Solar Integrated Reports 2005 Achievements and Financial Results
Delivers over 200% revenue increase while strengthening growth platform


London, UK, May 25, 2006 – Solar Integrated Technologies, Inc. (AIM: SIT.LN), a leading provider of non-residential Building Integrated Photovoltaic (BIPV) roofing systems, announced today its unaudited financial results for the year ended December 31, 2005 and highlights of 2005 and recent corporate activities.  Unless otherwise indicated, all amounts are reported in U.S. dollars and in accordance with U.S. GAAP.

“During 2005, we more than tripled sales, delivering record revenue of $33.5 million, excluding deferred revenue of $2.1 million, compared to $10.8 million in 2004,” commented Jon W. Slangerup, Chief Executive Officer of Solar Integrated. “We also made significant investments in our people, products, quality processes, sales channels, customer and supplier relationships, inventory and our initial expansion into Europe.  These investments have positioned us for continued sales and production growth in 2006 and beyond.”

“With growing demand for our products, our sales order book for 2006 deliveries, including projects completed to date, exceeds $40 million and our pipeline of qualified prospective projects exceeds $125 million,” continued Mr. Slangerup.  “This demand, coupled with our planned build-up of critical inventory in 2005, positions us for continued robust growth.”

“Although revenue growth was encouraging, 2005 was not without its challenges,” stated John M. Palumbo, Solar Integrated’s recently-appointed Chief Financial Officer.  “We had very limited capital liquidity prior to raising $37 million in convertible notes in November and entering into a revolving credit facility with GE in late December.  In addition to significant non-recurring costs in 2005, we also experienced lower gross profit margin performance in the back half of 2005, largely attributed to our initial sales in Europe.  To sustain our continued growth, we are working diligently to address continued working capital and gross profit margin challenges.”

“In 2006, we are committed to deliver revenue growth in excess of 80%, expand gross profit margins and manage our costs with discipline,” continued Mr. Palumbo.  “We expect to see results from our margin expansion program in the second half of 2006.”

Corporate Highlights for 2005
Progress on Markets:

  • We delivered a total of 40 BIPV roofing projects in 2005 aggregating 3.8 MW.

North America:

  • Of these 40 projects, we completed 24 projects in the United States, including projects in California, Arizona, Nevada and Texas, aggregating 2.8 MW.
  • We strengthened relationships with repeat customers, including the completion of 15 projects with San Diego Unified School District and the completion of two projects with Coca-Cola.
  • We completed initial projects with exciting new customers, including Honeywell and Wal-Mart.
  • In April 2005, we announced that we had entered into a financing arrangement with GE Commercial Finance Energy Financial Services (“GE EFS”) on an innovative solar roofing project for San Diego Unified School District.  After an initial investment of approximately $17 million for the first phase of the project, we granted to GE EFS a right of first refusal on up to $500 million to fund additional solar roofing projects to be developed and installed by us for commercial and public sector customers.

Europe:

  • We established a German sales office in Mainz, Germany.
  • We completed an initial 16 projects in Europe, including 14 in Germany, one in Spain and one in France, representing an aggregate of 1 MW.  Each of Germany, Spain and France has a favorable incentive program in place to encourage the rapid adoption of solar technology.
  • In April 2005, we announced that we had signed a formal cooperation agreement with Swiss-based Sarnafil International AG (“Sarnafil”), a manufacturer of high performance polymer-based industrial membranes.  Under the terms of the agreement, Sarnafil’s sales force will exclusively market our branded BIPV roofing systems to its customers in Germany. In excess of 50% of our European sales in 2005 were related to our Sarnafil sales channels.  In May 2006, we announced an extension of this agreement to Spain, and a similar agency arrangement with Sarnafil in North America.
  • We completed initial projects with exciting new customers, including Master Renovables and ProLogis.
  • In December 2005, in connection with the sale of our 30% equity interest in Dachland GmbH, we signed an agreement with Dachland pursuant to which Dachland agreed to purchase from us at least 8 MW of BIPV roofing systems through 2008.

Progress on Products and Operations:

  • In May 2005, Frito-Lay honored us with Frito-Lay North America’s 2004 Capital Supplier of the Year Award.  This award recognized the contributions we made during 2004 in providing Frito-Lay with building integrated photovoltaic roofing systems at multiple sites in North America.
  • In June 2005, we obtained our International Electrotechnical Commission certification for our BIPV roofing systems, allowing installation of our CE marked products in Europe.
  • In October 2005, we were awarded The Wall Street Journal’s 2005 Technology Innovation Award.  As one of 12 winning companies representing industrial sectors ranging from biotechnology to software, we won the award for the Energy and Power industry category.  This award recognizes innovations that represent breakthroughs from conventional ideas in a particular field.
  • In November 2005, we achieved International Organization for Standardization (ISO) 9001:2000 certification for our quality management system.  The certification is for the design, manufacture and marketing of proprietary BIPV systems for commercial roofing and portable solar applications worldwide.
  • Over the past twelve months, we have increased our manufacturing productivity by 30% with no additional capital expenditures and staffing costs.
  • In 2005, we installed our Renewable Energy Management system at 21 separate projects in the United States.  Our REM system is a proprietary, internet-based energy management solution that is intended to allow customers to actively manage, control and predict their enterprise-wide energy needs, including energy produced by their BIPV roofing systems.

Progress on Corporate Matters:

  • Since January 1, 2005, we significantly deepened the executive management team.  In February 2005, we hired Jon W. Slangerup as Chief Executive Officer.  In September 2005, we hired R. Randall MacEwen as Executive Vice President, Corporate Development, General Counsel and Corporate Secretary.  In February 2006, we hired John M. Palumbo as Chief Financial Officer.  In addition to these executive hires, we have also strengthened our team with management additions in several key areas including sales and marketing, manufacturing, product development, construction operations, supply chain management, finance and accounting and human resources.
  • In June 2005, we held our first annual shareholders’ meeting as a publicly-listed company.
  • In November 2005, we closed a $37 million private placement of 6.5% convertible notes due on November 1, 2010.
  • In December 2005, we closed a revolving line of credit with an affiliate of GE Energy Financial Services for up to $20 million.  The credit facility is for a term of up to five years.

Summary of 2005 Financial Results

Unlike previous financial reports where we reported our financial results under International Financial Reporting Standards (IFRS), we have elected to report our 2005 financial results under U.S. GAAP.  We also adopted in 2005 completed contract methodology as a revenue recognition policy, which policy is not permissible under current IFRS accounting.  As a result, comparative financial results for prior periods have been conformed to these new policies.

Revenue for 2005 was $33.5 million, a 210% increase from $10.8 million in 2004.  Of the $33.5 million in revenue, $16.7 million or 49.7% was related to sales type lease projects under our structured finance model.  2005 revenue excludes deferred revenue of $2.1 million related to two projects that were classified as operating leases over 20 years.  In addition to the $2.1 million of deferred revenue, we will receive monthly payments for the energy produced by these installed BIPV roofing systems over the term of the 20-year energy service agreements.

Cost of sales for 2005 was $30.7 million, including charges of $2.2 million consisting of $1.5 million for a product upgrade provision for potential future costs and $0.7 million for an inventory write-down.  The charges of $2.2 million both relate to our first-generation BIPV roofing product which was installed in 11 projects in Southern California in 2003 and early 2004.  As a result of scheduled maintenance inspections, we identified that this first-generation product, which used a certain electrical connector, may be subject to certain performance degradation.  While we have not received any warranty claims for this product, we have, on a proactive basis, made some repairs to select panels as a quality assurance and customer service initiative.  Repairs for these isolated panels have been made in the field by our maintenance crew.  In mid-2004, in connection with our UL product certification process, we changed our product specification in favor of a new insulated wire harness, upgraded soldering methodology and improved insulation materials and practices.  To date, we have experienced no performance or warranty issues with our current generation product.  Cost of sales for 2004 was $8.7 million or 80.2% of 2004 revenue.

Gross profit contribution for 2005 was $2.8 million, or 8.5%, compared to $2.1 million, or 19.8%, for 2004. Gross profit margin for 2005 was 15.0% after adjusting for the $2.2 million of charges in cost of sales.  Compared to the first half of 2005, we had lower gross sales margins in the second half of 2005, largely attributed to our initial penetration into the European market with 16 European projects delivered in the last six months of 2005.  In addition, our first European orders required considerable start-up costs related to staffing and infrastructure, establishing initial reference accounts in highly-competitive markets, building long-term relationships with new customers and distribution channels, and establishing our brand position.


Selling, General and Administrative expenses for 2005 were $14.5 million, including $2.0 million in charges consisting of $1.3 million for certain advisory fees related to our structured finance and credit facility financings, and $0.7 million for a write-down of aged rebate receivables.  Selling, General and Administrative expenses for 2004 were $6.7 million.

In 2005, earnings before interest, taxes, depreciation and amortization and our $1.9 million loss on our equity investment in Dachland Gmbh (EBITDA), a non-GAAP measure, was ($10.9 million), as compared to ($3.8 million) for 2004.  After adjusting 2005 EBITDA to exclude the $2.2 million in charges in cost of sales and to exclude the $2.0 million in charges in SG&A, our 2005 EBITDA was ($6.7 million).

Net loss for 2005 was $17.2 million, or $0.51 loss per share, including $6.1 million consisting of the $2.2 million in charges in cost of sales, the $2.0 million in charges in SG&A and the $1.9 million loss on our equity investment in Dachland.  Our net loss for 2005 compared to a net loss in 2004 of $4.9 million or $0.16 loss per share.

2006 Margin Expansion Plan


Margin expansion is a primary focus in 2006, and we have initiated an aggressive program to improving pricing and reduce product costs.  Our margin expansion plan includes the following initiatives:

  • Improve pricing to better reflect the full value proposition delivered by our BIPV roofing systems and solutions.  De-bundle our product and service offering for certain projects for stand-alone pricing for our REM system and extended warranties.  Improve pricing on repeat business.
  • Improve pricing on our structured finance model.
  • Reduce component and material supply costs.
  • Continue manufacturing productivity improvements.
  • In-sourcing certain solar roofing and electrical installation resources.

2006 Milestones


For 2006, we have identified the following key performance milestones:

  • Achieve revenue growth in excess of 80%
  • Improve gross sales margins
  • Strengthen our balance sheet
  • Expand sales channels in North America and Europe
  • Secure follow-on orders from at least 3 existing customers

2005 Annual Report


We expect to issue our 2005 annual report, including letters to our shareholders from the Chairman of the Board of Directors and from the Chief Executive Officer, as well as the 2005 audited comparative financial statements and related notes, in June 2006.

To supplement the consolidated financial results prepared under US GAAP, Solar Integrated uses non-GAAP measures which are adjusted from the most directly comparable GAAP results to exclude items related to amortization of intangibles and stock-based compensation.  Management does not consider these charges in evaluating the core operational activities of the Company.  Management uses these non-GAAP measures internally to make strategic decisions, forecast future results and evaluate the Company's current performance.  Given management's use of these non-GAAP measures, Solar Integrated believes these measures are important to investors in understanding the Company's current and future operating results as seen through the eyes of management.  In addition, management believes these non-GAAP measures are useful to investors in enabling them to better assess changes in Solar Integrated’s core business across different time periods.  These non-GAAP measures are not in accordance with or an alternative for GAAP financial data and may be different from non-GAAP measures used by other companies.

 

About Solar Integrated
Solar Integrated Technologies, Inc. (SIT: AIM.LN) is a Los Angeles-based company that designs, manufactures and installs building integrated photovoltaic, or BIPV, roofing systems for customers with flat or low-slope rooftops.  We believe we were the first company in North America to commercially market and sell an innovative and proprietary BIPV roofing system that combines flexible thin-film solar modules with a single-ply roofing membrane for the non-residential building market.  Our BIPV roofing system enables our customers to transform a traditional rooftop into a value-generating asset.  Our customers include Coca-Cola Enterprises, Frito-Lay, Honeywell, San Diego Unified School District and Wal-Mart. 


This release includes forward-looking statements which are based on certain assumptions and reflect management’s current expectations as contemplated under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations.  Some of these factors include:  uncertainty as to whether our strategies, partnerships and business plans will yield the expected benefits; general global economic conditions; general industry and market conditions and growth rates; increasing competition; the ability to identify, develop and achieve commercial success for new products, services and technologies; changes in technology; changes in laws and regulations, including government incentive programs; intellectual property rights; our ability to secure and maintain strategic relationships, including key supply relationships; the availability and cost of capital; the availability of, and our ability to retain, key personnel; and the failure of the Company to effectively integrate acquisitions.  Additional factors are discussed in our public disclosure materials from time to time.  We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For more information, please contact:

Company Contacts:
Solar Integrated Technologies, Inc.                              Solar Integrated Technologies, Inc.
R. Randall MacEwen                                                    John M. Palumbo
Executive Vice President, Corporate Development      Chief Financial Officer
Los Angeles, California, USA                                        Los Angeles, California, USA
+1.323.231.0411                                                          +1.323.231.0411

Media Contacts:
Gavin Anderson & Company                                        Solar Integrated Technologies, Inc.
Ken Cronin or Deborah Walter                                     Dona Garcia
London, UK                                                                  Los Angeles, California, USA
+44.20.7554.1400                                                        +1.213.479.3005

 

Solar Integrated Technologies, Inc.
UNAUDITED - BALANCE SHEETS
(U.S. Dollars)
(in thousands)

ASSETS

 

 

December 31,

 

              2005

          2004

 

                     

                 

Current assets

 

 

Cash and cash equivalents

$          2,194 

$         438

Restricted cash

307

-

Trade receivables

8,611

5,875

Lease receivables

253

-

Amount due from related party

2,245

1,015

Inventories

20,853

9,054

Contracts in process

1,754

7,137

Prepaid expenses and other current assets

522

233

 

 

 

                   Total current assets

36,739

 23,752

 

 

 

Non-current assets

 

 

Lease receivables

11,082

-

Plant and equipment, net

3,433

3,812

Capitalized solar systems

3,276

-

Loan fees, net of amortization

6,947

-

Deposits

1,439

 120

                    Total assets

$         62,916

 $    27,684


 

Solar Integrated Technologies, Inc.
 UNAUDITED - BALANCE SHEETS (CONTINUED)
(U.S. Dollars)
(in thousands)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

December 31,

 

              2005

          2004

 

 

 

Current liabilities

                     

                 

Borrowings under line of credit

$                 -

$       6,000

Notes payable to bank - current

-

 530

Trade and other payables

8,085

 5,959

Other accrued expenses

5,688

428

Unearned income credit

10

-

Leases payable – current

383

-

 

 

 

                Total current liabilities

14,166

12,917

 

 

 

 

 

 

Non-Current Liabilities

 

 

Notes payable to bank, net of current  

-

2,036

Convertible notes

33,000

 

Deferred revenue

2,109

-

Unearned  income

2,510

-

Leases payable, net of current

7,585

-

 

 

 

                  Total liabilities

59,370

 14,953

 

 

 

 

 

 

Shareholders’ equity

 

 

Common stock: $0.0001 par value

 

 

Authorized shares-50,000,000 at December 31, 2005 and 2004

 

 

Issued and outstanding-34,642,000 and 33,463,000

 

 

December 31, 2005 and 2004, respectively

4

4

Additional paid in capital

28,613

20,639

Accumulated deficit

(25,071)

(7,912)

Shareholders’ equity

3,546

12,731

 

 

 

Total liabilities and shareholders’ equity

$        62,916

$     27,684

 

 

 

 


 

Solar Integrated Technologies, Inc.
UNAUDITED - STATEMENTS OF OPERATIONS
(U.S. Dollars)
(in thousands)

 

 

Years ended

 

December 31,

 

                2005

             2004

             2003

 

 

 

 

Revenue

$    33,537

$    10,833

$      5,304

 

 

 

 

Cost of sales

30,698

 8,687

3,241

 

 

 

 

Gross profit

2,839

2,146

 2,063

 

 

 

 

Operating expenses:

 

 

 

Selling, general, and administrative expenses

14,499

 6,681

3,058

 

 

 

 

Loss from operating activities

(11,660)

 (4,535)

(995)

 

 

 

 

Interest expense (net)

3,550

 412

 92

Loss from investment

1,949

-

-

 

 

 

 

Loss income before income taxes

(17,159)

 (4,947)

(1,087)

 

 

 

 

Income taxes

-

  -

2

 

 

 

 

Net Loss

$      (17,159)

 $      (4,947)

 $     (1,089)

 

 

 

 

Basic and diluted loss per share in dollars

$           (0.51)

$         (0.16)

$        (0.04)

Weighted average number of shares outstanding

 

 

 

(basic and diluted)

33,605

 30,378

24,933 

 


Solar Integrated Technologies, Inc.
UNAUDITED - STATEMENT OF SHAREHOLDER’S EQUITY
(U.S. Dollars)
(in thousands)

 

Years ended December 31, 2005 and 2004

 

 

Common Stock

Paid in Capital

Accumulated

 

 

Shares

Amount

Amount

Deficit

Total

 

 

 

 

 

 

Balance at December 31, 2003

1

 $       2,000

$            -

 $     (2,965)

$         (965)

 

 

 

 

 

 

Effect of stock split

24,932

(1,997)

1,997

-

-

 

 

 

 

 

 

Issuance of common stock

 8,530

1

21,656

-

21,657

 

 

 

 

 

 

Expenses incurred in connection with

 

 

 

 

 

The issuance of common stock

-

-

(3,014)

-

   (3,014)

 

 

 

 

 

 

Net loss for the year ended

 

 

 

 

 

December 31, 2004

-

-

-

(4,947)

(4,947)

 

 

 

 

 

 

Balance at December 31, 2004

 33,463

4

20,639

 (7,912)

12,731

 

 

 

 

 

 

Issuance of common stock

 

 

 

 

 

   on note conversion

1,179

-

4,000

-

4,000

 

 

 

 

 

 

Issuance of warrants

-

-

3,974

-

3,974

 

 

 

 

 

 

Net loss for the year ended

 

 

 

 

 

December 31, 2005

-

-

-

(17,159)

(17,159)

 

 

 

 

 

 

Balance at December 31, 2005

34,642

         4

$  28,613

$   (25,071)

$   3,546