AI
Friday, November 17, 2006 5:23:51 PM
NEWSSSSSSSSSSSS OUT!!!
Form 10QSB for GIRASOLAR, INC.
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17-Nov-2006
Quarterly Report
Management's Discussion and Analysis of Financial Condition and Results of Operation
The following discussion should be read in conjunction with our financial statements and the related notes included in this Form 10-QSB.
Three Months Ended September 30, 2006 vs. September 30, 2005
Revenues. Our revenues for the three months ended September 30, 2006 increased by $15,264,326, or 100% from $0 for the three months ended September 30, 2005. This change was a result of our acquisition of GiraSolar, B.V.
Cost of Revenue. Our cost of revenue for the three months ended September 30, 2006 increased $15,200,764 or 100% from $ 0 for the three months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Net Income (Loss). Our net loss during the three months ended September 30, 2006 was $(205,663) as compared to $(106,730) during the three months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Nine Months Ended September 30, 2006 vs. September 30, 2005
Revenues. Our revenues for the nine months ended September 30, 2006 increased by $51,901,980 or 100% from $0 for the nine months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Cost of Revenue. Our cost of revenue for the nine months ended September 30, 2006 increased $50,860,788 or 100% from $ 0 for the nine months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Net Income (Loss). Our net loss during the nine months ended September 30, 2006 was $(321,184) as compared to $(320,189) during the nine months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Changes in Balance Sheet. As of September 30, 2006, we had current assets of $16,164,523 as compared to $122,030 at December 31, 2005, total assets of $17,634,092 at September 30, 2006 as compared to $122,030 at December 31, 2005, total liabilities of $18,963,366 as compared to $1,262,130 at December 31, 2005 and stockholders' equity (deficit) at September 30, 2006 of ($1,403,305) as compared to ($1,140,100) at December 31, 2005. The increase in assets, increase in liabilities and increase in stockholders' (deficit) is the result of our acquisition of GiraSolar, B.V.
Liquidity and Capital Resources
We have historically financed our operations and met our capital expenditure requirements primarily through sales of our capital stock, issuance of debt and, to a lesser extent, product revenues. Research and development expenditures have historically been
At September 30, 2006, we had working capital deficiency of $2,798,843, including cash, and cash equivalents.
Net cash used in operating activities was $1,170,752 million for the year-to-date period ended September 30, 2006, as compared to $(31,626) million for the year-to-date period ended September 30, 2005.
Net cash used in investing activities was $0 for the year-to-date period ended September 30, 2006, as compared to $0 for the year-to-date period ended September 30, 2005.
We may be required to raise additional capital to respond to competitive pressures and acquire complementary businesses or necessary technologies. We do not know whether we will be able to raise additional financing or financing on terms favorable to us. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, further develop and expand our manufacturing operations and distribution network, or otherwise respond to competitive pressures would be significantly limited.
GENERAL INFORMATION
GiraSolar, Inc. is a reporting company under the federal securities laws. Our shares of common stock are publicly traded on the Pink Sheets under the symbol GRSR.PK. We were organized under the laws of Delaware on June 7, 2002.
We develop, market, and manufacture solar power products. Our business contributes to the promotion and growth of environmentally clean electric power throughout the world.
We own a majority of GiraSolar, B.V. which is based in the Netherlands. GiraSolar, B.V. operates through three subsidiaries: Dutch Solar B.V., GiraMundo, and a 51% owned joint venture called GiraSolar Turkey. All of our revenue is derived from the activities of GiraSolar, B.V.
Through our subsidiaries, we sell our own range of solar modules under the GiraSolar brand, as well as raw materials, intermediate products, third party brand modules and other solar affiliated products.
Solar modules are assemblies of photovoltaic cells that have been electrically interconnected and laminated in a physically durable and weather-tight package. We sell our products using distributors, systems integrators and other value-added clients, who often add value through system design by incorporating our modules associated with electronics, structures and wiring systems. Applications for our products include on-grid power generation, in which supplemental electricity is provided to an electric utility grid, and off-grid generation for markets where access to conventional electric power is not economical or physically feasible.
Our end-products are currently primarily sold in the EU. Main markets within the EU are Germany and Spain, where strong incentive programs stimulate the market.
We are building up positions in emerging markets like the USA, Portugal, Italy and France, where incentive programs have or are being implemented.
We also generate revenue through the sale of raw materials and intermediate products, such as pure silicon, silicon half fabricates and derivates to third parties, consulting solar related projects, and resale and distribution of solar components to third parties.
The main markets for intermediate products we have are now UK, Germany, China and Taiwan.
INDUSTRY BACKGROUND
At approximately $1 trillion per year global revenues, the electric power industry is one of the world's largest industries. We believe that deregulation, economic, environmental and national security pressures, and technological innovations are creating significant opportunities for new entrants and technologies within the electric power industry, just as these changes have created similar opportunities in other regulated industries such as telecommunications, banking and transportation.
Electric power is an increasingly vital component of the global economy, accounting for a greater share of overall energy use as reliance on electricity-dependent technology grows.
Electricity demand is expected to grow at 4% per year over the next two decades in the emerging economies, including China, which currently accounts for only one-third of electricity consumption and where reliable electricity is critical to economic growth. Electricity consumption is expected to grow annually at 1.5% to 2.0% in North America, Europe and industrialized Asia.
Sources of fuel for electricity generation include coal, natural gas, oil, nuclear power and renewable sources, such as solar, hydroelectric and wind power. Coal fuels 39% of worldwide electricity generation, natural gas 18%, nuclear 18%, oil 8%, and renewable sources, chiefly hydroelectric, 18% of global electricity generation. Solar and other non-hydroelectric sources account for approximately 2% of global electricity generation. Electric power producers face several challenges in meeting anticipated growth in electricity demand:
Environmental regulations. Environmental regulations, addressing global climate change and air quality, seek to limit emissions by existing fossil fuel-fired generation plants and new generating facilities. Countries that are parties to international treaties such as the Kyoto Protocol have voluntarily submitted to reducing emissions of greenhouse gases. National and regional air pollution regulations also restrict the release of carbon dioxide and other gases by power generation facilities.
Infrastructure reliability. Investment in electricity transmission and distribution infrastructure has not kept pace with increased demand, resulting in major service disruptions in the United States, such as the Northeast blackout in August 2003. Increasing the aging infrastructure to meet capacity constraints will be capital intensive, time consuming and may be restricted by environmental concerns.
Constraints and cost pressure on fossil fuel supply. The supply of fossil fuels is finite. While an adequate supply of coal, natural gas and oil exists for the foreseeable future, depletion of the fossil fuels over this century may impact prices and infrastructure requirements. Political instability, labor unrest, war and the threat of terrorism in oil producing regions has disrupted oil production, increased the volatility of fuel prices and raised concerns over foreign dependency in consumer nations.
It is our belief that traditional fossil fuel-based generation technologies alone will not be enough to meet future demand for electricity.
Distributed Generation and Renewable Energy
We believe that distributed generation and renewable energy are two of the most promising areas for growth in the global electric power industry, and solar power is both distributed and renewable. Distributed generation is defined as point-of-use electricity generation that either supplements or bypasses the electric utility grid and employs technologies such as solar power, micro-turbines and fuel cells. We believe capacity constraints, increased demand for power reliability and quality and the challenges of building new centralized generation and transmission facilities will drive the demand for distributed generation. Renewable energy is defined as energy supplies that derive from non-depleting sources such as solar, wind and certain types of biomass. We believe that economic and security pressures to reduce
dependence on imported and increasingly expensive oil and natural gas and growing environmental pressures will drive demand for renewable energy. Renewable energy, including solar and wind power, is the fastest growing segment of the energy industry worldwide.
We further believe that environmentally benign, locally sourced renewable energy will become increasingly more important for economic development, environmental policy and national security. Increasing attention to global warming, global energy policy and regional stability and development will support the deployment of distributed generation, particularly renewable energy.
Solar Power
Solar power generation uses interconnected photovoltaic cells to generate electricity from sunlight. Most photovoltaic cells are constructed using specially processed silicon, which, when exposed to daylight, results in the generation of direct current. Many interconnected cells are packaged into solar modules, which protect the cells and collect the electricity generated. Solar power systems are comprised of a single or multiple solar modules along with related power electronics. Solar power technology, first used in the space program in the late 1950s, has experienced growing worldwide commercial use for over the 25 years in both on-grid and off-grid applications.
• On-grid. On-grid applications provide supplemental electricity to customers that are served by an electric utility grid, but choose to generate a portion of their electricity needs on-site. On-grid applications have been the fastest growing part of the solar power market. This growth is primarily driven by the worldwide trend toward deregulation and privatization of the electric power industry, as well as by government initiatives, including incentive programs to subsidize and promote solar power systems in several countries, including Japan, Germany and the United States. On-grid applications include residential and commercial rooftops, as well as ground-mounted mini-power plants.
• Off-grid. Off-grid applications serve markets where access to conventional electric power is not economical or physically feasible. Solar power products can provide a cost-competitive, reliable alternative for such power applications as highway call boxes, microwave stations, portable highway road signs, remote street or billboard lights, vacation homes, rural homes in developed and developing countries, water pumps and battery chargers for recreational vehicles and other consumer applications.
Solar power has emerged as one of the primary distributed generation technologies seeking to capitalize on the opportunities resulting from trends affecting the electric power industry. Relative to other distributed generation technologies, solar power benefits include:
• Modularity and scalability. From tiny solar cells powering a hand-held calculator to an array of roof mounted modules powering an entire home to acres of modules on a commercial building roof or field, solar power products can be deployed in many sizes and configurations and can be installed almost anywhere in the world. Solar is among the best technologies for power generation in urban areas, environmentally sensitive areas and geographically remote areas in both developing and developed countries.
• Reliability. With no moving parts and no fuel supply required, solar power systems reliably power some of the world's most demanding applications, from space satellites to maritime applications to remote microwave stations. Solar modules typically carry warranties as long as 25 years.
• Dual use. Solar modules are expected to increasingly serve as both a power generator and the skin of the building. Like architectural glass, solar modules can be installed on the roofs or facades of residential and commercial buildings.
• Environmentally cleaner. Solar power systems consume no fuel and produce no air, water or noise emissions.
Germany, Japan and the United States presently comprise the majority of world market sales for solar power systems. Government policies in these countries, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. Internationally, Spain, Portugal, France and Italy have recently developed new solar support programs. In the United States, the 2005 energy bill enacted a 30% investment tax credit for solar, and in January 2006 California approved the largest solar program in the country's history, the $3 billion, 11-year California Solar Initiative.
As a result of solar power's benefits and government support, the solar power market has seen sustained and rapid growth. Unit shipments have increased over 20% per year on average for the past 20 years, with never a negative growth year, and over 40% for the past five years.
Solar Power Challenges
Although solar power can provide a cost-effective alternative for off-grid applications, we believe the principal challenge to widespread adoption of solar power for on-grid applications is reducing manufacturing costs without impairing product reliability. We believe the following advancements in solar power technology are necessary to meet this challenge:
• Efficient material use. Reduce raw materials waste, particularly the waste associated with sawing silicon by conventional crystalline silicon technology. Efficient use of silicon is imperative for the growth of the industry due to the limited supply and increasing cost of silicon raw material expected for the near future.
• Simplified and continuous processing. Reduce reliance on expensive, multi-step manufacturing processes.
• Reduced manufacturing capital costs. Decrease the costs and risks associated with new plant investments as a result of lower capital costs per unit of production.
• Improved product design and performance. Increase product conversion efficiency, longevity and ease of use. Conversion efficiency refers to the fraction of the sun's energy converted to electricity.
OUR TECHNOLOGY SOLUTIONS
We believe significant parts of our company's innovations, technologies and processes are unique among our competitors.
• Reduced installation costs. Together with Industry Partners our company developed the patented Click-Fit installation system. This unique and cost effective mounting system reduces time and effort when installing solar systems on roofs and walls.
• Increased efficiency and lower costs of solar cells. ISA BV, significant share holder in GiraSolar, B.V., is project leader in the almost finalized and EU funded "High Efficiency Low Cost Solar Cell project", based on Self-Formation technology. Through introduction of this technology within operations of industry partners, the company can benefit of increased cell efficiency at reduced costs of cells. DutchSolar BV, a 100% owned subsidiary of GiraSolar, B.V., is now part of the SELFLEX project team,
• New technology for producing solar grade poly silicon. Our company recently filed a patent request for
what we believe is a Break-through technological development in solar grade poly silicon production.
• Integrated battery management system for rural electrification. Our "BattMan" battery management system is currently being tested in the field in rural electrification projects. The system will reduce cost of ownership for project owners in this field of solar application, where the battery component is the single largest cost, measured over the life time of an electrification project.
• Anti-theft device for solar panels. The "SolAlert" anti-theft device is a cost effective and simple innovation to inhibit the theft of solar panels from off-grid solar systems in remote areas.
Our Business Strategy
Our business strategy is to continue to develop, manufacture and market solar power products in commercial applications around the world. Our focus is in the following areas:
• Continue to develop the GiraSolar brand of products.
• Expand our network of clients and partners. We currently sell products or services in a number of countries including the Netherlands, Germany, Spain, China, Taiwan, UK and the United States. We intend to expand our network of partners and customers through additional distribution.
• Secure additional sources for raw materials, intermediate products and finished products.
• Secure additional protections for our intellectual property.
• Secure manufacturing facility through acquisition or joint venture.
• Diversify and differentiate our product lines and markets.
PRODUCTS MADE OR SOLD BY THE COMPANY
Solar power products in general are built-up through five stages of production:
• Poly silicon & base materials. At the beginning of the production chain of solar products, pure poly silicon is required. Besides poly silicon, also remeltable high purity poly silicon products can be used. These are generally referred to as remelt and scrap silicon.
• Ingots. A crystalline silicon Ingot is a crystal pulled or cast from poly silicon with a certain diameter, crystalline structure, purity, resisitivity and lifetime. The specifications of the Ingot determine whether the material is useable for solar and or semi-conductor devices.
• Wafers. A crystalline silicon wafer is a flat piece of crystalline silicon that is cut from a silicon ingot, which can be processed into a solar cell. Wafers we use currently measure 125x125 or 156 x 156 millimetres and are approximately 240 microns thick, with 150-200 micron thick wafers expected to be introduced in 2006.
• Solar Cells. A solar cell is a device made from a silicon wafer that converts sunlight into electricity by means of a process known as the photovoltaic effect. Solar cells produce approximately 2.3 Wattpeak at 125 x 125mm or 3.65Wp at 156 x 156mm of power each. Smaller or larger sizes have corresponding less or higher power.
• Solar Modules. A solar module is an assembly of solar cells that have been electrically interconnected and laminated in a physically durable and weather-tight package. A typical solar module can produce from 20 to 300 watts of power and range in size from 2 to 25 square feet. A single 100 Wattpeak solar module can power a standard 100-watt light bulb for several hours, the exact number of hours depending on solar radiation in the region of use. 450 Wattpeak of solar modules represents the power requirements of a typical home in the United States or the EU, excluding air conditioner use. Our company's main focus is on 50Wp to 175Wp modules and OEM modules.
• Systems. A solar system is an assembly of one or more solar modules that have been physically mounted and electrically interconnected, often with batteries or power electronics, to produce electricity. Typical residential on-grid systems range from a few hundred to several thousands of Wattpeak.
Sales, Marketing and Distribution
We focus on B2B channels and bring our solar power products to market using distributors, system integrators and other value-added clients. Our distributors often add value through system design by incorporating our modules, associated with electronics, structures and wiring systems. Most of our clients have a geographic or applications focus. Our channel partners include companies that are exclusively solar clients as well as others for whom solar power is an extension of their core business, such as engineering design firms or other energy product marketers.
We expect to collaborate closely with a relatively small number of selected clients throughout the world. We intend to selectively pursue additional strategic relationships with other companies worldwide for the joint marketing, distribution and manufacturing of our products. These clients mainly range from large, sometimes multinational, corporations to middle sized installation companies and some start-up companies, each chosen for their particular expertise or strategic value. We believe that these relationships will enable us to leverage the marketing, manufacturing and distribution capabilities of other companies, explore opportunities for additional product development and more easily and cost-effectively enter new geographic markets, attract new customers and develop advanced solar power applications.
Our company is relatively young and therefore the network or relations is still developing robustly. We currently work with a relatively small number of clients who have particular expertise in a selected geographic or applications market segment. Since our network and sales revenue are developing robustly, performance of last year gives practically no bearing for reference. However, in the more relevant past 9 months of the current fiscal period, sales to our 5 largest customers have accounted for approximately 60% of our total product revenues since October 1st, 2005. As we continue to expand infrastructure and sales volumes, we anticipate developing relationships with additional customers and decreasing our dependence on any single customer. During the current fiscal period, approximately 68% of our product sales were made to customers in Europe, 29% in South-East Asia and 1% in the USA. All of our research subsidies and revenue was generated within the European Union.
In addition, we market our products through trade shows, on-going customer communications, promotional material, our web site and advertising. Our staff provides customer service, application and engineering support to our partners, while also gathering information on current product performance and future product requirements.
Information regarding our government contracts can be found under the heading
"RESEARCH AND DEVELOPMENT" below.
MANUFACTURING
Our company has made investments in equipment for solar module, balance of system and silicon manufacturing during this fiscal period of GiraSolar BV. Currently the majority of our brand product is produced in partnership with third parties. Products are now manufactured in Germany, China and the USA. We expect to start manufacturing in majority owned facilities in the USA. Further joint-ventures in the EU and Asia are planned for.
RESEARCH AND DEVELOPMENT
In total our R&D and Innovation portfolio always contains up to 10 projects in different phases. GiraSolar, B.V., DutchSolar and affiliated companies take part in several EU and Kingdom of the Netherlands funded R&D and Innovation projects.
The Dutch government is particularly stimulating R&D and innovation through subsidies and tax incentives. The EU is particularly stimulating R&D through subsidies.
Our most recent projects which are funded or partly funded by the Dutch Government through its agency SenterNovem are, amongst others: ClickFit, GiraSi!, BattMan and FlatFix. These are all co-financed by SenterNovem.
Our most recent EU projects in which we take part in one way or another, and which are funded by the European Commission, are amongst other: Selflex, Helsolar and SolarWater.
As a result of R&D and innovation efforts two patents have been filed for in the past year for products in which our company has a significant stake. One patent is owned by one of the shareholders in GiraSolar BV: GiraSol International BV, the other patent has been filed for by GiraSolar BV itself.
Intellectual Property
Patents
We believe that our commercial success will be supported by protection of our intellectual property rights underlying our proprietary technologies. We seek national and international patent protection only for major developments. Patents owned or shared are expected to cover the following areas:
- Solar grade poly silicon production
- Cell manufacturing technology
- Battery management systems and other BOS electronics
- Module support structures
Solar Modules
There are no intellectual property rights pertaining to solar modules.
Trademarks and Copyrights
We intend to have several United States and foreign trademark registrations associated with our business, including registrations for the trademarks including GiraSolar, DutchSolar the GiraSolar group logo.
Trade Secrets and Other Confidential Information
With respect to, among other things, proprietary know-how that is not patentable and processes for which
patents are difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. We believe that several elements of our solar power products and manufacturing processes involve proprietary know-how, technology or data, which are not covered by patents or patent applications, including selected materials, technical processes, equipment designs, algorithms and procedures. We have taken security measures to protect our proprietary know-how, technologies and confidential data, and we continue to explore additional methods of protection. While we require all employees, key consultants and other third parties to enter into confidentiality agreements with us, we cannot be assured that proprietary information will not be disclosed inappropriately, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can meaningfully protect our trade secrets. Any material leak of such confidential or proprietary information into the public domain or to third parties could result in the loss of a competitive advantage in the solar power market.
COMPETITION
The solar power market is intensely competitive and rapidly evolving. Our competitors have established a market position more prominent than ours, and if we fail to secure our supply chain, attract and retain customers and establish a successful distribution network for our solar power products, we may be unable to increase our sales and market share. There are over 100 companies in the world that produce solar power related products, including multinationals as BP Solar, Kyocera Corporation, Mitsubishi, Solar World AG, Sharp Corporation, and Sanyo Corporation. We also expect that future competition will include new entrants to the solar power market offering new technological solutions. Further, many of our competitors are developing and are currently producing products based on new solar power technologies, including new manufacturing technologies, that they believe will ultimately have costs similar to, or lower than, our projected costs.
We believe that our technology focus on crystalline solar modules, cells and solar grade poly silicon, has the best perspective in the long run. Other technologies rely heavily on scarce elements as Indium, which is in short . . .
Form 10QSB for GIRASOLAR, INC.
--------------------------------------------------------------------------------
17-Nov-2006
Quarterly Report
Management's Discussion and Analysis of Financial Condition and Results of Operation
The following discussion should be read in conjunction with our financial statements and the related notes included in this Form 10-QSB.
Three Months Ended September 30, 2006 vs. September 30, 2005
Revenues. Our revenues for the three months ended September 30, 2006 increased by $15,264,326, or 100% from $0 for the three months ended September 30, 2005. This change was a result of our acquisition of GiraSolar, B.V.
Cost of Revenue. Our cost of revenue for the three months ended September 30, 2006 increased $15,200,764 or 100% from $ 0 for the three months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Net Income (Loss). Our net loss during the three months ended September 30, 2006 was $(205,663) as compared to $(106,730) during the three months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Nine Months Ended September 30, 2006 vs. September 30, 2005
Revenues. Our revenues for the nine months ended September 30, 2006 increased by $51,901,980 or 100% from $0 for the nine months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Cost of Revenue. Our cost of revenue for the nine months ended September 30, 2006 increased $50,860,788 or 100% from $ 0 for the nine months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Net Income (Loss). Our net loss during the nine months ended September 30, 2006 was $(321,184) as compared to $(320,189) during the nine months ended September 30, 2005. The change was a result of our acquisition of GiraSolar, B.V.
Changes in Balance Sheet. As of September 30, 2006, we had current assets of $16,164,523 as compared to $122,030 at December 31, 2005, total assets of $17,634,092 at September 30, 2006 as compared to $122,030 at December 31, 2005, total liabilities of $18,963,366 as compared to $1,262,130 at December 31, 2005 and stockholders' equity (deficit) at September 30, 2006 of ($1,403,305) as compared to ($1,140,100) at December 31, 2005. The increase in assets, increase in liabilities and increase in stockholders' (deficit) is the result of our acquisition of GiraSolar, B.V.
Liquidity and Capital Resources
We have historically financed our operations and met our capital expenditure requirements primarily through sales of our capital stock, issuance of debt and, to a lesser extent, product revenues. Research and development expenditures have historically been
At September 30, 2006, we had working capital deficiency of $2,798,843, including cash, and cash equivalents.
Net cash used in operating activities was $1,170,752 million for the year-to-date period ended September 30, 2006, as compared to $(31,626) million for the year-to-date period ended September 30, 2005.
Net cash used in investing activities was $0 for the year-to-date period ended September 30, 2006, as compared to $0 for the year-to-date period ended September 30, 2005.
We may be required to raise additional capital to respond to competitive pressures and acquire complementary businesses or necessary technologies. We do not know whether we will be able to raise additional financing or financing on terms favorable to us. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, further develop and expand our manufacturing operations and distribution network, or otherwise respond to competitive pressures would be significantly limited.
GENERAL INFORMATION
GiraSolar, Inc. is a reporting company under the federal securities laws. Our shares of common stock are publicly traded on the Pink Sheets under the symbol GRSR.PK. We were organized under the laws of Delaware on June 7, 2002.
We develop, market, and manufacture solar power products. Our business contributes to the promotion and growth of environmentally clean electric power throughout the world.
We own a majority of GiraSolar, B.V. which is based in the Netherlands. GiraSolar, B.V. operates through three subsidiaries: Dutch Solar B.V., GiraMundo, and a 51% owned joint venture called GiraSolar Turkey. All of our revenue is derived from the activities of GiraSolar, B.V.
Through our subsidiaries, we sell our own range of solar modules under the GiraSolar brand, as well as raw materials, intermediate products, third party brand modules and other solar affiliated products.
Solar modules are assemblies of photovoltaic cells that have been electrically interconnected and laminated in a physically durable and weather-tight package. We sell our products using distributors, systems integrators and other value-added clients, who often add value through system design by incorporating our modules associated with electronics, structures and wiring systems. Applications for our products include on-grid power generation, in which supplemental electricity is provided to an electric utility grid, and off-grid generation for markets where access to conventional electric power is not economical or physically feasible.
Our end-products are currently primarily sold in the EU. Main markets within the EU are Germany and Spain, where strong incentive programs stimulate the market.
We are building up positions in emerging markets like the USA, Portugal, Italy and France, where incentive programs have or are being implemented.
We also generate revenue through the sale of raw materials and intermediate products, such as pure silicon, silicon half fabricates and derivates to third parties, consulting solar related projects, and resale and distribution of solar components to third parties.
The main markets for intermediate products we have are now UK, Germany, China and Taiwan.
INDUSTRY BACKGROUND
At approximately $1 trillion per year global revenues, the electric power industry is one of the world's largest industries. We believe that deregulation, economic, environmental and national security pressures, and technological innovations are creating significant opportunities for new entrants and technologies within the electric power industry, just as these changes have created similar opportunities in other regulated industries such as telecommunications, banking and transportation.
Electric power is an increasingly vital component of the global economy, accounting for a greater share of overall energy use as reliance on electricity-dependent technology grows.
Electricity demand is expected to grow at 4% per year over the next two decades in the emerging economies, including China, which currently accounts for only one-third of electricity consumption and where reliable electricity is critical to economic growth. Electricity consumption is expected to grow annually at 1.5% to 2.0% in North America, Europe and industrialized Asia.
Sources of fuel for electricity generation include coal, natural gas, oil, nuclear power and renewable sources, such as solar, hydroelectric and wind power. Coal fuels 39% of worldwide electricity generation, natural gas 18%, nuclear 18%, oil 8%, and renewable sources, chiefly hydroelectric, 18% of global electricity generation. Solar and other non-hydroelectric sources account for approximately 2% of global electricity generation. Electric power producers face several challenges in meeting anticipated growth in electricity demand:
Environmental regulations. Environmental regulations, addressing global climate change and air quality, seek to limit emissions by existing fossil fuel-fired generation plants and new generating facilities. Countries that are parties to international treaties such as the Kyoto Protocol have voluntarily submitted to reducing emissions of greenhouse gases. National and regional air pollution regulations also restrict the release of carbon dioxide and other gases by power generation facilities.
Infrastructure reliability. Investment in electricity transmission and distribution infrastructure has not kept pace with increased demand, resulting in major service disruptions in the United States, such as the Northeast blackout in August 2003. Increasing the aging infrastructure to meet capacity constraints will be capital intensive, time consuming and may be restricted by environmental concerns.
Constraints and cost pressure on fossil fuel supply. The supply of fossil fuels is finite. While an adequate supply of coal, natural gas and oil exists for the foreseeable future, depletion of the fossil fuels over this century may impact prices and infrastructure requirements. Political instability, labor unrest, war and the threat of terrorism in oil producing regions has disrupted oil production, increased the volatility of fuel prices and raised concerns over foreign dependency in consumer nations.
It is our belief that traditional fossil fuel-based generation technologies alone will not be enough to meet future demand for electricity.
Distributed Generation and Renewable Energy
We believe that distributed generation and renewable energy are two of the most promising areas for growth in the global electric power industry, and solar power is both distributed and renewable. Distributed generation is defined as point-of-use electricity generation that either supplements or bypasses the electric utility grid and employs technologies such as solar power, micro-turbines and fuel cells. We believe capacity constraints, increased demand for power reliability and quality and the challenges of building new centralized generation and transmission facilities will drive the demand for distributed generation. Renewable energy is defined as energy supplies that derive from non-depleting sources such as solar, wind and certain types of biomass. We believe that economic and security pressures to reduce
dependence on imported and increasingly expensive oil and natural gas and growing environmental pressures will drive demand for renewable energy. Renewable energy, including solar and wind power, is the fastest growing segment of the energy industry worldwide.
We further believe that environmentally benign, locally sourced renewable energy will become increasingly more important for economic development, environmental policy and national security. Increasing attention to global warming, global energy policy and regional stability and development will support the deployment of distributed generation, particularly renewable energy.
Solar Power
Solar power generation uses interconnected photovoltaic cells to generate electricity from sunlight. Most photovoltaic cells are constructed using specially processed silicon, which, when exposed to daylight, results in the generation of direct current. Many interconnected cells are packaged into solar modules, which protect the cells and collect the electricity generated. Solar power systems are comprised of a single or multiple solar modules along with related power electronics. Solar power technology, first used in the space program in the late 1950s, has experienced growing worldwide commercial use for over the 25 years in both on-grid and off-grid applications.
• On-grid. On-grid applications provide supplemental electricity to customers that are served by an electric utility grid, but choose to generate a portion of their electricity needs on-site. On-grid applications have been the fastest growing part of the solar power market. This growth is primarily driven by the worldwide trend toward deregulation and privatization of the electric power industry, as well as by government initiatives, including incentive programs to subsidize and promote solar power systems in several countries, including Japan, Germany and the United States. On-grid applications include residential and commercial rooftops, as well as ground-mounted mini-power plants.
• Off-grid. Off-grid applications serve markets where access to conventional electric power is not economical or physically feasible. Solar power products can provide a cost-competitive, reliable alternative for such power applications as highway call boxes, microwave stations, portable highway road signs, remote street or billboard lights, vacation homes, rural homes in developed and developing countries, water pumps and battery chargers for recreational vehicles and other consumer applications.
Solar power has emerged as one of the primary distributed generation technologies seeking to capitalize on the opportunities resulting from trends affecting the electric power industry. Relative to other distributed generation technologies, solar power benefits include:
• Modularity and scalability. From tiny solar cells powering a hand-held calculator to an array of roof mounted modules powering an entire home to acres of modules on a commercial building roof or field, solar power products can be deployed in many sizes and configurations and can be installed almost anywhere in the world. Solar is among the best technologies for power generation in urban areas, environmentally sensitive areas and geographically remote areas in both developing and developed countries.
• Reliability. With no moving parts and no fuel supply required, solar power systems reliably power some of the world's most demanding applications, from space satellites to maritime applications to remote microwave stations. Solar modules typically carry warranties as long as 25 years.
• Dual use. Solar modules are expected to increasingly serve as both a power generator and the skin of the building. Like architectural glass, solar modules can be installed on the roofs or facades of residential and commercial buildings.
• Environmentally cleaner. Solar power systems consume no fuel and produce no air, water or noise emissions.
Germany, Japan and the United States presently comprise the majority of world market sales for solar power systems. Government policies in these countries, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. Internationally, Spain, Portugal, France and Italy have recently developed new solar support programs. In the United States, the 2005 energy bill enacted a 30% investment tax credit for solar, and in January 2006 California approved the largest solar program in the country's history, the $3 billion, 11-year California Solar Initiative.
As a result of solar power's benefits and government support, the solar power market has seen sustained and rapid growth. Unit shipments have increased over 20% per year on average for the past 20 years, with never a negative growth year, and over 40% for the past five years.
Solar Power Challenges
Although solar power can provide a cost-effective alternative for off-grid applications, we believe the principal challenge to widespread adoption of solar power for on-grid applications is reducing manufacturing costs without impairing product reliability. We believe the following advancements in solar power technology are necessary to meet this challenge:
• Efficient material use. Reduce raw materials waste, particularly the waste associated with sawing silicon by conventional crystalline silicon technology. Efficient use of silicon is imperative for the growth of the industry due to the limited supply and increasing cost of silicon raw material expected for the near future.
• Simplified and continuous processing. Reduce reliance on expensive, multi-step manufacturing processes.
• Reduced manufacturing capital costs. Decrease the costs and risks associated with new plant investments as a result of lower capital costs per unit of production.
• Improved product design and performance. Increase product conversion efficiency, longevity and ease of use. Conversion efficiency refers to the fraction of the sun's energy converted to electricity.
OUR TECHNOLOGY SOLUTIONS
We believe significant parts of our company's innovations, technologies and processes are unique among our competitors.
• Reduced installation costs. Together with Industry Partners our company developed the patented Click-Fit installation system. This unique and cost effective mounting system reduces time and effort when installing solar systems on roofs and walls.
• Increased efficiency and lower costs of solar cells. ISA BV, significant share holder in GiraSolar, B.V., is project leader in the almost finalized and EU funded "High Efficiency Low Cost Solar Cell project", based on Self-Formation technology. Through introduction of this technology within operations of industry partners, the company can benefit of increased cell efficiency at reduced costs of cells. DutchSolar BV, a 100% owned subsidiary of GiraSolar, B.V., is now part of the SELFLEX project team,
• New technology for producing solar grade poly silicon. Our company recently filed a patent request for
what we believe is a Break-through technological development in solar grade poly silicon production.
• Integrated battery management system for rural electrification. Our "BattMan" battery management system is currently being tested in the field in rural electrification projects. The system will reduce cost of ownership for project owners in this field of solar application, where the battery component is the single largest cost, measured over the life time of an electrification project.
• Anti-theft device for solar panels. The "SolAlert" anti-theft device is a cost effective and simple innovation to inhibit the theft of solar panels from off-grid solar systems in remote areas.
Our Business Strategy
Our business strategy is to continue to develop, manufacture and market solar power products in commercial applications around the world. Our focus is in the following areas:
• Continue to develop the GiraSolar brand of products.
• Expand our network of clients and partners. We currently sell products or services in a number of countries including the Netherlands, Germany, Spain, China, Taiwan, UK and the United States. We intend to expand our network of partners and customers through additional distribution.
• Secure additional sources for raw materials, intermediate products and finished products.
• Secure additional protections for our intellectual property.
• Secure manufacturing facility through acquisition or joint venture.
• Diversify and differentiate our product lines and markets.
PRODUCTS MADE OR SOLD BY THE COMPANY
Solar power products in general are built-up through five stages of production:
• Poly silicon & base materials. At the beginning of the production chain of solar products, pure poly silicon is required. Besides poly silicon, also remeltable high purity poly silicon products can be used. These are generally referred to as remelt and scrap silicon.
• Ingots. A crystalline silicon Ingot is a crystal pulled or cast from poly silicon with a certain diameter, crystalline structure, purity, resisitivity and lifetime. The specifications of the Ingot determine whether the material is useable for solar and or semi-conductor devices.
• Wafers. A crystalline silicon wafer is a flat piece of crystalline silicon that is cut from a silicon ingot, which can be processed into a solar cell. Wafers we use currently measure 125x125 or 156 x 156 millimetres and are approximately 240 microns thick, with 150-200 micron thick wafers expected to be introduced in 2006.
• Solar Cells. A solar cell is a device made from a silicon wafer that converts sunlight into electricity by means of a process known as the photovoltaic effect. Solar cells produce approximately 2.3 Wattpeak at 125 x 125mm or 3.65Wp at 156 x 156mm of power each. Smaller or larger sizes have corresponding less or higher power.
• Solar Modules. A solar module is an assembly of solar cells that have been electrically interconnected and laminated in a physically durable and weather-tight package. A typical solar module can produce from 20 to 300 watts of power and range in size from 2 to 25 square feet. A single 100 Wattpeak solar module can power a standard 100-watt light bulb for several hours, the exact number of hours depending on solar radiation in the region of use. 450 Wattpeak of solar modules represents the power requirements of a typical home in the United States or the EU, excluding air conditioner use. Our company's main focus is on 50Wp to 175Wp modules and OEM modules.
• Systems. A solar system is an assembly of one or more solar modules that have been physically mounted and electrically interconnected, often with batteries or power electronics, to produce electricity. Typical residential on-grid systems range from a few hundred to several thousands of Wattpeak.
Sales, Marketing and Distribution
We focus on B2B channels and bring our solar power products to market using distributors, system integrators and other value-added clients. Our distributors often add value through system design by incorporating our modules, associated with electronics, structures and wiring systems. Most of our clients have a geographic or applications focus. Our channel partners include companies that are exclusively solar clients as well as others for whom solar power is an extension of their core business, such as engineering design firms or other energy product marketers.
We expect to collaborate closely with a relatively small number of selected clients throughout the world. We intend to selectively pursue additional strategic relationships with other companies worldwide for the joint marketing, distribution and manufacturing of our products. These clients mainly range from large, sometimes multinational, corporations to middle sized installation companies and some start-up companies, each chosen for their particular expertise or strategic value. We believe that these relationships will enable us to leverage the marketing, manufacturing and distribution capabilities of other companies, explore opportunities for additional product development and more easily and cost-effectively enter new geographic markets, attract new customers and develop advanced solar power applications.
Our company is relatively young and therefore the network or relations is still developing robustly. We currently work with a relatively small number of clients who have particular expertise in a selected geographic or applications market segment. Since our network and sales revenue are developing robustly, performance of last year gives practically no bearing for reference. However, in the more relevant past 9 months of the current fiscal period, sales to our 5 largest customers have accounted for approximately 60% of our total product revenues since October 1st, 2005. As we continue to expand infrastructure and sales volumes, we anticipate developing relationships with additional customers and decreasing our dependence on any single customer. During the current fiscal period, approximately 68% of our product sales were made to customers in Europe, 29% in South-East Asia and 1% in the USA. All of our research subsidies and revenue was generated within the European Union.
In addition, we market our products through trade shows, on-going customer communications, promotional material, our web site and advertising. Our staff provides customer service, application and engineering support to our partners, while also gathering information on current product performance and future product requirements.
Information regarding our government contracts can be found under the heading
"RESEARCH AND DEVELOPMENT" below.
MANUFACTURING
Our company has made investments in equipment for solar module, balance of system and silicon manufacturing during this fiscal period of GiraSolar BV. Currently the majority of our brand product is produced in partnership with third parties. Products are now manufactured in Germany, China and the USA. We expect to start manufacturing in majority owned facilities in the USA. Further joint-ventures in the EU and Asia are planned for.
RESEARCH AND DEVELOPMENT
In total our R&D and Innovation portfolio always contains up to 10 projects in different phases. GiraSolar, B.V., DutchSolar and affiliated companies take part in several EU and Kingdom of the Netherlands funded R&D and Innovation projects.
The Dutch government is particularly stimulating R&D and innovation through subsidies and tax incentives. The EU is particularly stimulating R&D through subsidies.
Our most recent projects which are funded or partly funded by the Dutch Government through its agency SenterNovem are, amongst others: ClickFit, GiraSi!, BattMan and FlatFix. These are all co-financed by SenterNovem.
Our most recent EU projects in which we take part in one way or another, and which are funded by the European Commission, are amongst other: Selflex, Helsolar and SolarWater.
As a result of R&D and innovation efforts two patents have been filed for in the past year for products in which our company has a significant stake. One patent is owned by one of the shareholders in GiraSolar BV: GiraSol International BV, the other patent has been filed for by GiraSolar BV itself.
Intellectual Property
Patents
We believe that our commercial success will be supported by protection of our intellectual property rights underlying our proprietary technologies. We seek national and international patent protection only for major developments. Patents owned or shared are expected to cover the following areas:
- Solar grade poly silicon production
- Cell manufacturing technology
- Battery management systems and other BOS electronics
- Module support structures
Solar Modules
There are no intellectual property rights pertaining to solar modules.
Trademarks and Copyrights
We intend to have several United States and foreign trademark registrations associated with our business, including registrations for the trademarks including GiraSolar, DutchSolar the GiraSolar group logo.
Trade Secrets and Other Confidential Information
With respect to, among other things, proprietary know-how that is not patentable and processes for which
patents are difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. We believe that several elements of our solar power products and manufacturing processes involve proprietary know-how, technology or data, which are not covered by patents or patent applications, including selected materials, technical processes, equipment designs, algorithms and procedures. We have taken security measures to protect our proprietary know-how, technologies and confidential data, and we continue to explore additional methods of protection. While we require all employees, key consultants and other third parties to enter into confidentiality agreements with us, we cannot be assured that proprietary information will not be disclosed inappropriately, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can meaningfully protect our trade secrets. Any material leak of such confidential or proprietary information into the public domain or to third parties could result in the loss of a competitive advantage in the solar power market.
COMPETITION
The solar power market is intensely competitive and rapidly evolving. Our competitors have established a market position more prominent than ours, and if we fail to secure our supply chain, attract and retain customers and establish a successful distribution network for our solar power products, we may be unable to increase our sales and market share. There are over 100 companies in the world that produce solar power related products, including multinationals as BP Solar, Kyocera Corporation, Mitsubishi, Solar World AG, Sharp Corporation, and Sanyo Corporation. We also expect that future competition will include new entrants to the solar power market offering new technological solutions. Further, many of our competitors are developing and are currently producing products based on new solar power technologies, including new manufacturing technologies, that they believe will ultimately have costs similar to, or lower than, our projected costs.
We believe that our technology focus on crystalline solar modules, cells and solar grade poly silicon, has the best perspective in the long run. Other technologies rely heavily on scarce elements as Indium, which is in short . . .
“The person who says it cannot be done should not interrupt the person doing it.”
– Chinese Proverb
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