SOLAR INTEGRATED TECHNOLOGIES, INC. YEAR END RESULTS FOR THE TWELVE MONTHS ENDING 31 DECEMBER 2004

Solar Integrated Technologies, Inc. (“SIT”), the specialized manufacturer and provider of building integrated photovoltaic (BIPV) roofing systems, is pleased to announce its unaudited results for the fiscal year ending 31 December 2004.

HIGHLIGHTS

• Turnover of $7.8 million (2003: $8.3 million), representing 1.7 mW of installed PV roofing systems (2003: 0.9 mW)

• $7.1 million of contracts in progress, representing an additional 1.3 mW of PV roofing systems in progress at year-end

• Positive gross margins of $0.9 million (2003: $3.3 million)

• Pre-tax losses of $6.1 million (2003: pre-tax profit of $0.1 million)

• Ended 2004 with an order backlog of $80.5 million, representing 8.9 mW of PV roofing systems

• Completed 30% equity investment in German PV roofing specialist Dachland GmbH to establish dedicated installation and service capability

• Formal cooperation agreement signed post year-end with Sarnafil for sales and marketing of SIT branded roofing systems in Germany

• Negotiated a major lease financing program resulting in today’s announcement of our strategic relationship with GE Commercial Finance Energy Financial Services (GE EFS), including an initial $17 million project investment and GE EFS’s option for $500 million in additional project investments on a first right of refusal basis

Commenting on the announcement, Chairman David R. W. Potter said: “2004 marked the first full year of operations for Solar Integrated, during which time we made significant progress in preparing for rapid growth in the coming year, as our order book suggests. With the announcement today of the strategic relationship with GE, the Company’s potential for accelerating growth on a global scale will be greatly enhanced”.

For further information, please contact:

Jon W. Slangerup                                                        London            (020) 7153 3500

Chief Executive Officer                                               Los Angeles    +1 323 231 0411

JSlangerup@SolarIntegrated.com

Geza G. Molnar                                                          London            (020) 7153 3500

Chief Financial Officer                                                Los Angeles    +1 323 231 0411

GMolnar@SolarIntegrated.com

Ken Cronin, Deborah Walter                                      London            (020) 7554 1400

Gavin Anderson & Company

Notes for Editors:

Solar Integrated Technologies, Inc., based in Los Angeles, California, manufactures, markets, installs and services building integrated photovoltaic (BIPV) roofing systems for industrial, municipal and government facilities, as well as portable structures. Major customers include Coca-Cola, Frito Lay, the San Diego Unified School District, the U.S. Military, and other blue chip clients. The Company’s proprietary manufacturing process involves fusing flexible photovoltaic cells onto lightweight industrial roofing and tent fabrics, providing a turn-key BIPV roofing solution that generates renewable electrical power. By its unique building integrated qualities, Solar Integrated’s products have distinct commercial advantages over conventional crystalline PV systems.

Chief Executive’s Review

Review of Results

For the Company’s first full year of operations, 2004 was one highlighted by team efforts to create the foundation for rapid and sustainable growth for 2005 and beyond. The first half of the year resulted in a successful IPO on the London AIM, followed by intensive efforts in the second half to develop and negotiate a strategic financing program – the first of its kind in our industry. These efforts set the stage for today’s announcement of our strategic relationship with GE Commercial Finance Energy Financial Services (GE EFS).

The agreement with GE EFS provides for an initial investment of approximately $17 million for our San Diego Schools project. More importantly, GE EFS has the right of first refusal on up to $500 million to fundexisting and prospective solar roofing projects as they come from Solar Integrated. This critical relationship creates a unique platform from which to deliver our product portfolio to a wide range of well-established industrial companies, state and local governments, and a growing list of other customers.

In January 2005, we decided to adopt the strictest standards for financial reporting, beginning with recognizing revenue only for completed projects versus our previous method of recognizing revenue for projects on a percentage of completion basis.

Based on the delay in closing the agreement with GE EFS, lower revenues were reported in 2004 than originally expected, with a corresponding increase in finished goods inventory, including a significant number of BIPV roof systems that were substantially completed and ready for sale to our strategic partner, GE EFS at December 31, 2004. This resulted in a reported pre-tax loss.

Turnover was $7.8 million compared to $8.3 million in 2003. However, we installed 1.7 mW of new BIPV roofs, up from 0.9 mW in 2003, with a year-ending backlog of 8.9 mW of new projects. This resulted in a commercial order book entering 2005 of $80.5 million.

Significant investments were made in raw materials and finished goods inventories needed to support rapid anticipated growth in 2005, as well as substantially completed projects. In addition, more than $1 million in expenses related to negotiating our strategic agreement with GE EFS. Cash on hand at year-end was $0.9 million, with approximately $5.9 million in accounts receivable. Contracts in progress at cost totaled approximately $7.1 million and inventories totaled approximately $9.0 million.

During the year, the Company focused on cultivating customer relations and creating new sales opportunities in the expanding U.S. and European markets. We delivered high-profile projects for Coca-Cola, Frito Lay, the San Diego School District, the U.S. Air Force, and other key clients. Many of these customers opted to install our Energy Management System technology, which optimizes the energy efficiency of their solar-powered facilities.

In Europe, we opened offices in England and Germany, and made a 30 percent equity investment in Dachland GmbH, a German-based premium quality “green” roofing company.  Since the year end, we also recently signed a formal cooperation agreement with Swiss-based Sarnafil, Inc.  Under the terms of the agreement, Sarnafil’s sales force will sell Solar Integrated’s branded roofing systems to customers in Germany.  Our investments in Europe signal our commitment to rapid expansion into the well-established market for BIPV roofing systems in Germany, Spain and elsewhere.

On the product development front, Solar Integrated leveraged its ability to fuse PV cells onto roofing materials by extending this process to other fabrics, thereby developing the first commercially viable portable and modular PV tent structures. We believe that this diversification of our core competence will drive significant growth in high margin sales. This is evidenced by solar tents delivered to the U.S. Military and movie studios seeking access to mobile renewable power structures to support field operations. We have also had significant interest in these new products from disaster relief agencies for temporary housing, emergency power and mobile medical stations.

Markets

The market for BIPV systems is rapidly expanding on a global scale. In many U.S. states, there are specific initiatives in place to promote and subsidize the use of solar power for both industrial and residential applications, led by California with long-range incentives and subsidies. Other states are following California’s lead, such as New Jersey, Florida, Nevada, Arizona, New Mexico, Texas, Hawaii and others, who are moving apace toward solar and other renewable energy solutions.

In Europe, there is a well-established commitment to renewable energy, and the application of solar power is rapidly expanding. Germany is the world’s largest market for PV products, leading the world in installed solar power capacity, principally through the use of feed-in tariffs which deliver compelling ROI opportunities for solar users. Spain and France are following suit, with other European countries moving forward as well.

Japan, like Germany, has a high commitment to solar power, and leads the Asian Region in PV applications. The massive and rapidly growing energy demands of China, India and other Asian nations are beginning to drive growth in renewable energy, and the opportunity for solar power in this region is significant.

Globally, the three key drivers for renewable energy – and solar power in particular – are well established and universally accepted:

• Energy security
• Climate change
• Air quality

As PV technology improves and demand continues to rise, significant increases in PV production capacity will be funded, allowing for the continued expansion of the market. Over time, as technology and production improves, and the costs of fossil fuels continue to rise, the comparable cost of solar power will become increasingly attractive. As this occurs, the long-term need for subsidies will decline, creating an even greater wave of market opportunity.

Strategy

Solar Integrated has a unique business model based on its proprietary BIPV systems and the Company’s roots in the commercial roofing industry. Our value proposition is powerful because we understand the roofing business and how to deliver compelling ROI opportunities to our large base of blue chip industrial clients. Our strategic relationship with GE EFS further enhances this value proposition. Because we have evolved from decades in roofing construction to becoming experts in transforming roof “liabilities” into cost-competitive renewable energy “assets”, we are well positioned to continually expand our business model to reach existing and emerging markets for BIPV roofs.

For the foreseeable future, we will remain focused on our core market, which comprises the billions of square feet of existing “big box” roofs around the world.  These include large manufacturing, distribution, retail, public and military facilities that have large flat roofs. Up to ten percent of these roofs are in the process of being replaced annually, and all of these replacement and/or new roofs represent Solar Integrated’s opportunity to sell our unique building-integrated PV solutions. We believe that this niche is the largest potential segment of the overall BIPV market, and the one that can have the greatest impact on reaching critical mass for renewable solar power.

Outlook

In 2005, Solar Integrated will focus on “monetizing” a large backlog of BIPV roofing projects, realized in great part due to our relationship with GE EFS. We believe that this will generate sufficient cash flow and profits to keep pace with the rapid growth in our targeted markets. Our Company will also focus on expanding best practices within operations and staff functions, driving our commitment to quality and business process improvements.

Jon W. Slangerup

Chief Executive Officer

UNAUDITED BALANCE SHEET

(U.S. Dollars)

ASSETS

	December 31,
	2004	2003
	(Unaudited)	(Audited)
	$	$
Current assets
Cash and cash equivalents (Note 3)	438,400	29,800
Certificate of deposit - restricted (Note 8)	-	500,000
Trade receivables (Notes 4 and 8)	5,875,400	2,997,000
Amount due from related party (Note 6)	1,015,100
Inventories (Notes 5 and 8)	9,053,900	2,213,800
Contracts in process (Note 17)	7,137,900
Prepaid expenses and other current assets	231,700	11,200
Total current assets	23,752,400	5,751,800
Noncurrent assets
Plant and equipment, less accumulated depreciation
of $1,105,400 in 2004 and $422,200 in 2003 (Note 7)	3,811,700	4,127,900
Loan fees, net of amortization	-	64,300
Deposits	120,200	47,900
Total assets	27,684,300	9,991,900

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities	$	$
Borrowings under line of credit (Note 8)	6,000,000	1,362,500
Notes payable to bank - current portion (Note 8)	530,000	836,100
Trade and other payables (Note 9)	6,387,400	2,713,500
Billings in excess of costs (Note 17)	-	58,800
Amounts due to related party (Note 6)		2,891,000
Total current liabilities	12,917,400	7,861,900
Notes payable to bank - net of current portion (Note 10)	2,035,800	1,877,500
Total liabilities	14,953,200	9,739,400
Shareholders’ equity
Share capital (Note 11)	20,643,400	2,000,000
Accumulated deficit - beginning of period	(1,747,500)	(1,876,200)
Current period net income (loss)	(6,164,800)	128,700
Accumulated deficit - end of period	(7,912,300)	(1,747,500)
Shareholders’ equity	12,731,100	252,500
Total liabilities and shareholders’ equity	27,684,300	9,991,900

UNAUDITED STATEMENTS OF OPERATIONS

(U.S. Dollars)

	Years ended
	December 31,
	2004	2003
	(Unaudited)	(Audited)
	$	$
Revenue (Note 17)	7,836,300	8,301,600
Cost of sales
Cost of products sold	6,908,300	3,800,000
Cost of services	-	1,220,700
Cost of sales	6,908,300	5,020,700
Gross profit	928,000	3,280,900
Operating expenses
Research, development and start-up costs	620,700	412,400
General and administrative expenses	6,059,900	2,647,500
Income (loss) from operating activities	(5,752,600)	221,000
Interest expense (Note 12)	412,200	92,200
Income (loss) before income taxes	(6,164,800)	128,800
Income tax expense	-	-
NET INCOME (LOSS)	(6,164,800)	128,800
Basic and diluted earnings (loss) per share in dollars	(0.29)	129
Weighted average number of shares outstanding
(basic and diluted) (Note 18)	21,361,127	1,000

UNAUDITED STATEMENT OF SHAREHOLDERS’ EQUITY

(U.S. Dollars)

Years ended December 31, 2004 and 2003

	Common Stock		Accumulated
	Shares	Amount	deficit	Total
		$	$	$
Balance at December 31, 2002	1,000	-	(1,876,200)	(1,876,200)
Capital contribution	-	2,000,000	-	2,000,000
Net income for the year ended
December 31, 2003			128,700	128,700
Balance at December 31, 2003	1,000	2,000,000	(1,747,500)	252,500
Issuance of common stock	33,461,710	21,657,400	-	21,657,400
Expenses incurred in connection with the
issuance of common stock		(3,014,000)		(3,014,000)
Net loss for the year ended
December 31, 2004	-	-	(6,614,800)	(5,619,800)
Balance at December 31, 2004	33,462,710	20,643,400	(7,912,300)	13,276,100

The accompanying notes are an integral part of these statements.

   UNAUDITED STATEMENT OF CASH FLOWS

   (U.S. Dollars)

	Year ended
	December 31,
	2004	2003
	(Unaudited)	(Audited)
	$	$
Cash flows from  operating activities:
Income (loss) from operating activities	(5,752,600)	222,800
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization	683,100	422,200
Increase in warranty provision	13,300	36,700
Amortization of loan fees	64,300	11,900
Operating cash flows before movements in working capital	(4,991,900)	693,600
Changes in assets and liabilities:
Accounts receivable	(2,878,400)	(2,997,000)
Amount due from related party	(1,015,100)
Inventories	(6,840,200)	(1,891,900)
Contracts in process	(7,137,900)
Prepaid expenses and other assets	(292,700)	(29,200)
Trade and other payables	3,659,400	2,673,800
Billings in excess of costs	(57,600)	58,700
Cash used by operations	(19,554,400)	(1,492,000)
Interest paid	(412,200)	(92,200)
Net cash used in operating activities	(19,966,600)	(1,584,200)
Cash flows from  investing activities:
Purchase of certificate of deposit		(500,000)
Proceeds from certificate of deposit	500,000
Acquisition of plant and equipment	(366,800)	(1,896,600)
Net cash used in investing activities	133,200	(2,396,600)

The accompanying notes are an integral part of these statements.

UNAUDITED STATEMENT OF CASH FLOWS – CONTINUED

(U.S. Dollars)

	Years ended
	December 31,
	2004	2003
	(Unaudited)	(Audited)
	$	$
Cash flows from  financing activities:
Repayment of bank debt	(3,147,900)	(286,300)
Proceeds from bank loans	3,000,000	500,000
Borrowings from line of credit	4,637,500	1,362,500
Borrowings from related party		1,565,300
Repayment of amount due to related party	(2,891,000)	(1,130,800)
Issuance of common stock, net of costs of $3,014,000 in 2004	18,643,400
Capital contribution		2,000,000
Net cash provided by financing activities	20,242,000	4,010,700
NET INCREASE IN CASH	408,600	29,800
Cash at beginning of period	29,800	-
Cash at end of period	438,400	29,800
Supplemental disclosure of cash flow information
Cash paid during the period
Interest paid included in cash flows from operating activities	412,200	92,200
Interest paid capitalized in plant and equipment	-	61,600
	412,200	153,800

The accompanying notes are an integral part of these statements.

NOTES TO UNAUDITED FINANCIAL STATEMENTS

(U.S. Dollars)

December 31, 2004 and 2003

Note 1: Establishment and operations of the Company. Solar Integrated Technologies, Inc., (the “Company”) was established and incorporated in the State of Delaware in the United States of America on January 24, 2002.

The Company prepares its financial statements to December 31 of each year. 

The Company fabricates a fully bi-functional integrated solar roof system that both waterproofs the building envelope and generates solar electric power. The address of the principal place of business of the Company is 1837 E. Martin Luther King Jr. Blvd, Los Angeles, California, United States of America.

The directors authorized the financial statements for the years ended December 31, 2004 for issuance on April 25, 2005.

Note 2: Summary of significant accounting policies. The financials statements are prepared in accordance with International Financial Reporting Standards (IFRS) and under the historical cost convention. These financial statements are presented in US Dollars since that is the currency in which the majority of the Company’s transactions are denominated. 

The significant accounting policies adopted are as follows:

a. Plant and equipment. Plant and equipment are carried at cost less accumulated depreciation. Plant and equipment are depreciated using the straight-line method over their respective estimated useful lives as follows:

Machinery and equipment	7 Years
Furniture, fixtures and office equipment	5 Years

Assets in the course of construction are carried at cost.  Depreciation is charged on these assets from the date on which they are placed in service.

b. Inventories. Inventories are stated at the lower of cost or net realizable value. Cost is arrived at using the first-in, first-out (FIFO) method. Cost comprises invoice value plus applicable landing charges in the case of raw materials, packing materials, spares and consumables. Finished goods comprise cost of materials plus attributable labor and overhead charges that have been incurred in bringing the inventories to their present location and condition. Net realizable value is based on estimated selling price less estimated costs to completion of sale.  Provisions are made for obsolete and slow-moving items.

c. Revenue.

i) Sales of goods

Sales of goods, other than goods supplied as part of construction contracts, are recognized when goods are delivered and title has passed.

ii) Construction contracts

For year ended December 31, 2003, where the outcome of a construction contract could be estimated reliably, the Company recognized revenue and costs using the percentage of completion method over the period of installation, which is typically four to eight weeks, as measured by the proportion that contract costs incurred for work performed and product installed to date bear to the estimated total contract costs.  Where the outcome of a construction contract could not be estimated reliably, contract revenue was recognized to the extent of contract costs incurred that it was probable would be recoverable.  To the extent that billings to date on a project exceeded revenue to be recognized on a percentage of completion basis, an adjustment was made to “billings in excess of cost” on the balance sheet.  Conversely, if billings were less than revenue to be recognized, an adjustment was reflected in “costs in excess of billings” on the balance sheet. When it is probable that total contract costs would exceed total contract revenue, the expected loss was recognized as an expense immediately. 

For the year ended December 31, 2004 the Company change its revenue recognition policy for construction contracts.  The Company recognized revenue and costs using the completed contract method.  Costs incurred related to contracts in progress are included on the balance sheet at cost.

Since all revenues for the year ended December 31, 2003 were related to contracts that were completed no restatement of revenues was required.

d. Income taxes. The Company filed an election to be taxed as an S Corporation for Federal tax purposes effective for the year ended December 31, 2003.  The Company has not received final notification from the Internal Revenue Service (IRS) approving the S Corporation election; however, the Company believes that they have made a valid S Corporation election and the IRS will approve the election for fiscal 2003.  The financial statements for the year ended December 31, 2003 have been prepared assuming the Company has made a valid election.  Accordingly, all Federal taxable earnings of the Company are taxed at the individual stockholder level and the Company incurs no Federal income tax liability.  The Company, however, is subject to California S Corporation tax at a rate of 1.5%.

In May, 2004 the Company filed an election to be taxed as a C corporation. Therefore, the Company is subject to federal and local taxes on corporate income for periods after May 6, 2004. 

e. Borrowing costs. Borrowing costs are recognized as an expense in the period in which they are incurred except those that are directly attributed to the acquisition and construction of an asset that takes a substantial period of time to get ready for its intended use.  Such borrowing costs are capitalized as part of the related asset until such time as the asset is substantially ready for use.

f. Cash and cash equivalents. Cash and cash equivalents comprise current bank accounts and other bank deposits free of encumbrances and having maturity dates of three months or less from the respective dates of deposit.

g. Restricted certificate of deposit.  Restricted certificate of deposit consists of amounts pledged as security for a bank loan (see Note 8).  The certificate of deposit earns interest at .96% at December 31, 2003 and is reported at fair value.

h. Financial instruments. Financial assets and financial liabilities are recognized on the Company’s balance sheet when the Company has become a party to the contractual provisions of the instrument.

Receivables
Trade receivables are stated at nominal value, less appropriate allowances for estimated irrecoverable amounts.

Payables
Trade payables are stated at nominal value.

Due to related parties
Amounts due to related party are stated at nominal value.

Borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received.  Direct issue costs are capitalized and amortized over the related loan period.

Share capital
Shares issued by the Company are recorded at the proceeds received, net of direct issue costs.

i. Provisions.  Provisions for warranty costs are recognized at the date of sale of the relevant products, at the directors’ best estimate of the expenditure required to settle the liability.   The activity for the years ended December 31, 2004 and 2003 was as follows:

	$
Balance at January 1, 2003	-
Provision during the year ended December 31, 2003	36,700
Balance at December 31, 2003	36,700
Provision during the year ended December 31, 2004	13,300
Balance at December 31, 2004	50,000

j. Research, development and start-up costs.  Expenditures related to the development of new products and processes are expensed as incurred.  Costs associated with start-up activities have been expensed as incurred.

Note 3: Cash and cash equivalents.

	December 31,
	2004	2003
	$	$
Bank balances in current accounts	438,400	29,800

Note 4: Trade receivables.

2

At December 31, 2003, 100% of the trade receivable balance was due from one customer.  Based on the Company’s knowledge of the financial condition of its customers, an allowance for uncollectible balance was not established.

Trade receivables have been pledged as security for one of the Company’s bank loans (Note 8).

Note 5: Inventories.

	December 31,
	2004	2003
	$	$
Raw materials	2,857,300	1,001,600
Work in process	1,176,000
Finished goods	5,020,600	1,212,100
	9,053,900	2,213,700

Inventories have been pledged as security for one of the Company’s bank loans (Note 8).

Note 6: Related-party transactions. The Company has entered into transactions with another entity, SCR Group, Inc. (“SCR”) that falls within the definition of a related party under International Accounting Standard No. 24.  The two majority shareholders of the Company are also 100% shareholders of SCR and both companies are under common management control.  At the balance sheet dates, amounts due to SCR were as follows:

	December 31,
	2004	2003
	$	$
Amounts due from SCR	1,015,100
Amounts due to SCR		2,891,000

The amounts due from SCR are a result of working capital advances to SCR to support the installation of the Company’s projects The amounts due to SCR are the result of working capital advances to the Company, expenditures made by SCR on behalf of the Company and certain shared administrative functions, including finance and information technology support.  The balances owed to SCR are non-interest bearing and payable upon demand. Due to the Company’s initial lack of credit history and direct borrowing ability with institutional lenders, SCR contracted with various vendors and creditors on behalf of the Company. 

In 2002, SCR obtained a $2,500,000 equipment finance loan on behalf of the Company to fund the development and purchase of equipment.  Loan proceeds were used to finance the purchase of machinery and equipment on behalf of the Company.  The loan is for a term of seven years and requires monthly payments of $35,138 (see Note 10).  SCR paid the monthly payments and charged the inter-company account until June 2003 at which point the Company assumed the monthly payments.  The amount due under the equipment finance loan is classified as notes payable to bank on the accompanying balance sheet as of December 31, 2003 rather than being classed as amounts due to SCR.  As discussed in Note 10 the Company entered into a $3,000,000 term note payable on January 30, 2004, the loan proceeds of which were partially used to pay down SCR’s equipment term loan on February 11, 2004.

In July 2002, SCR entered into an operating lease agreement for the manufacturing facility currently occupied by the Company.  The lease term is for three years and seven months and ends on January 31, 2006.  Monthly rent is $14,958 plus common area expenses until April 2004 and escalates to $16,400 thereafter.  Deferred rent expense resulting from the normalization of the rent escalations was not significant at December 31, 2004 and 2003.  The agreement includes the option to extend the term of the lease for an additional three years.  The rents payable under this lease were recharged by SCR to the Company.  Rent expense under the facility lease was $207,500 and $179,800 for the years ended December 31, 2004 and 2003, respectively.  Future minimum noncancellable operating lease payments under this lease are as follows:

Year ended December 31,	$
2005	196,900
2006	16,400
	213,300

In 2003, SCR has also leased certain equipment used by the Company or jointly used by the Company and SCR (primarily office equipment and warehouse equipment) under hire purchase leases.  SCR recharged a portion of the payments required under these lease agreements to the Company through an inter-company charge to reflect the Company’s use of the assets.  Rent expense for these leases totaled $557,200 and for the year ended December 31, 2004.   

In connection with the Company’s line of credit facility (discussed in Note 8), SCR provided a guarantee to the financial institution.  The maximum borrowings available under the credit facility total $6,000,000 which extends through May 31, 2005.  The balance, subject to the guarantee, totaled $6,000,000 at December 31, 2004. 

The Company has provided a cross guarantee to a financial institution for certain bank debt of SCR.  The bank debt subject to the guarantee consists of a $2,000,000 term loan that expires on June 30, 2005. A majority of the proceeds from this term loan were used to provide working capital advances to the Company from SCR.  The advances from SCR are included in the amounts due to related party on the accompanying balance sheet as of December 31, 2004 and 2003.  Borrowings under the commercial loan bear interest at the published Wall Street Journal Prime Rate, but not less than 5.50% (5.50% at December 31, 2004).  In connection with this loan, the financial institution also obtained personal guarantees of the two common shareholders of SCR and the Company.  Under the terms of the loan agreement, SCR is required to comply with certain covenants.  As of December 31, 2004, SCR was in compliance with such covenants.  It is not practicable to estimate the fair value of the guarantee; however, the Company does not anticipate that it will incur losses as a result of this guarantee.  The Company has not recorded a separate liability for this guarantee.  If SCR were to default on the outstanding loan balance, the Company may be required to repay the remaining principal balance.  The Company believes that in the event of default by SCR, the Company would have recourse by reducing the amounts owed to SCR that are currently included in the amount due to related party in the accompanying balance sheet as of December 31, 2004 and 2003.  The maximum potential amount the Company would be required to pay is equal to the outstanding principal and interest balance of the loan to SCR.  At December 31, 2004, the outstanding loan balance subject to the guarantee is $2,000,000.

The Company commenced trading in fiscal 2003 and earned revenue under four contracts.  The first three contracts were carried out under an arrangement where the Company sold product and materials to SCR, which then contracted with the end customer to install the roof system.  Total revenue recognized under these first three contracts approximated $5,300,000 for the year ended December 31, 2003.  One of these contracts related to the sale of bought-in materials for a glass-solar roof – a one-off sale that falls outside the Company business model and is not expected to repeat.  Revenue from the glass-solar roof installation totaled $3,661,000 in 2003 (44% of total revenue in 2003.)  The other two contracts with SCR related to one end-customer and totaled $1,600,000 (19% of total revenue in 2003.)  The fourth contract was made under a different arrangement, whereby the Company contracted directly with the end customer and SCR was subcontracted by the Company to provide installation labor. 

The remuneration paid by SIT to the common shareholders of SCR and SIT was $51,600 in 2003.  In 2003, only one of the shareholder’s salary was paid by the Company.  The other shareholder remained an employee of SCR during fiscal 2003.

Note 7: Plant and equipment.

		Furniture, fixtures	Capital
	Machinery	and office	work in
	and equipment	equipment	progress	Total
	$	$	$	$
Cost
As at January 1, 2003	-	-	2,653,500	2,653,500
Additions	-	11,700	1,885,000	1,896,700
Transfers	4,538,500		(4,538,500)
As at December 31, 2003	4,538,500	11,700	-	4,550,200
Additions	252,200	114,600		366,800
Transfers	-		-	-
As at December 31, 2004	4,790,700	126,300	-	4,917,000
Accumulated depreciation
As at January 1, 2003	-	-	-	-
Depreciation for the period	421,100	1,200	-	422,300
As at December 31, 2003	421,100	1,200	-	422,300
Depreciation for the period	667,200	15,900	-	683,100
As at December 31, 2004	1,088,300	17,100	-	1,105,400
Net book value
As at December 31, 2004	4,789,600	109,200		3,811,600
As at December 31, 2003	4,117,400	10,500		4,127,900

Plant and equipment includes interest capitalized during the period of $61,604 in 2003.  The capitalization rate used was the average actual borrowing cost.

As discussed in Note 6, the Company’s machinery and equipment was purchased by SCR on behalf of the Company using borrowings from an equipment term loan to finance a portion of the cost.  The machinery and equipment of $3,811,600 are pledged as security for the equipment term loan.

Note 8: Due to banks.

	December 31,
	2004	2003
	$	$
Current portion of long-term loan (note 10)	530,000	336,100
Short-term bank loan		500,000
Borrowings under line of credit	6,000,000	1,362,500
	6,530,000	2,198,600

In December 2003, the Company entered into a business loan agreement that was to expire on December 31, 2004. Such loan agreement was amended on May 26, 2004 and the expiration date was extended to May 31, 2005. The loan agreement provides the Company with a line of credit.  Maximum borrowings under the line of credit are based on eligible trade receivables and inventory and may not exceed $6,000,000 at December 31, 2004.  Borrowings under the line of credit bear interest at the bank’s prime lending rate plus 1.5% (6.5% at December 31, 2004) and are collateralized by the inventories and trade receivables of the Company.  In connection with the line of credit, the financial institution obtained personal guarantees of the two majority shareholders and a corporate guarantee of the related party (see Note 6).  Under the line of credit agreement, the Company is required to comply with certain covenants.  As of December 31, 2004 the Company was in compliance with such covenants.

The Company had a short-term bank loan to a separate financial institution totaling $500,000.  The loan bears interest at 6%. The Company was required to deposit the proceeds from this bank loan into a restricted certificate of deposit as collateral for the loan. The loan was repaid in March 2004.

Note 9: Trade and other payables

	December 31,
	2004	2003
	$	$
Trade payables	5,959,200	1,728,700
Accruals	428,200	984,800
	6,387,400	2,713,500

Note 10: Interest bearing liabilities-long term portion.

	December 31,
	2004	2003
	$	$
Long-term equipment finance loan	2,565,800	2,213,600
Less: Current Portion (note 8)	(530,000)	(336,100)
	2,035,800	1,877,500

	December 31,
	2004	2003
	$	$
The borrowings are repayable as follows:
In the second year	521,800	331,700
In the third to sixth years (inclusive)	1,514,000	2,047,100
Amount due for settlement after 12 months	2,035,800	2,378,800

The equipment finance loan bears interest at LIBOR plus 3% (4.46% at December 31, 2003).  The equipment loan is collateralized by substantially all of the plant and equipment.  The equipment finance loan had an original term of seven years and required monthly payments of $35,138.  On February 11, 2004, the equipment finance loan was repaid using proceeds from a new term loan.

On January 30, 2004, the Company entered into a $3,000,000 term note payable collateralized by equipment of the Company.  The note bears interest at the bank’s prime lending rate, but not less than 5.50% and requires 59 monthly payments of $57,530 and one final payment of all outstanding principal and accrued interest on February 20, 2009.  The loan proceeds were used to pay down the existing equipment finance loan.

On March 11, 2004, the Company repaid its $500,000 short-term loan using the proceeds from the maturity of the restricted certificate of deposit.

Note 11: Share Capital.

	December 31,
	2004	2003
	$	$
Number of authorized shares at $0.001 par value	50,000,000
Number of issued shares and fully paid at $0.0001 par value	33,462,710
Number of authorized shares at no par value		1,500
Number of issued shares at no par value		1,000
Number of issued and fully paid shares at no par value		1,000
Issued and fully paid share capital - amount	20,643,400	2,000,000

The Company has one class of common shares, which carry no right to fixed income.  The Company issued 1,000 common shares on the date of incorporation.  These shares were issued at $2,000 per share, which was fully paid in fiscal 2003.

On May 4, 2004 the shareholders passed a resolution to amend the Certificate of Incorporation so as to affect a 24,933 forward stock split, pursuant to which each of the 1,000 common shares fully paid were divided into 24,933 fully paid shares of common stock with no par value.  Following the stock split there were 24,933,000 share of common stock outstanding. Additionally, the par value per common share was amended from $0.00 to $0.0001 as well as the authorized share capital of the Company was increased from 1,500 common shares to 50,000,000 common shares. On May 12, 2004 following admission to AIM the Company placed 7,217,447 common shares at $3.15.

Note 12: Finance costs.

	Year ended
	December 31,
	2004	2003
	$	$
On long-term bank loans	226,200
On other loans	186,000	61,000
	412,200	61,000

Note 13: Number of employees. The number of employees of the Company as at December 31, 2004 and 2003 was 36 and 21, respectively.

Note 14: Financial instruments: credit, interest rate and exchange rate risk exposures.

a. Credit risk. The Company’s credit risk is primarily attributable to trade receivables. At December 31, 2004 and 2003, the Company’s maximum exposure to credit risk from one customer amounted to $2,281,300 and $2,997,000 , respectively.

The credit risk on cash and cash equivalents and the certificate of deposit is limited as the counterparties are banks with high credit ratings.  The certificate of deposit at December 31, 2003 of $500,000 was held with one financial institution.

b. Interest rate risk. Term loans and other bank borrowings are at floating rates of interest generally obtained within the United States of America, which are negotiated with the banks at various indexes plus negotiated margins. Amounts due to related parties currently carry no interest charges.

c. Exchange rate risk. The Company has no significant exchange rate risk as substantially all financial assets and financial liabilities are denominated in US dollars.

Note 15: Financial instruments: fair values. The fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. At the balance sheet date, the fair values of the Company’s financial assets and financial liabilities approximate to their carrying values.

Note 16: Operating profit (loss)

Operating profit (loss) has been arrived at after charging:

	Year ended
	December 31,
	2004	2003