxed at the
individual stockholder level and the Company incurs no Federal income
tax liability. The Company, however, is subject to California S
Corporation tax at a rate of 1.5%.
In May, 2004 the Company filed an election to be taxed as a C
corporation. Therefore, the Company is subject to federal and local
taxes on corporate income for periods after May 6, 2004.
e. Borrowing costs. Borrowing costs are recognized as an expense in the
period in which they are incurred except those that are directly
attributed to the acquisition and construction of an asset that
takes a substantial period of time to get ready for its intended
use. Such borrowing costs are capitalized as part of the related
asset until such time as the asset is substantially ready for use.
f. Cash and cash equivalents. Cash and cash equivalents comprise
current bank accounts and other bank deposits free of encumbrances
and having maturity dates of three months or less from the
respective dates of deposit.
g. Restricted certificate of deposit. Restricted certificate of deposit
consists of amounts pledged as security for a bank loan (see Note
8). The certificate of deposit earns interest at .96% at December
31, 2003 and is reported at fair value.
h. Financial instruments. Financial assets and financial liabilities
are recognized on the Company's balance sheet when the Company has
become a party to the contractual provisions of the instrument.
Receivables
Trade receivables are stated at nominal value, less appropriate allowances
for estimated irrecoverable amounts.
Payables
Trade payables are stated at nominal value.
Due to related parties
Amounts due to related party are stated at nominal value.
Borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds
received. Direct issue costs are capitalized and amortized over the related
loan period.
Share capital
Shares issued by the Company are recorded at the proceeds received, net of
direct issue costs.
i. Provisions. Provisions for warranty costs are recognized at the date of
sale of the relevant products, at the directors' best estimate of the
expenditure required to settle the liability. The activity for the
years ended December 31, 2004 and 2003 was as follows:
$
Balance at January 1, 2003 -
Provision during the year ended December 31, 2003 36,700
----------------
Balance at December 31, 2003 36,700
Provision during the year ended December 31, 2004 13,300
----------------
Balance at December 31, 2004 50,000
================
j. Research, development and start-up costs. Expenditures related to the
development of new products and processes are expensed as incurred. Costs
associated with start-up activities have been expensed as incurred.
Note 3: Cash and cash equivalents.
December 31,
-------------------------------
2004 2003
-------------------------------
$ $
Bank balances in current accounts 438,400 29,800
===============================
Note 4: Trade receivables.
December 31,
-------------------------------
2004 2003
-------------------------------
$ $
Trade receivables 5,875,400 2,997,000
===============================
At December 31, 2003, 100% of the trade receivable balance was due from one
customer. Based on the Company's knowledge of the financial condition of its
customers, an allowance for uncollectible balance was not established.
Trade receivables have been pledged as security for one of the Company's bank
loans (Note 8).
Note 5: Inventories.
December 31,
-----------------------------------
2004 2003
-----------------------------------
$ $
Raw materials 2,857,300 1,001,600
Work in process 1,176,000
Finished goods 5,020,600 1,212,100
------------------------------------
9,053,900 2,213,700
====================================
Inventories have been pledged as security for one of the Company's bank loans
(Note 8).
Note 6: Related-party transactions. The Company has entered into transactions
with another entity, SCR Group, Inc. ("SCR") that falls within the definition of
a related party under International Accounting Standard No. 24. The two majority
shareholders of the Company are also 100% shareholders of SCR and both companies
are under common management control. At the balance sheet dates, amounts due to
SCR were as follows:
December 31,
-------------------------------------
2004 2003
-------------------------------------
$ $
Amounts due from SCR 1,015,100
Amounts due to SCR 2,891,000
=====================================
The amounts due from SCR are the result of working capital advances to SCR to
support the installation of the Company's projects. The amounts due to SCR are
the result of working capital advances to the Company, expenditures made to SCR
on behalf of the Company and certain shared administrative functions, including
finance and information technology support. The balances owed to SCR are
non-interest bearing and payable upon demand. Due to the Company's initial lack
of credit history and direct borrowing ability with institutional lenders, SCR
contracted with various vendors and creditors on behalf of the Company.
In 2002, SCR obtained a $2,500,000 equipment finance loan on behalf of the
Company to fund the development and purchase of equipment. Loan proceeds were
used to finance the purchase of machinery and equipment on behalf of the
Company. The loan is for a term of seven years and requires monthly payments of
$35,138 (see Note 10). SCR paid the monthly payments and charged the
inter-company account until June 2003 at which point the Company assumed the
monthly payments. The amount due under the equipment finance loan is classified
as notes payable to bank on the accompanying balance sheet as of December 31,
2003 rather than being classed as amounts due to SCR. As discussed in Note 10
the Company entered into a $3,000,000 term note payable on January 30, 2004, the
loan proceeds of which were partially used to pay down SCR's equipment term loan
on February 11, 2004.
In July 2002, SCR entered into an operating lease agreement for the
manufacturing facility currently occupied by the Company. The lease term is for
three years and seven months and ends on January 31, 2006. Monthly rent is
$14,958 plus common area expenses until April 2004 and escalates to $16,400
thereafter. Deferred rent expense resulting from the normalization of the rent
escalations was not significant at December 31, 2004 and 2003. The agreement
includes the option to extend the term of the lease for an additional three
years. The rents payable under this lease were recharged by SCR to the Company.
Rent expense under the facility lease was $207,500 and $179,800 for the years
ended December 31, 2004 and 2003, respectively. Future minimum noncancellable
operating lease payments under this lease are as follows:
Year ended December 31,
-------------------------
$
2005 196,900
2006 16,400
-------------
213,300
=============
In 2003, SCR has also leased certain equipment used by the Company or jointly
used by the Company and SCR (primarily office equipment and warehouse equipment)
under hire purchase leases. SCR recharged a portion of the payments required
under these lease agreements to the Company through an inter-company charge to
reflect the Company's use of the assets. Rent expense for these leases totaled
$557,200 and for the year ended December 31, 2004.
In connection with the Company's line of credit facility (discussed in Note 8),
SCR provided a guarantee to the financial institution. The maximum borrowings
available under the credit facility total $6,000,000 which extends through May
31, 2005. The balance, subject to the guarantee, totaled $6,000,000 at December
31, 2004.
The Company has provided a cross guarantee to a financial institution for
certain bank debt of SCR. The bank debt subject to the guarantee consists of a
$2,000,000 term loan that expires on June 30, 2005. A majority of the proceeds
from this term loan were used to provide working capital advances to the Company
from SCR. The advances from SCR are included in the amounts due to related party
on the accompanying balance sheet as of December 31, 2004 and 2003. Borrowings
under the commercial loan bear interest at the published Wall Street Journal
Prime Rate, but not less than 5.50% (5.50% at December 31, 2004). In connection
with this loan, the financial institution also obtained personal guarantees of
the two common shareholders of SCR and the Company. Under the terms of the loan
agreement, SCR is required to comply with certain covenants. As of December 31,
2004, SCR was in compliance with such covenants. It is not practicable to
estimate the fair value of the guarantee; however, the Company does not
anticipate that it will incur losses as a result of this guarantee. The Company
has not recorded a separate liability for this guarantee. If SCR were to default
on the outstanding loan balance, the Company may be required to repay the
remaining principal balance. The Company believes that in the event of default
by SCR, the Company would have recourse by reducing the amounts owed to SCR that
are currently included in the amount due to related party in the accompanying
balance sheet as of December 31, 2004 and 2003. The maximum potential amount the
Company would be required to pay is equal to the outstanding principal and
interest balance of the loan to SCR. At December 31, 2004, the outstanding loan
balance subject to the guarantee is $2,000,000.
The Company commenced trading in fiscal 2003 and earned revenue under four
contracts. The first three contracts were carried out under an arrangement where
the Company sold product and materials to SCR, which then contracted with the
end customer to install the roof system. Total revenue recognized under these
first three contracts approximated $5,300,000 for the year ended December 31,
2003. One of these contracts related to the sale of bought-in materials for a
glass-solar roof - a one-off sale that falls outside the Company business model
and is not expected to repeat. Revenue from the glass-solar roof installation
totaled $3,661,000 in 2003 (44% of total revenue in 2003.) The other two
contracts with SCR related to one end-customer and totaled $1,600,000 (19% of
total revenue in 2003.) The fourth contract was made under a different
arrangement, whereby the Company contracted directly with the end customer and
SCR was subcontracted by the Company to provide installation labor.
The remuneration paid by SIT to the common shareholders of SCR and SIT was
$51,600 in 2003. In 2003, only one of the shareholder's salary was paid by the
Company. The other shareholder remained an employee of SCR during fiscal 2003.
Note 7: Plant and equipment.
Furniture,
Machinery Fixtures Capital
and and office work in
equipment equipment progress Total
--------------------------------------------------------
$ $ $ $
Cost
As at January 1, 2003 - - 2,653,500 2,653,500
Additions - 11,700 1,885,000 1,896,700
Transfers 4,538,500 (4,538,500)
---------------------------------------------------------
As at December 31, 2003 4,538,500 11,700 - 4,550,200
Additions 252,200 114,600 366,800
Transfers - - -
---------------------------------------------------------
As at December 31, 2004 4,790,700 126,300 - 4,917,000
---------------------------------------------------------
Accumulated depreciation
As at January 1, 2003 - - - -
Depreciation for the period 421,100 1,200 - 422,300
--------------------------------------------------------
As at December 31, 2003 421,100 1,200 - 422,300
Depreciation for the period 667,200 15,900 - 683,100
--------------------------------------------------------
As at December 31, 2004 1,088,300 17,100 - 1,105,400
--------------------------------------------------------
Net book value
As at December 31, 2004 4,789,600 109,200 3,811,600
========================================================
As at December 31, 2003 4,117,400 10,500 4,127,900
========================================================
Plant and equipment includes interest capitalized during the period of $61,604
in 2003. The capitalization rate used was the average actual borrowing cost.
As discussed in Note 6, the Company's machinery and equipment was purchased by
SCR on behalf of the Company using borrowings from an equipment term loan to
finance a portion of the cost. The machinery and equipment of $3,811,600 are
pledged as security for the equipment term loan.
Note 8: Due to banks.
December 31,
-------------------------
2004 2003
-------------------------
$ $
Current portion of long-term loan (note 10) 530,000 336,100
Short-term bank loan 500,000
Borrowings under line of credit 6,000,000 1,362,500
--------------------------
6,530,000 2,198,600
==========================
In December 2003, the Company entered into a business loan agreement that was to
expire on December 31, 2004. Such loan agreement was amended on May 26, 2004 and
the expiration date was extended to May 31, 2005. The loan agreement provides
the Company with a line of credit. Maximum borrowings under the line of credit
are based on eligible trade receivables and inventory and may not exceed
$6,000,000 at December 31, 2004. Borrowings under the line of credit bear
interest at the bank's prime lending rate plus 1.5% (6.5% at December 31, 2004)
and are collateralized by the inventories and trade receivables of the Company.
In connection with the line of credit, the financial institution obtained
personal guarantees of the two majority shareholders and a corporate guarantee
of the related party (see Note 6). Under the line of credit agreement, the
Company is required to comply with certain covenants. As of December 31, 2004
the Company was in compliance with such covenants.
The Company had a short-term bank loan to a separate financial institution
totaling $500,000. The loan bears interest at 6%. The Company was required to
deposit the proceeds from this bank loan into a restricted certificate of
deposit as collateral for the loan. The loan was repaid in March 2004.
Note 9: Trade and other payables.
December 31,
-------------------------------------
2004 2003
-------------------------------------
$ $
Trade payables 5,959,200 1,728,700
Accruals 428,200 984,800
-------------------------------------
6,387,400 2,713,500
========== ==========
Note 10: Interest bearing liabilities-long term portion.
December 31,
---------------------------
2004 2003
---------------------------
$ $
Long-term equipment finance loan 2,565,800 2,213,600
Less: Current Portion (note 8) (530,000) (336,100)
----------------------------
2,035,800 1,877,500
============================
December 31,
----------------------------
2004 2003
----------------------------
$ $
The borrowings are repayable as follows:
In the second year 521,800 331,700
In the third to sixth years (inclusive) 1,514,000 2,047,100
----------------------------
Amount due for settlement after 12 months 2,035,800 2,378,800
----------------------------
The equipment finance loan bears interest at LIBOR plus 3% (4.46% at December
31, 2003). The equipment loan is collateralized by substantially all of the
plant and equipment. The equipment finance loan had an original term of seven
years and required monthly payments of $35,138. On February 11, 2004, the
equipment finance loan was repaid using proceeds from a new term loan.
On January 30, 2004, the Company entered into a $3,000,000 term note payable
collateralized by equipment of the Company. The note bears interest at the
bank's prime lending rate, but not less than 5.50% and requires 59 monthly
payments of $57,530 and one final payment of all outstanding principal and
accrued interest on February 20, 2009. The loan proceeds were used to pay down
the existing equipment finance loan.
On March 11, 2004, the Company repaid its $500,000 short-term loan using the
proceeds from the maturity of the restricted certificate of deposit.
Note 11: Share Capital.
December 31,
---------------------------
2004 2003
---------------------------
$ $
Number of authorized shares at $0.001 par value 50,000,000
Number of issued shares and fully paid at $0.0001
par value 33,462,710
Number of authorized shares at no par value 1,500
Number of issued shares at no par value 1,000
Number of issued and fully paid shares at no par
value 1,000
Issued and fully paid share capital - amount 20,643,400 2,000,000
===========================
The Company has one class of common shares, which carry no right to fixed
income. The Company issued 1,000 common shares on the date of incorporation.
These shares were issued at $2,000 per share, which was fully paid in fiscal
2003.
On May 4, 2004 the shareholders passed a resolution to amend the Certificate of
Incorporation so as to affect a 24,933 forward stock split, pursuant to which
each of the 1,000 common shares fully paid were divided into 24,933 fully paid
shares of common stock with no par value. Following the stock split there were
24,933,000 shares of common stock outstanding. Additionally, the par value per
common share was amended from $0.00 to $0.0001 as well as the authorized share
capital of the Company was increased from 1,500 common shares to 50,000,000
common shares. On May 12, 2004 following admission to AIM the Company placed
7,217,447 common shares at $3.15.
Note 12: Finance costs.
Year ended
December 31,
--------------------------------
2004 2003
--------------------------------
$ $
On long-term bank loans 226,200
On other loans 186,000 61,000
--------------------------------
412,200 61,000
================================
Note 13: Number of employees. The number of employees of the Company as at
December 31, 2004 and 2003 was 36 and 21, respectively.
Note 14: Financial instruments: credit, interest rate and exchange rate risk
exposures.
a. Credit risk. The Company's credit risk is primarily attributable to trade
receivables. At December 31, 2004 and 2003, the Company's maximum
exposure to credit risk from one customer amounted to $2,281,300 and
$2,997,000 respectively.
The credit risk on cash and cash equivalents and the certificate of
deposit is limited as the counterparties are banks with high credit
ratings. The certificate of deposit at December 31, 2003 of $500,000 was
held with one financial institution.
b. Interest rate risk. Term loans and other bank borrowings are at floating
rates of interest generally obtained within the United States of America,
which are negotiated with the banks at various indexes plus negotiated
margins. Amounts due to related parties currently carry no interest
charges.
c. Exchange rate risk. The Company has no significant exchange rate risk as
substantially all financial assets and financial liabilities are
denominated in US dollars.
Note 15: Financial instruments: fair values. The fair value of a financial
instrument is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm's length transaction.
At the balance sheet date, the fair values of the Company's financial assets and
financial liabilities approximate to their carrying values.
Note 16: Operating profit (loss)
Operating profit (loss) has been arrived at after charging:
Year ended
December 31,
-------------------------------
2004 2003
-------------------------------
$ $
Depreciation of property, plant and equipment 683,100 422,200
Staff costs (excluding direct labor) 1,169,300 573,100
Insurance 327,400 73,000
Professional & consulting fees 1,846,100 151,600
Sales & marketing expenses 779,400 221,000
Rent & utilities 292,700 192,600
Information technology & communication expense 348,700 70,300
Travel 191,000 175,500
Directors fees & expenses 171,400 -
Note 17: Revenue
An analysis of the Company's revenue is as follows:
Year ended
December 31,
-----------------------------
2004 2003
-----------------------------
$ $
Sales of product and materials to related party 5,263,300
Revenue from construction contracts 7,836,300 2,938,300
Other revenue 100,000
-----------------------------
7,836,300 8,301,600
=============================
Contracts in progress at the balance sheet dates are as follows:
December 31,
-----------------------------
2004 2003
-----------------------------
$ $
-----------------------------
Contracts in progress recorded at cost 7,137,900
Amount due from contract customer 2,997,000
(included in trade receivables)
Contract costs incurred plus recognized profits in
excess of billings 2,938,200
------------------------------
Costs and profit in excess of billings included in
balance sheets 7,137,900 (58,800)
==============================
Note 18: Earnings per share. The calculation of basic earnings per share is
based on the following data for the six months ended June 30:
2004 2003
-------------------------------
$ $
Earnings (loss) for the purposes of basic and diluted
earnings per share (6,164,800) 128,800
Weighted average number of common shares for the
purposes of basic and diluted earnings per share 21,361,489 1,000
Basic and diluted earnings (loss) per share (in
dollars) (0.29) 129
Note 19: Segmental reporting. The Company has only one reporting segment. It is
engaged in one activity, being the manufacture and sale of solar roof systems
and its business operations and sales to date have been conducted in one
geographical location.
Note 20: Contingent liabilities. During 2003, the Company provided a guarantee
of $2,000,000 of certain bank debt of SCR, a related party (see Note 6).
Note 21: Subsequent events. In January 2005, the Company acquired a 30% interest
in a German company that specializes in installing single ply, green and
photovoltaic roofing systems for $1,949,250 (Euro1.5 million) in cash. The Company
financed the acquisition from borrowings from its bank line of credit, which
increased from $6,000,000 to $15,000,000 in January 2005. The Company has the
option to acquire the remaining 70% of its outstanding share capital by April
2006, for a total consideration of approximately $4,550,000 (Euro3.5 million)
payable in cash and shares (which are limited to a maximum of 25% of the
purchase price). Should the Company decide not to exercise the option to
purchase during this period, the shareholders of the German company will be able
to repurchase the 30% interest at a price potentially lower than the acquisition
price, subject to it meeting certain performance criteria. In addition to the
cash consideration, the Company has provided an indemnity to the Germany
Company's shareholders and related parties to cover their personal guarantees
and land-charges securing outstanding bank loans and facilities up to a maximum
of $4,095,000 (Euro3.15 million). The indemnification will terminate when the
Company is no longer a shareholder in the German company. The Company is
obligated to substitute these personal guarantees with the guarantee of an
international bank by December 31, 2005 or when it owns more than 50% of the
shares of the German company, in which case the indemnification to the majority
shareholders will also terminate. As of the date of the issuance of these
financial statements no claims were asserted by any of the banks covered by this
indemnity.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELSUISISEEL
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