Solar Thin Films, Inc (SLTN) - Description of business
Organizational History Solar History The Company was initially organized as a New York corporation on June 22, 1988 under the name Alrom Corp. ("Alrom"), and completed an initial public offering of securities in August 1990. Alrom effected a statutory merger in December 1991, pursuant to which Alrom was reincorporated in the State of Delaware under the name American United Global, Inc. Prior to the acquisition of Kraft, the Company intended to focus its business strategy on acquisitions of operating businesses in various sectors. On June 14, 2006, in connection with its business strategy, the Company closed on the acquisition of 95.5% of the outstanding securities of Kraft and, as a result, now conducts its operations via Kraft, the majority-owned subsidiary. Kraft History Kraft was founded in 1993, shortly after the breakup of the communist economy in Hungary. Its founding members were associated with the Hungarian Central Research Institute for Physics. In 1996, Kraft was contracted to develop thin-film photovoltaic deposition equipment for production of amorphous silicon based thin-film modules, as well as complete turnkey facilities. Photovoltaics (PV) is the physical phenomenon, which allows certain semiconductor materials to directly convert sunlight into electricity. In the subsequent years, Kraft has manufactured four such facilities in New Jersey, Hungary, China and Greece. In producing these facilities, Kraft developed all aspects needed for becoming a leading manufacturer of turnkey plants and equipment that produce photovoltaics modules that utilizing thin-film technology. On behalf of its customers, Kraft is presently engaged in the design, development and construction of various turnkey manufacturing plants that produce photovoltaic thin-film modules. The Company expects the primary purchase of such photovoltaic thin-film modules to be used by corporations and governments in the development and construction of solar power plants. Kraft, in the future, may further integrate itself in this industry through the engagement in other areas including, but not limited to, operating the manufacturing plants, selling thin-film photovoltaic modules, installing the thin-film photovoltaic modules and managing solar power plants. Business Overview The Company conducts its business operations via the recently acquired majority-owned subsidiary, Kraft. Kraft is an equipment design and manufacturing company headquartered in Budapest, Hungary and historically has been engaged in the design, development and manufacturing of vacuum based production and quality control equipment used in several hi-tech industries. Over its ten year existence, Kraft has developed and manufactured a line of equipment serving the semiconductor industry, glass coating technologies and, more recently, the photovoltaic industry. The Company is currently focusing substantially all of its efforts on the design, development and construction of turnkey thin-film PV manufacturing plants that produce photovoltaic thin-film modules and expects most of its near term growth to develop through the delivery of its turnkey PV facilities. Through the Company's association with strategic partners, STF is seeking to secure a leading position as the primary supplier of turnkey PV facilities to manufacture thin-film based photovoltaic modules. Such turnkey facility consists of all the hardware and machinery manufactured, assembled, and installed by the Company and all the software, know-how and training associated with the manufacturing process supplied jointly with its strategic partners. Historically, the strategic partner has served as the main contractor guaranteeing process performance to the buyer, and Kraft is the equipment supplier through its partner to the buyer. STF also has a right to market and sell such turnkey PV production facilities. The main strategic partners of the Company, in the sale of turnkey thin-film photovoltaic module manufacturing facility, are TerraSolar Global, Inc. ("TerraSolar") and Renewable Energy Solutions, Inc. ("RESI"). TerraSolar, Inc. ("TSI") owns approximately 49% of the outstanding securities of TerraSolar. Zoltan Kiss, a director and shareholder of the Company, through TSI, is a shareholder of TerraSolar. Zoltan Kiss, a director and shareholder of the Company, is also the majority owner of RESI. Products and product development PV Modules on Glass Substrate The Company has developed manufacturing equipment used in its turnkey manufacturing facilities that produce thin-film based modules on glass substrates. By 2006, Kraft constructed four turnkey manufacturing facilities, and is currently in the process of completing a fifth facility, to manufacture amorphous silicon based photovoltaic modules. The PV industry and other industries using thin-film PV technology are changing very rapidly, and it is imperative that we carry on R&D activities to develop the next generation deposition equipment. To accomplish this, the Company commenced R&D activity, either internally or through our relationship with RESI, to develop: - manufacturing equipment to manufacture copper indium gallium diselenide (CIGS) based PV modules on a 2ft x 4ft glass substrate; - manufacturing technology for thin-film based PV modules that will be able to use substrate size 4ft x 8ft; and - automated glass handling and robotic processes to eliminate labor costs from PV module production. Architectural Glass Applications One large existing market for thin-films on a glass substrate has been used in the architectural glass industry to create low-e coated windows with reflective properties to enhance the insulation. Similar coated glass using different color films has been used as architectural glass on the sides of skyscrapers. The Company's technology is capable of preparing such glass, and, in some cases, can add a photovoltaic component to it. There is ongoing R&D effort to extend the application of building integrated photovoltaics or so-called BIPV modules to window glass in high-rise buildings. Market Management believes the PV industry is currently growing from infancy to adolescence. The Company believes this growth is aided by the concerns of global warming, governmental incentives, political and institutional involvement and the economics of the PV industry. STF believes the strongest force in causing the move from fossil fuels to PV is the economics of PV. Since the cost of the PV module represents more that 70% of the cost of installed PV systems, to manufacture the lowest cost PV modules secures the greatest competitive edge and advantage in the market place. The market presently consists substantially of modules produced using crystalline silicon. Most of the thin-films that have been produced, until now, use amorphous silicon on a glass substrate. The costs of the thin-film based modules are less than half of those for crystalline silicon. Based on the economic pressures by this major cost difference, Kraft believes that the ratio of crystalline to thin-film in the product mix will substantially shift in the next decade. Most of this growth has taken place using crystalline modules. The Company's management believes the emergence of thin-films as a lower cost alternative is now being absorbed by the market. Competition Crystalline silicon PV technologies currently represent substantially 90% of PV market. Demand for crystalline silicon has grown very rapidly over the past decade, but the photovoltaic module prices remained relatively unchanged. The competitors of the Company, through their own research and development, have been developing their own pilot lines for thin-films PV module manufacturing. As a result, STF believes its competitors will consist of companies that decide to build their own PV plants utilizing their internal technology and know how. Most of the players are specialized on the sale of individual pieces of equipment which are only a part of the thin-films module production line. STF believes that the marketing and sale of turnkey manufacturing facilities is substantially more profitable than the marketing of particular pieces of equipment. However, in case a customer requests only pieces of equipments, Kraft fulfills the order seamlessly as well. Strategy The Company's strategy is to market complete turnkey manufacturing equipment to manufacture thin-film based PV modules. Kraft intends to develop its strategy by developing the following areas: Sale of Turnkey Facilities The Company's main focus is on developing the photovoltaic business. The large PV companies with technical background have been developing their own thin-film manufacturing pilot lines. STF believes these players will buy individual machines and components from Kraft. In addition to the large technical or energy companies, there are companies that desire to sell PV modules, which on their own do not have the technical expertise to define a manufacturing process and assemble thin-film factories through the purchase of stand alone components. Together with strategic partners such as Resi and Terrasolar, STF offers a turnkey manufacturing facility that is sold installed together with guarantees of the manufacturing line, such as throughput, module efficiency, and in some cases, even manufacturing cost. Such turnkey facility consists of all the hardware and machinery manufactured, assembled, and installed by the Company and all the software, know-how and training associated with the manufacturing process supplied by its strategic partners. In this arrangement, TerraSolar has historically been the main contractor guaranteeing process performance to the buyer, and STF is the developer of the facility through TerraSolar to the buyer. STF also has a right to sell such turnkey facilities. In cases, where the turnkey facility is sold by STF, either the Company will be the main contractor, with its strategic partner subcontranting to deliver their know-how and soft costs, or the strategic partner will be the main contractor but in this case, the Company will receive additional remuneration for its marketing efforts. In addition to the sale of the turnkey facilities, STF may commence to build and operate the turn key facilities and, in turn, sell the PV modules as well as installing the thin-film photovoltaic modules and managing solar power plants. Sale of Individual Machines Some of the individual products can be sold for a specific, limited function. These products include a tin-oxide deposition system that could be offered to architectural or so-called low-e coating deposition architectural glass manufacturers. The Company can also offer for sale various components for vacuum systems (for example, gate valves, chambers, etc.) Customers Currently the Company has two key customers, which count for over 90% of the total revenue. Both companies are located in the US and request Kraft to manufacture and deliver thin-film photovoltaic manufacturing equipments to their clients in the various parts of the world (e.g. Portugal, China, Taiwan).
Governmental RegulationThe Company's operations are subject to local, state and federal laws and regulations governing environmental quality and pollution control. To date, the Company's compliance with these regulations had no material effect on its operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. STF is unable to assess or predict at this time the effects that additional regulations or legislation could have on the activities. Employees As of December 31, 2006, the Company employed 48 full-time and 2 part-time employees, neither of whom is a member of a union or work council.