Solar Integrated Reports 2006 First Half Results and Corporate Update

London, UK and Los Angeles, California, September 29, 2006 – Solar Integrated Technologies, Inc. (AIM:SIT.LN), a leading provider of building integrated photovoltaic (BIPV) roofing systems, announced today its unaudited financial results for the six months ended June 30, 2006 and highlights of recent corporate activities. All amounts are reported in U.S. dollars and in accordance with U.S. GAAP.

Financial Highlights

  • Revenue for first half of $15.6 million, up 7.1%
  • Net loss of $11.2 million (2005: $1.6 million)
  • Non-recurring SG&A costs of $2.5 million
  • Cost reduction program expected to yield annualized overhead cost savings of $2.5 million
  • Amended senior credit facility to provide for increased borrowing base

    • Operational Highlights

  • 15 BIPV roofing projects completed in the first half, representing 1.9 MW
  • Secured first commercial order for solar carport shade structure
  • Secured second commercial order for solar tents for U.S. military application
  • Entered into new long-term exclusive supply and cooperation agreement with United Solar Ovonic

    • Outlook

  • Review of third party project financing initiated to improve U.S. margin performance
  • Timing for completion of certain projects moved to 2007; revenue for full year 2006 now expected to be in the $35 million to $45 million range
  • Record sales order backlog of $50 million and sales pipeline of $200 million
  • $25.6 million of new business closed in past 4 months, including $5 million contract from U.S. General Services Administration
  • Process engaged to review strategic alternatives to maximize shareholder value, including sale process

    • Commenting on the results, R. Randall MacEwen, Interim Chief Executive Officer, said:

    "The first half of 2006 was a difficult period for Solar Integrated, particularly given our liquidity challenges. While our financial results reflect this, we have made important and measured steps over the past few months to ensure the Company is positioned for sales growth, improved gross margin performance, reduced overhead costs and improved financial performance in 2007."

    "This new focus is reflected by the fact that we have closed $25.6 million of new business over the past four months and that we have qualified an additional $100 million of new prospective projects."

    "We have completed the second phase of our overhead cost reduction program. We have increased our expected annualized cost savings from $1.6 million to $2.5 million, primarily from headcount reduction."

    The Company will host a conference call on Friday, September 29th, 2006 at 1:00 pm London time/8:00 am ET/5:00 am PT. Investors and analysts can participate in the call by dialing +44 1296 480100 with access code C626797.

    For more information, please contact:

    Company Contacts:
    Solar Integrated Technologies, Inc.                              Solar Integrated Technologies, Inc.
    R. Randall MacEwen                                                   John M. Palumbo
    Interim Chief Executive Officer                                    Chief Financial Officer
    Los Angeles, California, USA                                      Los Angeles, California, USA
    +1.562.299.0136                                                        +1.562.299.0121

    Media Contacts:
    Gavin Anderson & Company                                       
    Ken Cronin or Deborah Walter                                    
    London, UK                                                                  
    +44.20.7554.1400                                                        

    About Solar Integrated:
    Solar Integrated Technologies, Inc. (SIT: AIM.LN) is a Los Angeles-based company that manufactures, designs and installs building integrated photovoltaic (BIPV) roofing systems for non-residential, low-slope rooftops. We are a global leader in the development of an innovative and proprietary BIPV roofing system that combines flexible thin-film solar modules with a single-ply roofing membrane for large-scale commercial and industrial applications. 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, ProLogis, San Diego Unified School District, Toyota, U.S. Air Force, U.S. GSA, U.S. Navy and Wal-Mart. For more information, please visit www.solarintegrated.com.

    Forward-Looking Statement:
    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:  the availability and cost of capital; 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; and the availability of, and our ability to retain, key personnel.  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.

    Operational Review

    Management has started to review financial performance of the business in four market segments:

  • Europe Solar: The Company manufactures its BIPV roofing panels for projects in Europe where customers purchase the systems for installation by others.
  • U.S. Direct Solar: The Company manufactures and installs its BIPV roofing systems for projects in the United States where customers purchase the systems on a turnkey basis.
  • U.S. Financed Solar: The Company manufactures and installs its BIPV roofing systems for projects in the United States where customers effectively lease the systems by agreeing to pay the Company for energy produced by the systems over a long-term energy services agreement.
  • Roofing and Maintenance: The Company installs and maintains for select clients energy-efficient roofing systems in Southern California. The Company can install these roofing systems pre-wired for potential future solar retrofit. The Company believes this strategy maintains and strengthens its customer relationships, positions the Company to capture additional business for its BIPV roofing systems, provides additional margin-generating revenue, and provides for smoothing of labor deployment. The Company expects this market segment to decline as a percentage of revenue over time

    • For the first half of 2006, the Company reported revenue and gross margin performance for these four segments as follows:

    Revenue & Gross Margin by Market Segment

      Revenue H1 2006(in $000’s) % of Total Revenue Gross Margin (in $000’s) Gross Margin %
    Europe Solar $2,839 18.3% $412 14.5%
    U.S. Direct Solar 1,488 9.6% 261 17.5%
    U.S. Financed Solar 8,648 55.6% (70) (0.8%)
    Roofing and Maintenance 2,577 16.6% 560 21.7%
    TOTALS 15,552 100.0% 1,163 7.5%

    The margin performance for the U.S. Financed Solar segment was primarily impacted as a result of lower than expected sales revenue and related financing. Given this margin performance, additional projects that were scheduled for 2006 completion have been delayed by the Company in an effort to improve the project structure and terms. Since that time, the Company has worked with the Company's end customer, GE Energy Financial Services, other finance providers and advisors to improve the financial profile of these projects. This process is expected to be completed shortly, and the Company expects to re-start these projects, some of which will be completed in the second half of 2006.

    While the Company now expects to deliver modestly improved gross margins on the next tranche of these projects, this process has shifted expectations for project completion dates and timing of approximately $10 million in revenue recognition. In addition, the 3 New Jersey orders that were secured for delivery in 2006 and which total $6.6 million in expected revenue will be deferred into 2007 as a result of funding delays with the New Jersey rebate authority.

    Given this context, the Company now expects full year 2006 revenue to be in the range of $35 million to $45 million.

    Financial Highlights for First Half of 2006

    Revenue for the six months ended June 30, 2006 was $15.6 million, up 7.1% from $14.4 million for the comparable period in 2005. Of the $15.6 million in revenue, $8.6 million or 55.6% was related to sales type lease projects under the Company's structured finance model.

    Cost of sales for the first half of 2006 was $14.4 million. Gross profit contribution for the first half of 2006 was $1.2 million, or 7.5% of sales.

    Selling, General and Administrative expenses for the first half of 2006 were $9.8 million, including $2.5 million in non-recurring costs for professional and advisory fees, sales and marketing expenses, information technology expenses, a write-down in the value of certain renewable energy credits owned by the Company, and other non-recurring expenses.

    In the first half of 2006, earnings before interest, taxes, depreciation and amortization, a non-GAAP measure, was ($8.1 million). Net loss for the first half of 2006 was $11.2 million, or $0.32 per share.

    The Company had $20.5 million in inventory as at June 30, 2006. The Company has temporarily reduced its intake of inventory and expects to significantly reduce its inventory position in the second half of 2006, which will help support the Company's near-term working capital requirements.

    Corporate Highlights for First Half of 2006 and Recent Activities

    Progress on Markets:

    Over the past 6 months, the Company has restructured its sales organization and approach, with solid early results. In addition to delivering $15.6 million in revenue in the first half of 2006, the order book has grown to $50 million and the sales pipeline of qualified prospective projects has grown to exceed $200 million. This effectively means that the Company has closed $25.6 million of new business over the past four months and that it has qualified an additional $100 million of new prospective projects.

  • For the first half of 2006, the Company delivered a total of 15 BIPV roofing projects aggregating 1.9 MW.
  • From inception to June 30, 2006, the Company has completed more than 70 projects, totaling more than 7 MW.
    • Europe: • 8 projects completed, including projects in Germany and Spain, aggregating 0.6 MW. France introduced a favorable incentive program for BIPV roofing systems. • In April 2005, announced a formal cooperation agreement with Sarnafil for sales of BIPV roofing systems through Sarnafil’s German sales force. In May 2006, announced an extension of this agreement to Spain. • In May 2006, signed a memorandum of understanding (MOU) with Master Renovables, an engineering company specializing in the solar energy sector, for sales of BIPV roofing systems in Spain. Under the MOU, Master Renovables commits to purchase between 1.6 MW and 2.5 MW of BIPV roofing systems through 2008. • Delivered repeat orders through the Company’s sales and distribution arrangements with each of Sarnafil, Dachland and Master Renovables. North America:
  • Completed 7 projects, including projects in California and Arizona, aggregating 1.3 MW.
  • Strengthened relationships with repeat customers, including the completion of 5 additional projects with San Diego Unified School District and the completion of a second project with Honeywell at Luke Air Force Base.
  • Secured the first three orders for projects in New Jersey, including a 477 kW project with Toyota. Now expect these projects to be completed in 2007 as a result of funding delays with the New Jersey rebate authority.
  • Secured a first order from the U.S. General Services Administration for a $5 million contract for the installation of a turn-key BIPV roofing system for the NARA Murphy Federal Records Center in Waltham, Massachusetts.
  • In May 2006, announced an agency arrangement with Sarnafil for sales of BIPV roofing systems through Sarnafil’s sales force and distribution channel in North America.

    • Progress on Products and Operations:

  • Received first commercial order for a cost-effective solar carport shade structure for $1.2 million.
  • Received second commercial order for solar tents for U.S. military application.
  • In the first half of 2006, installed the Company’s Renewable Energy Management (REM) system at 5 separate projects in the United States to bring the total number of reference sites to 33. Solar Integrated 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:

  • In July 2006, the Company retained Jefferies & Company, Inc. to serve as the Company’s financial advisor. Jefferies will assist the board of directors and management in the ongoing evaluation of the Company’s strategic alternatives. The mandate will include a review of a possible sale of the Company.
  • In August 2006, the Company announced that it had obtained a waiver from its breach of certain covenants under the revolving line of credit with an affiliate of GE Energy Financial Services. The Company also reported that the credit facility has been amended to provide access to more capital under the borrowing base eligibility criteria and to provide the Company with more flexibility relating to the facility’s financial covenants.
  • In September 2006, the Company entered into a new multi-year supply and cooperation agreement with United Solar Ovonic, a wholly owned subsidiary of Energy Conversion Devices, Inc. (NASDAQ:ENER). United Solar Ovonic has been a long-standing supplier of flexible thin-film amorphous photovoltaic laminates to Solar Integrated. The last supply agreement between the parties was signed in May 2004 and was set to expire on December 31, 2007. This new supply agreement contemplates the purchase by Solar Integrated of more than 100 MW of flexible thin-film amorphous photovoltaic laminates from United Solar Ovonic through December 31, 2010. Under the new agreement, Solar Integrated retains certain exclusivity rights in the North American market for its BIPV application. The new supply and cooperation agreement also contemplates that the parties will collaborate to reduce product cost over the term of the agreement.

    • Non-GAAP Measures:
    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.

    Forward-Looking Statement:
    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: the availability and cost of capital; 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; and the availability of, and our ability to retain, key personnel. 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.

    Consolidated Balance Sheet

    ASSETS

    (U.S. Dollars) (in thousands)

     

     

         June 30,

    December 31,

     

                   2006

                   2005

     

          (Unaudited)

            (Audited)

    Current assets

     

     

    Cash and cash equivalents

    $           810 

    $           2,194 

    Restricted cash

    679

    307

    Trade receivables, net

    6,832

    8,611

    Lease receivables

    4,105

    253

    Amount due from related party

    2,294

    2,245

    Inventories

    20,544

    20,853

    Contracts in process

    6,094

    1,754

    Prepaid expenses and other current assets

    670

    522

     

     

     

                       Total current assets

    42,028

    36,739

     

     

     

    Non-current assets

     

     

    Lease receivables, net of current

    17,051

    11,082

    Plant and equipment, net

    3,122

    3,433

    Solar systems under operating leases, net

    3,276

    3,276

    Loan fees, net of amortization

    6,193

    6,947

    Deposits and other assets

    1,168

    1,439

                        Total assets

    $         72,838

    $         62,916

     

     

    The accompanying notes are an integral part of these statements.

    Consolidated Balance Sheet

    LIABILITIES AND SHAREHOLDERS’ EQUITY

    (U.S. Dollars) (in thousands except per share data)

     

         June 30,

    December 31,

     

                   2006

                   2005

     

          (Unaudited)

            (Audited)

    Current liabilities

                         

                         

    Borrowings under line of credit

    $            5,888

    $                 -

    Trade and other payables

    9,707

    8,085

    Warranty accrual

    1,681

    1,743

    Other accrued expenses

    4,609

    3,955

    Structured financing – current

    4,228

    383

     

     

     

                    Total current liabilities

    26,113

    14,166

     

     

     

    Non-current liabilities

     

     

    Convertible notes

    31,080

    33,000

    Deferred revenue

    2,109

    2,109

    Unearned income, net of current

    4,000

    2,510

    Structured financing , net of current

    12,264

    7,585

     

     

     

                      Total liabilities

    75,566

    59,370

     

     

     

    Shareholders’ equity (deficit)

     

     

    Common stock: $0.0001 par value

     

     

    Authorized shares-50,000 at June 30, 2006 and December 31, 2005

     

     

    Issued and outstanding-36,130 and 34,642 at

     

     

    June 30, 2006 and December 31, 2005, respectively

    4

    4

    Additional paid in capital

    33,588

    28,613

    Accumulated deficit

    (36,320)

    (25,071)

    Deficit in shareholders’ equity

    (2,728)

    3,546

     

     

     

    Total liabilities and shareholders’ equity

    $        72,838

    $        62,916

     

     

     

    The accompanying notes are an integral part of these statements.

     

    Consolidated Statement of Operations - Unaudited

     (U.S. Dollars) (in thousands except per share data)

     

     

    Six Months Ended

     

    June 30

     

                     2006

                  2005

     

     

     

    Revenue

    $    15,552

    $    14,441

     

     

     

    Cost of sales

    14,389

     10,606

     

     

     

    Gross profit

    1,163

    3,835

     

     

     

    Selling, general, and administrative expenses

    9,782

     4,047

    Stock-based compensation expense

    417

     -

     

     

     

    Loss from operating activities

    (9,036)

     (212)

     

     

     

    Interest expense (net)

    2,213

     1,239

    Equity in loss from investment

    -

    144

     

     

     

    Loss before income taxes

    (11,249)

     (1,595)

     

     

     

    Income taxes

    -

      -

     

     

     

    Net Loss

    $      (11,249)

     $      (1,595)

     

     

     

    Basic and diluted loss per share

    $              (0.32)

    $            (0.05)

    Weighted average number of shares outstanding

     

     

    (basic and diluted)

    35,570

     33,463

     

     

    The accompanying notes are an integral part of these statements.

    Consolidated Statement of Shareholders’ Equity - Unaudited

     (U.S. Dollars) (in thousands)

     

     

    Common Stock

    Paid in Capital

     

    Accumulated

     

     

    Shares

    Amount

    Amount

    Deficit

    Total

     

     

     

     

     

     

    Balance at January 1, 2005

     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

     

     

     

     

     

     

    Issuance of common stock

    on note conversion

    566

    -

    1,919

    -

    1,919

     

     

     

     

     

     

    Issuance of common stock

    on stock option exercise

    200

    -

    431

    -

    431

     

     

     

     

     

     

    Stock-based compensation

    -

    -

    417

    -

    417

     

     

     

     

     

     

    Warrant conversion

    722

    -

    2,208

    -

    2,208

     

     

     

     

     

     

    Net loss for the six months ended June 30

    -

    -

    -

    (11,249)

    (11,249)

     

     

     

     

     

     

    Balance at June 30, 2006

    36,130

         $       4

    $  33,588

    $   (36,320)

    $   (2,728)

     

    The accompanying notes are an integral part of these statements.

    Notes to Interim Consolidated Financial Statements

    (unaudited)

    (U.S. Dollars) June 30, 2006 and 2005

    Note 1: Description of Business

    Solar Integrated Technologies, Inc. (the “Company”) was established and incorporated in the State of Delaware in the United States of America on January 24, 2002.  The Company designs, manufactures and installs building-integrated photovoltaic, or BIPV, roofing systems for customers with non-residential buildings that have flat or low-slope rooftops.  The Company provides its customers with an integrated BIPV roofing solution that meets both their roofing and their onsite solar power generation requirements.  The Company is based in Los Angeles, California and maintains offices in the United Kingdom and Germany.  The Company’s customers are primarily located in the United States and Europe.

    Note 2: Liquidity and Going Concern

    The accompanying interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  This contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the interim consolidated financial statements, the Company has experienced substantial net losses for six months ended June 30, 2006 of $11.2 million, as well as negative cash flows from operations during the referenced periods.  In addition, as of June 30, 2006, the Company’s cash and cash equivalents was $0.8 million.  To achieve profitability, the Company will need to generate and sustain higher revenue and gross margins while maintaining reasonable cost and expense levels.

    In connection with the Company’s audited consolidated financial statements for the fiscal years ended December 31, 2005 and 2004 (the “2005 Financial Statements”), we included disclosure that given the Company’s financial condition and other operating and cash flow variables, there was substantial doubt about the Company’s ability to continue as a going concern.  We also included disclosure relating to the Company’s working capital requirements and the Company’s sustainability plan to further enhance its sales and marketing strategies, expand gross profit margins, and streamline its cost structure.

    Since the release of the 2005 Financial Statements on June 30, 2006, the Company has made progress against its sustainability plan, including the following:

    • Since July 2006, the Company has initiated an overhead cost reduction program which the Company expects to yield in excess of $2.5 million in annualized costs savings.  A portion of these annualized savings will reduce the Company’s costs in the second half of 2006, with the remaining portion taking effect in 2007.
    • In the first half of 2006, the Company achieved gross margin performance of 7.5%, with gross margin performance of at least 14.5% in three of its four market segments, with flat gross margin performance on the remaining and largest market segment.  Based on various activities under the Company’s margin improvement plan, the Company is planning to improve its gross margin performance in all four market segments in the second half of 2006 and into 2007.
    • In August 2006, the Company obtained a waiver from its breach of certain covenants under the Company’s revolving line of credit with an affiliate of GE Energy Financial Services.  The credit facility was also amended to provide access to more capital under the borrowing base eligibility criteria and to provide the Company with more flexibility relating to the facility’s financial covenants.
    • The Company has temporarily reduced its intake of inventory to assist with the Company’s working capital profile.

    While the Company continues to operate in a challenging working capital environment, the Company will continue to review opportunities to improve the fundamentals of the business, improve the Company’s cash flow, and strengthen the Company’s financial position.

    Note 3: Basis of Presentation

    The accompanying interim financial statements of Solar Integrated Technologies Inc. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).  Accordingly, they do not include all the information and footnotes required by US GAAP for annual financial statements.  These interim results are presented in U.S. dollars, unless otherwise noted.

    The interim financial statements as of June 30, 2006 and for the six-month periods ended June 30, 2006 and 2005 are unaudited.  In the opinion of management, all adjustments, which consist solely of normal recurring adjustments, necessary to present fairly in accordance with US GAAP the financial position, results of operations and cash flows for all periods presented have been made.  The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

    The interim financial statements follow the same accounting policies and methods of application as the financial statements for the year ended December 31, 2005 except as described below. These interim financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s 2005 Annual Report.  Certain prior year amounts have been reclassified to conform with current period presentation.

    Note 4: Credit Facility

    In December 2005, the Company entered into a loan and security agreement with an affiliate of GE Energy Financial Services relating to an asset-based revolving line of credit for up to $20 million.  The credit facility bears interest at LIBOR plus 3% on the outstanding balance.  The term of the facility is for up to five years, with an initial 30-month term and a 30-month extension at the lender’s discretion upon satisfaction of certain conditions.  Borrowings under the credit facility are guaranteed by all of the Company’s major subsidiaries and are secured by a pledge of all of the Company’s assets, including the stock of the Company’s subsidiaries and the assets of the Company’s subsidiaries.  The Company is required to pay a commitment fee of 0.50% per annum on the unused portion of the credit facility, as well as customary letter of credit fees.

    The loan and security agreement contains customary financial and non-financial covenants, and customary events of default, including a provision that an event of default will exist if the Company defaults under the note purchase agreement governing the Company’s 6.50% convertible notes due 2010 issued in November 2005.

    As additional consideration for the credit facility, the Company granted GE Energy Financial Services five-year warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $3.392 per share, subject to certain adjustments.  The Company also granted certain registration rights for the shares issuable upon exercise of the warrants.

    In February 2006, pursuant to an amendment to the Company’s loan and security agreement and a master agreement for standby letters of credit, the Company obtained a standby letter of credit sub-facility as part of the $20 million credit facility.

    As at June 30, 2006, the Company was in default of certain covenants under the credit facility.  In August 2006, the Company obtained a waiver of its breach of covenants under the credit facility.  The credit facility was also amended to provide the Company with access to more capital under the borrowing base eligibility criteria and to provide the Company with more flexibility relating to the facility’s financial covenants.  As partial consideration for GE Energy Financial Services agreeing to the waiver and amendment, the Company agreed to adjust the strike price of the 2,000,000 warrants previously issued to GE Energy Financial Services to a strike price of US$1.122 per share, subject to adjustment in certain circumstances.

    Note 5: Convertible Notes

    In November 2005, the Company completed a private placement of 6.5% convertible notes in the aggregate principal amount of $37.0 million due November 1, 2010 t