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As filed with the Securities and Exchange Commission on June 30, 2006
Registration No. 333-             
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
FIRST SOLAR, INC.
(Exact name of registrant as specified in its charter)
 
         
Delaware   3674   20-4623678
(State of Incorporation)   (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification No.)
 
4050 East Cotton Center Boulevard
Building 6, Suite 68
Phoenix, Arizona 85040
(602) 414-9300
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Michael J. Ahearn
Chief Executive Officer
First Solar, Inc.
4050 East Cotton Center Boulevard
Building 6, Suite 68
Phoenix, Arizona 85040
(602) 414-9300
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
With copies to:
     
John T. Gaffney, Esq.
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
  John D. Wilson, Esq.
Shearman & Sterling LLP
1080 Marsh Road
Menlo Park, California 94025
(650) 838-3600
 
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.
 
          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o                         
          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o                         
          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o                         
          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o                         
          If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
 
CALCULATION OF REGISTRATION FEE
         
 
 
    Proposed Maximum Aggregate   Amount of
Title of Each Class of Securities to be Registered   Offering Price(1)(2)   Registration Fee
 
Common Stock, par value $0.001 per share
  $250,000,000   $26,750
         
 
 
  (1) Estimated solely for the purpose of calculating the registration fee under Rule 457(o) of the Securities Act of 1933, as amended.
 
  (2) Includes shares of common stock that may be purchased by the underwriters to cover over-allotments, if any.
     The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JUNE 30, 2006
Shares
(FIRST SOLAR LOGO)
First Solar, Inc.
Common Stock
 
This is the initial public offering of shares of our common stock. We are selling                      shares and the selling stockholders named in this prospectus are selling                      shares of our common stock. We will not receive any of the proceeds from the sale of shares by the selling stockholders.
 
Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $          and $           per share. We will apply to list our common stock on The Nasdaq National Market under the symbol “FSLR”.
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 7.
 
PRICE $                        A SHARE
 
                 
        Underwriting       Proceeds to
    Price to   Discounts and   Proceeds to   Selling
    Public   Commissions   First Solar, Inc.   Stockholders
                 
Per Share
  $   $   $   $
Total
  $             $             $             $          
We have granted the underwriters the right to purchase up to an additional                      shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers on                     , 2006.
 
Credit Suisse Morgan Stanley
                     , 2006


 

 
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    F-1  
 Exhibit 23.2
 
      You should rely only on information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. We are not making an offer of these securities in any state where the offer is not permitted. The information in this prospectus may only be accurate as of the date on the front of this prospectus.
 
Dealer Prospectus Delivery Obligation
      Until                     , 2006 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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Industry and Market Data
      This prospectus includes industry and market data that we obtained from periodic industry publications, third-party studies and surveys, filings of public companies in our industry and internal company surveys. These sources include Datamonitor, the Energy Information Administration, the International Energy Agency, Photon International, Solarbuzz, Sun & Wind Energy and the World Bank. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable. Unless otherwise noted, statements as to our market position relative to our competitors are approximated and based on the above-mentioned third-party data and internal analysis and estimates as of the latest available date. Although we believe the industry and market data and statements as to market position to be reliable as of the date of this prospectus, this information could prove inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. In addition, we do not know all of the assumptions regarding general economic conditions or growth that were used in preparing the forecasts from sources cited herein.

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PROSPECTUS SUMMARY
         This summary highlights information about First Solar, Inc. and the offering contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. It is not complete and may not contain all the information that may be important to you. You should carefully read the entire prospectus before making an investment decision, especially the information presented under the heading “Risk Factors” and the financial statements and notes thereto included elsewhere in this prospectus. In this prospectus, except as otherwise indicated or as the context may otherwise require, all references to “First Solar”, “we”, “us” and “our” refer to First Solar, Inc. and its subsidiaries.
First Solar
         We design and manufacture solar modules using a proprietary thin film semiconductor technology that has established us as one of the lowest cost solar module manufacturers in the world. In 2005, our average manufacturing costs were $1.59 per Watt, which we believe is significantly less than those of traditional crystalline silicon solar module manufacturers. We are the first company to integrate non-silicon thin film technology into high volume low cost production. Our manufacturing process transforms an inexpensive 2ft x 4ft (60cm x 120cm) sheet of glass into a complete solar module in less than three hours, using approximately 1% of the semiconductor material used to produce traditional crystalline silicon solar modules. Our ability to attract customers with competitive pricing, in combination with our replicable low cost manufacturing process, afforded us a gross margin of 35% in 2005. By continuing to expand production and improve our technology and manufacturing process, we believe that we can further reduce our manufacturing costs per Watt and improve our cost advantage over traditional crystalline silicon solar module manufacturers. Our objective is to become, by 2010, the first solar module manufacturer to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in the United States, Europe and Asia.
         Our net sales grew from $3.2 million in 2003 to $48.1 million in 2005. Strong market demand, a positive customer response to our solar modules and our ability to expand production without raw material constraints present us with the opportunity to expand sales rapidly and increase market share. We recently entered into long-term solar module supply contracts with six European project developers and system integrators, which we expect to generate approximately 1.2 billion ($1.4 billion at an assumed exchange rate of $1.20/1.00) in sales from 2006 to 2011 (“Long Term Supply Contracts”). These Long Term Supply Contracts contemplate the manufacture and sale of a total of 745 Megawatts (“MW”) of solar modules. Under each of our Long Term Supply Contracts, we have a unilateral option, exercisable until December 31, 2006, to increase the sales volumes and extend each contract through 2012. If we exercise our option under each of the six contracts, we would expect them to generate approximately 1.9 billion ($2.3 billion at an assumed exchange rate of $1.20/1.00) in sales from 2006 to 2012 for the manufacture and sale of a total of 1,270MW of solar modules. In addition to supplying these contracted volumes, we are in the process of entering into new customer relationships in Spain and the United States.
         In order to satisfy our contractual requirements and address additional market demand, we are expanding our manufacturing capacity from the existing 25MW at our Ohio plant (the “Base Plant”) to an aggregate capacity of 175MW by the second half of 2007. We are in the process of adding two production lines to the Base Plant (the “Ohio Expansion”), which we expect will increase our annual manufacturing capacity to 75MW by August 2006 and establish First Solar as the largest thin film solar module manufacturer in the world. We are also building a four line 100MW manufacturing plant in Germany (the “German Plant”). After our German Plant reaches full capacity, estimated for the second half of 2007, we will have an annual manufacturing capacity of 175MW. We are also in the planning stage for a new manufacturing plant in Asia.
Market Opportunity
         We operate in a large, rapidly growing market that is widely untapped and highly elastic at certain price points. Global demand for electricity is expected to increase from 14.3 trillion kilowatt hours (“kWh”) in 2002 to 26.0 trillion kWh in 2025, according to the Energy Information Administration. However, supply constraints, rising prices, dependence on foreign countries and environmental concerns could limit the ability of many conventional sources of electricity to supply the rapidly expanding global demand. The challenges facing many conventional sources of electricity are creating a unique growth opportunity for the renewable energy industry, especially solar energy. According to the 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. Worldwide, annual installations by the photovoltaic industry grew from 0.3 Gigawatts (“GW”) in 2001 to 1.5GW in 2005, representing an average annual growth rate of over 43%. In 2005, the cumulative installed capacity of solar modules surpassed 5GW.

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Competitive Strengths
         We believe that we possess a number of competitive strengths that position us to become a leader in the solar energy industry and compete in the broader electric power industry:
  Cost-per-Watt advantage. Our proprietary thin film semiconductor technology has established us as one of the world’s lowest cost manufacturers of solar modules. In 2005, our average manufacturing costs were $1.59 per Watt, which we believe is significantly less than those of crystalline silicon solar module manufacturers.
 
  Continuous and scalable production process. We manufacture our solar modules on a high-throughput production line and we perform all manufacturing steps, from semiconductor deposition to final assembly and testing, ourselves in an automated, continuous process. Our proprietary thin film semiconductor technology reduces our semiconductor material requirements to approximately 1% of the semiconductor material used to produce crystalline silicon solar modules. We have implemented a number of continuous improvement systems and tools to improve scalability and increase operating leverage.
 
  Replicable production facilities. To complete each new production line, we plan to use a systematic replication process designed to enable us to add production lines rapidly and efficiently and achieve operating metrics in new plants that are comparable to the performance of our Base Plant. The Ohio Expansion demonstrated our ability to replicate a single 25MW production line by creating two new 25MW production lines, and will serve as a “standard building block” for building manufacturing lines in Germany and Asia. By expanding production, we believe we can take advantage of economies of scale and accelerate development cycles, enabling further reductions in the price per Watt of our solar modules.
 
  Stable supply of raw materials. We are not currently constrained by and do not foresee a shortage of cadmium telluride (“CdTe”), our most critical semiconductor material. In addition, because of the relatively small amount of semiconductor material we use, we believe our exposure to CdTe price increases is limited. By contrast, Solarbuzz estimates that a shortage of silicon feedstock will constrain the production of certain crystalline silicon solar module manufacturers until 2008.
 
  Pre-sold capacity through Long Term Supply Contracts. Our Long Term Supply Contracts provide us with predictable net sales and will enable us to ramp production and realize economies of scale from capacity expansions quickly, as we utilize and sell most of our production capacity upon the qualification of a new production line. By pre-selling the solar modules to be produced on future production lines, we minimize the customer demand risk of our rapid expansion plans.
 
  Favorable system performance. Solar modules usually perform below their nameplate power because of environmental conditions, including variation in the ambient temperature and intensity of sunlight. We believe that in real-world conditions, systems incorporating our solar modules operate more closely to their nameplate power than systems incorporating crystalline silicon solar modules. Such performance results in more kWh of electricity per Watt of nameplate power and increases our end-users’ return on investment, which we believe will result in greater demand for our solar modules.
Strategies
         Our goal is to utilize our proprietary thin film semiconductor technology to create a sustainable market for our solar modules by lowering the price of solar electricity to a level that is competitive with the price of retail electricity on a non-subsidized basis by 2010 in key markets in the United States, Europe and Asia. We intend to pursue the following strategies to attain this goal:
  Penetrate key markets rapidly. Upon completion of our German Plant and contemplated Asian plant, we expect to become a global fully-integrated solar module manufacturer with substantial production capacity. Our new production lines will enable us to diversify our customer base, gain market share in key solar module markets and reduce our dependence on any individual country’s subsidy programs.
 
  Further reduce manufacturing cost. We deploy continuous improvement systems and tools to increase the throughput of our production lines and the efficiency of our workforce and to reduce our capital intensity and raw material requirements. These include Theory of Constraints, Six

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  Sigma and Robust Engineering. In addition, by absorbing fixed costs over higher production volumes, we believe we can realize economies of scale and continue to lower our manufacturing cost per Watt. Higher production volumes should also enable volume-based discounts on certain raw material and equipment purchases and provide production and operational experience that translates into improved process and product performance.
 
  Increase sellable Watts per module. We are implementing several development programs designed to increase the number of sellable Watts per solar module, which is driven primarily by conversion efficiency. From 2003 to the first quarter of 2006, we increased the average conversion efficiency of our solar modules from approximately 7% to approximately 9%, which increased the nameplate power of our solar modules from approximately 49 Watts to approximately 62 Watts over the same period.
 
  Enter the mainstream market for electricity. We believe that our ability to enter the non-subsidized, mainstream market for electricity will require system development and optimization, new system financing options and the development of new market channels. As part of our development activities, we anticipate providing solutions beyond the solar module, ranging from solar system kits to turnkey financed solar generation projects, in selected market segments. For example, we recently entered into an agreement to sell 2.5MW of solar generation kits, which include solar modules, mounting systems and electrical interconnection subsystems, to the State of California.
Challenges
         Before you invest in our stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors”. We believe that the following are some of the major risks and uncertainties that may affect us:
  Thin film technology has a limited operating history. The oldest solar module manufactured on our pilot line has only been in use since 2001, and we do not have a large amount of data to validate our estimates of useful life and degradation. If our thin film technology and solar modules perform below expectations, we could lose customers and face high warranty expenses.
 
  Failure to achieve anticipated operating metrics at new production lines. To satisfy our contractual requirements, we must expand our production capacity. If our systematic replication process does not yield new production lines with operating metrics that are comparable to the performance of our Base Plant, we would be unable to produce the MW volume required to satisfy our contractual requirements and could lose customers.
 
  Reduction or elimination of government subsidies. The reduction or elimination of government subsidies before we achieve our goal of cost-competitiveness with conventional sources of electricity could significantly limit our customer base and reduce our net sales.
 
  Intense competition from providers of conventional and renewable sources of electricity. We face intense competition from providers of conventional and renewable electricity, including solar module manufacturers using crystalline silicon and other thin film technologies. Other sources of electricity could prove to be more cost competitive or desirable than our thin film technology.
Corporate Information
         First Solar, Inc., a Delaware corporation, was incorporated on February 22, 2006. We operated as a Delaware limited liability company from 1999 until 2006. Our corporate headquarters are located at 4050 East Cotton Center Boulevard, Building 6, Suite 68, Phoenix, Arizona 85040 and our telephone number is (602) 414-9300. We maintain a website at www.firstsolar.com. The information contained in or connected to our website is not a part of this prospectus.

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The Offering
Common stock offered by us                      shares
 
Common stock offered by the selling stockholders                      shares
 
Common stock to be outstanding after this offering                      shares
 
Use of Proceeds We estimate that we will receive net proceeds from our offering of common stock, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, of approximately $           million, or approximately $           million if the underwriters exercise their over-allotment option in full. For a sensitivity analysis as to the offering price, see “Use of Proceeds”.
 
Of the net proceeds we receive from this offering, we intend to use:
 
           • approximately $           million to complete the construction of our German Plant and fund the associated ramp-up costs;
 
           • approximately $           million to build a manufacturing facility in Asia and fund the associated ramp-up costs; and
 
           • the remainder for working capital and general corporate purposes, including system development, potential acquisitions and vertical integration.
 
We will not receive any proceeds from the sale of our common stock by the selling stockholders. See “Use of Proceeds”.
 
Dividend Policy We do not currently intend to pay any cash dividends on our common stock. See “Dividend Policy” and “Description of Capital Stock—Common Stock”.
 
Listing We will apply to list our common stock on The Nasdaq National Market under the symbol “FSLR”.
         All information in this prospectus, unless otherwise indicated or the context otherwise requires:
  assumes that our common stock will be sold at $           per share, which is the mid-point of the range set forth on the cover of this prospectus;
 
  assumes that the underwriters will not exercise the over-allotment option granted to them by us;
 
  gives effect to the shares of common stock we issued upon conversion of our convertible senior subordinated notes on May 10, 2006;
 
  does not give effect to                 options, with an exercise price equal to the price per share set forth on the cover of this prospectus, we plan to grant recent hires, directors and certain employees upon the consummation of this offering; and
 
  gives effect to the dissolution of our majority stockholder, JWMA Partners, LLC (“JWMA”), whereby the members of JWMA will become direct stockholders of First Solar, Inc. See “Principal and Selling Stockholders”.

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Summary Historical Consolidated Financial and Operating Data
         The following table provides a summary of our historical consolidated financial information for the periods and at the dates indicated. The summary historical consolidated financial information for the fiscal years ended December 27, 2003, December 25, 2004 and December 31, 2005 and as of December 31, 2005 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial information for the quarters ended March 26, 2005 and April 1, 2006 and as of April 1, 2006 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus.
         The information presented below should be read in conjunction with “Use of Proceeds”, “Capitalization”, “Selected Historical Financial Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus.
                                         
    For the Years Ended   For the Quarters Ended
         
    December 27,   December 25,   December 31,   March 26,   April 1,
    2003   2004   2005   2005   2006
                     
    (as restated)   (as restated)            
    (dollars in thousands)
Statement of Operations:
                                       
Net sales
  $ 3,210     $ 13,522     $ 48,063     $ 8,530     $ 13,624  
Cost of sales
    11,495       18,851       31,483       6,158       10,352  
                               
Gross profit (loss)
    (8,285 )     (5,329 )     16,580       2,372       3,272  
                               
Research and development
    3,841       1,240       2,372       197       1,519  
Selling, general and administrative     11,981       9,312       15,825       2,639       5,872  
Production start-up
          900       3,173       204       2,579  
                               
Operating loss
    (24,107 )     (16,781 )     (4,790 )     (668 )     (6,698 )
 
Foreign currency gain (loss)
          116       (1,715 )     (127 )     900  
Interest expense
    (3,974 )     (100 )     (418 )     (45 )     (423 )
Other income (expense), net
    38       (6 )     372       15       349  
Income tax expense
                            (23 )
Cumulative effect of change in accounting for share-based compensation
                89       89        
                               
Net loss
  $ (28,043 )   $ (16,771 )   $ (6,462 )   $ (736 )   $ (5,895 )
                               
 
Other Financial Data:
                                       
Net cash from (used in) operating activities   $ (22,228 )   $ (15,185 )   $ 5,040     $ (2,797 )   $ (11,370 )
Capital expenditures
  $ 14,854     $ 7,733     $ 42,481     $ 746     $ 25,793  
                                         
                As
            Actual   Adjusted
                 
Balance Sheet Data:           December 31,   April 1,   April 1,
            2005   2006   2006(1)
                     
            (dollars in thousands)
Cash and cash equivalents   $ 16,721     $ 62,788     $    
Property, plant and equipment, net     73,778       112,349          
Note payable to a related party     28,700       8,700          
Other current and long-term debt     20,023       94,022          
Total stockholders’ equity     13,129       39,116          

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                For the
            For the   Quarters Ended
            Year Ended    
            December 31,   March 26,   April 1,
            2005   2005   2006
                     
Other Operating Data (unaudited):
                                       
Solar modules produced (in MW)(2)
                    21.4       4.2       7.2  
Cost per Watt(3)
                  $ 1.59     $ 1.67     $ 1.60  
(1) Reflects (i) the conversion of our convertible senior subordinated notes into shares of our common stock on May 10, 2006 and (ii) the sale of                   shares of our common stock by us in this offering at an assumed initial public offering price of $           per share, which represents the mid-point of the estimated offering price range shown on the cover of this prospectus, and the application of the net proceeds to the Company as described further under “Use of Proceeds”. Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts, commissions and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $           per share of common stock (the mid-point of the range set forth on the cover of this prospectus) would increase (decrease) cash and equivalents by $           million and total capitalization by $           million and decrease (increase) total common stock and other shareholders’ deficit by $           million.
(2) Solar modules produced (in MW) includes solar modules held in inventory.
(3) We define average cost per Watt as the total manufacturing cost incurred during the period, including stock-based compensation expense relating to our adoption of SFAS 123(R), divided by the total Watts produced during the period. Excluding stock-based compensation expense relating to our adoption of SFAS 123(R) of $1,192,000 for the year ended December 31, 2005 and $21,000 and $1,096,000 for the quarters ended March 26, 2005 and April 1, 2006, respectively, our average cost per Watt would have been $1.55 for the year ended December 31, 2005 and $1.67 and $1.46 for the quarters ended March 26, 2005 and April 1, 2006, respectively.

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RISK FACTORS
         An investment in our stock involves a high degree of risk. You should carefully consider the following information, together with the other information in this prospectus, before buying shares of our stock. If any of the following risks or uncertainties occur, our business, financial condition and results of operations could be materially and adversely affected, the trading price of our stock could decline and you may lose all or a part of the money you paid to buy our stock.
Risks Relating to Our Business
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.
         We have a limited operating history. Although we began developing our predecessor technology in 1987, we did not complete our first solar module manufacturing line until January 2002. From our launch of commercial operations in January 2002 through the end of 2005, we sold approximately 28MW of solar modules. Relative to the entire solar energy industry, which had a worldwide installed capacity of 5GW, or 5,000MW, at the end of 2005, we have sold only a small percentage of the installed solar modules. As such, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. While our net sales grew from $3.2 million in 2003 to $48.1 million in 2005, we may be unable to achieve similar growth, or to grow at all, in future periods. Accordingly, you should not rely on our results of operations for any prior period as an indication of our future performance.
We have incurred losses since our inception and may be unable to generate sufficient net sales in the future to achieve and then sustain profitability.
         We incurred a net loss of $28.0 million in 2003, $16.8 million in 2004, $6.5 million in 2005 and $5.9 million in the first quarter of 2006, and had an accumulated deficit of $155.3 million at April 1, 2006. We may continue to incur losses in the future. For example, we expect our net loss to increase significantly in 2006 because of production start-up expenses related to the Ohio Expansion and German Plant and expenses related to becoming a public company. In addition, we expect our operating expenses to increase as we expand our operations. Our ability to reach and then sustain profitability depends on a number of factors, including the growth rate of the solar energy industry, the continued market acceptance of solar modules, the competitiveness of our solar modules and services and our ability to increase production volumes. If we are unable to generate sufficient net sales to become profitable and have a positive cash flow, we could be unable to satisfy our commitments and may have to discontinue operations.
Thin film technology has a short history, and our thin film technology and solar modules may perform below expectations.
         Researchers began developing thin film semiconductor technology over 20 years ago, but were unable to integrate the technology into a production line until recently. In addition, the oldest solar module manufactured on our pilot line has only been in use since 2001. As a result, our thin film technology and solar modules do not have a sufficient operating history to confirm how our solar modules will perform over their estimated 25 year useful life. If our thin film technology and solar modules perform below expectations, we could lose customers and face substantial warranty expense.
Our failure to further refine our technology and develop and introduce improved photovoltaic products could render our solar modules uncompetitive or obsolete and reduce our sales and market share.
         We will need to invest significant financial resources in research and development to keep pace with technological advances in the solar energy industry. However, research and development activities are inherently uncertain, and we could encounter practical difficulties in commercializing our research results. Our significant expenditures on research and development may not produce corresponding benefits. Other companies are developing a variety of competing photovoltaic (“PV”) technologies, including copper indium gallium diselenide and amorphous silicon, that could produce solar modules that prove more cost-effective or have better performance than our solar modules. As a result, our solar modules may be rendered obsolete by the technological advances of others, which could reduce our net sales and market share.

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If photovoltaic technology is not suitable for widespread adoption, or if sufficient demand for solar modules does not develop or takes longer to develop than we anticipate, our net sales may flatten or decline, and we may be unable to achieve and then sustain profitability.
         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 PV technology proves unsuitable for widespread adoption or if demand for solar modules fails to develop sufficiently, we may be unable to grow our business or generate sufficient net sales to achieve and then sustain profitability. In addition, demand for solar modules in our targeted markets, including Germany, may not develop or may develop to a lesser extent than we anticipate. Many factors may affect the viability of widespread adoption of PV technology and demand for solar modules, including the following:
  cost-effectiveness of solar modules compared to conventional and other non-solar renewable energy sources and products;
 
  performance and reliability of solar modules and thin film technology compared to conventional and other non-solar renewable energy sources and products;
 
  availability and substance of government subsidies and incentives to support the development of the solar energy industry;
 
  success of other renewable energy generation technologies, such as hydroelectric, wind, geothermal, solar thermal, concentrated PV and biomass;
 
  fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources, such as increases or decreases in the prices of oil and other fossil fuels;
 
  fluctuations in capital expenditures by end-users of solar modules, which tend to decrease when the economy slows and interest rates increase; and
 
  deregulation of the electric power industry and the broader energy industry.
Our future success depends on our ability to build new manufacturing plants and add production lines in a cost-effective manner, both of which are subject to risks and uncertainties.
         Our future success depends on our ability to significantly increase both our manufacturing capacity and production throughput in a cost-effective and efficient manner. If we cannot do so, we may be unable to expand our business, decrease our cost per Watt, maintain our competitive position, satisfy our contractual obligations or become profitable. Our ability to expand production capacity is subject to significant risks and uncertainties, including the following:
  the need to raise significant additional funds to build additional manufacturing facilities, which we may be unable to obtain on reasonable terms or at all;
 
  delays and cost overruns as a result of a number of factors, many of which may be beyond our control, such as our inability to secure successful contracts with equipment vendors;
 
  our custom-built equipment may take longer and cost more to engineer than expected and may never operate as designed;
 
  delays or denial of required approvals by relevant government authorities;
 
  diversion of significant management attention and other resources; and
 
  failure to execute our expansion plans effectively.
If our future production lines do not achieve operating metrics similar to our Base Plant, our solar modules could perform below expectations and cause us to lose customers.
         Currently, our 25MW Base Plant is our only production line operating at full capacity. We are in the process of adding two 25MW production lines to our Ohio facility using a systematic replication process. While our two new production lines are producing some solar modules during the qualification phase, we do not expect either line to operate at full volume capacity until August 2006. As a result, these new lines do not have a sufficient operating history for us to determine whether we were successful in replicating the Base Plant. Our new production lines could produce solar modules that have lower efficiencies, higher failure rates and higher rates of degradation

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than solar modules from our Base Plant, and we could be unable to determine the cause of the lower operating metrics or develop and implement solutions to achieve similar operating metrics as our Base Plant. The Ohio Expansion represents a “standard building block” that we intend to replicate in future production facilities and expansions of our existing production facilities, including the German Plant and the contemplated Asian plant. Our replication risk in connection with building the German Plant, the contemplated Asian plant and other future manufacturing plants could be higher than our replication risk in the Ohio Expansion because the new lines will be located internationally and we could be unaware of other factors that will lower the operating metrics of the new lines. If we are unable to systematically replicate our production lines and achieve similar operating metrics in future lines as our Base Plant, our manufacturing capacity could be substantially constrained, our manufacturing costs per Watt could increase and we could lose customers, causing lower net sales and net income than we anticipate.
Some of our manufacturing equipment is customized and sole sourced. If our manufacturing equipment fails or if our equipment suppliers fail to perform under their contracts, we could experience production disruptions and be unable to satisfy our contractual requirements.
         Some of our manufacturing equipment is customized to our production line based on designs or specifications we provide the equipment manufacturer. Following construction, each piece of equipment is qualified to ensure it meets our production standards. As a result, such equipment is not readily available from multiple vendors and would be difficult to repair or replace if it were to become damaged or stop working. If any piece of equipment fails, production along the entire production line could be interrupted and we could be unable to produce enough solar modules to satisfy our contractual requirements. In addition, the failure of our equipment suppliers to supply equipment in a timely manner or on commercially reasonable terms could delay our expansion plans and otherwise disrupt our production schedule or increase our manufacturing costs.
We may be unable to manage the expansion of our operations effectively.
         We expect to expand our business significantly in order to meet our contractual obligations, satisfy demand for our solar modules and increase market share. Currently, we are expanding our manufacturing capacity from the existing 25MW at our Base Plant to an aggregate of 175MW by the second half of 2007. To manage the expansion of our operations, we will be required to improve our operational and financial systems, procedures and controls, increase manufacturing capacity and throughput and expand, train and manage our growing employee base. Our management will also be required to maintain and expand our relationships with customers, suppliers and other third parties as well as attract new customers and suppliers. In addition, our current and planned operations, personnel, systems and internal procedures and controls might be inadequate to support our future growth. If we cannot manage our growth effectively, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.
We depend on a limited number of third-party suppliers for key raw materials, and their failure to perform could cause manufacturing delays and impair our ability to deliver solar modules to customers in the required quality, quantities and at a price that is profitable to us.
         Our failure to obtain raw materials and components that meet our quality, quantity and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing cost. Most of our key raw materials are either sole-sourced or sourced by a limited number of third-party suppliers. As a result, the failure of any of our suppliers to perform could disrupt our supply chain and impair our operations. In addition, many of our suppliers are small companies that may be unable to supply our increasing demand for raw materials as we implement our planned rapid expansion. 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. Raw materials from new suppliers may also be less suited for our technology and yield solar modules with lower conversion efficiencies than solar modules manufactured with the raw materials from our current suppliers.
A disruption in our supply chain for CdTe, the key component of our semiconductor layer, could interrupt or impair our ability to manufacture solar modules.
         The primary raw material we use in our production process is CdTe, with the tellurium component of CdTe being the most critical. Currently, we purchase all of our CdTe in manufactured form from two manufacturers. If any current or future CdTe manufacturer is unable to perform under its contracts or purchase orders, our operations could be interrupted or impaired. In addition, because each CdTe supplier must undergo a lengthy qualification process, we might be unable to replace a lost supplier of CdTe in a timely manner and on commercially reasonable

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terms. Our supply of CdTe could also be limited if our CdTe suppliers are unable to acquire an adequate supply of tellurium in a timely manner or at commercially reasonable prices. If our suppliers cannot obtain sufficient tellurium, they could substantially increase their prices or be unable to perform under their contracts. We may be unable to pass increases in the cost of our raw materials through to our customers because our customer contracts do not adjust for raw material price increases and are generally for a longer term than our raw material supply contracts.
We currently depend on six customers for substantially all of our net sales. The loss of, or a significant reduction in orders from, any of these customers could significantly reduce our net sales and harm our operating results.
         We currently sell substantially all of our solar modules to six customers headquartered in Germany, and sales to our largest customer accounted for approximately 45% of our total net sales in 2005 and approximately 24% of our net sales in the first quarter of 2006. The loss of any of our customers or their default in payment could significantly reduce our net sales and harm our operating results. Our Long Term Supply Contracts commit us to sell, and commit our customers to buy, solar modules on a six-year basis. While such a six-year commitment allows us to plan production, committing a significant majority of our production capacity to a limited number of customers could make it difficult to identify new customers and replace any lost customers. We anticipate that our dependence on a limited number of customers will continue for the foreseeable future because we have pre-sold a significant majority of the planned capacity of our Base Plant, Ohio Expansion and German Plant through 2011, or 2012 if we exercise our option under each of the six contracts to extend each such contract for an additional year. As a result, we will have to rely on future expansions to service new customers. In addition, our customer relationships have been developed over a relatively short period of time, and we cannot guarantee that we will have good relations with our customers in the future. Several of our competitors have more established relationships with our customers and may gain a larger share of our customers’ business over time.
If we are unable to further increase the number of sellable Watts per solar module and reduce our manufacturing cost per Watt, we will be in default under our Long Term Supply Contracts and our gross profit could decrease.
         Our Long Term Supply Contracts for the purchase and sale of solar modules require us to deliver solar modules each year that, in total, meet or exceed a specified minimum average number of Watts per module for the year. In addition, our Long Term Supply Contracts specify a sales price per Watt that declines each year. If we are unable to meet the minimum average annual number of Watts per module in a given year, we will be in default under the agreements, entitling our customers to certain remedies, potentially including the right to terminate. Even if we are able to deliver solar modules at the minimum annual average Watts per module and prices, our gross profit and gross margin could decline if we are unable to reduce our manufacturing cost per Watt by at least the same rate as which our contractual prices decrease.
The reduction or elimination of government subsidies and economic incentives for on-grid solar electricity applications could cause a reduction in demand for our solar modules and 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 may result in the diminished competitiveness of solar energy relative to conventional and non-solar renewable sources of energy, and could materially and adversely affect the growth of the solar energy industry and our net sales. 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, South Korea, Japan and the United States, have provided subsidies in the form of feed-in tariffs, rebates, tax write-offs and other incentives to end-users, distributors, systems integrators and manufacturers of PV products. For example, Germany, which accounted for 99.6% of our net sales in 2005, has been a strong supporter of PV products and PV systems, and political changes in Germany could result in significant reductions or the elimination of incentives. Many of these government incentives expire, phase out over time, exhaust the allocated funding or require renewal by the applicable authority. For example, German subsidies decline at a rate of 5.0% to 6.5% per year (based on the type and size of the PV system) and discussions are currently underway about modifying the German Renewable Energy Law (the “EEG”). If the German government reduces or eliminates the subsidies under the EEG, demand for PV products could decline in Germany. In addition, the Emerging Renewables Program in California has finite funds that may not last through the

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current program period. California subsidies declined from $2.80 to $2.50 per Watt in March 2006, and will continue to decline as cumulative installations exceed stated thresholds. Net metering policies in California, which currently only require each utility to provide net metering up to 0.5% of its peak demand, could also limit the amount of solar power installed within California. For example, PG&E, California’s largest utility, is projected to reach its 0.5% cap within the next few months and will not be required to provide new end-users with net metering unless California raises the net metering cap.
         In addition, if any of these statutes or regulations are found to be unconstitutional, or are reduced or discontinued for other reasons, sales of our solar modules in these countries could decline significantly, which could have a material adverse effect on our business and results of operations. For example, the predecessor to the German EEG was challenged in Germany on constitutional grounds and in the European Court of Justice as impermissible state aid. Although the German Federal High Court of Justice dismissed these constitutional concerns and the European Court of Justice held that the purchase requirement at minimum feed-in tariffs did not constitute impermissible state aid, new proceedings challenging the Renewable Energies Act or comparable minimum price regulations in other countries in which we currently operate or intend to operate may be initiated.
         Electric utility companies could also lobby for a change in the relevant legislation in their markets to protect their revenue streams. The reduction or elimination of government subsidies and economic incentives for on-grid solar energy applications, especially those in our target markets, could cause our net sales to decline and materially and adversely affect our business, financial condition and results of operations.
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 the local currency of most countries in which we operate. As a result, we are subject to currency translation risk. For example, 99.6% of our net sales were outside the United States and denominated in Euros in 2005, and we expect a large percentage of our net sales to be outside 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 net sales and cost of sales, and could result in exchange losses. In addition, we incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from our reporting currency. For example, our Long Term Supply Contracts specify fixed pricing in Euros for the next six years, or seven years if we exercise our option under each of the contracts to extend for an additional year, and do not adjust for changes in the U.S. dollar to Euro exchange rate. We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations. Currently, we do not engage in any exchange rate hedging activities and, as a result, any volatility in currency exchange rates may have an immediate adverse effect on our financial condition and results of operations.
         We could also expand our business into emerging markets, many of which have an uncertain regulatory environment relating to currency policy. Conducting business in such emerging markets could cause our exposure to changes in exchange rates to increase.
An increase in interest rates could make it difficult for end-users to finance the cost of a PV system and could reduce the demand for our solar modules.
         Many of our end-users depend on debt financing to fund the initial capital expenditure required to purchase and install a PV system. As a result, an increase in interest rates could make it difficult for our end-users to secure the financing necessary to purchase and install a PV system on favorable terms, or at all, and thus lower demand for our solar modules and reduce our net sales. In addition, we believe that a significant percentage of our end-users install PV systems as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates could lower an investor’s return on investment in a PV system, or make alternative investments more attractive relative to PV systems, and, in each case, could cause these end-users to seek alternative investments.
We face intense competition from manufacturers of crystalline silicon solar modules, thin film solar modules and solar thermal and concentrated PV systems.
         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 electric power industry.

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We believe that our main sources of competition are crystalline silicon solar module manufacturers, other thin film solar module manufacturers and companies developing solar thermal and concentrated PV technologies.
         At the end of 2005, the global PV industry consisted of over 100 manufacturers of PV cells and solar modules. Within the PV industry, we face competition from crystalline silicon PV cell and solar module manufacturers, including BP Solar, Evergreen Solar, Kyocera, Motech, Q-Cells, Renewable Energy Corporation, Sanyo, Schott Solar, Sharp, SolarWorld, Sunpower and Suntech. We also face competition from thin film solar module manufacturers, including Antec, Kaneka, Mitsubishi Heavy Industries, Shell Solar, United Solar and several crystalline silicon manufacturers who 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. In addition to manufacturers of PV cells and solar modules, we face competition from companies developing solar thermal and concentrated PV technologies.
         Many of our existing and potential competitors have substantially greater financial, technical, manufacturing and other resources than we do. Our competitors’ greater size in some cases provides them with a competitive advantage because they can realize economies of scale and purchase certain raw materials at lower prices. Many of our competitors also have greater brand name recognition, more established distribution networks and larger customer bases. In addition, many of our competitors have well-established relationships with our current and potential distributors and have extensive knowledge of our target markets. As a result of their greater size, some of our competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. In addition, a significant increase in the supply of silicon feedstock or a significant reduction in the manufacturing cost of crystalline silicon solar modules could lead to pricing pressures for solar modules. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors may materially and adversely affect our financial condition and results of operations.
We identified several significant deficiencies in our internal controls that were deemed to be material weaknesses. If we are unable to successfully address the material weaknesses in our internal controls, our ability to report our financial results on a timely and accurate basis may be adversely affected.
         In connection with the audit of our financial statements for the years ended December 25, 2004 and December 31, 2005 and the preparation of this registration statement for our initial public offering, we identified several significant deficiencies in our internal controls that were deemed to be “material weaknesses”, as defined in standards established by The Public Company Accounting Oversight Board. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Controls and Procedures”.
         A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
         As of December 31, 2005, we did not maintain effective controls over the preparation, review and presentation and disclosure of our consolidated financial statements due to a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants. This failure caused several significant deficiencies, four of which had a large enough impact on our operating results to individually constitute material weaknesses. These material weaknesses were: (i) we did not maintain effective controls to ensure that the appropriate labor and overhead expenses were included in the cost of our inventory and that intercompany profits in inventory were completely and accurately eliminated as part of the consolidation process; (ii) we did not maintain effective controls to ensure the complete and accurate capitalization of interest in connection with our property, plant and equipment additions; (iii) we did not maintain effective controls to properly accrue for warranty obligations; and (iv) we did not maintain effective controls to properly record the formation of First Solar US Manufacturing, LLC in 1999 and the subsequent liquidation of minority membership units in 2003.
         These control deficiencies resulted in the restatement of our 2004 and 2003 annual consolidated financial statements as well as audit adjustments to our 2005 annual consolidated financial statements and to each of the 2005 interim consolidated financial statements. These control deficiencies could result in more than a remote likelihood that a material misstatement to our annual or interim financial statements would not be prevented or detected. Accordingly, we have concluded that each of these control deficiencies constitutes a material weakness.
         We are in the process of adopting and implementing several measures to improve our internal controls. If the remedial procedures we have adopted and implemented are insufficient to address our material weakness and

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significant deficiencies, we may fail to meet our future reporting obligations, our financial statements may contain material misstatements and our operating results may be harmed.
         We cannot assure you that additional significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or difficulties we encounter in their implementation, could result in additional significant deficiencies or material weaknesses, cause us to fail to meet our future reporting obligations or cause our financial statements to contain material misstatements. Any such failure could also adversely affect the results of the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act of 2002, and which will become applicable to us beginning with the required filing of our Annual Report on Form 10-K for fiscal 2007 in the first quarter of 2008. Internal control deficiencies could also result in a restatement of our financial statements in the future or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
Our substantial international operations subject us to a number of risks, including unfavorable political, regulatory, labor and tax conditions in foreign countries.
         We have significant marketing and distribution operations outside the United States and expect to continue to have significant manufacturing operations outside the United States in the near future. In 2005, 99.6% of our net sales were generated from customers headquartered in Germany. In the future, we expect to have operations in other European countries and Asia and, as a result, we will be subject to the legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent to international operations, include, but are not limited to, the following:
  difficulty in enforcing agreements in foreign legal systems;
 
  foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade and investment, including currency exchange controls;
 
  fluctuations in exchange rates may affect product demand and may adversely affect our profitability in U.S. dollars to the extent the price of our solar modules and cost of raw materials and labor is denominated in a foreign currency;
 
  inability to obtain, maintain or enforce intellectual property rights;
 
  risk of nationalization of private enterprises;
 
  changes in general economic and political conditions in the countries in which we operate;
 
  unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to environmental protection, export duties and quotas;
 
  difficulty with staffing and managing widespread operations;
 
  trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our solar modules and make us less competitive in some countries; and
 
  difficulty of and costs relating to compliance with the different commercial and legal requirements of the overseas markets in which we offer and sell our solar modules.
         Our business in foreign markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business. In addition, each of the foregoing risks is likely to take on increased significance as we implement our plans to expand our foreign manufacturing operations.
Problems with product quality or performance may cause us to incur warranty expenses, damage our market reputation and prevent us from maintaining or increasing our market share.
         Our solar modules are sold with a five year materials and workmanship warranty for technical defects and a ten year and twenty-five year warranty against declines of more than 10% and 20% of their initial nameplate power

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rating, respectively. As a result, we bear the risk of extensive warranty claims long after we have sold our solar modules and recognized net sales. As of April 1, 2006, our accrued warranty expense amounted to $1.9 million.
         Because of the limited operating history of our solar modules, we have been required to make assumptions regarding the durability and reliability of our solar modules. Our assumptions could prove to be materially different from the actual performance of our solar modules, causing us to incur substantial expense to repair or replace defective solar modules in the future. For example, our glass-on-glass modules could break, delaminate or experience power degradation in excess of expectations. Any widespread product failures may damage our market reputation and cause our sales to decline.
If our estimates regarding the future cost of reclaiming and recycling our solar modules are incorrect, we could be required to accrue additional expenses from the time we realize our estimates are incorrect and also face a significant unplanned cash burden at the time our end-users return their solar modules.
         We pre-fund the estimated future obligation for reclaiming and recycling our solar modules based on the present value of the expected future cost of such reclaiming and recycling. This cost includes the cost of packaging the solar module for transport, the cost of freight from the solar module’s installation site to a recycling center and the material, labor and capital costs of the recycling process, as well as an estimated third-party profit margin and risk rate for such services. Currently, we base our estimates on our experience reclaiming and recycling solar modules that do not pass our quality control tests and modules returned under our warranty, as well as on our expectations about future developments in recycling technologies and processes and about economic conditions at the time the solar modules will be reclaimed and recycled. If our estimates prove incorrect, we could be required to accrue additional expenses from the time we realize our estimates are incorrect and also face a significant unplanned cash burden at the time our end-users return their solar modules, which could harm our operating results. In addition, our end-users can return their solar modules at anytime by paying a small penalty. As a result, we could be required to reclaim and recycle our solar modules earlier than we expect and before recycling technologies and processes improve.
Our future success depends on our ability to retain our key employees and to successfully integrate them into our management team.
         We are dependent on the services of Michael J. Ahearn, our President and Chief Executive Officer, George A. (“Chip”) Hambro, our Chief Operating Officer, Jens Meyerhoff, our Chief Financial Officer, and other members of our senior management team. The loss of Mr. Ahearn, Mr. Hambro, Mr. Meyerhoff or any other member of our senior management team could have a material adverse effect on us. There is a risk that we will not be able to retain or replace these key employees. Several of our current key employees, including Mr. Hambro, are subject to employment conditions or arrangements that contain post-employment non-competition provisions. However, these arrangements permit the employees to terminate their employment with little or no notice. We recently added several members to our senior management team. Integrating them into our management team could prove disruptive to our daily operations, require a disproportionate amount of resources and management attention and prove unsuccessful.
If we are unable to attract, train and retain technical personnel, our business may be materially and adversely affected.
         Our future success depends, to a significant extent, on our ability to attract, train and retain technical personnel. Recruiting and retaining capable personnel, particularly those with expertise in the PV industry, thin film technology and CdTe, are vital to our success. There is substantial competition for qualified technical personnel, and we cannot assure you that we will be able to attract or retain our technical personnel. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected.
Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.
         Protection of our proprietary processes, methods and other technology, especially our proprietary vapor transport deposition process and laser scribing process, is critical to our business. Failure to protect and monitor the use of our existing intellectual property rights could result in the loss of valuable technologies. We rely primarily on patents, trademarks, trade secrets, copyrights and other contractual restrictions to protect our intellectual property. As of May 1, 2006, we held 28 patents in the United States and 15 patents in foreign jurisdictions. A majority of our patents expire at various times between 2007 and 2023. Our existing patents and future patents could be challenged,

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invalidated, circumvented or rendered unenforceable. We have 21 pending patent applications in the United States and 42 pending patent applications in foreign jurisdictions. Our pending patent applications may not result in issued patents, or if patents are issued to us, such patents may not provide meaningful protection against competitors or against competitive technologies.
         We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, such confidentiality agreements are limited in duration and could be breached, and may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge of our trade secrets through independent development or legal means. The failure of our patents or confidentiality agreements to protect our processes, equipment, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have a material adverse effect on our business. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries we have not applied for patent, trademark or copyright protection.
         Third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. Policing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. We cannot assure you that the outcome of such potential litigation will be in our favor. Such litigation may be costly and may divert management attention and other resources away from our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties.
We may be exposed to infringement or misappropriation claims by third parties, which, 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 or the use of our technology.
         Our success depends largely on our ability to use and 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 questions and analysis and, therefore, may be highly 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, patent opposition proceedings and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, which may not be available on reasonable terms, or at all, pay ongoing royalties or redesign our solar module, or subject us to injunctions prohibiting the manufacture and sale of our solar modules or the use of our technologies. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our solar modules until resolution of such litigation.
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 modules.
         The market for electricity generation 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 the United States and in a number of other countries, these regulations and policies currently are being modified 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.

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         We anticipate that our solar modules and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters. It is difficult to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar modules may result in significant additional expenses to us, our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar modules.
Environmental obligations and liabilities could have a substantial negative impact on our financial condition, cash flows and profitability.
         Our operations involve the use, handling, generation, processing, storage, transportation and disposal of hazardous materials and are subject to extensive environmental laws and regulations at the national, state, local and international level. Such environmental laws and regulations include those governing the discharge of pollutants into the air and water, the use, management and disposal of hazardous materials and wastes, the cleanup of contaminated sites and occupational health and safety. We have incurred, and will continue to incur, significant costs and capital expenditures in complying with these laws and regulations. In addition, violations of, or liabilities under, environmental laws or permits may result in restrictions being imposed on our operating activities or in our being subjected to substantial fines, penalties, criminal proceedings, third party property damage or personal injury claims, cleanup costs or other costs. While we believe we are currently in substantial compliance with applicable environmental requirements, future developments such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations, or the discovery of unknown environmental conditions may require expenditures that could have a material adverse effect on our business, results of operations or financial condition.
         In addition, certain components of our products contain CdTe and cadmium sulfide (“CdS”). Elemental cadmium and certain of its compounds are regulated as hazardous due to the adverse health effects that may arise from human exposure. Although the risks of exposure to CdTe are not believed to be as serious as those relating to the exposure of elemental cadmium, the chemical, physical and toxicological properties of CdTe have not been thoroughly investigated and reported. We maintain engineering controls to minimize employee exposure to cadmium and require our employees who handle cadmium compounds to follow certain safety procedures, including the use of personal protective equipment such as respirators, chemical goggles and protective clothing. In addition, we believe the risk of exposure to cadmium or cadmium compounds from our end-products is limited by the fully encapsulated nature of such materials in our products, as well as the implementation in 2005 of our end of life recycling program for our solar modules. While we believe that such factors and procedures are sufficient to protect our employees, end-users and the general public from cadmium exposure, we cannot assure you that human or environmental exposure to cadmium or cadmium compounds used in our products will not occur. Any such exposure could result in future third-party claims against us, as well as damage to our reputation and heightened regulatory scrutiny of our products. The occurrence of such future events could have a material adverse effect on our business, financial condition or results of operations.
         The use of cadmium in various products is also coming under increasingly stringent governmental regulation. Future regulation in this area could impact the manufacture and sale of cadmium-containing solar modules and could require us to make unforeseen environmental expenditures. For example, the European Union Directive 2002/96/ EC on Waste Electrical and Electronic Equipment, or the “WEEE Directive”, requires manufacturers of certain electrical and electronic equipment to be financially responsible for the collection, recycling, treatment and disposal of specified products placed on the market in the European Union. In addition, European Union Directive 2002/95/ EC on the Restriction of the use of Hazardous Substances in electrical and electronic equipment, or the “RoHS Directive”, restricts the use of certain hazardous substances, including cadmium, in specified products. Other jurisdictions are considering adopting similar legislation. Currently, our solar modules are not subject to the WEEE or RoHS Directives; however, the Directives allow for future amendments subjecting additional products to the Directives’ requirements. If, in the future, our solar modules become subject to such requirements, we may be required to apply for an exemption. If we were unable to obtain an exemption, we would be required to redesign our solar modules in order to continue to offer them for sale within the European Union, which would be impractical. Failure to comply with the Directives could result in the imposition of fines and penalties, the inability to sell our solar modules in the European Union, competitive disadvantages and loss of net sales, all of which could have a material adverse effect on our business, financial condition and results of operations.

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We have limited insurance coverage and may incur losses resulting from product liability claims, business interruptions or natural disasters.
         We are exposed to risks associated with product liability claims in the event that the use of our solar modules results in personal injury or property damage. Since our solar modules are electricity-producing devices, it is possible that users could be injured or killed by our solar modules, whether by product malfunctions, defects, improper installation or other causes. We commenced commercial shipment of our solar modules in 2002 and, due to our limited historical experience, we are unable to predict whether product liability claims will be brought against us in the future or the effect of any resulting adverse publicity on our business. Moreover, we may not have adequate resources and insurance to satisfy a judgment in the event of a successful claim against us. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments. Any business disruption or natural disaster could result in substantial costs and diversion of resources.
The Estate of John T. Walton and JCL Holdings, LLC will control us after this offering, and its interests may conflict with or differ from your interests as a stockholder.
         Upon the consummation of this offering and the dissolution of JWMA Partners, LLC, our current majority stockholder, the Estate of John T. Walton and JCL Holdings, LLC (together, the “Estate”) will beneficially own a majority of our outstanding common stock. Although we intend to have an independent board upon the consummation of this offering, the Estate will have substantial influence over all matters requiring stockholder approval, including the election of our directors and the approval of significant corporate transactions such as mergers, tender offers and the sale of all or substantially all of our assets. In addition, our amended certificate of incorporation and by-laws will provide that stockholders holding 40% or more of our voting stock may call for a special meeting of the stockholders, at which our stockholders could replace our board of directors. The interests of the Estate could conflict with or differ from your interests as a holder of our common stock. For example, the concentration of ownership held by the Estate could delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination which you may otherwise view favorably.
We are a “controlled company” within the meaning of the NASD rules and, as a result, will qualify for exemptions from certain corporate governance requirements.
         Upon the consummation of this offering, the Estate will continue to control a majority of our outstanding common stock. Under the NASD rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:
  the requirement that a majority of the board of directors consist of independent directors;
 
  the requirement that we have a nominating committee that is composed entirely of independent directors with a formal written charter or board resolution addressing the committee’s purpose and responsibilities;
 
  the requirement that we have a compensation committee that is composed entirely of independent directors with a formal written charter or board resolution addressing the committee’s purpose and responsibilities; and
 
  the requirement for an annual performance evaluation of the nominating and compensation committees.
         We do not intend to utilize these exemptions upon the consummation of this offering. However, we could decide to utilize one or more of these exceptions in the future. If we decide to utilize any of these exceptions, you would not have the same protections afforded to stockholders of companies that are subject to all of these corporate governance requirements.

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Risks Relating to This Offering
No market currently exists for our common stock. We cannot assure you that an active trading market will develop for our common stock.
         Prior to this offering, there has been no public market for shares of our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of a trading market on The Nasdaq National Market or otherwise or how liquid that market might become. The initial public offering price for the shares of our common stock is, or will be determined by, negotiations between us, the selling stockholders and the underwriters, and may not be indicative of prices that will prevail in the open market following this offering.
If our stock price fluctuates after this offering, you could lose a significant part of your investment.
         The market price of our stock may be influenced by many factors, some of which are beyond our control, including those described above under “—Risks Relating to Our Business” and the following:
  the failure of securities analysts to cover our common stock after this offering or changes in financial estimates by analysts;
 
  the inability to meet the financial estimates of analysts who follow our common stock;
 
  announcements by us or our competitors of significant contracts, productions, acquisitions or capital commitments;
 
  variations in quarterly operating results;
 
  general economic conditions;
 
  terrorist acts;
 
  future sales of our common stock; and
 
  investor perception of us and the renewable energy industry.
         As a result of these factors, investors in our common stock may not be able to resell their shares at or above the initial offering price. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
Public investors will experience immediate and substantial dilution as a result of this offering.
         Existing investors have paid substantially less per share for our common stock than the assumed initial public offering price in this offering. Accordingly, if you purchase common stock in this offering, you will experience immediate and substantial dilution of your investment. Based upon the issuance and sale of                      million shares of common stock by us at an assumed initial public offering price of $           per share (the midpoint of the price range set forth on the cover page of this prospectus), you will incur immediate dilution of approximately $          in the net tangible book value per share if you purchase shares in this offering.
         We also have approximately                     outstanding stock options to purchase common stock with exercise prices that are below the assumed initial public offering price of the common stock. To the extent that these options are exercised, there will be further dilution.
Shares eligible for future sale may cause the market price of our common stock to drop significantly, even if our business is doing well.
         The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
         After the consummation of this offering, there will be            shares of our common stock (                      shares if the underwriters exercise their over-allotment option in full). The                      shares of common stock sold in this offering (                      shares if the underwriters exercise their over-allotment option in full) will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended, by persons other than our affiliates within the meaning of Rule 144 under the Securities Act.

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We will incur increased costs as a result of being a public company.
         As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and The Nasdaq Stock Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
         As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that both addresses management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our management’s attention from other matters that are important to our business. We also expect the new regulations to increase our legal and financial compliance cost, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting are not effective. We cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations since there is presently no precedent available by which to measure compliance adequacy. If either we are unable to conclude that we have effective internal control over financial reporting or our independent auditors are unable to provide us with an unqualified report as required by Section 404, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. See “—Risks Relating to Our Business—We identified several significant deficiencies in our internal controls that were deemed to be material weaknesses. If we are unable to successfully address the material weaknesses in our internal controls, our ability to report our financial results on a timely and accurate basis may be adversely affected”.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
         This prospectus includes “forward-looking statements” that involve risks and uncertainties. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future net sales or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information and, in particular, appear under the headings “Prospectus Summary”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry” and “Business”. When used in this prospectus, the words “estimates”, “expects”, “anticipates”, “projects”, “plans”, “intends”, “believes”, “forecasts”, “foresees”, “likely”, “may”, should”, “goal”, “target” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this prospectus.
         These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this prospectus in the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Factors you should consider that could cause these differences are:
  the worldwide demand for electricity and the market for renewable energy, including solar energy;
 
  the ability or inability of conventional fossil fuel-based generation technologies to meet the worldwide demand for electricity;
 
  our competitive position and our expectation regarding key competitive factors;
 
  government subsidies and policies supporting renewable energy, including solar energy;
 
  our expenses, sources of net sales and international sales and operations;
 
  future pricing of our solar modules and the PV systems in which they are incorporated;
 
  the performance, features and benefits of our solar modules and plans for the enhancement of solar modules;
 
  the possibility of liability for pollution and other damage that is not covered by insurance or that exceeds our insurance coverage;
 
  the supply and price of components and raw materials, including tellurium;
 
  our ability to expand our manufacturing capacity in a timely and cost-effective manner;
 
  our ability to attract new customers and to develop and maintain existing customer and supplier relationships;
 
  our ability to retain our current key executives, integrate new key executives and to attract and retain other skilled managerial, engineering and sales marketing personnel;
 
  elements of our marketing, growth and diversification strategies including our strategy to reduce dependence on government subsidies;
 
  our intellectual property and our continued investment in research and development;
 
  changes in the status of legal proceedings or the commencement of new material legal proceedings;
 
  changes in, or the failure to comply with, government regulations and environmental, health and safety requirements;
 
  interest rate fluctuations and both our and our end-users’ ability to secure financing on commercially reasonable terms or at all;
 
  foreign currency fluctuations and devaluations and political instability in our foreign markets; and
 
  general economic and business conditions including those influenced by international and geopolitical events such as the war in Iraq and any future terrorist attacks.
         There may be other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

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USE OF PROCEEDS
         We estimate that we will receive net proceeds from our offering of our common stock, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, of approximately $           million, or approximately $           million if the underwriters exercise their over-allotment option in full, in each case assuming the shares are offered at $           per share, which is the mid-point of the range set forth on the cover of this prospectus. Of the net proceeds we receive from this offering, we intend to use approximately $           million to complete the construction of our German Plant and fund the associated ramp-up costs, approximately $           million to build a manufacturing facility in Asia and fund the associated ramp-up costs and the remainder for working capital and general corporate purposes, including system development, potential acquisitions and vertical integration.
         Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, a $1.00 increase (decrease) in the assumed public offering price of $           per share of common stock, the mid-point of the range set forth on the cover of this prospectus, would increase (decrease) our expended net proceeds by approximately $           million.
         We will not receive any proceeds from the sale of our common stock by the selling stockholders.
DIVIDEND POLICY
         We have never paid, and it is our present intention for the foreseeable future not to pay, dividends on our common stock. The declaration and payment of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net income, financial conditions, cash requirements, future prospects and other factors deemed relevant by our Board of Directors.

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CAPITALIZATION
         The following table sets forth our cash and cash equivalents and our capitalization as of April 1, 2006 (i) on an actual consolidated basis for First Solar, Inc. and (ii) on an as adjusted basis giving effect to the conversion of our convertible senior subordinated notes into shares of our common stock and this offering, including the application of the net proceeds. You should read this table in conjunction with “Selected Historical Financial Data”, “Use of Proceeds”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and all of the financial statements and the related notes thereto included elsewhere in this prospectus.
                     
    As of April 1, 2006
     
    Actual   As Adjusted (1)
         
    (in thousands, except par value)
Cash and cash equivalents
  $ 62,788     $    
             
Debt:
               
 
Note payable to a related party
  $ 8,700     $    
 
Debt with the State of Ohio
    20,000       20,000  
 
Convertible senior subordinated notes(2)
    74,000        
 
Capital lease obligations
    22          
             
   
Total debt:
    102,722          
             
Common Stock and Shareholders’ Equity:
               
 
Common stock, par value $0.001 per share:
actual:            shares authorized,
shares issued and outstanding; as adjusted:
shares authorized,            shares issued and
outstanding
    11          
 
Additional paid-in-capital
    194,305          
 
Accumulated deficit
    (155,272 )        
 
Accumulated other comprehensive income
    72          
             
 
Total stockholders’ equity
    39,116          
             
 
Total capitalization
  $ 141,838     $    
             
(1)  Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering, a $1.00 increase (decrease) in the assumed public offering price of $           per share of common stock (the mid-point of the range set forth on the cover of this prospectus) would increase (decrease) cash and equivalents by $           million, total capitalization by $           million and total shareholders’ equity by $           million.
 
(2)  On May 10, 2006, Goldman, Sachs & Co. converted the entire $74.0 million of our convertible senior subordinated notes into shares of our common stock.

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DILUTION
         If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after the completion of this offering.
         Dilution results from the fact that the per share offering price of our common stock is substantially in excess of the book value per share attributable to the existing stockholders for our presently outstanding stock. Our net tangible book value as of                     , 2006 was $           million, or $           per share of common stock. Assuming that the                      shares of our common stock offered by us under this prospectus are sold at a public offering price of $           per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of                     , 2006, would have been approximately $           million, or $           per share. This represents an immediate increase in pro forma net tangible book value of $           per share to existing stockholders and an immediate dilution of $           per share to new investors purchasing shares of our common stock in this offering.
         The following table illustrates this substantial and immediate per share dilution to new investors:
                   
    Per Share
     
Assumed initial public offering price
          $    
 
Net tangible book value as of           , 2006
  $            
 
Increase in net tangible book value attributable to new investors purchasing shares in this offering
               
             
Pro forma net tangible book value after this offering
               
             
Dilution to new investors
          $    
             
         A $1.00 increase (decrease) in the assumed public offering price of $           per share would increase (decrease) our pro forma net tangible book value per share after this offering by $          , and the dilution to new investors by $          , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
         If the underwriters exercise their over-allotment option in full, the increase in net tangible book value attributable to new investors purchasing shares in this offering would be $          , the pro forma net tangible book value per share of common stock would be $          and the dilution to new investors would be $          .
         The following table summarizes, as of                     , 2006, on a pro forma basis after giving effect to this offering, the total number of shares of common stock purchased from us, the total consideration paid to us, assuming a public offering price of $           per share (before deducting the estimated underwriting discounts and commissions and offering expenses payable by us in this offering), and the average price per share paid by existing stockholders and by new investors purchasing shares in this offering. The following table is illustrative only and the total consideration paid and the average price per share is subject to adjustment based on the actual initial public offering price per share and other items of this offering determined at pricing.
                                           
    Shares Purchased   Total Consideration    
            Average Price
    Number   Percent   Amount   Percent   Per Share
(total consideration amount in millions)                    
Existing stockholders
              %   $           %   $    
New investors(1)
                                       
                               
 
Total
          $       $       $            
                               
 
(1) Excludes                      shares or of our common stock to be sold by the selling stockholders to the new investors in this offering, and for which we will not receive any net proceeds. See “Principal and Selling Stockholders”.

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         If the underwriters exercise their over-allotment option in full, the number of shares held by new investors will increase to                      shares, or      % of the total number of shares of our common stock outstanding after this offering.
         Except as otherwise noted, the discussion and tables above assume no exercise of the                      outstanding stock options as of                     , 2006, with a weighted average exercise price of $           per share, which includes                      options to purchase shares of common stock that are in-the-money, compared to mid-point of the price range set forth on the cover page of this prospectus. To the extent any of these options are exercised, there will be further dilution to new investors.

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SELECTED HISTORICAL FINANCIAL DATA
         The following table sets forth our selected historical consolidated financial information for the periods and at the dates indicated. First Solar US Manufacturing, LLC cancelled substantially all of its minority membership units in January 2003, leaving it as a single-member limited liability company. In the Selected Historical Financial Data, “Predecessor” refers to First Solar pre-cancellation of minority interests and “Successor” refers to First Solar post-cancellation of minority interests.
         The selected historical consolidated financial information for the fiscal years ended December 27, 2003, December 25, 2004 and December 31, 2005 and as of December 25, 2004 and December 31, 2005 have been derived from the audited consolidated financial statements of the Successor included elsewhere in this prospectus. The selected historical consolidated financial information as of December 27, 2003 have been derived from the audited consolidated financial statements of the Successor not included in this prospectus. The selected historical consolidated financial information for the years ended December 29, 2001 and December 28, 2002 and as of December 29, 2001 and December 28, 2002 have been derived from the audited consolidated financial statements of the Predecessor not included in this prospectus. The selected historical consolidated financial information for the three months ended March 26, 2005 and April 1, 2006 and as of March 26, 2005 and April 1, 2006 have been derived from the unaudited consolidated financial statements of the Successor included elsewhere in this prospectus and reflect all adjustments, consisting solely of normal recurring adjustments, that, in the opinion of management, are necessary for their fair statement.
         The information presented below should be read in conjunction with “Use of Proceeds”, “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included elsewhere in this prospectus.
                                                             
    Predecessor(1)     Successor(1)
           
              For the Quarters
    For the Years Ended     For the Years Ended   Ended
               
    Dec 29,   Dec 28,     Dec 27,   Dec 25,   Dec 31,   Mar 26,   Apr 1,
    2001   2002     2003   2004   2005   2005   2006
                               
    (as restated)   (as restated)     (as restated)   (as restated)            
    (dollars in thousands)
Statement of Operations:
                                                         
Net sales
  $     $ 490       $ 3,210     $ 13,522     $ 48,063     $ 8,530     $ 13,624  
Cost of sales
    14,271       7,007         11,495       18,851       31,483       6,158       10,352  
                                             
 
Gross profit (loss)
    (14,271 )     (6,517 )       (8,285 )     (5,329 )     16,580       2,372       3,272  
                                             
Research and development
    3,766       6,029         3,841       1,240       2,372       197       1,519  
Selling, general and administrative
    7,570       9,588         11,981       9,312       15,825       2,639       5,872  
Production start-up
                        900       3,173       204       2,579  
Facility closure and relocation
    119                                        
                                             
 
Operating loss
    (25,726 )     (22,134 )       (24,107 )     (16,781 )     (4,790 )     (668 )     (6,698 )
Foreign currency gain (loss)
                        116       (1,715 )     (127 )     900  
Interest expense
    (1,408 )     (4,158 )       (3,974 )     (100 )     (418 )     (45 )     (423 )
Other income (expense), net
          68         38       (6 )     372       15       349  
Income tax expense                                           (23 )
                                             
Loss before cumulative effect of change in accounting principle
    (27,134 )     (26,224 )       (28,043 )     (16,771 )     (6,551 )     (825 )     (5,895 )
Cumulative effect of change in accounting for share-based compensation
                              89       89        
                                             
 
Net loss
  $ (27,134 )   $ (26,224 )     $ (28,043 )   $ (16,771 )   $ (6,462 )   $ (736 )   $ (5,895 )
                                             
Cash Flow Data:
                                                         
Net cash from (used in) operating activities
  $ (15,708 )   $ (22,281 )     $ (22,228 )   $ (15,185 )   $ 5,040     $ (2,797 )   $ (11,370 )
Net cash from (used in) investing activities
    (2,567 )     (3,680 )       (15,224 )     (7,790 )     (43,832 )     (746 )     (25,797 )
Net cash from (used in) financing activities
    18,876       26,450         39,129       22,900       51,663       11,930       83,360  

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    Predecessor(1)     Successor(1)
           
    Dec 29,   Dec 28,     Dec 27,   Dec 25,   Dec 31,   Apr 1,
    2001   2002     2003   2004   2005   2006
                           
    (as restated)   (as restated)     (as restated)   (as restated)        
    (dollars in thousands)
Balance Sheet Data:
                                                 
Cash and cash equivalents
  $ 1,560     $ 2,050       $ 3,727     $ 3,465     $ 16,721     $ 62,788  
Accounts receivable, net
    374       201         1,907       4,393       1,098       6,120  
Inventories
    307       2,058         1,562       3,686       6,917       9,821  
Property, plant and equipment, net
    7,158       9,842         23,699       29,277       73,778       112,349  
Total assets
    9,634       14,377         31,575       41,765       101,884       198,059  
Total liabilities
    27,048       58,005         11,019       19,124       63,490       132,902  
Accrued recycling
                              917       1,389  
Current debt
                              20,142       965  
Long-term debt
    23,550       50,000         8,700       13,700       28,581       101,757  
Total stockholders’ equity (deficit)
    (17,414 )     (43,628 )       20,556       22,641       13,129       39,116  
 
(1)  In January 2003, First Solar US Manufacturing, LLC cancelled substantially all of its minority membership units, leaving it as a single-member limited liability company. The cancellation of substantially all of First Solar US Manufacturing, LLC’s minority membership units in January 2003 did not affect the results of operations, financial condition and cash flows of the Successor. As a result, we believe that the Predecessor and Successor financial statements are comparable.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
         The following discussion and analysis summarizes the significant factors affecting our results of operations and financial condition during the three year period ended December 31, 2005 and the quarters ended March 26, 2005 and April 1, 2006. This discussion contains forward-looking statements that involve known and unknown risks and uncertainties. Our actual results could differ significantly from those anticipated by the forward-looking statements for many reasons, including those described in “Cautionary Statement Concerning Forward-Looking Statements”, “Risk Factors” and elsewhere in this prospectus. You should read the following discussion with “Selected Historical Financial Data” and all the historical financial statements and related notes thereto included elsewhere in this prospectus.
Overview
         We design and manufacture solar modules using a proprietary thin film semiconductor technology that has established us as one of the lowest cost solar module manufacturers in the world. Each solar module employs a thin layer of cadmium telluride (“CdTe”) semiconductor material to convert sunlight into electricity. We manufacture our solar modules on a high-throughput production line and we perform all manufacturing steps ourselves in an automated, continuous process. In 2005, we sold almost all of our solar modules to solar project developers and system integrators headquartered in Germany.
         Currently, we manufacture our solar modules and conduct our research and development activities at our Perrysburg, Ohio manufacturing facility. We completed the qualification of our base production line in Perrysburg, Ohio (the “Base Plant”) for high volume production in November 2004. During 2005, the first full year our Base Plant operated at high volume production, we reduced our average manufacturing cost per Watt to $1.59, from $2.94 in 2004. We define average manufacturing cost per Watt as the total manufacturing cost incurred during the period, including stock-based compensation expense relating to our adoption of SFAS 123(R), divided by the total Watts produced during the period. By continuing to expand production and improve our technology and manufacturing process, we believe that we can further reduce our manufacturing costs per Watt. Our objective is to become, by 2010, the first solar module manufacturer to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in the United States, Europe and Asia.
         First Solar was founded in 1999 to bring an advanced thin film semiconductor process into commercial production through the acquisition of predecessor technology and the initiation of a research, development and production program that allowed us to improve upon the predecessor technology and launch commercial operations in January 2002. From January 2002 to the end of 2005, we sold approximately 28MW of solar modules.
         We converted, on February 22, 2006, from a Delaware limited liability company to a Delaware corporation. Prior to February 22, 2006, we operated as a Delaware limited liability company.
         Our fiscal year ends on the Saturday before December 31. All references to fiscal year 2005 relate to the 53 weeks ended December 31, 2005, all references to fiscal year 2004 relate to the 52 weeks ended December 25, 2004 and all references to fiscal year 2003 refer to the 52 weeks ended December 27, 2003. References to fiscal year 2006 and years thereafter relate to our fiscal years for such periods. We use a 13 week fiscal quarter. All references to the first quarter of 2006 relate to the 13 weeks ended April 1, 2006 and all references to the first quarter of 2005 relate to the 13 weeks ended March 26, 2005.
Manufacturing Capacity
         We commenced low volume commercial production of solar modules with our pilot production line in Perrysburg, Ohio (the “Pilot Line”) in January 2002. During 2003 and 2004, while continuing to sell solar modules manufactured on our Pilot Line, we designed the Base Plant, a replicable, high-throughput production line. We ultimately merged most of the equipment from the Pilot Line into the Base Plant, completing the qualification of the Base Plant for full volume production in November 2004, with an expected annual capacity of 25MW. In February 2005, we commenced construction of two additional 25MW production lines at our Perrysburg, Ohio facility (the “Ohio Expansion”). We expect to complete the qualification of the Ohio Expansion for full volume production by August 2006. During the construction of the Ohio Expansion, we improved certain aspects of the Base Plant, including the building design and layout and the design and manufacture of certain production equipment. Our two-line Ohio Expansion represents a “standard building block” for building future production facilities or expansions of our existing production facilities.

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         In February 2006, we commenced construction of a new manufacturing facility located in Frankfurt (Oder), in the State of Brandenburg, Germany (the “German Plant”), which will house four 25MW production lines. We anticipate completing the qualification of the German Plant for full volume production during the second half of 2007. We are also in the planning stage for a new manufacturing plant in Asia.
         The following table summarizes our current and in-process production capacity:
                                   
        Annual Production Capacity of    
        Manufacturing Facility(1)   Date Qualification
    Number of       Completed for
    Production   Number of Solar       Full Volume
Manufacturing Facility   Lines   Modules   Watts   Production
                 
Base Plant
    1       400,000       25MW       November 2004  
Ohio Expansion
    2       800,000       50MW       August 2006(2)  
German Plant
    4       1,600,000       100MW       Second half of 2007 (2)  
                         
 
Total Current and Planned
    7       2,800,000       175MW          
 
(1)  The annual capacity of our manufacturing facilities is based on an annual run rate of 400,000 solar modules per production line and a nameplate power rating of approximately 62 Watts per solar module.
(2)  Anticipated.
         Our Base Plant currently has an annual production capacity of 400,000 solar modules, representing 25MW. We anticipate that we will be able to increase both the run rate and MW volume of our existing production lines through our continuous improvement processes. For example, we increased the average conversion efficiency of our solar modules from approximately 7% in 2003 to approximately 9% in the first quarter of 2006, thereby increasing the number of sellable Watts per solar module from approximately 49 Watts to approximately 62 Watts over the same period.
Financial Operations Overview
         The following describes certain line items in our statement of operations and some of the factors that affect our operating results.
Net Sales
         We generate substantially all of our net sales from the sale of solar modules. Over the past three years and during the first quarter of 2006, the main constraint limiting our sales has been production capacity as customer demand has exceeded the number of solar modules we could produce. We price and sell our solar modules per Watt of power. As a result, our net sales can fluctuate based on our output of sellable Watts. We currently sell almost all of our solar modules to solar project developers and system integrators headquartered in Germany, which then resell our solar modules to end-users who receive government subsidies. Our net sales could be negatively impacted if legislation reduces the current subsidy programs in the United States, Europe or Asia or interest rates increase, which could impact our end-users’ ability to either meet their target return on investment or finance their projects.
         In April 2006, we entered into contracts for the purchase and sale of our solar modules with six European project developers and system integrators (the “Long Term Sales Contracts”). The Long Term Sales Contracts account for a significant portion of our planned production over the period of fiscal 2006 to 2011, and therefore will significantly affect our overall financial performance. We expect the Long Term Sales Contracts to generate approximately 1.2 billion ($1.4 billion at an assumed exchange rate of $1.20/1.00) of sales from 2006 to 2011 for the manufacture and sale of 745MW of solar modules. We estimate that the total sales volume will account for a significant majority of our planned production volumes from the Base Plant, Ohio Expansion and German Plant. Under each of our Long Term Sales Contracts, we have a unilateral option, exercisable until December 31, 2006, to increase the sales volumes and extend each contract through 2012. If we exercise our option for each of the six contracts, we would expect them to generate approximately 1.9 billion ($2.3 billion at an assumed exchange rate of $1.20/1.00) of sales from 2006 to 2012 for the manufacture and sale of 1,270MW of solar modules. We have additional unilateral options to increase 2006 sales volumes by a total of 14MW with approximately 10 weeks notice to our customers. After giving effect to expected sales under the Long Term Sales Contracts, we expect that no single customer will account for more than 25% of our net sales in 2006.
         Our Long Term Supply Contracts for the purchase and sale of solar modules require us to deliver solar modules each year that, in total, meet or exceed a specified minimum average number of Watts per module for the year. In addition, our Long Term Supply Contracts specify a sales price per Watt that declines each year. If we are

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unable to meet the minimum average annual number of Watts per module in a given year, we will be in breach of the agreements, entitling our customers to certain remedies, potentially including the right to terminate their Long Term Supply Contracts. Even if we are able to deliver solar modules at the minimum annual average Watts per module and prices, our gross profit and gross margin could decline if we are unable to reduce our manufacturing cost per Watt by at least the same rate as which our contractual prices decrease.
         Sales prices under our Long Term Sales Contracts are fixed, with a built-in decline of 6.5% each year. As a result, we do not have the ability to pass along possible increases in manufacturing costs to our customers. Although we believe that our total manufacturing costs per Watt will decline at the same rate or more rapidly than our prices under the Long Term Sales Contracts, our failure to achieve our manufacturing cost per Watt targets could result in a reduction of our gross profit margin. In addition, sales prices under the Long Term Sales Contracts are denominated in Euros, exposing us to risks related to currency exchange rate fluctuation.
         Under the Long Term Sales Contracts, starting in April 2006, we transfer title and risk of loss to the customer, and recognize revenue upon shipment. Under our previous customer contracts, we did not transfer title or risk of loss, or recognize revenue, until the solar modules arrived and were received by our customers.
         We retain the right to terminate the Long Term Sales Contracts upon 12 months notice and the payment of a termination fee if certain material adverse changes occur in our business. The aggregate termination fees under the Long Term Sales Contracts equal approximately 7% of the average annual net sales under the contracts.
Cost of sales
         Our cost of sales includes the cost of raw materials, such as tempered back glass, TCO coated front glass, CdTe, EVA laminate, connector assemblies and laminate edge seal. Our total material cost per solar module has been stable over the past three years, even though the cost of tellurium, a component of CdTe, increased by approximately five to six times from 2003 to 2005. The increase in the cost of tellurium did not have a significant impact on our total raw material cost per solar module because raw tellurium represents a relatively small portion of our overall material and manufacturing costs. Historically, we have not entered into long term supply contracts with fixed prices for our raw materials. In 2006, however, we entered into a multi-year tellurium supply contract in order to mitigate potential cost volatility and secure raw material supplies. We expect our raw material cost per Watt to decrease over the next several years as costs per solar module remain stable and sellable Watts per solar module increase.
         Other items contributing to our cost of sales are direct labor, manufacturing overhead such as engineering expense, equipment maintenance, environmental health and safety, quality and production control and procurement. Cost of sales also includes depreciation of manufacturing plant and equipment and facility related expenses. In addition, we accrue for warranty and end of life reclamation and recycling expenses in our cost of sales.
         We implemented a program in 2005 to reclaim and recycle our solar modules after use. Under our reclamation and recycling program, we enter into an agreement with the end-users of the PV systems that employ our solar modules. In the agreement we commit, at our expense, to remove the solar modules from the installation site at the end of use and transport them to a processing center where the solar module materials and components will be recycled, and the owner agrees not to dispose of the solar modules except through our program or another program that we approve. The PV system owner is responsible for disassembling the solar modules and packaging them in containers that we provide. At the time we sell a solar module, we record an expense in cost of sales equal to the present value of the estimated future end of life obligation. We record the accretion expense on this future obligation annually in selling, general and administrative expense.
         Overall, we expect our cost of sales per Watt to decrease over the next several years due to an increase of sellable Watts per solar module and more efficient absorption of fixed costs driven by economies of scale.
         Gross profits are affected by a number of factors, including our average selling prices, foreign exchange rates, our actual manufacturing costs and the effective utilization of our production facilities. As a result, gross profits may vary from quarter to quarter.
Research and development
         Research and development expense consists primarily of salaries and personnel-related costs and the cost of products, materials and outside services used in our process and product development activities. Beginning in 2006, we plan to add equipment for further process developments and record the depreciation of such equipment as research and development expense. We may also allocate a portion of the annual operating cost of the Ohio Expansion to research and development expense.

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         We maintain a number of programs and activities to improve our technology in order to enhance the performance of our solar modules and manufacturing processes. As of December 31, 2005, we had a total of 24 full time employees working on these developmental activities. In addition, we maintain active collaborations with the National Renewable Energy Laboratory, a division of the Department of Energy, Brookhaven National Laboratory and several universities. We report our research and development expense net of grant funding. During the past three years, we received grant funding that we applied towards our development programs. We received $1.4 million in research and development grants during fiscal year 2003, $1.0 million during fiscal year 2004 and $0.9 million in fiscal year 2005. We did not receive any research and development grants during the first quarter of 2006. We expect our research and development expense to increase in absolute terms in the future as we increase personnel and research and development activity. 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.
Selling, general and administrative
         Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expense and other selling expenses. We expect these expenses to increase in the near term, both in absolute dollars and as a percentage of net sales, in order to support the growth of our business as we expand our sales and marketing efforts, improve our information processes and systems and implement the financial reporting, compliance and other infrastructure required for a public company. Over time, we expect selling, general and administrative expense to decline as a percentage of net sales and on a cost per Watt basis as our net sales and our total Watts sold increase.
Production start-up
         Production start-up expense consists primarily of salaries and personnel-related costs and the cost of operating a production line before it has been qualified for full production, including the cost of raw materials for solar modules run through the production line during the qualification phase. It also includes all expenses related to the selection of a new site and the related legal and regulatory costs and the costs to maintain our plant replication program, to the extent we cannot capitalize the expenditure. We incurred production start-up expenses of $3.2 million in fiscal year 2005 and expect to incur significant production start-up expenses in fiscal year 2006 in connection with the qualification of the Ohio Expansion. We also expect to incur production start-up expenses in fiscal year 2006 and fiscal year 2007 in connection with the German Plant and the contemplated manufacturing facility in Asia. As a result of these production start-up expenses, we expect our net loss to increase significantly in fiscal year 2006. In general, we expect production start-up expenses per production line to be higher when we build an entire new manufacturing facility compared to the addition of a new production line at an existing manufacturing facility, primarily due to the additional infrastructure investment required. Over time, we expect production start-up expenses to decline as a percentage of net sales and on a cost per Watt basis as a result of economies of scale.
Interest expense
         Interest expense is associated with various debt financings. See “Description of Certain Indebtedness”.
Foreign currency gain (loss)
         Foreign currency gain (loss) consists of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our functional currency, the U.S. dollar.
Other income (expense)
         Other income (expense), net consists primarily of interest earned on our cash and cash equivalents.
Income Taxes
         First Solar, Inc., a Delaware corporation, was incorporated on February 22, 2006. As a Delaware corporation, we are subject to federal and state income taxes. Prior to February 22, 2006, we operated as a Delaware limited liability company and were not subject to state or federal income taxes. As a result, the historical financial data included in this prospectus does not reflect what our financial position and results of operations would have been, had we been a taxable corporation for a full fiscal year or a full quarter.
         On December 31, 2005, we had non-U.S. net operating loss carry-forwards of $3.4 million, which will begin expiring in 2008. At April 1, 2006, we had U.S. net operating loss carry-forwards of $0.2 million, which will

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begin expiring in 2027, state net operating loss carry-forwards of $0.2 million, which will begin expiring in 2011, and non-U.S. net operating loss carry-forwards of $4.2 million, which will begin expiring in 2008. Our ability to use the net operating loss carry-forwards is dependent on our ability to generate taxable income in future periods and subject to certain restrictions under the Internal Revenue Code and certain international tax laws.
         Certain of our non-U.S. subsidiaries are subject to income taxes in their foreign jurisdictions. We expect the tax consequences of our non-U.S. subsidiaries will become significant as we expand our non-U.S. production capacity.
         We recognize deferred tax assets and liabilities for differences between financial statement and income tax bases of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude that it is more likely than not that some portion or all of the deferred tax asset will be realized. As of December 31, 2005, we had a deferred tax asset of $1.9 million consisting primarily of non-U.S. net operating loss carry-forwards and plant start-up cost. As of April 1, 2006, we had a deferred tax asset of $49.4 million consisting primarily of tax-basis goodwill, property, plant and equipment and net operating loss carry-forwards. We have recorded a full valuation allowance against our deferred tax assets, because we determined that it is more likely than not that our deferred tax assets will not be realized.
Critical Accounting Policies and Estimates
         In preparing our financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”), we have to make estimates and assumptions about future events that affect the amounts of reported assets, liabilities, revenues and expenses, as well as the disclosure of contingent liabilities in our financial statements and the related notes thereto. Some of our accounting policies require the application of significant judgment by management in the selection of appropriate assumptions for determining these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. As a result, we cannot assure you that actual results will not differ significantly from estimated results. We base our judgments and estimates on our historical experience, on our forecasts and on other available information, as appropriate. Our significant accounting policies are further described in Note 2 to our audited consolidated financial statements included elsewhere in this prospectus.
         Our most significant accounting policies, which reflect significant management estimates and judgment in determining amounts reported in our audited consolidated financial statements included elsewhere in this prospectus are as follows:
         Revenue recognition. We recognize revenue when persuasive evidence of an arrangement exists, delivery of the product has occurred and title and risk of loss has passed to the customer, the sales price is fixed or determinable and collectibility of the resulting receivable is reasonably assured. In accordance with this policy, we record a trade receivable for the selling price of our product and reduce inventory for the cost of goods sold when delivery occurs in accordance with the terms of the respective sales contracts. Our only revenue generating activity is the sale of our single type of solar module. We are able to determine that the criteria for revenue recognition have been met by examining objective data, and the only estimates that we generally have to make regarding revenue recognition pertain to the collectibility of the resulting receivable. We have not experienced significant variability in our collections because we have historically sold our solar modules primarily to six well-established customers.
         End of life recycling and reclamation. At the time of sale, we recognize an expense for the estimated fair value of our future obligation for reclaiming and recycling the solar modules that we have sold once they have reached the end of their useful lives. We base our estimate of the fair value of our reclamation and recycling obligations on the present value of the expected future cost of reclaiming and recycling the solar modules, which includes the cost of packaging the solar module for transport, the cost of freight from the solar module’s installation site to a recycling center and the material, labor and capital costs of the recycling process and an estimated third-party profit margin and risk rate for such services. We based this estimate on our experience reclaiming and recycling our solar modules and on our expectations about future developments in recycling technologies and processes and about economic conditions at the time the solar modules will be reclaimed and recycled. In the periods between the time of our sales and our settlement of the reclamation and recycling obligations, we accrete the carrying amount of the associated liability by applying the discount rate used in its initial measurement. We charged $0.8 million and $0.3 million to cost of sales for the fair value of our reclamation and recycling obligation for solar modules sold during the year ended December 31, 2005 and the quarter ended April 1, 2006, respectively. During both the year ended December 31, 2005 and the quarter ended April 1, 2006, the accretion expense on our reclamation and recycling obligations was insignificant. We performed a sensitivity analysis on the cost we charged

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to cost of sales in the year ended December 31, 2005 for the reclamation and recycling of solar modules that we sold during that year and determined that an increase of 10% or a decrease of 10% in our estimate of the future cost of reclaiming and recycling each solar module would result in a 10% increase or decrease, respectively, in our reclamation and recycling cost accrual for the year ended December 31, 2005; a 10% increase in the rate we use to discount the future estimated cost would result in a 9% decrease in our estimated costs, and a 10% decrease in the rate would result in a 10% increase in the cost.
         Product warranties. We provide a limited warranty to the original purchasers of our solar modules for five years following delivery for defects in materials and workmanship under normal use and service conditions. We also warrant to the original purchasers of our solar modules that solar modules installed in accordance with agreed-upon specifications will produce at least 90% of their initial nameplate power output rating during the first 10 years following their installation and at least 80% of their initial nameplate power output rating during the following 15 years. Our warranties may be transferred from the original purchaser of our solar modules to a subsequent purchaser. We accrue warranty costs when we recognize sales, using amounts estimated based on our historical experience with warranty claims, our monitoring of field installation sites and in-house testing. During the year ended December 31, 2005, we reduced our estimate of our product warranty liability by $1.0 million because lower manufacturing costs reduced the replacement cost of our solar modules under warranty.
         Stock-based compensation. In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments, which requires companies to recognize compensation expense for all stock-based payments to employees, including grants of employee stock options, in their statements of operations based on the fair value of the awards, and we adopted SFAS 123(R) during the first quarter of the year ended December 31, 2005 using the “modified retrospective” method of transition. In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. (SAB) 107, which provides guidance regarding the implementation of SFAS 123(R). In particular, SAB 107 provides guidance regarding calculating assumptions used in stock-based compensation valuation models, the classification of stock-based compensation expense, the capitalization of stock-based compensation costs and disclosures in management’s discussion and analysis in filings with the SEC.
         Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the date of grant using any valuation model requires judgment. We use the Black-Scholes option pricing model to estimate the fair value of employee stock options, consistent with the provisions of SFAS No. 123(R). Option pricing models, including the Black-Scholes model, require the use of input assumptions, including expected volatility, expected term, expected dividend rate and expected risk-free rate of return. Because our stock is not currently publicly traded, we do not have an observable share-price volatility; therefore, we estimate our expected volatility based on that of similar publicly-traded companies and expect to continue to do so until such time as we might have adequate historical data from our own traded share price. We estimated our options’ expected terms using our best estimate of the period of time from the grant date that we expect the options to remain outstanding. If we determine another method to estimate expected volatility or expected term was more reasonable than our current methods, or if another method for calculating these input assumptions is prescribed by authoritative guidance, the fair value calculated for stock-based awards could change significantly. Higher volatility and expected terms result in a proportional increase to stock-based compensation determined at the date of grant. The expected dividend rate and expected risk-free rate of return are not as significant to the calculation of fair value.
         In addition, SFAS No. 123(R) requires us to develop an estimate of the number of stock-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial statements during the quarter of the change. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements. These adjustments affect our cost of sales, research and development expenses and selling, general and administrative expenses. Through the quarter ended April 1, 2006, the effect of forfeiture adjustments on our financial statements has been insignificant. The expense we recognize in future periods could differ significantly from the current period and/or our forecasts due to adjustments in the assumed forfeiture rates.
         Valuation of Long-Lived Assets. Our long-lived assets include manufacturing equipment and facilities. Our business requires significant investment in manufacturing facilities that are technologically advanced, but may become obsolete through changes in our industry or the fluctuations in demand for our solar modules. We account for our long-lived tangible assets and definite-lived intangible assets in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. As a result, we assess long-lived assets classified as “held and

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used”, including our property, plant and equipment, for impairment whenever events or changes in business circumstances arise that may indicate that the carrying amount of the long-lived asset may not be recoverable. These events would include significant current period operating or cash flow losses combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends. We evaluated our long-lived assets for impairment during 2005 and concluded that the carrying values of these assets were recoverable.
         Accounting for Income Taxes. First Solar Holdings, LLC was formed as a limited liability company and, accordingly, was not subject to U.S. federal or state income taxes, although certain of its foreign subsidiaries were subject to income taxes in their local jurisdictions. However, upon incorporation during the first quarter of 2006, First Solar, Inc. became subject to U.S. federal and state income taxes. We account for income taxes using the asset and liability method, in accordance with SFAS 109, Accounting for Income Taxes. We operate in multiple taxing jurisdictions under several legal forms. As a result, we are subject to the jurisdiction of a number of U.S. and non-U.S. tax authorities and to tax agreements and treaties among these governments. Our operations in these different jurisdictions are taxed on various bases, including income before taxes calculated in accordance with jurisdictional regulations. Determining our taxable income in any jurisdiction requires the interpretation of the relevant tax laws and regulations and the use of estimates and assumptions about significant future events, including the following: the amount, timing and character of deductions; permissible revenue recognition methods under the tax law; and the sources and character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount of income tax assets, liabilities, expenses and benefits that we record during any given period.
Controls and Procedures
         We have restated our consolidated financial statements for the years ended December 27, 2003 and December 25, 2004 and as of December 25, 2004 in order to correct errors that we identified during the preparation of this registration statement in connection with our initial public offering and the performance of the associated audits for our years ended December 25, 2004 and December 31, 2005. We identified several significant deficiencies in our internal controls that were deemed to be “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board (“PCAOB”). A material weakness is defined by the PCAOB as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. A “significant deficiency” is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. A “control deficiency” exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
         As of December 31, 2005, we did not maintain effective controls over the preparation, review and presentation and disclosure of our consolidated financial statements due to a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants. This failure caused several significant deficiencies, four of which had a large enough impact on our operating results to individually constitute a material weakness. These material weaknesses were: (i) we did not maintain effective controls to ensure that the appropriate labor and overhead expenses were included in the cost of our inventory and that intercompany profits in inventory were completely and accurately eliminated as part of the consolidation process; (ii) we did not maintain effective controls to ensure the complete and accurate capitalization of interest in connection with our property, plant and equipment additions; (iii) we did not maintain effective controls to properly accrue for warranty obligations; and (iv) we did not maintain effective controls to properly record the formation of First Solar US Manufacturing, LLC in 1999 and the subsequent liquidation of minority membership units in 2003. These control deficiencies led to the restatement of our financial statements for the years ended December 27, 2003 and December 25, 2004, resulting in a $2.6 million increase in our net loss for the year ended December 27, 2003 and a $2.0 million increase in our net loss for the year ended December 25, 2004. See note 16 to the audited consolidated financial statements included elsewhere in this prospectus for further details. These control deficiencies could result in more than a remote likelihood that a material misstatement to our annual or interim financial statements would not be prevented or detected. Accordingly, we have concluded that each of these control deficiencies constitute a material weaknesses.

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         To improve our financial accounting organization and processes, we have hired a new chief financial officer, are creating an audit committee comprised entirely of independent directors, are in the process of appointing a new independent director to be the chairman of the audit committee and have hired a new corporate controller. We are in the process of adding ten new positions in the areas of finance, tax, treasury, internal controls and internal audit. We are adopting and implementing additional policies and procedures to strengthen our financial reporting capability including investments into further enhancements of our enterprise resource planning system. However, the process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See “Risk Factors — Risks Relating to Our Business — We identified several significant deficiencies in our internal controls that were deemed to be material weaknesses. If we are unable to successfully address the material weaknesses in our internal controls, our ability to report our financial results on a timely and accurate basis may be adversely affected.”
Results of Operations
         The following table sets forth the consolidated statements of operations for the periods indicated as a percentage of net sales:
                                         
    For the Years Ended   For the Quarters Ended
         
    December 27,   December 25,   December 31,   March 26,   April 1,
    2003   2004   2005   2005   2006
                     
Net sales
    100%       100%       100%       100%       100%  
Cost of sales     358.1%       139.4%       65.5%       72.2%       76.0%  
Gross profit (loss)     (258.1)%       (39.4)%       34.5%       27.8%       24.0%  
Research and
development
    119.7%       9.2%       4.9%       2.3%       11.1%  
Selling, general
and administrative
    373.2%       68.9%       32.9%       30.9%       43.1%  
Production start-up expense     0.0%       6.6%       6.6%       2.4%       18.9%  
Operating loss     (751.0)%       (124.1)%       (10.0)%       (7.8)%       (49.2)%  
Foreign currency gain (loss)     0.0%       0.9%       (3.6)%       (1.5)%       6.6%  
Interest expense     (123.8)%       (0.7)%       (0.9)%       (0.5)%       (3.1)%  
Other income (expense)     1.2%       (0.0)%       0.8%       0.2%       2.6%  
Income tax expense                             (0.2)%  
Cumulative effect of change in accounting for share-based compensation                 0.2%       1.0%        
Net loss     (873.6)%       (124.0)%       (13.4)%       (8.6)%       (43.3)%  
Quarters Ended April 1, 2006 and March 26, 2005
Net sales
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Net sales
  $ 8,530     $ 13,624       $5,094       60%  
         Net sales increased by $5.1 million, or 60%, from $8.5 million for the first quarter of 2005 to $13.6 million for the first quarter of 2006. The increase in our net sales was due primarily to a 73% increase in the MW volume of solar modules sold from the first quarter of 2005 to the first quarter of 2006. We were able to increase the MW volume of our solar modules sold primarily as a result of higher throughput and full production ramp of our Base

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Plant. In addition, we increased the average number of sellable Watts per solar module from approximately 59 Watts in the first quarter of 2005 to approximately 62 Watts in the first quarter of 2006. The increase in net sales was partially offset by foreign currency fluctuations and a decrease in the average sales price per Watt from the first quarter of 2005 to the first quarter of 2006, driven by a weaker Euro. Strong demand from other customers allowed us to reduce our dependence on our largest customer from 86% of net sales in the first quarter of 2005 to 24% of net sales in the first quarter of 2006. In both periods, almost all of our net sales resulted from shipments of solar modules to customers headquartered in Germany.
Cost of sales
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Cost of sales
    $6,158       $10,352       $4,194       68%  
% of Net sales
    72.2%       76.0%                  
         Cost of sales increased by $4.2 million, or 68%, from $6.2 million for the first quarter of 2005 to $10.4 million for the first quarter of 2006. The increase in our cost of sales was due primarily to a $2.1 million increase in manufacturing overhead costs from the first quarter of 2005 to the first quarter of 2006, primarily as a result of $1.0 million of stock-based compensation expense. Salaries and personnel-related expenses increased by $0.4 million due to the conversion from a five day to a seven day production week and overall infrastructure build-out to support our growth. Depreciation expense also increased by $0.2 million from the first quarter of 2005 to the first quarter of 2006, primarily as a result of additional equipment becoming operational at our Base Plant. Warranty and end of life costs relating to the reclamation and recycling of our solar modules increased by $0.6 million as a result of higher sales volumes. We also experienced higher raw material costs required to support the higher production volumes from the Base Plant. Direct material expense increased by $1.5 million from the first quarter of 2005 to the first quarter of 2006. Direct labor decreased by $0.1 million.
Gross profit
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Gross profit
    $2,372       $3,272       $900       38%  
% Gross margin
    27.8%       24.0%                  
         Gross profit increased by $0.9 million, or 38%, from $2.4 million for the first quarter of 2005 to $3.3 million for the first quarter of 2006, reflecting an increase in net sales. Increased stock-based compensation negatively impacted gross margin by 7.5 percentage points in the first quarter of 2006. In addition, the conversion from a five day to a seven day production week reduced gross margin because of increased fixed costs in advance of the ramp in production. The gross margins in the first quarter of 2005 benefited from a U.S. Dollar to Euro exchange rate of $1.32/1.00 compared to $1.20/1.00 in the first quarter of 2006.
Research and development
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Research and development
    $197       $1,519       $1,322       671%  
% of Net sales
    2.3%       11.1%                  
         Research and development expense increased by $1.3 million from $0.2 million in the first quarter of 2005 to $1.5 million in the first quarter of 2006, and included $0.6 million of stock-based compensation expense, compared to no stock-based compensation expense in the first quarter of 2005. Increases in personnel-related expense, including stock-based compensation, and consulting expense contributed $0.8 million and $0.2 million, respectively. In addition, we did not receive grant revenue during the first quarter of 2006, compared to grant revenues of $0.3 million in 2005, which offset research and development expense for that period.

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Selling, general and administrative
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Selling, general and administrative
    $2,639       $5,872       $3,233       123%  
% of Net sales
    30.9%       43.1%                  
         Selling, general and administrative expense increased by $3.2 million, from $2.6 million for the first quarter of 2005 to $5.9 million for the first quarter of 2006 and included $0.2 million and $1.0 million of stock-based compensation expense, respectively. Our selling, general and administrative expenses increased primarily as a result of an increase in salaries and personnel-related expenses of $2.6 million, due to increases in staffing, and an increase in stock-based compensation. In addition, professional services fees increased by $0.5 million and facility expenses by $0.1 million over the first quarter of 2005.
Production start-up
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Production start-up
    $204       $2,579       $2,375       1,164%  
% of Net sales
    2.4%       18.9%                  
         During the first quarter of 2006, we incurred $2.6 million of production start-up expenses to qualify our Ohio Expansion and plan for our German Plant compared to $0.2 million of production start-up expenses during the first quarter of 2005.
Foreign exchange gain (loss)
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Foreign exchange gain (loss)
    $(127)       $900       $1,027       N.M.  
         Foreign exchange gain increased by $1.0 million from first quarter 2005 to the first quarter 2006 primarily due to favorable currency translation between the U.S. Dollar and the Euro.
Interest expense
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Interest expense
    $(45)       $(423)       $(378)       N.M.  
         Interest expense increased from the first quarter 2005 to the first quarter 2006 by $0.4 million due to increased borrowings under various notes totaling $102.7 million at the end of the first quarter of 2006 compared to $13.7 million at the end of the first quarter of 2005. In the first quarter of 2006 we capitalized $0.9 million of interest expense in construction in progress compared to $0.1 million in the first quarter of 2005.
Other income
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Other income
    $15       $349       $334       N.M.  
         Other income (expense) increased by $0.3 million in the first quarter of 2006 compared to the first quarter 2005 primarily as a result of increased interest income.

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Income tax expense
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Income tax expense
    $—       $(23)       $(23)       N.M.  
         In the first quarter of 2006, we had income tax expense as a result of having a small profit for tax purposes at one of our non-U.S. subsidiaries.
                              Cumulative effect of change in accounting for share-based compensation
                                 
    For the Quarters Ended        
         
    March 26, 2005   April 1, 2006   Quarter over Quarter Change
             
(Dollars in thousands)
                               
Cumulative effect
    $89       $0       $(89)       N.M.  
         The adoption of SFAS 123(R) requires a change in the method used to estimate forfeitures of employee stock options, resulting in a one-time cumulative effect of $0.1 million in the first quarter of 2005.
Fiscal Years Ended December 31, 2005 and December 25, 2004
Net sales
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Net sales
    $13,522       $48,063       $34,541       255%  
         Net sales increased by $34.5 million, from $13.5 million in fiscal year 2004 to $48.1 million in fiscal year 2005. The increase in our net sales was due primarily to an increase in the MW volume of solar modules sold from fiscal year 2004 to fiscal year 2005. We were able to increase the MW volume of solar modules sold primarily because of increases in production capacity and sellable Watts per solar module. In November 2004, we completed the qualification of our Base Plant for full volume production and then operated the Base Plant at a high-throughput production rate for all of fiscal year 2005. In addition, we increased the average number of sellable Watts per solar module from approximately 55 Watts in 2004 to approximately 59 Watts in 2005. As a result of strong customer demand and the increased number of sellable Watts per solar module, we increased the average sales price per Watt in fiscal year 2005. Strong demand from our other customers also allowed us to reduce our dependence on our largest customer from 68.1% of net sales in fiscal year 2004 to 45.1% of net sales in fiscal year 2005. In fiscal year 2005, 99.6% of our net sales resulted from shipments of solar modules to Germany, compared to 94.7% of our net sales in fiscal year 2004.
Cost of sales
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Cost of sales
    $18,851       $31,483       $12,632       67%  

% of Net sales
    139.4%       65.5%                  
         Cost of sales increased by $12.6 million, or 67%, from $18.9 million in fiscal year 2004 to $31.5 million in fiscal year 2005. The increase in our cost of sales was due primarily to higher material costs required to support the higher production volumes from the Base Plant. Direct materials increased by $7.3 million from fiscal year 2004 to fiscal year 2005. On a cost per solar module and cost per Watt basis, raw material costs declined slightly from fiscal year 2004 to fiscal year 2005, primarily because of improved manufacturing yields and conversion efficiency. In addition, direct labor increased by $0.6 million and manufacturing overhead costs increased by $4.7 million from fiscal year 2004 to fiscal year 2005. This increase was driven by higher engineering expense, increased equipment maintenance and infrastructure build-out and stock-based compensation expense. Manufacturing overhead included $0.8 million of stock-based compensation expense in 2005 compared to $0.1 million in fiscal year 2004.

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Depreciation expense also increased by $1.4 million from fiscal year 2004 to fiscal year 2005 as a result of depreciating the Base Plant for the entire fiscal year. We expensed $1.5 million less warranty and end of life program expenses in fiscal year 2005 than in fiscal year 2004, as a result of corrective actions implemented against production material defects encountered in 2004 and lower overall unit production costs.
Gross profit (loss)
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Gross profit (loss)
    $(5,329)       $16,580       $21,909       N.M.  
% Gross margin
    (39.4)%       34.5%                  
         Gross profit increased by $21.9 million, from a loss of $5.3 million in fiscal year 2004 to a gross profit of $16.6 million in fiscal year 2005, primarily as a result of increased sales volumes. Our gross margin improved from a negative 39.4% in fiscal year 2004 to a positive 34.6% in fiscal year 2005, because of improvements in our average sales price per Watt, an increase in overall sellable Watts due to efficiency gains and the economies of scale we realized from operating the Base Plant at full volume production through most of 2005.
Research and development
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Research and development
    $1,240       $2,372       $1,132       91%  
% of Net sales
    9.2%       4.9%                  
         Research and development expense increased by $1.1 million, or 91%, from $1.2 million in fiscal year 2004 to $2.4 million in fiscal year 2005. Of that increase $0.4 million was due to increases in our development staffing during 2005, $0.5 million due to higher stock-based compensation expense and $0.2 million due to an increase in consulting fees offset by a reduction of $0.1 million in facility expense. In addition, our grant revenue declined by $0.1 million in fiscal year 2005, compared to fiscal year 2004. Research and development expenses included stock-based compensation expense of $0.6 million and $0.1 million in fiscal year 2005 and fiscal year 2004, respectively.
Selling, general and administrative
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Selling, general and administrative     $9,312       $15,825       $6,513       70%  
% of Net sales
    68.9%       32.9%                  
         Selling, general and administrative expense increased by $6.5 million, or 70%, from $9.3 million in fiscal year 2004 to $15.8 million in fiscal year 2005. Our selling, general and administrative expenses increased by $2.2 million as a result of increased staffing levels, primarily in sales and marketing, to support higher sales volumes in Germany. In addition, spending for professional services increased by $1.0 million, travel expenses increased by $0.4 million and facilities expense increased by $0.5 million in fiscal year 2005 compared to fiscal year 2004. Stock-based compensation expense increased by $2.4 million, from $1.0 million in fiscal year 2004 to $3.4 million in fiscal year 2005.
Production start-up
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Production start-up
    $900       $3,173       $2,273       253%  
% of Net sales
    6.6%       6.6%                  
         Production start-up expenses increased from $0.9 million in fiscal year 2004 to $3.2 million in fiscal year 2005 as we began the build-out of our Ohio Expansion in fiscal year 2005. These expenses are primarily attributable

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to the cost of labor and material to run and qualify the line, related facility expenses and the documentation of our replication process.
Foreign exchange gain (loss)
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Foreign exchange gain (loss)
    $116       $(1,715)       $(1,831)       N.M.  
         Foreign exchange losses increased by $1.8 million during fiscal year 2005 as the U.S. Dollar strengthened against the Euro.
Interest expense
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Interest expense
    $(100)       $(418)       $(318)       N.M.  
         Interest expense increased in fiscal year 2005 by $0.3 million compared to fiscal year 2004 due to increased borrowings under various notes totaling $28.7 million at the end of fiscal year 2005 compared to $13.7 million at the end of fiscal year 2004. In fiscal year 2005 we capitalized $0.4 million of interest expense in construction in progress compared to $0.3 million in fiscal year 2004.
Other income (expense)
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Other income (expense)
    $(6)       $372       $378       N.M.  
         Other income increased by $0.4 million during fiscal year 2005 due to an increase in interest income earned.
Cumulative effect of change in accounting for share-based compensation
                                 
    For the Years Ended        
         
    December 25, 2004   December 31, 2005   Year over Year Change
             
(Dollars in thousands)
                               
Cumulative effect
    $—       $89       $89       N.M.  
         The adoption of SFAS 123(R) requires a change in the method used to estimate forfeitures of employee stock options, resulting in a one-time cumulative effect of $0.1 million in the first quarter of 2005.
Fiscal Years Ended December 25, 2004 and December 27, 2003
Net sales
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Net sales
    $3,210       $13,522       $10,312       321%  
         Net sales increased by $10.3 million, or 321%, from $3.2 million in fiscal year 2003 to $13.5 million in fiscal year 2004. The increase in our net sales was due primarily to a 241% increase in the MW volume of solar modules sold from fiscal year 2003 to fiscal year 2004. We were able to increase the MW volume of solar modules sold in fiscal year 2004 because of an increase in production capacity and sellable Watts per solar module. From 2003 to 2004, we increased the average number of sellable Watts per solar module from approximately 49 Watts to approximately 55 Watts. Our increase in net sales was partially offset by a decrease in the average sales price per Watt. Our largest customer accounted for 68.1% of our net sales in fiscal year 2004 compared to 58.9% of our net sales in fiscal year

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2003. In fiscal year 2004, 94.6% of our net sales resulted from sales of solar modules to Germany, compared to 62.4% of our net sales in fiscal year 2003. The increase in the concentration of our net sales in Germany was primarily attributable to the favorable market conditions in Germany created by government subsidies.
Cost of sales
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Cost of sales
    $11,495       $18,851       $7,356       64%  
% of Net sales
    358.1%       139.4%                  
         Cost of sales increased by $7.4 million, or 64%, from $11.5 million in fiscal year 2003 to $18.9 million in fiscal year 2004. The increase in our cost of sales was due primarily to a $2.6 million increase in manufacturing overhead expense as a result of continued infrastructure build-out and an increase in production volume. Depreciation costs increased by $0.5 million from fiscal year 2003 to fiscal year 2004, as a result of depreciating certain equipment from the Base Plant for the entire year. Warranty and end of life program expenses increased by $1.7 million due to production material defects discovered in certain products shipped. We also experienced $1.5 million in higher raw material costs required to support the higher production volumes. On a cost per solar module and a cost per Watt basis, raw material costs declined slightly from fiscal year 2003 to fiscal year 2004, primarily because of improved manufacturing yields and higher conversion efficiencies. Direct labor increased by $1.2 million from fiscal year 2003 to fiscal year 2004.
Gross profit (loss)
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Gross profit (loss)
    $(8,285)       $(5,329)       $2,956       N.M.  
% Gross margin
    (258.1)%       (39.4)%                  
         Gross profit increased by $3.0 million from a loss of $8.3 million in fiscal year 2003 to a loss of $5.3 million in fiscal year 2004. In addition, our gross margin improved from negative 258.1% in fiscal year 2003 to negative 39.4% in fiscal year 2004. Our gross profit and gross margin increased primarily because of higher net sales, improvements in yield and conversion efficiency and the economies of scale we realized from our increases in production partially offset by higher warranty expense.
Research and development
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Research and development
    $3,841       $1,240       $(2,601)       (68%)  
% of Net sales
    119.7%       9.2%                  
         Research and development expense decreased by $2.6 million from $3.8 million in fiscal year 2003 to $1.2 million in fiscal year 2004. Our research and development expense decreased during 2004 as employees moved out of the research and development function into manufacturing engineering, where their costs are recorded as cost of sales, to support production in the Base Plant. In addition, grant revenue during fiscal year 2004 declined by $0.4 million compared to fiscal year 2003.
Selling, general and administrative
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Selling, general and administrative
    $11,981       $9,312       $(2,669)       (22)%  
% of Net sales
    373.2%       68.9%                  

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         Selling, general and administrative expense decreased by $2.7 million, or 22%, from $12.0 million in fiscal year 2003 to $9.3 million in fiscal year 2004. Stock-based compensation was $1.1 million in fiscal year 2003 and $1.0 million in fiscal year 2004. The decrease was primarily due to a non-recurring settlement charge of $3.0 million in fiscal year 2003, which was partially offset by a $0.3 million increase in personnel expenses.
Production start-up
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Production start-up
    $0       $900       $900       N.M.  
         Production start-up costs were first incurred in fiscal year 2004 as preparation to replicate plants and production lines began.
Foreign exchange gain (loss)
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Foreign exchange gain (loss)
    $0       $116       $116       N.M.  
         Foreign exchange gains increased during fiscal year 2004 due to favorable exchange rates between the U.S. Dollar and the Euro. During 2003, we did not have significant transaction volumes in currencies other than the U.S. Dollar.
Interest expense
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Interest expense
    $(3,974)       $(100)       $3,874       N.M.  
         Interest expense decreased from $3.9 million in fiscal year 2003 to $0.1 million in fiscal year 2004 due to the conversion of outstanding debt into equity in July of 2003. In 2004 we capitalized $0.3 million of interest expense in construction in progress compared to $0.4 million in fiscal year 2003.
Other income (expense)
                                 
    For the Years Ended        
         
    December 28, 2003   December 25, 2004   Year over Year Change
             
(Dollars in thousands)
                               
Other income (expense)
    $38       $(6)       $(44)       N.M.  
         Other income represents the interest earned on the company’s bank accounts. No significant changes occurred from fiscal year 2003 to fiscal year 2004.
Liquidity and Capital Resources
         Historically, our principal sources of liquidity have been cash provided by operations, borrowings from JWMA Partners, LLC (“JWMA”) and its affiliates, borrowings from Goldman, Sachs & Co., equity contributions from JWMA and borrowings from local governments and other sources to fund plant expansions. As of April 1, 2006, we had $62.8 million in cash and cash equivalents on hand. One of our strategies is to expand our manufacturing capacity by building new manufacturing plants and production lines, such as the German Plant currently under construction and a new manufacturing plant in Asia currently in the planning phase. We expect that a four line manufacturing facility will require a capital expenditure of approximately $140 million to complete. We believe that our current cash and cash equivalents, pending government grants and low interest debt financings for our German Plant and the proceeds of this offering will be sufficient to meet our working capital and capital expenditures needs for at least the next 12 months. However, if our financial results or operating plans change from our current assumptions, we may not have sufficient resources to support our business plan. As a result, we may be required to engage in one or more debt or equity

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financings in the future that would result in increased expenses or additional dilution to our stockholders. If we are unable to obtain debt or equity financing on reasonable terms we may be unable to execute our expansion strategy. See “Risk Factors—Risks Relating to Our Business—Our future success depends on our ability to build new manufacturing plants and add production lines in a cost-effective manner, both of which are subject risks and uncertainties”.
Cash Flows
                                           
Cash provided by (used in):   For the Years Ended   For the Quarters Ended
         
    Dec 27,   Dec 25,   Dec 31,   March 25,   April, 1
    2003   2004   2005   2005   2006
                     
Operating activities
  $ (22,228 )   $ (15,185 )   $ 5,040     $ (2,797 )   $ (11,370 )
Investing activities
    (15,224 )     (7,790 )     (43,832 )     (746 )     (25,797 )
Financing activities
    39,129       22,900       51,663       11,930       83,360  
Effect of exchange rates on cash flows
    0       (187 )     385       98       (126 )
                               
 
Net increase (decrease) in cash and
cash equivalents
  $ 1,677     $ (262 )   $ 13,256     $ 8,485     $ 46,067  
                               
Operating activities
         Operating activities used cash of $11.4 million in the first quarter of 2006 compared to $2.8 million used during the first quarter of 2005. The increased usage of $8.6 million was primarily driven by an increase in cash paid to our suppliers and employees as a result of an increase in spending across all functions due to the ramp in production volume and increases in inventory. This increase was partially offset by cash received from our customers as a result of higher net sales, which in turn was offset in part by an increase in accounts receivable.
         Operating activities provided cash of $5.0 million in fiscal year 2005 and used cash of $15.2 million and $22.2 million in fiscal years 2004 and 2003, respectively. The increase of $20.2 million in cash provided by operating activities from fiscal year 2004 to fiscal year 2005 was primarily a result of an increase in cash received from our customers. The cash we received from our customers increased because our net sales increased by $34.5 million from fiscal year 2004 to fiscal year 2005 and our accounts receivable decreased by $3.3 million during the same period. These factors were partially offset by an increase in cash paid to our suppliers and employees as a result of higher production volumes and an increase in inventory.
         From fiscal year 2003 to fiscal year 2004 cash used by operating activities decreased by $7.0 million primarily due to an increase in cash received from our customers resulting from a $10.3 million increase in net sales, in part offset by an increase in accounts receivable of $2.5 million and cash paid to our suppliers and employees relating to an increase in inventory of $2.1 million as a result of a planned inventory build-up to meet anticipated demand. Cash used by operating activities in fiscal year 2003 also included a $3.0 million non-recurring settlement payment.
Investing activities
         Cash used in investing activities was $25.8 million in the first quarter of 2006 compared to $0.7 million during the first quarter of 2005. The increase of $25.1 million was due to increased capital expenditures for our German Plant and the Ohio Expansion.
         Cash used in investing activities was $43.8 million in fiscal year 2005, $7.8 million in fiscal year 2004 and $15.2 million in fiscal year 2003. Cash used in investing activities in fiscal year 2005 was composed of $42.5 million used to complete our Ohio Expansion, $1.3 million deposited with an insurance company as part of our solar module recycling and reclamation program and $0.1 million used for other capital expenditures. In fiscal year 2004, cash used in investing activities was composed of $7.7 million used to purchase equipment for the Base Plant and $0.1 million used for investments into other long term assets. In fiscal year 2003, cash used in investing activities was composed of $6.2 million used to purchase machinery and equipment for the Base Plant and $8.7 million in cash used to purchase land and a building and $0.4 million used for investments into other long term assets.
Financing activities
         Cash provided by financing activities was $83.4 million in the first quarter of fiscal year 2006 compared to $11.9 million during the first quarter of 2005. The increase of $71.5 million was due to proceeds of $10.0 million from a loan from the Estate of John T. Walton, equity contributions by JWMA of $30.0 million and net proceeds of

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$73.3 million from the issuance of convertible senior subordinated notes, offset by a $30.0 million loan repayment to the Estate of John T. Walton.
         On February 22, 2006, we issued $74 million aggregate principal amount of convertible senior subordinated notes due 2011 to Goldman, Sachs & Co. On May 10, 2006, Goldman, Sachs & Co. converted all of the convertible senior subordinated notes into shares of common stock and is now a stockholder. See “Principal and Selling Stockholders”.
         Cash generated from financing activities was $51.7 million in fiscal year 2005 as compared to $22.9 million in fiscal year 2004 and $39.1 million in fiscal year 2003. In fiscal year 2005, cash provided by financing activities was primarily the result of a $20.0 million loan from the Estate of John T. Walton, a $15.0 million loan from the Director of Development of the State of Ohio and a $16.7 million cash equity contribution by JWMA. In fiscal year 2004, cash provided by financing activities was primarily a result of a $5.0 million loan from the Director of Development of the State of Ohio and a $17.9 million cash equity contribution by JWMA. In fiscal year 2003, cash provided by financing activities was primarily a result of $21.9 million of loans from JWMA, a $8.7 million loan from Kingston Properties, LLC and a $8.5 million equity contribution from JWMA.
Contractual Obligations
         The following table presents our contractual obligations. Our actual contractual obligations consist of legal commitments as of April 1, 2006, requiring us to make fixed or determinable cash payments, regardless of contractual requirements with the vendor to provide future goods or services. We purchase raw materials for inventory, services and manufacturing equipment from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, we enter into agreements with suppliers that either allow us to procure goods and services when we choose or that establish purchase requirements. The following table includes only the portion of our recorded purchase commitments are firm, non-cancelable and unconditional.
                       
        Payments Due By Year
         
        Less than       More than
Contractual Obligations   Total   1 Year   1 - 3 Years   3 - 5 Years   5 Years
                     
    (dollars in thousands)
Long-term debt(1)
  $128,187   $4,475   $14,681   $102,441   $6,590
Capital (Finance) leases
  31   7   16   8  
Operating leases
  893   237   411   201   44
Purchase obligations
  77,562   74,369   3,193    
Recycling obligations
  1,389         1,389
                     
 
Total
  $208,062   $79,088   $18,301   $102,650   $8,023
                     
 
(1)  Includes $74.0 million of convertible senior subordinated notes, which were converted into shares of our common stock on May 10, 2006. Also includes estimated cash interest to be paid over the remaining terms of the debt.
Debt and Credit Sources
         On July 1, 2005, First Solar US Manufacturing, LLC and First Solar Property, LLC entered into a loan agreement with the Director of Development of the State of Ohio for $15.0 million, all of which was outstanding at April 1, 2006. The interest rate on the note is 2% per annum, plus a monthly service fee equal to 0.021%, payable monthly in arrears on the first day of each month. Principal payments commence on December 1, 2006 and end on July 1, 2015, and we may pre-pay the note in whole or in part at any time. The note is secured by a first-priority lien on our land and building in Perrysburg, Ohio and guaranteed by First Solar, Inc.
         On February 24, 2004, First Solar US Manufacturing, LLC and First Solar Property, LLC entered into a loan agreement with the The Director of the State of Ohio for $5.0 million, all of which was outstanding at April 1, 2006. The interest rate on the note was 0.25% per annum for the first year the loan is outstanding, 1.25% during the second and third years, 2.25% during the fourth and fifth years and 3.25% for the remaining term of the note. In addition, we pay a monthly service fee equal to 0.021%. Interest is payable monthly, on the first day of each month. Principal payments commence on January 1, 2007 and end on December 1, 2009, and we may pre-pay the note in whole or in part at any time after January 1, 2007. The note is secured by a first-priority lien on the machinery and equipment in our Perrysburg, Ohio manufacturing plant and guaranteed by First Solar, Inc.

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         On May 14, 2003, First Solar Property, LLC issued a $8.7 million promissory note due June 1, 2010 to Kingston Properties, LLC, an affiliate of JWMA, all of which was outstanding at April 1, 2006. The interest rate of the note is 3.70% per annum, payable monthly on the first day of each month, commencing June 1, 2003 and ending June 1, 2010. We may pre-pay the note in whole or in part at any time. The note is secured by a second-priority lien on our land and building in Perrysburg, Ohio.
Off-Balance Sheet Arrangements
         We had no off-balance sheet arrangements as of April 1, 2006.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
         Our international operations accounted for approximately 99.6% of our net sales in fiscal year 2005 and 94.7% of our net sales in fiscal year 2004. In fiscal year 2005 and fiscal year 2004, all of our international sales were denominated in Euros. As a result, we have exposure to foreign exchange risk with respect to almost all of our net sales. Fluctuations in exchange rates, particularly in the U.S. Dollar to Euro exchange rate, affect our gross and net profit margins and could result in foreign exchange and operating losses. Our exposure to foreign exchange risk primarily relates to currency gains and losses from the time we sign and settle our sales contracts. For example, we recently entered into our Long Term Supply Contracts. These contracts obligate us to deliver solar modules at a fixed price in Euros per Watt, and do not adjust for fluctuations in the U.S. Dollar to Euro exchange rate. In 2005, a 10% change in foreign currency exchange rates would have impacted our net sales by $4.8 million.
         In the past, exchange rate fluctuations have had an impact on our business and results of operations. For example, exchange rate fluctuations positively impacted our cash flows by $0.4 million in fiscal year 2005 and negatively impacted our cash flows by $0.2 million in fiscal year 2004. Although we cannot predict the impact of future exchange rate fluctuations on our business or results of operations, we believe that we may have increased risk associated with currency fluctuations in the future. Currently, we do not engage in hedging activities; however, our expenditures denominated in Euros are increasing due to the construction of our German Plant and capital equipment purchases from German suppliers. Most of the German Plant’s operating expenses will be in Euros creating further opportunities for some natural hedge against the currency risk in our net sales. In addition, we may decide to enter into other hedging activities in the future.
Interest Rate Risk
         We are exposed to interest rate risk because many of our end-users depend on debt financing to purchase and install a PV system. Although the useful life of a PV system is approximately 25 years, end-users of our solar modules must pay the entire cost of the PV system at the time of installation. As a result, many of our end-users rely on debt financing to fund the up-front capital expenditure. An increase in interest rates could make it difficult for our end-users to secure the financing necessary to purchase and install a PV system on favorable terms, or at all, and thus lower demand for our solar modules and reduce our net sales. In addition, we believe that a significant percentage of our end-users install PV systems as an investment, funding the initial capital expenditure through a combination of equity and debt. An increase in interest rates could lower an investor’s return on investment in a PV system or make alternative investments more attractive relative to PV systems, which, in each case, could cause these end-users to seek alternative investments that promise higher returns.
         The interest rates on all of our debt is fixed and therefore a 10% increase in interest rates would not have a significant impact our interest expense. However, changes in interest rates would impact our ability to secure financing in the future.
Commodity Risk
         We are exposed to price risks associated with raw material purchases, most significantly tellurium. Currently, we purchase all of our CdTe in manufactured form from two qualified manufacturers, but we plan to qualify additional manufacturers. We have a three year written contract with one of our two qualified CdTe suppliers, which provides for quarterly price adjustments based on the cost of tellurium. We purchase CdTe from our other qualified supplier under quarterly purchase orders. In 2006, we entered into a multi-year tellurium supply contract in order to mitigate potential cost volatility and secure raw material supplies. We acquire the remainder of our raw materials under quarterly or annual purchase orders, at prices based on annual volumes. Because the sale prices of solar modules in our Long Term Supply Contracts do not adjust for raw material price increases and are generally for a longer term than our supply contracts, we may be unable to pass on increases in the cost of our raw materials to our customers.

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         In addition, most of our key raw materials are either sole-sourced or sourced by a limited number of third-party suppliers. As a result, the failure of any of our suppliers to perform could disrupt our supply chain and impair our operations. If our existing suppliers fail to perform, we will be required to identify and qualify new suppliers, a process that can take between one and twelve months depending on the raw material. We might be unable to identify new suppliers or qualify their products for use on our production line in a timely basis and on commercially reasonable terms.
Recent Accounting Pronouncements
         In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments, which revises SFAS 123, supersedes APB 25 and SFAS 148, and amends SFAS 95, Statement of Cash Flows. Generally, the requirements of SFAS 123(R) are similar to those of SFAS 123. However, SFAS 123(R) requires companies to recognize compensation expense for all stock-based payments to employees, including grants of employee stock options, in their statements of operations based on the fair value of the awards. We adopted SFAS 123(R) during the first quarter of the year ended December 31, 2005 using the “modified retrospective” method of transition.
         In March 2005, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. (SAB) 107, which provides guidance regarding the implementation of SFAS 123(R). In particular, SAB 107 provides guidance regarding calculating assumptions used in stock-based compensation valuation models, the classification of stock-based compensation expense, the capitalization of stock-based compensation costs, the classification of redeemable financial instruments and disclosures in management’s discussion and analysis in filings with the SEC. We have applied (SAB) 107 in our adoption of SFAS 123(R).
         In November 2004, the FASB issued SFAS 151, which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and spoilage. SFAS 151 also requires the allocation of fixed production overhead costs based on normal production capacity. We adopted this statement in 2005 and the adoption did not have a material effect on our financial position, results of operations or cash flows.
         In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. APB 29, Accounting for Nonmonetary Transactions, applies the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS 153 amends APB 29 by eliminating the exception to fair value accounting for nonmonetary changes of similar productive assets and replacing it with a general exception to fair value accounting for nonmonetary exchanges that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. We will adopt SFAS 153 during 2006 and do not expect this to have a material effect on our financial position, results of operations or cash flows.
         In March 2005, the FASB issued Interpretation No. (FIN) 47, Accounting for Conditional Asset Retirement Obligations. “Conditional” asset retirement obligations are legal obligations to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the entity’s control. FIN 47 clarifies that an entity must record a liability for a conditional asset retirement obligation if the fair value of the obligation can be reasonably estimated and establishes when an entity would have sufficient information to reasonably estimate that fair value. We adopted FIN 47 during 2005, and it did not have a material effect on our financial position, results of operations or cash flows.
         In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections, which supersedes APB 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 changes the method for reporting an accounting change. Under SFAS 154, accounting changes must be retrospectively applied to all prior periods whose financial statements are presented, unless the change in accounting principle is due to a new pronouncement that provides other transition guidance or unless application of the retrospective method is impracticable. Under the retrospective method, companies will no longer present the cumulative effect of a change in accounting principle in their statement of operations for the period of the change. SFAS 154 carries forward unchanged APB 20’s guidance for reporting corrections of errors in previously issued financial statements and for reporting changes in accounting estimates. We will adopt SFAS 154 during 2006 and do not expect this to have a material effect on our financial position, results of operations or cash flows.
         In January 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 155 also resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. SFAS No. 155 eliminates the exemption from applying SFAS

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No. 133 to interests in securitized financial assets so that similar instruments are accounted for in the same manner regardless of the form of the instruments. SFAS No. 155 allows a preparer to elect fair value measurement at acquisition, at issuance, or when a previously recognized financial instrument is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The fair value election provided for in paragraph 4(c) of SFAS No. 155 may also be applied upon adoption of SFAS No. 155 for hybrid financial instruments that had been bifurcated under paragraph 12 of SFAS No. 133 prior to the adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity’s fiscal year, provided the entity has not yet issued financial statements, including financial statements for any interim period for that fiscal year. Provisions of SFAS No. 155 may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. Adoption of this standard is not expected to have a material impact on our results of operations and/or equity.
         In February 2006, the FASB issued FSP FAS 123R-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. The guidance in FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the concept articulated in footnote 16 of FAS 123R. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employee’s control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a stock-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required classification and accounting for the share based payment as a liability. This caused an issue under certain awards that require or permit, at the holder’s election, cash settlement of the option or similar instrument upon (a) a change in control or other liquidity event of the entity or (b) death or disability of the holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the occurrence of a contingent event that is outside the employees control (such as an initial public offering) until it becomes probable that event will occur. The guidance in this FSP has been applied upon our adoption of Statement 123(R).

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INDUSTRY
Electric Power Industry
         Global demand for electric power is expected to increase from 14.3 trillion kilowatt hours (“kWh”) in 2002 to 26.0 trillion kWh by 2025, according to the Energy Information Administration (the “EIA”). To meet this demand, the International Energy Agency (the “IEA”) estimates that investments in generation, transmission and distribution of electricity must reach approximately $10 trillion by 2030. According to the IEA, fossil fuels such as coal, oil and natural gas generated over 65% of the world’s electricity in 2002. However, fossil fuels face a number of challenges that will limit their ability to supply the expanding global demand for energy:
  Limited supply and rising cost of fossil fuels. Limited fossil fuel supply and escalating electricity consumption are causing wholesale electricity prices to increase. For example, from 2000 to 2005, the average cost of all fossil fuels used to generate electricity globally increased by 67%, according to the IEA. The rising cost of fossil fuels has resulted in higher electricity costs for consumers and highlighted the need to develop new technologies for electricity generation.
 
  Dependence on energy from foreign regions. Many countries depend on foreign energy for a majority of their domestic energy needs. For example, the World Bank estimates that, in 2003, Italy, Japan and Korea imported over 80% of their energy requirements, Germany and Spain imported over 60% of their energy requirements and the United States imported approximately 28% of its energy requirements. Political and economic instability in some of the leading energy producing regions of the world have induced many countries to explore domestic energy alternatives, including renewable energy, in order to reduce foreign energy dependence.
 
  Environmental concerns. Environmental concerns over the by-products of fossil fuels have led to a global search for environmentally friendly solutions to the world’s growing electricity needs. In 2004, 160 countries signed the Kyoto Protocol, agreeing to reduce emissions of carbon dioxide and other gasses by 5.2% from 1990 levels during the 2008-2012 period. Many countries have since taken pro-active steps to reduce emissions, such as adopting subsidies to encourage the commercialization of renewable energy.
Renewable Energy Industry
         The same challenges facing fossil fuels are creating a growth opportunity for renewable energy. Renewable energy sources for electric power generation include hydroelectric, biomass, geothermal, wind and solar. Within the renewable energy industry, hydroelectric power currently generates the most electricity. According to the EIA, hydroelectric power accounted for approximately 6.5% of electricity generated in the United States in 2004, compared to just 2.3% for all other sources of renewable energy combined. While hydroelectric power generation currently has the largest installed base within renewable energy, the future growth of hydroelectric power will likely be limited due to environmental concerns and a lack of suitable sites.
         Among renewable sources of electricity, solar energy has the most potential to meet the world’s growing electricity needs. According to the 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. A study commissioned by the Department of Energy estimates that, on average, 120,000 trillion Watts (“terawatts”, or “TW”) of solar energy strike the Earth per year, far exceeding the global electricity consumption rate of 14.3TW in 2002. At a typical latitude for the United States, a net 10% efficient solar energy “farm” covering 1.6% of the U.S. land area could theoretically meet the country’s entire domestic electricity needs. In contrast, the same study estimates that the remaining global, practically exploitable hydroelectric resource is less than 0.5TW, the cumulative energy in all the tides and ocean currents in the world amounts to less than 2TW, the total geothermal energy at the surface of the Earth, integrated over all the land area of all seven continents, is 12TW, of which only a small fraction could be practically extracted, and the total amount of globally extractable wind power is between 2TW and 4TW. Wind is a commercially viable and scalable source of renewable energy, but it also faces environmental challenges and many of the most attractive high wind resource areas have already been developed.
Solar Energy
         Solar electricity is generated using either photovoltaic (“PV”) or solar thermal technology to extract energy from the sun. Photovoltaic electricity generating systems (“PV 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

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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. Such systems are commonly mounted on the rooftops of buildings, integrated into building facades or installed on the ground using support structures, and range in size from 2-3 kW to multiple 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.
         Photovoltaic systems are currently the most widely used method of transforming sunlight into electricity. Annual installations by the photovoltaic industry (the “PV industry”) grew from 0.3 Gigawatts (“GW”) in 2001 to 1.5GW in 2005, representing an average annual growth rate of over 43%. Cumulative installed capacity surpassed 5GW during 2005.
         In 2005, Germany was the world-leader in MW volume of PV installations with 57%, followed by Japan with 20% and the United States with 7%, according to Solarbuzz. Germany’s and Japan’s historical dominance is attributable to their government incentive programs, which were designed to stimulate market demand for PV systems. Other European countries have adopted or are adopting similar laws and policies, as are countries in Asia and several states in the United States, including California. The recently announced California Solar Initiative commits $2.9 billion in incentives over 10 years with the goal of supporting installations of 3GW new installed capacity by 2017.
         Solar energy generated through PV systems has several advantages compared to conventional and other renewable sources of electricity, including the following:
  Solar energy is distributive. PV systems achieve economies of scale at small sizes and are modular, and thus can be installed at or near the sites where the solar electricity is consumed. By contrast, most methods of electricity generation are centrally generated and delivered to consumers over a transmission and distribution grid. As a result, solar generation can mitigate the cost and distribution and transmission constraints often faced by centrally generated energy sources.
 
  Solar energy systems require minimal operating expense. Once installed, PV systems typically require very little maintenance and no fuel, minimizing the operating expense of a PV system over the 25 year life of key system elements. As a result, the cost of electricity generated by a PV system is substantially fixed at the time of installation and is subject to minimal increase or volatility over the life of the system. By contrast, other methods of electricity generation require higher amounts of maintenance and replacement costs over the life of the system. In addition, fossil fuel and biomass power plants face volatility in fuel supply and cost. These maintenance, replacement and fuel costs can be unpredictable and cause the cost of electricity generated by these systems to increase over the system’s useful life.
 
  Solar modules can be installed at a variety of locations. PV systems can generate electricity anywhere sunlight hits the Earth’s surface. By contrast, relatively fewer locations have the natural resources and grid access necessary to support hydroelectric, wind or geothermal electricity generating systems. While power plants using fossil fuels, biomass and nuclear technology are not restricted by natural conditions, their development is often constrained by long lead times for permitting and construction, availability of fuel, infrastructure requirements and environmental concerns.
 
  Solar energy generation typically coincides with the times of peak energy demand. PV systems generate most of their electricity during the afternoon hours, when the energy from the sun is strongest. In many areas and times of the year, the greatest demand for electricity is also during these same afternoon hours. Consumers can therefore replace peak time conventional electricity, which can be more expensive and less reliable than electricity purchased during non-peak times, with distributed solar electricity.
Challenges Facing the Photovoltaic Industry
         Despite the advantages of solar energy generated through PV systems, the PV industry must overcome a number of challenges to grow and achieve widespread commercialization of its products, including the following:
  Current high cost of solar electricity. Currently, solar electricity is not competitive with conventional sources of electricity on a cost basis without government subsidies. Such government programs include feed-in tariffs, net metering programs, renewable portfolio standards, rebates, tax

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  incentives and low interest loans. The demand for solar modules may decline if government subsidies are reduced or eliminated before solar electricity can compete with conventional sources of electricity on a cost basis. See “Business—Government Subsidies”.
 
  Limited availability of semiconductor materials. Solar modules require a semiconductor material to convert solar energy into electricity. Over 94% of the MW volume of solar modules sold in 2005 used crystalline silicon as their semiconductor material, according to Solarbuzz. High demand from the PV and microelectronics industries has led to a shortage of silicon feedstock, which currently limits the growth of many solar module manufacturers. While manufacturers of silicon feedstock are building new manufacturing plants to increase supply, the construction of such plants is time consuming and requires substantial capital expenditures.
 
  Intermittent source of power. PV systems require sunlight to generate electricity and are less effective in climates of low sunlight and extreme hot and cold temperatures. As a result, PV systems generally cannot be used as a sole source of electricity and must be combined with a storage solution (such as a battery) or other source of electricity (such as grid electricity or diesel generation) in order to provide a complete solution to the end-user.

The Cost and Operating Metrics of a Photovoltaic System
         Electricity is generated by PV systems, which are comprised of solar modules, mounting structures and electrical components. Solar module manufacturers price and sell solar modules per Watt of nameplate power, which is the rated power under standard test conditions. Power is a rating of a solar module’s capacity to produce electricity and is measured in Watts, where one thousand Watts equals one kilowatt (“kW”) and one thousand kWs equals one MW. Electricity is measured in kWh, and is the quantity of power produced for a given period of time. For example, a PV system producing 1kW of power for three hours generates 3kWh of electricity. Retail electricity is generally discussed in terms of kWh. According to the EIA, in 2001, the average U.S. household consumed approximately 10,600kWh of electricity.
Cost of a Photovoltaic System
         The manufacturing cost per Watt of a solar module equals the cost to produce a solar module divided by the module’s number of sellable Watts. Sellable Watts per module is a function of, among other things, the conversion efficiency of the solar module. The conversion efficiency of a solar module is driven primarily by the type of semiconductor material, the device structure and optimization of the manufacturing process. Manufacturers of solar modules are divided into two broad categories based on the type of semiconductor technology they utilize to convert sunlight into electricity: crystalline silicon technology or thin film technology. Crystalline silicon modules generally have higher conversion efficiencies than thin film solar modules. However, crystalline silicon production processes use approximately 100 times more semiconductor material and are more expensive than the best performing thin film production processes. By lowering the cost to produce a solar module, thin film solar modules manufactured in high volume commercial production can have a lower manufacturing cost per Watt than crystalline silicon solar modules, even though crystalline silicon solar modules have higher conversion efficiencies.
         While solar modules are sold based on their nameplate power, the amount of electricity a solar module can generate and the effective cost of that electricity are also relevant to a purchasing decision. The cost per kWh of solar electricity can be derived by dividing the solar electricity generated over the life of the PV system into the total cost of the system. Solar modules, which have a useful life of approximately 25 years, generally represent approximately half of the cost of a PV system. Mounting structures, equipment and electrical components, generally comprise the other half of the cost of a PV system. In calculating the cost per kWh of solar electricity, many customers also consider the “time value” of the capital required to purchase and install the system.
         The price of conventional energy varies considerably by region based on, among other things, the cost of producing and importing energy. To become competitive with conventional sources of electricity, the price per kWh of distributive solar electricity must approach the retail price of conventional electricity displaced by solar electricity in a given region. According to Energy Industry Research, in 2005, the average retail price per kWh in Germany was $0.20, in the United States was $0.09 and in California was $0.12. For solar power to serve as a source of on-grid generation, it must compete with the average wholesale price of electricity in a given region, as well as the price per kWh of other sources of renewable energy.

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Operating Metrics of a Photovoltaic system
         The PV industry uses a widely accepted set of standard measurement procedures and test conditions for the direct comparison of each solar module. These conditions, called Standard Test Conditions (“STC”), specify a standard temperature, solar irradiance level and angle of the sun, and are used to determine the power rating and conversion efficiency of each solar module.
         On average, at noon on a cloudless day, sunlight provides about 1kW of power to each square meter of the Earth’s surface. A solar module operating at a 10% conversion efficiency under these sunlight conditions will provide 100 Watts of direct current (“DC”) power per square meter (1kW of sunlight power x 10% conversion efficiency = 100 Watts of solar power). If these sunlight conditions persist for one hour, the solar module will generate 100 Watt hours, or 0.1kWh, of solar electricity (100 Watts solar power x 1 hour duration = 0.1kWh of solar electricity). Crystalline silicon solar modules in commercial production had average conversion efficiencies of approximately 14% in 2005. Thin film solar modules in high volume commercial production (over 20MW per year) had average conversion efficiencies that ranged from approximately 6% to approximately 9% in 2005. The conversion efficiency of our solar modules averaged approximately 9% in the first quarter of 2006. In order to reach a comparable level of installed power, a PV system that employs solar modules with relatively lower conversion efficiencies must employ more solar modules than a PV generation system that uses solar modules with higher conversion efficiencies.
         Under real-world operating conditions, a typical PV system operates outside of STC for much of the time. For example, the location and design of a PV system, time of day and year, temperature and angle of the sun impact the performance of a PV system, and the conversion efficiencies of solar modules generally reduce when operating outside STC. In order to determine the solar electricity that a PV system will generate, it is therefore necessary to understand not only the STC power rating of a solar module, but also the design of the PV system, real world conditions under which the system will operate and performance characteristics of the solar modules and electrical components outside STC.
Photovoltaic Technology
         Historically, crystalline silicon has been the most common semiconductor material used in solar modules. In 2005, 94% of the MW volume of solar modules sold employed crystalline silicon technology, while thin film technology accounted for only 6% the MW volume of solar modules sold. Thin film solar modules generally employ one of three different semiconductor materials to convert solar energy into electricity: cadmium telluride (“CdTe”); copper indium gallium diselenide (“CIGS”); or amorphous silicon.
         Thin film technology offers several cost and performance advantages over crystalline silicon technology, including the following:
  Fundamental cost advantage. Thin film technology employs semiconductor materials that are efficient absorbers of energy from the solar spectrum. As a result, thin film technology enables manufacturers to produce solar modules with approximately 1% of the semiconductor material used to produce crystalline silicon solar modules, potentially providing a fundamental material cost advantage. Recent increases in the price of silicon feedstock have heightened the cost advantage opportunity of thin film technology. The price of silicon feedstock increased from $28-$32/kg for 2004 delivery to $45-$50/kg for 2006 delivery, and spot prices have been reported to exceed $100/kg in 2006. Over the same period, the price of CdTe semiconductor material also increased; however, the exposure of CdTe thin film manufacturers to these price increases was limited because of the relatively small amount of semiconductor material they employ to manufacture a solar module.
 
  Integrated production process. Certain thin film technologies enable manufacturers to deposit semiconductor materials directly on large inexpensive superstrates with a continuous manufacturing process that increases production throughput over a fixed asset and operating expense base. While many thin film manufacturers can perform all manufacturing steps in a continuous process, few crystalline silicon manufacturers are able to perform every step in the batch manufacturing process employed to construct a crystalline silicon solar module.
 
  Superior product performance. Certain types of thin-film solar modules, such as CdTe, generate more electricity across a variety of environments, including high temperature and low light, than

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  crystalline silicon solar modules with the same nameplate power rating. Higher real-world kWh per rated kW of output increases the end-users’ return on investment.

         Thin film technology also faces a number of disadvantages relative to crystalline silicon, including the following:
  Limited operating history. No thin film solar module has been in service for its entire estimated useful life, limiting the data available to validate estimates of the useful life and rate of degradation of thin film solar modules. In contrast, historical operating data validates the useful life and performance of crystalline silicon solar modules. Additionally, few thin film manufacturers have been able to achieve the production throughput rates, yields and product performance necessary to commercialize their solar modules and achieve many of the benefits of thin film technology.
 
  Lower conversion efficiency. The average conversion efficiency of thin film solar modules in high volume commercial production (over 20MW per year) currently ranges from 5% to 9%. By comparison, the average conversion efficiency of crystalline silicon solar modules in commercial production is approximately 14%. Because cost per Watt is a function of conversion efficiency and manufacturing cost, low conversion efficiencies could make it difficult for some thin film manufacturers to achieve a low cost per Watt. In addition, the higher conversion efficiencies of crystalline silicon solar modules, even at a higher cost per Watt, could be attractive to end-users who want to generate a certain amount of electricity in a fixed amount of space.
 
  Difficulty in customizing solar modules. To build a crystalline silicon solar module, a manufacturer connects a series of independently manufactured PV cells. As a result, crystalline silicon manufacturers are able to customize the size and shape of their solar modules by connecting a larger or smaller number of PV cells in a pattern. In contrast, CdTe thin film manufacturers often produce only a single product by depositing the semiconductor material directly on superstrates, and are unable to customize their product. Because crystalline silicon solar modules can be customized and have higher conversion efficiencies, they are currently better suited for distribution in certain residential markets than CdTe thin film solar modules.
Government Subsidies and Incentives
         Many countries in Europe and Asia and several states in the United States have adopted a variety of government subsidies and incentives to allow renewable energy sources to compete with the currently less expensive conventional sources of energy, such as fossil fuels. Government subsidies and incentives generally focus on grid-connected systems and take several forms, including feed-in tariffs, net metering programs, renewable portfolio standards, rebates, tax incentives and low interest loans. See “Business— Government Subsidies”.

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BUSINESS
Overview
         We design and manufacture solar modules using a proprietary thin film semiconductor technology that has established us as one of the lowest cost solar module manufacturers in the world. In 2005, our average manufacturing costs were $1.59 per Watt, which we believe is significantly less than those of traditional crystalline silicon solar module manufacturers. By continuing to expand production and improve our technology and manufacturing process, we believe that we can further reduce our manufacturing costs per Watt and improve our cost advantage over traditional crystalline silicon solar modules manufacturers. Our objective is to become, by 2010, the first solar module manufacturer to offer a solar electricity solution that competes on a non-subsidized basis with the price of retail electricity in key markets in the United States, Europe and Asia.
         We manufacture our solar modules on a high-throughput production line and perform all manufacturing steps ourselves in an automated, continuous process. Our solar modules employ a thin layer of cadmium telluride (“CdTe”) semiconductor material to convert sunlight into electricity. We are the first company to integrate non-silicon thin film technology into high volume low-cost production. In less than three hours, we transform an inexpensive 2ft x 4ft (60cm x 120cm) sheet of glass into a complete solar module, using approximately 1% of the semiconductor material used to produce crystalline silicon solar modules. Our manufacturing process eliminates the multiple supply chain operators and expensive and time consuming batch processing steps that are used to produce a crystalline silicon solar module. Producing low cost solar modules without crystalline silicon has allowed us to grow rapidly to meet market demand during a period of time when silicon feedstock supply shortages and price volatility are limiting the growth of many of our competitors.
         Our net sales grew from $3.2 million in 2003 to $48.1 million in 2005. Strong market demand, a positive customer response to our solar modules and our ability to expand production without raw material constraints present us with the opportunity to expand sales rapidly and increase market share. We recently entered into long-term solar module supply contracts with six European project developers and system integrators, which we expect to generate approximately 1.2 billion ($1.4 billion at an assumed exchanged rate of $1.20/1.00) in sales from 2006 to 2011 (“Long Term Supply Contracts”). These Long Term Supply Contracts contemplate the manufacture and sale of a total of 745 Megawatts (“MW”) of solar modules. Under each of our Long Term Supply Contracts, we have a unilateral option, exercisable until December 31, 2006, to increase the sales volumes and extend each contract through 2012. If we exercise our option under each of the six contracts, we would expect them to generate approximately 1.9 billion ($2.3 billion at an assumed exchange rate of $1.20/1.00) in sales from 2006 to 2012 for the manufacture and sale of a total of 1,270MW of solar modules. In addition to supplying these contracted volumes, we are in the process of entering into new customer relationships in Spain and the United States.
         In order to satisfy our contractual requirements and address additional market demand, we are expanding our manufacturing capacity from the existing 25MW at our Ohio plant (the “Base Plant”) to an aggregate capacity of 175MW by the second half of 2007. We are in the process of adding two production lines to the Base Plant (the “Ohio Expansion”), which we expect will increase our annual manufacturing capacity to 75MW by August 2006 and establish First Solar as the largest thin film solar manufacturer in the world. We are also building a four line 100MW manufacturing plant in Germany (the “German Plant”). After our German Plant reaches full capacity, estimated for the second half of 2007, we will have an annual manufacturing capacity of 175MW. We are also in the planning stage for a new manufacturing plant in Asia. To complete each new production line, we plan to use a systematic replication process designed to enable us to add production lines rapidly and efficiently and achieve operating metrics in new plants that are comparable to the performance of our Base Plant.
Competitive Strengths
         We believe that we possess a number of competitive strengths that position us to become a leader in the solar energy industry and compete in the broader electric power industry:
  Cost-per-Watt advantage. Our proprietary thin film semiconductor technology has established us as one of the world’s lowest cost manufacturers of solar modules. In 2005, our average manufacturing costs were $1.59 per Watt, which we believe is significantly less than those of crystalline silicon solar module manufacturers.
  Our low manufacturing cost per Watt is derived from our low material, capital and direct labor costs, and enabled us to achieve a gross margin of 35% in 2005. Because our technology is less

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  mature than crystalline silicon technology, we have a substantial opportunity for continued process improvement and cost reduction.

  Continuous and scalable production process. We manufacture our solar modules on a high-throughput production line and we perform all manufacturing steps, from semiconductor deposition to final assembly and testing, ourselves in an automated, continuous process that turns a sheet of glass into a solar module in less than three hours. Our proprietary thin film semiconductor technology reduces our semiconductor material requirements to approximately 1% of the semiconductor material used to produce crystalline silicon solar modules. We have implemented a number of continuous improvement systems and tools to improve scalability and increase operating leverage.
 
  Replicable production facilities. To complete each new production line, we plan to use a systematic replication process designed to enable us to add production lines rapidly and efficiently and achieve operating metrics in new plants that are comparable to the performance of our Base Plant. The Ohio Expansion demonstrated our ability to replicate a single 25MW production line by creating two new 25MW production lines, and will serve as a “standard building block” for building manufacturing lines in Germany and Asia. By expanding production, we believe we can take advantage of economies of scale and accelerate development cycles, enabling further reductions in the price per Watt of our solar modules.
 
  Stable supply of raw materials. We are not currently constrained by, and do not foresee a shortage of, CdTe, our most critical semiconductor material. In addition, because of the relatively small amount of semiconductor material we use, we believe our exposure to CdTe price increases is limited. By contrast, Solarbuzz estimates that the current shortage of silicon feedstock will constrain the production of certain crystalline silicon solar module manufacturers until 2008.
 
  Pre-sold capacity through Long Term Supply Contracts. Our Long Term Supply Contracts provide us with predictable net sales and will enable us to ramp production and realize economies of scale from capacity expansions quickly, as we utilize and sell most of our production capacity upon the qualification of a new production line. By pre-selling the solar modules to be produced on future production lines, we minimize the customer demand risk of our rapid expansion plans.
 
  Favorable system performance. Solar modules usually produce less power than their nameplate power because of environmental conditions, including variation in the ambient temperature and intensity of sunlight. We believe that in real-world conditions, systems incorporating our solar modules operate more closely to their nameplate power than systems incorporating crystalline silicon solar modules. Such performance results in more kWh of electricity per Watt of nameplate power and increases our end-users’ return on investment, which we believe will result in greater demand for our solar modules.
Strategies
         Our goal is to utilize our proprietary thin film semiconductor technology to create a sustainable market for our solar modules by lowering the price of solar electricity to a level that is competitive with the price of retail electricity on a non-subsidized basis by 2010 in key markets in the United States, Europe and Asia. We intend to pursue the following strategies to attain this goal:
  Penetrate key markets rapidly. Upon completion of our German Plant and contemplated Asian plant, we expect to become a global fully-integrated solar module manufacturer with substantial production capacity. Our new production lines will enable us to diversify our customer base, gain market share in key solar module markets and reduce our dependence on any individual country’s subsidy programs. Our Long Term Supply Contracts contain certain incentives that we believe will extend our geographic reach beyond Germany. In addition, we are in the process of entering into new customer relationships in Spain and the United States.
 
  Further reduce manufacturing cost. We deploy continuous improvement systems and tools to increase the throughput of our production lines and the efficiency of our workforce and reduce our capital intensity and raw material requirements. These include Theory of Constraints, Six Sigma and Robust Engineering. In addition, by absorbing fixed costs over higher production volumes, we believe we can realize economies of scale and continue to lower our manufacturing cost per Watt.

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  Higher production volumes should also enable volume-based discounts on certain raw material and equipment purchases and provide production and operational experience that translates into improved process and product performance.

  Increase sellable Watts per module. We are implementing several development programs designed to increase the number of sellable Watts per solar module, which is driven primarily by conversion efficiency. From 2003 to the first quarter of 2006, we increased the average conversion efficiency of our solar modules from approximately 7% to approximately 9%, which increased the nameplate power of our solar modules from approximately 49 Watts to approximately 62 Watts over the same period.
         We expect to continue to increase the conversion efficiency of our solar modules. Our researchers have created small-scale CdTe cells with a conversion efficiency as high as 14.5%. Independent researchers have achieved a 16.5% conversion efficiency in the laboratory with small-scale CdTe cells. Although we would expect some decline in conversion efficiency when producing solar modules in full scale production compared to the individual small-scale cells, we believe significant net increases in efficiency are attainable in our full module production.
  Enter the mainstream market for electricity. Although we currently sell all of our solar modules into subsidized markets, our goal is to identify, enable and enter non-subsidized markets not currently served by the solar industry. Cost reductions and performance improvements in our solar modules will be critical to realizing this goal. In addition, we believe that our ability to enter the non-subsidized, mainstream market for electricity will require system development and optimization, new system financing options and the development of new market channels. We have formed a dedicated group to identify the requirements of future non-subsidized markets for large scale solar generation (1MW and larger) and to develop the solutions to address them. As part of our development activities, we anticipate providing solutions beyond the solar module, ranging from solar system kits to turnkey financed solar generation projects, in selected market segments. For example, we recently entered into an agreement to sell 2.5MW of solar generation kits, which include solar modules, mounting systems and electrical interconnection subsystems, to the State of California. A California authority will then install and operate our proprietary, low cost photovoltaic electricity generating system (“PV system”) for commercial and industrial rooftops.
Products
Solar Modules
         Each solar module is approximately 2ft x 4ft (60cm x 120cm) and had an average nameplate power of approximately 62 Watts at the end of the first quarter of 2006. Our solar module is a single-junction polycrystalline thin film structure that employs CdTe as the absorption layer and cadmium sulfide (“CdS”) as the window layer. CdTe has absorption properties that are highly matched to the solar spectrum and has the potential to deliver competitive conversion efficiencies with approximately 1% of the semiconductor material used by traditional crystalline silicon solar modules. CdTe also performs well in a variety of non-optimal environments, such as low light and hot temperature.
Certifications
         We have participated, or are currently participating, in laboratory and field tests with the National Renewable Energy Laboratory, the Arizona State University Photovoltaic Testing Laboratory, the Fraunhofer Institute for Solar Energy, TÜV Immissionsschutz und Engergiesysteme GmbH and the Institut für Solar Energieversorgungstechnik. Currently, we have approximately 10,000 solar modules installed worldwide at test sites designed to collect data for field performance validation. Using data logging equipment, we also monitor approximately 102,000 solar modules, representing approximately 6MW of installed PV systems in use by the end-users that have purchased systems using our solar modules. The modules in these monitored systems represent approximately 20% of all solar modules shipped by us from 2002 to 2005.
         We maintain all certifications required to sell solar modules in the markets we serve or expect to serve, including UL 1703, IEC 61646, TÜV Safety Class II and CE.
Solar Module Warranty
         We provide a limited warranty to the original purchasers of our solar modules for five years following delivery for defects in materials and workmanship under normal use and service conditions. We also warrant to the original purchasers of our solar modules that solar modules installed in accordance with agreed-upon specifications

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will produce at least 90% of their nameplate power output rating during the first 10 years following their installation and at least 80% of their nameplate power output rating during the following 15 years. These nameplate power output ratings are based on a normalization to standard test conditions accepted in the photovoltaic industry and do not represent a warranty of the actual power that will be generated by an end-user’s system. In resolving claims under both the defects and power output warranties, we have the option of either repairing or replacing the covered solar module or, under the power output warranty, providing additional solar modules to remedy the power shortfall. Our warranties may be transferred from the original purchaser of our solar modules to a subsequent purchaser. As of April 1, 2006, our accrued warranty expense amounted to $1.9 million.
Recycling Program
         We believe we are the first company in the photovoltaic industry to implement a reclamation and recycling program for our solar modules. Under the Long Term Supply Contracts and other customer contracts we enter into with project developer and system integrator customers, we agree to enter into a solar module reclamation and recycling agreement with each end-user, and our customers agree to present the solar module reclamation and recycling agreement to the end-user and provide us with contact information for such end-user. If our customers resell our solar modules, we enter into the solar module reclamation and recycling agreement directly with the end-user. Beginning in 2005, we conditioned the enforceability of our product warranties on the end-user entering into the solar module reclamation and recycling agreement to ensure that our end-users enter into the solar module reclamation and recycling agreement.
         After 20 years of service, end-users can return their solar modules to us at no cost. We pre-fund the estimated recycling expense at the time of sale. End-users may return their solar modules before the expiration of the 20 year period if they pay a portion of the cost to recycle their solar modules. In addition to achieving substantial environmental benefits, our solar module recycling program may provide us the opportunity to recuperate certain raw materials and components for reuse in our manufacturing process.
Manufacturing
Manufacturing Process
         We have integrated our manufacturing processes into a single production line with three stages: the “deposition” stage; the “cell definition” stage; and the “assembly and test” stage. Except for operators performing quality control and monitoring functions, the only stage requiring manual processing is the final assembly and test stage. As a result, we employ 20 people per production line for each of our four shifts, or a total of 80 people per production line for 24 hour per day, seven day per week production. The diagram below illustrates the three stages of our production line:
(MANUFACTURING PROCESS CHART)
         The deposition process begins with the robotic loading of 2ft x 4ft (60cm x 120cm) sheets of low-cost tin oxide-coated soda lime glass on to the production line where they are cleaned and chamfered to produce the strong, defect free edges necessary for subsequent processing steps. Following cleaning, the glass panels move automatically into a vacuum chamber where they are heated to near the softening point and coated with a layer of cadmium

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sulfide (“CdS”) followed by a layer of CdTe using our proprietary vapor transport deposition (“VTD”) technology. Each layer takes less than 45 seconds to deposit, and combined uses approximately 1% of the semiconductor material used in crystalline silicon solar modules. Our ability to deposit the semiconductor materials quickly and uniformly is critical to producing low cost, high quality solar modules. Next, we cool the semiconductor-coated plate rapidly to increase strength. The deposition stage concludes with a re-crystallization step that reduces defects within the crystals and minimizes the recombination that occurs between grain boundaries.
         In our cell definition stage, we utilize a series of lasers to transform the large single semiconductor-coated plate into a series of interconnected cells that deliver the desired current and voltage output. Our proprietary laser scribing technology is capable of accomplishing accurate and complex scribes at high speeds.
         Last, in the assembly and test stage, we apply busbars, EVA laminate, a rear glass cover sheet and termination wires, seal the joint box and then subject each solar module to a solar simulator and current leakage test. The final assembly stage is the only stage in our production line that requires manual processing.
         All of our solar modules are produced at our Perrysburg, Ohio facility, which has received both an ISO 9001-2000 quality system certification and ISO 14001 environmental system certification.
Manufacturing Capacity Expansion
         We are expanding our manufacturing capacity from the existing 25MW at our Base Plant to an aggregate capacity of 175MW by the second half of 2007. Recently, we added two production lines to the Base Plant, which we expect will increase our annual manufacturing capacity to 75MW by August 2006. We are also building a four line 100MW manufacturing plant in Germany. After our German Plant reaches full capacity, estimated for the second half of 2007, we will have an annual manufacturing capacity of 175MW. We are also in the planning stage for a new manufacturing plant in Asia. To complete each new production line, we plan to use a systematic replication process designed to enable us to add production lines rapidly and efficiently and achieve operating metrics in new plants that are comparable to the performance of our Base Plant.
Raw Materials
         Our manufacturing process uses approximately twenty raw materials to construct a complete solar module. Of the twenty raw materials, the following nine are critical to our manufacturing process: TCO coated front glass, CdS, CdTe, photo resist, EVA laminate, tempered back glass, cord plate/cord plate cap, lead wire (UL and TÜV) and solar connectors. Before we use these materials in our manufacturing process, a supplier must undergo a qualification process that can last from one to twelve months, depending on the type of raw material. Although we continually evaluate new suppliers and currently are qualifying several new suppliers, most of our critical materials are supplied by only one or two sources.
         The most critical raw material in our production process is CdTe. Currently, we purchase all of our CdTe in manufactured form from two manufacturers. We have a three year written contract with one of our CdTe suppliers, that provides for quarterly price adjustments based on the cost of the tellurium component of CdTe. We purchase CdTe from our other supplier under quarterly purchase orders. We acquire the remainder of our raw materials under quarterly purchase orders, at prices based on annual volumes. Because the sales prices in our Long Term Customer Contracts do not adjust for raw material price increases and these contracts are for a longer term than our raw material supply contracts, we may be unable to pass on increases in the cost of our raw materials to these customers.
Marketing and Distribution
         We launched the marketing and sale of our solar modules in Germany in 2003 because Germany has attractive feed-in tariffs, a high forecasted growth rate for renewable energy and market segments that we believe our product serves well. Since 2003, our focus has remained on grid-connected PV systems in Germany because, similar to other solar module manufacturers, we currently cannot compete with conventional sources of electricity on a cost basis unless end-users receive government subsidies. While our goal is to reduce the cost of solar electricity to levels that can compete with fossil fuels and other conventional sources of electricity, we believe that most of our distribution in the immediate future will be for use in grid-connected PV systems with some form of government subsidies.
         As of December 31, 2005, our direct sales force, customer service and support network consisted of 4 employees in the United States and 11 employees in Europe.

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Customers
         Recently we entered into Long Term Supply Contracts for the manufacture and sale of a total of 745MW with Blitzstrom GmbH, Conergy AG, Gehrlicher Umweltschonende Energiesysteme GmbH, Juwi Solar GmbH, Phönix Sonnenstrom AG and Reinecke + Pohl Sun Energy AG. Our customers are project developers and system integrators and are headquartered in Germany. Under these Long Term Supply Contracts, our customers have committed to purchase and we have committed to sell an annual volume of solar modules at firm prices that reduce each year in connection with the increasing volumes. We expect these contracts will generate approximately 1.2 billion ($1.4 billion at an assumed exchange rate of $1.20/1.00) of sales from 2006 to 2011. Under each of our Long Term Supply Contracts, we have a unilateral option, exercisable until December 31, 2006, to increase the sales volumes and extend each contract through 2012. If we exercise our option under each of the six contracts, we would expect the contracts will generate approximately 1.9 billion ($2.3 billion at an assumed exchange rate of $1.20/1.00) in sales from 2006 to 2012 for the manufacture and sale of a total of 1,270MW of solar modules.
         Our largest customer accounted for approximately 45% of our net sales in 2005 and approximately 24% of our net sales in the first quarter of 2006. We anticipate our dependence on a single customer will be reduced as a result of our Long Term Supply Contracts; however, the loss of any of our major customers could have an adverse effect on our business. As we expand our manufacturing capacity, we anticipate developing additional customer relationships in Germany and in other markets and regions, which will reduce our customer and geographic concentration and dependence.
         Our customers sell turnkey solar systems to end-users that include individual owners of agricultural buildings, owners of commercial warehouses, offices and industrial buildings, public agencies and municipal government authorities that own buildings suitable for solar system deployment, owners of land designated as former agricultural land, waste land or conversion land, such as former military bases or industrial areas, and financial investors that desire to own large scale solar projects.
Government Subsidies
         Countries in Europe and Asia and several states in the United States have adopted a variety of government subsidies to allow renewable sources of electricity to compete with conventional sources of electricity, such as fossil fuels. Government subsidies and incentives generally focus on grid-connected systems and take several forms, including 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 their 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 United States 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.

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         The following table details several government subsidy programs:
         
 
    Type of    
    Incentive    
 Region   Program   Description
 
Europe
       
 
Germany
  Feed-in tariff   Solar system operators receive a fixed rate feed-in tariff for 20 years ranging from 0.4060/kWh to 0.5180/kWh in 2006, depending on the size of the system and installation type (e.g., ground mounted or building mounted). For systems installed after 2006, the tariff rate for ground mounted systems is reduced by 6.5% each year and the tariff rates for building facade and roof mounted arrays are reduced by 5% each year.
 
Spain
  Feed-in tariff   Solar system operators receive a feed-in tariff equal to 0.42/kWh in 2006 for the first 25 years of system operation for system sizes up to 100kW. For systems larger than 100kW, the tariff rate is 0.22/kWh. The tariff is indexed to the average electricity reference tariff for electricity generated in Spain, adjusted annually using a 575% multiplier (“Tarifa Media de Referencia” or “TMR”). After 25 years, the tariff reduces to 460% of the TMR. Spain’s tariff program is capped at a cumulative installed capacity of 400MW through 2010.
 
Italy
  Feed-in tariff   Solar system operators receive a feed-in tariff based on the size of the PV system for 20 years, ranging from 0.445/kWh to 0.490/kWh in 2006, with systems larger than 50kW receiving the highest tariff. Italy’s tariff program is capped at a cumulative installed capacity of 500MW through 2015, with 360MW for systems sized under 50kW and 140MW for systems sized between 50kW and 1MW. For systems installed after 2007, the tariffs will be adjusted annually.
 
United States
       
 
California
  Rebate   Under the California Solar Initiative (“CSI”) approved by the California Public Utilities Commission in January 2006, solar system operators receive a rebate of $2.50/Watt of solar generation capacity installed, for systems up to a maximum of 1MW. The 2006 funding level for solar rebates is $340 million, with 2007-2011 CPUC program funds approved for a total of $2.9 billion. Solar rebate levels are scheduled to decline by approximately 10% annually under the CSI program starting in 2007.
 
New Jersey
  Rebate; Grants; Low Interest Loans; Renewable Portfolio Standard   The New Jersey Clean Energy Program (“NJCEP”) targets 90MW of installed solar generation capacity by 2009 and provides rebates ranging from $4.35/Watt to $2.80/Watt to private sector operators of solar systems in 2006 based on the size of the system, up to a maximum of 700kW. Under the Renewable Energy Project Grants & Financing Program, a 20% grant and long term low interest project financing are offered for projects up to 1MW. The NJCEP program also provides a means for Solar Renewable Energy Certificates to be created, verified and sold to electric suppliers who are required to invest in solar energy purchase under New Jersey’s Renewable Portfolio Standard.
 

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    Type of    
    Incentive    
 Region   Program   Description
 
Nevada
  Rebate; Renewable Portfolio Standard   The Nevada Solar Generations Program provides rebates of $3.00/Watt for solar systems up to 30kW in size for a maximum solar capacity of 3MW in 2006. The 2005 Nevada Legislature increased Nevada’s Renewable Portfolio Standard to 20% by 2015, and for 2006 not less than 6% of the electricity generated by regulated utilities must come from renewable sources or energy efficiency measures. Of the Renewable Portfolio Standard total, not less than 5% must come from solar renewable energy systems.
 
Asia
       
 
South Korea
  Feed-in tariff; Low Interest Loan; Rebate   Solar system operators receive a 15 year feed-in tariff of 716.40 KRW/kWh (approximately $0.74/kWh). The government of South Korea has established a target of 1,300MW of installed solar generation capacity by 2012. The government also offers loans at a 3.50% floating interest rate with a five year grace period and ten year repayment period with a special rebate of 2,100 KRW for the installation of a 3kW solar rooftop system.
 
Research and Development
         We continue to devote a substantial amount of resources to research and development with the objective of lowering the per Watt cost of solar electricity generated by PV systems using our solar modules to a level that competes on a non-subsidized basis with the price of retail electricity in key markets in the United States, Europe and Asia by 2010. To reduce the per Watt cost of electricity generated by PV systems using our solar modules, we focus our research and development on the following areas:
  Increase the conversion efficiency of our solar modules. We believe the most promising ways of increasing the conversion efficiency of our solar modules are maximizing the number of photons that reach the absorption layer of the semiconductor material so they can be converted into electrons, maximizing the number of electrons that reach the surface of the CdTe and minimizing the electrical losses between the semiconductor layer and the back metal conductor. We have already developed small-scale solar cells using our technology with conversion efficiencies as high as 14.5%, compared to our module’s average conversion efficiency of approximately 9% achieved in full production in the first quarter of 2006.
  We believe that our ability to achieve higher module efficiencies is primarily a function of transferring technology that we have demonstrated in the laboratory and in pilot production into high-throughput module production by making incremental improvements to the solar module and the manufacturing process. Our process development activities encompass laboratory level research and development, device modeling, process optimization and the qualification of process improvements in high-throughput production. In the second half of 2006, we plan to add equipment for further process developments at our Perrysburg, Ohio facility. In addition, we reserve a portion of the production capacity of our Base Plant to conduct structured experiments related to our process development.
  System optimization. We also are working to reduce the cost and optimize the effectiveness of the other components in a PV system. We maintain a substantial effort to collect and analyze actual field performance data from PV systems that use our modules. We collect “real time” data from internal test sites totaling approximately 10,000 modules installed in varying climates and applications. We also monitor approximately 102,000 solar modules, representing approximately 6MW of installed PV systems, in use by the end-users that have purchased PV systems using our modules. We use the data collected from these sources to correlate field performance to various manufacturing and laboratory level metrics, identify opportunities for module and process improvement and improve the performance of systems that use our modules. In addition, we use this data to enhance predictive models and simulations for the end-users.

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         As of April 1, 2006, we had a total of 33 full time employees working on these and related process developmental activities. We intend to qualify process and product improvements for full production on our Ohio Expansion production lines, and then integrate them into our other production lines. Our scientists and engineers will collaborate across all manufacturing plants to drive improvement. We intend to implement, validate and qualify such improvements at the Ohio Expansion before we deploy them to all of our production lines. We believe that this systematic approach to research and development will provide continuous improvements and ensure uniform adoption across our production lines.
         We maintain active collaborations with the National Renewable Energy Laboratory, a division of the U.S. Department of Energy, Brookhaven National Laboratory and several universities. We have invested in excess of $10.0 million into our research and development expenses over the past three years and received $3.2 million of grant funding during that time frame.
Intellectual Property
         We rely primarily on a combination of patents, trademarks and trade secrets, as well as employee and third party confidentiality agreements to safeguard our intellectual property. As of May 1, 2006, in the United States we held 28 patents, which will expire at various times between 2007 and 2023, and had 21 patent applications pending. We also held 15 patents and had 42 patent applications pending in foreign jurisdictions. Our patent applications, and any future patent applications, might not result in a patent being issued with the scope of the claims we seek, or at all, and any patents we may receive may be challenged, invalidated or declared unenforceable. We continually assess appropriate occasions for seeking patent protection for those aspects of our technology, designs and methodologies and processes that we believe provide significant competitive advantages. A majority of our patents relate to our VTD process in which semiconductor material is deposited on glass substrates and our laser scribing process of transforming a large semiconductor-coated plate into a series of interconnected cells.
         As of May 1, 2006, we held 2 trademarks, “First Solar” and “First Solar and Design”, in the United States. We have registered our “First Solar and Design” mark in the United States, China, Japan and the European Union, and are seeking registration in India.
         With respect to, among other things, proprietary know-how that is not patentable and processes for which patents are difficult to enforce, we rely on trade secret protection and confidentiality agreements to safeguard our interests. We believe that many elements of our PV manufacturing process involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, equipment designs, algorithms and procedures. We have taken security measures to protect these elements. All of our research and development personnel have entered into confidentiality and proprietary information agreements with us. These agreements address intellectual property protection issues and require our employees to assign to us all of the inventions, designs and technologies they develop during the course of employment with us. We also require our customers and business partners to enter into confidentiality agreements before we disclose any sensitive aspects of our solar cells, technology or business plans.
         We have not been subject to any material intellectual property claims.
Competition
         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 within the larger electric power industry. We believe that our main sources of competition are crystalline silicon solar module manufacturers, other thin film solar module manufacturers and companies developing solar thermal and concentrated PV technologies.
         At the end of 2005, the global PV industry consisted of over 100 manufacturers of PV cells and solar modules. Within the PV industry, we face competition from crystalline silicon PV cell solar module manufacturers, including BP Solar, Evergreen Solar, Kyocera, Motech, Q-Cells, Renewable Energy Corporation, Sanyo, Schott Solar, Sharp, SolarWorld, Sunpower and Suntech. We also face competition from thin film solar module manufacturers, including Antec, Kaneka, Mitsubishi Heavy Industries, Shell Solar and United Solar. In addition, we expect to compete with future entrants to the photovoltaic industry that offer new technological solutions. 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. Some of our competitors are larger, have greater financial resources, larger production capacities and greater brand name recognition than we do, and may, as a result, be better positioned to adapt to changes in the industry or the economy as a whole. The principal methods of competition among PV participants are

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price per Watt, production capacity, conversion efficiency and reliability. We believe that we compete favorably with respect to these factors.
         In addition to manufacturers of PV cells and solar modules, we face competition from companies developing solar thermal and concentrated PV technologies.
Environmental
         Our operations include the use, handling, storage, transportation, generation and disposal of hazardous materials. We are subject to various federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the use, management and disposal of hazardous materials and wastes, occupational health and safety and the cleanup of contaminated sites. Thus, we could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and costs arising from third party property damage or personal injury claims, as a result of violations of or liabilities under environmental laws or non-compliance with environmental permits required at our facilities. We believe we are currently in substantial compliance with applicable environmental requirements. However, future developments such as more aggressive enforcement policies, the implementation of new, more stringent laws and regulations or the discovery of unknown environmental conditions may require expenditures that could have a material adverse effect on our business, results of operations or financial condition. See “Risk Factors—Risks Relating to Our Business—Environmental obligations and liabilities could have a substantial negative impact on our financial condition, cash flows and profitability”.
Legal Proceedings
         In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, results of operations, cash flows or financial condition.
Properties
         Our corporate headquarters are located in Phoenix, Arizona, where we occupy approximately 6,651 square feet under a lease expiring on March 31, 2007. We also own an approximately 431,700 square foot manufacturing facility in Perrysburg, Ohio, which constitutes our Base Plant and Ohio Expansion. In February 2006, we purchased approximately 89,000 square meters of land in Frankfurt (Oder), Germany, which will be the site of our future German manufacturing plant. We also maintain small satellite offices in Mainz, Germany, Berlin, Germany, Brussels, Belgium and Denver, Colorado.
Employees
         On December 31, 2005, we had 252 full-time employees, including 164 in manufacturing, 24 in research and development, 15 in sales and marketing and 49 in general and administrative. Of these full-time employees, 10 are located in Phoenix, Arizona, 230 are located in Perrysburg, Ohio, 10 are located in Mainz, Germany, 2 are located in Berlin, Germany, 1 is located in Brussels, Belgium and 1 is located in Denver, Colorado. None of our employees are represented by labor unions or covered by a collective bargaining agreement. As we expand domestically and internationally, however, we may encounter employees who desire union representation. We believe that relations with our employees are good.

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MANAGEMENT
Executive Officers and Directors
         Our executive officers and directors, and their ages and positions upon the expected completion of this offering, are as follows:
         
Name   Age   Position
         
Michael J. Ahearn
  49   President, Chief Executive Officer, Director
George A. (“Chip”) Hambro
  43   Chief Operating Officer
Jens Meyerhoff
  41   Chief Financial Officer
Kenneth M. Schultz
  43   Vice President, Sales & Marketing
Dawn S. Richter
  50   Vice President, General Counsel
James F. Nolan
  74   Director
Bruce Sohn
  45   Director
Michael Sweeney
  48   Director
         Michael J. Ahearn has served as the President, CEO and Director of First Solar since August 2000. Since 1996, he has been Partner and President of the equity investment firm, JWMA (formerly True North Partners, L.L.C.), the majority stockholder of First Solar. Prior to joining JWMA, Mr. Ahearn practiced law as a partner in the firm of Gallagher & Kennedy. He received both a B.A. in Finance and a J.D. from Arizona State University.
         George A. (“Chip”) Hambro joined First Solar in June 2001 as Vice President of Engineering, was named Vice President and General Manager in February 2003 and assumed the role of Chief Operating Officer in February 2005. Prior to joining First Solar, he held the positions of Vice President of Engineering & Business Development for Goodrich Aerospace from May 1999 to June 2001 and Vice President of Operations for ITT Industries from February 1997 to May 1999. Mr. Hambro graduated from the University of California at Berkeley with a B.A. in Physical Science (Applied Physics).
         Jens Meyerhoff joined First Solar in May 2006 as Chief Financial Officer. Prior to joining First Solar, Mr. Meyerhoff was the Chief Financial Officer of Virage Logic Corporation, a leader in embedded infrastructure intellectual property, from January 2006 to May 2006. Mr. Meyerhoff was employed by FormFactor, Inc., a manufacturer of advanced wafer probe cards, as Chief Operating Officer from April 2004 to July 2005, Senior Vice President of Operations from January 2003 to April 2004 and Chief Financial Officer from August 2000 to March 2005. Prior to joining FormFactor, Inc., Mr. Meyerhoff was the Chief Financial Officer and Senior Vice President of Materials at Siliconix Incorporated, a manufacturer of power and analog semiconductor devices, from March 1998 to August 2000. Mr. Meyerhoff holds a German Wirtschaftsinformatiker degree, which is the equivalent of a Finance and Information Technology degree, from Daimler Benz’ Executive Training Program.
         Kenneth M. Schultz joined First Solar in November 2002 as Vice President of Sales & Marketing. Prior to joining First Solar, he was a Vice President at Intersil Corporation, a high performance analog semiconductor company, where he was responsible for commercializing various communications technologies, from October 2000 to June 2002. Mr. Schultz was Vice President and General Manager at SiCOM, Inc. prior to the acquisition of SiCOM by Intersil Corporation in 2000. He holds a B.S. in electrical engineering from the University of Pittsburgh and received his M.B.A. degree from Robert Morris University.
         Dawn S. Richter joined First Solar in June 2006 as Vice President, General Counsel. Prior to joining First Solar, Ms. Richter was a Shareholder of Winstead Sechrest & Minick, P.C. from January 2003 to June 2006. At Winstead, Ms. Richter was the Chair of the firm’s Energy Practice Group and the Chair of the Corporate & Securities Section of Winstead’s Houston office. Prior to joining Winstead, Ms. Richter was a partner at LeBoeuf, Lamb, Greene & MacRae LLP, an international law firm, where she practiced in the international, energy and corporate sections. Ms. Richter received a B.A. from the State University of New York at Oswego and a J.D. from the University of Houston Law Center.
         James F. Nolan was elected a director of First Solar in February 2003. Mr. Nolan served as the Vice President of Operations with Solar Cells, Inc., the predecessor to First Solar, and was responsible for research, development and manufacturing operations. He designed and built early prototype equipment for First Solar’s pilot manufacturing line and led the team that developed the process for producing large area thin film CdTe solar modules. Mr. Nolan has worked as a part-time consultant for First Solar since November 2000. Mr. Nolan has over 35 years of experience in physics, engineering, research and development, manufacturing and process design with companies such as Westinghouse, Owens Illinois, Glasstech and Photonics Systems. Mr. Nolan holds more than 10

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patents in areas of flat panel electronic displays and photovoltaic devices and processes. Mr. Nolan earned his B.S. in Physics from the University of Scranton (Pennsylvania) and a doctorate in Physics from the University of Pittsburgh.
         Bruce Sohn was elected a director of First Solar in July 2003. Mr. Sohn held the position Program Manager for Intel Corporation from June 1999 to October 2001 and has held the position of Fab 11 Plant Manager for Intel Corporation since October 2001. Mr. Sohn serves on the board of the International Symposium on Semiconductor Manufacturing, the University of Texas Pan Am Engineering School, the Texas Christian University MJ Neeley Business School and the New Mexico Museum of Natural History and is a member of the IEEE-Electron Devices Society Manufacturing Technology Committee. He is a guest lecturer at several universities including Massachusetts Institute of Technology and Stanford University. Mr. Sohn holds a degree in Materials Science & Engineering from the Massachusetts Institute of Technology.
         Michael Sweeney was elected a director of First Solar in July 2003. Mr. Sweeney joined Goldner Hawn Johnson & Morrison (GHJM) as a Managing Director in 2000 and was elected Managing Partner in November 2001. He had previously served as President of Starbucks Coffee Company (UK) Ltd. in London and held various operating management and corporate finance roles. After starting his career with Merrill Lynch in New York and Phoenix, he built and sold an investment banking boutique. Subsequently, Mr. Sweeney developed and sold franchise companies in the Blockbuster and Papa John’s systems. Mr. Sweeney serves on the boards of GHJM portfolio companies Transport Corporation of America, Inc. and Vitality Foodservice, Inc. Mr. Sweeney graduated from Swarthmore College.
Board Committees
         Our board of directors is currently comprised of                     directors. We plan to add  independent members to our board of directors prior to the consummation of this offering and                     independent members within one year of the offering. After giving effect to these additions, we expect our board of directors to consist of                     members.
         Our board of directors is not currently classified, nor will it be immediately after the consummation of the offering.
         Upon the consummation of this offering, the standing committees of our board of directors will consist of an audit committee, a compensation committee and a nominating and governance committee.
Audit Committee
         The audit committee will oversee our financial reporting process on behalf of the board of directors and report to the board of directors the results of these activities, including the systems of internal controls established by management and the board of directors, our audit and compliance process and financial reporting. The audit committee, among other duties, will engage the independent registered public accounting firm, pre-approve all audit and non-audit services provided by the independent registered public accounting firm, review with the independent registered public accounting firm the plans and results of the audit engagement, consider the compatibility of any non-audit services provided by the independent registered public accounting firm with the independence of such independent registered public accounting firm and review the independence of the independent registered public accounting firm.                     (Chairman),                     and                     will serve on our audit committee. The board of directors has determined that audit committee members must meet the independence standards for audit committees of companies listed on The Nasdaq National Market.
         Each member of the audit committee meets the standards for financial knowledge for companies listed on The Nasdaq National Market. In addition, the board of directors has determined that                     is qualified as an audit committee financial expert within the meaning of SEC regulations.
Nominating and Governance Committee
         The nominating and governance committee will be responsible for identifying and recommending director nominees, recommending directors to serve on our various committees, implementing our corporate governance guidelines and developing self-evaluation methodology to be used by our board of directors and its committees to assess board effectiveness.                      (Chairman),                      and                     will serve on our nominating and governance committee.

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Compensation Committee
         The compensation committee will review and recommend compensation and benefit plans for our officers and directors, including non-employee directors, review base salary and incentive compensation for each executive officer, review and approve corporate goals and objectives relevant to our CEO’s compensation, administer our incentive compensation program for key executive and management employees and review and approve employee benefit plans.                      and                     will serve on our compensation committee.
Compensation Committee Interlocks and Insider Participation
         None of the members of our compensation committee is an executive officer or employee of our company. None of our executive officers serves as a member of the compensation committee of any entity that has one or more executive officers serving on our compensation committee.
Code of Ethics
         Prior to the consummation of this offering, we will adopt a Code of Business Ethics that will apply to all employees, including our Chief Executive Officer and senior financial officers. These standards will be designed to deter wrongdoing and to promote the honest and ethical conduct of all employees. Excerpts from the Code of Business Ethics, which address the subject areas covered by the SEC’s rules, will be posted on our website: www.firstsolar.com under “                    ”. Any substantive amendment to, or waiver from, any provision of the Code of Business Ethics with respect to any senior executive or financial officer shall be posted on this website. The information contained on our website is not part of this prospectus.
Director Compensation
         Directors receive compensation of $6,250 per board meeting. We also reimburse all directors for reasonable and necessary expenses they incur in performing their duties as directors of our company. Directors who are officers or employees of our company do not receive any additional compensation for serving as directors, except for reimbursement of their expenses in fulfilling their duties.
Executive Compensation
         The following table sets forth information with respect to compensation earned by our Chief Executive Officer and our other executive officers for the period indicated.
                                                   
                Long-Term
        Compensation
    Annual Compensation   Awards
         
        Other   Securities    
        Annual   Underlying   All Other
Name and Principal Position   Year   Salary ($)   Bonus ($)   Compensation ($)   Options (#)   Compensation ($)
                         
Michael J. Ahearn
    2005       400,000                          
  President, Chief Executive Officer, Director                                                
 
George A. (“Chip”) Hambro
    2005       275,367       35,000                    
  Chief Operating Officer                                                
 
Robert Williams(1)
    2005       201,058       30,000                    
  Chief Financial Officer                                                
 
Kenneth M. Schultz
    2005       195,266       30,000                    
  Vice President, Sales & Marketing                                                
 
(1)  Robert Williams served as our Chief Financial Officer from January 2005 through December 2005.

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Option/ SAR Grants in the Last Completed Fiscal Year
         The following table sets forth information regarding grants of options to purchase shares of our common stock to our named executive officers during the fiscal year ended December 31, 2005.
                                         
    Individual Grants
     
    Number of   Percent of Total    
    Securities   Options    
    Underlying   Granted to   Exercise       Grant Date
    Options   Employees in   Price   Expiration   Present
Name   Granted   Fiscal Year   ($/Share)   Date   Value
                     
Michael J. Ahearn
    0       0 %                  
George A. (“Chip”) Hambro
    10,000       1.8 %   $ 22.00       12/15/2015       $72.87-$75.51  
Kenneth M. Schultz
    0       0                    
Fiscal Year-End Option Values
         The following table provides information concerning exercisable and unexercisable options held by our named executive officers for the year ended December 31, 2005. There were no option exercises by the named executive officers during the year ended December 31, 2005.
                                 
    Number of Securities   Value of Unexercised
    Underlying Unexercised   In-the-Money Options
    Options at Fiscal Year-End   at Fiscal Year-End
         
Name   Exercisable   Unexercisable   Exercisable   Unexercisable
                 
Michael J. Ahearn
    0       0       0       0  
George A. (“Chip”) Hambro
    150,400       47,600     $ 12,989,600     $ 3,402,400  
Kenneth M. Schultz
    112,800       75,200     $ 8,347,200     $ 5,564,800  
2003 Unit Option Plan
         First Solar adopted the 2003 Unit Option Plan (which we refer to as the “2003 Unit Option Plan” or, in this section, the “Plan”) as an additional means to attract, motivate, retain and reward directors, officers, employees and other eligible persons through the grant of options for high levels of individual performance and the improved financial performance of First Solar. In connection with our conversion from a limited liability company to a corporation on February 22, 2006, we converted each outstanding option to purchase one limited liability membership unit into an option to purchase one share of our common stock, in each case, at the same exercise price and subject to the other terms and conditions of such outstanding option. These equity-based awards are also intended to further align the interests of award recipients and First Solar’s stockholders.
         A total of 1,411,765 shares of First Solar’s common stock is available for awards granted under the Plan. There are currently options to purchase approximately 1,069,251 shares of our common stock outstanding under the Plan at a weighted average exercise price of $15.14 per share, including options held by Mssrs. Hambro and Schultz.
         The Plan is administered by a committee of our Board (the “Committee”), which is authorized to, among other things, select the officers and other employees who will receive grants and determine the exercise price and vesting schedule of the options.
         Upon the occurrence of a change of control (as defined in the Plan) or dissolution or liquidation of First Solar, the Committee may, subject to the terms and conditions of the Plan, (i) substitute options awarded under the Plan for options to purchase the appropriate common stock of the entity surviving such merger or consolidation; (ii) exchange options for shares for stock of the surviving entity with a fair market value equal to the excess of the merger consideration attributable to such options over the exercise price; or (iii) declare and provide written notice to each optionee 15 days in advance of such event that each outstanding option previously granted will be cancelled at the time of the event. In the event of cancellation, the Committee may, but will not be obligated to, cause cash payment to be made to such optionees within fifteen days after the event giving rise to such cancellation.
         In the event of any reorganization merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination or exchange of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in the corporate structure or capitalization of First Solar, the Committee (or if the Company does not survive such transaction, a comparable committee of the board of managers or directors

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of the surviving company) may, but will not be obligated to, without the consent of any holder of an option, make such adjustment as it determines in its discretion to appropriate as to (i) the number and kind of securities subject to the Plan and (ii) the number and kind of securities issuable upon exercise of outstanding options and the exercise price of such options.
         Upon the termination of an option holder’s employment, all unvested options will immediately terminate and vested options will generally remain exercisable for a period of 180 days after the date of termination.
         The Board may at any time and for any reason amend, suspend or terminate the Plan; provided, however, that no amendment to the Plan may, without the consent of the holder of the option, adversely alter or impair any option previously granted under the Plan. However, the grant of any option under the Plan does not affect in any way the right or power of First Solar to make adjustments, reclassifications, reorganizations, or changes to its capital structure.
         The Plan will remain in effect until the latest of: (i) the time that such shares subject to it are distributed; (ii) the Plan is terminated by our Board; and (iii) December 1, 2013.
         Options granted under the Plan may not be transferred, except in certain limited circumstances.
Employment/Severance Agreements
         George A. (“Chip”) Hambro. On May 30, 2001, we entered into an employment agreement with Mr. George A. (“Chip”) Hambro. Under the terms of his employment agreement, Mr. Hambro is entitled to an annual base salary of $175,000 (subject to annual review), health and vacation benefits. In addition, Mr. Hambro holds 198,000 options to purchase First Solar common shares pursuant to separate award agreements. The shares issuable pursuant to 188,000 of these options are subject to a put option held by Mr. Hambro, which would allow him to require the Company to repurchase such shares at the imputed transaction value per unit (as defined in the award agreement) upon the occurrence of a change in control (as defined in the award agreement) and related termination of employment. Effective January 2, 2006, Mr. Hambro’s annual salary was increased to $300,000. Mr. Hambro is also eligible to receive an annual performance-based bonus equal to an amount between 20% and 40% of his annual base salary. On February 5, 2003, we amended our employment agreement with Mr. Hambro to provide for a severance payment in the event of termination without cause (as defined in the employment agreement). Subject to certain conditions, Mr. Hambro is entitled to severance pay in the amount of his highest base salary for a period of 24 months following the termination of his employment (less any amounts earned by Mr. Hambro through self-employment or subsequent employment) plus a lump sum payment of $300,000.
         Under the terms of the employment agreement, Mr. Hambro has agreed not to disclose any confidential information concerning our business, including without limitation our confidential designs and processes. In addition, Mr. Hambro has agreed not compete with us or solicit or hire any of our employees during the three year period following the termination of his employment.
         Separately, we entered into a change-of-control agreement with Mr. Hambro on December 8, 2003. Under the terms of the change-of-control agreement, Mr. Hambro has the option to receive a cash payment in the amount of 1.25% of the imputed transaction value (as defined in the change-of-control agreement) if a change of control (as defined in the change-of-control agreement) occurs and his employment is terminated. This payment would be in lieu of any payment or value Mr. Hambro would otherwise be entitled to receive as holder of the 188,000 options and stock received upon exercise of such options subject to the put option described above. Subject to certain conditions, the change-of-control agreement expires on December 31, 2008.
         Kenneth M. Schultz. On November 1, 2002, we entered into an employment agreement with Mr. Kenneth M. Schultz. Under the terms of his employment contract, Mr. Schultz is entitled to receive an annual base salary of $175,000 (subject to annual review), health and vacation benefits. If Mr. Schultz elects to forego medical benefits, his base salary will be increased an additional $7,500. In addition, Mr. Schultz holds 188,000 options to purchase First Solar common shares pursuant to a separate award agreement, which provides that upon certain specified events, including a change of control (as defined in the award agreement) and related termination of employment, the shares issuable pursuant to such options will be subject to a put option held by Mr. Schultz, which would allow him to require the Company to repurchase such shares at the imputed transaction value per unit (as defined in the award agreement). Effective January 2, 2006, Mr. Schultz’s annual salary was increased to $240,000. Mr. Schultz is also eligible for an annual performance-based bonus. The employment agreement provides for a severance payment in an amount equal to one year of his annual base salary in the event Mr. Schultz is terminated for any reason other

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than cause (as defined in the employment agreement) or if Mr. Schultz terminates his employment for good reason (as defined in the employment agreement).
         Under the terms of the employment agreement, Mr. Schultz has agreed not to disclose any confidential information concerning our business, including without limitation our confidential designs and processes. In addition, Mr. Schultz has agreed not compete with us or solicit or hire any of our employees during the period of one year following the termination of his employment. If we default on any severance payments owed to Mr. Schultz under the terms of the agreement and fail to cure such default upon five days written notice specifying such default, the obligation of Mr. Schultz not to compete with us expires.
         Separately, we entered into a change-of-control agreement with Mr. Schultz on December 8, 2003. Under the terms of the change-of-control agreement, Mr. Schultz has the option to receive a cash payment in the amount of 1.25% of the imputed transaction value (as defined in the change-of-control agreement) if a change of control (as defined in the change-of-control agreement) occurs and his employment is terminated. This payment would be in lieu of any payment or value Mr. Schultz would otherwise be entitled to receive as holder of the options, and stock received upon exercise of such options, described above. Subject to certain conditions, the change-of-control agreement expires on December 31, 2008.
         Robert H. Williams. On November 30, 2005, the Company entered into a termination letter agreement with Mr. Robert H. Williams, whereby Mr. Williams’ employment with First Solar terminated on December 31, 2005. Under the terms of the termination letter agreement, Mr. Williams provided transition services as an independent contractor from January 1, 2006 to February 28, 2006 for which the Company compensated him based on his base salary prior to termination. In addition, the Company agreed to pay Mr. Williams a lump sum payment of $205,000 by February 28, 2006 and to continue to pay Mr. Williams’ medical insurance through August 31, 2006, provided he is not insured through another program.

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PRINCIPAL AND SELLING STOCKHOLDERS
         The following table shows information regarding the beneficial ownership of our common stock as of May 31, 2006, as adjusted to give effect to this offering by:
  each person or group who is known by us to own beneficially more than 5% of our common stock;
 
  each member of our board of directors and each of our named executive officers; and
 
  all members of our board of directors and our executive officers as a group.
         Currently, JWMA Partners, LLC (“JWMA”) is the beneficial owner of 10,686,045 shares of our common stock, representing 92.32% of our shares of common stock prior to this offering. The Estate of John T. Walton, JCL Holdings, LLC and Michael J. Ahearn are the significant members of JWMA. Immediately prior to the consummation of this offering, the members of JWMA will dissolve JMWA and become direct stockholders of First Solar, Inc. JWMA will dissolve pursuant to a formula, which includes the valuation of First Solar, Inc. stock based on the public offering price per share, on the dissolution date. The following table assumes that the shares are sold at an initial public offering price of $           per share, which is the mid-point of the range set forth on the cover of this prospectus, and that the members of JWMA dissolve JWMA on                     , 2006. Assuming the date of dissolution remains the same, a $1.00 increase (decrease) in the assumed public offering price of $           per share of common stock, the mid-point of the range set forth on the cover of this prospectus, would increase (decrease) the percentage ownership as follows: Estate of John T. Walton      %; JCL Holdings, LLC      %; and Michael J. Ahearn      %.
         Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of the date of this prospectus are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
         Unless otherwise indicated, each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned. Except as indicated below, the address for each stockholder, director or named executive officer is First Solar, Inc., 4050 East Cotton Center Boulevard, Building 6, Suite 68, Phoenix, Arizona 85040.
         This table assumes 12,637,339 shares of common stock outstanding as of May 31, 2006, including 11,574,696 shares of common stock and 1,062,643 shares issuable upon exercise of stock options.
                                                         
                Shares Beneficially   Shares Beneficially
            Shares   Owned After this   Owned After this
        to be   Offering, Assuming   Offering, Assuming
    Shares Beneficially   Sold in   No Exercise of the   Full Exercise of the
    Owned Prior to this   this   Over-Allotment   Over-Allotment
    Offering   Offering   Option   Option
                 
    Number   Percent   Number   Number   Percent   Number   Percent
Name of Beneficial Owner                            
Beneficial Owners of 5% or More
                                                       
Estate of John T. Walton(1)
              %                                        
JCL Holdings, LLC(2)
              %                                      
Michael J. Ahearn
              %                                        
Goldman, Sachs & Co.(3)
    878,651       7.59 %                                      
 
Directors and Named Executive Officers
                                                       
Michael J. Ahearn
              %                                        
George A. (“Chip”) Hambro(4)
    198,000         %                                      
Kenneth M. Schultz(5)
    188,000         %                                      
James F. Nolan(6)
    15,000         *                                      
Bruce Sohn(7)
    20,000         *                                      
Michael Sweeney(8)
    20,000         *                                      
All Directors and Executive Officers as a group (6 persons)(9)
              %                                        
 
 * Less than one percent
(1) S. Robson Walton, Jim C. Walton and Alice L. Walton share voting and dispositive power with respect to all shares held by JCL Holdings, LLC. The address of the Estate of John T. Walton is P.O. Box 1860, Bentonville, Arkansas 72712.

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(2) JCL Holdings, LLC holds a total of                      shares for the benefit of John T. Walton’s wife and his decedents. S. Robson Walton, Jim C. Walton and Alice L. Walton share voting and dispositive power with respect to all shares held by JCL Holdings, LLC. The address of JCL Holdings, LLC is P.O. Box 1860, Bentonville, Arkansas 72712.
(3) On May 10, 2006, Goldman, Sachs & Co. converted all of our convertible senior subordinated notes into 878,651 shares of our common stock. The address of Goldman, Sachs & Co. is 85 Broad Street, New York, New York 10004.
(4) Includes 198,000 shares of common stock issuable upon the exercise of stock options.
(5) Includes 188,000 shares of common stock issuable upon the exercise of stock options.
(6) Includes 15,000 shares of common stock issuable upon the exercise of stock options.
(7) Includes 15,000 shares of common stock issuable upon the exercise of stock options.
(8) Includes 15,000 shares of common stock issuable upon the exercise of stock options.
(9) Includes 431,000 shares of common stock issuable upon the exercise of stock options. Does not include                      shares of common stock issuable upon the exercise of stock options that we plan to grant Directors and Executive Officers upon the consummation of this offering.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
         Our existing equity investors are a party to a stockholders agreement that grants the stockholders of First Solar party thereto certain rights to participate in registered offerings by us of our common stock, or “piggyback” registration rights. In addition, immediately following the completion of this offering, the stockholders agreement provides for customary demand registration rights.
         On February 22, 2006, Goldman, Sachs & Co. (“Goldman”) purchased the Company’s convertible senior subordinated notes due 2011. Pursuant to the terms of the purchase agreement, the Company entered into a registration rights agreement with Goldman. The registration rights agreement provides that, subject to certain lock-up provisions, Goldman has two demand and customary piggyback registration rights. On May 10, 2006, Goldman converted the notes into the common stock of First Solar, Inc.
         On May 14, 2003, First Solar Property, LLC issued a $8.7 million promissory note due June 1, 2010 to Kingston Properties, LLC, an affiliate of JWMA, all of which was outstanding at April 1, 2006. The interest rate of the note is 3.70% per annum, payable monthly on the first day of each month, commencing June 1, 2003 and ending June 1, 2010. We may pre-pay the note in whole or in part at any time. The note is secured by a second-priority lien on our land and building in Perrysburg, Ohio.
         In November 2000, the Company entered into a consulting agreement with James Nolan, a director of the Company. Pursuant to the terms of our agreement, Mr. Nolan provides part-time consulting services for a consulting fee of $7,500 per month plus travel and other expenses.

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DESCRIPTION OF CERTAIN INDEBTEDNESS
         The summary below is qualified in its entirety by reference to agreements setting forth the principal terms and conditions of our indebtedness.
         $15,000,000 Loan from the State of Ohio
         On July 1, 2005, First Solar US Manufacturing, LLC and First Solar Property, LLC entered into a loan agreement with the Director of Development of the State of Ohio for $15.0 million, all of which was outstanding at April 1, 2006. The interest rate on the note is 2% per annum, plus a monthly service fee equal to 0.021%, payable monthly in arrears on the first day of each month. Principal payments commence on December 1, 2006 and end on July 1, 2015, and we may pre-pay the loan in whole or in part at any time. The note is secured by a first-priority lien on our land and building in Perrysburg, Ohio and guaranteed by First Solar, Inc.
         $5,000,000 Loan from the State of Ohio
         On December 1, 2003, First Solar US Manufacturing, LLC and First Solar Property, LLC entered into a loan agreement with the Director of Development of the State of Ohio for $5.0 million, all of which was outstanding at April 1, 2006. The interest rate on the note was 0.00% per annum for the first year the loan is outstanding, 1.00% during the second and third years, 2.00% during the fourth and fifth years and 3.00% for the remaining term of the note. In addition, we pay a monthly service fee equal to 0.021%. Interest is payable monthly, on the first day of each month. Principal payments commence on January 1, 2007 and end on December 1, 2009, and we may pre-pay the note in whole or in part at any time after January 1, 2007. The note is secured by a first-priority lien on the machinery and equipment in our Perrysburg, Ohio manufacturing plant and guaranteed by First Solar, Inc.
         $8,700,000 Loan from Kingston Properties, LLC
         On May 14, 2003, First Solar Property, LLC issued a $8.7 million promissory note due June 1, 2010 to Kingston Properties, LLC, an affiliate of JWMA, all of which was outstanding at April 1, 2006. The interest rate of the note is 3.70% per annum, payable monthly on the first day of each month, commencing June 1, 2003 and ending June 1, 2010. We may pre-pay the note in whole or in part at any time. The note is secured by a second-priority lien on our land and building in Perrysburg, Ohio.

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DESCRIPTION OF CAPITAL STOCK
         The following is a description of the material provisions of our capital stock, as well as other material terms of our amended certificate of incorporation and bylaws as they will be in effect as of the consummation of the offering. This description is only a summary. You should read it together with our amended certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus is part.
General
         Upon completion of the offering, our authorized capital stock will consist of                      shares of common stock, par value $0.001 per share, of which                      shares will be issued and outstanding.
Common Stock
         The holders of our common stock are entitled to dividends as our board of directors may declare from time to time at its absolute discretion from funds legally available therefor. See “Dividend Policy”.
         The holders of our common stock are entitled to one vote for each share held of record on any matter to be voted upon by stockholders. Our amended certificate of incorporation does not provide for cumulative voting in connection with the election of directors. Accordingly, upon the dissolution of JWMA Partners, LLC, the Estate of John T. Walton and JCL Holdings, LLC (together, the “Estate”) as a holder of more than 50% of the shares voting, will be able to elect all the directors. There are no preemptive, conversion, redemption or sinking fund provisions applicable to our common stock.
         Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the holders of our common stock are entitled to share ratably in all assets remaining after payment to creditors and subject to prior distribution rights of any outstanding shares of preferred stock. All the outstanding shares of common stock are, and the shares offered by us will be, fully paid and non-assessable.
Registration Rights
         Our existing equity investors will have registration rights for their shares of common stock for resale in some circumstances.
         On February 22, 2006, in connection with our sale of convertible senior subordinated notes, we entered into a registration rights agreement with the holders of the convertible senior subordinated notes pursuant to which we agreed to provide certain registration rights with respect to the shares of common stock issuable upon conversion of the convertible senior subordinated notes. On May 10, 2006, all convertible senior subordinated notes were converted into shares of our common stock. See “Shares Eligible for Future Sale — Registration Rights”.
Special Meetings of Stockholders
         Our amended certificate of incorporation and bylaws provide that special meetings of the stockholders may be called at any time by either the board of directors or stockholders representing 40% or more of our voting shares for any purpose or purposes.
Anti-Takeover Effects of Various Provisions of Delaware Law and Our Amended Certificate of Incorporation and Bylaws
         Provisions of the Delaware General Corporation Law, or the DGCL could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
         Delaware Anti-Takeover Statute. We will be subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person

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became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did own) 15 percent or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
         No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our amended certificate of incorporation provides otherwise. Our amended certificate of incorporation does not provide for cumulative voting.
         Limitations on Liability and Indemnification of Officers and Directors. The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our organizational documents include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of our company, or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. Our organizational documents also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnitee as may be required under the DGCL. We are also expressly authorized to carry directors’ and officers’ insurance to protect our company, our directors, officers and certain employees for some liabilities.
         The limitation of liability and indemnification provisions in our amended certificate of incorporation and our bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
         Authorized but Unissued Shares. Our authorized but unissued shares of common stock will be available for future issuance without your approval. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans and as consideration for future acquisitions, investments or other purposes. The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
         Amendments to Organizational Documents. The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws. Because the Estate owns more than 50% of our shares, the Estate may amend our organizational documents without your approval and may refuse to amend our organizational documents despite your wishes to the contrary.
Listing
         We will apply to list our common stock on The Nasdaq National Market under the trading symbol “FSLR”.
Transfer Agent and Registrar
         The transfer agent and registrar for our common stock is                     .

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SHARES ELIGIBLE FOR FUTURE SALE
         Prior to this offering, there has not been any public market for our common stock, and we cannot predict what effect, if any, market sales of shares or the availability of shares for sale will have on the market price of our common stock. Nevertheless, sales of substantial amounts of common stock in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity-related securities at a time and price that we deem appropriate.
         Upon completion of this offering,                      shares of our common stock will be outstanding. Of these shares, the shares of common stock expected to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless held by our “affiliates”, as that term is defined in Rule 144 under the Securities Act. The remaining outstanding shares of common stock will be deemed “restricted securities” as that term is defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 144(k) under the Securities Act, which are summarized below.
         We may issue shares of common stock from time to time for a variety of corporate purposes, including future public offerings to raise additional capital, employee benefit plans and as consideration for future acquisitions, investments or other purposes. In the event any such offering, employee benefit plan, acquisition, investment or other transaction is significant, the number of shares of common stock that we may issue may in turn be significant. In addition, we may also grant registration rights covering those shares of common stock issued in connection with any such offering, employee benefit plan, acquisition, investment or other transaction.
Lock-Up Agreements
         We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or any securities convertible into or exchangeable or exercisable for any such shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated for a period of 180 days after the date of this prospectus, subject to specified exceptions.
         Our officers, directors, existing stockholders and existing optionholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated for a period of 180 days after the date of this prospectus. The lock-up restriction does not, however, restrict transfers of common stock (or any securities convertible into or exercisable or exchangeable for common stock) to any of the following transferees who agree to be bound in writing by the terms of the “lock-up” and who receive such securities in a transfer not involving a disposition for value: (i) any donee(s) of one or more bona fide gifts of common stock; (ii) any trust for the direct or indirect benefit of the locked-up party or of any familial relation thereof not more remote than first cousin, whether by blood, marriage or adoption; (iii) any beneficiary of the locked-up party pursuant to a will or other testamentary document or applicable laws of descent; (iv) if the locked-up party is an investment fund entity that is a limited partnership, limited liability company or equivalent foreign entity (an “Investment Fund Entity”), to any other Investment Fund Entity under the control of the locked-up party or under the control of the general partner or managing member of the locked-up party; or (v) as a distribution to partners, members or stockholders of the locked-up party.
         The 180-day restricted period described in the two preceding paragraphs will be automatically extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release of the announcement of the material news or material event.

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         Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated have advised us that they have no present intent or arrangement to release any shares subject to a lock-up, and will consider the release of any lock-up on a case-by-case basis. Upon a request to release any shares subject to a lock-up, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated would consider the particular circumstances surrounding the request, including, but not limited to, the length of time before the lock-up expires, the number of shares requested to be released, reasons for the request, the possible impact on the market or our common stock and whether the holder of our shares requesting the release is an officer, director or other affiliate of ours.
Stockholders Agreement
         Our existing equity investors will have registration rights for their shares of common stock for resale in some circumstances.
Registration Rights
         First Solar entered into a registration rights agreement with Goldman, Sachs & Co., the purchaser of the convertible senior subordinated notes. The registration rights agreement provides that, subject to certain lock-up provisions, Goldman, Sachs & Co. has two demand rights and customary piggyback registration rights upon the completion of this offering. The registration rights and related provisions are transferable with respect to the shares issued upon conversion of the notes on May 10, 2006.
Rule 144
         In general, under Rule 144, as currently in effect, beginning 90 days after the date of this prospectus, any person, including an affiliate, who has beneficially owned shares of our common stock for a period of at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of:
  one percent of the then-outstanding shares of common stock or approximately                      shares immediately after this offering; and
 
  the average weekly trading volume in the common stock on The Nasdaq National Market during the four calendar weeks preceding the date on which the notice of the sale is filed with the SEC.
         Sales under Rule 144 are also subject to provisions relating to notice, manner of sale, volume limitations and the availability of current public information about us.
         Following the lock-up period, and assuming the exercise of the underwriters’ option to purchase                      shares is exercised in full, we estimate that approximately                      shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act (other than                      unvested restricted shares held by certain selling stockholders).
Rule 144(k)
         Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares for at least two years, including the holding period of any prior owner other than an “affiliate,” is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
         The following discussion is a general summary of the material U.S. federal income tax consequences of the ownership and disposition of our common stock applicable to “Non-U.S. Holders”. As used herein, a Non-U.S. Holder means a beneficial owner of our common stock that is neither a U.S. person nor a partnership for U.S. federal income tax purposes, and that will hold shares of our common stock as capital assets. For U.S. federal income tax purposes, a U.S. person includes:
  an individual who is a citizen or resident of the United States;
 
  a corporation (or other business entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia;
 
  an estate the income of which is includible in gross income regardless of source; or
 
  a trust that (A) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons, or (B) otherwise has validly elected to be treated as a U.S. domestic trust.
         If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the U.S. federal income tax treatment of the partnership and each partner generally will depend on the status of the partner and the activities of the partnership and the partner. Partnerships acquiring our common stock, and partners in such partnerships, should consult their own tax advisors with respect to the U.S. federal income tax consequences of the ownership and disposition of our common stock.
         This summary does not consider specific facts and circumstances that may be relevant to a particular Non-U.S. Holder’s tax position and does not consider U.S. state and local or non-U.S. tax consequences. It also does not consider Non-U.S. Holders subject to special tax treatment under the U.S. federal income tax laws (including partnerships or other pass-through entities, banks and insurance companies, dealers in securities, holders of our common stock held as part of a “straddle,” “hedge,” “conversion transaction” or other risk-reduction transaction, controlled foreign corporations, passive foreign investment companies, companies that accumulate earnings to avoid U.S. federal income tax, foreign tax-exempt organizations, former U.S. citizens or residents, persons who hold or receive common stock as compensation and persons subject to the alternative minimum tax). This summary is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service (“IRS”) and judicial decisions, all as in effect on the date hereof, and all of which are subject to change, possibly on a retroactive basis, and different interpretations.
         This summary is included herein as general information only. Accordingly, each prospective Non-U.S. Holder is urged to consult its own tax advisor with respect to the U.S. federal, state, local and non-U.S. income, estate and other tax consequences of owning and disposing of our common stock.
U.S. Trade or Business Income
         For purposes of this discussion, dividend income and gain on the sale or other taxable disposition of our common stock will be considered to be “U.S. trade or business income” if such income or gain is (i) effectively connected with the conduct by a Non-U.S. Holder of a trade or business within the United States and (ii) in the case of a Non-U.S. Holder that is eligible for the benefits of an income tax treaty with the United States, attributable to a permanent establishment (or, for an individual, a fixed base) maintained by the Non-U.S. Holder in the United States. Generally, U.S. trade or business income is not subject to U.S. federal withholding tax (provided the Non-U.S. Holder complies with applicable certification and disclosure requirements); instead, U.S. trade or business income is subject to U.S. federal income tax on a net income basis at regular U.S. federal income tax rates in the same manner as a U.S. person. Any U.S. trade of business income received by a corporate Non-U.S. holder may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Dividends
         Distributions of cash or property that we pay will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). A Non-U.S. Holder generally will be subject to U.S. federal withholding tax at a 30% rate, or, if the

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Non-U.S. Holder is eligible, at a reduced rate prescribed by an applicable income tax treaty, on any dividends received in respect of our common stock. If the amount of a distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a tax-free return of capital to the extent of the Non-U.S. Holder’s tax basis in our common stock (with a corresponding reduction in such Non-U.S. Holder’s tax basis in our common stock), and thereafter will be treated as capital gain. In order to obtain a reduced rate of U.S. federal withholding tax under an applicable income tax treaty, a Non-U.S. Holder will be required to provide a properly executed IRS Form W-8BEN certifying under penalties of perjury its entitlement to benefits under the treaty. Special certification requirements and other requirements apply to certain Non-U.S. Holders that are entities rather than individuals. A Non-U.S. Holder of our common stock that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS on a timely basis. A Non-U.S. Holder should consult its own tax advisor regarding its possible entitlement to benefits under an income tax treaty and the filing of a U.S. tax return for claiming a refund of U.S. federal withholding tax.
         The U.S. federal withholding tax does not apply to dividends that are U.S. trade or business income, as defined above, of a Non-U.S. Holder who provides a properly executed IRS Form W-8ECI, certifying under penalties of perjury that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United Sates.
Dispositions of our Common Stock
         A Non-U.S. Holder generally will not be subject to U.S. federal income or withholding tax in respect of any gain on a sale or other disposition of our common stock unless:
  the gain is U.S. trade or business income, as defined above;
 
  the Non-U.S. Holder is an individual who is present in the United States for 183 or more days in the taxable year of the disposition and meets other conditions; or
 
  we are or have been a “U.S. real property holding corporation” (a “USRPHC”) under section 897 of the Code at any time during the shorter of the five-year period ending on the date of disposition and the Non-U.S. Holder’s holding period for our common stock.
         In general, a corporation is a USRPHC if the fair market value of its “U.S. real property interests” (as defined in the Code and applicable Treasury regulations) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. If we are determined to be a USRPHC, the U.S. federal income and withholding taxes relating to interests in USRPHCs nevertheless will not apply to gains derived from the sale or other disposition of our common stock by a Non-U.S. Holder whose shareholdings, actual and constructive, at all times during the applicable period, amount to 5% or less of our common stock, provided that our common stock is regularly traded on an established securities market. We are not currently a USRPHC, and we do not anticipate becoming a USRPHC in the future. However, no assurance can be given that we will not be a USRPHC, or that our common stock will be considered regularly traded, when a Non-U.S. Holder sells its shares of our common stock.
Information Reporting and Backup Withholding Requirements
         We must annually report to the IRS and to each Non-U.S. Holder any dividend income that is subject to U.S. federal withholding tax, or that is exempt from such withholding tax pursuant to an income tax treaty. Copies of these information returns also may be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Under certain circumstances, the Code imposes a backup withholding obligation (currently at a rate of 28%) on certain reportable payments. Dividends paid to a Non-U.S. Holder of our common stock generally will be exempt from backup withholding if the Non-U.S. Holder provides a properly executed IRS Form W-8BEN or otherwise establishes an exemption.
         The payment of the proceeds from the disposition of our common stock to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge or reason to know that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of our common stock to or through a non-U.S. office of a non-U.S. broker will not be subject to information reporting or backup withholding unless the non-U.S. broker has certain types of relationships with the United States (a “U.S. related

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person”). In the case of the payment of the proceeds from the disposition of our common stock to or through a non-U.S office of a broker that is either a U.S. person or a U.S. related person, the Treasury regulations require information reporting (but not the backup withholding) on the payment unless the broker has documentary evidence in its files that the holder is a Non-U.S. Holder and the broker has no knowledge to the contrary. Non-U.S. Holders should consult their own tax advisors on the application of information reporting and backup withholding to them in their particular circumstances (including upon their disposition of our common stock).
         Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be refunded or credited against the Non-U.S. Holder’s U.S. federal income tax liability, if any, if the Non-U.S. Holder provides the required information to the IRS on a timely basis. Non-U.S. Holders should consult their own tax advisors regarding the filing of a U.S. tax return for claiming a refunded of such backup withholding.

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UNDERWRITING
         Under the terms and subject to the conditions contained in an underwriting agreement dated                     , 2006, we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated are acting as representatives, the following respective numbers of shares of common stock:
           
    Number
Underwriter   of Shares
     
Credit Suisse Securities (USA) LLC
       
Morgan Stanley & Co. Incorporated
       
       
 
Total
       
       
         The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.
         We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to                      additional shares from us at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.
         The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $           per share. The underwriters and selling group members may allow a discount of $           per share on sales to other broker/ dealers. After the initial public offering the representatives may change the public offering price and concession and discount to broker/ dealers.
         The following table summarizes the compensation we and the selling stockholders will pay:
                                 
    Per Share   Total
         
    Without   With   Without   With
    Over-allotment   Over-allotment   Over-allotment   Over-allotment
                 
Underwriting Discounts and Commissions paid by us   $       $       $       $    
Underwriting Discounts and Commissions paid by the selling stockholders   $       $       $       $    
         The representatives have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered.
         We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 (the “Securities Act”) relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated for a period of 180 days after the date of this prospectus except that we may (i) issue shares of our common stock in the offering; (ii) issue shares of our common stock pursuant to the exercise of options or other equity awards existing on the date of this prospectus; or (iii) file with the SEC one or more registration statements on Form S-8 registering the shares of our common stock issuable under our equity compensation plans in effect on the date of this prospectus, in each case subject to no further transfer during the “lock-up” period. However, in the event that either (1) during the last 17 days of the “lock-up” period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the “lock-up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated waive, in writing, such an extension.

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         Our officers, directors, existing stockholders and existing optionholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the “lock-up” period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the “lock-up” period, we announce that we will release earnings results during the 16-day period beginning on the last day of the “lock-up” period, then in either case the expiration of the “lock-up” will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated waive, in writing, such an extension. The lock-up restriction does not, however, restrict transfers of common stock (or any securities convertible into or exercisable or exchangeable for common stock) to any of the following transferees who agree to be bound in writing by the terms of the “lock-up” and who receive such securities in a transfer not involving a disposition for value: (i) any donee(s) of one or more bona fide gifts of common stock; (ii) any trust for the direct or indirect benefit of the locked-up party or of any familial relation thereof not more remote than first cousin, whether by blood, marriage or adoption; (iii) any beneficiary of the locked-up party pursuant to a will or other testamentary document or applicable laws of descent; (iv) if the locked-up party is an investment fund entity that is a limited partnership, limited liability company or equivalent foreign entity (an “Investment Fund Entity”), to any other Investment Fund Entity under the control of the locked-up party or under the control of the general partner or managing member of the locked-up party; or (v) as a distribution to partners, members or stockholders of the locked-up party.
         Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated have advised us that they have no present intent or arrangement to release any shares subject to a lock-up, and will consider the release of any lock-up on a case-by-case basis. Upon a request to release any shares subject to a lock-up, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. Incorporated would consider the particular circumstances surrounding the request, including, but not limited to, the length of time before the lock-up expires, the number of shares requested to be released, reasons for the request, the possible impact on the market or our common stock and whether the holder of our shares requesting the release is an officer, director or other affiliate of ours.
         The underwriters have reserved for sale at the initial public offering price up to                      shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.
         We and the selling stockholders have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.
         We will apply to list the shares of common stock on The Nasdaq National Market under the symbol “FSLR”.
         In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any common stock which is the subject of the offering contemplated by this prospectus may not be made in that Relevant Member State once the prospectus has been approved by the competent authority in such Member State and published and passported in accordance with the Prospectus Directive as implemented in such Member State except that an offer to the public in the Relevant Member State of any Securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
         (a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
         (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than EUR43,000,000 and (3) an annual net turnover of more than EUR50,000,000, as shown in its last annual or consolidated accounts;

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         (c) by the Managers to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of International Manager for any such offer; or
         (d) in any other circumstances falling within Article 3(2) of the Prospectus Directive.
         For the purposes of this provision, the expression an “offer to the public” in relation to any common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any common stock to be offered so as to enable an investor to decide to purchase the common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/ EC and includes any relevant implementing measure in each Relevant Member State.
         The offering has not been notified to the Belgian Banking, Finance and Insurance Commission (Commission bancaire, financière et des assurances) pursuant to Article 18 of the Belgian law of 22 April 2003 on the public offering of securities (the “Law on Public Offerings”) nor has this prospectus been, or will it be, approved by the Belgian Banking, Finance and Insurance Commission pursuant to Article 14 of the Law on Public Offerings. Accordingly, the offering may not be advertised, the common stock may not be offered or sold, and this prospectus nor any other information circular, brochure or similar document may not be distributed, directly or indirectly, to any person in Belgium other than (i) institutional investors referred to in Article 3, 2° of the Belgian Royal Decree of 7 July 1999 on the public character of financial transactions (the “Royal Decree”), acting for their own account or (ii) investors wishing to acquire the common stock for an amount of at least EUR 250,000 (or its equivalent in foreign currencies) per transaction, as specified in Article 3, 1° of the Royal Decree.
         The common stock is offered in Finland solely to investors who are qualified investors. This prospectus has neither been filed with nor approved by the Finnish Financial Supervision Authority and it does not constitute a prospectus under the Prospectus Directive (2003/71/ EC), the Finnish Securities Market Act (495/1989, as amended) or the Finnish Investment Funds Act (48/1999, as amended).
         The common stock which is the object of this prospectus is neither registered for public distribution with the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - ‘BaFin’) according to the German Investment Act nor listed on a German exchange. No sales prospectus pursuant to the German Securities Prospectus Act or German Sales Prospectus Act or German Investment Act has been filed with the BaFin. Consequently, the common stock must not be distributed within the Federal Republic of Germany by way of a public offer, public advertisement or in any similar manner and this prospectus and any other document relating to the common stock, as well as information or statements contained therein, may not be supplied to the public in the Federal Republic of Germany or used in connection with any offer for subscription of the common stock to the public in the Federal Republic of Germany or any other means of public marketing.
         No offer of shares to the public in Ireland shall be made at any time except:
         (a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;
         (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual turnover of more than 50,000,000 as shown in its last annual or consolidated accounts; or
         (c) in any other circumstances which do not require the publication by the Company of a prospectus pursuant to the Prospectus (Directive 2003/71/EC) Regulations 2005.
         The offering of the common stock has not been registered with the Commissione Nazionale per le Società e la Borsa (“CONSOB”) (the Italian securities and exchange commission) pursuant to the Italian securities legislation and, accordingly, each Manager represents and agrees that it has not offered, sold or delivered any common stock nor distributed any copies of the prospectus or any other document relating to the common stock, and will not offer, sell or deliver any shares nor distribute any copies of the prospectus or any other document relating to the common stock in the Republic of Italy (“Italy”) in a solicitation to the public at large (sollecitazione all’investimento), and that the common stock in Italy shall only be:
         (i) offered or sold to professional investors (operatori qualificati) as defined in Article 31, second paragraph of CONSOB Regulation No 11522 of 1 July 1998 (the “Regulation No 11522”), as amended; or
         (ii) offered or sold in circumstances where an exemption from the rules governing solicitations to the public at large applies, pursuant to Article 100 of Legislative Decree No 58 of 24 February 1998 (the “Financial Services

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Act”) and Article 33, first paragraph, of CONSOB Regulation No 11971 of 14 May 1999 (the “Regulation No 11971”), as amended,
         and shall in any event be effected in accordance with all relevant Italian securities, tax and exchange control and other applicable laws and regulations.
         Moreover and subject to the foregoing, each Manager represents and agrees that the common stock may not be offered, sold or delivered and neither the prospectus nor any other material relating to the common stock may be distributed or made available in Italy unless such offer, sale or delivery of shares or distribution or availability of copies of the prospectus or any other material relating to the common stock in Italy:
         (i) is in compliance with Article 129 of Legislative Decree No 385 of 1 September 1993 (the “Italian Banking Act”) and the implementing guidelines of the Bank of Italy, pursuant to which the issue or the offer of shares in Italy may need to be followed by an appropriate notice to be filed with the Bank of Italy depending, inter alia, on the aggregate value of the securities issued or offered in Italy and their characteristics; and
         (ii) is made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with the Financial Services Act, the Italian Banking Act, the Regulation No 11522, the Regulation No 11971 and other applicable laws and regulations.
         Insofar as the requirements above are based on laws which are superseded at any time pursuant to the implementation of the Prospectus Directive, such requirements shall be replaced by the applicable requirements under the Prospectus Directive.
         The offer of common stock has not been registered with the Portuguese Securities Market Commission (the “CMVM”). Each Manager has represented, warranted and agreed, and each further Manager appointed will be required to represent, warrant and agree that it has not offered or sold, and it will not offer or sell any common stock in Portugal or to residents of Portugal otherwise than in accordance with applicable Portuguese Law.
         No action has been or will be taken that would permit a public offering of any of the common stock in Portugal. Accordingly, no common stock may be offered, sold or delivered except in circumstances that will result in compliance with any applicable laws and regulations. In particular, each Manager has represented, warranted and agreed that no offer has been addressed to more than 200 non-institutional Portuguese investors; no offer has been preceded or followed by promotion or solicitation to unidentified investors, or followed by publication of any promotional material. The offer of common stock is intended for Institutional Investors. Institutional Investors within the meaning of Article 30 of the Securities Code (Código dos Valores Mobiliários) includes credit institutions, investment firms, insurance companies, collective investment institutions and their respective managing companies, pension funds and their respective pension fund-managing companies, other authorised or regulated financial institutions, notably securitisation funds and their respective management companies and all other financial companies, securitisation companies, venture capital companies, venture capital funds and their respective management companies.
         The prospectus in respect of the common stock has not been registered with the Comisión Nacional del Mercado de Valores (the “CNMV”). Accordingly, the common stock may only be offered in Spain to qualified investors under pursuant to and in compliance with Law 24/1988, as amended and Royal Decree 1310/2005.
         Each of the Managers severally represents, warrants and agrees as follows: (1) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of the securities in circumstances in which Section 21(1) of FSMA does not apply; and (2) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.
         Certain of the underwriters and their respective affiliates have performed and may in the future perform investment banking, financial advisory and lending services for us and our affiliates from time to time, for which they have received customary compensation, and may do so in the future.
         Prior to this offering, there has been no public market for the common stock. The initial public offering price was determined by negotiations among us, the selling stockholders and the underwriters. Among the factors considered in determining the initial public offering price were the future prospects of our company and our industry in general, sales, earnings and certain other financial and operating information of our company in recent periods,

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and the price-earnings ratios, comparable sales, market prices of our securities and certain financial and operating information of companies engaged in activities similar to those of our company.
         In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934 (the “Exchange Act”).
  Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
 
  Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.
 
  Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
 
  Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
 
  In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.
         A prospectus in electronic format will be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make Internet distributions on the same basis as other allocations.

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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
         The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we and the selling stockholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock.
Representations of Purchasers
         By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling stockholders and the dealer from whom the purchase confirmation is received that:
  the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws,
 
  where required by law, that the purchaser is purchasing as principal and not as agent,
 
  the purchaser has reviewed the text above under Resale Restrictions, and
 
  the purchaser acknowledges and consents to the provision of specified information concerning its purchase of the common stock to the regulatory authority that by law is entitled to collect the information.
Further details concerning the legal authority for this information is available on request.
Rights of Action—Ontario Purchasers Only
         Under Ontario securities legislation, certain purchasers who purchase a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the common stock, for rescission against us and the selling stockholders in the event that this prospectus contains a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the common stock. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the common stock. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us or the selling stockholders. In no case will the amount recoverable in any action exceed the price at which the common stock were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we and the selling stockholders will have no liability. In the case of an action for damages, we and the selling stockholders will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.
Enforcement of Legal Rights
         All of our directors and officers as well as the experts named herein and the selling stockholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
         Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation.

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LEGAL MATTERS
         The validity of the securities offered in this prospectus and certain legal matters will be passed upon for us by Cravath, Swaine & Moore LLP, New York, New York. Certain legal matters will be passed upon on behalf of the underwriters by Shearman & Sterling LLP, Menlo Park, California.
EXPERTS
         The consolidated financial statements of First Solar, Inc. and subsidiaries as of December 31, 2005 and December 25, 2004 and for each of the three years in the period ended December 31, 2005 included in this prospectus have been so included in reliance on the report (which contains an explanatory paragraph relating to the restatement of the consolidated financial statements of First Solar, Inc. as described in note 16 to the consolidated financial statements) of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
         We have filed a registration statement on Form S-1 with the SEC with respect to this offering. This prospectus, which is part of the registration statement, does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits and schedules for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits and schedules attached to the registration statement for copies of the actual contract, agreement or other document.
         You may read and copy the registration statement, the related exhibits and schedules without charge at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. You may obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The SEC also maintains an Internet site, http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The other information we file with the SEC is not part of the registration statement of which this prospectus forms a part. Our reports and other information that we have filed, or may in the future file, with the SEC are not incorporated by reference into and do not constitute part of this prospectus.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
         
    Page
     
 Consolidated Financial Statements for First Solar, Inc. and Subsidiaries:
       
 Report of Independent Registered Public Accounting Firm     F-2  
 Consolidated Balance Sheets as of December 31, 2005, December 25, 2004 and April 1, 2006 (unaudited)     F-3  
 Consolidated Statements of Operations for the Years Ended December 31, 2005, December 25, 2004 and December 27, 2003  and for the Quarters Ended April 1, 2006 (unaudited) and March 26, 2005 (unaudited)     F-4  
 Consolidated Statements of Members’/Stockholders’ Equity and Comprehensive Loss for the Years Ended December 31, 2005,  December 25, 2004 and December 27, 2003 and for the Quarter Ended April 1, 2006 (unaudited)     F-5  
 Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, December 25, 2004 and December 27, 2003  and for the Quarters Ended April 1, 2006 (unaudited) and March 26, 2005 (unaudited)     F-6  
 Notes to Consolidated Financial Statements     F-7  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of First Solar, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of members’/stockholders’ equity and comprehensive loss present fairly, in all material respects, the financial position of First Solar, Inc. and its subsidiaries at December 31, 2005 and December 25, 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 16 to the consolidated financial statements, the Company restated its 2004 and 2003 financial statements.
As discussed in Note 10 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation in 2005.
PRICEWATERHOUSECOOPERS LLP
Phoenix, Arizona
June 30, 2006

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FIRST SOLAR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2005, December 25, 2004, and April 1, 2006
(in thousands, except share information)
                         
    2004   2005   2006
             
    (as restated)       (unaudited)
Assets
                       
 
Current assets:
                       
Cash and cash equivalents
  $ 3,465     $ 16,721     $ 62,788  
Marketable securities
    306       312       314  
Accounts receivable, net
    4,393       1,098       6,120  
Inventories
    3,686       6,917       9,821  
Prepaid expenses and other current assets
    431       1,505       4,089  
                   
Total current assets
    12,281       26,553       83,132  
 
Property, plant, and equipment, net
    29,277       73,778       112,349  
Restricted investment
          1,267       1,275  
Other noncurrent assets
    207       286       1,303  
                   
 
Total assets
  $ 41,765     $ 101,884     $ 198,059  
                   
 
Liabilities and Members’/ Stockholders’ Equity
                       
 
Current liabilities:
                       
Accounts payable and accrued expenses
  $ 5,353     $ 13,771     $ 28,729  
Note payable to a related party
          20,000        
Current portion of long-term debt
          142       965  
                   
Total current liabilities
    5,353       33,913       29,694  
Accrued recycling
          917       1,389  
Note payable to a related party
    8,700       8,700       8,700  
Long-term debt
    5,000       19,881       93,057  
Other noncurrent liabilities
    71       79       62  
                   
Total liabilities
    19,124       63,490       132,902  
                   
Commitments and contingencies
                       
Employee stock options on redeemable shares
          25,265       26,041  
Members’/stockholders’ equity:
                       
Membership equity
    165,742       162,307        
Common stock, $0.001 par value per share;
50,000,000 shares authorized; 10,696,045 shares
issued and outstanding at April 1, 2006 (unaudited)
                11  
Additional paid-in capital
                194,305  
Accumulated deficit
    (142,915 )     (149,377 )     (155,272 )
Accumulated other comprehensive income (loss)
    (186 )     199       72  
                   
Total members’/stockholders’ equity
    22,641       13,129       39,116  
                   
Total liabilities and members’/stockholders’ equity
  $ 41,765     $ 101,884     $ 198,059  
                   
See accompanying notes to these consolidated financial statements.

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FIRST SOLAR, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 2005, December 25, 2004, and December 27, 2003 and
Quarters Ended April 1, 2006 and March 26, 2005
(in thousands, except per unit/share amounts)
                                         
    For the Years Ended   For the Quarters Ended
         
    2003   2004   2005   2005   2006
                     
    (as restated)   (as restated)        
                (unaudited)
Net sales
  $ 3,210     $ 13,522     $ 48,063     $ 8,530     $ 13,624  
Cost of sales
    11,495       18,851       31,483       6,158       10,352  
                               
Gross profit (loss)
    (8,285 )     (5,329 )     16,580       2,372       3,272  
                               
Operating expenses:
                                       
Research and development
    3,841       1,240       2,372       197       1,519  
Selling, general, and administrative
    11,981       9,312       15,825       2,639       5,872  
Production start-up
          900       3,173       204       2,579  
                               
      15,822       11,452       21,370       3,040       9,970  
                               
Operating loss
    (24,107 )     (16,781 )     (4,790 )     (668 )     (6,698 )
Foreign currency gain (loss)
          116       (1,715 )     (127 )     900  
Interest expense
    (3,974 )     (100 )     (418 )     (45 )     (423 )
Other income (expense), net
    38       (6 )     372       15       349  
                               
Loss before income taxes
    (28,043 )     (16,771 )     (6,551 )     (825 )     (5,872 )
Income tax expense
                            (23 )
                               
Loss before cumulative effect of change in accounting principle
    (28,043 )     (16,771 )     (6,551 )     (825 )     (5,895 )
Cumulative effect of change in accounting for share-based compensation
                89       89        
                               
Net loss
  $ (28,043 )   $ (16,771 )   $ (6,462 )   $ (736 )   $ (5,895 )
                               
Loss per membership unit/share before cumulative effect of change in accounting principle— basic and diluted
  $ (3.78 )   $ (1.88 )   $ (0.65 )   $ (0.09 )   $ (0.56 )
Cumulative effect of change in accounting principle—basic and diluted
                0.01       0.01        
                               
Net loss per membership unit/share—basic and diluted   $ (3.78 )   $ (1.88 )   $ (0.64 )   $ (0.08 )   $ (0.56 )
                               
Weighted-average units/shares used to compute net loss per unit/share—basic and diluted     7,428       8,907       10,071       9,528       10,469  
                               
See accompanying notes to these consolidated financial statements.

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FIRST SOLAR, INC. AND SUBSIDIARIES
Consolidated Statements of Members’/ Stockholders’ Equity and Comprehensive Loss
For the Years Ended December 31, 2005, December 25, 2004, and December 27, 2003
and the Quarter Ended April 1, 2006
(in thousands)
                                                                   
    Membership               Accumulated    
    Equity   Common Stock   Additional       Other    
            Paid-In   Accumulated   Comprehensive   Total
    Units   Amount   Shares   Amount   Capital   Deficit   Loss   Equity
                                 
Balance, December 28, 2002
    11,748     $ 35,098           $     $     $ (79,227 )   $     $ (44,129 )
Cumulative effect of restatements
          19,355                         (18,854 )           501  
                                                 
Balance, December 28, 2002, as restated
    11,748       54,453                         (98,081 )           (43,628 )
Components of comprehensive loss:
                                                               
 
Net loss, as restated
                                  (28,043 )           (28,043 )
 
Foreign currency translation adjustments, as restated
                                        1       1  
                                                 
Total comprehensive loss
                                                            (28,042 )
                                                 
Forfeiture of membership units
    (5,656 )                                          
Repurchase of membership units, as restated
    (167 )                             (20 )           (20 )
Transfer of First Solar US Manufacturing, LLC equity to First Solar Holdings, LLC, as restated
          82,600                                     82,600  
Cash contributions from owner, as restated
    850       8,500                                     8,500  
Stock-based compensation
          1,146                                     1,146  
                                                 
Balance, December 27, 2003, as restated
    6,775       146,699                         (126,144 )     1       20,556  
Components of comprehensive loss:
                                                               
 
Net loss, as restated
                                  (16,771 )           (16,771 )
 
Foreign currency translation adjustments, as restated
                                        (187 )     (187 )
                                                 
Total comprehensive loss, as restated
                                                            (16,958 )
                                                 
Cash contributions from owner
    1,790       17,900                                     17,900  
Stock-based compensation
          1,143                                     1,143  
                                                 
Balance, December 25, 2004, as restated
    8,565       165,742                         (142,915 )     (186 )     22,641  
Components of comprehensive loss:
                                                               
 
Net loss
                                  (6,462 )           (6,462 )
 
Foreign currency translation adjustments
                                        385       385  
                                                 
Total comprehensive loss
                                                            (6,077 )
                                                 
Equity contributions
    757       16,663                                     16,663  
Stock-based compensation
          5,167                                     5,167  
Reclassifications to employee stock options on redeemable shares
          (25,265 )                                   (25,265 )
                                                 
Balance, December 31, 2005
    9,322       162,307                         (149,377 )     199       13,129  
Components of comprehensive loss:
                                                               
 
Net loss (unaudited)
                                  (5,895 )           (5,895 )
 
Foreign currency translation adjustments (unaudited)
                                        (127 )     (127 )
                                                 
Total comprehensive loss (unaudited)
                                                            (6,022 )
                                                 
Cash contributions from owner (unaudited)
    1,364       30,000                                     30,000  
Conversion of membership units into common shares (unaudited)
    (10,686 )     (192,307 )     10,686       11       192,296                    
Stock-based compensation (unaudited)
                            2,685                   2,685  
Stock options exercised (unaudited)
                10             100                   100  
Reclassifications to employee stock options on redeemable shares (unaudited)
                            (776 )                 (776 )
                                                 
Balance, April 1, 2006 (unaudited)
        $       10,696     $ 11     $ 194,305     $ (155,272 )   $ 72     $ 39,116  
                                                 
See accompanying notes to these consolidated financial statements.

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Table of Contents

FIRST SOLAR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2005, December 25, 2004, and December 27, 2003 and
Quarters Ended April 1, 2006 and March 26, 2005
(in thousands)
                                           
    For the Years Ended