UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF1934
For the
quarterly period ended
March 31,
2009
o
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from
_________ to _________
Commission file
number
001-13549
SOLAR
THIN FILMS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
95-4356228
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employee Identification No.)
|
25
Highland Blvd, Dix Hills, New York 11746
(Address
of principal executive offices)
(516)
417-8454
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) 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 the filing
requirements for the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
o
No
o
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.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
|
|
|
Non-accelerated
filer
o
|
Smaller
reporting company
x
|
Indicate
by check mark whether registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act)
Yes
o
No
x
Number of
outstanding shares of the registrant's par value $0.01 common stock, as of May
14, 2009: 58,136,113.
SOLAR
THIN FILMS, INC.
FORM
10-Q
INDEX
|
|
|
|
|
PAGE
|
|
|
|
|
|
|
|
Cautionary
Statement Concerning Forward-Looking Statements
|
|
3
|
|
|
|
|
|
|
|
PART I
|
|
FINANCIAL
INFORMATION
|
|
F-1
|
|
Item
1.
|
|
Condensed
Consolidated Balance Sheets at March 31, 2009 (unaudited) and December 31,
2008
|
|
F-1
|
|
|
|
Condensed
Consolidated Statements of Operations and Comprehensive Loss for the Three
Months Ended March 31, 2009 and 2008 (unaudited)
|
|
F-2
|
|
|
|
Condensed
Consolidated Statement of Stockholders’ Deficit for the Twelve Months
Ended December 31, 2008 and Three Months Ended March 31, 2009
(unaudited)
|
|
F-3
to F-4
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2009 and 2008 (unaudited)
|
|
F-5
|
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
|
F-6
to F-33
|
|
Item
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
5
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
19
|
|
Item
4T.
|
|
Controls
and Procedures
|
|
19
|
|
|
|
|
|
|
|
PART II
|
|
OTHER
INFORMATION
|
|
20
|
|
Item
1.
|
|
Legal
Proceedings
|
|
20
|
|
Item
1A.
|
|
Risk
Factors
|
|
20
|
|
Item
2.
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
20
|
|
Item
3.
|
|
Defaults
on Senior Securities
|
|
20
|
|
Item
4.
|
|
Submission
of Matters to a Vote of Security Holders
|
|
21
|
|
Item
5.
|
|
Other
Information
|
|
21
|
|
Item
6.
|
|
Exhibits
|
|
21
|
|
|
|
|
|
Signatures
|
|
22
|
Cautionary Statement Concerning Forward-Looking
Statements
Our representatives and we may from
time to time make written or oral statements that are "forward-looking,"
including statements contained in this Quarterly Report on Form 10-Q and other
filings with the Securities and Exchange Commission, reports to our stockholders
and news releases. All statements that express expectations, estimates,
forecasts or projections are forward-looking statements within the meaning of
the Act. In addition, other written or oral statements which constitute
forward-looking statements may be made by us or on our behalf. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
"projects," "forecasts," "may," "should," variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict. These risks may
relate to, without limitation:
|
·
|
we
have a significant working capital shortage; are currently in default in
payment of approximately $1.75 million of indebtedness which became due in
March 2009, and may face litigation or even bankruptcy if we are unable to
met our obligations;
|
|
·
|
we
need to raise additional capital which may not be available on acceptable
terms or at all;
|
|
·
|
we
have a history of substantial losses, may incur addition losses in 2009
and beyond, and may never achieve or maintain
profitability;
|
|
·
|
our
revenues and operating results are likely to fluctuate
significantly;
|
|
·
|
we
have only generated limited revenues and may never achieve
profitability;
|
|
·
|
our
equipment business is small and projected revenues may not
materialize;
|
|
·
|
our
equipment business is dependent on a small amount of customers and any
loss of these customers will have a negative impact on our
operations;
|
|
·
|
evaluating
our business and future prospects may be difficult due to the rapidly
changing market landscape;
|
|
·
|
our
future success substantially depends on our ability to significantly
increase our manufacturing capacity through the development of additional
manufacturing facilities;
|
|
·
|
our
“turnkey” manufacturing facility may not gain market acceptance, which
would prevent us from achieving increased sales and market
share;
|
|
·
|
technological
changes in the solar power industry could render our turnkey manufacturing
facilities uncompetitive or obsolete, which could reduce our market share
and cause our sales to decline;
|
|
·
|
we
face risks associated with the marketing, development and sale of our
turnkey facilities internationally, and if we are unable to effectively
manage these risks, it could impair our ability to expand our business
abroad;
|
|
·
|
we
may not be able to successfully develop and commercialize our turnkey PV
manufacturing facilities which would result in continued losses and may
require us to curtail or cease;
|
|
·
|
our
fixed-price contracts could subject us to losses in the event that we have
cost overruns;
|
|
·
|
we
are selling 49% of the equity of our Kraft subsidiary in order to acquire
BudaSolar
Technologies Co.
Ltd;
|
|
·
|
we
need to raise significant additional financing to complete the acquisition
of Algatec Solar Ag;
|
|
·
|
substantially
all of Algatec's existing and projected 2009 revenues from the manufacture
and sale of metallurgical crystalline solar modules are derived from its
OEM contract with Q-Cells, which contract will expire at the end of
2009;
|
|
·
|
our
inability to perform under significant contracts would have a material
adverse effect on our consolidated business and
prospects;
|
|
·
|
prices
of metallurgical crystalline cells and other components may increase
causing Algatec's profit margins to
decrease;
|
|
·
|
even
if we finance and complete the Algatec acquisition, there is no assurance
that Algatec will be able to build equip and operate its new manufacturing
facilities on schedule or within the amount budgeted for such
purpose;
|
|
·
|
we
have a few proprietary rights, the lack of which may make it easier for
our competitors to compete against
us;
|
|
·
|
we
depend on the services of key executives and technical and other
personnel, the loss of whom could materially harm our business or reduce
our operational effectiveness;
|
|
·
|
we
do not maintain theft or casualty insurance and only maintain modest
liability and property insurance coverage and therefore we could incur
losses as a result of an uninsured loss;
and
|
|
·
|
governmental
regulation may have a negative impact on our
business.
|
Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in or suggested by such forward-looking statements. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Readers should carefully
review the factors described herein and in other documents we file from time to
time with the Securities and Exchange Commission, including our Quarterly
Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on
Form 8-K filed by us.
PART
I. FINANCIAL INFORMATION
Item 1. Financial Statements
|
|
|
|
CONDENSED CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,909,936
|
|
|
$
|
619,257
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $696,067 and
$696,067, respectively
|
|
|
-
|
|
|
|
194,341
|
|
|
Accounts
receivable, related party, net of allowance for doubtful accounts of
$831,863 and $831,863, respectively
|
|
|
500,000
|
|
|
|
500,000
|
|
|
Inventory
|
|
|
701,146
|
|
|
|
207,041
|
|
|
Advances
to suppliers
|
|
|
1,022,674
|
|
|
|
931,370
|
|
|
Note
receivable, net of allowance for doubtful accounts of
$250,000
|
|
|
-
|
|
|
|
-
|
|
|
Deposits
and other current assets
|
|
|
180,689
|
|
|
|
378,331
|
|
|
Total
current assets
|
|
|
4,314,445
|
|
|
|
2,830,340
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation of $371,731 and
$439,998, respectively
|
|
|
334,378
|
|
|
|
413,241
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs, net of accumulated amortization of $595,454 and $581,000,
respectively
|
|
|
12,046
|
|
|
|
26,500
|
|
|
Investments
into CG Solar, at cost
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
Deposits
|
|
|
30,704
|
|
|
|
38,072
|
|
|
Other
assets
|
|
|
583
|
|
|
|
3,893
|
|
|
Total
other assets
|
|
|
1,543,333
|
|
|
|
1,568,465
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
6,192,156
|
|
|
$
|
4,812,046
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
4,824,291
|
|
|
$
|
4,028,115
|
|
|
Notes
payable, current portion
|
|
|
2,797,774
|
|
|
|
2,560,997
|
|
|
Advances
received from customers
|
|
|
2,171,678
|
|
|
|
1,969,390
|
|
|
Deferred
revenue
|
|
|
434,079
|
|
|
|
33,452
|
|
|
Derivative
liability
|
|
|
8,867
|
|
|
|
-
|
|
|
Note
payable-other
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
Total
current liabilities
|
|
|
11,736,689
|
|
|
|
10,091,954
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable, net of unamortized discount
|
|
|
-
|
|
|
|
-
|
|
|
Dividends
payable
|
|
|
115,954
|
|
|
|
143,778
|
|
|
Total
long term debt
|
|
|
115,954
|
|
|
|
143,778
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder's
Deficit
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $0.01 per share; 2,700,000 shares
authorized:
|
|
|
|
|
|
|
|
|
|
Series
A Preferred stock, par value $0.01 per share; 1,200,000 shares designated;
-0- issued and outstanding at March 31, 2009 and December 31,
2008
|
|
|
-
|
|
|
|
-
|
|
|
Series
B Preferred stock, par value $0.01 per share; 1,500,000 shares
designated:
|
|
|
|
|
|
|
|
|
|
Series
B-1 Preferred stock, par value $0.01 per share, 1,000,000 shares
designated, 228,652 issued and outstanding at March 31, 2009 and December
31, 2008
|
|
|
2,286
|
|
|
|
2,286
|
|
|
Series
B-3 Preferred stock, par value $0.01 per share, 232,500 shares designated,
47,502 and 47,518 issued and outstanding at March 31, 2009 and December
31, 2008, respectively
|
|
|
475
|
|
|
|
475
|
|
|
Series
B-4 Preferred stock, par value $0.01 per share, 100,000 shares designated,
-0- issued and outstanding at March 31, 2009 and December 31,
2008
|
|
|
-
|
|
|
|
-
|
|
|
Common
stock, par value $0.01 per share, 150,000,000 shares authorized,
58,136,113 and 57,810,601 issued and outstanding as of March 31, 2009 and
December 31, 2008, respectively
|
|
|
581,361
|
|
|
|
578,106
|
|
|
Additional
paid in capital
|
|
|
22,011,206
|
|
|
|
24,838,003
|
|
|
Treasury
stock
|
|
|
(80,000
|
)
|
|
|
(80,000
|
)
|
|
Deferred
compensation
|
|
|
(69,986
|
)
|
|
|
(26,250
|
)
|
|
Accumulated
deficit
|
|
|
(29,893,251
|
)
|
|
|
(32,549,564
|
)
|
|
Accumulated
other comprehensive income (loss)
|
|
|
632,027
|
|
|
|
666,670
|
|
|
Total
Solar Thin Film's stockholders' deficit
|
|
|
(6,815,882
|
)
|
|
|
(6,570,274
|
)
|
|
Noncontrolling
interest
|
|
|
1,155,395
|
|
|
|
1,146,588
|
|
|
Total
Stockholders’ deficit
|
|
|
(5,660,487
|
)
|
|
|
(5,423,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
|
$
|
6,192,156
|
|
|
$
|
4,812,046
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
SOLAR
THIN FILMS, INC.
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)
|
|
(unaudited)
|
|
|
|
Three months ended March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
REVENUE:
|
|
|
|
|
|
|
|
Equipment
sales
|
|
$
|
-
|
|
|
$
|
287,994
|
|
|
Factory
Sales
|
|
|
1,658,740
|
|
|
|
-
|
|
|
Total
revenue
|
|
|
1,658,740
|
|
|
|
287,994
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
828,676
|
|
|
|
270,584
|
|
|
Gross
profit
|
|
|
830,064
|
|
|
|
17,410
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
General,
selling and administrative expenses
|
|
|
1,169,787
|
|
|
|
941,640
|
|
|
Research
and development
|
|
|
-
|
|
|
|
90,000
|
|
|
Depreciation
and amortization
|
|
|
24,050
|
|
|
|
35,731
|
|
|
Total
operating expenses
|
|
|
1,193,837
|
|
|
|
1,067,371
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) FROM OPERATIONS
|
|
|
(363,773
|
)
|
|
|
(1,049,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense):
|
|
|
|
|
|
|
|
|
|
Foreign
currency transaction gain
|
|
|
87,782
|
|
|
|
40,669
|
|
|
Interest
expense, net
|
|
|
(268,214
|
)
|
|
|
(413,211
|
)
|
|
Gain
on change in fair value of derivative liability
|
|
|
12,909
|
|
|
|
-
|
|
|
Debt
acquisition costs
|
|
|
(14,455
|
)
|
|
|
(25,563
|
)
|
|
Other
income
|
|
|
1,269
|
|
|
|
2,515
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before provision for income taxes
|
|
|
(544,482
|
)
|
|
|
(1,445,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(544,482
|
)
|
|
|
(1,445,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
(income) attributable to the noncontrolling interest
|
|
|
349
|
|
|
|
(8,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO SOLAR THIN FILMS, INC.
|
|
$
|
(544,133
|
)
|
|
$
|
(1,453,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per common share (basic and diluted)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
Weighted
average shares outstanding (basic and diluted)
|
|
|
58,081,696
|
|
|
|
57,404,579
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss:
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(544,482
|
)
|
|
$
|
(1,445,551
|
)
|
|
Foreign
currency translation (loss) gain
|
|
|
(34,643
|
)
|
|
|
107,682
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
|
(579,125
|
)
|
|
|
(1,337,869
|
)
|
|
Comprehensive
loss (income) attributable to the noncontrolling
interest
|
|
|
349
|
|
|
|
(8,087
|
)
|
|
Comprehensive
loss attributable to Solar Thin Films, Inc.
|
|
$
|
(578,776
|
)
|
|
$
|
(1,345,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
|
|
SOLAR
THIN FILMS, INC.
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' DEFICIT
|
|
TWELVE
MONTHS ENDED DECEMBER 31, 2008 AND THREE MONTHS ENDED MARCH 31,
2009
|
|
(UNAUDITED)
|
|
|
|
SOLAR
THIN FILMS, INC.
|
|
|
|
|
Preferred
Series B-1
|
|
|
Preferred
Series B-3
|
|
|
Common
shares
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance,
December 31, 2007
|
|
|
228,652
|
|
|
$
|
2,286
|
|
|
|
47,518
|
|
|
$
|
475
|
|
|
|
57,012,601
|
|
|
$
|
570,126
|
|
|
Issuance
of 595,000 shares of common stock in exchange for convertible notes
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
595,000
|
|
|
|
5,950
|
|
|
Fair
value of vested portion of employee options issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Sale
of majority owned subsidiary common stock by subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Reduction
in ownership of majority owned subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issuance
of 199,000 shares of common stock in exchange for convertible notes
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,000
|
|
|
|
1,990
|
|
|
Issuance
of 4,000 shares of common stock in exchange for convertible notes
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
40
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance,
December 31, 2008
|
|
|
228,652
|
|
|
|
2,286
|
|
|
|
47,518
|
|
|
|
475
|
|
|
|
57,810,601
|
|
|
|
578,106
|
|
|
Cumulative
effect of a change in accounting principle adoption of EITF 07-05
effective January 1, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issuance
of 325,000 shares of common stock in exchange for services
rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
325,000
|
|
|
|
3,250
|
|
|
Issuance
of 512 shares of common stock in exchange for 16 Preferred Series B-3
shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(16
|
)
|
|
|
-
|
|
|
|
512
|
|
|
|
5
|
|
|
Change
in majority owned subsidiary equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Fair
value of vested portion of employee options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
228,652
|
|
|
$
|
2,286
|
|
|
|
47,502
|
|
|
$
|
475
|
|
|
|
58,136,113
|
|
|
$
|
581,361
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
|
SOLAR
THIN FILMS, INC.
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' DEFICIT
|
|
TWELVE
MONTHS ENDED DECEMBER 31, 2008 AND THREE MONTHS ENDED MARCH 31,
2009
|
|
(UNAUDITED)
|
|
|
|
SOLAR
THIN FILMS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Non
|
|
|
Total
|
|
|
|
|
Additional
|
|
|
Deferred
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
contolling
|
|
|
Stockholders'
|
|
|
|
|
Paid in Capital
|
|
|
Compensation
|
|
|
Stock
|
|
|
Income (loss)
|
|
|
Deficit
|
|
|
Interest
|
|
|
Deficiency
|
|
|
Balance,
December 31, 2007
|
|
|
22,857,742
|
|
|
|
(79,750
|
)
|
|
|
(80,000
|
)
|
|
|
441,044
|
|
|
|
(24,075,554
|
)
|
|
|
999,496
|
|
|
|
635,865
|
|
|
Issuance
of 595,000 shares of common stock in exchange for convertible notes
payable
|
|
|
589,050
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
595,000
|
|
|
Fair
value of vested portion of employee options
|
|
|
1,085,016
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
1,085,016
|
|
|
Sale
of majority owned subsidiary common stock by subsidiary
|
|
|
105,225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,775
|
|
|
|
150,000
|
|
|
Reduction
in ownership of majority owned subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170,221
|
|
|
|
170,221
|
|
|
Issuance
of 199,000 shares of common stock in exchange for convertible notes
payable
|
|
|
197,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,000
|
|
|
Issuance
of 4,000 shares of common stock in exchange for convertible notes
payable
|
|
|
3,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
53,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,500
|
|
|
Foreign
currency translation gain
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225,626
|
|
|
|
-
|
|
|
|
-
|
|
|
|
225,626
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,474,010
|
)
|
|
|
(67,904
|
)
|
|
|
(8,541,914
|
)
|
|
Balance,
December 31, 2008
|
|
|
24,838,003
|
|
|
|
(26,250
|
)
|
|
|
(80,000
|
)
|
|
|
666,670
|
|
|
|
(32,549,564
|
)
|
|
|
1,146,588
|
|
|
|
(5,423,686
|
)
|
|
Cumulative
effect of a change in accounting principle adoption of EITF 07-05
effective January 1, 2009
|
|
|
(3,222,222
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,200,446
|
|
|
|
-
|
|
|
|
(21,776
|
)
|
|
Issuance
of 325,000 shares of common stock in exchange for services
rendered
|
|
|
74,750
|
|
|
|
(78,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Issuance
of 512 shares of common stock in exchange for 16 Preferred Series B-3
shares
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Change
in majority owned subsidiary equity
|
|
|
(9,156
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,156
|
|
|
|
-
|
|
|
Fair
value of vested portion of employee options granted
|
|
|
329,836
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
329,836
|
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
|
34,264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
34,264
|
|
|
Foreign
currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,643
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(34,643
|
)
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(544,133
|
)
|
|
|
(349
|
)
|
|
|
(544,482
|
)
|
|
|
|
|
22,011,206
|
|
|
$
|
(69,986
|
)
|
|
|
(80,000
|
)
|
|
$
|
632,027
|
|
|
|
(29,893,251
|
)
|
|
|
1,155,395
|
|
|
$
|
(5,660,487
|
)
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
|
SOLAR
THIN FILMS, INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(UNAUDITED)
|
|
|
|
Three months ended March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss attributable to Solar Thin Films, Inc.
|
|
$
|
(544,133
|
)
|
|
$
|
(1,453,638
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
33,533
|
|
|
|
49,922
|
|
|
(Loss)
income attributable to noncontrolling interest, net of
tax
|
|
|
(349
|
)
|
|
|
8,087
|
|
|
Amortization
of deferred financing costs
|
|
|
14,454
|
|
|
|
25,562
|
|
|
Amortization
of debt discounts
|
|
|
236,777
|
|
|
|
361,679
|
|
|
Amortization
of deferred compensation costs
|
|
|
34,264
|
|
|
|
10,875
|
|
|
Fair
value of vested options granted to officer and director
|
|
|
329,836
|
|
|
|
161,362
|
|
|
Change
in fair value of derivative liability
|
|
|
(12,909
|
)
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
161,280
|
|
|
|
189,810
|
|
|
Accounts
receivable, related party
|
|
|
-
|
|
|
|
125,000
|
|
|
Inventory
|
|
|
(549,671
|
)
|
|
|
(491,941
|
)
|
|
Deposits
and other current assets
|
|
|
173,389
|
|
|
|
(35,267
|
)
|
|
Accounts
payable and accrued liabilities
|
|
|
851,582
|
|
|
|
223,198
|
|
|
Advances
received from customers
|
|
|
340,783
|
|
|
|
635,055
|
|
|
Deferred
revenue
|
|
|
412,251
|
|
|
|
-
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
1,481,087
|
|
|
|
(190,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of investments
|
|
|
-
|
|
|
|
(1,500,000
|
)
|
|
Acquisition
of property, plant and equipment
|
|
|
(34,672
|
)
|
|
|
(39,815
|
)
|
|
Net
cash used in investing activities:
|
|
|
(34,672
|
)
|
|
|
(1,539,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock by majority owned subsidiary
|
|
|
-
|
|
|
|
150,000
|
|
|
Net
cash provided by financing activities:
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of currency rate change on cash
|
|
|
(155,736
|
)
|
|
|
107,682
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,290,679
|
|
|
|
(1,472,429
|
)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
619,257
|
|
|
|
4,157,476
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
1,909,936
|
|
|
$
|
2,685,047
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
164
|
|
|
$
|
1,101
|
|
|
Cash
paid during the period for taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NON
CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Common
stock issued as deferred compensation
|
|
$
|
78,000
|
|
|
$
|
-
|
|
|
Stock
options granted to officer and director for services
rendered
|
|
$
|
329,836
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
SOLAR
THIN FILMS, INC
.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of the significant accounting policies applied in the presentation of the
accompanying financial statements are as follows:
General
The
accompanying unaudited condensed consolidated financial statements of Solar Thin
Film, Inc., (“Solar” or the “Company”), have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements.
In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Accordingly, the results from operations for the three
month period ended March 31, 2009, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2009. The
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated December 31, 2008 financial statements and
footnotes thereto included in the Company's Form 10-K/A filed with the SEC on
April 23, 2009.
Business and Basis of
Presentation
The
Company is incorporated under the laws of the State of Delaware, and is in the
business of designing, manufacturing and marketing “turnkey” systems and
equipment for the manufacture of low cost solar modules on a world-wide
basis.
The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, Superior Ventures Corp. and Kraft Elektronikai
Zrt. (“Kraft”) and majority owned subsidiary, Solar Thin Power, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Accounts
Receivable
The
Company assesses the realization of its receivables by performing ongoing credit
evaluations of its customers' financial condition. Through these evaluations,
the Company may become aware of a situation where a customer may not be able to
meet its financial obligations due to deterioration of its financial viability,
credit ratings or bankruptcy. The Company’s reserve requirements are based on
the best facts available to the Company and are reevaluated and adjusted as
additional information is received. The Company’s reserves are also based on
amounts determined by using percentages applied to certain aged receivable
categories. These percentages are determined by a variety of factors including,
but not limited to, current economic trends, historical payment and bad debt
write-off experience. Allowance for doubtful accounts for accounts and notes
receivable was $1,777,930 as of March 31, 2009 and December 31, 2008. As of
December 31, 2008, the Company determined accounts receivable, related party of
$831,863, trade receivables of $696,067 and a note receivable of $250,000 were
impaired and accordingly recorded an allowance for doubtful accounts. There were
no additional provisions recorded during the three months ended March 31,
2009.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
For
revenue from Equipment sales, which include equipment and sometimes
installation, the Company recognizes revenue in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition (“SAB 104"), which superseded Staff
Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB
101"). SAB 104 requires that four basic criteria must be met before revenue can
be recognized: (1) Persuasive evidence of an arrangement exists; (2) delivery
has occurred; (3) the selling price is fixed and determinable; and (4)
collectibility is reasonably assured.
Determination
of criteria (3) and (4) are based on management’s judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required. Deferred revenues as of March 31, 2009
and December 31, 2008 amounted to $434,079 and $33,452, respectively. SAB 104
incorporates Emerging Issues Task Force 00-21 (“EITF 00-21"),
Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses accounting for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets.
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
the price to the customer is fixed, collectibility is reasonable assured and
title and risk of ownership is passed to the customer, which is usually upon
shipment. However, certain customers traditionally have requested to take title
and risk of ownership prior to shipment. Revenue for these transactions is
recognized only when:
|
|
1.
|
Title
and risk of ownership have passed to the customer;
|
|
|
|
|
|
|
2.
|
The
Company has obtained a written fixed purchase
commitment;
|
|
|
|
|
|
|
3.
|
The
customer has requested the transaction be on a bill and hold
basis;
|
|
|
|
|
|
|
4.
|
The
customer has provided a delivery schedule;
|
|
|
|
|
|
|
5.
|
All
performance obligations related to the sale have been
completed;
|
|
|
|
|
|
|
6.
|
The
product has been processed to the customer’s specifications, accepted by
the customer
and
made ready for shipment; and
|
|
|
|
|
|
|
7.
|
The
product is segregated and is not available to fill other
orders.
|
The
remittance terms for these “bill and hold” transactions are consistent with all
other sale by the Company. There were no bill and hold transactions at March 31,
2009 and December 31, 2008.
For
Complete Factory sales, which include sale of equipment, installation, and
commissioning, the Company recognizes revenues from the product portion (pieces
of equipment) on shipment and services portion (installation and commissioning
process) upon completion of the installation and commissioning
process. The commissioning includes a range of consulting services
necessary to successfully complete a performance test, such as training of
management, engineering and production personnel, debugging and resolving
problems, initial oversight or support for vendor relations and purchasing,
documentation and transfer of process knowledge and potential co-management of
the production line during performance testing or completion of the training
process.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The
Company has accounted for its Equipment Sales and Factory Sales arrangements as
separate units of accounting as a) the shipped equipment (both Equipment Sales
and Factory Sales) has value to the customer on a standalone basis, b) there is
an objective and reliable evidence of the fair value of the service portion of
the revenue (installation and commissioning) approximated by the fair value
that a third party would charge the Company’s customer for the installation and
commissioning fees if the customer so desired not to use the Company’s services
(or the customer could complete the process using the information in the owner’s
manual, although it would probably take significantly longer than it would take
the Company’s technicians and or a third party to perform the installation and
commissioning process), and c) there is no right of return for the shipped
equipment and all equipments are inspected and approved by the customer before
shipment.
Cost of
sales
Cost of
sales includes cost of raw materials, labor, production related depreciation and
amortization, subcontractor work, inbound freight charges, purchasing and
receiving costs, inspection costs, internal transfer costs and absorbed indirect
manufacturing cost, as well as installation related travel costs and warranty
costs.
General, selling and
administrative expenses
General,
selling and administrative expenses primarily include indirect labor costs,
rental fees, accounting, legal and consulting fees.
Investments
As part
of the Company’s business strategy to take a minority interest in its customer
base and to secure module supply for planned power projects to improve the
chances of securing contracts, during the year ended December 31, 2008, the
Company acquired a 15% interest in CG Solar, formerly WeiHai Blue Star Terra
Photovoltaic Co., Ltd, a Sino-Foreign Joint Venture Company organized under the
laws of the People’s Republic of China. The investment of $1,500,000
represented 15% of total committed capital of $10,000,000 and is carried at cost
under the cost method of accounting for investment. Blue Star Glass
and China Singyes own the remaining 85% of CG Solar.
The
Company supplied equipment to RESI that was utilized in the construction of CG
Solar's first a-Si production line. The investment was accomplished by
purchasing a 10% interest from Terrasolar for $1 million (representing 10% of
the committed capital) in March 2008 and a 5% interest from RESI for $500,000
(representing 5% of the committed capital) in January 2008. The balance of the
committed capital was invested by CG Solar's parent, Blue Star Glass, and by a
strategic partner, China Singyes. Management believed that the investment
represented a reasonable equity investment on its own account, expected to have
preferential access to module output for power projects, and expected to
increase the chances of securing contracts to expand the facility in
2009.
The
Company did not evaluate for impairment and the fair value of the cost-method
investment is not estimated since there were no identified events or changes in
circumstances that may have a significant adverse effect on the fair value and
the Company determined, in accordance with SFAS No. 107 that it is not
practicable to estimate the fair value of the investment.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment
information
Statement
of Financial Accounting Standards No. 131, “Disclosures about Segments of an
Enterprise and Related Information” (“SFAS No.131”) establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No.131 also
establishes standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision-making group, in
making decisions how to allocate resources and assess performance. The Company
applies the management approach to the identification of our reportable
operating segment as provided in accordance with SFAS No. 131. The information
disclosed herein materially represents all of the financial information related
to the Company’s principal operating segment
Product Warranty
costs
The
Company provides for estimated costs to fulfill customer warranty obligations
upon recognition of the related revenue in accordance with the FASB
Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for
Guarantees” as a charge in the current period cost of goods sold. The range for
the warranty coverage for the Company’s products is up to 18 to 24 months. The
Company estimates the anticipated future costs of repairs under such warranties
based on historical experience and any known specific product information. These
estimates are reevaluated periodically by management and based on current
information, are adjusted accordingly. The Company’s determination of the
warranty obligation is based on estimates and as such, actual product failure
rates may differ significantly from previous expectations.
The
Company accrued a provision for product warranty costs of approximately $180,000
during 2007; of which approximately $85,000 was utilized during the year ended
December 31, 2007. During 2008 an additional $73,000 in warranty costs were
accrued and a total of $108,070 was utilized, leaving a balance of approximately
$59,930 remaining as of December 31, 2008. During the first quarter of 2009
the Company accrued an additional $26,000 in warranty costs as a result of
shipments to Grupo Unisolar, and did not incur any product warranty costs,
leaving a balance of $85,930 in product warranty provision as of March 31,
2009.
Research and
Development
The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board’s Statement of Financial Accounting
Standards No. 2 (“SFAS 2"), “Accounting for Research and Development Costs.”
Under SFAS 2, all research and development cost must be charged to expense as
incurred. Accordingly, internal research and developments cost is expensed as
incurred.
Third-party
research and developments costs are expensed when the contracted work has been
performed or as milestone results have been achieved. Company-sponsored research
and development costs related to products are expensed in the period incurred.
The Company incurred expenditures of $-0- and $90,000 on research and product
development for the three month periods ended March 31, 2009 and 2008,
respectively.
Reclassification
Certain
reclassifications have been made to conform to prior periods’ data to the
current year’s presentation. These reclassifications had no effect on reported
income or losses.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial
Instruments
SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain financial instruments. The carrying
value of cash and cash equivalents, accounts payable and accrued liabilities,
and short-term borrowings, as reflected in the consolidated balance sheets,
approximate fair value because of the short-term maturity of these
instruments. All other significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or
disclosed in the consolidated financial statements together with other
information relevant for making a reasonable assessment of future cash flows,
interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.
Effective
January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No.
157") and SFAS No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS
No. 159"), which permits entities to choose to measure many financial
instruments and certain other items at fair value. Neither of these statements
had an impact on the Company’s consolidated financial position, results of
operations or cash flows.
Property, plant and
equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment losses. Depreciation is computed using the straight-line method over
the estimated useful lives of the respective assets.
The
estimated useful lives of property, plant and equipment are as
follows:
|
Land
|
|
-
|
|
|
Buildings
|
|
50
years
|
|
|
Leasehold
improvements
|
|
3 to 7 years
|
|
|
Fur Furniture
and fixtures
|
|
3 to 7 years
|
|
|
Machinery,
plant and equipment
|
|
3 to 7 years
|
|
We
evaluate the carrying value of items of property, plant and equipment to be held
and used whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. The carrying value of an item of property, plant
and equipment is considered impaired when the projected undiscounted future cash
flows related to the asset are less than its carrying value. We measure
impairment based on the amount by which the carrying value of the respective
asset exceeds its fair value. Fair value is determined primarily using the
projected future cash flows discounted at a rate commensurate with the risk
involved.
Stock Based
Compensation
Effective
for the year beginning January 1, 2006, the Company has adopted SFAS 123 (R)
“Share-Based Payment” which supersedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees” and eliminates the intrinsic value method that was provided
in SFAS 123 for accounting of stock-based compensation to employees. The Company
made no employee stock-based compensation grants before December 31, 2005 and
therefore has no unrecognized stock compensation related liabilities or expense
unvested or vested prior to 2006. Stock-based compensation expense recognized
under SFAS 123(R) for the three month periods ended March 31, 2009 and 2008 was
$329,836 and $161,362, respectively.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of
Estimates
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Comprehensive Income
(Loss)
The
Company adopted SFAS No. 130; “Reporting Comprehensive Income”. SFAS No. 130
establishes standards for the reporting and displaying of comprehensive income
and its components. Comprehensive income is defined as the change in equity of a
business during a period from transactions and other events and circumstances
from non-owners sources. It includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
SFAS No. 130 requires other comprehensive income (loss) to include foreign
currency translation adjustments and unrealized gains and losses on available
for sale securities.
Foreign Currency
Translation
The
Company translates the foreign currency financial statements into US Dollars
using the year or reporting period end or average exchange rates in accordance
with the requirements of SFAS No. 52, “Foreign Currency Translation”
.
Assets and liabilities of
these subsidiaries were translated at exchange rates as of the balance sheet
date. Revenues and expenses are translated at average rates in effect for the
periods presented. The cumulative translation adjustment is included in the
accumulated other comprehensive gain (loss) within shareholders’ equity
(deficit). Foreign currency transaction gains and losses arising from exchange
rate fluctuations on transactions denominated in a currency other than the
functional currency are included in the consolidated results of
operations.
Net income (loss) per
share
The
Company accounts for net (loss) income per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (“EPS”), which
requires presentation of basic and diluted EPS on the face of the statement of
operations for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS.
Basic net
(loss) income per share is computed by dividing net (loss) income by the
weighted average number of shares of common stock outstanding during each
period. It excludes the dilutive effects of potentially issuable
common shares such as those related to our convertible notes, warrants and stock
options. Diluted net (loss) income per share is calculated by
including potentially dilutive share issuances in the
denominator. However, diluted net (loss) income per share for the
three month periods ended March 31, 2009 and 2008 does not reflect the effects
of 1,533,514 and 1,534,026 shares potentially issuable upon conversion of our
convertible preferred shares as of March 31, 2009 and 2008, respectively
2,423,000 and 2,626,000 shares potentially issuable upon the conversion of
convertible debt as of March 31, 2009 and 2008, respectively and -0- and
1,265,894 shares potentially issuable upon the exercise of the Company's stock
options and warrants (calculated using the treasury stock method) as of March
31, 2009 and 2008, respectively. These potentially issuable shares would have an
anti-dilutive effect on our net (loss) income per share.
Liquidity
The
Company has incurred a net loss of $544,133 and $1,453,638 for the three month
periods ended March 31, 2009 and 2008, respectively. In addition, the Company
has negative working capital of $7,422,244 at March 31, 2009.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
N
ew Accounting
Pronouncements Effective January 1, 2009
SFAS
No.161
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”)
.
The
new standard is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
results of operations and cash flows. The new standard also improves
transparency about how and why a company uses derivative instruments and how
derivative instruments and related hedged items are accounted for under
Statement No. 133. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. We adopted SFAS No. 161 effective January 1,
2009 and addressed the relevant disclosures accordingly.
SFAS
No. 160
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No.
160”). In SFAS No. 160, the FASB established accounting and reporting standards
that require non-controlling interests to be reported as a component of equity,
changes in a parent’s ownership interest while the parent retains its
controlling interest to be accounted for as equity transactions, and any
retained non-controlling equity investment upon the deconsolidation of a
subsidiary to be initially measured at fair value. SFAS No. 160 is effective for
annual periods beginning on or after December 15, 2008. Retroactive
application of SFAS No. 160 is prohibited. We adopted SFAS No. 160 effective
January 1, 2009 which primarily resulted in moving the presentation of
non-controlling interest to the “Stockholders’ equity” section of our condensed
consolidated balance sheets.
EITF
No. 07-1
In
December 2007, the FASB issued EITF No. 07-1, “Accounting for Collaborative
Arrangements” (“EITF No. 07-1”). EITF No. 07-1 prescribes the accounting for
parties of a collaborative arrangement to present the results of activities for
the party acting as the principal on a gross basis and report any payments
received from (made to) other collaborators based on other applicable GAAP or,
in the absence of other applicable GAAP, based on analogy to authoritative
accounting literature or a reasonable, rational, and consistently applied
accounting policy election. Further, EITF No. 07-1 clarified the
determination of whether transactions within a collaborative arrangement are
part of a vendor-customer (or analogous) relationship subject to Issue No. 01-9,
“Accounting for Consideration Given by a Vendor to a Customer.” EITF No. 07-1 is
effective for collaborative arrangements that exist on January 1, 2009 and
application is retrospective. We adopted EITF No. 07-1 effective January 1,
2009 and the adoption had no material effect on our financial position or
results of operations.
EITF
No. 07-5
In June
2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”).
EITF No. 07-5 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF No. 07-5 is effective for fiscal years
beginning after December 15, 2008. We adopted EITF No. 07-5 effective
January 1, 2009 and the adoption resulted in our warrants with
anti-dilutive provisions being classified as derivatives in accordance with FASB
Statement No. 133.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
Issued Accounting Standards
In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following new
accounting standards:
|
|
·
|
FASB
Staff Position FAS No. 157-4,
Determining Whether a Market
Is Not Active and a Transaction Is Not Distressed,
(“FSP FAS No.
157-4”) provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS No. 157. FSP
FAS No. 157-4 provides additional authoritative guidance in determining
whether a market is active or inactive and whether a transaction is
distressed. It is applicable to all assets and liabilities (i.e.,
financial and non-financial) and will require enhanced
disclosures.
|
|
|
·
|
FASB
Staff Positions FAS No. 115-2, FAS 124-2, and EITF No. 99-20-2,
Recognition and Presentation
of Other-Than-Temporary Impairments
, (“FSP FAS No. 115-2, FAS No.
124-2, and EITF No. 99-20-2”) provides additional guidance to provide
greater clarity about the credit and noncredit component of an
other-than-temporary impairment event and to more effectively communicate
when an other-than-temporary impairment event has occurred. This FSP
applies to debt securities.
|
|
|
·
|
FASB
Staff Position FAS No. 107-1 and APB No. 28-1,
Interim Disclosures about Fair
Value of Financial Instruments
, (“FSP FAS No. 107-1 and APB No.
28-1”) amends FASB Statement No. 107,
Disclosures about Fair Value
of Financial Instruments
, to require disclosures about fair value
of financial instruments in interim as well as in annual financial
statements. This FSP also amends APB Opinion No. 28,
Interim Financial
Reporting
, to require those disclosures in all interim financial
statements.
|
These
standards are effective for periods ending after June 15, 2009. We are
evaluating the impact that these standards will have on our consolidated
financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
NOTE
2 - GOING CONCERN MATTERS
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company incurred a net loss of $544,133
and $1,453,638 for the three month periods ended March 31, 2009 and 2008,
respectively. Additionally, the Company has negative working capital of
$7,422,244 as of March 31, 2009. The Company is currently in default in the
payment of certain notes payable. These factors among others raised
substantial doubt about the Company’s ability to continue as a going
concern.
The
Company has undertaken further steps as part of a plan to improve operations
with the goal of sustaining our operations for the next twelve months and beyond
to address its lack of liquidity by raising additional funds, either in the form
of debt or equity or some combination thereof. However, there can be no
assurance that the Company can successfully accomplish these steps and or
business plans, and it is uncertain that the Company will achieve a profitable
level of operations and be able to obtain additional financing.
The
Company’s continued existence is dependent upon management’s ability to develop
profitable operations and resolve its liquidity problems. The accompanying
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
2 - GOING CONCERN MATTERS (continued)
There can
be no assurance that any additional financings will be available to the Company
on satisfactory terms and conditions, if at all. In the event that
the Company is unable to continue as a going concern, it may elect or be
required to seek protection from its creditors by filing a voluntary petition in
bankruptcy or may be subject to an involuntary petition in bankruptcy. To date,
management has not considered this alternative, nor does management view it as a
likely occurrence.
NOTE
3 - INVENTORIES
Inventories
are stated at the lower of cost or market determined by the first-in, first-out
(FIFO) method. Components of inventories as of March 31, 2009 and December 31,
2008 consist of the following.
|
|
|
March
31,
2009
|
|
|
December
31, 2008
|
|
|
Work
in Progress
|
|
$
|
654,105
|
|
|
$
|
103,919
|
|
|
Raw
Materials
|
|
|
47,041
|
|
|
|
103,122
|
|
|
|
|
$
|
701,146
|
|
|
$
|
207,041
|
|
NOTE 4 - NOTE RECEIVABLE
Note
receivable consists of the following:
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
Note
receivable, 7% per annum, secured and due June 10, 2009
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
Less:
allowance for doubtful accounts
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
|
Net
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s note receivable along with accrued interest is due on June 10, 2009
and can be prepaid at any time without penalty or premium. The note is secured
by the Company’s common stock held by certain shareholders. At December 31,
2008, management determined the collectibility may be impaired and accordingly
recorded an allowance for doubtful accounts with a current period charge to the
Company’s operations. There was no change in allowance for doubtful
accounts at March 31, 2009.
NOTE
5 – DEPOSITS AND OTHER CURRENT ASSETS
Deposits
and other current assets are comprised of the following:
|
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
|
Real
estate deposits, net of liquidated damages (see below)
|
|
$
|
-
|
|
|
$
|
194,254
|
|
|
Tax
receivable
|
|
|
179,083
|
|
|
|
176,601
|
|
|
Other
|
|
|
1,606
|
|
|
|
7,476
|
|
|
Total
|
|
$
|
180,689
|
|
|
$
|
378,331
|
|
On August
20, 2008, the Company entered into a contract (the “Contract”) to purchase
certain property, plant and equipment, including all buildings and improvements,
all fixtures and equipment attached to the property and certain equipment for a
purchase price of $4,550,000. In conjunction with the purchase, the
Company made a wire transfer of a $30,000 non-refundable initial down payment
upon signing of the agreement to an escrow account. In addition, the
Company made a $425,000 second down payment, which was subject to an
environmental testing result. The initial closing was scheduled on
September 26, 2008. The closing date was then adjourned in
order to complete the Phase I environmental assessment and to address any issues
identified. Subsequently the Company has identified an environmental
condition, which it believed might lead to contamination, and determined not to
purchase the property.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
5 – DEPOSITS AND OTHER CURRENT ASSETS (continued)
The
Company then negotiated a refund in the amount of $194,254 and
accounted for the liquidated damages of $260,746 as loss on settlement of real
estate deposits in the Company’s other expenses for the year ended December 31,
2008.
NOTE
6 - PROPERTY, PLANT AND EQUIPMENT
The
Company's property and equipment at March 31, 2009 and December 31, 2008 consist
of the following:
|
|
|
March
31,
2009
|
|
|
December
31,
|2008
|
|
|
Land
and buildings
|
|
$
|
179,952
|
|
|
$
|
223,132
|
|
|
Furniture
and fixture
|
|
|
63,854
|
|
|
|
78,644
|
|
|
Machinery,
plant and equipment
|
|
|
462,303
|
|
|
|
551,463
|
|
|
Total
|
|
|
706,109
|
|
|
|
853,239
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(371,731
|
)
|
|
|
(439,998
|
)
|
|
Property
and equipment
|
|
$
|
334,378
|
|
|
$
|
413,,241
|
|
Property
and equipment are recorded on the basis of cost. For financial statement
purposes, property, plant and equipment are depreciated using the straight-line
method over their estimated useful lives.
Depreciation
and amortization expense was $33,533 and $49,922 for the three month periods
ended March 31, 2009 and 2008, respectively, of which $9,483 and $14,191 was
included as part of cost of sales for the three month periods ended March 31,
2009 and 2008, respectively.
NOTE
7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities at March 31, 2009 and December 31, 2008 were as
follows:
|
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
|
Accounts
payable
|
|
$
|
620,280
|
|
|
$
|
149,324
|
|
|
Other
accrued expenses, including a penalty in the amount of $720,000
in connection with liquidating charges as of March 31, 2009 and December
31, 2008
|
|
|
2,356,311
|
|
|
|
2,068,591
|
|
|
Accrued
interest, see Note 8 below
|
|
|
1,847,700
|
|
|
|
1,810,200
|
|
|
|
|
$
|
4,824,291
|
|
|
$
|
4,028,115
|
|
As
described on Note 20 below, the Company entered into a stock exchange
agreement. As such, the Company recorded estimated legal and other
related costs of $500,000 as other accrued expenses for service rendered during
the year ended December 31, 2008.
NOTE
8 - NOTES PAYABLE OTHER
A summary
of notes payable other at March 31, 2009 and December 31, 2008 consists of the
following:
|
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
|
Demand
note payable: interest payable at 8.0% per annum (default rate of 10% per
annum); unsecured
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
|
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
8 - NOTES PAYABLE OTHER (continued)
In 1996,
the Company issued an unsecured 8%, $1.5 million note to an unrelated party in
connection with the Company's acquisition of a software company. The note was
due and payable on April 30, 1999. The note was governed by the laws of the
State of New York. The New York statute of limitations for seeking to collect on
a note is six years from the maturity date. The creditor has never sought to
collect the note since its maturity date and in or about 2001 orally advised a
representative of the Company that it had "written off the debt." Although the
Company has previously and currently listed the note as a liability on its
balance sheet, it does not believe that it has any further liability under this
note.
NOTE
9- DIVIDENDS PAYABLE
In 2000
and 2001, the Company’s wholly owned subsidiary declared a dividend to its
shareholders. However based on the Company’s limited financial resources it has
been unable to pay it. The shareholders have conceded the deferment of this
dividend until the Company financially can afford paying it. At March 31, 2009
and December 31, 2008, the outstanding balance was $115,954 and $143,778,
respectively. The underlying liability is in the local currency. Changes in the
recorded amounts are related to the changes in the currency exchange
rates.
NOTE
10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE
A summary
of convertible notes payable at March 31, 2009 and December 31, 2008 are as
follows:
|
|
|
March
31,
2009
|
|
|
December
31,
2008
|
|
|
Convertible
notes payable (“March 2006”) non-interest bearing; secured and due March
2009. The company is currently in default under the terms of this note
agreement.
|
|
|
1,250,000
|
|
|
|
1,250,000
|
|
|
Debt
Discount, net of accumulated amortization of $1,250,000 and $1,165,525,
respectively
|
|
|
( -
|
)
|
|
|
(84,475
|
)
|
|
Net
|
|
|
1,250,000
|
|
|
|
1,165,525
|
|
|
Convertible
notes payable (“June 2006”), non- interest bearing; secured and due June
2009; Noteholder has the option to convert unpaid note principal to the
Company’s common stock at a rate of $1.00 per share
|
|
|
1,173,000
|
|
|
|
1,173,,000
|
|
|
Debt
Discount, net of accumulated amortization of $1,047,774 and $895,472,
respectively
|
|
|
(125,226
|
)
|
|
|
(277,528
|
)
|
|
Net
|
|
|
1,047,774
|
|
|
|
895,472
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable, non interest bearing, due March 4, 2009. The Company is currently
in default under the terms of the note agreement.
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,797,774
|
|
|
|
2,560,997
|
|
|
Less
Current Maturities
|
|
|
(2,797,774
|
)
|
|
|
( 2,560,997
|
)
|
|
Convertible
notes payable – long-term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
March 2006
Financing
In
connection with the merger and corporate restructure on June 14, 2006, the
Company assumed a financing arrangement dated March 16, 2006, subsequently
amended on May 18, 2006, with several investors (the "March Investors") for the
sale of (i) $1,250,000 in notes (the "Notes"), (ii) 625,000 shares of common
stock of the Company (the "Shares") (Note 11) and (iii) common stock purchase
warrants to purchase 625,000 shares of common stock at $1.00 price per share for
a period of five years (the "Warrants").
The
March 2006 Notes are interest free and mature on the earlier of (i) March 16,
2009 or (ii) the Company closing on a financing in the aggregate amount of
$12,000,000. The Company granted the March 2006 Investors piggyback registration
rights with respect to the March 2006 Shares and the shares of common stock
underlying the warrants. Further, Robert M. Rubin, CEO and a Director of the
Company, has personally guaranteed payment of the March 2006 Notes.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE
(continued)
March 2006 Financing
(continued)
The March
2006 Investors have contractually agreed to restrict their ability to convert
the March 2006 Notes and exercise the March 2006 Warrants and receive shares of
our common stock such that the number of shares of the Company common stock held
by them and their affiliates after such conversion does not exceed 4.99% of the
Company’s then issued and outstanding shares of common stock.
The sale
of the Notes was completed on March 16, 2006. As of the date hereof, the Company
is obligated on $1,250,000 in face amount of Notes issued to the March
investors.
In
accordance with
Emerging
Issues Task Force Issue 98-5, “Accounting For Convertible Securities With a
Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios”
(EITF 98-5)
, the Company allocated, on a relative fair value basis, the
net proceeds amongst the common stock, warrants and the convertible notes issued
to the investors. The accounting predecessor recognized and measured $519,491 of
the proceeds, which equals to the intrinsic value of the imbedded beneficial
conversion feature, to additional paid in capital and a discount against the
March 2006 Notes.
In
accordance with
Emerging
Issues Task Force Issue 00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments”
(“EITF - 0027”), the Company recognized the
relative value attributable to the warrants in the amount of $231,797 to
additional paid in capital and a discount against the March 2006 Notes. The
Company valued the warrants in accordance with EITF 00-27 using the
Black-Scholes pricing model and the following assumptions: (1) dividend yield of
0%; 2) expected volatility of 93.03%, (3) risk-free interest rate of 5.08% to
5.10%, and (4) expected life of 5 years. The Company also recognized the
relative value attributable to the common stock issued in the amount of $498,712
to additional paid in capital and a discount against the March 2006 Notes. Total
debt discount to the March 2006 Notes amounted $1,250,000. The note discount was
being amortized over the maturity period of the Notes, being thirty-four (34)
months.
The
Company amortized the Convertible Notes’ debt discount and recorded non-cash
interest expense of $84,475 and $110,223, respectively, during the three month
periods ended March 31, 2009 and 2008, respectively.
June 2006
Financing
In
connection with the merger and corporate restructure on June 14, 2006, the
Company entered into a financing arrangement with several investors (the “June
2006 Investors”) pursuant to which it sold various securities in consideration
of an aggregate purchase price of $6,000,000 consisting of the following
securities:
|
|
·
|
$
6,000,000 in senior secured convertible notes (“June 2006
Notes”);
|
|
|
·
|
3,000,000
shares of the Company’s common
stock;
|
|
|
·
|
Series
A Common Stock Purchase Warrants to purchase 3,000,000 shares of common
stock at $2.00 per share for a period of three years (“Series A
Warrants”);
|
|
|
·
|
Series
B Common Stock Purchase Warrants to purchase 3,000,000 shares of common
stock at $2.20 per share for a period of four years (“Series B
Warrants”);
|
|
|
·
|
Series
C Common Stock Purchase Warrants to purchase 3,000,000 shares of common
stock at $3.00 per share for a period of three years (“Series C
Warrants”); and
|
|
|
·
|
Series
D Common Stock Purchase Warrants to purchase 3,000,000 shares of common
stock at $3.30 per share for a period of four years (“Series D
Warrants”).
|
The
warrants and warrant agreement provide for certain anti-dilution rights (see
Note 11).
The
Series B Warrants and the Series D Warrants are exercisable only following the
exercise of the Series A Warrants and the Series C Warrants, respectively, on a
share by share basis.
SOLAR THIN FILMS,
INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE
(continued)
June 2006 Financing
(continued)
The June
2006 Notes are interest free and mature in June 2009 and are convertible into
the Company’s common stock, at the June 2006 Investors’ option, at a conversion
price equal to $1.00 per share (Note 11). The Company granted the June 2006
Investors a first priority security interest in all of its assets subject only
to the secured convertible notes in the amount of $525,000 previously issued in
September 2005. In addition, the Company pledged one hundred percent (100%) of
the shares held in its majority owned subsidiary , Kraft Rt, as collateral to
the June 2006 Investors.
The
Company granted the June 2006 Investors registration rights with respect to the
June 2006 Shares, and the shares of common stock underlying the June 2006 Notes,
Series A Warrants, Series B Warrants, the Series C Warrants and Series D
Warrants. The Company is required to file a registration statement within 30
days from closing and have such registration statement declared effective within
90 days from closing if the registration statement is not reviewed or, in the
event that the registration statement is reviewed, within 120 days from closing.
If the Company fails to have the registration statement filed or declared
effective by the required dates, it will be obligated to pay a liquidated
damages equal to 2% of the aggregate financing to each investor upon any such
registration failure and for each thirty days that such registration failure
continues in cash.
The June
2006 Investors have contractually agreed to restrict their ability to convert
the June 2006 Notes, Series A Warrants, Series B Warrants, Series C Warrants and
Series D Warrants and receive shares of the Company’s common stock such that the
number of shares of the Company’s common stock held by them and their affiliates
after such conversion does not exceed 4.99% of the Company’s then issued and
outstanding shares of common stock.
In
accordance with
Emerging
Issues Task Force Issue 98-5, “Accounting For Convertible Securities With a
Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios”
(EITF 98-5)
, the Company allocated, on a relative fair value basis, the
net proceeds amongst the common stock and Convertible Notes issued to the
investors. As of December 31, 2006, the Company recognized $2,777,778 of the
proceeds, which is equal to the intrinsic value of the imbedded beneficial
conversion feature, to additional paid-in capital and a discount against the
Convertible Note. The debt discount attributed to the beneficial conversion
feature is amortized over the Convertible Notes’ maturity period, being three
(3) years, as interest expense. In accordance with
Emerging Issues Task Force Issue
00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”
(“EITF - 0027”), the Company also recognized the relative value
attributable to the common stock issued in the amount of $3,222,222 to
additional paid in capital and a discount against the June 2006 Notes. Total
debt discount to the June 2006 Notes amounted $6,000,000. The note discount is
amortized over the maturity period of the notes, being (3) years.
In the
year ended December 31, 2007, certain June 2006 investors converted $4,029,000
of convertible notes to 4,029,000 shares of the Company’s common
stock.
In the
year ended December 31, 2008, certain June 2006 investors converted $798,000 of
convertible notes to 798,000 shares of the Company’s common stock.
The
Company amortized and wrote off the Convertible Notes’ debt discount and
recorded a non-cash interest expense of $152,302 and $251,456 for the three
month periods ended March 31, 2009 and 2008, respectively.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE
(continued)
June 2006 Financing
(continued)
In
conjunction with raising capital through the issuance of $6,000,000 Notes, the
Company has issued warrants that have registration rights for the underlying
shares. As the contract must be settled by the delivery of registered
shares and the delivery of the registered shares is not controlled by the
Company, pursuant to EITF 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, the
warrants were recorded as a derivative liability and valued at fair market value
until the Company meets the criteria under EITF 00-19 for permanent equity. The
net value of the warrants at the date of issuance was recorded as a warrant
liability on the balance sheet in the amount of $10,821,900 and charged to
operations as interest expense. Upon the registration statement being
declared effective, the fair value of the warrant on that date will be
reclassified to equity. The Company initially valued the warrants using the
Black-Scholes pricing model with the following assumptions: (1) dividend yield
of 0%; (2) expected volatility of 93.03%, (3) risk-free interest rate of 5.08%
to 5.10%, and (4) expected life of 5 years.
In
connection with the merger and corporate restructure on June 14, 2006, the
Company assumed as liability the fair value of $10,821,900 representing the
warrants issued and outstanding as described above. At December 31, 2006, the
Company revalued the warrants using the Black-Scholes option pricing model with
the following assumptions: (1) dividend yield of 0%; (2) expected volatility of
51.21%, (3) risk-free interest rate of 4.62% to 4.82% to 5.10%, and (4) expected
life of 2.45 to 3.44 years. And 5) a deemed fair value of common stock of $0.99.
The decrease of $9,356,400 in the fair value of the warrants at December 31,
2006 has been recorded as a gain on revaluation of warrant liability for the
year ended December 31, 2006. Warrant liability at December 31, 2006
amounted to $1,465,500. On February 13, 2007, upon the registration statement
being declared effective, the assumed liability of $10,821,900 was adjusted to
additional paid in capital.
During
the year ended December 31, 2008, the Company issued a $500,000 non interest
bearing note, which was due on March 4, 2009 and is currently in
default.
NOTE
11 – DERIVATIVE LIABILITY
The
Company issued convertible debentures and related warrants with certain reset
exercise price provisions (see Note 10). If the Company issues or
sells shares of its common stock (other than certain “Excluded Securities” as
defined in the June 2006 Senior Secured Convertible Note Agreement) after the
June 2006 Financing for an amount less than the original price per share, the
conversion price of the warrants is reduced to equal the new issuance price of
those shares.
Upon the
Company’s adoption of EITF No. 07-05 on January 1, 2009, the Company
determined that the warrants did not qualify for a scope exception under SFAS
No. 133 as they were determined to not be indexed to the Company’s stock as
prescribed by EITF No. 07-05. On January 1, 2009, the warrants,
under EITF No. 07-05, were reclassified from equity to derivative liability for
the then relative fair market value of $3,222,222 and marked to
market. The value of the warrants decreased by $3,200,446 from the
warrants issuance date to the adoption date of EITF No. 07-05, January 1,
2009. As of January 1, 2009, the cumulative effect in adopting EITF
No. 07-05 was a reduction to additional paid in capital of $3,222,222 to
reclassify the warrants from equity to derivative liability and a decrease in
accumulated deficit of $3,200,446 as a cumulative effect of a change in
accounting principle to reflect the change in the value of the warrants between
their issuance date and January 1, 2009. For the three month period
ended March 31, 2009, the Company recorded a gain of $12,909 as to mark to
market for the fair value of the warrants was primarily due to the decrease in
the fair value related to these instruments during the quarter ended March 31,
2009. Under EITF 07-05, the warrants will be carried at fair value
and adjusted at each reporting period.
The
Company determined the fair value of these reset provisions at January 1, 2009
was $21,776 as the initial fair value at the adoption date of EITF No.
07-05. The fair value was determined using the Black Scholes Option
Pricing Model based on the following assumptions: dividend
yield: -0-%; volatility: 97.17%, risk free rate: 0.27% to 0.37%, expected term:
0.43 to 1.43 years.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
11 – DERIVATIVE LIABILITY (continued)
The
Company determined the fair value of the reset provisions at March 31, 2009 was
$8,867. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions: dividend yield: -0-%;
volatility: 103.97%, risk free rate: 0.21% to 0.57%, expected term: 0.18 to 1.18
years.
NOTE
12- CAPITAL STOCK
Preferred
Stock
The
Company has authorized 2,700,000 total shares of preferred stock.
The Board
of Directors designated 1,200,000 shares as Series A 12.5% cumulative preferred
stock (“Series A Preferred Stock”), with a par value of $0.01 per share. The
preferred stock is entitled to preference upon liquidation of $0.63 per share
for any unconverted shares. As of March 31, 2009 and December 31, 2008, there
were no shares of Series A Preferred Stock issued and outstanding.
The Board
of Directors has designated a total of 1,500,000 shares of Series B Preferred
Stock:
|
|
·
|
The
Board of Directors has designated 1,000,000 shares of its preferred stock
as Series B-1 Preferred Stock (“B-1 Preferred”). Each share of Series B-1
Preferred Stock is entitled to preference upon liquidation of $2.19 per
share for any unconverted shares. Each shares of the Series B-1 Preferred
shall be entitled to one (1) vote on all matters submitted to the
stockholders for a vote together with the holders of the Common Stock as a
single class. Seventeen (17) Series B-1 Preferred shares may be converted
to one (1) share of the Company’s common stock. As of March 31, 2009 and
December 31, 2008 there were 228,652 shares of Series B-1 Preferred issued
and outstanding.
|
|
|
·
|
The
Board of Directors has designated 232,500 shares of its preferred stock as
Series B-3 Preferred Stock (“B-3 Preferred”). Each share of the Series B-3
Preferred shall be entitled to thirty two (32) votes on all matters
submitted to the stockholders for a vote together with the holders of the
Common Stock as a single class. Each Series B-3 Preferred share may be
converted to thirty two (32) shares of the Company’s common stock. As
of March 31, 2009 and December 31, 2008, there were 47,502 and 47,518
shares of Series B-3 Preferred issued and outstanding,
respectively.
|
|
|
·
|
In
June 2006 the Board of Directors designated 100,000 shares of its
preferred stock as Series B-4 Preferred Stock (“B-4
Preferred”). Upon the filing of an amendment which increased
the number of authorized common shares such that there was an adequate
amount of authorized common stock per issuance upon conversion of the
Series B-4 Preferred, the Series B-4 Preferred shares automatically
converted to shares of the Company's common stock at a rate of three
hundred fifty (350) common shares for each share of Series B-4
Preferred. During the year ended December 31, 2007, 95,500 shares of
Series B-4 Preferred were converted into 33,425,000 shares of the
Company’s common stock. As of March 31, 2009 and December 31, 2008, there
were no shares of Series B-4 Preferred issued and
outstanding.
|
Common
Stock
On
February 9, 2007, the Company effected a one-for-one sixth (1 to 1.6) reverse
stock split of its authorized and outstanding shares of common stock, $0.01 par
value. All references in the consolidated financial statements and the notes to
consolidated financial statements, number of shares, and share amounts have been
retroactively restated to reflect the reverse split. The Company has restated
from 26,031,355 to 16,269,597 shares of common stock issued and outstanding as
of December 31, 2006 to reflect the reverse split.
On
February 9, 2007, the Company is authorized to issue 150,000,000 shares of
common stock with a par value of $0.01 per share. As of March 31, 2009 and
December 31, 2008, there were 58,136,113 and 57,810,601 shares of common stock
issued and outstanding, respectively.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
12- CAPITAL STOCK (continued)
In
February 2007, the Company amended its Certificate of Incorporation increasing
its authorized shares of common stock to issue 150,000,000 shares of common
stock with a par value of $0.01 per share.
In
January 2008, the Company issued 400,000 shares of its Common stock in exchange
for convertible debentures of $400,000.
In March
2008, the Company issued 195,000 shares of its Common stock in exchange for
convertible debentures of $195,000.
In April
2008, the Company issued 1,000 shares of its Common stock in exchange for
convertible debentures of $1,000.
In June
2008, the Company issued 175,000 shares of its Common stock in exchange for
convertible debentures of $175,000.
In
September 2008, the Company issued 23,000 shares of its Common stock in exchange
for convertible debentures of $23,000.
In
October 2008, the Company issued 4,000 shares of its Common Stock in exchange
for convertible debentures of $4,000.
In
January 2009, the Company issued 325,000 shares of its Common Stock in exchange
for services rendered. The shares of Common Stock were valued at
$78,000.
In
February 2009, the Company issued 512 shares of its Common Stock in conversion
of 16 shares of Series B-3 Preferred Stock.
NOTE
13- RELATED PARTY NOTES PAYABLE AND TRANSACTIONS
A
significant majority of sales during 2008 were Equipment Sales rather than
Factory Sales. In some cases the equipment was supplied directly to an end user,
as in the case of EPV Solar; in other cases the equipment was supplied to a
general contractor who subsequently delivered a complete factory, as in the case
of equipment supplied in collaboration with RESI and Terrasolar on behalf of CG
Solar (previously Blue Star Terra Corporation). During late 2007, the main
strategic partner for the Company on such sales had been Renewable Energy
Solutions, Inc. (“RESI”). Prior to RESI assuming the role of general contractor
on the CG Solar project the primary partner was Terra Solar Global, Inc. (“Terra
Solar”).
Terra
Solar, Inc. (“TSI”) owns approximately 49% of the outstanding securities of
Terra Solar. Zoltan Kiss, a shareholder and former director of the Company, was
also a shareholder of TSI. Zoltan Kiss, a shareholder and former director of the
Company, is also the Chairman and majority owner of RESI. Mr. Kiss resigned as
Chairman and a Director of the Company effective December 20, 2007.
An
additional $369,108 was invoiced to RESI for a separate project during 2007. No
revenue was generated from either party during 2008.
The
Company currently has related party trade receivables of $1,197,548 from RESI as
of March 31, 2009 and December 31, 2008 from the Blue Star Contract and
$134,315 from another project. RESI assumed the trade payable from Terrasolar
upon assumption of the Blue Star contract in April 2007 and made several
payments during 2007. The Company has decided to reserve $831,863 out of the
total balance of $1,331,863 related party trade receivable based on management’s
evaluation of the related party’s current financial condition as of December 31,
2008. There was no change in reserve at March 31, 2009.
The
Company has since decided to focus its sales effort on Factory
Sales.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
13- RELATED PARTY NOTES PAYABLE AND TRANSACTIONS (continued)
The
Company signed a cooperative Research and Development Contract, and a Marketing
and Manufacturing Facility Turn On Function Contract with RESI on December 20,
2006 and January 30, 2007, respectively. Zoltan Kiss, the Company’s former
Chairman of the Board, is Chairman and majority shareholder of RESI. Payments
made to RESI under the Research and Development Contract were $-0- and $90,000
for the three month periods ended March 31, 2009 and 2008, respectively. No
payments have been made to RESI under the Marketing and Manufacturing Facility
Turn On Function Contract for the three month periods ended March 31, 2009 and
2008.
During
2008, the Company also entered into a Settlement Agreement with Zoltan Kiss,
replacing both the Research and Development Contract and the Marketing
Contract.
There
were no related party sales and/or cost of sales for the three month periods
ended March 31, 2009 and 2008.
The
Company has a dividend payment obligation due to the former shareholders valued
at $115,954 and $143,778 as of March 31, 2009 and December 31, 2008,
respectively.
NOTE
14 – NON CONTROLLING INTEREST AND PUT LIABILITY
Formation of
Subsidiary
On
October 18, 2007, the Company organized a wholly owned subsidiary, Solar Thin
Power, Inc. under the laws of the state of Nevada. On October 24, 2007, Solar
Thin Power, Inc. issued 50,000,000 shares of its common stock in exchange for
services rendered to the Company and 14,500,000 common shares for services to be
performed. On December 19, 2007 and January 23, 2008, Solar Thin
Power, Inc. completed the sale of 7,070,000 shares of its common stock at a net
sales price of $0.4948 per share. In conjunction with the sale of the
common stock of Solar Thin Power, Inc., the Company issued 3,685,000 warrants to
purchase shares in the Company’s common stock at $3.30 per share for five
years.
For the
period from October 18, 2007 (date of incorporation) to March 31, 2009, Solar
Thin Power, Inc. had total revenue of $0, losses of $1,000 and $26,984 for the
three month periods ended March 31, 2009 and 2008, respectively and a total
accumulated deficit of $299,131 at March 31, 2009. As of March
31, 2009, the Company owned a 65.12% interest in Solar Thin Power, Inc. Due to
this majority interest, our consolidated financial statements includes the
balance sheet, results of operations and cash flows of Solar Thin Power, Inc.
net of intercompany charges. We therefore eliminated 34.88% of financial results
that pertain to the non controlling interest shareholders of Solar Thin Power,
Inc.; the eliminated amount was reported as a separate line on our consolidated
statements of operations and balance sheets.
The
following table summarizes the changes in Non Controlling Interest from December
31, 2007 to March 31, 2009:
|
Balance
as of December 31, 2007
|
|
$
|
999,496
|
|
|
Period
loss applicable to non controlling interest for 2008
|
|
|
(67,904
|
)
|
|
Dilution
of ownership interest from 70.15% ownership to 65.12% through issuance of
Solar Power’s common stock by the Company for services
rendered
|
|
|
214,996
|
|
|
Balance
as of December 31, 2008
|
|
|
1,146,588
|
|
|
Period
loss applicable to non controlling interest for the three months ended
March 31, 2009
|
|
|
(349
|
)
|
|
Dilution
of ownership interest related to change in equity of non controlling
interest
|
|
|
9,156
|
|
|
Balance
as of March 31, 2009
|
|
$
|
1,155,395
|
|
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
14 – NON CONTROLLING INTEREST AND PUT LIABILITY (continued)
Put
Liability
Additionally,
in conjunction with the sale of the common stock of Solar Thin Power, Inc. at
December 19, 2007; the Company agreed to complete a Registration Statement with
the Securities Exchange Commission and use its best efforts to have the
Registration Statement declared effective within eighteen months (“
Effective Date
”) of
closing (June 10, 2009). In the event that Solar Thin Power, Inc. is
not a public reporting company by the Effective Date, the Company has agreed to
re-acquire, at the option of the shareholders, half of the common stock issued
or 3,535,000 shares at the aggregate purchase price ($0.50 per share for a total
of $1,767,500) (“
Put
Option
”). The Company follows the SFAS No. 5, “Accounting for
Contingencies” in accounting for this put liability as of March 31, 2009 and
December 31, 2008, which provides that loss contingencies should be recognized
as liabilities if they are probable and reasonably estimable.
The
Company believes that its obligations under the put option are not probable due
to the fact that it is anticipated that Solar Thin Power will enter into an
agreement with the Company to merge with and into the
Company. Following the consummation of the merger, Solar Thin Power
will be operated as a division of the Company and will seek to facilitate power
projects and joint ventures designed to provide solar electricity using thin
film a-Si solar modules. Under the proposed terms of the
merger:
|
·
|
the
stockholders of Solar Thin Power, Inc., other than the Company, will
receive an aggregate of 32,085,000 shares of the Company common stock, or
one share of the Company common stock for each share of Solar Thin Power,
Inc. common stock owned by them;
and
|
|
·
|
all
of the 36,315,000 shares of Solar Thin Power, Inc. common stock owned by
the Company will be cancelled as part of the
merger.
|
It is
anticipated that the merger of Solar Thin Power into Solar Thin Films, Inc. will
occur on or before the second quarter ending June 30, 2009.
NOTE
15- ECONOMIC DEPENDENCY
During
the three month period March 31, 2009, $1,658,740 or 100% of the total revenues
were derived from one customer; for the three month period ended March 31, 2008;
$287,994 or 100% were derived from one customer.
NOTE
16 – STOCK OPTIONS AND WARRANTS
Warrants
The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock at March 31,
2009:
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Warrants
Outstanding Weighted Average Remaining Contractual Life
(years)
|
|
|
Weighted
Average Exercise price
|
|
|
Number
Exercisable
|
|
|
Warrants
Exercisable Weighted Average Exercise Price
|
|
|
$
|
1.00
|
|
|
|
333,334
|
|
|
|
1.22
|
|
|
$
|
1.00
|
|
|
|
333,334
|
|
|
$
|
1.00
|
|
|
|
2.00
|
|
|
|
3,000,000
|
|
|
|
0.21
|
|
|
|
2.00
|
|
|
|
3,000,000
|
|
|
|
2.00
|
|
|
|
2.20
|
|
|
|
3,000,000
|
|
|
|
1.21
|
|
|
|
2.20
|
|
|
|
—
|
|
|
|
-
|
|
|
|
3.00
|
|
|
|
3,000,000
|
|
|
|
0.21
|
|
|
|
3.00
|
|
|
|
3,000,000
|
|
|
|
3.00
|
|
|
|
3.30
|
|
|
|
6,685,000
|
|
|
|
2.56
|
|
|
|
3.30
|
|
|
|
3,685,000
|
|
|
|
3.30
|
|
|
Total
|
|
|
|
16,018,334
|
|
|
|
1.40
|
|
|
$
|
2.75
|
|
|
|
10,643,334
|
|
|
$
|
2.07
|
|
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
16 – STOCK OPTIONS AND WARRANTS (continued)
Warrants
(continued)
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
|
|
Number
of
Shares
|
|
|
Weighted
Average
Price
Per Share
|
|
|
Outstanding
at December 31, 2007
|
|
|
16,343,334
|
|
|
$
|
2.68
|
|
|
Granted
|
|
|
300,000
|
|
|
|
3.30
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled
or expired
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding
at December 31, 2008
|
|
|
16,643,334
|
|
|
|
2.69
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled
or expired
|
|
|
(625,000
|
)
|
|
|
(1.20
|
)
|
|
Outstanding
at March 31, 2009
|
|
|
16,018,334
|
|
|
$
|
2.75
|
|
In
conjunction with the sale of the Company’s majority owned subsidiary, Solar Thin
Power, Inc., the Company issued 300,000 warrants during the year ended December
31, 2008 to purchase the Company’s common stock at $3.30 per share exercisable
until five years from the date of issuance. (see Note 14 above)
Stock
options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees and
directors of the Company at March 31, 2009:
|
|
|
|
Options
Outstanding
|
|
|
|
Options
Exercisable
|
|
|
Exercise
Prices
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
0.42
|
|
|
|
500,000
|
|
4.57
|
|
$
|
0.42
|
|
69,444
|
|
$
|
0.42
|
|
|
$
|
0.533
|
|
|
|
3,000,000
|
|
8.22
|
|
$
|
0.533
|
|
2,753,425
|
|
$
|
0.533
|
|
|
$
|
0.75
|
|
|
|
630,000
|
|
9.00
|
|
$
|
0.75
|
|
434,111
|
|
$
|
0.75
|
|
|
$
|
0.80
|
|
|
|
600,000
|
|
9.04
|
|
$
|
0.80
|
|
—
|
|
$
|
-
|
|
|
$
|
2.07
|
|
|
|
15,625
|
|
0.70
|
|
$
|
2.07
|
|
15,625
|
|
$
|
2.07
|
|
|
Total
|
|
|
|
4,745,625
|
|
8.01
|
|
$
|
0.59
|
|
3,272,605
|
|
$
|
0.56
|
|
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
16 – STOCK OPTIONS AND WARRANTS (continued)
Stock options
(continued)
Transactions
involving stock options issued to employees are summarized as
follows:
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
Number
of
|
|
|
Price
|
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Outstanding
at December 31, 2007:
|
|
|
3,015,625
|
|
|
$
|
0.55
|
|
|
Granted
|
|
|
1,770,000
|
|
|
$
|
0.66
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled
or expired
|
|
|
(40,000
|
)
|
|
|
(2.18
|
)
|
|
Outstanding
at December 31, 2008:
|
|
|
4,745,625
|
|
|
$
|
0.59
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
Canceled
or expired
|
|
|
-
|
|
|
|
—
|
|
|
Outstanding
at March 31, 2009:
|
|
|
4,745,625
|
|
|
$
|
0.59
|
|
During
the year ended December 31, 2008, the Company granted an aggregate of 1,730,000
stock options (net of cancellations, see stock option table per above) to
officers, employees and consultants with an exercise prices from $0.42 to $0.80
per share expiring five to ten years from issuance with cliff vesting or graded
vesting over eighteen to thirty six months. Compensation cost is recognized over
the requisite service period in a manner consistent with the option vesting
provisions.
The
weighted-average fair value of stock options granted to officers and employees
during the year ended December 31, 2008 and the weighted-average significant
assumptions used to determine those fair values, using a Black-Scholes option
pricing model are as follows:
|
Significant
assumptions (weighted-average):
|
|
|
|
|
Risk-free
interest rate at grant date
|
|
|
2.67%
to 3.75
|
%
|
|
Expected
stock price volatility
|
|
|
92.20%
to 94.93
|
%
|
|
Expected
dividend payout
|
|
|
—
|
|
|
Expected
option life-years (a)
|
|
|
5
to 10
|
|
(a) The
expected option life is based on contractual expiration dates.
Compensation
expense in the amount of $329,836 and $161,361 was charged to operating results
in connection with the stock options grant for the three month periods ended
March 31, 2009 and 2008.
NOTE
17 - COMMITMENTS AND CONTINGENCIES
Lease
agreement
In
November 2005, the Company entered into a three year fixed term lease agreement
for our corporate offices and facilities in Budapest, Hungary at a rate ranging
from $4,543 to $15,433 per month as the lease has provisions for additional
space for the period calendar year of 2006 and beyond. The lease agreement
provides for moderate increases in rent after the first year in accordance with
the inflationary index published by the Central Statistical Office. In November
2007, the terms of the lease agreement were modified effectively increasing the
monthly rent to $20,800 per month starting on January 1, 2008 for the next three
years through December 31, 2010. The minimum future cash flow for the leases at
March 31, 2009 is as follows:
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
17 - COMMITMENTS AND CONTINGENCIES (continued)
|
|
|
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ending December 31, 2009
|
|
$
|
187,200
|
|
|
Year
ending December 31, 2010
|
|
$
|
249,600
|
|
|
Total
|
|
$
|
436,800
|
|
Rent
expense amounted to $62,934 and $68,299 for the three month periods ended March
31, 2009 and 2008, respectively.
Litigation
New York Medical, Inc. and Redwood
Investment Associates, L.P. vs. American United Global, Inc., et al. (Supreme
Court, New York State, New York County)
. In this suit, filed on December
12, 2003, plaintiffs seek a declaration that a series of transactions by which
the Company allegedly acquired Lifetime Healthcare Services, Inc. ("Lifetime")
and Lifetime acquired an interest in NY Medical from Redwood (collectively
"Transactions") were properly rescinded or, alternatively, that because the
Transactions were induced by fraudulent conduct of our company and others, that
the Transactions should be judicially rescinded. In addition to the requests for
equitable relief, plaintiffs also seek monitory damages in excess of $5 million
and exemplary damages in the amount of $15 million.
Currently,
the suit has not proceeded past the filing and service of the complaint. The
Company has obtained an open-ended extension of time in which to answer and/or
move with regard to the complaint. The Company is attempting to resolve the
matter amicably. However, in the event litigation proceeds, it will be
aggressively defended. Management believes the ultimate outcome of this matter
will not have a material adverse effect on the Company’s consolidated financial
position, results of operations or liquidity.
From time
to time, the Company is a party to litigation or other legal proceedings that
the Company considers to be a part of the ordinary course of its business. The
Company is not involved currently in legal proceedings that could reasonably be
expected to have a material adverse effect on its business, prospects,
consolidated financial condition or results of operations. The Company may
become involved in material legal proceedings in the future
.
Contingent
Obligation
The
Company remains contingently liable for certain capital lease obligations
assumed by EGLOBE, Inc. ("EGLOBE") as part of the Connectsoft Communications
Corp. asset sale which was consummated in June 1999. The lessor filed for
bankruptcy in 2000 and the leases were acquired by another leasing organization
which subsequently also filed for bankruptcy in 2001. In addition, EGLOBE filed
for bankruptcy in 2001. The Company has been unable to obtain any further
information about the parties but believes that in the normal course of the
proceedings that another company most likely acquired the assets and related
leases and that a mutually acceptable financial arrangement was reached to
accomplish such a transfer.
To date,
the Company has not been contacted and has not been notified of any delinquency
in payments due under these leases. The original leases were entered into during
early to mid 1997 each of which was for a five-year term. Extensions of an
additional 20 months were negotiated with the original lessor in 1998 and 1999
moving the ending date to approximately mid 2004. The balance due under the
leases in June 1999 upon transfer and sale to EGLOBE was approximately
$2,800,000 including accrued interest and the monthly payments were
approximately $55,000. The balance that is currently due under the leases is
unknown and there would most likely have been negotiated reductions of amounts
due during the bankruptcy proceedings.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
17 - COMMITMENTS AND CONTINGENCIES (continued)
In 1996,
the Company issued an unsecured 8% $1.5 million note to an unrelated party in
connection with the Company's acquisition of a software company. The note was
due and payable on April 30, 1999. The note was governed by the laws of the
State of New York. The New York statute of limitations for seeking to collect on
a note is six years from the maturity date. The creditor has never sought to
collect the note since its maturity date and in or about 2001 orally advised a
representative of the Company that it had "written off the debt." Although the
Company has previously and currently listed the note as a liability on its
balance sheet, it does not believe that it has any further liability under this
note.
Product Warranty
Obligation
The
Company provides for estimated costs to fulfill customer warranty obligations
upon recognition of the related revenue in accordance with the FASB
Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for
Guarantees.” The range for the warranty coverage for the Company’s products is
up to 18 to 24 months. The Company estimates the anticipated future costs of
repairs under such warranties based on historical experience and any known
specific product information. These estimates are reevaluated periodically by
management and based on current information, are adjusted accordingly. The
Company’s determination of the warranty obligation is based on estimates and as
such, actual product failure rates may differ significantly from previous
expectations. Accrued provision for product warranty was approximately $87,930
and $59,930 as of March 31, 2009 and December 31, 2008,
respectively.
Employment and Consulting
Agreements
The
Company has consulting agreements with its key officers. In addition to
compensation and benefit provisions, the agreements include non-disclosure and
confidentiality provisions for the protection of the Company's proprietary
information.
In
connection with the merger with Kraft, the Company entered into consulting
agreements with Zoltan Kiss and Bob Rubin pursuant to which each would receive
annual compensation of $160,000 per annum and major medical benefits in
consideration for services performed on behalf of the Company. Each of these
agreements had a term of three years. The agreement with Mr. Kiss was terminated
as part of the agreement with Mr. Kiss as further described below. Mr. Rubin’s
agreement was modified upon his appointment as the Company’s Chief Financial
Officer in August 2007.
The
Company has consulting agreements with outside contractors to provide marketing
and financial advisory services. The Agreements are generally for a term of 12
months from the inception and renewable automatically from year to year unless
either the Company or consultant terminates such engagement by written
notice.
Agreement with Mr. Kiss and
other Stockholders.
On August
12, 2008, the Company entered into a stock purchase agreement (the “
Purchase Agreement
”)
with Zoltan Kiss (“
Z.
Kiss
”), Gregory Joseph Kiss (“
G. Kiss
”), Maria
Gabriella Kiss (“
M.
Kiss
”), and Steven H. Gifis (“
Gifis
”). Under the
terms of the Purchase Agreement, the Company has agreed to arrange for the sale,
and each of Z. Kiss, G. Kiss and M. Kiss (the “
Selling
Stockholders
”) have agreed to sell, an aggregate of 18.0 million shares
of common stock of the Company owned by the Selling Stockholders. The purchase
price for the 18.0 million shares is $0.4139 per share, or a total of $7,450,200
for all of the shares. At August 12, 2008, the closing price of the Company’s
common stock, as traded on the OTC Bulletin Board, was $0.80 per
share.
Z. Kiss,
a former director and executive officer of the Company, is selling 10.0 million
of the 18.0 million shares, representing his entire share holdings in the
Company. In addition, Mr. Kiss has agreed to apply up to $831,863 of the
proceeds from the sale of his 10.0 million shares to pay a portion of the
$1,331,863 of indebtedness owed by his affiliate Renewable Energy Solutions Inc.
(“
RESI
”), to
the Company. G. Kiss and M. Kiss, the children of Z. Kiss, are each selling 4.0
million shares in the transaction, and, after the sale, such persons will retain
50,000 and 1,000,000 shares of the Company’s common stock, respectively. Mr.
Gifis is acting as agent for each of the Selling Stockholders (the “
Sellers’
Agent
”).
The
Company intends to finance the purchase price for the 18.0 million shares being
sold by the Selling Stockholders by arranging for a sale of the shares, either
through a registered public offering for the account of the Selling
Stockholders, or a private purchase.
The
closing of the transactions under the Purchase Agreement was to occur on or
about November 30, 2008, subject to extension to January 31, 2009, by mutual
agreement of the Company and Mr. Gifis; provided, that if such Sellers’ Agent
shall receive reasonable assurances from the investment banking firm
underwriting securities on behalf of the Company and the Selling Stockholders
that the financing to pay the purchase price for the shares being sold, will, in
their judgment, be consummated, the Sellers’ Agent shall
extend the closing date
to January 31, 2009.
On
December 22, 2008, the Company and Kraft entered into an Amendment to the Master
Settlement Agreement and Stock Purchase Agreement (the “Amendment”) with Amelio,
RESI and the Selling Stockholders under which, among other things, the Outside
Closing Date as defined in the Settlement Agreement was revised to May 31,
2009. In addition, the definition of “RESI Debt” owed to the Company
as defined in the Settlement Agreement was revised to the net amount of
indebtedness, net of fees payable under the existing agreements to the closing
date, and not to exceed $831,863 owed by RESI to the Company or its affiliates
as of the closing date;
provided
, that if the
Transferred CG Solar Equity (as defined below) is not delivered to the Company
by December 31, 2008, the RESI Debt shall be an amount not to exceed
$1,331,863. Moreover, “RESI Debt Settlement Payment and Deliverables”
as set forth in the Settlement Agreement was amended to state that the RESI Debt
shall be paid to the Company as follows:
|
|
·
|
on
or before December 31, 2008, Z. Kiss shall cause RESI to transfer to the
Company an aggregate of shares of CG Solar, formerly known as Weihai Blue
Star Terra Photovoltaic Company (“CG Solar”), representing 5% of the
issued and outstanding capital shares of CG Solar, and having an agreed
upon value of $500,000 (the “Transferred CG Solar Equity”) - this had not
been completed as of the date of filing but the parties are working
together to complete this as soon as possible;
|
|
|
|
|
|
|
·
|
the
$831,863 balance of the RESI Debt (the “RESI Debt Balance”) shall be paid
on or following the closing date as
follows:
|
|
|
·
|
to
the extent not previously paid in full, out of the net proceeds received
by him from the public or private sale of all or a portion of his
10,000,000 subject shares under the Purchase Agreement, Z. Kiss shall pay
to the Company a total of up to $434,315 of the RESI Debt Balance, such
amount to be appropriately pro-rated based upon $0.0434315 to be paid for
each such 10,000,000 subject shares sold; and
|
|
|
|
|
|
|
·
|
unless
a portion of the RESI Debt Balance has been paid by Z. Kiss in accordance
with the above, the entire RESI Debt Balance(or any unpaid portion
thereof) will be paid to the Company by Amelio on the earlier to occur of
(i) receipt of net proceeds of a financing by Amelio (the “Amelio
Financing”) of not less than $10,000,000, or (ii) receipt of payment by
RESI or Amelio from CG Solar, the customer from whom the a-Si equipment
giving rise to the RESI Debt was shipped. To the extent that
the RESI Debt Balance is paid in whole or in part by Z. Kiss, then Amelio
shall issue to Z. Kiss a promissory note due and payable to the earlier to
occur of the consummation of the Amelio Financing or one year from the
closing date.
|
|
|
·
|
Amelio
agreed to guaranty payment of the RESI Debt Balance to the
Company.
|
The
Settlement Agreement was further amended to state that Robert M. Rubin and The
Rubin Irrevocable Stock Trust (the “Trust”) agree that all indebtedness
owed to Mr. Rubin and the Trust by Nanergy Solar, Inc. (“Nanergy”), an affiliate
of Z. Kiss, will be deemed fully paid and satisfied, and Mr. Rubin and the Trust
agree to relinquish all capital stock or stock certificates in
Nanergy. To the extent that Mr. Rubin and/or the Trust received notes
or stock certificates of Nanergy, the same will be returned to Nanergy on or
before December 31, 2008.
Under
the Amendment, the Purchase Agreement was revised to state that in the event
that any time prior to the Outside Closing Date, any of the Selling Stockholders
receive a bona fide written offer (the “Offer”) from any financially credible
individual or institutional purchaser(s) to purchase as a principal in a private
transaction, all or any portion of the subject shares, then the Selling
Stockholders shall give written notice to the Company (the
“Notice”). The Company shall have the right, within 30 days from
receipt of the Notice, to purchase that number of subject shares proposed to be
purchases in the Offer at the same price per share and payment terms as set
forth in the Offer.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
17 - COMMITMENTS AND CONTINGENCIES (continued)
There can
be no assurance that the Company will be able to obtain the requisite financing
to consummate the transactions contemplated by the above
agreements.
Proposed Acquisition of
Algatec
On
October 20, 2008, Robert M. Rubin, Chairman, Chief Executive Officer and Chief
Financial Officer of Solar Thin Films, formed Algatec Equity Partners, L.P., a
Delaware limited partnership (the “Partnership”), for the purpose of acquiring
up to 49% of the share capital of Algatec. Effective as October 30,
2008, Algatec and members of Algatec senior management consisting of Messrs.
Rainer Ruschke, Ullrich Jank, Dr. Stefan Malik and Andre Freud (collectively,
the “Management Stockholders”), and Anderkonto R. Richter, Esq., as trustee for
Mr. Ruschke and another Algatec stockholder (the “Trustee”), entered into a
share purchase agreement (the “Algatec Share Purchase
Agreement”). Under the terms of the Algatec Share Purchase Agreement,
on November 3, 2008 (the “First Closing”) the Partnership invested an aggregate
of $3,513,000, of which approximately €2,476,000 was represented by a
contribution to the equity of Algatec to enable it to acquire all of the assets
and equity of Trend Capital, the predecessor to Algatec. The
Partnership also purchased for €1.00 per share a total of 13,750 Algatec shares,
representing 27.5% of the outstanding share capital of Algatec.
The
general partner of the Partnership is Algatec Management LLP, a Delaware limited
liability company owned by The Rubin Family Irrevocable Stock Trust and other
persons. Mr. Rubin and Barry Pomerantz, a business associate of Mr.
Rubin, are the managers of the general partner. Under the terms of
the limited partnership agreement, the general partner agreed to invest a total
of $165,000 in the Partnership in consideration for 5.0% of the assets, profits
and losses of the Partnership. The limited partners, who invested an
aggregate of $3,200,000 at the First Closing and additional persons the
Partnership will seek to admit as limited partners by the Second Closing, will
own 95.0% of the Partnership assets, profits and losses. As part of the First
Closing, The Rubin Family Irrevocable Stock Trust invested an additional
$1,500,000, as a limited partner, on the same terms as other limited partners of
the Partnership.
In
addition to its equity investment, the Partnership has agreed under the terms of
a loan agreement entered into at the same time as the Algatec Share Purchase
Agreement, to lend to Algatec on or about November 30, 2008 (the “Second
Closing”), an additional $2,600,000 or approximately €2,000,000. The
proceeds of the loan was to be used to assist Algatec in paying the balance of
the purchase price for all of the assets and equity of the Trend Capital limited
partnership. Upon funding of the loan, the Partnership would purchase
for €9,250 an additional 9,250 shares, representing 21.5% of the outstanding
share capital of Algatec, thereby increasing its ownership to an aggregate of
49% of the outstanding share capital of Algatec. The loan, together
with interest at the rate of 6% per annum, is repayable on the earlier of
December 31, 2012 or the completion of one or more financings providing Algatec
with up to $50.0 million of proceeds for expansion (the “Algatec
Financing”). Upon the Partnership funding the entire €2,000,000 loan
at the Second Closing, the Management Group would own the remaining 51% of the
share capital of Algatec. If the Partnership funds less than the full
€2,000,000 loan, the additional 21.5% equity to be issued to the Partnership at
the Second Closing was to have been appropriately pro-rated. On
December 29, 2008, the Partnership consummated the Second Closing with Algatec
and funded a loan of €2,000,000 ($2.6 million) as a result of which the
Partnership’s total equity ownership in Algatec was fixed at 49% of the total
number of outstanding Algatec shares.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
17 - COMMITMENTS AND CONTINGENCIES (continued)
Effective
as of October 30, 2008, the Trustee, the Management Group and the Partnership
(collectively, the “Algatec Stockholders”) and Algatec entered into a stock
exchange agreement. Under the terms of the stock exchange agreement the
Algatec stockholders agreed, subject to certain conditions, to exchange
100% of the share capital of Algatec for shares of our newly authorized Series
B-5 convertible preferred stock. The Series B-5 preferred stock is
convertible at any time into that number of shares of our common stock as shall
represent 60% of our “Fully-Diluted Common Stock” (as defined). The
term “Fully-Diluted Common Stock” means the aggregate number of shares of
Company common stock issued and outstanding as at the date of closing of
the share exchange,
after
giving pro-forma effect to the sale or issuance of any shares of common stock
(a) that were issued at any time following the October 30, 2008 date of
execution of the stock exchange agreement and prior to consummation of the
Algatec acquisition, (b) that are issuable upon conversion of any Company
convertible securities or upon the exercise of any warrants that were issued at
any time between October 31, 2008 and consummation of the Algatec acquisition,
and (c) that are issuable upon full conversion of the Series B-5 preferred
stock. However, the Algatec stockholders shall be subject to
pro-rata dilution resulting from the issuance of (i) approximately 19.6 million
shares of Company common stock issuable upon conversion of convertible notes or
the exercise of options and warrants that were outstanding as at October 30,
2008, (ii) any shares of Company common stock issued in connection with
providing financing for Algatec (as described below), or (iii) any shares of
Company common stock issued or issuable after completion of the Algatec
acquisition. Consummation of the Algatec acquisition is subject to
certain conditions, including Algatec obtaining up to $50.0 million of the
Algatec Financing to enable it to construct the addition to its existing
manufacturing facility and purchase the necessary equipment to expand its
business and meet contractual obligations to Q-Cells and other customers, as
described above.
On April
10, 2009, the parties agreed to extend the anticipated closing date of the
transactions contemplated by the Stock Exchange Agreement to July 15,
2009.
There can
be no assurance that the necessary Algatec Financing will be obtained or that
the proposed Algatec acquisition will be consummated.
Under the
terms of the Stock Exchange Agreement, each of Messrs. Ruschke, Malik, Jank and
Freud will enter into five year employment agreements with Algatec pursuant to
which Mr. Ruschke will receive an annual salary of €180,000 (approximately USD
$246,600) and each of Messrs. Malik, Jank and Freud will receive annual salaries
of €100,000 (approximately USD $137,000), subject to 5% annual cost-of-living
increases. In addition, such executives shall be entitled to receive
annual bonuses equal to 10% of the annual net income before interest and taxes
of Algatec (“EBIT”) for each of the five years, subject to an annual “cap” on
such bonuses that will not exceed 100% of their annual salaries if annual EBIT
is €10.0 million or less in any of the five fiscal years, and 200% of their
annual salaries if such annual EBIT is more than €10.0 million in any of the
five fiscal years. Each of Messrs. Ruschke, Malik, Jank and Freud
have also agreed, for a period equal to the greater of five years or the term of
their individual employment with Algatec, not to compete with the “business” of
the Company (defined as (i) the manufacture and sale of photovoltaic module
equipment of all types, (ii) the installation of turn-key module manufacturing
facilities of all types; (iii) the manufacture and sale of photovoltaic cells or
modules of all types; and (iv) the installation and operation of power projects,
including the supplying of solar power electricity to private industry,
consumers or local or foreign governments and municipalities).
NOTE 18 – FAIR VALUE
MEASUREMENT
The
Company adopted the provisions of SFAS No. 157, “Fair Value Measurements” on
January 1, 2008. SFAS No. 157 defines fair value as the price that would be
received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities required or
permitted to be recorded at fair value, the Company considers the principal or
most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability, such as
inherent risk, transfer restrictions, and risk of nonperformance. SFAS
No. 157 establishes a fair value hierarchy that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. SFAS No. 157 establishes three levels of
inputs that may be used to measure fair value:
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE 18 – FAIR VALUE MEASUREMENT
(continued)
Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed and is determined based on the lowest level input that
is significant to the fair value measurement.
Upon
adoption of SFAS No. 157, there was no cumulative effect adjustment to the
beginning retained earnings and no impact on the consolidated financial
statements.
The
carrying value of the Company’s cash and cash equivalents, accounts receivable,
accounts payable, short-term borrowings (including convertible notes payable),
and other current assets and liabilities approximate fair value because of their
short-term maturity. All other significant financial assets,
financial liabilities and equity instruments of the Company are either
recognized or disclosed in the consolidated financial statements together with
other information relevant for making a reasonable assessment of future cash
flows, interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.
The
following table sets forth the Company’s short and long-term investments as of
March 31, 2009 which are measured at fair value on a recurring basis by level
within the fair value hierarchy. As required by SFAS No. 157, these
are classified based on the lowest level of input that is significant to the
fair value measurement:
|
|
|
Quoted
Prices
in
Active
Markets
for
Identical
Instruments
Level
1
|
|
|
Significant
Other
Observable
Inputs
Level
2
|
|
|
Significant
Unobservable
Inputs
Level
3
|
|
|
Assets
at
fair
Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,909,936
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,909,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8,867
|
)
|
|
|
(8,867
|
)
|
At March
31, 2009, the carrying amounts of the notes payable approximate fair value
because the entire note had been classified to current maturity.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
19 – SEGMENT INFORMATION
The
Company's operations fall into one single product segment, photovoltaic thin
film modules: producing and/or installing and commissioning factory equipment
that produces photovoltaic thin film modules. The Company manages its
operations, and accordingly determines its operating segments, on a geographic
basis. Consequently, the Company has one operating geographic location, Hungary.
The performance of geographic operating segments is monitored based on net
income or loss (after income taxes, interest, and foreign exchange
gains/losses). The accounting policies of the segments are the same as those
described in the summary of accounting policies in Note 1. There are no
intersegment sales revenues. The following tables summarize financial
information by geographic segment for the three month periods ended March 31,
2009 and 2008:
Geographic
information for the three month period ended March 31, 2009:
|
|
|
Hungary
|
|
|
(Corporate)
|
|
|
Total
|
|
|
Total
Revenues
|
|
$
|
1,658,740
|
|
|
$
|
-
|
|
|
$
|
1,658,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
33,533
|
|
|
|
-
|
|
|
|
33,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
165
|
|
|
|
29,610
|
|
|
|
29,775
|
|
|
Interest
expense
|
|
|
(1,882
|
)
|
|
|
(296,107
|
)
|
|
|
(297,989
|
)
|
|
Net
interest expense
|
|
|
1,717
|
|
|
|
(266,497
|
)
|
|
|
(268,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
acquisition cost
|
|
|
-
|
|
|
|
(14,455
|
)
|
|
|
(14,455
|
)
|
|
Research
and development
|
|
|
-
|
|
|
|
( -
|
)
|
|
|
( -
|
)
|
|
Net
income (loss)
|
|
|
250,378
|
|
|
|
(794,511
|
)
|
|
|
(544,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
334,378
|
|
|
|
-
|
|
|
|
334,378
|
|
|
Fixed
asset additions
|
|
$
|
34,672
|
|
|
$
|
-
|
|
|
$
|
34,672
|
|
Geographic
information for three month period ended March 31, 2008:
|
|
|
Hungary
|
|
|
(Corporate)
|
|
|
Total
|
|
|
Total
Revenues
|
|
$
|
287,994
|
|
|
$
|
-
|
|
|
$
|
287,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
49,922
|
|
|
|
-
|
|
|
|
49,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
1,635
|
|
|
|
44,311
|
|
|
|
45,946
|
|
|
Interest
expense
|
|
|
(1,131
|
)
|
|
|
(458,026
|
)
|
|
|
(459,157
|
)
|
|
Net
interest expense
|
|
|
504
|
|
|
|
(413,715
|
)
|
|
|
(413,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
acquisition cost
|
|
|
-
|
|
|
|
(25,563
|
)
|
|
|
(25,563
|
)
|
|
Research
and development
|
|
|
-
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
|
Net
loss
|
|
|
(350,733
|
)
|
|
|
(1,102,905
|
)
|
|
|
(1,453,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
|
413,241
|
|
|
|
-
|
|
|
|
413,241
|
|
|
Fixed
asset additions
|
|
|
39,815
|
|
|
|
-
|
|
|
|
39,815
|
|
|
Other
assets
|
|
$
|
3,893
|
|
|
$
|
-
|
|
|
$
|
3,893
|
|
Geographic
information of revenues by customers’ locations/countries for three months ended
March 31, 2009 and 2008:
|
Customer
Countries:
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
Spain
|
|
$
|
1,658,740
|
|
|
$
|
-
|
|
|
U.S.
|
|
|
-
|
|
|
|
287,994
|
|
|
Total
|
|
$
|
1,658,740
|
|
|
$
|
287,994
|
|
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
20 – SUBSEQUENT EVENTS
Share exchange
agreement
On April
3, 2009, the Company and Kraft Electronikai Zrt, a Hungarian corporation and
wholly owned subsidiary of the Company (“
Kraft
”), entered
into an amended stock exchange agreement (the “
Exchange Agreement
”)
with BudaSolar Technologies Co. Ltd. (“
BudaSolar
”), New
Palace Investments Ltd., a Cyprus corporation (“
NPI
”), Istvan
Krafcsik (“
Krafcsik
”) and
Attila Horvath (“
Horvath
”, and
collectively with NPI and Krafcsik, the “
BudaSolar
Stockholders
”).
On April
3, 2009, the Company, Kraft, BudaSolar and the BudaSolar Stockholders entered
into an amended and restated stock exchange agreement (the “
Amended Exchange
Agreement
”) dated as of April 2, 2009 under which Kraft agreed to acquire
from the BudaSolar Stockholders 100% of the outstanding registered share equity
capital of BudaSolar in exchange for the Company transferring to the BudaSolar
Stockholders 49% of the outstanding capital stock or share capital (the “
Kraft Shares
”) of
Kraft (the “
Share
Exchange
”). As a result, the Company will own 51% of Kraft and
its 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of
BudaSolar. In addition, the Amended Exchange Agreement deleted the
put option of the BudaSolar Stockholders, and the call option of the Company and
Kraft, each resulting in the Company and Kraft acquiring from the BudaSolar
Stockholders 100% of Kraft Shares owned by the BudaSolar Stockholders or their
affiliates after the closing of the Share Exchange. The Company accrued an
estimated $500,000 costs incurred in connection with the Amended Exchange
Agreement.
Kraft
agreed to assume the obligation of the repayment of certain loans made by
BudaSolar Stockholders to BudaSolar prior to the date of the Amended Exchange
Agreement, to be evidenced by a five-year subordinated promissory note of Kraft
bearing interest at an annual rate equal to LIBOR for twelve month United States
dollars interbank deposits as fixed by BBA plus a margin of 3% (the “
Loan
”). Such
Loan will be repaid by Kraft as follows: (i) on October 1, 2009, Kraft shall
repay $250,000 provided that there’s a minimum amount of $1,600,000 available on
the accounts of Kraft. In case such amount is not available on the accounts on
October 1, 2009, repayment of this tranche is due whenever the amount is made
available on the accounts; (ii) on January 1, 2010, $250,000 is repayable from
the available excess cash; and (iii) the outstanding amount of the Loan is
repayable on January 1, 2011. The parties further agreed that the condition of
the repayment of the Loan (or any tranche of the Loan) shall be the availability
of excess cash.
Under the
Amended Exchange Agreement, the Company agreed to increase the capital of Kraft
(the "
Share Capital
Increase
") by investing USD $750,000 equivalent in Hungarian Forints in
Kraft calculated at the then current exchange rate.
The
Amended Exchange Agreement contains customary representations, warranties and
covenants of the Company, Kraft, BudaSolar and the BudaSolar Stockholders for
similar transactions. All covenants survive until fulfilled in
accordance with their respective terms. The Amended Exchange
Agreement contains a mutual indemnification provision for breach of or
inaccuracy in any representation or warranty and any breach or failure to fully
perform any covenant by any party to the agreement. In addition, the
BudaSolar Stockholders agreed that, for a period of five years from the Closing
Date (as defined below), they will neither compete with the business, nor
solicit the employees of, Kraft, the Company, BudaSolar, or any of their
respective direct or indirect subsidiaries.
The
consummation of the Share Exchange and other transactions set forth in the
Amended Exchange Agreement is subject to certain closing conditions, including
(i) the parties’ satisfaction with their respective due diligence
investigations; (ii) the execution and delivery of five year employment
agreements for each of Istvan Krafcsik and Attila Horvath as Chief Executive
Officer and Chief Operating Officer of Kraft and its BudaSolar subsidiary,
respectively; (iii) the execution and delivery of a shareholders agreement
between the Company, Kraft and the BudaSolar Stockholders; (iv) the execution
and delivery of a corporate services agreement and inter-company services
agreement between Kraft and BudaSolar; and (v) BudaSolar’s delivery to the
Company and Kraft of unaudited financial statements of BudaSolar from the period
of inception through December 31, 2008.
The
closing of the Share Exchange and the transactions contemplated pursuant to the
Amended Exchange Agreement was revised to occur as soon as practicable, but in
any event by April 30, 2009 (the “
Closing
Date
”). Subsequently the two parties have agreed verbally (and will
soon reduce to writing) to extend the date to June 30, 2009. However,
there can be no assurances that the Share Exchange will be
consummated.
SOLAR
THIN FILMS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
NOTE
20 – SUBSEQUENT EVENTS (continued)
In the
event that the Exchange Agreement terminates or the closing does not occur by
the Closing Date, then BudaSolar shall thereafter continue to render certain
technical services to Kraft under a cooperation agreement entered into on
September 29, 2008 (the “
Cooperation Agreement
”). Pursuant
to the terms of the Cooperation Agreement, the Company or Kraft has caused to be
paid to BudaSolar the aggregate sum of $750,000. Such payment shall
be deemed to be a loan by Kraft to BudaSolar and shall be repaid prior to
closing of the Share Exchange.
On April
10, 2009, the Algatec Stockholders and Algatec agreed to extend the anticipated
closing date of the transactions contemplated by the Stock Exchange Agreement to
July 15, 2009.
On April
3, 2009, Solar Thin Power, Inc., a majority owned subsidiary of the Company
(“
ST Power
”),
Kraft and BudaSolar Limited entered into an Inter-Company Services
Agreement dated as of April 2, 2009 (the “
Services Agreement
”)
in respect of power projects undertaken by ST Power and the use of Kraft and
BudaSolar Limited as a preferred supplier of amorphous silicon photovoltaic
module manufacturing equipment (the “
PV
Equipment
”). ST Power will have the right to integrate turnkey
PV Equipment into its power project offering and will receive most favored
nations pricing from Kraft and BudaSolar Limited on purchases of PV Equipment
for integration in such power projects. Alternatively, ST Power may refer the PV
Equipment customer to Kraft in exchange for a 5% commission. In
addition, ST Power may elect, in its sole discretion, to structure one or more
power projects with Kraft as the general contractor, or with ST Power as the
general contractor and Kraft as the sub-contractor, for the manufacturing
facility portion of the integrated offering.
Employment
agreements
On April
3, 2009, Kraft entered into five year employment agreements with each of Istvan
Krafcsik and Attila Horvath as Chief Executive Officer and Chief Operating
Officer of Kraft and its BudaSolar subsidiary, respectively. Kraft and its
shareholders also entered into a shareholders’ agreement which, among other
things, (i) restricts a shareholder’s ability to sell, assign or otherwise
transfer any of his or its shares of Kraft; (ii) provides for a right of first
refusal and tag-along rights with respect to any permitted sale or other
disposition of a shareholder’s shares of Kraft; and (iii) sets forth certain
agreed upon procedures related to corporate governance, major decisions,
competing business ventures and affiliated sales.
On April
3, 2009, the Company, Kraft and the BudaSolar Stockholders entered into a side
letter bonus agreement to the Amended Exchange Agreement dated as of April 2,
2009 (the “
Bonus
Agreement
”) under which the parties agreed to formulate a bonus agreement
for key executives and employees within 30 days after the closing of the Share
Exchange under specific guidelines set forth therein.
On April
7, 2009, the Company entered into an amendment to the employment agreement of
Peter Lewis under which Mr. Lewis agreed to resign as the President, Chief
Executive Officer and as a member of the board of directors of the Company,
effective as of March 31, 2009. Effective as of April 1, 2009, Mr.
Lewis was appointed as Group Vice President and General Manager of the Thin Film
Group of the Company through June 1, 2010. The Thin Film Group will
focus on the production of
“turnkey
” thin film manufacturing
systems and will include the activities of the Company’s wholly owned Kraft
subsidiary
. In this capacity, Mr. Lewis will be primarily
responsible for generating orders and sales of PV Equipment and he will provide
general oversight of the manufacturing operations of the Kraft and BudaSolar
subsidiaries of the Company, and together with Messrs. Krafcsik and Horvath,
will be responsible for generating profits for the Thin Film Equipment
Group.
Effective
April 1, 2009, Mr. Robert M. Rubin, the Company’s Chief Financial Officer and
Chairman, was appointed as the Chief Executive Officer of the Company to fill
the vacancy created by Mr. Lewis’ resignation.
ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
WE URGE YOU TO READ THE FOLLOWING
DISCUSSION IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE
NOTES THERETO BEGINNING ON PAGE F-1. THIS
DISCUSSION MAY CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS COULD DIFFER
MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF A NUMBER OF FACTORS,
INCLUDING BUT NOT LIMITED TO THE RISKS AND
UNCERTAINTIES DISCUSSED UNDER THE
HEADING “RISK FACTORS” SET FORTH IN OUR ANNUAL REPORT ON FORM 10-K/A FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008 FILED WITH THE SEC ON APRIL 23, 2009. IN
ADDITION, SEE “
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
”
SET FORTH IN THIS
REPORT.
Overview
S
olar Thin
Films, Inc. (the “Company”) is a business focused on the solar energy
industry. We engage in the design,
manufacture, and marketing of “turnkey” systems and equipment for the
manufature of low cost solar modules on a world-wide basis. The Company operates
through its wholly owned subsidiary, Kraft Elektronikai Zrt (“Kraft”). The
Company expects the primary use of such photovoltaic thin film modules will be
the construction of solar power plants by corporations and
governments
.
On April
3, 2009, the Company and Kraft entered into a restated share exchange agreement
with Buda Solar Technologies Co. Ltd. (“Buda Solar”) and its
shareholders. Under the terms of such agreement, subject to the
satisfaction of certain closing conditions, Kraft will acquire 100% of the share
capital of Buda Solar and will issue to the stockholders of Buda Solar 49% of
the share capital of Kraft. As a result, the Company will own 51% of
Kraft and our 51% owned Kraft subsidiary will, in turn, own 100% of the share
capital of Buda Solar. Buda Solar is engaged in the providing
technical and installation services for the production and installation of thin
film a-Si solar module manufacturing equipment. Consummation of the
Buda Solar transaction is scheduled to occur in June 2009.
Effective as of October 30, 2008, the
Company entered into a stock exchange agreement with Algatec Solar AG and its
shareholders. Algatec produces, sells and distributes metallurgical
and other types of crystalline silicon solar panels or modules. For a
description of the terms of this agreement, see “
Description of our Business
–Algatec-Potential
manufacture of crystalline silicon
solar modules”
in our Form 10-K/A.
The Company, in the future, may further
vertically integrate itself within this industry through activities in, but not
limited to, investing in and/or operating the module manufacturing plants,
selling thin film photovoltaic modules, and installing and/or managing solar
power plants. The Company also intends, directly and through joint ventures or
strategic alliances with other companies or governmental agencies, to sell
equipment for and participate financially in solar power facilities using thin
film a-Si solar modules or metallurgical and other crystalline solar modules as
the power source to provide electricity to municipalities, businesses and
consumers.
Consummation
of both the Buda Solar and Algatec acquisitions as well as all other expansion
plans of the Company are subject to its ability to solve its significant working
capital shortages; make payment or other arrangements for the resolution of
approximately $2.9 million of indebtedness (approximately $1.75 million of which
became in default in March 2009) and other accrued accounts payable, all of
which are overdue. In the event that the Company is unable to resolve
these matters within the next 90 days, it may be unable to continue in business
and/or may be required to seek protection from its creditors under the Federal
Bankruptcy Act.
Kraft and Buda Solar are each Hungarian
corporations and their headquarters are located in Budapest,
Hungary. Algatec is a German corporation and its headquarters are
located in Proesen, Germany. Solar Thin Films is a Delaware
corporation and its headquarters are located at 25 Highland Boulevard, Dix
Hills, New York 11746. Solar Thin Films website is located at
www.solarthinfilms.com
.
Company
History
Solar
Thin Films History
The
Company was initially organized as a New York corporation on June 22, 1988 under
the name Alrom Corp. ("Alrom"), and completed an initial public offering of
securities in August 1990. Alrom effected a statutory merger in December 1991,
pursuant to which Alrom was reincorporated in the State of Delaware under the
name American United Global, Inc. Prior to the acquisition of Kraft, the Company
intended to focus its business strategy on acquisitions of operating businesses
in various sectors. On June 14, 2006, in connection with its business strategy,
the Company closed on the acquisition of 95.5% of the outstanding securities of
Kraft. In addition, the Company acquired the remaining 4.5% minority interest in
August 2007 and, as a result, now conducts its operations via Kraft, the
wholly-owned subsidiary.
Kraft
History
Kraft was
founded in 1993, shortly after the breakup of the communist economy in Hungary.
Its founding members were associated with the Hungarian Central Research
Institute for Physics. In 1996, Kraft was contracted to develop thin-film
photovoltaic deposition equipment for production of amorphous silicon based
thin-film modules, as well as complete turnkey facilities. Photovoltaics (PV) is
the physical phenomenon, which allows certain semiconductor materials to
directly convert sunlight into electricity.
In the subsequent years, Kraft has
manufactured equipment for such facilities in New Jersey, Germany, Hungary,
China, Taiwan, Greece and Portugal. In producing equipment for these facilities,
Kraft developed substantial equipment manufacturing expertise. More recently as
a supplier to RESI for the CG Solar project in Weihai, China Kraft developed
additional process expertise required to allow it to become a leading
manufacturer of “turnkey” plants, including the delivery of both equipment and
services, that produce photovoltaics modules utilizing thin-film technology.
Kraft is now using this expertise to deliver its first "turnkey" plant in Spain
commencing in December 2008 and continuing through 2009.
Stock
Exchange Agreement with BudaSolar Technologies Co. Ltd.
On April 3, 2009, the Company and Kraft
entered into a restated share exchange agreement with BudaSolar Technologies Co.
Ltd. (“BudaSolar”) and its shareholders. Under the terms of such
agreement, subject to the satisfaction of certain closing conditions, Kraft will
acquire 100% of the share capital of BudaSolar and will issue to the
stockholders of BudaSolar 49% of the share capital of Kraft. As a
result, the Company will own 51% of Kraft and our 51% owned Kraft subsidiary
will, in turn, own 100% of the share capital of BudaSolar. BudaSolar
is engaged in the providing technical and installation services for the
production and installation of thin film a-Si solar module manufacturing
equipment. Consummation of the BudaSolar transaction is scheduled to
occur in June 2009.
Under the terms of a separate agreement
with BudaSolar, Kraft has contracted to purchase from BudaSolar certain
technical services on a consulting basis for a fee of $250,000 per
month. A total of $750,000 has been paid as of March 31, 2009. This
agreement was superseded by the Stock Exchange Agreement with no additional
payments due.
Agreements
with Algatec Solar AG
On October 20, 2008, Robert M. Rubin,
Chairman, Chief Executive Officer and Chief Financial Officer of Solar Thin
Films, formed Algatec Equity Partners, L.P., a Delaware limited partnership (the
“Partnership”), for the purpose of acquiring up to 49% of the share capital of
Algatec. Effective as October 30, 2008, Algatec and members of
Algatec senior management consisting of Messrs. Rainer Ruschke, Ullrich Jank,
Dr. Stefan Malik and Andre Freud (collectively, the “Management Stockholders”),
and Anderkonto R. Richter, Esq., as trustee for Mr. Ruschke and another
Algatec stockholder (the “Trustee”), entered into a share purchase agreement
(the “Algatec Share Purchase Agreement”). Under the terms of the
Algatec Share Purchase Agreement, on November 3, 2008 (the “First Closing”) the
Partnership invested an aggregate of $3,513,000, of which approximately
€2,476,000 was represented by a contribution to the equity of Algatec to enable
it to acquire all of the assets and equity of Trend Capital, the predecessor to
Algatec. The Partnership also purchased for €1.00 per share a total
of 13,750 Algatec shares, representing 27.5% of the outstanding share capital of
Algatec.
The general partner of the Partnership
is Algatec Management LLP, a Delaware limited liability company owned by The
Rubin Family Irrevocable Stock Trust and other persons. Mr. Rubin and
Barry Pomerantz, a business associate of Mr. Rubin, are the managers of the
general partner. Under the terms of the limited partnership
agreement, the general partner agreed to invest a total of $165,000 in the
Partnership in consideration for 5.0% of the assets, profits and losses of the
Partnership. The limited partners, who invested an aggregate of
$3,200,000 at the First Closing and additional persons the Partnership will seek
to admit as limited partners by the Second Closing, will own 95.0% of the
Partnership assets, profits and losses. As part of the First Closing, The Rubin
Family Irrevocable Stock Trust invested an additional $1,500,000, as a limited
partner, on the same terms as other limited partners of the
Partnership.
In addition to its equity investment,
the Partnership has agreed under the terms of a loan agreement entered into at
the same time as the Algatec Share Purchase Agreement, to lend to Algatec on or
about November 30, 2008 (the “Second Closing”), an additional $2,600,000 or
approximately €2,000,000. The proceeds of the loan was to be used to
assist Algatec in paying the balance of the purchase price for all of the assets
and equity of the Trend Capital limited partnership. Upon funding of
the loan, the Partnership would purchase for €9,250 an additional 9,250 shares,
representing 21.5% of the outstanding share capital of Algatec, thereby
increasing its ownership to an aggregate of 49% of the outstanding share capital
of Algatec. The loan, together with interest at the rate of 6% per
annum, is repayable on the earlier of December 31, 2012 or the completion of a
financing providing Algatec with up to $50.0 million of proceeds for expansion
(the “Algatec Financing”). Upon the Partnership funding the entire
€2,000,000 loan at the Second Closing, the Management Group would own the
remaining 51% of the share capital of Algatec. If the Partnership
funds less than the full €2,000,000 loan, the additional 21.5% equity to be
issued to the Partnership at the Second Closing was to have been appropriately
pro-rated. On December 29, 2008, the Partnership consummated the
Second Closing with Algatec and funded a loan of €2,000,000 ($2.6 million) as a
result of which the Partnership’s total equity ownership in Algatec was fixed at
49% of the total number of outstanding Algatec shares.
Effective as of October 30, 2008, the
Trustee, the Management Group and the Partnership (collectively, the “Algatec
Stockholders”) and Algatec entered into a stock exchange agreement. Under the
terms of the stock exchange agreement the Algatec stockholders agreed,
subject to certain conditions, to exchange 100% of the share capital of Algatec
for shares of our newly authorized Series B-5 convertible preferred
stock. The Series B-5 preferred stock is convertible at any time into
that number of shares of our common stock as shall represent 60% of our
“Fully-Diluted Common Stock” (as defined). The term “Fully-Diluted
Common Stock” means the aggregate number of shares of Company common stock
issued and outstanding as at the date of closing of the share exchange,
after
giving
pro-forma effect to the sale or issuance of any shares of common stock (a) that
were issued at any time following the October 30, 2008 date of execution of the
stock exchange agreement and prior to consummation of the Algatec acquisition,
(b) that are issuable upon conversion of any Company convertible securities or
upon the exercise of any warrants that were issued at any time between October
31, 2008 and consummation of the Algatec acquisition, and (c) that are issuable
upon full conversion of the Series B-5 preferred stock. However, the
Algatec stockholders shall be subject to pro-rata dilution resulting from
the issuance of (i) approximately 19.6 million shares of Company common stock
issuable upon conversion of convertible notes or the exercise of options and
warrants that were outstanding as at October 30, 2008, (ii) any shares of
Company common stock issued in connection with providing financing for Algatec
(as described below), or (iii) any shares of Company common stock issued or
issuable after completion of the Algatec acquisition. Consummation of
the Algatec acquisition is subject to certain conditions, including Algatec
obtaining up to $50.0 million of the Algatec Financing to enable it to construct
the addition to its existing manufacturing facility and purchase the necessary
equipment to expand its business and meet contractual obligations to Q-Cells and
other customers, as described above.
On April 10, 2009, the parties agreed
to extend the anticipated closing date of the transactions contemplated by the
Stock Exchange Agreement to July 15, 2009.
There can be no assurance that the
necessary Algatec Financing will be obtained or that the proposed Algatec
acquisition will be consummated.
Under the terms of the Stock Exchange
Agreement, each of Messrs. Ruschke, Malik, Jank and Freud will enter into five
year employment agreements with Algatec pursuant to which Mr. Ruschke will
receive an annual salary of €180,000 (approximately USD $246,600) and each of
Messrs. Malik, Jank and Freud will receive annual salaries of €100,000
(approximately USD $137,000), subject to 5% annual cost-of-living
increases. In addition, such executives shall be entitled to receive
annual bonuses equal to 10% of the annual net income before interest and taxes
of Algatec (“EBIT”) for each of the five years, subject to an annual “cap” on
such bonuses that will not exceed 100% of their annual salaries if annual EBIT
is €10.0 million or less in any of the five fiscal years, and 200% of their
annual salaries if such annual EBIT is more than €10.0 million in any of the
five fiscal years. Each of Messrs. Ruschke, Malik, Jank and Freud
have also agreed, for a period equal to the greater of five years or the term of
their individual employment with Algatec, not to compete with the “business” of
the Company (defined as (i) the manufacture and sale of photovoltaic module
equipment of all types, (ii) the installation of turn-key module manufacturing
facilities of all types; (iii) the manufacture and sale of photovoltaic cells or
modules of all types; and (iv) the installation and operation of power projects,
including the supplying of solar power electricity to private industry,
consumers or local or foreign governments and municipalities).
If the Algatec acquisition is
consummated, the board of directors of our Company will be expanded to seven
persons, of which three members of the board of directors shall be represented
by the Management Stockholders. Messrs. Ruschke, Malik and Jank have
agreed to serve on our board of directors.
Solar
Thin Power
In 2007, the Company formed Solar Thin
Power, Inc. under the laws of the State of Delaware. Solar Thin Power
was to engage in power projects. It currently owns a 15% interest in
CG Solar Company Limited, the Company’s joint venture in China (and has agreed
to purchase another 5%), and is in preliminary discussions with other
prospective joint venture partners with respect to marketing and financing of
various power projects.
In 2007 and 2008, Solar Thin Power
received an aggregate of $3,498,396 of financing from ten unaffiliated investors
who purchased common stock of Solar Thin Power at $0.50 per
share. Approximately $1,500,000 of the proceeds of such financing
used by Solar Thin Power to acquire a 20% minority interest in a thin film a-Si
solar module manufacturing facility in China and the balance of such proceeds
were loaned to Solar Thin Films for working capital. Under the terms
of the transaction, if Solar Thin Power was not a publicly traded corporation by
June 2009, the investors in Solar Power have the right to require Solar Thin
Films to repurchase half of their portion of their minority equity in Solar
Power for $1,767,500.
As of March 31, 2009, an aggregate
of 67,570,000 shares of Solar Thin Power were issued and outstanding, of which
Solar Thin Film owned 44,000,000 or 65.12% the outstanding shares of Solar Thin
Power common stock. In April 2009, Solar Thin Films agreed to
transfer 2,000,000 of its Solar Thin Power shares to Strategic Growth
International Inc. in lieu of cash compensation payable under a one year
investor relations agreement expiring March 31, 2010. In addition,
Solar Thin Power agreed to issue three year warrants to purchase an additional
2,000,000 shares of Solar Thin Power to Strategic Growth International at an
exercise price of $0.20 per share.
As a
result of the foregoing transactions, as of May 14, 2009, Solar Thin Films owns
an aggregate of 33,900,000 shares of Solar Thin Power common stock, and
stockholders of Solar Thin Power, other than Solar Thin Films, currently own an
aggregate of 25,570,000 shares of the 59,470,000 outstanding shares of Solar
Thin Power common stock, and Strategic Growth International holds warrants to
purchase an additional 2,000,000 shares of Solar Thin Power. Peter C.
Lewis, Group Vice President and General Manager of the Thin Film Group and
former Chief Executive Officer and President of Solar Thin Films owns 3,000,000
shares of Solar Thin Power and The Rubin Family Stock Trust owns 3,000,000
shares of Solar Thin Power.
Critical
Accounting Policies
The
Company's discussion and analysis of its consolidated financial condition and
results of operations are based upon its consolidated financial statements that
have been prepared in accordance with generally accepted accounting principles
in the United States of America ("US GAAP"). This preparation requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities. US GAAP provides the framework from which to make these
estimates, assumption and disclosures. The Company chooses accounting policies
within US GAAP that management believes are appropriate to accurately and fairly
report the Company's consolidated operating results and financial position in a
consistent manner. Management regularly assesses these policies in light of
current and forecasted economic conditions. While there are a number of
significant accounting policies affecting our consolidated financial statements,
we believe the following critical accounting policies involve the most complex,
difficult and subjective estimates and judgments:
|
·
|
General,
Selling and Administrative
Expenses;
|
|
·
|
Allowance
for doubtful accounts;
|
|
·
|
Research
and development;
|
|
·
|
Product
warranty reserve;
|
|
·
|
Stock
Based Compensation;
|
Revenue
Recognition
For revenue from Equipment sales,
which include equipment and sometimes installation, the Company recognizes
revenue in accordance with Staff Accounting Bulletin No. 104, Revenue
Recognition (“SAB 104"), which superseded Staff Accounting Bulletin No. 101,
“Revenue Recognition in Financial Statements” (“SAB 101"). SAB 104 requires that
four basic criteria must be met before revenue can be recognized: (1) Persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectibility is reasonably
assured.
Determination of criteria (3) and (4)
are based on management’s judgments regarding the fixed nature of the selling
prices of the products delivered and the collectibility of those amounts.
Provisions for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period the
related sales are recorded. The Company defers any revenue for which the product
has not been delivered or is subject to refund until such time that the Company
and the customer jointly determine that the product has been delivered or no
refund will be required. Deferred revenues as of March 31, 2009 and 2008
amounted to $434,079 and $33,452, respectively. SAB 104 incorporates Emerging
Issues Task Force 00-21 (“EITF 00-21"), Multiple-Deliverable Revenue
Arrangements. EITF 00-21 addresses accounting for arrangements that may involve
the delivery or performance of multiple products, services and/or rights to use
assets.
The Company recognizes revenue when
persuasive evidence of an arrangement exists, the price to the customer is
fixed, collectibility is reasonable assured and title and risk of ownership is
passed to the customer, which is usually upon shipment. However, certain
customers traditionally have requested to take title and risk of ownership prior
to shipment. Revenue for these transactions is recognized only
when:
|
·
|
Title
and risk of ownership have passed to the
customer;
|
|
·
|
The
Company has obtained a written fixed purchase
commitment;
|
|
·
|
The
customer has requested the transaction be on a bill and hold
basis;
|
|
·
|
The
customer has provided a delivery
schedule;
|
|
·
|
All
performance obligations related to the sale have been
completed;
|
|
·
|
The
product has been processed to the customer’s specifications, accepted by
the customer and made ready for shipment;
and
|
|
·
|
The
product is segregated and is not available to fill other
orders.
|
The remittance terms for these “bill
and hold” transactions are consistent with all other sale by the Company. There
were no bill and hold transactions at March 31, 2009 and December 31,
2008.
For
Complete Factory sales, which include sale of equipment, installation and
commissioning, the Company recognizes revenues from the product portion (pieces
of equipment) on shipment and services portion (installation and commissioning
process) upon completion of the installation and commissioning
process. The commissioning includes a range of consulting services
necessary to successfully complete a performance test, such as training of
management, engineering and production personnel, debugging and resolving
problems, initial oversight or support for vendor relations and purchasing,
documentation and transfer of process knowledge and potential co-management of
the production line during performance testing or completion of the training
process. The Company has started its shipment of the factory sales,
product portion (pieces of equipment) in December 2008, and the service portion
(installation and commissioning) is expected to be completed during the fiscal
year 2009.
The
Company has accounted for its Equipment Sales and Factory Sales arrangements as
separate units of accounting as a) the shipped equipment (both Equipment Sales
and Factory Sales) has value to the customer on a standalone basis, b) there is
an objective and reliable evidence of the fair value of the service portion of
the revenue (installation and commissioning) as such approximate the fair value
that a third party would charge the Company’s customer for the installation and
commissioning fees if the customer so desire not to use the Company’s services,
or the customer could complete the process using the information in the owner’s
manual, although it would probably take significantly longer than it would take
the Company’s technicians and or a third party to perform the installation and
commissioning process, and c) there is no right of return for the shipped
equipment and all equipments are inspected and approved by the customer before
shipment.
Cost
of Sales
Cost of sales includes cost of raw
materials, labor, production depreciation and amortization, subcontractor work,
inbound freight charges, purchasing and receiving costs, inspection costs,
internal transfer costs and absorbed indirect manufacturing cost, as well as
installation related travel costs and warranty costs.
General,
Selling and Administrative Expenses
General,
selling and administrative expenses primarily include indirect labor costs,
rental fees, accounting, legal and consulting fees.
Allowance
For Doubtful Accounts
We are required to estimate the
collectibility of our trade receivables. A considerable amount of judgment is
required in assessing the realization of these receivables including the current
creditworthiness of each customer and related aging of the past due balances. In
order to assess the collectibility of these receivables, we perform ongoing
credit evaluations of our customers' financial condition. Through these
evaluations we may become aware of a situation where a customer may not be able
to meet its financial obligations due to deterioration of its financial
viability, credit ratings or bankruptcy. The reserve requirements are based on
the best facts available to us and are reevaluated and adjusted as additional
information is received. Our reserves are also based on amounts determined by
using percentages applied to certain aged receivable categories. These
percentages are determined by a variety of factors including, but are not
limited to, current economic trends, historical payment and bad debt write-off
experience. We are not able to predict changes in the financial condition of our
customers and if circumstances related to our customers deteriorate, our
estimates of the recoverability of our receivables could be materially affected
and we may be required to record additional allowances. Alternatively, if we
provided more allowances than are ultimately required, we may reverse a portion
of such provisions in future periods based on our actual collection
experience.
Research
and development
Solar Thin Film’s accounts for research
and development costs in accordance with the Financial Accounting Standards
Board’s Statement of Financial Accounting Standards No. 2 (“SFAS 2”),
“Accounting for Research and Development Costs.” Under SFAS 2, all research and
development cost must be charged to expense as incurred. Accordingly, internal
research and development cost are expensed as incurred. Third-party research and
developments costs are expensed when the contracted work has been performed or
as milestone results have been achieved. Company-sponsored research and
development costs related to both present and future products are expensed in
the period incurred.
Derivative
Liability
In June
2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF
07-5 provides that an entity should use a two-step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. We adopted EITF 07-5 effective January 1,
2009 and the adoption resulted in our warrants with anti-dilutive provisions
being classified as derivatives in accordance with FASB Statement
No. 133.
Product
Warranty Reserves
The Company provides for estimated
costs to fulfill customer warranty obligations upon recognition of the related
revenue in accordance with the FASB Interpretation No. 45, “Guarantors
Accounting and Disclosure Requirements for Guarantees” as a charge in the
current period cost of goods sold. The range for the warranty coverage for the
Company’s products is up to 18 to 24 months. The Company estimates the
anticipated future costs of repairs under such warranties based on historical
experience and any known specific product information. These estimates are
reevaluated periodically by management and based on current information, are
adjusted accordingly. The Company’s determination of the warranty obligation is
based on estimates and as such, actual product failure rates may differ
significantly from previous expectations.
The
Company accrued a provision for product warranty costs of approximately $180,000
during 2007; of which approximately $85,000 was utilized during the year ended
December 31, 2007. During 2008 an additional $73,000 in warranty costs were
accrued and a total of $108,070 was utilized, leaving a balance of approximately
$59,930 remaining as of December 31, 2008. During the first quarter of 2009
the Company accrued an additional $26,000 in warranty costs as a result of
shipments to Grupo Unisolar, and did not incur any product warranty costs,
leaving a balance of $85,930 in product warranty provision as of March 31,
2009.
Stock
Based Compensation
Effective for the year beginning
January 1, 2006, the Company has adopted SFAS 123 (R) “Share-Based Payment”
which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”
and eliminates the intrinsic value method that was provided in SFAS 123 for
accounting of stock-based compensation to employees. The Company made no
employee stock-based compensation grants before December 31, 2005 and therefore
has no unrecognized stock compensation related liabilities or expense unvested
or vested prior to 2006. Stock-based compensation expense recognized under SFAS
123(R) for the three months ended March 31, 2009 and 2008 was $329,836 and
$161,362, respectively (Note 16).
Use
of Estimates
The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, expenses, and the disclosure
of contingent assets and liabilities, if any, at the date of the financial
statements. The Company analyzes its estimates, including those related to
future contingencies and litigation. The Company bases its estimates on
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.
Acquisition
- Kraft
Commencing in March 2006 through June
2006, the Company entered into Securities Purchase Agreements with shareholders
of Kraft that together owned 95.5% of the equity interest in Kraft to acquire
their interests. On June 14, 2006, the Company closed on the acquisition of
95.5% of the outstanding securities of Kraft and, as a result, Kraft became a
majority-owned subsidiary of the Company. In consideration for the shares of
Kraft, the Company issued the sellers an aggregate of 95,500 shares of Series
B-4 Preferred Stock of the Company (the “Preferred Shares”). Each Preferred
Share is automatically converted into 350 shares of common stock or an aggregate
of 33,425,000 shares of common stock upon us increasing our authorized shares of
common stock and, prior to such conversion, the Preferred Shares had the same
voting rights of the shares of common stock and voted together with the shares
of common stock on all matters.
As a result of the Securities Purchase
Agreement, there was a change in control of STF, the public entity. In
accordance with SFAS No. 141, Kraft was the acquiring entity. While the
transaction is accounted for using the purchase method of accounting, in
substance the Agreement is a recapitalization of Kraft's capital structure. For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition and Kraft is the surviving entity. The total purchase price and
carrying value of net assets acquired was $6,681,891. Additionally, on August 3,
2007, the Company acquired the remaining 4.5% minority interest of Kraft in
exchange for 1,575,000 shares of common stock value at $1,181,250, and as a
result, Kraft is now a wholly-owned subsidiary of the Company. The Company did
not recognize goodwill or any intangible assets in connection with the
transaction. Prior to the Agreement, the Company was an inactive corporation
with no significant assets and liabilities.
Commitments
and Contingencies
The Company’s subsidiaries have entered
into non-cancelable operational agreements for office premises.
In connection with the acquisition of
Kraft, the Company entered into consulting agreements with Robert Rubin and
Zoltan Kiss pursuant to which each consultant would receive an annual salary of
$160,000 per annum, reimbursement for up to $5,000 in expenses associated with
company activities and major medical benefits in consideration for services
performed on behalf of the company. Each of these agreements was for a term of
three years and has been supplanted by subsequent events. Mr. Rubin’s salary was
increased to $225,000 per annum when he assumed the duties of Chief Financial
Officer. In December 2007, Mr. Kiss resigned as director of the Company and
subsequently agreed to waive his rights to such payments pursuant to a pending
settlement agreement with the Company as described elsewhere in this
report.
On June 20, 2007, Peter Lewis and the
Company entered into an Employment Agreement pursuant to which Mr. Lewis has
agreed to serve as the Chief Executive Officer of the Company. The Employment
Agreement contains the following terms:
|
·
|
base
salary of $225,000 per year;
|
|
·
|
the
issuance of 187,617 shares of common stock per
year;
|
|
·
|
a
bonus paid pursuant to the Executive Officer Incentive Plan as determined
by the Board of Directors;
|
|
·
|
a
ten year option to purchase 3,000,000 shares of common stock at an
exercise price of $0.533 per share on a cashless basis vesting on a
pro-rata basis over a period of two
years;
|
|
·
|
participation
in all employee benefit plans and programs;
and
|
|
·
|
reimbursement
of reasonable expenses.
|
On April
7, 2009, the Company entered into an amendment to the employment agreement of
Peter Lewis under which Mr. Lewis agreed to resign as the President, Chief
Executive Officer and as a member of the board of directors of the Company,
effective as of March 31, 2009. There was no disagreement or dispute between Mr.
Lewis and the Company which led to his resignation. Effective as of
April 1, 2009, Mr. Lewis was appointed as Group Vice President and General
Manager of the Thin Film Group of the Company through June 1,
2010. The Thin Film Group shall consist of the manufacture and sale
of PV Equipment. In this capacity, Mr. Lewis will be primarily
responsible for generating orders and sales of PV Equipment and he will provide
general oversight of the manufacturing operations of the Kraft and BudaSolar
subsidiaries of the Company, and together with Messrs. Krafcsik and Horvath,
will be responsible for generating profits for the Thin Film Equipment
Group.
For the
period commencing April 1, 2009 and ending September 30, 2009, Mr. Lewis’ base
salary shall be fixed at the rate of $225,000, payable in monthly installments
of $18,750 each. For the period commencing October 1, 2009, Mr.
Lewis’ salary shall be reduced to the rate of $180,000 per annum, payable in
monthly installments of $15,000 each. On the earlier of June 30, 2009
or completion of an equity financing for the Company in excess of $3.0 million,
the Company will pay to Mr. Lewis in one payment all accrued and unpaid salary
that is owed under the original employment agreement for all periods through and
including the date of payment of such accrued and unpaid salary. In
addition, Mr. Lewis shall be entitled to receive a sales commission on all PV
Equipment that is sold or on which firm orders are received by the Company
during the term of employment in an amount equal to: (i) a percentage to be
determined by mutual agreement on or before April 30, 2009, of the “net sales
price” (defined as gross selling price, less returns, discounts and allowances)
of such PV Equipment, as and when paid in cash by the customer to the Company
less
(ii) the amount of all other finders fees, commissions and other payments made
or payable by the Company to any other person, firm or corporation who
participates in or assists Mr. Lewis in the sale of such PV Equipment; or such
other bonus arrangement as may be made with Kraft management.
All
3,000,000 shares of common stock of ST Power owned by Mr. Lewis shall
immediately and irrevocably vest. Moreover, with respect to the stock
options entitling Mr. Lewis to purchase up to 3,600,000 shares of Company common
stock (the “Option Shares”), the parties agreed as follows
(i) options for 3,000,000 Options Shares shall be deemed to have
fully vested as of March 31, 2009 and the remaining 600,000 Option Shares that
have not vested will be forfeited as of March 31, 2009; (ii) the exercise price
of all stock options were reduced from $0.533 per share to $0.18 per share,
representing 100% of the closing price of Company common stock as at March 27,
2009, the effective date of the amendment to the employment agreement; (iii) all
stock options for vested Option Shares may be exercised on a “cashless exercise”
basis; and (iv) Mr. Lewis agreed to waive any rights to receive the 187,617
shares of Company common stock previously granted to him annually under the
original employment agreement.
In
November 2005, the Company entered into a three year fixed term lease agreement
for our corporate offices and facilities in Budapest, Hungary at a rate ranging
from $4,543 to $15,433 per month as the lease has provisions for additional
space for the period calendar year of 2006 and beyond. The lease agreement
provides for moderate increases in rent after the first year in accordance with
the inflationary index published by the Central Statistical Office. In November
2007, the Company signed the modification of lease agreement resulted a charge
of $20,800 per months from January 1, 2008 for three years period of time
through December 31, 2010. The minimum future cash flow for the leases at March
31, 2009 is as follows:
|
|
|
Amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ending December 31, 2009
|
|
$
|
187,200
|
|
|
Year
ending December 31, 2010
|
|
$
|
249,600
|
|
|
Total
|
|
$
|
436,800
|
|
In 1996,
the Company issued an unsecured 8%, $1.5 million note to an unrelated
party that was due and payable April 30, 1999. The note was governed by
the laws of the State of New York. The New York statute of limitations for
seeking to collect on a note is six years from the maturity date. The
creditor has never sought to collect the note since its maturity date and in or
about 2001 orally advised a representative of the Company that it had "written
off the debt." Although the Company has previously and currently listed
the note as a liability on its balance sheet, it does not believe that it has
any further liability under this note.
Results
of Operations
Three
months ended March 31, 2009 as compared to the three months ended March 31,
2008
Revenues
The following table summarizes our
revenues for the three months ended March 31, 2009 and 2008:
|
Three months ended March
31
,
|
|
2009
|
|
|
2008
|
|
|
Total
Revenues
|
|
$
|
1,658,740
|
|
|
$
|
287,994
|
|
For the
three months ended March 31, 2009, revenues increased by 476% or $1,370,746 as
compared to the similar period in 2008. The 476% increased revenue
for the three months ended March 31, 2009 as compared to three months ended
March 31, 2008 is primarily due to continued deliveries on a large Factory Sale
contract to Grupo Unisolar, S.A. of Spain. Since the Company did not deliver any
Equipment Sales in first quarter ended March 31, 2009, revenues transitioned
during the quarter from 100% Equipment Sales in 2008 to 100% Factory Sales in
2009.
During
2007 and 2008, the Company began to shift its marketing focus from Equipment
Sales to Factory Sales (delivered on a “turnkey” basis, which by definition
include a full set of equipment plus installation and training services or
commissioning process). The Company signed its first deal in June of 2008 (and
received the balance of its deposit in September 2009), for which it completed
its first minor equipment portion of the Factory Sales delivery in December of
2008 valued at $147,262. The Company began shipping the balance of the equipment
in March of 2009 and expects to deliver substantially all of the equipment for
this 7.9 million euro order during fiscal year 2009. During 2009, the Company
also expects that a majority of its revenue will come from Factory sales rather
than Equipment sales, and does not expect to derive any substantial revenue from
related parties. Commencing in 2008, the Company has decided to further break
out its revenue into Equipment Sales and Factory Sales and to continue to do so
in the future in both annual and quarterly filings.
While the Company is pursuing
additional business opportunities - both Factory Sales and Equipment Sales,
given the limited amount of historical business volume we cannot provide
assurance regarding future sales. As the Company shifts primarily from Equipment
Sales secured by purchase orders to Factory Sales secured by contracts,
management expects that it may become easier to forecast future volume based
upon long-term contracts and then established trends. In either case, the
Company produces individual pieces of equipment (standard not generally custom)
based on individual customer orders. Comparison of different
financial reporting periods will show significant fluctuations, primarily due to
the value of outstanding and completed contracts or orders during the period.
Therefore, historical figures (whether on a comparative period over period
percentage analysis in a linear fashion or otherwise) may not have much meaning
with respect to future changes in revenue and should not be used to make
predictions about future revenue performance. For example, revenue could
increase 400% period over period if the Company booked and invoiced one or more
complete factory orders or it could decrease 100% or more if the Company failed
to successfully deliver on a Factory Sale order or only managed to book and
invoice orders for production of selected equipment, i.e. an Equipment
Sale. Therefore, management is not in the position to predict future
revenue flow or make conclusions based on actual historical
figures. For example, recent increases and decreases in revenue are
not dramatic as compared to our existing 7.9 million euro contract with Grupo
Unisolar, which is expected to be completed during 2009 and which commenced
shipping in December 2008. However, we can not provide absolute assurance that
signed contracts, Grupo Unisolar or other, will be completed as expected or
predicted. One complete factory may exceed $12 million in value but with
unexpected financial or technical problems, production may slow down the
completion of the contract. In conclusion, revenue prediction by
management is difficult as of the date of this report.
Cost
of sales
The following table summarizes our cost
of sales for the three months ended March 31, 2009 and 2008:
|
Three months ended March
31
,
|
|
2009
|
|
|
2008
|
|
|
Total
cost of sales
|
|
$
|
828,676
|
|
|
$
|
270,584
|
|
F
or the
three months ended March 31, 2009, our cost of sales was $828,676, or 50.0% of
revenue as compared to $270,584, or 94.0% of our revenue for the three months
ended March 31, 2008. The increase in cost of sales of $558,092 from the first
quarter ended March 31, 2008 to the same period in 2009 was primarily a result
of an increase in sales of 476%. The margin improvement was a function of i)
improved margins due to the transition from Equipment Sales to Factory Sales and
ii) swings in the US dollar as compared to the Hungarian
Forint. Specifically, the Cost of Sales in local currency increased
by the equivalent of $812,583 and together with reduction in cost of $254,491
due to appreciation in the US Dollar versus the Hungarian Forint netted an
increase in Cost of Sales in US currency of $558,092. Absent appreciation of the
US dollar, the Cost of Sales would have been $1,083,167 and margins would have
been 34.7% as opposed to 50.04% in US dollars in first quarter ended March 31,
2009 and 6.05% in US dollars in the same period in 2008
.
Our cost
of revenue predominantly consists of the cost of labor, raw materials,
depreciation and absorbed indirect manufacturing cost.
Selling,
General and Administration Expenses
The
following table summarizes our selling, general and administration expense for
the three months ended March 31, 2009 and 2008:
|
Three months ended March
31
,
|
|
2009
|
|
|
2008
|
|
|
Total
selling, general and administration expense
|
|
$
|
1,169,787
|
|
|
$
|
941,640
|
|
For the
three months ended March 31, 2009, selling, general and administrative expenses
were $1,169,787 as compared to $941,640 for the three months ended March 31,
2008. The increase in selling, general and administrative expenses of $228,147
is attributable to additional staff, consultants, legal and audit related, an
increase in stock based compensation incurred in 2009 of $329,836 as
compared with $161,362 in 2008.
Research
and development
The following table summarizes our
research and development expenses for the three months ended March 31, 2009 and
2008:
|
Three months ended March
31
,
|
|
2009
|
|
|
2008
|
|
|
Research
and development expenses
|
|
$
|
-
|
|
|
$
|
90,000
|
|
Our research and development for
the three months ended March 31, 2009 were $-0- compared to $90,000 for the
three months ended March 31, 2008. In late 2005, the Company suspended its
internal research and development activity and in December 2006 signed a
contract for certain research and development activities with Renewable Energy
Solutions, Inc. (RESI). This contract - at a rate of $30,000 per month -
remained in force through the first four months of 2008. Subsequently the
Company suspended the research and development contract with RESI in
anticipation of its planned acquisition of Buda Solar, a company with its own
internal research and development activity.
Depreciation
and amortization
The following table summarizes our
depreciation and amortization for the three months ended March 31, 2009 and
2008:
|
Three months ended March
31
,
|
|
2009
|
|
|
2008
|
|
|
Depreciation
and amortization
|
|
$
|
24,050
|
|
|
$
|
35,731
|
|
Depreciation and amortization has
decreased by $11,681 in the three months ended March 31, 2009 compared to the
same period in 2008. The decrease is mainly due to the aging of equipment
purchased in previous years, and the company’s ability to increase production
incrementally with minimal capital investment.
Interest
expense, net
The following table summarizes our
interest expense, net for the three months ended March 31, 2009 and
2008:
|
Three months ended March
31
,
|
|
2009
|
|
|
2008
|
|
|
Interest
expense, net
|
|
$
|
268,214
|
|
|
$
|
413,211
|
|
Interest expense, net has decreased by
$144,997 in the three months ended March 31, 2009 compared to the same period in
2008. The decrease is mainly due to the issuance of shares of common stock in
exchange for convertible notes payable in 2008 resulting in the write down of
the related debt discount. The decrease is primarily due to (i) an
accelerated recognition of the associated debt discount relating to our
convertible debt due to conversions resulting an additional $98,236 in interest
expense.
Liquidity
and Capital Resources
During
the year ended December 31, 2008, Solar Thin Power, Inc., a majority owned
subsidiary of the Company, acquired a 15% interest in CG Solar, formerly WeiHai
Blue Star Terra Photovoltaic Co., Ltd, a Sino-Foreign Joint Venture Company
organized under the laws of the People’s Republic of China for $1,500,000. The
investment of $1,500,000 is carried at cost under the cost method of accounting
for investment.
As of
March 31, 2009, our cash and cash equivalents were $1,909,936, an increase of
$1,290,679 from December 31, 2008. As described below, the increase in cash and
cash equivalents was principally from (i) $1,481,087 operating activities, net
with (ii) $34,672 investment in equipment and loss on foreign currency
translation of $155,736.
As of
March 31, 2009, we had working capital deficit of $7,422,244. We generated cash
flows from operations of $1,481,087 for the three months ended March 31, 2009.
This cash flow is primary attributable to our increases in our accounts payable
and accrued liabilities of $851,582; an increase advances from customers of
$340,783; increase in deferred revenue of $412,251, decrease in accounts
receivable of $161,280, decrease in deposits and other current assets of
$173,389 along with an increase in inventory of $549,671. Offset to
the increases was a net loss of $544,133, a gain on change in fair value of
derivative liability of $12,909, net with depreciation and amortization,
amortization of debt discount, deferred compensation and deferred financing
costs of $319,028 as well as $329,836 fair value of vested stock options, common
stock and warrants issued and loss attributable to non-controlling interests of
$349.
Cash flow
used by investing activities for the three months ended March 31, 2009 was
$34,672, due to the purchase of property and equipment.
Exploitation
of potential revenue sources will be financed primarily through the sale of
securities and convertible debt, issuance of notes payable and other debt or a
combination thereof, depending upon the transaction size, market conditions and
other factors.
While we
have raised capital to meet our working capital and financing needs in the past,
additional financing is required within the next 3 months in order to meet
our current and projected cash flow deficits from operations and
development. There can be no assurance that financing will be
available in amounts or on terms acceptable to us, if at all.
By
adjusting our operations and development to the level of capitalization, we
believe we have sufficient capital resources to meet projected cash flow
deficits. However, if during that period or thereafter, we are not successful in
generating sufficient liquidity from operations or in raising sufficient capital
resources, on terms acceptable to us, this could have a material adverse effect
on our business, results of operations liquidity and financial
condition.
As at
March 31, 2009, the Company’s consolidated current liabilities exceeded its
consolidated current assets by $7,422,244. The Company is
currently in default in the payment of certain notes payable aggregating $1.75
million which became due in March 2009, and outstanding accounts payable of
approximately $4.8 million are also past due. Unless the Company is
able to obtain additional capital or other financing within the next 60 to 90
days, or sooner, its creditors may sue to collect on their notes and accounts,
which action may accelerate the due date of the Company’s other indebtedness
aggregating approximately $1.2 million that is not currently in
default. In such event, the Company may be required to seek
protection from its creditors under the Federal Bankruptcy
Act. Although the Company is actively pursuing such financing, there
is no assurance that it will be obtained on commercially reasonable terms, if at
all. Even if such financing is obtainable, it may be expected that
the terms thereof will significantly dilute the equity interests of existing
stockholders of the Company.
Trends,
Risks and Uncertainties
We have sought to identify what we
believe to be the most significant risks to our business, but we cannot predict
whether, or to what extent, any of such risks may be realized nor can we
guarantee that we have identified all possible risks that might arise. Investors
should carefully consider all of such risk factors before making an investment
decision with respect to our common stock.
Inflation
and Foreign Currency
We maintain our books in local
currency: US Dollars for the parent holding Company and Solar Thin Film Power,
Inc. in the United States of America and Hungarian Forint for Kraft in
Hungary.
We operate primarily outside of the
United States through its wholly owned subsidiary. As a result, fluctuations in
currency exchange rates may significantly affect our sales, profitability and
financial position when the foreign currencies, primarily the Hungarian Forint,
of its international operations are translated into U.S. dollars for financial
reporting. In additional, we are also subject to currency fluctuation risk with
respect to certain foreign currency denominated receivables and payables.
Although we cannot predict the extent to which currency fluctuations may or will
affect our business and financial position, there is a risk that such
fluctuations will have an adverse impact on the sales, profits and financial
position. Because differing portions of our revenues and costs are denominated
in foreign currency, movements could impact our margins by, for example,
decreasing our foreign revenues when the dollar strengthens and not
correspondingly decreasing our expenses. The Company does not currently hedge
its currency exposure. In the future, we may engage in hedging transactions to
mitigate foreign exchange risk.
The translation of the Company’s
subsidiaries forint denominated balance sheets into U.S. dollars, as of March
31, 2009, has not been affected by the U.S. dollar against the Hungarian forint
due to recent strengthening of the U.S. dollar. The currency has changed from
163.9 as of March 31, 2008 to 233.0 as of March 31, 2009, an approximate 42.2%
depreciation in value. The average Hungarian forint/U.S. dollar exchange rates
used for the translation of the subsidiaries forint denominated statements of
operations into U.S. dollars, for the three months ended March 31, 2009 and 2008
were 226.43 and 173.23, respectively.
N
ew Accounting
Pronouncements Effective January 1, 2009
SFAS
No. 161
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”)
.
The
new standard is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
results of operations and cash flows. The new standard also improves
transparency about how and why a company uses derivative instruments and how
derivative instruments and related hedged items are accounted for under
Statement No. 133. It is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. We adopted SFAS No. 161 effective January 1,
2009 and addressed the relevant disclosures accordingly.
SFAS
No. 160
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No.
160”). In SFAS No. 160, the FASB established accounting and reporting standards
that require non-controlling interests to be reported as a component of equity,
changes in a parent’s ownership interest while the parent retains its
controlling interest to be accounted for as equity transactions, and any
retained non-controlling equity investment upon the deconsolidation of a
subsidiary to be initially measured at fair value. SFAS No. 160 is effective for
annual periods beginning on or after December 15, 2008. Retroactive
application of SFAS No. 160 is prohibited. We adopted SFAS No. 160 effective
January 1, 2009 which primarily resulted in moving the presentation of
non-controlling interest to the “Stockholders’ equity” section of our condensed
consolidated balance sheets.
EITF
No. 07-1
In
December 2007, the FASB issued EITF No. 07-1, “Accounting for Collaborative
Arrangements” (“EITF No. 07-1”). EITF No. 07-1 prescribes the accounting for
parties of a collaborative arrangement to present the results of activities for
the party acting as the principal on a gross basis and report any payments
received from (made to) other collaborators based on other applicable GAAP or,
in the absence of other applicable GAAP, based on analogy to authoritative
accounting literature or a reasonable, rational, and consistently applied
accounting policy election. Further, EITF No. 07-1 clarified the
determination of whether transactions within a collaborative arrangement are
part of a vendor-customer (or analogous) relationship subject to Issue No. 01-9,
“Accounting for Consideration Given by a Vendor to a Customer.” EITF No. 07-1 is
effective for collaborative arrangements that exist on January 1, 2009 and
application is retrospective. We adopted EITF No. 07-1 effective January 1,
2009 and the adoption had no material effect on our financial position or
results of operations.
EITF
No. 07-5
In June
2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”).
EITF No. 07-5 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF No. 07-5 is effective for fiscal years
beginning after December 15, 2008. We adopted EITF No. 07-5 effective
January 1, 2009 and the adoption resulted in our warrants with
anti-dilutive provisions being classified as derivatives in accordance with FASB
Statement No. 133.
Recently
Issued Accounting Standards
In
January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue
No. EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF
Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1
amends the impairment guidance in EITF Issue No. 99-20, “Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests that Continue to be Held by a Transferor in Securitized Financial
Assets” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The Company adopted FSP EITF
No. 99-20-1 and it did not have a material impact on the consolidated
financial statements.
In April
2009, the Financial Accounting Standards Board (“FASB”) issued the following new
accounting standards:
|
|
·
|
FASB
Staff Position FAS No. 157-4,
Determining Whether a Market
Is Not Active and a Transaction Is Not Distressed,
(“FSP FAS No.
157-4”) provides guidelines for making fair value measurements more
consistent with the principles presented in SFAS No. 157. FSP
FAS No. 157-4 provides additional authoritative guidance in determining
whether a market is active or inactive and whether a transaction is
distressed. It is applicable to all assets and liabilities (i.e.,
financial and non-financial) and will require enhanced
disclosures.
|
|
|
·
|
FASB
Staff Positions FAS No. 115-2, FAS No. 124-2, and EITF No. 99-20-2,
Recognition and Presentation
of Other-Than-Temporary Impairments
, (“FSP FAS No. 115-2, FAS No.
124-2, and EITF No. 99-20-2”) provides additional guidance to provide
greater clarity about the credit and noncredit component of an
other-than-temporary impairment event and to more effectively communicate
when an other-than-temporary impairment event has occurred. This FSP
applies to debt securities.
|
|
|
·
|
FASB
Staff Position FAS No. 107-1 and APB No. 28-1,
Interim Disclosures about Fair
Value of Financial Instruments
, (“FSP FAS No. 107-1 and APB No.
28-1”) amends FASB Statement No. 107,
Disclosures about Fair Value
of Financial Instruments
, to require disclosures about fair value
of financial instruments in interim as well as in annual financial
statements. This FSP also amends APB Opinion No. 28,
Interim Financial
Reporting
, to require those disclosures in all interim financial
statements.
|
These
standards are effective for periods ending after June 15, 2009. We are
evaluating the impact that these standards will have on our consolidated
financial statements.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
Off-Balance
Sheet Arrangements
We do not have any off balance sheet
arrangements that are reasonably likely to have a current or future effect on
our financial condition, revenues, results of operations, liquidity or capital
expenditures.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM
4T. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed
under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded,
processed, summarized, and reported within the time periods specified in the
SEC’s rules and forms and to ensure that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer (principal financial officer) as appropriate, to allow timely
decisions regarding required disclosure. During the quarter ended March 31,
2009 we carried out an evaluation, under the supervision and with the
participation of our management, including the principal executive officer and
the principal financial officer (principal financial officer), of the
effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on
this evaluation, because of the Company’s limited resources and limited number
of employees, management concluded that
our disclosure controls and procedures were ineffective
as of March 31, 2009.
Limitations
on Effectiveness of Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer
(principal financial officer), does not expect that our disclosure controls and
procedures or our internal controls will prevent all errors and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include, but are not limited to, the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Changes
in Internal Controls
During
the fiscal quarter ended March 31, 2009, there have been no changes in our
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal controls over financial
reporting.
PART
II
ITEM
1. LEGAL
PROCEEDINGS
New York
Medical, Inc. and Redwood Investment Associates, L.P. vs. American United
Global, Inc., et al. (Supreme Court, New York State, New York County). In this
suit, filed on December 12, 2003, plaintiffs seek a declaration that a series of
transactions by which we allegedly acquired Lifetime Healthcare Services, Inc.
("Lifetime") and Lifetime acquired an interest in NY Medical from Redwood
(collectively "Transactions") were properly rescinded or, alternatively, that
because the Transactions were induced by fraudulent conduct of our company and
others, that the Transactions should be judicially rescinded. In addition to the
requests for equitable relief, plaintiffs also seek monitory damages in excess
of $5 million and exemplary damages in the amount of $15 million.
Currently, the suit has not proceeded
past the filing and service of the complaint. We have obtained an open-ended
extension of time in which to answer and/or move with regard to the complaint.
We are attempting to resolve the matter amicably. However, in the event
litigation proceeds, it will be aggressively defended. Management
believes that the plaintiff’s suit is without merit, and further believes the
ultimate outcome of this matter will not have a material adverse effect on the
Company’s consolidated financial position, results of operations or
liquidity.
From time
to time, we are a party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of our business. We are not
involved currently in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations. We may become involved in material legal proceedings
in the future
.
ITEM
1A. RISK
FACTORS
There have been no material changes to
the risks to our business described in our Annual Report on Form-10-K/A for the
year ended December 31, 2008 filed with the SEC on April 23, 2009.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 15, 2009, we issued 325,000 shares of common
stock to David Salomon pursuant to an Employment Agreement which we entered into
with Mr. Salomon dated as of January 15, 2009. Such shares were
issued to Mr. Salomon as compensation for services to be performed by him on our
behalf in his capacity as our Director of Real Estate
Development.
On February 2, 2009, we issued 512 shares of common
stock upon conversion by a holder of 16 shares of our Series B-3 preferred stock
at a conversion ratio of 32 shares of common stock for each 1 share of Series
B-3 preferred stock owned by the holder.
All of the above offerings and sales were deemed to be
exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of
1933, as amended. No advertising or general solicitation was employed in
offering the securities. The offerings and sales were made to a limited number
of persons, all of whom were accredited investors, business associates of Solar
Thin Films, Inc. or executive officers of Solar Thin Films, Inc., and transfer
was restricted by Solar Thin Films, Inc. in accordance with the requirements of
the Securities Act of 1933. In addition to representations by the
above-referenced persons, we have made independent determinations that all of
the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
ITEM
3. DEFAULTS
ON SENIOR SECURITIES
The Company is currently in default in
the payment of notes aggregating $1.75 million which became due in March 2009,
and outstanding accounts payable of approximately $4.8 million are also past
due, unless the Company is able to obtain additional capital or other
financing within the next 60 to 90 days, or sooner, its creditors may sue to
collect on their notes and accounts, which action may accelerate the due date of
the Company’s other indebtedness aggregating approximately $1.2 million that is
not currently in default. In such event, the Company may be required
to seek protection from its creditors under the Federal Bankruptcy
Act. Although the Company is actively pursuing such financing, there
is no assurance that it will be obtained on commercially reasonable terms, if at
all. Even if such financing is obtainable, it may be expected that
the terms thereof will significantly dilute the equity interests of existing
stockholders of the Company.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER
INFORMATION
None.
ITEM
6. EXHIBITS
The exhibits listed below are required
by Item 601 of Regulation S-K. Each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this
Form 10-Q has been identified.
|
31.1
|
Certification
of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange
Act, as enacted by Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 United States Code Section
1350, as enacted by Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 United States Code Section 1350,
as enacted by Section 906 of the Sarbanes-Oxley Act of
2002.
|
Pursuant to the requirements of Section
13 or 15(d) 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.
|
Date:
May 15, 2009
|
SOLAR THIN FILMS
, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/
Robert M. Rubin
|
|
|
|
|
Robert
M. Rubin
Chief Executive Officer
|
|
|
|
|
(Principal
Executive Officer) and
Chief
Financial Officer
(Principal
Accounting and Financial Officer)
|
|
|
|
|
|
|
