UNITED STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM 10-K
 
 x   ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For
the Fiscal Year Ended December 31, 2008
 
 OR
 
 o   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 
 For
the Transition Period From
                     to
 
 
 
 Commission
File Number 000-49891
 
 SES
Solar Inc.
 (Exact
Name of Registrant as Specified in Its Charter)
 
 Delaware
              
              33-0860242(State
      or Other Jurisdiction of Incorporation
              
              (I.R.S.
      EmployerOrganization)
              
              Identification
      No.)129,
      route de Saint-Julien, 1228 Plan-les-OuatesGeneva,
      Switzerland(Address
      of Principal Executive Offices)
              
              (Zip
      Code)
 
 +41-22-884-1484
 Registrant’s
telephone number, including area code
 
 Securities
registered pursuant to Section 12(b) of the Exchange Act:
 None
  Securities
registered pursuant to Section 12(g) of the Exchange Act:
 Common
Stock, par value $0.001 per share
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  o  No  x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 of Section 15(d) of the Act. Yes  o No x
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  x   No  o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. x
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated
Filer o  Accelerated
Filer o   Non-Accelerated
Filer o Smaller
Reporting Company x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes  o  No  x
  The
aggregate market value of Common Stock held by non-affiliates of the registrant
(24,794,351 shares) on June 30, 2008 was $15,744,413 (based on the average
bid and asked price on the Over the Counter Bulletin Board).  Solely
for purposes of this computation, all officers, directors and 10% beneficial
owners of the registrant are deemed to be affiliates. Such determination should
not be deemed to be an admission that such officers, directors or 10% beneficial
owners are, in fact, affiliates of the registrant.
  As of
March 31, 2009, there were outstanding 73,081,168 shares of the registrant’s
Common Stock, par value $0.001 per share.
  Documents
Incorporated by Reference: None
 
 
 
 TABLE OF CONTENTS
  TABLE OF CONTENTS
  PagePART
      I
                          
                          1ITEM
      1.
                          DESCRIPTION
      OF BUSINESS
                          1ITEM
      1A.
                          RISK
      FACTORS
                          6ITEM
      2.
                          DESCRIPTION OF
      PROPERTY
                          10ITEM
      3.
                          LEGAL
      PROCEEDINGS
                          11ITEM
      4.
                          SUBMISSION OF
      MATTERS TO A VOTE OF SECURITY HOLDERS
                          11PART
      II
                          
                          11ITEM
      5.
                          MARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERMATTERS.
                          11ITEM
      7.
                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                          12ITEM
      7A.
                          QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                          20ITEM
      8.
                          FINANCIAL
      STATEMENTS
                          20ITEM
      9.
                          CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING ANDFINANCIAL
      DISCLOSURE
                          20ITEM
      9A(T).
                          MANAGEMENT’S
      ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING
                          20ITEM
      9B.
                          OTHER
      INFORMATION
                          21PART
      III
                          
                          21ITEM
      10.
                          DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATEGOVERNANCE
                          21ITEM
      11.
                          EXECUTIVE
      COMPENSATION
                          24ITEM
      12.
                          SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED
      STOCKHOLDER MATTERS
                          25ITEM
      13.
                          CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
                          26ITEM
      14.
                          PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                          26ITEM
      15.
                          EXHIBITS
                          27
 TABLE OF CONTENTS
  PART
I
  We have made forward-looking statements
which relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by words such as “may”,
“should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of these words or other
comparable terms. Forward-looking statements involve risks and uncertainties
that may cause our actual results or performance to be materially different from
those expressed in or implied by the forward-looking statements. These
uncertainties include, among others, our need to raise additional financing;
risks related to the development and implementation of our new manufacturing
processes and facility; risks related to completion, refinement and management
of our supply chain and distribution channels; risks related to current and
future research and development; risks related to customer acceptance of our
products; risks related to competition in the solar energy field; risks related
to the availability of public subsidies; our history of losses; the historical
volatility of our stock prices; general market conditions; and the risks in the
section entitled “Risk Factors” that may cause our historical and actual
results, level of activity and performance to be materially different from
future results, level of activity, or performance as expressed in or implied by
these forward-looking statements.
  Except as may be required by applicable
law, we do not undertake or intend to update or revise our forward-looking
statements, and we assume no obligation to update any forward-looking statement
as a result of new information or future events or developments.
  ITEM 1. DESCRIPTION OF
BUSINESS
  We are a
Delaware corporation engaged in the business of designing, engineering,
producing and installing solar panels or modules and solar tiles for generating
electricity. We conduct our operations through two wholly owned subsidiaries,
SES Prod. S.A. (“SES Prod”) and SES Société d’Energie Solaire S.A. (“SES
Switzerland”). Our shares are quoted on the OTC Bulletin Board under the symbol
“SESI.OB”.
 
 Overview
 
 We are a
renewable energy company that offers products and services focused on the
design, development and commercialization of a portfolio of solar products and
technologies capable of delivering alternative energy solutions. To date, we
have produced and installed custom photovoltaic (“PV”) solar products for
commercial, industrial and residential use. Based on the specific needs of our
customers, we manufacture our solar modules and solar tiles using cells,
components and other raw materials that are supplied to us from third-parties.
We also offer comprehensive engineering services for PV projects. As an
engineering service provider, we design new methods of manufacturing PV
modules.
 
 We are actively engaged in transforming
our business from an engineering PV service company into a producer and
manufacturer of solar modules and tiles using our proprietary assembly processes
at our new manufacturing facility in Geneva, Switzerland, which we believe will
allow for higher quality electrical contacts, better performance and reduced
costs.  Our efforts over the past 12 months have been focused largely
on completing construction at our new facility, moving the machines from our
former plant and designing our future production lines.  We anticipate
commencing full scale production during the second half of
2009.  Until such time, we will continue to partner with
subcontractors and to manufacture our solar products on a manual and semi-manual
basis.
 
 The
Photovoltaic Solar Industry
 
 Renewable
energy sources for electric power generation include hydroelectric, biomass,
geothermal, wind and solar. Among renewable sources of electricity production,
solar energy has the most potential to meet the world’s growing electricity
needs. According to the U.S. Department of Energy, the sun is the only source of
renewable energy that has a large enough resource base to meet a significant
portion of the world’s electricity needs.
 
 Solar
electricity is generated using either PV or solar thermal technology to extract
energy from the sun. PV electricity generating systems directly convert the
sun’s energy into electricity, whereas solar thermal systems heat water or other
fluids that are then used as sources of energy. PV systems are either
grid-connected systems or off-grid systems. Grid-connected systems are connected
to the electricity transmission and distribution grid and feed solar electricity
into the end-user’s electrical system and/or the grid. These systems are
commonly mounted on the rooftops of buildings, integrated into building facades
or installed on the ground using support structures, and they range in size from
2-3 kilowatts to multiple gigawatts (GW) and megawatts (MW). Off-grid PV systems
are typically much smaller and are frequently used in remote areas where they
may be the only source of electricity for the end-user.
 
 Solar
thermal technology advancements have been underway in Europe since 1990 and in
China since 2000. PV technology is gaining ground in part to the
aggressive policies of certain countries, especially in Europe, to reduce
dependence on fossil energy.
  1
 TABLE OF CONTENTS
  
 PV
systems are currently the most widely used method of transforming sunlight into
electricity. Annual installations by the PV industry grew from 0.4GW in 2002 to
4.0GW at the end of 2008. Cumulative installed capacity reached approximately
12GW at the end of 2008.
 
 Growth in
installed solar power systems has been stimulated by long-term government
subsidies, tax incentives and feed-in tariffs that require public service
companies and utilities to buy back excess power generated by privately owned PV
systems. Over time, we expect costs to decline as a result of new manufacturing
techniques, the development of PV cell technologies that use alternative
lower-cost materials, reductions in the amount of silicon used in PV cells
(partly through the development of thin film technologies), improvements in
module performance as a result of greater PV cell energy efficiency, lower
direct manufacturing costs, and economies of scale as silicon production volumes
continue to rise.
  In 2007,
Germany was the world’s leader in MW volume of PV installations with 50%,
followed by Spain with 13%, Japan with 10%, Italy with 7% and the U.S. with 7%,
according to industry publication Solarbuzz LLC.  We believe market
allocation remained unchanged in 2008. The solar PV market has demonstrated an
aggregated global growth rate of more than 40% per annum over the last 10 years.
Production costs are likely to decrease and become more economically
sustainable, while production capacity must continue to grow in order for PV to
become a significant player in the global energy market.
 
 To
address a possible long term shortage of polysilicon, the PV industry has
established long-term capacity forecasts in order to secure the necessary raw
materials. As a result, we believe that more solar-grade production will become
available, which will be cheaper than the semiconductor grade silicon because
purity requirements are less stringent for the PV industry. In 2008, solar
grade silicon prices started to decrease from a peak in early 2008 of
$250/kg to an average of $200/kg.
 
 Advantages
and Disadvantages of Solar Energy
 
 Solar
energy generated through PV systems has several advantages compared to
conventional and other renewable sources of electricity, including security,
system reliability, low maintenance, modularity and flexibility of design, as
well as significant environmental benefits. PV systems also support the trend
toward distributed (point-of-use) power generation. We believe that capacity
constraints, increased demand for power reliability, and the challenges of
building new centralized power plants will increase the demand for distributed
power generation.
 
 Solar
energy generated through PV systems also has certain disadvantages. Perhaps the
most significant is the high initial cost of individual PV systems. Solar power
can cost twice as much as grid power. This is due almost entirely to the high
cost of PV cells, which depends on the cost and availability of semiconductor
grade silicon and on production technologies. While technical developments are
underway in thin film, membrane and other non-crystalline based materials, over
90% of the industry currently relies on crystalline silicon cells.
 
 Description
of Our Products
 
 To date,
we have produced and installed custom PV solar products for commercial,
industrial and residential use. Based on the specific needs of our customers, we
manufacture our solar tiles using cells, components and other raw materials that
are supplied to us by third-parties. The design, production and installation of
these customized solar products has required that we offer comprehensive
engineering services. As an engineering service provider, we design new methods
of manufacturing PV modules, and we incorporate these modules into the specific
architectural and building applications of our customers. As we near completion
of our manufacturing facility and implement our proprietary manufacturing
processes, as more fully described below, we will focus our attention less on
custom design and installation projects and more on mass manufacturing,
producing and offering the following products:
 
 Solar
Tiles: SunTechTile® and Swisstile®
 
 We have
developed a new technology for the production, distribution and sale of a next
generation solar tile that we intend to brand under the SunTechTile® trademark
on the international market and under the Swisstile® trademark in Switzerland.
SunTechTile® and Swisstile® share the same design but will be marketed under
different names in order to distinguish their targeted markets. The SunTechTile®
and Swisstile® solar tiles maximize power output by utilizing high performance
PV cells with an innovative connector that we believe makes the tiles easier to
install and less expensive than competitive models. Our connector design also
reduces power loss, thereby maximizing efficiency. These tiles will be
manufactured on our fully automated production lines commencing in the third or
fourth quarter of 2009, as described below, which will allow for a shorter
manufacturing cycle and lower production cost.  Until such time as our
fully automated production lines are operational, we will continue partnering
with subcontractors and manufacturing these tiles on a manual and semi-manual
production line basis.
 
 High
Power Rated Modules
 
 We also
intend to manufacture and distribute PV modules, which are packaged
inter-connected assemblies of PV cells. Our modules will incorporate high
quality cells that have reduced visibility and therefore increased architectural
appeal.
 
  2
 TABLE OF CONTENTS
  
 Description
of Our Proprietary Manufacturing Processes
 
 We have
developed and patented a new assembly process based on our proprietary
technology that will allow us to produce solar modules and solar tiles at a
lower cost and in a more time efficient manner, thereby resulting in more
attractively priced products.  Our new facility in Geneva will showcase our
new production lines and, we believe, will enable us to successfully demonstrate
our manufacturing capabilities to produce solar PV modules with our new
connection process for back-contact cells.
 
 Our
proprietary production process, which we expect to be fully operational in the
third or fourth quarter of 2009, consists of an automated assembly technology
that we believe guarantees a more reliable and efficient manufacturing
process.  This is because our new technology allows for back-contact PV
cells and soldering to occur during only one production run.   As a result
of this new assembly technology, we anticipate our production lines
will be significantly faster and smaller than traditional production lines that
use standard tabbing and stringing machines. We further believe that our new
manufacturing process has numerous advantages over existing assembly techniques,
including easier and faster electrical connections between cells and strings in
a module and fewer manufacturing steps.  Our automated manufacturing
process also significantly reduces manual labor requirements, a substantial cost
component in the PV industry, which will result in greater capital productivity,
lower costs, and more reliable connections.
 
 In
addition to the above described assembly technique, our patent also applies to
the connection of modules (of any cell type) to junction boxes in a more
efficient manner, resulting in a 1% - 3% reduction in the use of glass material
and encapsulate, depending on the type of module.
 
 We plan
to use our patented manufacturing process and back-connection techniques at our
new facility to produce PV modules and our next generation of integrated roof
tiles. In the future, we may also consider licensing this technology to other PV
module producers as well as selling complete production lines that we develop
with third parties.
  With its
low heating demand and large PV roof, we believe that our manufacturing facility
will be a showcase for PV technology, with special solar windows on one facade
and a roof generating more than enough power to satisfy the facility’s energy
requirements. In January 2008, we received confirmation that the building
project meets the MINERGIE ®
standard, which is a sustainability brand for new and refurbished buildings that
is mutually supported by the Swiss Confederation, the Swiss Cantons along with
Trade and Industry and is registered in Switzerland and around the world. 
The final MINERGIE ®
certificate is expected to be delivered upon completion of the building. In
September 2008, the building was awarded the 2008 Swiss Solar Award for
architectural integration of PV solutions. We were also awarded the 2008
European Solar Award in December 2008. We manage this facility through our
wholly owned subsidiary, SES Switzerland.
 
 Sales
and Marketing
 
 Although
the solar energy market is at a relatively early stage of development, energy
experts and associations forecast a CAGR of 30% to 40% for the solar PV market
between 2007 and 2010. To date, our operations have consisted of providing
custom manufactured solar tiles and related engineering services to customers in
Switzerland. As such, we have primarily focused our marketing and sales efforts
in Switzerland.
 
 Once we
complete construction of our manufacturing facility and our automated production
lines are fully operational, our expansion plans and target markets will expand
to include Germany, France, Spain Italy and the U.S. However, it should be noted
that the solar energy market is at a relatively early stage of development. Its
future growth could be different from expectations, and the extent to which our
products will be adopted is uncertain.
 
 We intend
to promote our PV solutions through trade publications, attendance at key
industry trade shows, direct mail campaigns, online advertising and relationship
marketing to our expanding network of dealers and solar integrators. Our
marketing activities will be of greater importance in 2009 once our production
lines become fully operational.
 
 Customers
 
 Most of
our revenue to date has been generated by sales of custom manufactured solar
modules and tiles and related engineering services to customers, which have
included:
 
 ·
              suppliers
      of modules (i.e., either integrator PV systems or cell manufacturers
      willing to outsource the module production to us, using our proprietary
      technology to assemble components in a module) to end-user
      consumers;
 
 ·
              engineering
      firms, installers, distributors or end users (public or private) of our
      solar tiles;
 
 ·
              architects,
      public authorities or end users of our engineering services in PV turnkey
      installations; and
 
 ·
              potential
      module manufacturers licensing our
technology.
 
  3
 TABLE OF CONTENTS
  In the
fiscal year ended December 31, 2008, sales criteria had not been fully met and
only limited revenue of $33,416 was recognized. During this period, sales to our
two largest customers accounted for approximately 69% and 18%, respectively, of
our total net sales. In the fiscal year ended December 31, 2007, sales to our
largest customer accounted for approximately 89% of our net sales. The loss of
one or more of our largest customers or their default in payment could
significantly reduce our revenues and harm our operating results.
 
 Suppliers
and Process Equipment Providers
 
 We rely
on several companies to supply certain components and materials used to
manufacture and produce our PV modules and tiles. For module and tile
production, we depend on a limited number of suppliers for back contact cells.
We believe that due to increased demand for back contact cells, additional
suppliers have already entered the market. We acquire cells on a purchase order
basis and do not have long-term supply contracts with any suppliers, although we
may enter into such contracts in the future. We purchase slates from Swiss
Eternit, with which we have a long-standing commercial relationship. We do not
believe a risk of inventory shortage exists with respect to tiles, although if
one did, we believe alternate suppliers exist. Recent changes in the dimensions
of some solar cells, however, could require larger slates, which exist only at
the prototype level from our suppliers and whose availability on a large
scale is not yet proven.
 
 Our manufacturing processes use both
off-the-shelf and custom-built equipment. Our equipment providers have had
difficulty finalizing our order for certain custom-built machinery to be
installed in our new facility. Based on our patented technology, the
manufacturing concept we will employ in our facility is new and an important
machine that we expected to have in 2008 has yet to be delivered. Delays
delivering this machine by the supplier have postponed production at our
manufacturing facility. As a result of this ongoing delay, we have reconfigured
our production capabilities so that we are able to continue producing our tiles
on a manual and semi-manual basis using existing equipment and partnering with
subcontractors.  We expect that this machine will be delivered and
tested during the first or second quarters of 2009 and that full scale automated
production will commence in the third quarter or fourth quarter.
  Competition
 
 We face
competition from domestic and international companies actively engaged in the
manufacturing and distribution of solar PV systems, as well as from emerging
technology companies that may become viable in the next several years. The best
funded and most established producers of PV cells and modules include Sharp
Corporation, Kyocera Corporation, Sunpower, Suntech, Qcells, Solarworld, Schott
Solar, BP Solar, Shell, Tenesol, Isofoton, Powerlight and GE Solar (formerly
AstroPower). Because most, if not all, of our competitors have substantially
greater capital resources and more experience in research and development,
manufacturing and marketing than we do, we may not succeed in the continued
commercialization and development of our products. We believe, however, that our
building-integrated solar roofing products have advantages over most other PV
product offerings. In most cases, competitors produce modules that must be rack
mounted externally to a building, creating potential damage to the structure,
generating maintenance problems and detracting from their visual appearance. Our
PV product offerings differ in this respect because they maximize power output
using the latest generation PV cells in an innovative design that incorporates
ultra-thin, invisible connectors between cells. This new connector design
reduces power loss and increases efficiency.
 
 Both the
traditional and the alternative energy industries are highly competitive.
Numerous entities in the U.S. and elsewhere compete with us to develop new and
different alternative and/or renewable energy technologies. Competitors also
include fossil fuel companies such as Exxon, Shell, BP, and Total and companies
active in electronics, such as Applied Materials and Cypress. We face, and
expect to continue to face, competition from these entities to the extent that
they develop products that function similarly or identically to our
technologies.
 
 Barriers
to entering the PV module and tile manufacturing industry include the technical
know-how required to produce solar cells that maintain acceptable efficiency
rates at competitive production costs. In addition, any new PV solar technology
requires successful demonstration of reliability testing prior to widespread
market acceptance. We believe the principal competitive factors in the market
for solar electric power products are: price per watt, long-term stability and
reliability, conversion efficiency and other inherent performance measures, ease
of handling and installation, product quality, reputation, and environmental
factors.
 
 Research and Development
  Our
research and development expense consists primarily of salaries and personnel
related costs and the cost of products, materials and outside services used in
our research and development processes and product development activities.
During the fiscal years ended December 31, 2008 and 2007, we spent $337,761 and
$426,814, respectively, on research and development. We expect our research and
development expense to increase in absolute terms in the future, especially
during 2009, as we increase personnel and research and development activity at
our new facility. We intend to devote a substantial amount of our future cash
flows to research and development due to the new and evolving nature of the PV
industry. Over time, we expect research and development expense to decline as a
percentage of net sales and on a cost-per-watt basis as a result of economies of
scale.
   4
 TABLE OF CONTENTS
  
 Intellectual Property
  We rely
on a combination of copyright, trade secret, trademark and contractual
protections to establish and protect our proprietary rights. We require our
customers to enter into confidentiality and nondisclosure agreements before we
disclose any sensitive aspects of our solar technologies or strategic plans, and
we typically enter into proprietary information agreements with employees and
consultants. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our technology. It is
difficult to monitor unauthorized use of technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as laws
in the U.S. In addition, our competitors may independently develop technology
similar to ours. Our precautions may not prevent misappropriation or
infringement of our intellectual property.
  We have
filed a patent application for our new assembly technology. The application was
filed with the World Intellectual Property Organization on July 3, 2006. On
October 24, 2007, the international report on our PCT/IB2007/000428 was issued.
The report recognizes that 12 of the 14 patent claims are new and that all have
potential for industrial application.
  Government
Regulation
  Currently
the cost of solar electricity substantially exceeds the retail price of
electricity in every significant market in the world. To nurture the development
of solar electricity, government bodies in many countries, most notably Germany,
Italy, Spain, France, South Korea, Japan, Canada and the U.S. have provided some
level of subsidies in the form of feed-in tariffs, net metering programs,
renewable portfolio standards, rebates, tax incentives and low interest
loans.
  Under a
feed-in tariff subsidy, the government sets prices that regulated utilities are
required to pay for renewable electricity generated by end-users. The prices are
set above market rates and may be differentiated based on system size or
application. Net metering programs enable end-users to sell excess solar
electricity to their local utility in exchange for a credit against their
utility bills. Net metering programs are usually combined with rebates and do
not provide cash payments if delivered solar electricity exceeds utility bills.
Under a renewable portfolio standard, the government requires regulated
utilities to supply a portion of their total electricity in the form of
renewable electricity. Some programs further specify that a portion of the
renewable energy quota must be from solar electricity.
  Tax
incentive programs exist in the U.S. at both the federal and state level, and
can take the form of investment tax credits, accelerated depreciation and
property tax exemptions. Several governments also facilitate low interest loans
for PV systems, either through direct lending, credit enhancement or other
programs.
  We
believe that the near-term growth in the solar energy industry depends
significantly on the availability and size of these government subsidies and on
the ability of the industry to reduce the cost of generating solar electricity.
The market for solar energy products is, and will continue to be, heavily
dependent on public policies that support growth of solar energy and, as a
result, the continuation of such policies and level of support present the
greatest uncertainties for our products. For example, Germany, a major European
market for our products and services, introduced an 8% decrease in feed-in
tariffs, which could have a major impact on the solar PV market and adversely
affect our growth prospects. Other countries, such as Italy and Greece, have
established incentives to increase solar PV energy production, creating new
opportunities for PV products, although there is no guarantee this will occur or
that such incentives will be available to us.
  Switzerland recently enacted a new
federal feed-in tariff subsidy effective May 2008. Due to overwhelming demand,
final subsidy decisions by the relevant Swiss grid authority regarding
remuneration for electricity generated by solar power installations have been
delayed. As a result of this delay, most solar power producers in Switzerland,
including our prospective and potential customers, are awaiting determination by
the Swiss grid authority before undertaking new solar power installations in
order to learn whether their respective installations will qualify for
remuneration. While we expect that decisions will be made during 2009 and that
we will have at least one large installation accepted by the Swiss grid, any
additional significant delays could impact our projected growth
plans.
  Employees
  As of
December 31, 2008, we had four full-time employees, two of whom are engineers.
We periodically hire consultants as independent contractors. As of December 31,
2008, we had three such consultants. We intend to hire approximately ten
additional employees upon the completion of our new manufacturing
facility.
 
 Corporate History
  We were incorporated in Nevada on
February 3, 1999 to operate an Internet based auction website over which users
advertised and bought and sold goods and services for a fee. Effective March 31,
2004, we changed our state of domicile from Nevada to Delaware. During the third
quarter of 2005, we abandoned our Internet auction business plan and focused on
identifying suitable businesses with which to enter into a business opportunity
or business combination.
   5
 TABLE OF CONTENTS
  
 Effective June 19, 2006, we changed our
name from “The Electric Network.com, Inc.” to “Solar Energy Sources Inc.” On
August 10, 2006, we changed our name to “SES Solar Inc.” We effected the name
change in contemplation of entering into the share exchange agreement dated
August 31, 2006 with SES Switzerland and the shareholders
thereof.
  SES Solar Inc. is the result of a
reverse acquisition accomplished on September 27, 2006 between SES USA, a
Delaware company, which had no operations and net assets of $39,069, and Société
d’Energie Solaire SA (“SES Switzerland”), a Swiss company. SES USA acquired all
of the outstanding shares of SES Switzerland. For accounting purposes, the
acquisition has been treated as a recapitalization of SES Switzerland with SES
Switzerland as the acquirer (reverse acquisition). SES Switzerland acquired
10,668,000 of SES USA in the transaction. The historical financial statements
prior to September 27, 2006 are those of SES Switzerland. The reverse
acquisition resulted in a change of control of SES USA, with the former
stockholders of SES Switzerland owning approximately 70% of SES USA and SES
Switzerland becoming SES USA’s wholly owned subsidiary, and we ceased being a
“shell company” as such term is defined in Rule 12b-2 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
 
 As of
July 31, 2008, we formed a new Swiss wholly owned subsidiary, SES Prod, also
located in Geneva. It is expected that in the future, all of our manufacturing
activities now being conducted by SES Switzerland will be conducted by SES Prod.
At such time, SES Switzerland’s primary activity will be managing our
manufacturing facility and marketing intellectual property.
 
 Availability
of Information
 
 Our
principal executive offices are located at 129 Route de Saint-Julien, 1228
Plan-les-Ouates, Geneva, Switzerland, and our telephone number is
+41.22.884.14.84. Our website address is www.sessolar.com. The
content of our website is not part of this Annual Report on Form 10-K and should
not be relied upon with respect thereto.
 
 We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any reports, statements or other information
that we file at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information regarding the public reference facility. The SEC maintains a website
at www.sec.gov that contains
current and periodic reports, proxy statements, information statements and other
information regarding registrants that file electronically with the SEC,
including us.
  Item 1A.  Risk
Factors
  An investment in our common stock
involves a high degree of risk.  You should carefully consider the
following material risks, together with the other information contained in this
Annual Report on Form 10-K, before you decide to buy our common
stock.  If any of the following risks actually occur, our business,
results of operations and financial condition would likely suffer.  In
these circumstances, the market price of our common stock could decline, and you
may lose all or part of your investment.
  Risks
Related to Our Business
  We
are an early stage company with a limited operating history.
  We are an
early stage company that seeks to take advantage of a proprietary automation
process to produce solar modules and solar tiles at a lower cost. We have
experienced losses from our early stage operations, which have involved
developing and testing our new solar panel technology, construction of our
manufacturing facility, and commencement of the sales and distribution portions
of our business by manufacturing, selling, and installing solar tiles and
modules. We anticipate incurring additional losses over the next few years as we
complete the development and testing of prototypes and the licensing of our new
products and commence production and distribution. There is limited historical
financial or other information available upon which you can base your evaluation
of our business and prospects. Although we have begun manufacturing our products
on a manual and semi-manual basis, we have not commenced full scale commercial
production of solar modules and solar tiles using our proprietary automation
process, and at this stage of our business plan, we have less insight into how
market and technology trends may affect our business than we expect to have in
the future. The revenue and income potential of our business is unproven. As a
result, you should consider our business and prospects in light of our limited
operating history and the challenges that we will face as an early stage company
seeking to develop a new manufacturing process. If we are unable to develop our
business, we will not be able to achieve our goals and could suffer economic
loss, in which case you may lose your entire investment.
 
 We
have incurred losses during prior fiscal periods and anticipate that we will
incur future losses until development, implementation and commercialization of
our products manufactured through our new assembly processes are
operational.
 
 We have
incurred losses during prior fiscal periods, including a net loss of $1.8
million in 2008 and $1.5 million loss in 2007, and we have negative cash flows
from operations. For the six months ended June 30, 2008, we recorded net income
for the first time, although this was largely due to a one time gain from the
sale of the Solar Plant on the roof of our manufacturing facility. Although we
plan to enter into full scale commercial production of our products in the third
or fourth quarters of 2009, and have commenced production activities on a manual
and semi-manual basis, we expect to incur additional losses over at least the
next few years. Furthermore, we expect to continue to make significant capital
expenditures and anticipate that our expenses will increase as we continue to
develop our manufacturing processes and our sales and distribution network,
implement internal systems and infrastructure, and hire additional personnel. As
we do not expect to become profitable until after our new solar products are in
production, we will be unable to satisfy our current obligations solely from
cash generated from operations.
  6
 TABLE OF CONTENTS
  Because
of our history of losses and our current financial condition, the report of our
Independent Registered Public Accounting Firm includes an explanatory paragraph
referring to substantial doubt about our ability to continue as a going concern.
Our financial statements do not include any adjustments that might result from
the outcome of this substantial doubt, as discussed in Note 2 to our financial
statements for the fiscal year ended December 31, 2008.  See also the
“Liquidity and Capital Resources” section to Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
 
 We
will require significant additional financing to fund expansion of our
operations, the availability of which cannot be assured, and if we are unable to
obtain such financing, our business may fail.
 
 To date,
we have generated only limited revenue from the sale of solar tiles manufactured
by us and third parties and the related engineering services required to design
and install the same. During the period from January 2008 to June 2008, we also
generated revenue from the sale of electricity produced by our Solar Plant. In
addition to this limited operating revenue, we have depended on sales of our
equity securities and debt financings to meet our cash requirements. Our ability
to expand our operations and to develop our technologies will depend upon our
ability to continue to generate revenue as well as to raise significant
additional financing. If we are unable to obtain such financing, we will not be
able to develop our business. Specifically, we will need to raise additional
funds to:
  ·
              support
      our planned growth and carry out our business plan;·
              complete
      construction of our new manufacturing facility and purchase related
      equipment;·
              continue
      the research and development of our technologies;·
              protect
      our intellectual property;·
              hire
      top quality personnel for all areas of our business;·
              address
      competing technological and market developments; and·
              market
      and develop our technologies.
 
 We may
not be able to obtain additional equity or debt financing as required. Even if
financing is available, it may not be on terms that are acceptable or favorable
to us or in sufficient amounts to satisfy our requirements. If we require, but
are unable to obtain, additional financing in the future, we may be unable to
implement our business plan and growth strategies, respond to changing business
or economic conditions, withstand adverse operating results or compete
effectively. More importantly, if we are unable to raise additional financing
when required, we may be forced to scale down our operations and our ability to
generate revenue may be reduced.
 
 We
may be unable to complete our development, manufacturing and commercialization
plans on schedule and failure to do so will significantly harm our business
plans, prospects, results of operations and financial condition.
 
 Commercializing
our new solar products and processes depends on a number of factors,
including:
 
 ·
              further
      product and manufacturing process development;·
              development
      and implementation of certain critical tools and large scale production
      capabilities;·
              completion,
      refinement and management of our supply chain;·
              completion,
      refinement, and management of our distribution
channels;·
              completing
      construction to our manufacturing facility and building and operating our
      production line; and·
              demonstrating
      efficiencies that will make our products attractively
    priced.
 
 Further,
we have focused primarily on research and development and on our manufacturing
processes and capabilities. We do not know whether the processes or products we
have developed will be capable of supporting large-scale manufacturing that
meets the requirements for cost, schedule, quality, engineering, design,
production standards, field certification, and supply demands.
 
 If
we continue to experience significant delays, cost overruns or technical
difficulties installing equipment in our new manufacturing facility, our
business plans, prospects, results of operations and financial condition will
suffer.
 
 Completing
the installation of equipment at our manufacturing facility is subject to
significant risks, including risks of delays, equipment failure, cost overruns
and other start-up and operating difficulties. Our manufacturing processes use
both off-the-shelf and custom-built equipment. To date, we have experienced
delivery and installation delays by one of our suppliers of a key piece of
equipment in our new facility. If we continue to experience such a delay or
encounter similar difficulties, we may be unable to complete our manufacturing
facility either in a timely manner or at all. Without our manufacturing
facility, we would likely have no manufacturing capacity and you could lose your
entire investment.
  Our
products have never been sold on a mass market commercial basis, and we do not
know whether they will be accepted by the market.
  7
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 The solar
energy market is at a relatively early stage of development and the extent to
which solar modules will be widely adopted is uncertain. If our products are not
accepted by the market, our business plans, prospects, results of operations and
financial condition will suffer. Moreover, demand for solar modules in our
targeted markets, including Switzerland, Germany, France, the United States and
Italy, may not develop or may develop to a lesser extent than we anticipate. The
development of a successful market for our proposed products and our ability to
sell our products at a lower price per watt may be affected by a number of
factors, many of which are beyond our control, including, but not limited
to:
 
 ·
              Our
      failure to produce solar power products that compete favorably against
      other solar power products on the basis of cost, quality and
      performance;·
              Competition
      from conventional energy sources and alternative distributed generation
      technologies, such as wind energy;·
              Our
      failure to develop and maintain successful relationships with suppliers,
      distributors, systems integrators and other resellers, as well as
      strategic partners; and·
              Customer
      acceptance of our products.
 
 If our
proposed products fail to gain sufficient market acceptance, our business plans,
prospects, results of operations and financial condition will
suffer.
 
 We
depend upon a limited number of third-party suppliers for key materials and any
disruption from such suppliers could prevent us from manufacturing and selling
cost-effective products.
 
 We
purchase the PV cells that we need for our proprietary technology and
manufacture our products using materials and components procured from a limited
number of third-party suppliers. We do not currently have in place any supply
contracts. If we fail to maintain our relationships with these suppliers, or
fail to secure additional supply sources from other PV cell suppliers that meet
our quality, quantity and cost requirements in a timely manner, we may be unable
to manufacture our products or our products may be available only at a higher
cost or after a long delay. We may be unable to identify new suppliers or
qualify their products for use on our production lines in a timely manner and on
commercially reasonable terms. Materials and components from new suppliers also
may be less suited for our technology and yield PV modules with lower conversion
efficiencies, higher failure rates and higher rates of degradation than PV
modules manufactured with the materials and components from our current
suppliers. Any of these factors could prevent us from delivering our products to
our customers within required timeframes, resulting in potential order
cancellations and lost revenue.
 
 We
have relied on a small number of customers for substantially all of our sales
and the loss of, or a significant reduction in, orders from any of these
customers could significantly reduce our sales and operating
results.
 
 We have
historically sold our custom manufacturing services to only a few customers. In
the fiscal year ended December 31, 2008, sales criteria had not been fully met
and only limited revenue of $33,416 was recognized.During this period, sales to
our two largest customers accounted for approximately 69% and 18%,
respectively,  of our total net sales. In the fiscal year ended
December 31, 2007, sales to our largest customer accounted for approximately 89%
of our total net sales.  Although we continued to market our solar
tiles and to quote our solar PV turn-key installations to prospects during the
year ended December 31, 2008, we have been increasingly focused on completing
our manufacturing facility and producing our solar products on a large scale and
less on smaller custom installation projects. To the extent that we are able to
successfully manufacture and sell our products on a large scale, we may still be
exposed to the risks associated with reliance on one or a few major customers.
The loss of one of these potential customers or their default in payment could
significantly reduce our revenues and harm our operating results in the future.
Moreover, our customer relationships to date have been developed over a
relatively short period of time, and we cannot guarantee that we will continue
to receive significant revenues from these customers over the long
term.
  We
likely will face intense competition from manufacturers of crystalline silicon
solar modules, thin film solar modules and solar thermal and concentrated PV
systems, all of which represent direct substitutes for our
products.
 
 The solar
energy and renewable energy industries are both highly competitive and
continually evolving as participants strive to distinguish themselves within
their markets and compete with the larger more established electric power
industry. We believe that our main sources of competition are crystalline
silicon solar module manufacturers, thin film solar module manufacturers, and
companies developing solar thermal and concentrated PV
technologies.
 
 At the
end of 2008, the global PV industry consisted of more than 150 manufacturers of
PV cells and solar modules. Within the PV industry, we face competition from
crystalline silicon PV cell and solar module manufacturers, including Trina
solar, Kyocera, Motech, QCells, Renewable Energy Corporation, Sanyo, Schott
Solar, Sharp, Mitsubishi, SolarWorld, GE Energy, Sunpower, Photowatt, Isofoton
and Suntech. We also face competition from thin film solar module manufacturers,
including Antec, Alwitra, UNI-Solar, Kaneka, Mitsubishi Heavy Industries, Shell
Solar, United Solar and several crystalline silicon manufacturers that are
developing thin film technologies. We may also face competition from
semiconductor manufacturers and semiconductor equipment manufacturers, or their
customers, several of which have already announced their intention to start
production of PV cells, solar modules or turnkey production lines or have bought
players in the PV industry. In addition to manufacturers of PV cells and solar
modules, we face competition from companies developing solar tiles or equivalent
, including Solar Century, Imerys, Atlantis and others. Most, if not all, of our
competitors across each of these segments are more established, benefit from
greater market recognition and have substantially greater financial,
development, manufacturing and marketing resources than us. If we are unable to
effectively compete for customers and suppliers, our financial condition and
results of operations will suffer.
  8
 TABLE OF CONTENTS
  Technological
changes in the solar power industry could render our products obsolete, which
could prevent us from achieving sales and market share.
 
 Our
failure to refine our technology and to develop and introduce new products could
cause our products to become uncompetitive or obsolete, which could prevent us
from increasing our sales and becoming profitable. The solar power industry is
rapidly evolving and highly competitive. Our development efforts may be rendered
obsolete by the technological advances of others, and other technologies may
prove more advantageous for the commercialization of solar power
products.  In addition, there is currently an oversupply of PV
products on the market that could render our manual and semi-manual production
process too expensive unless we are able to successfully bring our automated
production lines into operation.  If this occurs or persists, and we
are further delayed in our efforts to manufacture our products on a fully
automated basis, our sales and profits could be diminished.  See also,
the risk factor titled “If we continue to experience significant delays, cost
overruns or technical difficulties installing equipment in our new manufacturing
facility, our business plans, prospects, results of operations and financial
condition will suffer.”
 
 Failure
to protect our proprietary technology and intellectual property rights against
infringement could seriously impact our competitiveness and any litigation
related to protection of such intellectual property rights would be time
consuming and costly.
 
 Our
success and ability to compete depends to a significant degree on our
proprietary technology, which consists of a combination of copyright, trademark,
and an international patent. If any of our competitors copy or otherwise gain
access to our proprietary technology or develop similar technologies
independently, we may not be able to compete as effectively. The measures we
have implemented to protect our proprietary technology and other intellectual
property rights are currently based upon a combination of a patent application,
contractual protections and trade secrets. These measures may not be adequate to
prevent the unauthorized use of our proprietary technology and our other
intellectual property rights. Further, the laws of various countries in which we
expect to offer our products may provide inadequate protection of such
intellectual property rights.
  We
may be exposed to infringement or misappropriation claims by third parties that
if determined adversely to us, could cause us to pay significant damage awards
or prohibit us from the manufacture and sale of our solar modules and tiles or
the use of our manufacturing technology.
 
 Our
success depends largely on our ability to use and to develop our technology and
know-how without infringing or misappropriating the intellectual property rights
of third parties. The validity and scope of claims relating to PV technology
patents involve complex scientific, legal and factual considerations and
analysis and, therefore, may be uncertain. We may be subject to litigation
involving claims of patent infringement or violation of intellectual property
rights of third parties. The defense and prosecution of intellectual property
suits can be costly and time consuming. An adverse determination in any
litigation or proceeding could subject us to significant liability, require us
to seek licenses from third parties that may not be available on reasonable
terms, require us to redesign our solar modules and tiles, or subject us to
injunctions prohibiting the manufacture and sale of our solar modules and tiles
or the use of our technologies.
 
 One
of our directors, Christiane Erné, controls a substantial interest in us and
therefore may control certain actions requiring a stockholder vote.
 
 Christiane
Erné, a director since 2006, beneficially owns 66% percent of our outstanding
common stock. Christiane Erné is married to Daniel Erné, another of our
directors. As a result, Christiane Erné and Daniel Erné will be able to
determine the outcome of any decision upon which our stockholders
vote.
 
 All
of our assets and a majority of our directors and officers are outside of the
United States, with the result that it may be difficult for investors to enforce
within the United States any judgments obtained against us or any of our
directors or officers.
 
 Although
we are organized under the laws of the State of Delaware, our principal business
office is located in Geneva, Switzerland. As such, it may be difficult for
investors to enforce judgments against us that are obtained in the United States
in any action, including actions predicated upon civil liability provisions of
the federal securities laws. In addition, the majority of our directors and
officers reside outside the United States, and nearly all of the assets of these
persons and us are located outside of the United States. As a result, it may not
be possible for investors to effect service of process within the United States
upon such persons or to enforce against us or such persons judgments predicated
upon the liability provisions of United States securities laws. There is
substantial doubt as to the enforceability against any of our directors and
officers located outside the United States in original actions or in actions of
enforcement of judgments of United States courts or liabilities predicated on
the civil liability provisions of United States federal securities laws. In
addition, as the majority of our assets are located outside of the United
States, it may be difficult to enforce United States bankruptcy proceedings
against us. Under United States bankruptcy laws, courts typically have
jurisdiction over a debtor’s property, wherever it is located, including
property situated in other countries. Courts outside of the United States may
not recognize the United States bankruptcy court’s jurisdiction. Accordingly,
you may have trouble administering a United States bankruptcy case involving a
Delaware company as debtor with most of its property located outside the United
States. Any orders or judgments of a bankruptcy court obtained by you in the
United States may not be enforceable.
  9
 TABLE OF CONTENTS
 Currency
translation and transaction risk may negatively affect our net sales, cost of
sales and gross margins and could result in exchange losses.
  Although
our reporting currency is the U.S. dollar, we conduct our business and
incur costs in Swiss Francs (CHF). As a result, we are subject to currency
translation and transaction risk. During the year ended December 31, 2008, all
of our sales were made outside of the United States and denominated in Swiss
Francs (CHF). We expect substantially all of our sales to be outside of the
United States and denominated in foreign currencies in the future. Changes in
exchange rates between foreign currencies and the U.S. dollar could affect
our revenues and cost of sales and could result in exchange gains or losses. We
cannot accurately predict the impact of future exchange rate fluctuations on our
results of operations.
 
 Risks Related to Our Industry
 
 The
reduction or elimination of government subsidies and economic incentives for
on-grid solar electricity applications could reduce demand for our solar
products, lead to a reduction in our net sales and harm our operating
results.
 
 The
reduction, elimination or expiration of government subsidies and economic
incentives for on-grid solar electricity could result in the diminished
competitiveness of solar energy relative to conventional and non-solar renewable
sources of energy, which would negatively affect the growth of the solar energy
industry overall and our net sales specifically. We believe that the near-term
growth of the market for on-grid applications, where solar energy is used to
supplement the electricity a consumer purchases from the utility network,
depends significantly on the availability and size of government and economic
incentives. Currently the cost of solar electricity substantially exceeds the
retail price of electricity in every significant market in the world. As a
result, federal, state and local governmental bodies in many countries, most
notably Germany, Italy, Spain, France, South Korea, Japan, Canada, the United
States, and, to a more limited extent, Switzerland, have provided subsidies in
the form of tariffs, rebates, tax write-offs and other incentives to end-users,
distributors, systems integrators and manufacturers of PV products. For example,
Germany has been a strong supporter of PV products and systems, and political
changes in Germany have recently resulted in significant reductions or the
elimination of incentives. Many of these government incentives could expire,
phase-out over time, exhaust the allocated funding or require renewal by the
applicable authority. A reduction, elimination or expiration of government
subsidies and economic incentives for solar electricity could result in the
diminished competitiveness of solar energy, which would in turn hurt our sales
and financial condition.
 
 Existing
regulations and policies and changes to these regulations and policies may
present technical, regulatory and economic barriers to the purchase and use of
PV products, which may significantly reduce demand for our solar
products.
 
 The
market for electricity generating products is heavily influenced by foreign,
federal, state and local government regulations and policies concerning the
electric utility industry, as well as policies promulgated by electric
utilities. These regulations and policies often relate to electricity pricing
and technical interconnection of customer-owned electricity generation. In a
number of countries, these regulations and policies have been modified in the
past and may be modified again in the future. These regulations and policies
could deter end-user purchases of PV products and investment in the research and
development of PV technology. For example, without a mandated regulatory
exception for PV systems, utility customers are often charged interconnection or
standby fees for putting distributed power generation on the electric utility
grid. These fees could increase the cost to our end-users of using PV systems
and make them less desirable, thereby harming our business, prospects, results
of operations and financial condition. In addition, electricity generated by PV
systems mostly competes with expensive peak hour electricity, rather than the
less expensive average price of electricity. Modifications to the peak hour
pricing policies of utilities, such as to a flat rate, would require PV systems
to achieve lower prices in order to compete with the price of electricity
generated using other technologies.
 
 We
may be vulnerable to the efforts of electric utility companies lobbying to
protect their revenue streams and from competition from such electric utility
companies.
 
 Electric
utility companies could lobby for a change in the relevant legislation in their
markets to protect their current revenue streams. Any adverse changes to the
regulations and policies of the solar energy industry could deter end-user
purchases of PV products and investment in the research and development of PV
technology. In addition, electricity generated by PV systems mostly competes
with expensive peak hour electricity, rather than the less expensive average
price of electricity. Modifications to the peak hour pricing policies of
utilities, such as flat rate pricing, would require PV systems to achieve lower
prices in order to compete with the price of electricity. Any changes to
government regulations or utility policies that favor electric utility companies
could reduce our competitiveness and cause a significant reduction in demand for
our products.
 
 ITEM 2. DESCRIPTION OF
PROPERTY
  Our
principal office is located in Plan-les-Ouates, a suburb of Geneva,
Switzerland.
   10
 TABLE OF CONTENTS
  
 We were
granted leasehold rights to land in Plan-les-Ouates, for which we paid a
reservation cost of CHF9,053 ($8,387) per quarter, and which we paid for the
last eight quarters a total of CHF72,420 ($67,093). Rent for the entire 60-year
term of the lease is CHF72,065 ($66,764) per year, commencing on July 1, 2006.
We received authorization to build our manufacturing facility on the property
from the State of Geneva on May 27, 2005, and we commenced construction of the
facility in the second half of 2007.
  We rented
a 1,654 square meter building in Härkingen, Switzerland, from Drei Linden AG
pursuant to a lease agreement for a monthly cost of CHF7,232 ($6,700). The lease
agreement was cancelled as of  February 28, 2009.
 
 We also
rent a 154 square meter office space in Plan-les-Ouates from Cool SA pursuant to
a lease agreement dated March 23, 2001 which was subsequently cancelled and
replaced by a lease agreement dated February 20, 2002. The lease varies annually
on the basis of the Swiss consumer index. For the fiscal year ended December 31,
2008, the cost was CHF52,572 ($48,705). The lease agreement was originally for a
five-year term and is automatically renewed annually unless terminated with one
years’ notice. The lease agreement was renewed in February 2008 on the same
terms and conditions.
  ITEM 3. LEGAL
PROCEEDINGS
  We are not currently a party to,
nor is any of our property currently the subject of, any pending legal
proceeding. None of our directors, officers, or affiliates is involved in a
proceeding adverse to our business or has a material interest adverse to our
business.
  ITEM 4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
  There was no matter submitted to a vote
of our security holders during the fourth quarter of the fiscal year ended
December 31, 2008.
 
 PART
II
  ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
  Our
common stock is quoted on the OTC Bulletin Board under the symbol “SESI.OB”. The
following table sets forth the high and low bid prices per share of our common
stock for the periods indicated.
 
 High
              
              Low2007First
      Quarter
              
              $
              1.06
              
              $
              0.63Second
      Quarter
              
              
              0.81
              
              
              0.48Third
      Quarter
              
              
              1.48
              
              
              0.48Fourth
      Quarter
              
              
              1.20
              
              
              0.702008First
      Quarter
              
              $
              1.20
              
              $
              0.59Second
      Quarter
              
              
              0.74
              
              
              0.59Third
      Quarter
              
              
              0.66
              
              
              0.20Fourth
      Quarter
              
              
              0.35
              
              
              0.10
 
 The high
and low prices in the table reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions. The source of
the high and low bid information is the OTC Bulletin Board.
  Stockholders
 
 The
approximate number of holders of record of our common stock as of March 26, 2009
was 21, inclusive of those brokerage firms and/or clearing houses holding shares
of common stock for their clientele (with each such brokerage house and/or
clearing house being considered as one holder). As of March 31, 2009, we had
73,081,168 shares of common stock outstanding.
 
 Dividend
Policy
 
 We have
never declared or paid dividends on our common stock. We do not intend to
declare dividends in the foreseeable future because we anticipate that we will
reinvest any future earnings into the development and growth of our business.
Any decision as to the future payment of dividends will depend on our results of
operations and financial position and such other factors as our board of
directors, in its sole discretion, deems relevant.
  Equity Compensation Plan
Information
  We do not currently have any equity
compensation plan.
 11
 TABLE OF CONTENTS
 
 ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND
 RESULTS
OF OPERATIONS
 
 The following discussion should be
read in conjunction with the consolidated audited financial statements and
related notes accompanying this Annual Report on Form
10-K.  As used herein, the
terms “company,” “SES USA,” “our,” “we,” and “us” refer to SES Solar Inc. and
its subsidiaries on a consolidated basis, and the terms “SES Switzerland” and
“SES Prod” refer to our wholly owned subsidiaries, unless the context requires
otherwise.
 
 We are a Delaware corporation based in
Geneva, Switzerland engaged in the business of designing, engineering, producing
and installing solar modules and solar tiles for generating electricity. We have
developed a new assembly technology for solar tiles that allows for higher
quality electrical contacts, better performance and reduced costs resulting from
our proprietary automation processes. We are constructing a manufacturing
facility that will include assembly lines based on our proprietary technology to
complete the development and testing of our new products. To date, while we have
been engaged in developing and testing our new solar panel assembly technology,
we have been developing the sales and distribution portions of our business by
selling solar tiles produced by us and third parties and by responding to
quotations for our solar tiles to electric companies, local governmental
agencies and private home owners.
  Our business was commenced in 2001 by
SES Société d’Energie Solaire SA (“SES Switzerland”), a Swiss-based developer of
solar panels and solar roof tiles. On September 27, 2006, our parent company,
SES USA, completed a share exchange agreement with SES Switzerland in which SES
Switzerland became our wholly owned subsidiary. We then abandoned our previous
Internet based auction website business and the SES Switzerland business of
designing, engineering, producing, and installing solar panels or modules and
solar tiles became the sole business of the combined company. In July 2008, we
formed a second wholly owned subsidiary, SES Prod SA, to conduct our
manufacturing operations. Because SES USA and its subsidiaries on a consolidated
basis are the successor business to SES Switzerland, and because the operations
and assets of SES Switzerland and SES Prod represent our entire business and
operations from the closing date of the share exchange agreement, the following
discussion and analysis is based on SES Switzerland’s and SES Prod’s financial
results for the relevant periods.
  Overview
  This overview addresses our plan
of operation and the trends, events, and uncertainties that have been identified
by our management as those that we believe are reasonably likely to materially
affect the comparison of historical operating results reported herein to either
past period results or to future operating results.
  We have developed and patented a new
assembly technology for solar modules and solar tiles. Our business plan
includes the development of a new assembly line based on our proprietary
technology, using a manufacturing facility in the suburbs of Geneva, Switzerland
that is currently under construction to produce solar modules and solar tiles at
a lower cost. We believe this new facility will enable us to produce solar
photovoltaic (“PV”) modules that are larger than three square
meters.
  To implement our business plan, we will
need to complete the design of the solar modules and solar tiles, manufacture
and testthe prototype panels, have them approved in accordance with
European and other standards, manufacture them in series and sell them in major
markets in Europe and eventually other countries around the world. Our plan is
to complete the manufacturing facility during the second quarter of 2009 and
commence full scale production and sale of our new products during the third or
fourth quarters of 2009. While we await completion of our facility and work to
bring our fully automated production lines into operation, we have reconfigured
our production capabilities to manufacture our solar products on a manual and
semi-manual production basis and in partnership with
subcontractors.
  To date,
we have generated only limited revenue from the sale of solar modules and solar
tiles manufactured by us and third parties and the related engineering services
required to design and install the same. In addition, during the period from
January 2008 to June 2008, we generated revenue from the sale of electricity
produced by our Solar Plant. We no longer generate such revenue from the sale of
electricity, as we sold the Solar Plant to a third party in June
2008.
 
 Once our
manufacturing capabilities are fully operational, we will have available a
product line consisting of our SunTechTile® and SwissTile® solar tiles and, in the
future, PV solar modules. Historically, we have relied upon third-party vendors
to supply us with component parts, such as PV cells, in order to manufacture and
produce our products.
  We have
experienced operating losses from our early stage operations, which have
involved developing and testing our new solar panel technology and commencement
of the sales and distribution portions of our business by selling custom solar
modules and solar tiles using an early stage technology. We anticipate incurring
additional operating losses over the next few years as we complete the
development, testing, prototypes and licensing of our new products and commence
production. Our research and development costs and the costs incurred in
manufacturing prototypes have been expensed to date. We do not believe that we
can achieve profitability until development, implementation and
commercialization of our solar products manufactured through our new assembling
processes are operational.
   12
 TABLE OF CONTENTS
  
 We
believe the demand for solar modules and solar tiles will ultimately be
substantial. According to the Energy Information Administration, global demand
for electricity is expected to increase from 16.4 trillion kilowatt hours in
2004 to 30.3 trillion kilowatt hours in 2030. Over time, supply constraints,
rising electricity prices, dependence on foreign countries for fuel feedstock
and environmental concerns could limit the ability of many conventional sources
of electricity and other alternative sources to supply this rapidly expanding
global demand. According to the U.S. Department of Energy, solar energy is the
only source of renewable power with a large enough resource base to supply a
significant percentage of the world’s electricity needs over the next several
decades.
  However, over the near term there are
significant competitive concerns with solar energy. As the cost of producing
electricity from grid connected PV installations is higher than the current cost
of electricity from fossil or nuclear plants, the PV market relies heavily on
government subsidies and regulation concerning independent power producers.
These regulations favor PV electricity in some, but not all, countries. Existing
regulations are subject to change due to local political factors affecting the
energy market, especially in Europe, where the process has been ongoing for 10
years. The major PV market in Europe is Germany, where the EEG law governs. We
expect France will play an increasing role in the future due to current law.
Other countries, including Italy, Spain and Greece, have similar but less
favorable laws. The PV market is heavily dependent on public policies and, as a
result, such policies present the greatest uncertainties for our products.
Reductions of the feed-in tariff in Germany by 8% per year could affect our
sales. Spain decreased its subsidies to PV by 75% during 2008. Without
continued and/or enhanced governmental support in the form of favorable laws and
subsidies, the projected growth of the PV market will not exist, which could
hurt our results of operations.
 
 Our
primary market for our SwissTile® product will be Switzerland, which recently
enacted a new feed-in tariff that became effective May 2008. This tariff has 10
different values depending on PV integration and size. Due to the properties of
our SwissTile® product, we believe that it will receive the highest value, which
will be favorable for us.
  Due to
overwhelming demand, final subsidy decisions by the relevant Swiss grid
authority regarding remuneration for electricity generated by solar power
installations have been delayed. As a result of this delay, many of our
prospective and potential solar power production customers have postponed new
solar power installation as they await determination by the Swiss grid authority
in order to learn whether their respective installations will qualify for
remuneration. While we expect that decisions will be made during 2009 and that
we will have at least one large installation approved by the Swiss grid
authority in 2009, any additional significant delays could impact our projected
growth plans. The tariff will decrease for new entrants by 8% every year
starting in 2010.
  Worldwide,
annual installations by the PV industry grew from 0.4GW in 2002 to 4.0GW in
2008, and cumulative installed capacity reached about 12GW at the end of
2008.  Despite this growth, solar electricity still represents a small
fraction of the supply of electricity. So long as governments and the market are
focused on the ability of manufacturers to develop new technologies that reduce
the cost of solar electricity, we believe that the demand for solar energy
products will continue to grow significantly. This growth projection is based on
continued governmental support, on the success of such manufacturing efforts to
reduce the gap between the cost of solar electricity and more conventional and
established methods of generating electricity, and on other developments
affecting the world energy markets. In addition to the uncertainties associated
with government subsidies and these other factors, it is also possible that
breakthrough technologies might emerge in other areas that will reduce demand
for new solar energy products. Furthermore, even within the solar energy area,
it is possible that developments in thin films or nanoscience could reduce the
cost of PV cells or that future shortages in the supply of polysilicon, an
essential raw material in the production of our PV cells, could impact our
proposed new products and adversely affect our plan of operation.
  We are in ongoing discussions with
strategic partners, including cell manufacturers, PV line manufacturers and
special machine manufacturers to assist us with our new technology for module
assembly. We are also progressing with construction of ournew
manufacturing facility, which is expected to be operational during the summer of
2009.
 
 During
the fiscal year ending December 31, 2008, we incurred capital expenditures of
$11,047,735 to construct our new manufacturing facility. We also continued sales
of our custom solar panels and solar tiles to customers during the fiscal year
ending December 31, 2008, generating revenue of $33,416 and a net loss of
approximately $1.8 million. The decrease in revenue is attributable to
management’s increased focus on completing our manufacturing facility and
producing our solar products on a largescale and away from smaller custom
installation projects. The Solar Plant, which is housed on the roof of our
manufacturing facility and operational since December 2007, generated revenue of
$247,730 through June 30, 2008. As of the end of June 2008, we no longer
generate such revenue due to the sale of the Solar Plant for gross proceeds of
CHF 5,716,788 ($5,496,383).
  Based on current and planned
custom installation projects that will be completed during fiscal year 2009, we
believe thatour cash flows used in operating activities for the
remainder of fiscal year 2009 will be greater than our cash flows used in
operating activities during 2008. In light of these operating activities, we
believe that our operating expenses in fiscal year 2009 will be approximately $2
million, which we anticipate financing through revenue generated from operating
income and with available cash and credit facilities. Management anticipates
total capital expenditures of approximately $18 million for the new
manufacturing facility, of which we have already financed $13.4 million, and $2
million for the assembly lines and related machinery, of which we have already
financed $379,000. Depending on our production requirements, we may also require
up to an additional $11 million during the next 12 months to finance the
purchase of raw materials tobe
used in the production of 2MW of solar tiles. We anticipate financing the
remaining capital expenditures on the manufacturing facility and assembly lines
using available cash, loans and lines of credit, as well as a planned debt
consolidation and refinancing of the construction loans owed on the
facility. We will also require additional financing in order to purchase raw
materials and expand our operations once our manufacturing facility is fully
operational. We do not presently have any definitive agreements in place to
secure any such financings or debt consolidation.
  13
 TABLE OF CONTENTS
  
  We expect to continue to experience
losses from operations until we can generate revenue from manufacturing our new
products. As a result of our continuing need to expand our operations and
develop and market our new products, we expect to continue to need additional
capital over the long-term in order to continue as a going concern. See “Liquidity and Capital
Resources.”
 
  14
 TABLE OF CONTENTS
   TABLE
OF CONTENTS
 
 Selected Financial
Data
  Balance
Sheet
  December 312008
              
              2007$Total current
      assets
              
              
              2,958,153
              
              
              4,472,884Total long-term
      assets
              
              
              13,999,944
              
              
              9,858,585Total current
      liabilities
              
              
              11,881,948
              
              
              10,366,547Total long-term
      liabilities
              
              
              1,800,802
              
              
              7,563Total liabilities and
      stockholders’ equity
              
              
              16,958,097
              
              
              14,331,469
   Statement Of
Operations
  Year ended December
      312008
              
              2007$Total
    revenues
              
              
              33,416
              
              
              1,344,794Total cost of goods sold
      (exclusive of depreciation shown separately below)
              
              
              (5,417
              )
              
              (1,104,119
              )Depreciation and
      amortization
              
              
              75,516
              
              
              59,104General and administrative
      expenses
              
              
              1,922,075
              
              
              2,069,866Interest
      expense
              
              
              (155,133
              )
              
              (116,212
              )Interest Income and
      other
              
              
              45,838
              
              
              177,650Foreign exchange
      gain
              
              
              272,577
              
              
              302,803Total other income
      (expense)
              
              
              163,282
              
              
              364,241Taxes
              
              
              —
              
              
              —Income (loss) from continuing
      operations
              
              
              (1,806,310)
              
              
              (1,524,054)Income (loss) from discontinued
      operations
              
              
              1,331,856
              
              
              0Net
      (loss)/profit
              
              
              (474,454
              )
              
              (1,524,054
              )Other comprehensive income/loss:
      translation adjustment
              
              
              (207,558
              )
              
              (168,631
              )Comprehensive
      loss
              
              
              (682,012
              )
              
              (1,692,685
              )
 
 RESULTS OF OPERATIONS - COMPARISON OF
FISCAL YEARS ENDED DECEMBER 31, 2008 AND 2007
  Net Loss
  Our net
loss for the year ended December 31, 2008 was $474,454 compared to a net loss of
$1,524,054 for the year ended December 31, 2007. The decrease in net loss during
the year ended December 31, 2008 was due primarily to the $1,185,704 gain
generated from the sale of our Solar Plant off set by an increase of personnel
cost to develop the new activities of our subsidiaries ($165,486), a decrease of
$30,226 in foreign exchange gain due to the decrease of the US$ exchange rate
against the Swiss Franc and a decrease of $131,812 in interest income due to
decreased time deposits.
 
 Revenue and Cost of
Goods Sold
  We
recognize revenue on the completed-contract method, and therefore only when
projects are completed. Total revenue for the year ended December 31, 2008 was
$33,416, which represents a decrease of $1,311,378 compared with total revenue
of $1,344,794 for the year ended December 31, 2007.
 
 Cost of
goods sold for the year ended December 31, 2008 was $5,417, which represents a
decrease of $1,098,702 as compared to cost of goods sold of $1,104,119 for the
year ended December 31, 2007. The decrease in cost of goods sold was primarily
attributable to only completing two projects during 2008. Cost of
goods sold for the year ended December 31, 2008 was approximately 16% of total
revenues compared with approximately 82% of total revenues for the year ended
December 31, 2007.
 
  15
 TABLE OF CONTENTS
  
 Operating
Expenses
 
 Operating
expenses for the twelve months ended December 31, 2008 were $1,997,591, which
represents a 6% decrease from $2,128,970 for the twelve months ended
December 31, 2007. Personnel, rent, research and development, general and
administrative, and depreciation and amortization expenses constitute the
components of our operating expenses.
  The
majority of the decrease was related to a reduction in general and
administrative expenses associated with preparation and SEC compliance of
various public filings (decrease of $270,403) offset by an increase in personnel
costs to develop the new activities of our subsidiaries (increase of $165,486)
and additional rent and leases expenses (increase of $46,179). We expect that as
we continue to implement our business plan these expenses will increase
accordingly.
  Other Income
(Expense)
  Interest
expense increased to $155,133 for the twelve months ended December 31, 2008
compared to $116,212 for the twelve months ended December 31, 2007, representing
an increase of approximately 33%. The increase in interest expense was primarily
attributable to the increase in the amount of the loans from ScanE and from
BCGE.
 
 Interest
income for the year ended December 31, 2008 was $45,838 as compared to $177,650
for the year ended December 31, 2007. The interest income earned in the year
ended December 31, 2008 decreased due to a reduction in time deposits, which
were used to pay down our revolving credit facility with UBS.
 
 Foreign
exchange gain for the year ended December 31, 2008 was $272,577 compared to
$302,803 for the year endedDecember 31, 2007.
 
 Net Income (Loss) from Discontinued
Operations, net of tax
 
 We sold
our Solar Plant in June 2008. The balance sheet and income statement have been
retrospectively adjusted to reflect the effects of discontinued operations.
Prior to this sale, we sold PV electricity produced by the Solar Plant to a
local electricity provider in Geneva based on a 20-year contract. This contract
was cancelled on June 30, 2008 due to the sale of the Solar Plant. The net
income from discontinued operations is from the former electricity producing
business segment. The Solar Plant and the six-month credit facility of CHF4.5
million dated September 18, 2007 are the sole assets and liabilities,
respectively, that comprise the electricity producing business
segment.
 
 The net
income from discontinued operations during the year 2008 was $1,331,856 (gain on
disposal of $1,185,704, revenue of $247,730 and expenses of $101,578). No income
was recorded for the six-month period ended December 31, 2008. In 2007 there was
no income or expense from discontinued operations.
  Liquidity and Capital
Resources
  Our
principal cash requirements are for operating expenses, including consulting,
accounting and legal costs, staff costs, and accounts payable.
  As of
December 31, 2008, we had negative working capital of $8,923,795 compared with
negative working capital of $5,893,663 as of December 31, 2007, and our cash and
cash equivalents decreased to $765,694 as of December 31, 2008 compared to
$3,429,033 as of December 31, 2007. This increase in negative working capital is
the result partially of increased billings in excess of cost and estimated
earnings over the comparable periods and use of available funds to finance our
new manufacturing facility and to pay back short-term loans.
 
 As of
December 31, 2008, we had accounts payable of $526,168 compared to $3,711,775 as
of December 31, 2007. This large decrease is the result of amounts paid to
creditors for construction costs relating to our manufacturing facility. We made
these payments utilizing loan proceeds received from BCGE and
ScanE.
  At
December 31, 2008, we had short-term debt in the amount of $4,769,635 compared
to $6,147,728 as of December 31, 2007. We believe that our negative working
capital situation is temporary, as we expect in the near term to restructure our
construction financing arrangements into longer term loans with more favorable
terms.
 
 We currently have several loans
outstanding with ScanE and agreed to escrow 10,000,000 shares of common stock
issued to Christiane Erné, Jean-Christophe Hadorn and Claudia Rey in connection
with the reverse merger to secure repayment of these loans. The terms of the
escrow agreement are disclosed under “Certain Relationships and Related
Transactions.”
 
 The first
such loan with ScanE in the amount of up to $911,810 was made on November 3,
2003 and carries a principal balance of CHF969,470 ($918,389) as of December 31,
2008 and CHF969,470 ($861,248) as of December 31, 2007. The loan bears interest
at 4%. Although the loan matured on March 31, 2008, we filed a request on April
2, 2008 with ScanE to renew the loan for a period of 24 months on the same terms
and conditions. On May 19, 2008, ScanE granted our request that the loan be
extended for a period of 24 months on the same terms and conditions. The new
maturity date for the loan is March 31, 2010.
  16
 TABLE OF CONTENTS
  
 On
January 21, 2004, ScanE granted us a credit facility of CHF1million ($947,311)
to finance the construction of our new manufacturing facility. Release of these
loan proceeds was contingent upon us satisfying certain conditions precedent,
which were satisfied as of November 13, 2007. As of January 8, 2008, we had
utilized the full amount of this loan, which has a fixed annual interest rate of
4%. The loan has a duration of  20 years and is secured by a mortgage
certificate of CHF1,000,000 ($947,311) on the manufacturing facility. The loan
is paid in 20-equal annual installments of CHF73,581 (approximately $69,704)
which include principal and interest. The first installment was paid in December
2008 thus reducing the principal to $915,498.
 
 A new six
month credit facility of CHF4,500,000  ($4,262,898) was signed on
September 18, 2007 with ScanE. The loan bears interest at 5%. The proceeds were
received on October 1, 2007 and were to be reimbursed on March 17,
2008. ScanE extended the loan under the existing loan agreement until June
20, 2008. On June 20, 2008, we announced the sale of our Solar Plant on the roof
of the manufacturing facility.  We received substantially all of the
proceeds from this sale on June 30, 2008 and used a portion of the proceeds to
reimburse the CHF4,500,000 loan in full as of July 2, 2008.
 
 On
October 27, 2008, we signed a six month credit facility for CHF5,000,000
($4,736,550) with ScanE to finance improvements on the manufacturing facility.
The loan is secured by a fourth rank mortgage on the building. As of December
31, 2008, the full amount of the loan was used to finance ongoing construction
at the facility. The loan bears interest at 4%. The loan will be reimbursed upon
completion of the construction, at which time we intend to refinance all of our
construction credit facilities with one financial institution.
 
 SES
Switzerland also has a revolving credit line with UBS in the principal amount of
CHF3,000,000 ($2,841,932) used mainly to cover short-term cash needs. The
revolving credit line was secured by short-term deposits denominated in US$ with
UBS, amounting to $3,155,000. The credit line bears interest at 4.75%. On August
13, 2008, $3,000,000 of our short-term deposits were used to offset the credit
line. The balance of the credit facility was CHF0 ($0) as of December 31, 2008
and CHF1,450,764 ($1,288,815) as of December 31, 2007.
  SES
Switzerland also has a Construction Credit Agreement with BCGE dated December
20, 2006 in the amount of CHF4.8 million ($4,547,091), which was used to finance
construction of our new manufacturing facility. The loan was amended on November
13, 2007 and increased from CHF4.8 million to CHF8.5 million ($8,052,140). The
amended agreement must be drawn down no later than the date of completion of
construction on the new manufacturing facility planned during the first half of
2009. We used CHF5,423,310 ($5,137,555) of the loan as of December 31, 2008 and
CHF8,513 ($7,563) as of December 31, 2007. The loan bears interest at a rate of
3.75% and is secured by a second lien exclusive mortgage certificate of
CHF9,000,000 ($8,525,795) on the manufacturing facility.
  Our
ability to meet our financial commitments in the near term will be primarily
dependent upon continued revenue from the sale of our manufactured solar
modules, when available, and solar tiles and the related engineering services
required to design and install the same and the continued extension of credit
from existing or new lenders.
  Ifwe are unable to secure additional
financing and successfully implement our planned debt consolidation and
refinancing of the construction loans owed on our new facility, management does
not believe that our cash and cash equivalents, cash provided by operating activities, and the
cash available from existing loans and lines of credit will be sufficient to
meet our working capital requirements for the next twelve months, and we will
not be able to continue as a going concern.    Due to our
current financial situation and history of
losses, the report of our Independent Registered Public Accounting Firm includes
an explanatory paragraph referring to substantial doubt about our ability to
continue as a going concern, as discussed in Note 2 to ourfinancial statements for the year ended
December 31, 2008.  If our future revenues do not increase
significantly to a level sufficient to cover our net losses, we will continue to
need to raise additional funds to expand our operations. In addition, we
mayneed to raise funds sooner than
anticipated to respond to competitive pressures, to develop new or enhanced
products or services, to fund our expansion or to make
acquisitions.We may not be able to find
financing on acceptable terms or at all.
  Operating Activities
 
 Net cash
used in continuing operating activities was $1,578,614 for the year ended
December 31, 2008 compared to $1,320,685 of net cash used in operating
activities for the year ended December 31, 2007. In local currency, use of
funds for operating activities was larger during this period compared to the
same period in 2007. However, exchange rate volatility has greatly offset the
difference. Billings in excess of cost and estimated earnings increased by
$966,700 due to advances received for new projects. Additionally, inventory of
our new PV SwissTile® products increased by $1,267,689.
 
 Net cash
provided by discontinued operating activities was $247,730 for year ended
December 31, 2008 and reflects the net income from discontinued operations of
$1,331,856, adjusted for depreciation on the Solar Plant of $101,578 and a gain
on the sale of the Solar Plant of $1,185,704.  There was no cash used
in or provided by discontinued operating activities for the year ended December
31, 2007.
 
 Net cash
used in operating activities was $1,320,685 for the year ended December 31,
2007. The net cash provided from operating activities was mainly attributable to
increased billings in excess of cost and estimated earnings ($350,407) and
deferred expenses ($240,000) and negatively influenced by increased other
current assets of $393,932 and the increased net loss in 2007 of
$1,239,507.
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 TABLE OF CONTENTS
  
 Investing Activities
  Net cash
used in continuing investing activities was $11,047,735 during the year ended
December 31, 2008 as compared to $5,630,316 used in investing activities
during the year ended December 31, 2007.  Net cash used in investing
activities was $5,630,316 during the year ended December 31, 2007, and was
mostly due to investments for the construction of the manufacturing plant and
the Solar Plant of $5,260,502 and advances on machinery of
$369,814.  The increase in investing activities during the year ended
December 31, 2008 is mostly due to investments for the construction of our
manufacturing plant. Net cash used in continuing activities is comprised of the
use of cash to pay creditors for the construction of the building and the future
plant in the amount of $11,047,735.
 
 Net cash
provided by discontinued investing activities was $5,065,460 for the year ended
December 31, 2008 and reflects the proceeds of sale of the Solar Plant, net of
any selling costs incurred by the Company.  There was no cash used in
or provided by discontinued investing activities for the year ended December 31,
2007.
 
 During
the first half of 2009 management anticipates total capital expenditures of
approximately $18 million for the new manufacturing facility of which we have
already financed $13.4 million, and $2 million for the assembly lines and
related machinery, of which we have already financed $379,000.  In
addition, and depending on our production requirements, we may require during
the next 12 months up to an additional $11 million to finance the purchase of
raw materials to be used in the production of 2 MWs of solar
tiles.
 
 Financing
Activities
  Net cash
provided by continuing financing activities was $5,030,987 for the year ended
December 31, 2008 compared to financing activities which provided cash of
$4,554,347 for the year ended December 31, 2007.  Net cash provided by
financing activities was $4,554,347 for the year ended December 31, 2007 and was
the result of proceeds of loans used for current operating expenses and building
of the Solar Plant.  The increase in financing activities is due to
bank loans granted to build the new plant from BCGE and ScanE. During 2008, the
amount represents a net financing between use of bank loans for $6,809,969 and
the reimbursement of our line of credit with UBS for $1,778,982.
 
 There was
no cash used in or provided by discontinued financing activities for the year
ended December 31, 2007.
 
 Off-Balance Sheet
Arrangements
  At
December 31, 2008, the company has an outstanding purchase order of EUR448,600
($632,410) for the future construction of a new machine to be used in the new
plant for solar module production. The company has made an advance
payment of EUR269,160 ($379,446) for the purchase of this machine. The
balance due will be paid upon delivery of the machine. At December 31, 2008, the
company had purchase agreements signed for the building of the new plant for
CHF7,354,273 ($6,966,781). Of the above amount, advance payment of CHF5,421,607
($5,135,946) was made on January 1, 2009, the remaining amount will be paid at
the end of the construction planned during the first half of 2009.
 
 Critical Accounting
Policies
  Financial Reporting Release No. 60
requires all companies to include a discussion of critical accounting policies
or methods used in the preparation of financial statements. Our accounting
policies are described in Note 3 of the Notes to our Consolidated Financial
Statements included in this Form 10-K for the fiscal year ended December 31,
2008. The methods, estimates and judgments we use in applying our most critical
accounting policies have a significant impact on the results we report in our
financial statements. We evaluate our estimates and judgments on an ongoing
basis. We base our estimates on historical experience and on assumptions that we
believe to be reasonable under the circumstances. Our experience and assumptions
form the basis for our judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
vary from what we anticipate, and different assumptions or estimates about the
future could materially change our reported results. We believe the following
accounting policies are the most critical to us, in that they are important to
the portrayal of our financialstatements and they require our most
difficult, subjective or complex judgments in the preparation of our financial
statements. The Consolidated Financial Statements include the accounts of SES
USA and its wholly owned subsidiaries, SES Switzerland and SES Prod. All
significant inter-company accounts and transactions have been eliminated in the
consolidation.
  Foreign
Currency Translation
  The
reporting currency of  SES USA is the U.S. dollar, whereas the wholly owned
subsidiary’s functional currency is the Swiss Franc. The financial statements of
the company’s wholly owned subsidiaries, SES Switzerland and SES Prod, are
translated to U.S. dollar equivalents under the current method in accordance
with SFAS No. 52, “Foreign Currency Translation.” Assets andliabilities are translated into U.S.
dollar equivalents at rates of exchange in effect at the balance sheet date.
Average rates for the year are used to translate revenues and expenses. The
cumulative translation adjustment is reported as a component of accumulated
other comprehensive income (loss). Foreign currency differences from
intercompany receivables and payables are recorded as Foreign Exchange
Gains/Losses in the Statement of Operations.
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 TABLE OF CONTENTS
  Cash
Equivalents
  We consider cash and all highly liquid
securities with an original maturity of three months or less to be cash
equivalents.
  Receivables and Credit
Policies
  Our accounts receivable primarily
consist of trade receivables. Management reviews accounts receivable on a
monthly basis to determine if any receivables will potentially be uncollectible.
We use estimates to determine the amount of the allowance for doubtful accounts
necessary to reduce accounts receivable and unbilled receivables to their
expected net realizable value. We estimate the amount of the required allowance
by reviewing the status of past-due receivables and analyzing historical bad
debt trends. Actual collection experience has not varied significantly from
estimates, due primarily to credit policies, collection experience and our
stability as it relates to our current customer base.  We recorded no bad
debt expense during the years ended December 31, 2008 and 2007 for trade
receivables.
  Product Inventory
  Our product inventory is stated at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method and includes certain charges directly and indirectly incurred in bringing
product inventories to the point of sale. Inventory is accounted for at the
lower of cost or market, and as a result, write-offs/write-downs occur due to
damage, deterioration, obsolescence, changes in prices and other
causes.
  Property and
Equipment
  Property and equipment is stated at
cost. Depreciation is computed using the straight-line method over estimated
useful lives of 3 to 20 years. Expenditures for maintenance and repairs, which
do not materially extend the useful lives of property and equipment, are charged
to operations as incurred. When property or equipment is retired or otherwise
disposed of, the property accounts are relieved of costs and accumulated
depreciation and any resulting gain or loss is recognized
 
 Long-Lived Assets
 
 The company accounts for long-lived
assets in accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The statement requires the company
to evaluate its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When the sum of the undiscounted future net cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount, impairment may exist. To determine the amount of impairment,
the company compares the fair value of the asset to its carrying value. If the
carrying value of the asset exceeds its fair value, an impairment loss equal to
the difference is recognized.
  Warranties
  Since the commencement of our
operations, we have had no warranty claims. Our production has been low and
components have been purchased from subcontractors for PV installations, all of
which have their own warranties. Since we have not yet started producing our own
PV cells and warranty claims can be thus exercised against our
suppliers, we do not believe that discussion of warranties is a
critical accounting policy, currently, but this may become so in the
future.
  Revenue Recognition
  We recognize revenue in accordance with
SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”).
SAB 104 requires that four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services rendered; (3) the seller’s price
to the buyer is fixed and determinable; and (4) collection is reasonably
assured.
  Revenues and profits from general
management of construction-type contracts are recognized on the
completed-contract method and therefore only when the project is completed. A
contract is considered complete when all costs except insignificant items have
been incurred and the installation is operating according to specifications or
has been accepted by the customer. Contract costs include all direct materials
and labor costs and those indirect costs related to contract performance, such
as indirect labor, supplies, tools, and repairs. Costs in excess of amounts
billed are classified as current assets under Work in Progress. Billings in
excess of cost are classified under current liabilities as Prepayments. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. No unbilled revenue has been recognized so
far.
  For the fiscal years ended 2008 and
2007, we had no billed or unbilled amount representing claims or other similar
itemssubject to uncertainty concerning their determination or ultimate
realization. Amounts outstanding as at year end are expected to be collected in
2009.
 
  19
 TABLE OF CONTENTS
  
 
 ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  Foreign Exchange
Risk
  Our Swiss operations accounted for 100%
of our sales in fiscal year 2008, and 100% of our sales in fiscal year 2007. In
such periods, all of our international sales were denominated in Swiss Francs
(CHF).
  Interest Rate Risk
  Our exposure to market risks for changes
in interest rates relates primarily to our outstanding loan obligations and any
possible construction loan. If the interest rate ultimately fixed by our bankers
for the construction loan financing is higher than we currently anticipate this
will increase the cash used for operating activities.
 
 ITEM 8. FINANCIAL
STATEMENTS
  The full text of our audited
Consolidated Financial Statements for the years ended December 31, 2008 and
December 31, 2007 begins on page F-1 of this Annual Report on Form
10-K.
  ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS OR
 ACCOUNTING AND FINANCIAL
DISCLOSURE
  Not Applicable.
  ITEM 9A(T). CONTROLS AND
PROCEDURES
  As of the end of the period covered by
this report, we conducted an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Chief Financial Officer, of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule
15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that the company’s disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and which also are effective in
ensuring that information required to be disclosed by the company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, to allow timely decisions regarding required
disclosure.
   MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
  Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the company as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the (i) effectiveness and efficiency of
operations, (ii) reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles, and (iii) compliance with applicable laws and
regulations.  Our internal controls framework is based on the criteria
set forth in the Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission
(COSO).
  Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
  Management’s assessment of the
effectiveness of the company’s internal control over financial reporting is as
of the fiscal year ended December 31, 2008. We believe that our internal control
over financial reporting is effective. We have not identified any current
material weaknesses considering the nature and extent of our current operations
and any risks or errors in financial reporting under current
operations.
  This Annual Report on Form 10-K does not
include an attestation report of the company’s registered public accounting firm
regarding internal control over financial reporting. Management’s report was not
subject to attestation by the company’s registered public accounting firm
pursuant to temporary rules of the SEC that permit the company to provide only
management’s report in this Annual Report.
  CHANGES IN INTERNAL CONTROL OVER
FINANCIAL REPORTING
  There was no change in our internal
control over financial reporting that occurred during the fiscal quarter ended
December 31, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
 20
 TABLE OF CONTENTS
  ITEM 9B. OTHER
INFORMATION
  None.
 
 PART
III
  MANAGEMENT
  ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND
 CORPORATE GOVERNANCE
  Our
directors hold office until the next annual meeting of stockholders or until
their successors have been elected and qualified. Our officers are appointed by
our board of directors and hold office until their death, resignation or removal
from office.
   Name
              
              Position with our Company
              
              Age
              
              Date First
                Elected or AppointedJean-Christophe
      Hadorn
              
              Chief
      Executive Officer and Director
              
              53
              
              September
      27, 2006Sandrine
      Crisafulli
              
              Chief
      Financial Officer and
                Chief
      Operating Officer
              
              50
              
              September
      27, 2006Daniel
      Erné
              
              Director
              
              53
              
              September
      27, 2006Christiane
      Erné
              
              Director
              
              55
              
              September
      27, 2006Michael
      D. Noonan*
              
              Director
              
              50
              
              September
      27, 2006
    Biographies
of our directors and executive officers are as follows:
  Jean-Christophe
Hadorn
  Mr.
Hadorn received his masters degree in Civil Engineering from the Swiss Federal
Institute of Technology in Lausanne in 1979 and his MBA from HEC University of
Lausanne in 1998. From 1979 to 1981, Mr. Hadorn worked as a researcher at the
Institute for Energy Production (IPEN) within the Swiss Federal Institute of
Technology in Lausanne, Switzerland on large scale storage of solar heat in deep
aquifers. From 1981 to 1985, Mr. Hadorn worked as a project engineer for SORANE
SA, a solar energy and engineering company in Switzerland, where he advised
architects and designed energy concepts for buildings and industry. Mr. Hadorn
worked from 1986 to 1995 as a project leader with BSI Engineering, a consulting
company in energy and information technology in Switzerland, on a geographical
information system software product for the design and management of energy
networks as principal developer of software, code named HyperBird. Since 1999,
Mr. Hadorn has worked as an independent energy consultant, and as the CEO of
BASE Consultants SA, Geneva, a strategy and management consulting company which
advises public and private businesses. Since 1985, Mr. Hadorn has been appointed
as a leader for national solar energy and heat storage research programs by the
Swiss government and from 2003 to 2005 was asked by the French government to set
up the National Institute of Solar Energy in France. Mr. Hadorn has participated
in several International Energy Agency (IEA) Tasks within the Solar Heating and
Cooling Program (Task 7, Task 26, and Task 32 which he will lead as an Operating
Agent until 2007). Mr. Hadorn also serves as director of our wholly-owned
subsidiary, SES Switzerland.
  Sandrine
Crisafulli
  Ms.
Crisafulli has been our chief financial officer and chief operating officer
since 2001. Ms. Crisafulli received a certificate of commerce in commercial
studies from Lemania College in Lausanne, Switzerland. She has experience in
financial and administrative management having served as administrative director
and finance chief at N.E. Achille, a retail company, from 1995 until
2001.
  Daniel
Erné
  Mr. Erné
has more than 25 years of experience in international trade having worked as a
consultant for the Conseil Général of the Haute Savoie Department, France;
Breitling, a Swiss watch manufacturing company; BMS Automotives Ltd., a United
Kingdom design, engineering and turnkey supplier of automotive manufacturing
plants and a car import company; Casino Ruhl, a French casino; and several hotel
groups. In addition, Mr. Erné manages several different private car, retail,
security and hotel companies in France and acts as a consultant to companies
engaged in international trading, including Securiguard since 2000. Mr. Erné’s
prior consulting engagements include Daniel.L (1980-1992), a restructuring and
new market developments company and Delta Automobiles (1992-1999), a car
retailer and a solar car development company. Mr. Erné is married to Christiane
Erné.
   21
 TABLE OF CONTENTS
  
 Christiane
Erné
  Ms. Erné
worked in public relations and then as hotel director for Societe d’Exploitation
et Gestion Hoteliere from 1981 to 1984. Since 2001, Ms. Erné has been active in
the development of renewable energies and associated technologies through
Société d’Energie Solaire. Ms. Erné received a diploma in economics from the
University of Geneva in 1974. Ms. Erné is married to Daniel Erné.
  Michael
D. Noonan
  Mr.
Noonan has more than 15 years of investor relations, corporate finance and
corporate governance experience. Mr. Noonan has served since 2005 as the Vice
President, Corporate and a director of Sky Petroleum, Inc., an oil and gas
company quoted on the OTC Bulletin Board. He currently serves as its interim
CFO. Prior to joining Sky Petroleum, Mr. Noonan worked for Forgent Networks, an
intellectual property and software company from 2002 to 2006, where he last
served as the Senior Director of Investor Relations. Prior to working at Forgent
Networks, Mr. Noonan was employed from 2000 to 2002 by Pierpont Communications,
an investor and public relations firm, where he was a Senior Vice President. Mr.
Noonan also served from 1999 to 2000 as director of investor relations and
corporate communications at Integrated Electrical Services, an electrical
services company, and manager of investor relations and public affairs for
Sterling Chemicals from 1997 to 1999, a manufacturer of commodity chemicals. Mr.
Noonan received an MBA from Athabasca University in Alberta, Canada in 1999; a
Bachelor of Arts degree in Business Administration and Economics from Simon
Fraser University in British Columbia, Canada in 1986; and an Executive Juris
Doctorate from Concord School of Law in Los Angeles, California in
2006.
  Committees
of the Board
  All
proceedings of our board of directors are conducted by resolutions consented to
in writing by all the directors and filed with the minutes of the proceedings of
the directors. Such resolutions consented to in writing by the directors
entitled to vote on that resolution at a meeting of the directors are, according
to the corporate laws of the State of Delaware and the bylaws of our company, as
valid and effective as if they had been passed at a meeting of the directors
duly called and held.
  Our
company currently does not have nominating, compensation or audit committees or
committees performing similar functions nor does our company have a written
nominating, compensation or audit committee charter. Our board of directors does
not believe that it is necessary to have such committees because it believes
that the functions of such committees can be adequately performed by the board
of directors.
  Our
company does not have any defined policy or procedure requirements for
stockholders to submit recommendations or nominations for directors. The board
of directors believes that given the early stage of our development a specific
nominating policy would be premature and of little assistance until our business
operations develop to a more advanced level. Our company does not currently have
any specific or minimum criteria for the election of nominees to the board of
directors and we do not have any specific process or procedure for evaluating
such nominees. The board of directors assesses all candidates, whether submitted
by management or stockholders, and makes recommendations for election or
appointment.
  A
stockholder who wishes to communicate with our board of directors may do so by
directing a written request addressed to our chief executive
officer.
  Audit
Committee Financial Expert
  Our board
of directors has determined that we do not have a board member that qualifies as
an “audit committee financial expert” as defined in Item 407(d) of Regulation
S-K.
  We
believe that our board of directors is capable of analyzing and evaluating our
financial statements and understanding internal controls and procedures for
financial reporting. Our board of directors does not believe that it is
necessary to have an audit committee because we believe that the functions of an
audit committee can be adequately performed by our board of directors. In
addition, we believe that retaining an independent director who would qualify as
an “audit committee financial expert” would be overly costly and burdensome and
is not warranted in our circumstances given the early stages of our
development.
  Director
Independence
  Our board
of directors has determined that Michael D. Noonan is “independent” as such term
is defined by FINRA Rule 4200(a)(15).
  Family
Relationships
  Except
for Daniel Erné and Christiane Erné, who are husband and wife, there are no
family relationships between any of our directors, executive officers, or
persons nominated or chosen by us to become directors or executive
officers.
 
  22
 TABLE OF CONTENTS
  
 Code of Ethics
  We have adopted a code of ethics that is
applicable to our officers, directors and employees, including our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The code of ethics can be
found under the heading “Code of Business Conduct and Ethics” on our website atwww.sessolar.com. We will supply to any person without
charge, upon request and in the manner described above, a copy of our code of
ethics.
  ITEM 11. EXECUTIVE
COMPENSATION
  The following Summary Compensation Table
sets forth certain information regarding the compensation of our named executive
officers for services rendered in all capacities to us for the years ended
December 31, 2008 and 2007.
 .
 Summary
Compensation Table
 
 Name and
      Principal
                          Position
                        
                        Year
                        
                        Salary
                          ($)
                        
                        Bonus
                          ($)
                        
                        Stock Awards
                          ($)
                        
                        All Other
      Compensation
                          ($)
                        
                        Total
                          ($)Jean-Christophe
      Hadorn(3)
                          Chief Executive
      Officer
                        
                        
                        2008
                          2007
                        
                        
                        —
                          —
                        
                        
                        —
                          —
                        
                        
                        —
                          —
                        
                        
                        87,739
                          103,599
                        (1)
                          (1)
                        
                        87,739
                          103,599Sandrine
      Crisafulli(2)(3)
                          Chief Financial Officer and Chief
      Operating Officer
                        
                        
                        2008
                          2007
                        
                        
                        138,966
                          108,450
                        
                        
                        —
                        
                        
                        —
                        
                        
                        —
                        
                        
                        138,966
                          108,450
  (1)
              We
      have a one-year consulting agreement with Base Consulting pursuant to
      which Base Consulting provides us with strategic, managerial, marketing
      and business development leadership. The services provided by Base
      Consulting are performed by Mr. Hadorn, our chief executive officer. Mr.
      Hadorn contributes approximately 20 hours per week to our affairs. Other
      than pursuant to this consulting agreement, we do not compensate Mr.
      Hadorn in his capacity as chief executive
  officer.
  (2)
              Ms.
      Crisafulli and Base Consulting are paid in Swiss Francs. The dollar figures for 2008 were
      calculated using the average exchange rate in effect for the fiscal year
      2008 (CHF 1.07940). The dollar figures for 2007 were calculated using the
      exchange rate of CHF 1.19870 as per Note 3 to our audited consolidated
      financial statements for the fiscal year ended December 31,
      2007.
 
 Stock Option Plan
  We do not have a stock option plan in
favor of any director, officer, consultant or employee.
  Stock Options/Stock
Awards
  We have not granted any options or stock
awards during our prior fiscal year, either before or after the reverse
merger.
  Director
Compensation
 Compensation
of Directors During Fiscal Year 2008
 
 Name and
      Principal
                Position
              
              Fees Earned
                or
                Paid in Cash
                ($)
              
              All Other
      Compensation
                ($)
              
              Total
                ($)Jean-Christophe
      Hadorn
              
              
              9,264
              
              
              0
              
              
              9,264Daniel Erné
              
              
              120,437
              
              
              0
              
              
              120,437
 
 We did not pay fees or other cash
compensation for services rendered by our directors during the fiscal year ended
December 31, 2008 other than to Messrs. Hadorn and Erné. The amount paid to Mr.
Hadorn was for services rendered in his capacity as a director of our
subsidiary, SES Switzerland, and is included in the $87,439 reported in
the Summary Compensation Table above. The amount paid to Mr. Erné was for
services rendered pursuant to a consulting agreement, as described below. We
have no current plans to compensate our directors in their capacities as such in
the future. We do reimburse our directors for reasonable out-of-pocket expenses
incurred in connection with attending board meetings. The dollar figures for
2008 were calculated using the average exchange rate in effect for the fiscal
year 2008 (CHF 1.07940).
   23
 TABLE OF CONTENTS
  
 Employment
Agreements
  SES Switzerland entered into an
employment agreement with Sandrine Crisafulli dated September 14, 2006. Pursuant
to the terms of the agreement, Ms. Crisafulli receives an annual salary of
$138,966. The term of the agreement is five (5) years. If Ms. Crisafulli’s
employment is terminated without cause, we are obligated to pay her an amount
equal to two years’ salary for each completed three years of
service.
  SES
Switzerland entered into a consulting agreement with Daniel Erné dated October
3, 2006. Pursuant to this agreement, Mr. Erné assists with our day-to-day
managerial and operating activities, including serving as a consultant with
respect to financing opportunities, budgetary matters, and oversight of
construction on our new manufacturing facility. Mr. Erné contributes at least 40
hours per week to our affairs. Mr. Erné receives an annual salary of $120,437 in
consideration for these management consulting services. Mr. Erné is the husband
of Christiane Erné, a principal stockholder as well as a director of our company
and SES Switzerland.
  ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND
 RELATED STOCKHOLDER
MATTERS
  Equity Compensation Plan
Information
  The Company does not have an equity
compensation plan.
  Principal
Stockholders
  The following table sets forth certain
information regarding our common stock beneficially owned as of March 26, 2009
for (i) each stockholder we know to be the beneficial owner of 5% or more of our
outstanding common stock, (ii) each of our executive officers and directors, and
(iii) all executive officers and directors as a group. In general, a person is
deemed to be a beneficial owner of a security if that person has or shares the
power to vote or direct the voting of such security, or the power to dispose or
to direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which the person has the right to acquire
beneficial ownership within 60 days.
  Name and Address of
      Beneficial Owner
                  
                  Amount and Nature of
                    Beneficial Ownership
      (1)
                  
                  Percentage
                    of Class (1)Christiane
      Erné
                  
                  
                  48,286,817
                  (2)
                  
                  66.0
                  %Jean-Christophe
      Hadorn
                  
                  
                  2,414,341
                  (3)
                  
                  3.30
                  %Daniel
      Erné
                  
                  
                  48,286,817
                  (4)
                  
                  66.0
                  %Michael
      D. Noonan
                  
                  
                  Nil
                  
                  
                  NilSandrine
      Crisafulli
                  
                  
                  Nil
                  
                  
                  NilSG
      Private Banking (Suisse) S.A.
                    Avenue
      de Rumine 20
                    Case
      Postale 220
                    Ch-1001
      Lausanne, Switzerland
                  
                  
                  5,193,057
                  
                  
                  7.10
                  %Directors
      and Executive Officers as a Group (4 persons)
                  
                  
                  48,286,817
                  
                  
                  66.0
                  %
 
 (1)
              Based
      on 73,081,168 shares of common stock issued and outstanding as of March
      31, 2009. Except as otherwise indicated, we believe that the owners of the
      common stock listed above have sole investment and voting power with
      respect to such shares, subject to community property laws where
      applicable. Beneficial ownership is determined in accordance with SEC
      rules and generally includes voting or investment power with respect to
      securities. Shares of common stock subject to options or warrants
      currently exercisable, or exercisable within 60 days, are deemed
      outstanding for purposes of computing the percentage ownership of the
      person holding such option or warrants, but are not deemed outstanding for
      purposes of computing the percentage ownership of any other
      person.
  (2)
              Includes
      4,828,682 shares of common stock, of which 2,414,341 were transferred to
      each of Claudia Rey and Jean-Christophe Hadorn pursuant to a voting trust
      agreement entered into with Ms. Erné dated February 22, 2006. The terms of
      the voting trust agreement stipulate that Ms. Rey and Mr. Hadorn will vote
      their shares in accordance with Ms. Erné’s instructions. Ms. Erné also has
      a right of preemption with respect to the subject shares. As a result of
      her voting power over these shares, Ms. Erné may be deemed to beneficially
      own the 4,828,682 shares of common stock transferred to each of Ms. Rey
      and Mr. Hadorn. Of the shares beneficially owned by Ms. Erné, 10,000,000
      are held in escrow as security for repayment of a loan made by ScanE to
      SES Switzerland. See “Certain Relationships and Related Party Transactions
      – Canton Geneva Escrow Agreement.”
 
  24
 TABLE OF CONTENTS
  
 (3)
              As
      described in footnote (2), the shares held by Mr. Hadorn were transferred
      to him by Ms. Erné pursuant to a voting trust agreement dated February 22,
      2006.
 
 (4)
              Daniel
      Erné is the husband of Christiane Erné and therefore may be deemed to
      beneficially own the shares held by his wife. Mr. Erné expressly disclaims
      ownership over these shares.
  ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
  Other
than as set forth below, there have been no material transactions, series of
similar transactions or currently proposed transactions during 2008, or
subsequent thereto, to which we or our wholly owned subsidiaries were or are to
be a party, in which the amount involved exceeded the lesser of $120,000 or one
percent of the average of our total assets at the year end for the last three
completed fiscal years and in which any director or executive officer or any
security holder who is known to us to own of record or beneficially more than 5%
of our common stock, or any member of the immediate family or sharing the
household (other than a tenant or employee) of any of the foregoing persons, had
a direct or indirect material interest. We believe each of the following related
party transactions are on terms at least as favorable as would be available from
unaffiliated parties.
  On August
31, 2006, we entered into an arm’s-length negotiated share exchange agreement
with SES Switzerland and the stockholders thereof, namely Christiane Erné,
Jean-Christophe Hadorn, and Claudia Rey, whereby we agreed to acquire SES
Switzerland. The closing of the transactions contemplated by the share exchange
agreement and the acquisition of all of the issued and outstanding common stock
of SES Switzerland occurred on September 27, 2006. In accordance with the terms
of the share exchange agreement, we issued a total of 48,286,817 shares of
common stock to the former stockholders of SES Switzerland (Christiane Erné –
43,458,135 shares; Jean-Christophe Hadorn – 2,414,341 shares; Claudia Rey –
2,414,341 shares) in exchange for the acquisition by us of all 39,500 issued and
outstanding common shares of SES Switzerland on the basis of 1,222.451 shares of
our common stock for every one share of common stock of SES Switzerland. The
terms of the share exchange agreement also stipulated that we and the former
stockholders of SES Switzerland enter into the following escrow agreements: (1)
the Canton Geneva Escrow Agreement; (2) the Credit Line Escrow Agreement; and
(3) the Long Term Escrow Agreement.
  Canton
Geneva Escrow Agreement
  In
connection with the closing of the share exchange agreement, we entered into the
Canton Geneva Escrow Agreement dated September 15, 2006 with Christiane Erné,
Jean-Christophe Hadorn, Claudia Rey, and ScanE. Pursuant to the terms of the
Canton Geneva Escrow Agreement, the parties agreed to escrow 10,000,000 of the
48,286,817 shares of common stock issued to Christiane Erné (9,000,000 shares),
Jean-Christophe Hadorn (500,000 shares) and Claudia Rey (500,000 shares) in
connection with the merger in order to secure partial repayment of a loan dated
November 3, 2003 by ScanE to SES Switzerland. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources.” The 10,000,000 shares of common stock are to be delivered
from escrow as follows:
  (a)
              upon
      repayment of the loan to ScanE:
  (i) if
within two years from the closing of the share exchange agreement, to the escrow
agent under the Long Term Escrow Agreement (as discussed below), or
  (ii) if
after two years from the closing of the share exchange agreement, to Christiane
Erné, Jean-Christophe Hadorn and Claudia Rey; or
  (b)
              upon
      default of the loan, to ScanE.
  As of the
date of this prospectus, the loan, which matures March 31, 2010, remains
outstanding and the 10,000,000 shares remain in
escrow.
  Credit
Line Escrow Agreement
  Also in
connection with the closing of the share exchange agreement, we entered into the
Credit Line Escrow Agreement dated September 1, 2006, as amended October 27,
2006 and November 30, 2006, with Christiane Erné, Jean-Christophe Hadorn, and
Claudia Rey. Pursuant to the terms of the Credit Line Escrow Agreement, the
parties agreed to escrow 24,143,410 of the 48,286,817 shares of common stock
issued in the merger to Christiane Erné (21,729,068 shares), Jean-Christophe
Hadorn (1,207,171 shares) and Claudia Rey (1,207,171 shares). The 24,143,410
shares of common stock are to be delivered from escrow as
follows:
  (a)
              into
      a subsequent escrow in accordance with the terms of the Long Term Escrow
      Agreement (as described below) if our company receives financing of at
      least CHF12 million on or before November 30, 2007;
  or
  (b)
              to
      us for immediate cancellation if we do not receive financing of at least
      CHF12 million on or before November 30,
2007.
   25
 TABLE OF CONTENTS
  
 On
September 18, 2007, we entered into a loan agreement with ScanE in the principal
amount of $3.9 million (CHF4.5 million). On November 13, 2007, we entered into
an amended agreement with BGCE whereby our Construction Credit Agreement dated
December 20, 2006 was increased from $4.1 million (CHF4.8 million) to $7.6
million (CHF8.5 million). As a result of these financings, and in combination
with our other available financing arrangements, we obtained financing in excess
of the amount required to satisfy the Credit Line Escrow Agreement and the
24,143,410 shares of common stock were transferred from the Credit Line Escrow
to the Long Term Escrow.
  Long
Term Escrow Agreement
  In
connection with the closing of the share exchange agreement, we also entered
into the Long Term Escrow Agreement dated September 1, 2006 with Christiane
Erné, Jean-Christophe Hadorn, and Claudia Rey. Pursuant to the terms of the Long
Term Escrow Agreement, we agreed to escrow all shares not otherwise escrowed
under either the Credit Line Escrow Agreement or the Canton Geneva Escrow
Agreement until September 27, 2008, the second anniversary of the closing of the
share exchange agreement. As such, 38,286,817 of the shares of common stock
(which amount includes the 24,143,410 shares previously escrowed pursuant to the
Credit Line Escrow Agreement) that were issued to Christiane Erné,
Jean-Christophe Hadorn, and Claudia Rey in the merger have been released from
escrow and returned to the respective stockholders.
  Other Related
Transactions
  SES Switzerland entered into a
consulting agreement with Flannel Management dated October 1, 2006. FlannelManagement receives a monthly consulting fee of $18,529, calculated based
on the exchange rate of CHF 1.07940 as in effect on December 31, 2008. The
contract is for a guaranteed 10-year term and if earlier terminated, we must pay
the consulting fee for the full term. Flannel Management’s consulting services
are rendered by Philippe Crisafulli, the husband of Sandrine Crisafulli, our
Chief Operating Officer and Chief Financial Officer. Pursuant to this
agreement, Flannel Management, through Mr. Crisafulli, provides us with the
research and development, production, manufacturing and operational support
necessary to bring our new manufacturing facility and solar products into
production. During the fiscal year ended December 31, 2008, we paid $222,346
(CHF240,000 or $200,218 for 2007) to Flannel Management.
 
 In June
2003, Christiane Erné contracted with us for the purchase and installation of
solar tiles on her private residence. This agreement was oral and there are no
stated payment terms other than that payment be received in full upon completion
of the contract, which we do not expect to occur until the solar tiles
manufactured at our new facility have been installed. The contract amount was
approximately $189,000 at the exchange rate of CHF1.0 as of June 2, 2003. As of
the fiscal years ended 2008 and 2007, we had a receivable from a related party
in the amount of $90,573 and $84,938, respectively.
  ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
  Audit Fees
  The aggregate fees billed for
professional services rendered by our principal accountants BDO Visura for the
audits of our financial statements included in Forms 8-K and 10-Q and for the
financial statements included in our Annual Report on Form 10-K as well as
services related to responding to SEC comment letters on our Forms 8-K and
10-Q were approximately $144,763 for the year ended December 31, 2008 and
$207,939 for the year ended December 31, 2007. BDO Visura did not perform any
audit work for 2005 before the reverse merger in 2006.
 
 Audit-Related Fees
  The aggregate fees billed for assurance
and related services by our principal accountants, BDO Visura, that are
reasonably related to the performance of the audit and review of the company’s
financial statements were $0 and $0 for 2008 and 2007,
respectively.
  Tax Fees
  The aggregate fees billed for tax
compliance, tax advice and tax planning and other products and services by our
principal accountants, BDO Visura, were $0 and $0 for 2008 and 2007,
respectively.
  
 All Other Fees
  BDO Visura has not rendered any
professional services other than those covered in the Sections captioned “Audit
Fees”, “Audit-Related Fees” and “Tax Fees” for the company’s 2008 and 2007
fiscal years, respectively.
  Audit Committee Pre-Approval Policies
and Procedures
   26
 TABLE OF CONTENTS
  
 The company does not have an Audit
Committee. The board of directors approves all audit, audit-related and
permissible non-audit services provided by the independent auditors in order to
assure that the provision of such services does not impair the auditor’s
independence. These services may include audit services, audit-related services,
tax services and other services.
  
 ITEM 15.
EXHIBITS
  Exhibits
  Copies of the following documents are
included as exhibits to this Annual Report on Form 10-K pursuant to Item 601 of
Regulation S-K:
  ExhibitNumber
              
              Description2.1
              
              Share Exchange Agreement dated
      August 31, 2006, among our company, Société d’Energie Solaire and the
      shareholders of Société d’Energie Solaire (incorporated by reference from
      our Form 8-K filed on September 1, 2006)3.1
              
              Articles of Incorporation
      (incorporated by reference from our Schedule 14C filed on March 11,
      2004)3.2
              
              Bylaws (incorporated by reference
      from Schedule 14C filed on March 11, 2004)3.3
              
              Certificate of Ownership
      (incorporated by reference from our Form 8-K filed on June 21,
      2006)
 
 3.4
              
              Certificate of Ownership
      (incorporated by reference from our Form 8-K filed on August 25,
      2006)10.1
              
              Canton Geneva Escrow Agreement
      dated September 15, 2006, among SES Solar Inc., Christiane Erné,
      Jean-Christophe Hadorn, Claudia Rey, Service Cantonal De L’Energie and
      Clark Wilson LLP (incorporated by reference from our Form 8-K filed on
      October 4, 2006)10.2
              
              Credit Line Escrow Agreement dated
      September 1, 2006, among SES Solar Inc., Christiane Erné, Jean- Christophe
      Hadorn, Claudia Rey and Clark Wilson LLP (incorporated by reference from
      our Form 8-K filed on October 4, 2006)10.3
              
              Amendment to Credit Line Escrow
      Agreement dated November 30, 2006, among SES Solar Inc., Christiane Erné,
      Jean- Christophe Hadorn, Claudia Rey and Clark Wilson
      LLP10.4
              
              Long-Term Escrow Agreement dated
      September 1, 2006, among SES Solar Inc., Christiane Erné, Jean- Christophe
      Hadorn, Claudia Rey and Clark Wilson LLP (incorporated by reference from
      our Form 8-K filed on October 4, 2006)10.5
              
              Employment Agreement dated
      September 14, 2006 between Société d’Energie Solaire S.A. and Sandrine
      Crisafulli (incorporated by reference from our Form 8-K filed on October
      4, 2006)10.6
              
              Credit Line Agreement dated April
      7, 2004 and April 10, 2004 between SES Société d’Energie Solaire S.A. and
      UBS SA (incorporated by reference from our Form 8-K/A filed on November
      16, 2006)10.7
              
              Consulting Agreement dated January
      16, 2005 between Jean-Christophe Hadorn and SES Société d’Energie Solaire
      S.A. (incorporated by reference from our Form 8-K/A filed on November 16,
      2006)10.8
              
              Consultancy Agreement dated
      October 3, 2006, as amended February 16, 2007, between Daniel Erné and SES
      Société d’Energie Solaire S.A. (incorporated by reference from our
      registration statement Form SB-2 filed on November 9,
      2007)
 
  27
 TABLE OF CONTENTS
  
 10.9
              
              Convention (Voting Trust
      Agreement) dated September 12, 2005 between Christiane Erné and Claudia
      Rey (incorporated by reference from our Form 8-K/A filed on November 16,
      2006)10.10
              
              Convention (Voting Trust
      Agreement) dated February 22, 2006 between Christiane Erné and
      Jean-Christophe Hadorn (incorporated by reference from our Form 8-K/A
      filed on November 16, 2006)10.11
              
              Assignment of Rights Agreement
      dated August 31, 2006 between SES Société d’Energie Solaire S.A. and
      Jean-Christophe Hadorn (incorporated by reference from our Form 8-K/A
      filed on November 16, 2006)10.12
              
              Assignment of Rights Agreement
      dated August 31, 2006 between SES Société d’Energie Solaire S.A. and
      Olivier Ouzilou (incorporated by reference from our Form 8-K/A filed on
      November 16, 2006)10.13
              
              Assignment of Rights Agreement
      dated August 31, 2006 between SES Société d’Energie Solaire S.A. and
      Sandrine Crisafulli (incorporated by reference from our Form 8-K/A filed
      on November 16, 2006)10.14
              
              Construction Loan dated November
      30, 2006 between SES Société d’Energie Solaire S.A. Christiane Erné
      (incorporated by reference from our Annual Report on Form 10-KSB filed on
      May 16, 2007)
  10.15
              
              Assignment of Rights Agreement
      dated September 15, 2006 between SES Société d’Energie Solaire S.A. and
      Sylvere Leu (incorporated by reference from our Current Report on Form
      8-K/A filed on November 16, 2006)10.16
              
              Loan Agreement dated September 18,
      2007 between SES Société d’Energie Solaire S.A. and Etat de Geneve,
      Department of Territory (DT), Cantonal Energy Service (ScanE)
      (incorporated by reference from our Quarterly Report on Form 10-QSB filed
      on October 23, 2007)10.17
              
              Amended Credit Line Agreement
      dated September 2007 between SES Société d’Energie Solaire S.A. and UBS SA
      (incorporated by reference from our registration statement on Form SB-2
      filed on December 21, 2007)10.17.1
              
              Amended Credit Line Agreement
      dated January 31, 2008 between SES Société d’Energie Solaire S.A. and UBS
      SA (incorporated by reference from our Annual Report on Form 10-KSB filed
      on March 26, 2007)10.18
              
              Construction Credit Agreement
      dated December 20, 2006, as amended November 13, 2007, between SES Société
      d’Energie Solaire S.A. and Banque Cantonale de Genève (incorporated by
      reference from our Current Report on Form 8-K filed on November 16,
      2007)10.19
              
              Form of Share Purchase Warrants
      and Warrant Agreement between SES Solar Inc. and Lansing Securities Corp.
      (incorporated by reference from our registration statement on Form SB-2
      filed on December 21, 2007)10.20
              
              Finder’s Fee Agreement dated
      August 31, 2006 between SES Solar Inc. and Standard Atlantic (Suisse)
      S.A. (incorporated by reference from our Current Report on Form 8-K filed
      on October 4, 2006)10.21
              
              Consulting Agreement dated October
      1, 2006 between SES Société d’Energie Solaire S.A. and Flannel Management
      Sàrl (incorporated by reference from our Annual Report on Form 10-KSB
      filed on March 26, 2007)
 
  28
 TABLE OF CONTENTS
  
 10.22*
              
              Credit
      Facility dated October 27, 2008 between SES Solar Inc. and the Geneva (Switzerland) State
      Department of Energyof  Energy21*
              
              Subsidiaries of SES Solar
      Inc.24.1
              
              Power
      of Attorney (included in the signature page hereto)31.1*
              
              Rule 13a-14 and 15d-14
      Certification of Chief Executive Officer31.2*
              
              Rule 13a-14 and 15d-14
      Certification of Chief Financial Officer32.1*
              
              Section 1350 Certification of
      Chief Executive Officer32.2*
              
              Section 1350 Certification of
      Chief Financial Officer
 
 * Filed
herewith
 
 
 SIGNATURES
  In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
 SES SOLAR
    INC.Date: March 31,
      2009
              By:
              /s/ Jean-Christophe
      HadornJean-Christophe
      Hadorn
                Chief Executive
      Officer
   POWER
OF ATTORNEY
  KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jean-Christophe Hadorn and Sandrine
Crisafulli as their true and lawful attorney-in-fact and agent, with the
full power of substitution for them, and in his or her name and in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done therewith, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
 
 In accordance with the Exchange Act,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
  NAME
              
              TITLE
              
              DATE/s/ Jean-Christophe
      HadornJean-Christophe
      Hadorn
              
              Chief Executive Officer
      and
              
              March 31,
    2009Director (Principal Executive
      Officer)/s/ Sandrine
      CrisafulliSandrine
      Crisafulli
              
              Chief Financial
      Officer
              
              March 31,
    2009(Principal Accounting
      Officer)
 
  29
 TABLE OF CONTENTS
  
 /s/ Christiane
      ErnéChristiane
    Erné
              
              Director
              
              March 31,
    2009/s/ Daniel
    ErnéDaniel Erné
              
              Director
              
              March 31,
    2009
 
  30
 TABLE OF CONTENTS
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
  Board of Directors and
Stockholders
 SES Solar Inc.
  We have audited the accompanying
consolidated balance sheets of SES Solar Inc. (the “Company”) as of December 31,
2008 and 2007 and the related consolidated statements of operations and
comprehensive losses, changes in stockholders’ equity (deficit) and cash flows
for each of the two years in the period ended December 31, 2008. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
  We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of SES Solar Inc. at December 31, 2008 and 2007, and the
results of its operations and its cash flows for each of the two years in the
periods ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
 
 The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the financial statements, the Company has suffered
recurring losses from operations that raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
  Zurich, March 31,
2009
  BDO Visura
  /s/ Andreas
      Wyss
              
              /s/ Christian
      FellerAndreas Wyss
                Auditor in
      Charge
                
                Swiss Certified Accountant /
      CPA
              
              Christian
      Feller
                
                
                Swiss Certified
      Accountant
 
  F-1
 TABLE OF CONTENTS
 
 SES SOLAR INC. AND
SUBSIDIARIES
 CONSOLIDATED BALANCE
SHEET
 (in $, except per share
amounts)
  December 31st
                2008
              
              December 31st
                2007ASSETS (in
    $)Current
    Assets:Cash and cash
      equivalents
              
              
              6
              
              
              765,694
              
              
              3,429,033Receivables, net of allowance for
      doubtful accounts of $ 0 for the years ended 2008 and
      2007.
              
              
              7
              
              
              12,001
              
              
              47,356Due from related
      party
              
              
              21
              
              
              90,573
              
              
              84,938Inventory
              
              
              8
              
              
              1,665,699
              
              
              271,794Other current
      assets
              
              
              
              
              
              424,186
              
              
              639,763Total current
      assets
              
              
              
              
              
              2,958,153
              
              
              4,472,884Long-Term
      Assets:Deferred
      Expense
              
              
              15
              
              
              0
              
              
              180,000Advance payments for
      machinery
              
              
              
              
              
              379,446
              
              
              396,432Total other long-term
      assets
              
              
              
              
              
              379,446
              
              
              576,432Property, Plant and Equipment, at
      cost,
              
              
              
              
              
              600,389
              
              
              437,493Solar plant
              
              
              
              
              
              0
              
              
              3,785,521Building
      construction
              
              
              
              
              
              13,449,460
              
              
              5,398,153Less accumulated depreciation and
      amortization
              
              
              
              
              
              (429,351
              )
              
              (339,014
              )Total fixed
      assets
              
              
              9
              
              
              13,620,498
              
              
              9,282,153Total long-term
      assets
              
              
              
              
              
              13,999,944
              
              
              9,858,585Total
Assets
              
              
              
              
              
              16,958,097
              
              
              14,331,469LIABILITIES AND STOCKHOLDERS’
      EQUITY (DEFICIT)Current
      Liabilities:Short-term
    loan
              
              
              10
              
              
              4,769,635
              
              
              6,147,728Construction
      loan
              
              
              10
              
              
              5,137,555
              
              
              0Accounts
      payable
              
              
              
              
              
              526,168
              
              
              3,711,775Billings in excess of cost and
      estimated earnings
              
              
              11
              
              
              1,448,590
              
              
              507,044Total current
      liabilities
              
              
              
              
              
              11,881,948
              
              
              10,366,547Long-Term
      Liabilities:Loan
payable
              
              
              10
              
              
              918,389
              
              
              0Construction
      loan
              
              
              10
              
              
              882,413
              
              
              7,563Total long-term
      liabilities
              
              
              
              
              
              1,800,802
              
              
              7,563Stockholders’
      Equity:
              
              
              15Common stock, $0.001 par
      value;
              
              
              
              
              
              73,081
              
              
              73,081100,000,000 shares
      authorized;73,081,168 shares issued and
      outstanding;Additional paid in
      Capital
              
              
              
              
              
              8,050,093
              
              
              8,050,093Accumulated other comprehensive
      income (loss)Translation
      Adjustment
              
              
              
              
              
              (603,005
              )
              
              (395,447
              )Year end Accumulated
      Deficit
              
              
              
              
              
              (4,244,822
              )
              
              (3,770,368
              )Total stockholders’ equity
      (deficit)
              
              
              
              
              
              3,275,347
              
              
              3,957,359Total Liabilities and
      Stockholders’ Equity
              
              
              
              
              
              16,958,097
              
              
              14,331,469
  See accompanying summary of accounting
policies and the notes to the financial statements.
   F-2
 TABLE OF CONTENTS
 
 SES SOLAR INC. AND
SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
 (in $, except per share
amounts)
  Year Ended
                December
      31,
                2008
              
              Year Ended
                December
      31,
                2007Revenue:Revenue
              
              
              5,7
              
              
              33,416
              
              
              1,344,794Cost
      of goods sold (exclusive of depreciation shown separately
      below)
              
              
              
              
              
              (5,417
              )
              
              (1,104,119
              )Costs
      and Expenses:Personnel
              
              
              
              
              
              532,039
              
              
              366,553Rent
      and Leases Expenses
              
              
              12
              
              
              181,632
              
              
              135,453Research
      and Development
              
              
              
              
              
              337,761
              
              
              426,814Other
      G+A
              
              
              
              
              
              870,643
              
              
              1,141’046Depreciation
      and amortization
              
              
              
              
              
              75,516
              
              
              59,104Total
      costs and expenses
              
              
              
              
              
              1,997,591
              
              
              2,128,970Other
      Income and Expense:Interest
      expense
              
              
              
              
              
              (155,133
              )
              
              (116,212
              )Interest
      income and other
              
              
              17
              
              
              45,838
              
              
              177,650Foreign
      Exchange Gain
              
              
              
              
              
              272,577
              
              
              302,803Total
      Other Income (Loss)
              
              
              
              
              
              163,282
              
              
              364,241Income
      (loss) from continuing operations before taxes
              
              
              
              
              
              (1,806,310
              )
              
              (1,524,054
              )Income
      taxes
              
              
              18
              
              
              0
              
              
              0Net
      income (loss) from continuing operations
              
              
              
              
              
              (1,806,310
              )
              
              (1,524,054
              )Income
      (loss) from discontinued operations before taxes (Note 14)
              
              
              
              
              
              1,331,856
              
              
              0Net
      income (loss)
              
              
              
              
              
              (474,454
              )
              
              (1,524,054
              )Other
      Comprehensive Loss/Income:Translation
      adjustment
              
              
              
              
              
              (207,558
              )
              
              (168,631
              )Comprehensive
      loss
              
              
              
              
              
              (682,012
              )
              
              (1,692,685
              )Basic
      and diluted Weighted Average Shares
              
              
              
              
              
              73,081,168
              
              
              55,835,875Basic
      and diluted net income (loss) per share from continuing
      operation
              
              
              
              
              
              (0.025
              )
              
              (0.027
              )Basic
      and diluted net income (loss) per share from discontinuing
      operation
              
              
              
              
              
              0.018
              
              
              0Basic
      and diluted net income (loss) per share
              
              
              
              
              
              (0.007)
              
              
              (0.027
              )
 
 See accompanying summary of accounting
policies and the notes to the financial statements.
    F-3
 TABLE OF CONTENTS
  SES SOLAR INC. AND
SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)
 FOR THE YEARS ENDED DECEMBER 31, 2008
AND 2007
 (in $, except per share
amounts)
  Common
Stock
              
              
              
              
              
              Accumulated Other Comprehensive
      IncomeShares
              
              
              
              Amount
              
              Paid-in
    Capital
              
              Retained
      Earnings
              
              Translation
      Adjustment
              
              Total Shareholders’
      EquityBalance at January 01,
      2007
              
              
              73,081,168
              
              
              
              
              
              73,081
              
              
              8,050,093
              
              
              (2,246,314
              )
              
              (226,816
              )
              
              5,650,044Net Loss
              
              
              0
              
              
              
              
              
              0
              
              
              0
              
              
              (1,524,054
              )
              
              0
              
              
              (1,524,054Translation
      Adjustment
              
              
              0
              
              
              
              
              
              0
              
              
              0
              
              
              0
              
              
              (168,631
              )
              
              (168,631Balance at December 31,
      2007
              
              
              73,081,168
              
              
              
              
              
              73,081
              
              
              8,050,093
              
              
              (3,770,368
              )
              
              (395,447
              )
              
              3,957,359Net
      Loss
              
              
              0
              
              
              
              
              
              0
              
              
              0
              
              
              (474,454
              )
              
              0
              
              
              (474,454Translation
      Adjustment
              
              
              0
              
              
              
              
              
              0
              
              
              0
              
              
              0
              
              
              (207,558
              )
              
              (207,558Balance
      at December 31, 2008
              
              
              73,081,168
              
              
              
              
              
              73,081
              
              
              8,050,093
              
              
              (4,244,822
              )
              
              (603,005
              )
              
              3,275,347
 
  See accompanying summary of accounting
policies and the notes to the financial statements.
   F-4
 TABLE OF CONTENTS
 
 SES SOLAR INC. AND
SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH
FLOWS
 (in $, except per share
amounts)
  YEARS
      ENDEDDecember 31st
                2008
              
              December 31st
                2007Cash Flows from Operating
      Activities:Net loss
              
              
              (474,454
              )
              
              (1,524,054
              )Adjustments to reconcile net loss
      to cash used in operating activities:Depreciation and
      amortization
              
              
              170,880
              
              
              59,104Adjustment for proceed of power
      plant
              
              
              (1,185,704
              )
              
              0Changes in operating assets and
      liabilities(Increase) decrease
      in:Receivables, including Due from
      Related Party
              
              
              37,649
              
              
              (33,902
              )Inventory
              
              
              (1,267,689
              )
              
              (13,791
              )Other current
      assets
              
              
              252,330
              
              
              (393,932
              )Deferred
      Expenses
              
              
              180,000
              
              
              240,000Increase (decrease)
      in:Accounts payable and accrued
      expenses
              
              
              (10,596
              )
              
              (4,517
              )Billings in excess of cost and
      estimated earnings
              
              
              966,700
              
              
              350,407Net cash provided/used in
      operating activities
              
              
              (1,330,884
              )
              
              (1,320,685
              )Cash Flows from Investing
      Activities:Proceed on sale of solar
      plant
              
              
              5,065,460
              
              
              0Property, plants and
      equipment
              
              
              (11,047,735
              )
              
              (5,260,502
              )Advance payments for
      machinery
              
              
              0
              
              
              (369,814
              )Net cash provided/used in
      investing activities
              
              
              (5,982,275
              )
              
              (5,630,316
              )Cash Flows from Financing
      Activities:Repayment/Proceed of
      loans
              
              
              6,809,969
              
              
              3,344,062Bank loan
              
              
              (1,778,982
              )
              
              1,210,285Net cash provided by financing
      activities
              
              
              5,030,987
              
              
              4,554,347Decrease in cash and cash
      equivalents
              
              
              (2,282,172
              )
              
              (2,396,654
              )Effect of exchange rate changes on
      cash
              
              
              (381,167
              )
              
              (190,979
              )Cash and cash equivalents,
      beginning of year
              
              
              3,429,033
              
              
              6,016,666Cash and cash equivalents, end of
      year
              
              
              765,694
              
              
              3,429,033Cash paid for
      interest
              
              
              155,133
              
              
              116,212Supplemental disclosure of
      non-cash operating and investing activities:Non cash transaction, Property,
      plants and equipment in accounts payable
              
              
              185,214
              
              
              3,167,499
 See accompanying summary of accounting
policies and the notes to the financial statements.
   F-5
 TABLE OF CONTENTS
  1.Organization and
Nature of Operations
  Organization - SES SOLAR INC. (the
“Company,” “SES USA,” “our,” “we” and “us”) is the result of a reverse
acquisition accomplished on September 27, 2006 between SES USA, a Delaware
company, which had no operations and net assets of $39,069, and Société
d’Energie Solaire SA (“SES Switzerland”), a Swiss company. SES USA acquired all
of the outstanding shares of SES Switzerland. For accounting purposes, the
acquisition has been treated as a recapitalization of SES Switzerland with SES
Switzerland as the acquirer (reverse acquisition). SES Switzerland acquired
10,668,000 of SES USA in the transaction. The historical financial statements
prior to September 27, 2006 are those of SES Switzerland. The reverse
acquisition resulted in a change of control of SES USA, with the former
stockholders of SES Switzerland owning approximately 70% of SES USA and SES
Switzerland becoming SES USA’s wholly owned subsidiaries.
  SES Switzerland was formed in 2001 for
the purpose of researching, developing, manufacturing and selling innovative
products to the solar photovoltaic market. From its inception, SES Switzerland
has focused primarily on manufacturing and installing silicon photovoltaic solar
cell panels. The principal source of revenue for the Company has been the sale
of photovoltaic panels in turn-key installations, manufactured in-house or
purchased from subcontractors, to electric utilities, local government agencies
and private households.
 
 As of July 31, 2008, the Company formed
a new Swiss wholly owned subsidiaries, SES Prod SA (“SES Prod”), also located in
Geneva. It is expected that in the future, all of the Company’s manufacturing
activities now being conducted by SES Switzerland will be conducted by SES Prod.
At such time, SES Switzerland’s primary activity will be managing the Company’s
manufacturing facility.
  In connection with the reverse
acquisition accomplished on September 27, 2006, the Company entered into the
Credit Line Escrow Agreement dated September 1, 2006, as amended October 27,
2006 and November 30, 2006, with Christiane Erné, Jean-Christophe Hadorn, and
Claudia Rey. Pursuant to the terms of the Credit Line Escrow Agreement, the
parties agreed to escrow 24,143,410 of the 48,286,817 shares of common stock
issued in the merger to Christiane Erné (21,729,068 shares), Jean-Christophe
Hadorn (1,207,171 shares) and Claudia Rey (1,207,171 shares). The 24,143,410
shares of common stock are to be delivered from escrow as
follows:
  (a)
              into a subsequent escrow in
      accordance with the terms of the Long Term Escrow Agreement (as described
      below) if the Company receives financing of at least $11,367,727 (CHF 12
      million) on or before November 30, 2007;
  or
  (b)
              to the Company for immediate
      cancellation if it do not receive financing of at least $11,367,727 (CHF
      12 million) on or before November 30,
  2007.
 
 On September 18, 2007, we entered into a
loan agreement with the Geneva (Switzerland) State Department of Energy
(“ScanE”) in the principal amount of $4.3 million (CHF4.5 million). On November
13, 2007, the Company entered into an amended agreement with Banque Cantonal de
Genève whereby our Construction Credit Agreement dated December 20, 2006 was
increased from $4.6 million (CHF4.8 million) to $8.1 million (CHF8.5 million).
As a result these recent financings, and in combination with its other available
financing arrangements as discussed in the Liquidity section to Management’s
Discussion and Analysis, the Company obtained total financing in excess of the
amount required to satisfy the Credit Line Escrow Agreement such that the
24,143,410 shares have been transferred from the Credit Line Escrow to the Long
Term Escrow.
  SES USA engaged in a second round of
financing on November 7, 2006 pursuant to which SES USA issued 4,100,001 shares
to third parties resulting in a further dilution of the historical and former
shareholders of SES Switzerland to approximately 66%.
   F-6
 TABLE OF CONTENTS
  2.Future
Operations
 
 The
Company has experienced losses from operations and anticipates incurring losses
in the near future. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company incurred
a net loss of ($474,454) and a negative cash flow from operations of
($1,330,884), and had a working capital deficiency of ($8,923,795) at December
31, 2008. These matters raise substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 
 The
Company has financed the construction of the new manufacturing facility with so
called construction loans (Note 10). These construction loans are converted into
a mortgage immediately after completion of the building. Since the manufacturing
facility has not been completed as of December 31, 2008, no construction loans
were yet converted into mortgages.
 
 The
Company's ability to continue its operations and market and sell its products
and services will depend on the Company's ability to convert the construction
loans into mortgages and to obtain additional financing. If the Company is
unable to obtain such financing, the Company will not be able to continue its
business. Any additional equity financing may be dilutive to shareholders, and
debt financing, if available, will increase expenses and may involve restrictive
covenants. The Company will be required to raise additional capital on terms
which are uncertain, especially under the current capital market conditions.
Under these circumstances, if the Company is unable to obtain capital or is
required to raise it on undesirable terms, it may have a material adverse effect
on the Company's financial condition. The Company’s cash and cash equivalents
are $765,000 for the year ended December 31, 2008.  Based on the
Company’s business plan it needs additional funding from external sources of
approximately $7,456,000 to fund anticipated operating expenses and the
completion of the manufacturing facility.
 
 The
Company’s current business plan includes the development of a new assembly line
based on its proprietary technology and the construction of a manufacturing
facility in the suburbs of Geneva, Switzerland to produce solar modules and
solar tiles at a lower cost. These activities require the Company to design and
manufacture prototype panels, have them approved in accordance with European and
other standards, manufacture in series and sell them in the primary markets for
solar photovoltaic cells. Costs incurred in manufacturing prototype panels have
been expensed as research and development costs.
 
 3.Summary of
Significant Accounting Policies
  The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries, SES Switzerland and SES Prod. All significant
inter-company accounts and transactions have been eliminated in the
consolidation.
 
 All
amounts are presented in $ unless otherwise stated.
  The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
disclosures.  Although these estimates are based on management’s knowledge
of current events and actions that the Company may undertake in the future,
actual results may differ from such estimates.
 
 Foreign Currency Translation
- The reporting currency of SES USA is the U.S. dollar ($) whereas SES
Switzerland’s functional currency is the Swiss Franc (CHF). The financial
statements of SES Switzerland are translated to U.S. dollar equivalents under
the current method in accordance with SFAS No. 52, “Foreign Currency
Translation.” Assets and liabilities are translated into U.S. dollar equivalents
at rates of exchange in effect at the balance sheet date. Average rates for the
year are used to translate revenues and expenses. The cumulative translation
adjustment is reported as a component of accumulated other comprehensive income
(loss). Foreign currency differences from inter-company receivables and payables
are recorded as Foreign Exchange Gains/Losses in the Statement of
Operations.
  The
exchange rates used for translating the financial statements are listed
below:
  Average
    Rates
              
              2008
              
              2007CHF
              
              CHF$
              
              
              1.07940
              
              
              1.19870
  Balance Sheet year-end
rates
              
              2008
              
              2007CHF
              
              CHF$
              
              
              1.05562
              
              
              1.12566
  Cash
Equivalents—The Company
considers all highly liquid debt securities purchased with an original maturity
of three months or less to be cash equivalents.
   F-7
 TABLE OF CONTENTS
 
 Receivables and
Credit Policies— The
Company’s accounts receivables primarily consists of trade receivables.
Management reviews accounts receivables on a monthly basis to determine if any
receivables will potentially be uncollectible. The Company uses estimates to
determine the amount of the allowance for doubtful accounts necessary to reduce
accounts receivable and unbilled receivables to their expected net realizable
value. The Company estimates the amount of the required allowance by reviewing
the status of past-due receivables and analyzing historical bad debt trends.
Actual collection experience has not varied significantly from estimates, due
primarily to credit policies, collection experience and the Company’s stability
as it relates to its current customer base. Receivables consist of revenues
billed to customers upon achievement of contractual obligations. Based on the
information available, the Company believes its allowance for doubtful accounts
as ofDecember 31, 2008 is adequate.
 
 Product
Inventory—Product inventory
is stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method and includes certain charges directly and indirectly
incurred in bringing product inventories to the point of sale. Inventory is
accounted for at the lower of cost or market, and as a result,
write-offs/write-downs occur due to damage, deterioration, obsolescence, changes
in prices and other causes.
 
 Property and
Equipment—Property and
equipment is stated at cost. Depreciation is computed using straight-line method
over estimated useful lives of 3 to 20 years. Expenditures for maintenance and
repairs, which do not materially extend the useful lives of property and
equipment, are charged to operations as incurred. When property or equipment is
retired or otherwise disposed of, the property accounts are relieved of costs
and accumulated depreciation and any resulting gain or loss is
recognized.
 
 Long-Lived
Assets—The Company accounts for long-lived
assets in accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The statement requires the Company
to evaluate its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. When the sum of the undiscounted future net cash flows expected to
result from the use of the asset and its eventual disposition is less than its
carrying amount, impairment may exist. To determine the amount of impairment,
the Company compares the fair value of the asset to its carrying value. If the
carrying value of the asset exceeds its fair value, an impairment loss equal to
the difference is recognized.
  Warranties—Since the Company’s commencement it has
had no warranty claims. The Company’s production was low and components were
purchased for photovoltaic installations, all of which have their own
warranties. Since the Company has not yet started producing its own photovoltaic
cells and warranty claims can be thus exercised against its suppliers, the
Company does not believe that discussion of warranties is a critical accounting
policy currently, but this may become so in the future.
  Revenue Recognition - The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
104, "Revenue Recognition" ("SAB 104"). SAB 104 requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the
seller's price to the buyer is fixed and determinable; and (4) collection is
reasonably assured.
  Revenues
and profits from general management of construction-type contracts are
recognized on the completed-contract method and therefore when the project is
completed. A contract is considered complete when all costs except insignificant
items have been incurred and the installation is operating according to
specifications or has been accepted by the customer. Contract costs include all
direct materials and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs and depreciation
costs. Costs in excess of amounts billed are classified as current assets under
Work in Progress. Billings in excess of cost are classified under current
liabilities as Billings in Excess of Cost and Estimated Earnings. Any
anticipated losses on contracts are charged to operations as soon as they are
determinable. No unbilled revenue has been recognized so far.
  For the
years ended 2008 and 2007, the Company has no billed or unbilled amount
representing claims or other similar items subject to uncertainty concerning
their determination or ultimate realization. Amounts outstanding as at year end
are expected to be collected in 2009.
  Between
January 2008 and June 2008, the Company recognized sales of photovoltaic
electricity produced by solar modules on the roof of its new manufacturing
facility to a local electricity provider in Geneva. Revenues from such sales
were recognized monthly based on the amount of electricity produced. As further
explained below, such revenue has ceased due to the sale of the power plant as
of June 30, 2008.
 
 Income
Taxes—The Company follows
Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for
Income Taxes”, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the period in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense (benefit) is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities. The Company’s tax basis for
assets and liabilities is identical for the financial statements and tax
reporting. Accordingly, the only deferred tax position is the benefit with
respect to the net operating loss. The Company records a valuation allowance to
reduce the deferred tax asset to the amount that is estimated to be more likely
than not to be realized.
  Comprehensive
Income- The Company
accounts for comprehensive income according to Statement of Financial Accounting
Standards (SFAS) No. 130 “Reporting Comprehensive Income”. Effective for fiscal
years beginning after December 15, 1997, FAS 130 states that comprehensive
income is net income, plus certain other items that are recorded directly to
shareholders’ equity such as foreign currency translation adjustments and
unrealized gains (losses) on marketable securities.
 
  F-8
 TABLE OF CONTENTS
  Loss Per
Share—Loss per share is
presented in accordance with the provisions of SFAS No. 128, “Earnings Per
Share”. Basic earnings per share does not include the effects of potentially
dilutive stock options and is computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings per share reflects, in periods in
which they have a dilutive effect, commitments to issue common stock and common
stock issuable upon exercise of stock options for periods in which the options’
exercise price is lower than the Company’s average share price for the period.
As per an agreement dated September 1, 2006 (as amended), related to the reverse
acquisition, the Company is required toobtain additional financing in
the amount of CHF12,000,000 ($11,367,727) no later than November 30, 2007 to
build a manufacturingplant in
Plan-les-Ouates. Otherwise, 24,143,410 escrowed shares will be cancelled. As of
September 18, 2007, the Company entered into a loan agreement with the Geneva
(Switzerland) State Department of Energy (“ScanE”) in the principal amount of
$4.3 million (CHF4.5 million). On November 13, 2007, the Company entered into an
amended agreement with Banque Cantonal de Genève whereby its Construction Credit
Agreement dated December 20, 2006 was increased from $4.6 million (CHF4.8
million) to $8.1 million (CHF8.5 million). As a result of these recent
financings, and in combination with its other available financing arrangements,
the Company obtained total financing in excess of the amount required to satisfy
the Credit Line Escrow Agreement such that the 24,143,410 shares have been
transferred from the Credit Line Escrow to the Long Term Escrow (see notes 15).
The escrowed shares were included in earnings per share once conditions were met
(September 18, 2007).
  Stock options of 43,110 were granted to
a non-employee, Hogan & Hartson LLP, and outstanding as of June 18, 2007 and
are not included in the Earnings per Share. The grant of options was cancelled
by mutual agreement on July 18, 2007 without any options being
exercised.
  2008
              
              2007Basic Weighted average shares
      outstanding
              
              
              73,081,168
              
              
              55,835,875Diluted weighted average shares
      outstanding
              
              
              73,081,168
              
              
              55,835,875
 
  Note: Due to the net loss, the
calculation of the effect of common stock equivalents due to issuance of
warrants is excluded because of anti-dilution. The number of shares of common
stock listed as beneficially owned by one stockholder includes 1,500,000 shares
of common stock potentially issuable upon exercise of 1,500,000 common share
purchase warrants. Each common share purchase warrant is exercisable until
November 22, 2010 at an exercise price of $0.90 per share. As of the December31,
2008 and December 31, 2007 balance sheet dates, the warrants were not yet
exercised. Also, they are not included in the computation of diluted loss per
share because their effect was anti-dilutive.
 
 Long-Lived
Assets- Long-lived assets,
other than goodwill, are evaluated for impairment when events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable. An impairment loss would be recognized when estimated
undiscounted future cash flows expected to result from the use of these assets
and their eventual disposition is less than their carrying amount. The
determination of whether or not long-lived assets have become impaired involves
a significant level of judgment in the assumptions underlying the approach used
to determine the estimated future cash flows expected to result from the use of
those assets. Changes in the Company’s strategy, assumptions and/or market
conditions could significantly impact these judgments and require adjustments to
recorded amounts of long-lived assets.
  Research and
Development Costs—Research
and development costs are expensed as incurred. Research and development costs
are not disclosed separately in the Notes to the Financial Statements, but are
disclosed separately in the Income Statement.
  Fair Value of
Financial Instruments—The
estimated fair values for financial instruments are determined at discrete
points in time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The carrying amounts of
receivables, inventory, accounts payable and accrued liabilities approximate
fair value because of the short-term maturities of these instruments. The fair
value of the long-term debt is estimated based on anticipated interest rates
which management believes would currently be available to the Company for
similar issues of debt, taking into account the current credit risk of the
Company and the other market factors. The fair value approximates carrying value
of the long-term debt.
    F-9
 TABLE OF CONTENTS
  4.Impact of Recently
Issued Accounting Pronouncements
   In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value for
financial accounting and reporting purposes, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles
and expands disclosures about fair value instruments. This statement does not
require any new fair value measurements, rather, it applies under other
accounting pronouncements that require or permit fair value measurements. The
provisions of this statement are to be applied prospectively as of the beginning
of the fiscal year in which this statement is initially applied, with any
transition adjustment recognized as a cumulative effect adjustment to the
opening balance of retained earnings. SFAS 157 was effective and adopted by the
Company as of January 1, 2008. In order to determine the implications of
adopting SFAS 157, the Company reviewed all the assets and liabilities recorded
on its balance sheet. Based on the results of its review, the Company determined
that a majority of its assets and liabilities are either not required to be
measured at fair value in its financial statements, or are outside the scope of
SFAS 157. The adoption of SFAS 157 did not have a material impact on the
Company’s results of operations, cash flows or financial positions.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 allows an entity to irrevocably elect
fair value for the initial and subsequent measurement of certain financial
instruments and other items that are not currently required to be measured at
fair value. When the fair value option is elected and a company chooses to
record eligible items at fair value, the company must report unrealized gains
and losses on those items in results of operations at each subsequent reporting
date. Additionally, the transition provisions of SFAS 159 permit a one-time
election for existing positions at the adoption date, with a cumulative effect
adjustment included in opening retained earnings. All future changes in fair
value will be reported in results of operations. Prior to this election, only
the unrealized losses were recorded in results of operations. The Company
adopted SFAS 159 effective for the fiscal year beginning January 1, 2008, and
the adoption had no impact on the Company’s financial position and results of
operations.
 
 Recent
Accounting Pronouncements Not Yet Effective
 
 In
December 2007, the FASB issued SFAS No. 141(R),“Business Combinations.” SFAS
141(R) requires all business combinations completed after the effective date to
be accounted for by applying the acquisition method (previously referred to as
the purchase method). Companies applying this method will have to identify the
acquirer, determine the acquisition date and purchase price and recognize at
their acquisition date fair values of the identifiable assets acquired,
liabilities assumed, and any non-controlling interests in the acquirer. In the
case of a bargain purchase the acquirer is required to reevaluate the
measurements of the recognized assets and liabilities at the acquisition date
and recognize a gain on that date if an excess remains. SFAS 141(R) becomes
effective for fiscal periods beginning after December 15, 2008. This statement
is not expected to have a significant effect on the Company's financial
statements.
 
 In
February 2008, the FASB issued Staff Position (FSP) FAS 157-2, Effective Date of
FASB Statement No. 157, which defers the implementation for the non-recurring
financial assets and liabilities from fiscal years beginning after November 15,
2007 to fiscal years beginning after November 15, 2008. The provisions of SFAS
157 will be applied prospectively. The statement provisions effective as of
January 1, 2008, do not have a material effect on the Company’s financial
position and results of operations. Management does not believe that the
remaining provisions will have a material effect on the Company’s financial
position and results of operations when they become effective on January 1,
2009.
 
 On
October 10, 2008, the Financial Accounting Standards Board issued FASB Staff
Position (FSP) No. FAS 157-3. This FSP applies to financial assets within the
scope of accounting pronouncements that require or permit fair value
measurements in accordance with Statement 157 and clarifies the application of
Statement 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset
when the market for that financial asset is not active. It is effective upon
issuance. The adoption of FSP FAS 157-3 is not expected to have a material
impact.
 
 In
December 2007, the FASB issued Financial Accounting Standard No. 160,
Non-controlling Interests in Financial Statements-an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 requires that a non-controlling interest in a subsidiary
be reported as equity and the amount of net income specifically attributable to
the non-controlling interest be identified in the financial statements. It also
calls for consistency in the manner of reporting changes in the parent’s
ownership interest and requires fair value measurement of any non-controlling
equity investment retained in a deconsolidation. SFAS 160 is effective for
fiscal years beginning after December 15, 2008, with early adoption prohibited.
This statement is not expected to have a significant effect on the Company’s
financial statements.
   F-10
 TABLE OF CONTENTS
  
 In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133" (“SFAS 161”).
SFAS 161 amends and expands the disclosure requirements of SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities" (“SFAS 133”), by requiring
enhanced disclosures about how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS
133 and its related interpretations, and how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. SFAS 161 requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS 161 will
be effective for the Company as of January 1, 2009. As SFAS 161 provides only
disclosure requirements, the adoption of this standard will not have a material
impact on the Company’s results of operations, cash flows or financial
positions.
 
 5.Sales Contracts under
Completed-Contract Method (CCM)
  SES Switzerland enters into contracts
for installation of solar cell panels with public or private building owners.
The timeframe between the contract’s signature and the connection to the
electrical network (grid), being the due date for the contract’s completion, can
vary between 6 months and 2 years. SES Switzerland recognizes revenues under the
Completed Contract Method (CCM), based on contractual obligations and
deliveries. Until completion of the contract, advances from customers and
advances to suppliers are recorded separately in the balance
sheet.
  During
2008, two projects were completed and therefore $33,416 were recognized (2007
$1,344,794).
  6.Cash and Cash
Equivalents
  $ (held in
    CHF)
              
              $ (held in
    $)
              
              $ (held in
    EUR)
              
              $ TOTAL
                2008
              
              $ TOTAL
2007Cash on
hand
              
              
              547,904
              
              
              1,861
              
              
              215,929
              
              
              765,694
              
              
              274,033Short-term
      Investments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,155,000Cash and Cash
      Equivalents
              
              
              547,904
              
              
              1,861
              
              
              215,929
              
              
              765,694
              
              
              3,429,033
 
 Cash and cash equivalents are available
to the Company, and there is no restriction or limitation on withdrawal or use
of these funds. The Company’s cash equivalents are placed with highly credit
rated financial institutions. The carrying amount of these assets approximates
their fair value.
  7.Accounts Receivable
and Significant Customers
  At December 31, 2008 and 2007, the
Company’s accounts receivable balances were $12,001and $47,356, respectively. Significant
customers are summarized below:
  Receivables2008
              
              2007$
              
              $A
              
              
              12,001
              
              
              11,255F
              
              
              -
              
              
              15,771G
              
              
              -
              
              
              20,330Total Accounts
      Receivable
              
              
              12,001
              
              
              47,356
    F-11
 TABLE OF CONTENTS
  Revenues for 2008 and 2007 were
$33,416and $1,344,794,
respectively. Significant customers are summarized below:
  Revenues2008
              
              2007$
              
              $D
              
              
              23,161
              
              
              1,192,964E
              
              
              6,027
              
              
              52,023F
              
              
              0
              
              
              89,263Others
              
              
              4,228
              
              
              10,544Total
    Revenues
              
              
              33,416
              
              
              1,344,794
  8.Inventory
  Inventory is summarized as
follows:
  2008
              
              2007$
              
              $Raw Materials and
      Others
              
              
              1,473,540
              
              
              97,159Finished
    Goods
              
              
              192,159
              
              
              174,635Total
    Inventory
              
              
              1,665,699
              
              
              271,794
  Large
increase in inventory relates mostly to the SwissTiles. This increase in
inventory is due to the fact the company will need them for the completion of
projects in the future
 
 9.Property, Plant and
Equipment
  Property and equipment is summarized as
follows:
  2008
              
              2007$
              
              $Machinery and
      equipment
              
              
              384,831
              
              
              360,887Office furniture and
      equipment
              
              
              87,306
              
              
              76,606Vehicles
              
              
              128,252
              
              
              0Equipment
              
              
              600,389
              
              
              437,493Solar plant
              
              
              0
              
              
              3,785,521Building
      construction
              
              
              13,449,460
              
              
              5,398,153Property and
      equipment
              
              
              14,049,849
              
              
              9,621,167Less accumulated depreciation and
      amortization
              
              
              (429,351
              )
              
              (339,014
              )Property, Plant. and equipment,
      net
              
              
              13,620,498
              
              
              9,282,153
  Depreciation
and amortization expense of property and equipment for the years ended
December 31, 2008 and 2007 was $75,516 and $59,104, respectively. The
company has defined the following useful lives for fixed assets: Machinery and
equipment: 8 years, Office furniture and equipment: 3 (IT equipment) to 5 years
(office furniture), Vehicles: 4 years.
 
   F-12
 TABLE OF CONTENTS
  10.Borrowings Under
Revolving Credit Facility, Short and Long-Term Loan
  Short-Term
    Loan
              
              2008
              
              2007State Department of Energy Geneva
      (Switzerland)
              
              
              33,085
              
              
              861,248Banque
      Cantonale de Genève (1)
              
              
              5,137,555
              
              
              0State Department of Energy Geneva
      (Switzerland)
              
              
              0
              
              
              3,997,665State Department of Energy Geneva
      (Switzerland)(1)
              
              
              4,736,550
              
              
              0UBS
              
              
              0
              
              
              1,288,8159,907,190
              
              
              6,147,728
  Long-Term
    Loan
              
              2008
              
              2007Banque
      Cantonale de Genève
              
              
              0
              
              
              7,563State
      Department of Energy Geneva (Switzerland)
              
              
              918,389
              
              
              0State
      Department of Energy Geneva (Switzerland)
              
              
              882,413
              
              
              01,800,802
              
              
              7,563
   Total loan as at December
      31st, 2008
              
              
              11,707,992
 
  Year
              
              Repayments2009Short
      term loans (1)
                Long
      term loans
              
              
              9,874,105
                33,0852010Long term
    loans
              
              
              952,7982011Long term
      loans
              
              
              35,7852012Long term
    loans
              
              
              37,2162013Long term
    loans
              
              
              38,706Thereafter
              
              
              736,297Total
              
              
              11,707,992
 
 (1)Short
term loans relate to the new construction of the manufacturing facility. The
Company intends to refinance the construction loans on a long-term basis upon
completion of the plant. Negotiations are presently taking place with several
banking institutions interested in granting the long term mortgage
facility.
 
 F-13
 TABLE OF CONTENTS
  On
November 3, 2003, SES Switzerland received a loan from the Geneva (Switzerland)
State Department of Energy (“ScanE”) of up to CHF1,000,000 ($947,311). The loan
bears interest at a rate of 4%. SES Switzerland used CHF969,470 ($918,389) of
this loan as of December 31, 2008, and CHF969,470 ($861,248) as of December 31,
2007. This loan matured on March 31, 2008. On April 2, 2008, the Company filed a
request with ScanE to renew the loan for a period of 24 months on the same terms
and conditions. By decision dated May 19, 2008, ScanE accepted the Company’s
request that the loan be extended for a period of 24 months on the same terms
and conditions. The new maturity date for the loan is March 31, 2010. Pursuant
to the Canton Geneva Escrow Agreement dated September 15, 2006, Christiane Erne,
Jean-Christophe Hadorn and Claudia Rey personally pledged 10,000,000 of their
issued SES USA common shares as a guarantee for the original loan entered into
on November 6, 2003. These shares now serve as a guarantee for the renewed loan
dated May 19, 2008. The Company does not currently have any plans to repay the
loan before its March 31, 2010 maturity date.
 
 On
January 21, 2004, ScanE granted the Company a credit facility of CHF1million
($947,311) to finance the construction of the Company’s new manufacturing
facility. Release of these loan proceeds was contingent upon the Company
satisfying certain conditions precedent, which were satisfied as of November 13,
2007. As of January 8, 2008, we had utilized the full amount of the loan, which
has a fixed annual interest rate of 4%. The loan has a duration of 20 years and
is secured by a mortgage certificate of CHF1,000,000 ($947,311) on the
manufacturing facility. The loan is reimbursed in 20-equal annual installments
of CHF73,581 (approximately $69,704) which include principal and interest. The
first installment was paid in December 2008 thus reducing the principal to $
915,498.
 
 On
September 18, 2007, we signed a six month credit facility for CHF4,500,000
($4,262,898) with ScanE. The loan bears interest at 5%. The proceeds were
received on October 1, 2007 and became due on March 17, 2008. ScanE extended the
loan until June 20, 2008 under the same terms and conditions as the existing
loan agreement. On June 20, 2008, SES announced the sale of its photovoltaic
power station to Services Industriels de Geneve (“SIG”). The Company
received substantially all of the proceeds from the sale on June 30, 2008 and
used a portion of the proceeds to reimburse this loan in full as of July 2,
2008.
  SES
Switzerland also had a revolving credit line with UBS in the principal amount of
CHF3,000,000 ($2,841,932) used mainly to cover short-term cash needs. The
revolving credit line was secured by short-term deposits denominated in US
dollars with UBS, amounting to $3,155,000. The credit line bears interest at
4.75%. On August 13, 2008, $ 3,000,000 of the short-term deposit were used to
offset the credit line. The balance of the credit facility was CHF0 ($0) as of
December 31, 2008 and CHF1,450,764 ($1,288,815) as of December 31, 2007 and
expired.
  SES
Switzerland also has a Construction Credit Agreement with Banque Cantonale de
Genève (BCGE) dated December 20, 2006 in the amount of CHF4.8 million
($4,547,091), which is used to finance construction of our new manufacturing
facility. The loan was amended on November 13, 2007 and increased from CHF4.8
million to CHF8.5 million ($8,052,140). The amended agreement must be drawn down
no later than the date of completion of construction on the new manufacturing
facility planned during the first semester 2009. We used CHF5,423,310
($5,137,555) of the loan as of December 31, 2008 and CHF8,513 ($7,563) as of
December 31, 2007. The loan bears interest at a rate of 3.75% and is secured by
a second lien exclusive mortgage certificate of CHF9,000,000 ($8,525,795) on the
manufacturing facility.
   F-14
 TABLE OF CONTENTS
 
 On October 27, 2008 we signed a six
month credit facility for CHF5,000,000 ($4,736,550) with ScanE to finance
improvements on the building. The loan was secured by a 4rd rank
mortgage on the building. As of December 31, 2008, the full amount of the loan
was used to finance construction of our new manufacturing facility. The loan
bears interest at of 4%. The loan will be reimbursed upon completion of the
construction and concentration of all construction credit facilities with one
financial institution.
 
 11.Billings in Excess of
Cost and Estimated Earnings
  Billings in Excess of Cost and
      Estimated Earnings
              
              2008
              
              2007Prepayments to
      suppliers
              
              
              151,363
              
              
              43,234Work in
      progress
              
              
              134,782
              
              
              367,960Prepayments from
      customers
              
              
              (1,734,735
              )
              
              (918,238
              )(1,448,590
              )
              
              (507,044
              )
 
 12.Commitments and
Contingencies:
  Operating
Leases- lease expenses for
the years ended December 31, 2008 and 2007 were $181,632and $135,453,
respectively.
  The following table presents future
minimum lease commitments (concerning the lease of vehicles) under operating
leases at December 31, 2008
  Operating
      Leases2009
              
              
              43,3552010
              
              
              29,7392011
              
              
              30,0052012
              
              
              25,209Total
              
              
              128,308
 
 In
addition to the amounts disclosed above, SES Switzerland has an operating lease
for its office located at 129 Route de Saint-Julien, Plan-les-Ouates,
Switzerland (a suburb of Geneva). The rent is CHF52,572 ($48,705) per year. The
initial lease term ended on February 28, 2008. The lease has been renewed with
the same conditions for the next 12 months.
  SES
Switzerland also leases a 1,654 square meter industrial facility in Härkingen,
Switzerland. The monthly fixed rent is CHF7,232 (approximately $6,700). The
lease has no specific termination date. The lease may be cancelled with six
months notice at the end of the month, except for December, which requires an
additional month’s notice.
  On May
27, 2005, we received authorization from the State of Geneva to build a
manufacturing facility on their property in Plan-les-Ouates, Switzerland and we
received a lease for the land in February 2007. The lease for use of the land is
for 60 years commencing on July 1, 2006.
 
 The following are the lease
commitments.
  Use of Land2009
              
              
              66,7642010
              
              
              66,7642011
              
              
              66,7642012
              
              
              66,7642013
              
              
              66,764Thereafter
              
              
              3,505,127Total
              
              
              3,838,947
  SES Switzerland has no non-cancellable
operating leases.
   F-15
 TABLE OF CONTENTS
  Employment Agreements—As at
year end, SES Switzerland and SES Prod employed 4 employees and 2 executive
officers. The terms of employment are supplemented by Swiss Commercial Law which
requires in case of termination of the contract, a minimum of one month’s notice
the first year, 2 months paid notice the second year and 3 month’s paid notice
of termination thereafter. Mrs. Crisafulli and Mr. Erné have written employment
agreements.
  Flannel
Management sarl has a consulting agreement with SES Switzerland effective
October 1, 2006. Flannel Management sarl receives a monthly consulting fee of
CHF20,000 ($18,529) (using exchange rate set forth in Note 3 to the Consolidated
Financial Statements hereto). The contract is for a 10-year term and if earlier
terminated, the Company nevertheless pays the consulting fees for the remainder
of the term. One of Flannel Management sarl’s consultants is Philippe
Crisafulli, the husband of Sandrine Crisafulli, Chief Financial Officer of SES
USA and SES Switzerland.
  During
the year 2008, Jean-Christophe Hadorn, the CEO, and a stockholder of the
Company, invoiced CHF94,706 ($87,739) to SES Switzerland as a consultant, of
which CHF8,647($8,011) was outstanding at year-end.
  Litigation—The Company is
from time to time subject to routine litigation incidental to its business.
There are no such litigation currently pending.
  Capital Commitments- At
December 31, 2008, the Company has an outstanding purchase order of EUR448,600
($632,410) for the future construction of a new machine to be used in the new
plant for solar module production. The Company has made an advance
payment of EUR269,160 ($379,446) for the purchase of this machine. The
balance due will be paid upon delivery of the machine. At December 31, 2008, the
Company had purchase agreements signed for the building of the new plant for
CHF7,354,273 ($6,966,781). Of the above amount, advance payment of CHF5,421,607
($5,135,946) was made on January 1, 2009, the remaining amount will be paid at
the end of the construction planned during the first semester 2009.
 
 13.Business
Segments
 
 As
December 31, 2008, all of the Company’s operations were conducted through its
wholly owned subsidiaries, SES Switzerland, and were limited to the assembly and
installation of photovoltaic panels in Switzerland. Commencing January 2008, the
Company began selling electricity produced by its photovoltaic power station
(the “Solar Plant”) on the roof of its new manufacturing facility to a local
utility in Geneva. As previously reported, the Solar Plant was sold in June
2008. As a result, the Company’s operations are again limited to the assembly
and installation of photovoltaic panels.
 
 14.Discontinued
Operations
 
 As noted
above, the Company sold its Solar Plant in June 2008. The balance sheet and
income statement have been retrospectively adjusted to reflect the effects of
discontinued operations. The Company sold photovoltaic electricity produced by
the Solar Plant to a local electricity provider in Geneva based on a 20-year
contract. This contract was cancelled on June 30, 2008 due to the sale of the
Solar Plant. The net income from discontinued operations is from the former
electricity producing business segment. The Solar Plant and the six-month credit
facility of CHF4.5 million dated September 18, 2007 are the sole assets and
liabilities, respectively, that comprise the electricity producing business
segment.
 
 The net
income from discontinued operations during the year 2008 was $1,331,856 (gain on
disposal of $1,185,704, revenue of $247,730 and expenses of $101,578). No income
was recorded for the six-month period ended December 31, 2008. In 2007 there was
no income or expense from discontinued operations.
 
 12 months ended December, 2008Revenue
              
              
              247,730Operating
      expenses
              
              
              (101,578
              )Gain
      (loss) on sale
              
              
              1,185,704Income
      tax (expense) recovery
              
              
              -Net
      earnings (loss) from discontinued operations
              
              
              1,331,856
 
 F-16
 TABLE OF CONTENTS
  15.Stockholders’
Equity:
  Common
Stock— The Company has
100,000,000 shares of common stock authorized, par value $0.001 per share, and
73,081,168 shares issued and outstanding.
  On November 22, 2006, the Company issued
warrants to purchase 1,500,000 shares of common stock at an exercise price of
$0.90 per share (the “Warrant Shares”). The Warrants expire four (4) years after
the date of issuance.
  During the year ended December 31, 2008,
no stock purchase warrants were exercised.
  Warrant transactions consisted of the
following during the year ended December 31, 2008:
  ExercisableWarrants
              
              Strike
       PriceWarrants Outstanding As of
      December 31, 2007
              
              
              1,500,000
              
              $
              0.90Warrants granted as consideration
      for agent’s fee
              
              
              0
              
              $
              0Exercise of
      warrants
              
              
              0
              
              $
              0Warrants Outstanding As of
      December 31, 2008
              
              
              1,500,000
              
              $
              0.90
  Warrants outstanding expire as
follows:
  Warrants
              
              
              StrikeYear
              
              
              Expiring
              
              
              Price2010
              
              
              1,500,000
              
              $
              0.901,500,000
 
 The
Company granted registration rights to Lansing Securities including the right to
include all or any part of the Warrant Shares (the “Registrable Securities”) in
the next registration statement and subsequent registration statements that the
Company files with the SEC from time to time (the “Registration Statement”)
(other than a registration statement on Form S-8 or Form S-4) until all of the
Registrable Securities have been duly registered.
 
 On August
31, 2006, SES USA entered into an agreement with Standard Atlantic to advise SES
USA and its stockholders in connection with the purchase of all of the shares of
SES Switzerland. Pursuant to the terms of a Finder’s Agreement between SES USA
and Standard Financial (the “Finder’s Agreement”) the parties agreed to a
finder’s fee of $228,000 if a transaction were consummated. The Finder’s
Agreement also provided that Standard Atlantic would continue to provide
consulting services to the Company for a period of 24 months regarding investor
relations matters for a monthly fee of $20,000. The two-year consulting fee was
due and was paid to Standard Financial at closing. The Company paid and recorded
initially the total amount as deferred expense and amortized the amount over the
24 months of the consulting agreement, which ended on September
2008.
 
 F-17
 TABLE OF CONTENTS
  
 As per
the terms of the Credit Line Escrow Agreement dated September 1, 2006 (as
amended), related to the reverse acquisition, the Company was required to obtain
additional financing in the amount of CHF12,000,000 ($11,367,727) before
November 30, 2007 to build the manufacturing plant in Plan-les-Ouates.
Otherwise, 24,143,410 shares of common stock escrowed by Christiane Ernè,
Jean-Christophe Hadorn and Claudia Rey will be cancelled. If the Company
receives the necessary financing, the escrowed shares are to be delivered to a
subsequent escrow pursuant to the Long Term Escrow Agreement dated September 1,
2006. The shares of common stock of the Company held in escrow pursuant to the
terms of the Long-Term Escrow Agreement are to be delivered from escrow by the
escrow agent on the second anniversary of the closing of the share exchange
agreement. As of September 18, 2007, the Company did obtain the necessary
financing to satisfy the Credit Line Escrow Agreement, thus the shares were
transferred into the Long Term Escrow and are included in earnings per
share.
  16.Employee Benefit
Plans:
  SES
Switzerland’s employees are enrolled in a mandatory group pension plan with
Bâloise Assurances. The pension plan is a defined contribution plan, and
payments to the plan are made in equal parts by the employee (through
withholding) and the employer. Contributions are based on the age of the
employee and vary between 8% and 16%. Total amounts paid by the employer for
2008 were CH18,400 ($17,046).
 
 17.Interest Income and
other:
  Interest
income for the year ended December 31, 2008 was $45,838 as compared to $177,650
for the year ended December31,
2007. The interest income earned in the year ended December 31, 2008, was
received from increase time deposits originated by additional funding received
during the second semester of 2006.
  18.Income
Taxes:
  In June 2006, the Financial Accounting
Standards Board issued interpretation No. 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes”. FIN 48 establishes the minimum threshold for
recognizing, and a system for measuring, the benefits of tax-return positions in
financial statements. The provisions of FIN 48 were effective for the Company as
of January 1, 2007, and required application of FIN 48 to all existing tax
positions upon initial adoption. The adoption of the standard had no effect on
the Company’s financial condition or results of operation.
  The following tax years remain subject
to examination:
  Jurisdiction
              Open
  yearsSwitzerland
              2007-2008
 
 The Company’s tax basis for assets and
liabilities is identical for the financial statements and tax reporting.
Accordingly, the only deferred tax portion is the benefit with respect to the
net operating loss. The Company records a valuation allowance to reduce the
deferred tax asset to the amount that is estimated to be more likely than not to
be realized.
  December 31,
      2008
              
              December 31,
      2007$
              
              $Deferred tax
      assets:Net
      operating loss carry-forward
              
              
              1,112,143
              
              
              987,836Less:
      valuation allowance
              
              
              (1,112,143)
              
              
              (987,836
              )Net
      deferred tax assets
              
              
              -
              
              
              -
 
 We have net losses for financial
reporting purposes. Recognition of deferred tax assets will require generation
of future taxable income. There can be no assurance that we will generate
sufficient taxable income in future years. Therefore, we established avaluation allowance on net deferred tax assets of $1,112,143 as of
December 31, 2008 and $987,836 as of December 31, 2007.
 
   F-18
 TABLE OF CONTENTS
 
 The components of loss before income tax
benefit are as follows:
  For the Years Ended December
      31,2008
              
              2007$
              
              $United
    States
              
              
              0
              
              
              0Switzerland
              
              
              (474,454
              )
              
              (1,524,054
              )(474,454
              )
              
              (1,524,054
              )
  As of
December 31, 2008, we have net operating loss carry forwards for Swiss tax
purposes of $4,244,822, expiring atvarious times from years ending 2010 to
2014.
  2008$2010
              
              
              (501,396
              )2011
              
              
              (505,411
              )2012
              
              
              (1,239,507
              )2013
              
              
              (1,524,054
              )2014
              
              
              (474,454
              )Total tax-deductible loss carry
      forward
              
              
              (4,244,822
              )
 
 The deferred tax asset is realizable as
we anticipate sufficient taxable income in future years to realize the tax
benefit with respect to the net operating loss.
  The adoption of FIN 48,Accounting for
Uncertainty in Income Taxes,has had no impact on the reported carry
forwards at December 31, 2008.
  The tax provisions differ from the
amount computed using the federal statutory income tax rate as
follows:
  Years Ended December
      31,2008
              
              2007$
              
              $Income
      tax benefit at federal statutory rate
              
              
              (161,314
              )
              
              (518,178
              )Foreign
      tax rate differential
              
              
              37,007
              
              
              119,101Increase
      in valuation reserve
              
              
              124,307
              
              
              399,077-
              
              
              -
  19.Concentration of
Risk
  SES Switzerland is dependent on
third-party equipment manufacturers, distributors and dealers for all of its
supply of photovoltaic cells and panel components. For fiscal years 2008 and
2007, products purchased from SES Switzerland’s top three suppliers accounted
for 87% and 99% of total revenues, respectively. The Company is dependent on its
ability to provide installations on a timely basis and on favorable pricing
terms. Although SES Switzerland tries to diversify its sources of supplies, its
technology needs certain types of solar cells and the loss of certain principal
suppliers, or the loss of one or more of certain ongoing affinity relationships
could have a strong material adverse effect on the Company.
  The Company’s future results could also
be negatively impacted by the loss of certain customers, or the loss of one or
more of certain ongoing affinity relationships.
 
 F-19
 TABLE OF CONTENTS
  20.Reverse
Acquisition
  SES USA entered into a share exchange
agreement dated August 31, 2006 with SES Switzerland and the stockholders of SES
Switzerland. The share exchange agreement contemplated SES USA acquiring all of
the issued and outstanding common shares of SES Switzerland in exchange for the
issuance by SES USA of 48,286,817 common shares. All share information has been
retroactively restated to reflect the recapitalization in connection with the
reverse takeover. See also Note 1.
  21.Related Party
Transactions
  During
2008, Jean-Christophe Hadorn, the CEO, and a stockholder of the Company,
invoiced CHF94,706 ($87,739) to SES Switzerland as a consultant, of which
CHF8,647 ($8,011) was outstanding at year-end.
  As of the
fiscal years ended 2008 and 2007, the Company has a receivable from its major
stockholder in the amount of $90,573 (CHF95,611) and $84,938 (CHF95,611),
respectively. These amounts relate to a project for a building of a
controllingstockholder.
 
 Flannel
Management sarl has a consulting agreement with SES Switzerland effective
October 1, 2006. Flannel Management sarl receives a monthly consulting fee of
CHF20,000 ($18,529) (using exchange rate set forth in Note 3 to the Consolidated
Financial Statements hereto), resulting in CHF240,000 ($222,346) for the year
2008 (CHF240,000 or $200,218 for 2007). The contract is for a 10-year term and
if earlier terminated, the Company nevertheless pays the consulting fees for the
remainder of the term. One of Flannel Management sarl’s consultants is Philippe
Crisafulli, the husband of Sandrine Crisafulli, Chief Financial Officer of SES
USA and SES Switzerland.
  SES
Switzerland has entered into an employment agreement with Daniel Erné effective
October 1, 2006. Mr. Erné receives an annual salary of CHF130,000 ($120,437) in
consideration of management services. Mr. Erné is the husband of Christiane Erné
and a director of SES USA and SES Switzerland.
  22. Supplemental Cash Flow
Information
  Cash paid
for interest during fiscal years 2008 and 2007 totaled $155,133, and $116,212,
respectively.
  In fixed
assets a total amount of $185,214 ($3,167,499) have been capitalized but not
paid as of December 31, 2008. This amount is included in accounts payable as of
year end.
  23.Subsequent
Events
  No major events have occurred since the
closing of the accounts.
   F-20