SunEnergy’s future sales revenues, capital and operating and financing costs can be affected by a range of general risk factors, many of which are beyond the control of the Company.
General movements in local and international capital markets, and economic conditions could affect the market price of the Company’s securities.
General Risks
Cyclones, Storms and Weather
Adverse weather conditions can damage or delay SunEnergy solar installations. SunEnergy’s policy is to insure against these risks wherever possible. There can be no guarantee that Sunenergy’s financial results will not be materially affected by adverse weather conditions.
Economic Factors
Factors such as inflation, exchange rates, interest rates, and supply and demand have an impact on operating costs, commodity prices and stock markets. SunEnergy’s profitability and share price can be affected by these factors.
Exchange Rate Risks
International sales by their nature will expose SunEnergy to fluctuations and volatility of exchange rates.
Global Financial Crisis
The global financial crisis of 2008–2009 began in July 2007 when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank.
The solar industry expects the financing of solar infrastructure assets will benefit from approximately $189 billiongovernments are committing to clean energy. SunEnergy expects infrastructure financing to improve in the second half of 2010 and to return to normal in 2011. There can be no guarantee that infrastructure financing will return to previous levels or that debt to equity ratios will be relaxed. This could have a material adverse affect on the sale of solar farms and desalination plants.
Global Warming
Climate change has a strong influence on energy legislation. Renewable energy industries typically benefit from new energy legislation such as grid feed-in legislation, CO2 taxes and renewable energy targets. Global warming may also cause weather or ocean conditions that threaten SunEnergy solar installations.
Government Policy Changes
Government policies are subject to review and changes from time to time. Such changes are likely to be beyond the control of the Company and may affect industry and/or company profitability. SunEnergy is not aware of any reviews or changes that would detrimentally affect its business at this time.
Share Market Conditions
Share market conditions may affect the price of SunEnergy’s securities, independently of financial and operational performance.
Specific Risks
Alternative Energy Sources
SunEnergy’s long-term success could be impacted by the discovery of new energy sources.
Acquisitions and Mergers
From time to time, SunEnergy may make acquisitions of businesses or technologies that are complementary to its business strategy. Future acquisitions would expose SunEnergy to risks commonly encountered in acquisitions of businesses. These risks include, among others, difficulty of assimilating the operations, information systems and personnel of the acquired businesses, the potential disruption of SunEnergy’s ongoing business and the inability of management to maximise the financial and strategic position of SunEnergy through successful incorporation of the acquired technologies, employees and customers.
There can be no assurance that any potential acquisition will not have a material adverse effect on SunEnergy’s business, financial condition and results of operations.
Technology acquisitions and mergers are complex and involve a high degree of risk. There can be no guarantee that SunEnergy will to be able to negotiate these acquisitions or to manage the risks associated with mergers, acquisitions and technology transfers.
Capital Requirements
SunEnergy will require additional capital to develop its business in the markets in which it intends to operate. SunEnergy’s ongoing capital requirements are substantial. There can be no assurance that SunEnergy will be able to obtain capital or debt on favourable terms, or at all.
Change of Law
Changes in relevant taxation, interest rates or other legal and administrative regimes may adversely affect the financial performance of the Company.
Credit Risk
SunEnergy will be selling products and services to some markets that have inherently high levels of credit risk. Where practical SunEnergy will rely on irrevocable letters of credit in order to mitigate these risks. There can be no assurance that SunEnergy can adequately manage this risk.
Competing Technology
SunEnergy’s long-term success will rely partly on its intellectual property held through patents, copyright, trade secrets and proprietary know-how. To this extent, the Company’s success is dependent on its ability to protect its intellectual property and enforce its rights against others.
It will also depend on its ability to develop and protect technology that meets market needs and on the technological advances and competitiveness on other companies operating in the industries in which SunEnergy operates.
Delay of Contracts
The Company’s projections are dependent on the commencement of new contracts during the projection period. A delay in the commencement of one or more contracts could materially affect results and may be outside the control of the Company.
Dependence Upon Proprietary Technology
SunEnergy’s success and ability to compete is dependent in part upon proprietary software and hardware technology. SunEnergy relies on a combination of trade secret, copyright, patent and trademark laws, non-disclosure and other contractual agreements and technical measures to protect its proprietary rights.
There can be no assurance that the steps taken by SunEnergy to protect its proprietary technology will prevent misappropriation of such technology, and such protections may not preclude competitors from developing products with functionality or features similar to SunEnergy and SunEnergy’s products. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries.
While SunEnergy believes that its products do not infringe upon the proprietary rights of third parties, there can be no assurance that SunEnergy will not receive future communications from third parties asserting that SunEnergy’s products infringe, or may infringe, the proprietary rights of third parties. SunEnergy expects that software and hardware product developers will be increasingly subject to infringement claims as the number of products and competitors in SunEnergy’s industry segment grows and the functionality of products in different industry segments overlap.
Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require SunEnergy to develop non-infringing technology or enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to SunEnergy or at all. In the event of a successful claim of product infringement against SunEnergy and failure or inability of SunEnergy to develop non-infringing technology or license the infringed or similar technology, SunEnergy’s business, operating results and financial condition could be materially adversely affected.
SunEnergy will rely on certain software that it licenses from third parties, including software that is integrated with internally developed software and used in SunEnergy’s products to perform key functions. There can be no assurance that these third party software licenses will be available, or continue to be available to SunEnergy on commercially reasonable terms, or at all.
Although SunEnergy believes that alternative software is available from other third-party suppliers, the loss of, or inability to maintain any of these software licenses, or the inability of the third parties to timely and cost-effectively enhance their products in response to changing customer needs, industry standards or technological developments could result in delays or reductions in product shipments by SunEnergy until equivalent software could be developed internally or identified, licensed and integrated, which would have a material adverse effect on SunEnergy’s business, operating results and financial condition.
Dependence on Third-Party Relationships
A key element of SunEnergy’s business strategy is to develop relationships with leading companies and to expand the OEM, partner, system-integrator and distributor channels of distribution. SunEnergy plans to invest significant resources to develop these relationships and channels of distribution, which could adversely affect SunEnergy’s operating margins. There can be no assurance that SunEnergy will be able to attract OEMs, partners, systems integrators and distributors that will be able to market SunEnergy’s products effectively.
SunEnergy believes that its success in penetrating markets for its products and services depends in large part on its ability to develop and expand these relationships, to cultivate additional relationships and to cultivate alternative relationships if distribution channels change. There can be no assurance that once OEMs, partners, systems integrators and distributors are established they will not discontinue their relationships with SunEnergy or form additional competing arrangements with SunEnergy’s competitors.
Development Stage
SunEnergy is a development stage company. As a consequence management have to manage a number of variables and face significant risks before SunEnergy becomes an established company. There can be no guarantee or assurance that SunEnergy can successfully manage this transition. There can be no assurance that SunEnergy will continue to attract capital on favourable terms, or at all.
Dilution
The offering price of the SunEnergy securities will be effectively set by the market and is likely to be substantially higher than the pro forma book value per share. Investors purchasing new securities in this offering will therefore incur immediate and substantial dilution.
Dividend Policy
SunEnergy has not paid any dividends and does not have any immediate plans to pay dividends.
Equity and Debt
SunEnergy operates in an industry that is growing rapidly. SunEnergy will need to raise further amounts of equity and debt to successfully compete in the industry. There can be no guarantee that SunEnergy will be able to raise further equity and/or debt on favourable terms, or at all.
Establishment and Expansion
There is no guarantee that SunEnergy will be successful in establishing and expanding the business in the region or in the rest of the world. The expansion will place additional demands on the Company’s management as well as financial and other resources.
If the Company expands more rapidly than anticipated it will require additional capital that may require an issue of shares that will dilute existing shareholdings.
Financial and Market Forecasts
The financial and market forecasts in this document have been prepared by SunEnergy and certain third party market estimates are also incorporated in this document. The financial forecasts and market estimates are provided for information purposes only. Some assumptions and estimates will inevitably not be accurate and unanticipated events will occur. As a result, the actual events and results achieved during the forecast period may vary from the forecasts. These variations may be material.
Markets may be larger or smaller than anticipated. Expansion and growth rates may vary significantly. These market variations may be material.
Growth
SunEnergy will need to expand its organization. This growth will result in new and increased responsibilities for management personnel and will place a significant strain upon SunEnergy’s management, operating and financial systems and resources.
Although SunEnergy believes that there are currently no existing material weaknesses, to compete effectively and manage future growth, if any, SunEnergy will be required to continue to implement and improve operational, financial and management information systems, procedures and controls on a timely basis and in such a manner as is necessary to accommodate the increased number of transactions and customers and the increased size of SunEnergy’s operations.
Management of future growth, if any, will also require that SunEnergy continuously expand, train, motivate and manage its work force. These demands will require the addition of new management personnel.
There can be no assurance that SunEnergy’s personnel, systems, procedures and controls will be adequate to support SunEnergy’s existing and future operations. Any failure to implement and improve SunEnergy’s operational, financial and management systems or to expand, train, motivate or manage employees could have a material adverse effect on SunEnergy’s business, operating results and financial condition.
Competition for qualified technical personnel to perform the required functions is intense. There can be no assurance that SunEnergy’s resources will be sufficient to manage any future growth in SunEnergy’s business, and any failure of SunEnergy to expand its organization commensurate with any expansion of the installed base of products and services would have a material adverse effect on SunEnergy’s business, operating results and financial condition.
Joint Ventures and Partnerships
Joint ventures and partnerships form the foundation of SunEnergy’s business strategy. SunEnergy intends to form joint ventures and partnerships with substantially larger companies and organizations. These proposed joint ventures and partnerships are difficult for companies like SunEnergy to achieve, develop and manage due to the following factors:
- the relationships are time consuming to manage and are expensive to establish;
- large companies and organizations typically have more bargaining or negotiating power than SunEnergy and can often negotiate more favourable terms than SunEnergy;
- partners have different priorities to SunEnergy and it is difficult to reconcile these differences;
- partners and SunEnergy often have different objectives and expectations;
- partners often move or act slower than SunEnergy; and
- partners often have different cultural and political backgrounds.
There are a number of other factors that also make joint ventures and partnerships difficult.
All of these factors could have a material adverse effect on SunEnergy’s business, operating results and financial condition.
Lack of Market for Securities
There is presently no market, private or public, for SunEnergy’s securities and there can be no assurance that a trading market will ever develop or, if developed, that it will be maintained.
Market Opportunities
Market opportunities and specifically the window of opportunity are all tending to shorten. There can be no assurance SunEnergy will be able to move quickly enough to benefit from new opportunities. There can also be no assurance SunEnergy will be able to move as fast as its competitors or potential competitors.
New Products and Technological Change
The solar markets are categorised by rapid technological and other change. SunEnergy must rely on its ability to exploit market niches or to gain early entry into developing markets. There can be no assurance that SunEnergy will be able to market new products successfully and respond effectively to technological changes or new product announcements by competitors
Partner Agreements
As with all contracts, disputes may arise. The Company policy is to resolve them through negotiation. If amicable resolution is not possible, the company may incur costs or suffer other damages.
Political and Economic Factors
SunEnergy intends to operate in some international markets that have high levels of risk relating to government policy, socio-economic factors, political unrest, civil war, legislation, foreign exchange, labour and other risks.
It is SunEnergy’s policy to ensure, as far as possible, that each business undertaking is self-contained and that risks are hedged or insured wherever possible.
There can be no assurance that SunEnergy will be able to manage these risks and this could result in a material adverse effect on SunEnergy’s business, operating results and financial condition.
Potential Fluctuations in Results and Seasonality
SunEnergy’s operating results will in the future vary significantly depending on factors such as the timing of significant orders and shipments, capital spending patterns of SunEnergy’s customers, changes in pricing policies by SunEnergy or it’s competitors, the lengthy sales cycle of SunEnergy’s solar products and services, increased competition, the cancellation of licenses or maintenance agreements, changes in operating expenses, personnel changes, demand for SunEnergy’s products, the number, timing and significance of new product and product enhancement announcements by SunEnergy and its competitors, government legislation, the ability of SunEnergy to develop, introduce and market new and enhanced versions of its products on a timely basis, the mix of direct and indirect sales and general economic factors, amongst others
Pricing of Services
Prices in the solar energy industry generally have fallen and will continue to fall. The Company cannot predict whether its future pricing schedule will prove to be viable, whether demands for its services will materialise at the anticipated prices or whether SunEnergy will be able to sustain adequate future pricing levels as competitors enter the market and introduce competing services.
Project Finance
Some projects may require $300 million or more of capital. There can be no assurance that SunEnergy will be able to raise project finance on favourable terms, or at all.
Regulatory Matters
Operators of local energy networks to which SunEnergy intends to market its products are subject to extensive regulation in most regions and countries. Many of these regulations affect the ability of energy companies to enter new lines of business, the manner in which they can participate in these activities and the rates that they can charge consumers. Changes in regulations can present opportunities or problems to SunEnergy.
Risk of Product Defects
Software and hardware products offered by SunEnergy might contain defects or failures when introduced or when new versions or enhancements are released. There can be no assurance that, despite testing by SunEnergy and its customers, errors will not be found in existing or new products or releases after commencement of commercial licensing, resulting in delay or loss of revenue, loss of market share or failure to achieve market acceptance. Any such occurrence could have a material adverse effect upon SunEnergy’s business, operating results and financial condition.
Speculative Investment
An investment in the SunEnergy securities is speculative and involves a high degree of risk. Investors must be prepared to bear the risk of their investment for an indefinite period and be able to withstand a total loss of their investment. In making an investment decision, investors must rely on their own examination of the Company and the terms of the offering, including the merits and risks involved.
Stock Market Fluctuations
The market price of the Company’s shares will be subject to varied and unpredictable influences on the stock market, if and when SunEnergy’s securities are listed. Therefore the securities offered by this issue may subsequently trade above or below their issue price.
Miscellaneous Risks
Failure to manage a number of variables including all risks whether outlined in this section, or not, could seriously impact SunEnergy. In addition to the above risks, there are likely to be other risks that SunEnergy has not identified.
