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As filed with the Securities and Exchange Commission on November 20, 2009

Registration No. 333-162787

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 2 to

FORM F-1

REGISTRATION STATEMENT

UNDER
THE SECURITIES ACT OF 1933



Trony Solar Holdings Company Limited

(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)



Cayman Islands   3674   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Suite 1217-1225
The Pavilion Century Tower
4002 North Hua Qiang Road,
Shenzhen, 518028
People's Republic of China
+86-755-8328 2919
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)



Law Debenture Corporate Services Inc.
400 Madison Avenue, 4th Floor
New York, New York 10017, United States
+1-212-750-6474
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Leiming Chen
Simpson Thacher & Bartlett LLP
ICBC Tower, 35th Floor
3 Garden Road
Hong Kong, People's Republic of China
+852-2514-7630
  David T. Zhang
Allen Wang
Latham & Watkins
41st Floor, One Exchange Square
8 Connaught Place, Central
Hong Kong, People's Republic of China
+852-2522-7886



Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

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 of 1933, 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 earliest effective registration statement for the same offering. o



CALCULATION OF REGISTRATION FEE

 

Title of Each Class of
Securities to be Registered


 

Amount to be
Registered


 

Proposed Maximum Offering Price Per Ordinary Share(3)


 

Proposed Maximum
Aggregate Offering
Price(4)


 

Amount of
Registration Fee

 

Ordinary shares, par value US$0.0001 per ordinary share(1)(2)

 

34,500,000(3)

 

US$7.33

 

US$241,500,000(5)

 

US$13,475.70(6)
 



(1)   American depositary shares issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-             ). Each two American depositary shares represent three ordinary shares.

(2)   Includes (i) ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and (ii) ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ADSs. These ordinary shares are not being registered for the purpose of sales outside the United States.

(3)   The maximum amount of ordinary shares changes with the initial public offering price. The maximum amount of ordinary shares to be registered is 34,500,000, which corresponds to an initial public offering price of US$9.00 per ADS, or US$6.00 per ordinary share.

(4)   Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended.

(5)   The proposed maximum aggregate offering price is the product of (i) US$11.00 per ADS, or US$7.33 per ordinary share, which is the proposed maximum offering price per ordinary share and (ii) 32,931,818 ordinary shares, which is the total number of ordinary shares that can be offered at the initial public offering price of US$11.00 per ADS, assuming the underwriters exercise their option to purchase additional ADSs in full. The proposed aggregate offering price reaches the maximum of US$241,500,000, given the estimated public offering price range and the corresponding number of ordinary shares that can be offered within the price range.

(6)   Of this amount, US$11,160 was paid with the registration statement initially filed on October 30, 2009 and US$2,315.70 is being paid with this Amendment.

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, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.


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

Subject to completion, dated November 20, 2009

Prospectus

19,500,000 American depositary shares
Representing 29,250,000 Ordinary shares

LOGO

Trony Solar Holdings Company Limited

This is an initial public offering of American depositary shares, or ADSs, of Trony Solar Holdings Company Limited, or Trony Solar. Trony Solar is offering 15,000,000 ADSs, and the selling shareholders identified in this prospectus are offering an aggregate of 4,500,000 additional ADSs, assuming an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range. Each two ADSs represent three of our ordinary shares. The ADSs are evidenced by American depositary receipts, or ADRs. We will not receive any proceeds from the sale of ADSs by the selling shareholders.

Prior to this offering, there has been no public market for the ADSs or the ordinary shares. We anticipate the initial public offering price per ADS will be between US$9.00 and US$11.00. Our ADSs have been approved for listing on the New York Stock Exchange under the symbol "TRO."

   
 
  Per ADS
  Total
 
   
Initial public offering price   US$     US$    

Underwriting discounts and commissions

 

US$

 

 

US$

 

 

Proceeds to Trony Solar, before expenses

 

US$

 

 

US$

 

 

Proceeds to the selling shareholders, before expenses

 

US$

 

 

US$

 

 

 

 

 

 

 

 

 

 

 

 

Trony Solar has granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase from it up to 2,925,000 additional ADSs at the initial public price less the underwriting discounts and commissions, assuming an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range.

Investing in our ADSs involves a high degree of risk. See "Risk factors" beginning on page 12.

Neither the Securities and Exchange Commission nor any state securities commission has 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 ADSs to purchasers on or about                      , 2009.


J.P. Morgan
CLSA Asia-Pacific Markets

 

Credit Suisse
Oppenheimer & Co.

           , 2009


LOGO



Table of contents

 
  Page
 

Prospectus summary

    1  

Risk factors

    12  

Special note regarding forward looking statements

    47  

Use of proceeds

    49  

Dividend policy

    51  

Capitalization

    52  

Dilution

    54  

Exchange rate information

    56  

Enforceability of civil liabilities

    57  

Selected consolidated financial and operating data

    59  

Management's discussion and analysis of financial condition and results of operations

    62  

Our industry

    94  

Business

    101  

Regulations

    123  

Management

    129  

Principal and selling shareholders

    137  

Related party transactions

    140  

Description of share capital

    144  

Description of American depositary shares

    157  

Shares eligible for future sale

    168  

Taxation

    170  

Underwriting

    179  

Expenses relating to this offering

    186  

Legal matters

    187  

Experts

    187  

Where you can find additional information

    188  

Index to consolidated financial statements

    F-1  

i



Prospectus summary

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under "Risk factors," before deciding whether to buy our ADSs.

In this prospectus, we define our annual manufacturing capacity, based on a 6.0% conversion efficiency rate, as the product of (i) the aggregate amount of PV modules produced in 300 days by our manufacturing lines operating at their full capacity and (ii) watts per module.

Overview

We are one of the world's leading thin film solar product and solution providers, as measured by production output in 2008, according to a report commissioned by us and prepared by Photon Consulting, a solar energy research firm and consultancy. According to this report, we were China's only thin film PV module producer ranked in the top ten globally by production output in 2008. We use amorphous silicon technology to deposit non-crystalline silicon onto a substrate to manufacture solar photovoltaic, or PV, modules that are significantly thinner than conventional crystalline solar PV modules. As of the end of August 2009, our annual manufacturing capacity reached 115 megawatts, or MW. We design, develop, manufacture and sell our PV modules based on our proprietary manufacturing process and technology.

We believe that our self-designed equipment and proprietary manufacturing process have built-in flexibilities to allow us to expand manufacturing capacity rapidly and cost-effectively through modifications to, and optimizing the manufacturing process of, existing manufacturing lines. This advantage, when combined with our increasing scale and low-cost China-based manufacturing, allowed us to achieve an average manufacturing cost of approximately US$1.15 and US$1.09 per watt for the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, respectively, which we believe were among the lowest in the world. We define average manufacturing cost per watt as the total manufacturing cost incurred during a period divided by the total watts produced during that period.

We distinguish ourselves from other thin film solar companies with our strong research and development capabilities, evidenced by the awards and recognition we have received. In 2008, the PRC Ministry of Housing Construction for Urban and Rural Areas selected us as the preferred provider of building integrated PV, or BIPV, products as part of their initiative to support the development of green energy. In 2007, four members of our management team were selected to serve on a 23-member national committee that sets technical standards for the use of PV glass for construction purposes in China's solar energy industry, or China's national BIPV technical standard committee. Since our inception in 1993, we have accumulated substantial intellectual property in the thin film PV industry. As of September 30, 2009, we had 18 patents and exclusive rights to use 57 patents in China.

We commenced operations in 1993, became a manufacturer of thin film solar batteries in 1995 and began commercial production in 1998. We expanded our annual manufacturing capacity to 5 MW and began manufacturing PV modules for off-grid systems on a commercial scale in 2006, and gradually increased our annual manufacturing capacity to 45 MW by October 2008.

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In July 2009, we completed construction of our 70 MW fully-automated manufacturing line, which commenced commercial production in August 2009, bringing our annual manufacturing capacity to 115 MW. We expect that by the end of 2009, our annual manufacturing capacity will reach 145 MW as a result of the further expansion of our existing 70 MW manufacturing line.

We offer more than 200 different varieties of PV modules to meet different customer needs. Our PV modules can be used in off-grid applications including solar home systems, consumer products and street and lawn lamps. We believe that we are one of the leading producers of thin film PV modules for off-grid applications globally measured by production output. We also manufacture large modules that can be used in BIPV applications and PV power stations. We plan to continue to maintain and improve our leading position in the off-grid market, develop and market high-margin BIPV products and increasingly focus on the PV power station market. Our diverse and expanding customer base includes distributors, exporters, manufacturers and project developers, contractors and owners in China, South Korea and Thailand.

Leveraging our design and engineering capabilities and deep industry experience, we also provide owners and operators of PV power stations and other customers with a diverse range of value-added solutions and services. For example, we recently provided technical guidance, equipment selection, and other services in project implementation, construction management and system optimization to an engineering, procurement and construction, or EPC, firm based in South Korea in its construction of a 1.0 MW on-grid power station project. We also assisted this EPC firm in preparing relevant technical documents to facilitate its obtaining of project financing from banks. The project was completed in May 2009 using our PV modules.

Our total revenues increased from RMB26.2 million in the fiscal year ended June 30, 2007 to RMB272.8 million in the fiscal year ended June 30, 2008 and to RMB541.5 million (US$79.3 million) in the fiscal year ended June 30, 2009, representing a compound annual growth rate, or CAGR, of 354.6% over the three fiscal years. Our net income increased from RMB5.2 million in the fiscal year ended June 30, 2007 to RMB85.8 million in the fiscal year ended June 30, 2008 and to RMB164.9 million (US$24.2 million) in the fiscal year ended June 30, 2009, representing a CAGR of 463.1% over the three fiscal years. In the three months ended September 30, 2009, our total revenues and net income amounted to RMB254.6 million (US$37.3 million) and RMB72.5 million (US$10.6 million), respectively, representing an increase of 81.1% and 61.5% over the same period in 2008, respectively.

Our industry

The solar energy market is one of the most rapidly growing renewable energy markets and has grown significantly over the past decade. According to Solarbuzz, an independent solar energy research firm, the solar energy market grew at a CAGR of 53.0%, from 1,086 MW in 2004 to 5,948 MW in 2008, in terms of annual PV system installed capacities. Despite this robust growth, solar power accounts for less than 1.0% of global electricity generation, providing significant room for future development. Solarbuzz's "Green World" scenario forecasts that annual PV system installed capacities will increase from 5,291 MW in 2009 to 14,792 MW in 2013, representing a CAGR of 29.3% from 2009 to 2013.

The growth of the solar energy market is driven by rising electricity demand, increasing cost-competitiveness of solar-generated electricity, continuing government incentives, national

2



ambitions for energy independence, the need for power grids to meet peak electricity demand and enhanced environmental awareness. Future market expansion will also depend on the growth of the global economy, the stability of the financial markets and the ability of PV product manufacturers to expand production capacity and reduce manufacturing costs.

China's solar energy market is still relatively small compared to many developed markets. However, this market has grown rapidly in recent years, mainly due to rising demand for electricity and increasing government incentives. According to Solarbuzz, China's annual PV system installations rose 52.2%, from 23 MW in 2007 to 35 MW in 2008. In 2008, cumulative PV generation capacity reached 150 MW. Off-grid rural electrification and industrial projects represent most of the PV generation capacity installed in China.

In recent years, PRC government authorities have issued detailed statements on incentive schemes for the solar energy industry. We expect these new policies to further expand and structurally transform China's nascent solar markets, significantly increasing the number of large on-grid ground-mounted systems, BIPV installations and other applications.

The thin film market has experienced rapid growth in the past few years, more than doubling its production share of 5.6% of the solar energy market in 2004 in only four years. In 2008, 893 MW of thin film PV modules were manufactured worldwide, representing a growth of 123.3% over 2007, while the number of crystalline PV modules produced increased by 96.0% during the same period. Due to this rapid growth, thin film technology represents an increasingly large portion of the total PV industry.

The ramp-up in the scale of thin film manufacturing over the next few years will depend on the successful transition from small volume pilot plants to high volume commercial manufacturing facilities at prices and performance-levels sufficiently attractive to the market. According to Solarbuzz, world thin film PV modules production is expected to grow at a CAGR of 35.8% over the next five years, from 893 MW in 2008 to 4,118 MW in 2013, while world crystalline silicon PV modules production is expected to grow at a CAGR of 16.9% over the same period, from 5,961 MW in 2008 to 13,040 MW in 2013.

Our competitive strengths

We believe that the following competitive strengths will sustain our rapid growth and enable us to continue to compete effectively:

Low-cost solutions driving global cost leadership;

Proprietary manufacturing process and self-designed key equipment;

Leading position in the rapidly expanding global thin film market in general and the off-grid market in particular;

A wide range of product offerings for diverse end applications;

Distinguished research and development capabilities providing key technology competitiveness; and

Experienced, cohesive and stable management team well-positioned to deliver profitable growth.

3


Our strategies

Leveraging our strong research and manufacturing capacities, we seek to rapidly grow into the world's leading amorphous silicon thin film PV product and solution provider, and to build ourselves into a first-class brand in the global PV industry through the following strategies:

Leverage our strength in research and development and proprietary technologies to improve conversion efficiencies and reduce costs;

Maintain and enhance our leading market position in the off-grid market;

Expand our presence in the high-margin BIPV market;

Actively pursue opportunities in the PV power station market;

Focus on the China market to capture market opportunities created by recent government policies; and

Increase manufacturing capacity to drive market leadership.

Our challenges

We believe the following are some of the major risks and uncertainties that may materially affect us:

We face intense competition from manufacturers of crystalline silicon PV modules, thin film PV modules and non-solar renewable energy and conventional energy providers.

Our profit margins may decrease in future periods as a result of the prevailing market price of PV products and the change of our product mix.

We have limited experience in the PV power station market, and we may be unable to manage the growth of our solar power generation solutions business or successfully operate in the PV power station market.

We have limited experience in the high value-added BIPV market, and we may be unable to manage the growth of our BIPV business or successfully operate in the BIPV market.

Changes to existing government incentive policies and regulations may present technical, regulatory and economic barriers to the purchase and use of PV products, which may have a material adverse effect on our business and prospects.

See "Risk factors" and other information included in this prospectus for a discussion of these risks.

4


Corporate structure

The following diagram illustrates our corporate structure and the place of organization of each of our subsidiaries as of the date of this prospectus:

LOGO

Substantially all of our business is conducted through our wholly owned operating subsidiary in the PRC, Shenzhen Trony Science and Technology Development Co., Ltd., or Trony Science, which develops, manufactures and sells solar products primarily in the PRC. We hold our interest in Trony Science indirectly through Grand Sun International Investment Limited, or Grand Sun, a wholly owned holding company incorporated in Hong Kong.

Grand Sun was established in Hong Kong on August 3, 2006 and was wholly owned by Mr. Yi Li, our founder, chief executive officer and chairman of our board of directors and another shareholder. Trony Solar was incorporated in the Cayman Islands as a listing vehicle on June 23, 2006. In September 2006, Grand Sun acquired Mr. Li's 100% beneficial interest in Trony Science for cash consideration in the amount of RMB20.0 million. Additionally, in November 2006, Trony Solar issued one ordinary share to an entity designated by existing shareholders of Grand Sun for all the shares of Grand Sun.

Both transactions were accounted for as reorganization of entities under common control in our consolidated financial statements. Accordingly, the assets and liabilities transferred to us have been stated at their historical carrying amounts. The consolidated financial statements as of and for the fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009 present our financial condition and results of operations as if our operating subsidiary were transferred to us as of the beginning of the earliest period presented.

Our corporate structure was structured in anticipation of this initial public offering to facilitate the raising of capital, the ongoing operation of our company and the distribution of dividends, in a tax efficient manner. See discussion under "Taxation—Cayman Islands taxation" and "Taxation—People's Republic of China taxation."

5


Corporate information

Our principal executive offices are located at Suite 1217-1225, The Pavilion Century Tower, 4002 North Hua Qiang Road, Shenzhen, 518028, People's Republic of China. Our telephone number at this address is +86 (755) 8328 2958 and our fax number is +86 (755) 8328 2919. Our registered office in the Cayman Islands is at the offices of Walkers Corporate Services Limited, Walker House, 87 Mary Street, George Town, Grand Cayman KY1-9005, Cayman Islands.

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is www.trony.com. The information contained on our website is not a part of this prospectus.

Conventions used in this prospectus

Unless the context otherwise requires, in this prospectus:

"we," "us," "our company" and "our" refer to Trony Solar Holdings Company Limited, its predecessor entities and its subsidiaries;

"shares" or "ordinary shares" refers to our ordinary shares, par value US$0.0001 per share;

"ADSs" refers to our American depositary shares, each of which represents one of our ordinary shares, and "ADRs" refers to the American depositary receipts that evidence our ADSs;

"China" or "PRC" refers to the People's Republic of China, excluding, for the purposes of this prospectus only, Taiwan, Hong Kong and Macau;

"RMB" or "Renminbi" refers to the legal currency of China and "US$" or "U.S. dollars" refers to the legal currency of the United States;

"Series A convertible redeemable preferred shares" refers to our Series A convertible redeemable preferred shares, par value US$0.0001 per share. Unless otherwise indicated, in this prospectus, we assume one Series A convertible redeemable preferred share is convertible into one of our ordinary shares, based on the initial conversion price at the Series A convertible redeemable preferred shares issue price. See "Description of share capital—History of securities issuances" for the detailed description of the conversion rate calculation; and

"US$" or "U.S. dollars" refers to the legal currency of the United States.

Unless otherwise indicated, information in this prospectus assumes that the underwriters do not exercise their option to purchase additional ADSs.

This prospectus contains translations of certain Renminbi amounts into U.S. dollars at specified rates. All translations from Renminbi to U.S. dollars were made at the noon buying rate as set forth in the H.10 statistical release of the Federal Reserve Board, or the noon buying rate. Unless otherwise stated, the translation of Renminbi into U.S. dollars has been made at the noon buying rate in effect on September 30, 2009, which was RMB6.8262 to US$1.00. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any

6



particular rate or at all. See "Risk factors—Risk related to doing business in China—Fluctuations in exchange rates have had, and could continue to have, an adverse affect on our results of operations and may have a material adverse effect on your investment." On November 13, 2009, the noon buying rate was RMB6.8260 to US$1.00.

7



The offering

Price per ADS

  We currently estimate that the initial public offering price will be between US$9.00 and US$11.00 per ADS.

ADSs offered by us

 

15,000,000 ADSs

ADSs offered by the selling shareholders

 

4,500,000 ADSs, representing 50% of the ordinary shares the selling shareholders are expected to hold in our company upon the automatic conversion of the Series A convertible redeemable preferred shares, which is calculated based on an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus. The selling shareholders will sell 50% of the ordinary shares they will hold in our company in the form of ADSs in this offering and the actual number of ADSs offered by the selling shareholders may change from that set forth above depending on the initial public offering price.

Ordinary shares outstanding after the offering

 

136,000,000 ordinary shares (including 29,250,000 represented by ADSs), or 140,387,500 ordinary shares if the option to purchase additional ADSs is exercised in full, calculated based on an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus. The actual number of ordinary shares outstanding after the offering may change from that set forth above depending on the initial public offering price.

The ADSs

 

Each two ADSs represent three ordinary shares, par value US$0.0001 per share.

 

The depositary will be the holder of the ordinary shares underlying the ADSs and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and owners and beneficial owners of ADSs from time to time.

 

You may surrender your ADSs to the depositary to withdraw the ordinary shares underlying your ADSs. The depositary will charge you a fee for such an exchange.

 

We may amend or terminate the deposit agreement for any reason without your consent. If an amendment becomes effective, you will be bound by the deposit agreement as amended if you continue to hold your ADSs.

8


 

To understand the terms of the ADSs, you should carefully read the section in this prospectus entitled "Description of American depositary shares." We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus.

Depositary

 

JPMorgan Chase Bank, N.A.

Option to purchase additional ADSs

 

We have granted the underwriters an option for a period of 30 days to purchase up to 2,925,000 additional ADSs, assuming an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus. The actual number of additional ADSs offered by us may change from that set forth above depending on the initial public offering price.

Use of proceeds

 

We estimate that we will receive net proceeds from this offering of approximately US$134.5 million assuming an initial public offering price of US$10.00 per ADS, which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds we will receive from this offering for the following purposes:

 

 

approximately US$100.0 million to expand our manufacturing facilities and manufacturing lines; and

 

 

approximately US$30.0 million to repay an outstanding related-party loan.

 

We intend to use the remaining portion of the net proceeds we will receive from this offering for working capital and other general corporate purposes.

 

We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders.

Risk factors

 

See "Risk factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs.

Lock-up

 

We have agreed for 180 days after the date of this prospectus not to sell, transfer or otherwise dispose of any of our ordinary shares or ADSs. Furthermore, our selling shareholders, our directors and executive officers and certain of our other existing shareholders have agreed to a similar 180-day lock-up, and one of our existing shareholders holding 1,650,000 of our ordinary shares has agreed to a similar 90-day lock-up.

New York Stock Exchange trading symbol

 

TRO

9



Summary consolidated financial and operating data

The following summary consolidated statements of operations data and other consolidated financial data for the three fiscal years ended June 30, 2007, 2008 and 2009 and consolidated balance sheet data as of June 30, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus, which have been audited by Deloitte Touche Tohmatsu, an independent registered public accounting firm. The report of Deloitte Touche Tohmatsu on those audited consolidated financial statements is included elsewhere in this prospectus. The following summary consolidated statement of operations data and other consolidated financial data for the three-month periods ended September 30, 2008 and 2009 and consolidated balance sheet data as of September 30, 2009 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial statements on the same basis as we prepared our audited consolidated financial statements. The unaudited interim condensed consolidated financial statements include all adjustments, consisting only of normal and recurring adjustments, which we consider necessary for a fair presentation of our financial position and operating results for the periods presented.

You should read the summary consolidated financial data in conjunction with those financial statements and the related notes and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of our results expected for any future periods.

   
 
  Fiscal year ended June 30,   Three months ended
September 30,
 
(in thousands)
  2007
RMB

  2008
RMB

  2009
RMB

  2009
US$

  2008
RMB

  2009
RMB

  2009
US$

 
   

Consolidated Statements of Operations Data

                                           

Total revenues

    26,237     272,817     541,462   $ 79,321     140,603     254,599   $ 37,297  

Total cost of revenues

    (15,074 )   (150,333 )   (311,457 )   (45,627 )   (78,929 )   (153,259 )   (22,452 )

Gross profit

    11,163     122,484     230,005     33,694     61,674     101,340     14,845  

Selling and distribution expenses

    (1,340 )   (2,901 )   (3,891 )   (570 )   (725 )   (1,110 )   (163 )

General and administrative expenses

    (5,676 )   (16,400 )   (20,616 )   (3,020 )   (5,354 )   (7,981 )   (1,169 )

Research and development expenses

    (1,716 )   (3,084 )   (5,535 )   (811 )   (1,027 )   (2,986 )   (437 )

Government grants

    3,387     3,050     3,650     535     600          

Other income

    129     7     47     7              

Income from operations

    5,947     103,156     203,660     29,835     55,168     89,263     13,076  

Interest income (expenses), net

    (56 )   85     (1,564 )   (229 )   23     (2,957 )   (433 )

Income tax expenses

    (724 )   (17,475 )   (37,201 )   (5,450 )   (10,328 )   (13,852 )   (2,029 )

Net income

    5,167     85,766     164,895     24,156     44,863     72,454     10,614  

Deemed distribution on Series A convertible redeemable preferred shares—accretion of redemption premium

            (46,106 )   (6,754 )       (15,366 )   (2,251 )

Net income attributable to holders of ordinary shares

    5,167     85,766     118,789   $ 17,402     44,863     57,088   $ 8,363  
   

10


 

   
 
  As of June 30,   As of September 30,  
(in thousands)
  2008
RMB

  2009
RMB

  2009
US$

  2009
RMB

  2009
US$

 
   

Consolidated Balance Sheet Data

                               

Cash and cash equivalents

    4,364     20,962   $ 3,071     57,492   $ 8,422  

Restricted cash

        35,019     5,130     34,063     4,990  

Accounts receivable

    28,178     70,511     10,329     120,622     17,670  

Inventories

    13,058     27,951     4,095     25,625     3,754  

Amount due from a related party

    666     4,133     605          

Amounts due from directors

    60     202     30     195     29  

Total current assets

    50,420     160,315     23,485     257,489     37,721  

Property, plant and equipment, net

    259,362     811,819     118,927     863,389     126,482  

Deposits for purchase of property, plant and equipment

    324,493     22,118     3,240     55,447     8,123  

Total assets

    641,856     1,003,494     147,006     1,185,607     173,686  

Accounts payable

    23,716     24,675     3,615     41,798     6,123  

Amounts due to related parties

    8,207     5,784     847          

Amount due to a director

    54,590     41,397     6,064     41,384     6,063  

Amounts due to shareholders

    8,076     2,246     329     2,244     329  

Short-term bank borrowings

    7,250     42,200     6,182     42,200     6,182  

Total current liabilities

    205,380     145,437     21,306     186,524     27,325  

Loan from a related party

    266,818     262,476     38,451     266,072     38,978  

Long-term bank borrowings

    32,750     30,250     4,431     27,700     4,058  

Total liabilities

    506,482     446,717     65,442     488,070     71,500  

Mezzanine equity:

                               

Series A convertible redeemable preferred shares

        276,569     40,516     360,272     52,778  

Total shareholders' equity

    135,374     280,208   $ 41,049     337,265   $ 49,408  
   

 

   
 
  Fiscal year ended June 30,   Three months
ended
September 30,
 
 
  2007
  2008
  2009
  2008
  2009
 
   

Other Consolidated Financial Data (in percentages)

                               

Gross margin

    42.5     44.9     42.5     43.9     39.8  

Operating margin

    22.7     37.8     37.6     39.3     35.1  

Net margin

    19.7     31.4     30.5     31.9     28.5  

Selected Operating Data

                               

PV modules sold (in MW)

    1.5     18.2     39.5     10.6     20.6  
   

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Risk factors

You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in our ADSs. Any of the following risks and uncertainties could have a material adverse effect on our business, results of operations, financial condition and prospects. The market price of our ADSs could decline as a result of any of these risks and uncertainties, and you may lose all or part of your investment.

Risks related to our company and our industry

We face intense competition from manufacturers of crystalline silicon PV modules, thin film PV modules, and non-solar renewable energy and conventional energy providers.

The market for PV products is intensely competitive and rapidly evolving. The number of PV product manufacturers is rapidly increasing due to the growing demand for PV products and the PV industry's relatively low barriers to entry. Within the global PV industry, we face competition from crystalline silicon PV module manufacturers as well as other thin film PV module manufacturers. We also compete with conventional energy and non-solar renewable energy providers. The significant decrease in polysilicon prices due to recent reduced demand for PV products and oversupply of polysilicon feedstock, the major raw material for crystalline silicon PV modules, has reduced the manufacturing cost of crystalline silicon PV modules and enabled their manufacturers to lower the prices of PV modules. As a result, we expect greater competition from crystalline silicon PV module manufacturers. We cannot assure you that the price of polysilicon will not continue to decrease and that thin film PV modules will remain more cost competitive than crystalline silicon PV modules for the foreseeable future.

Thin film PV module manufacturing has only been commercialized recently. Although researchers have been developing thin film technology for over 20 years, they were only recently able to integrate the technology into a PV module manufacturing line. In contrast to crystalline silicon PV modules, no thin film PV modules have been in service for their entire estimated useful lives. Therefore, there is limited data available to prove how thin film PV modules, such as our PV modules, will perform over their estimated 20- to 25-year useful life.

We believe the average conversion efficiency of thin film PV modules in high commercial volume (over 20 MW per year) is approximately 30% to 65% lower than the current average conversion efficiency of readily available crystalline silicon PV modules. Low conversion efficiencies may make it difficult for some thin film manufacturers to achieve a competitive cost-per-watt. Furthermore, as compared to crystalline PV modules, thin film PV modules require more space to install for the same amount of power generation output, due to lower conversion efficiency. Despite their better performance in various environments, including high temperature and low light, this may cause the total installation of thin film systems to cost more than crystalline silicon systems of same installed capacity.

Our competitors include conventional crystalline PV cell and module manufacturers such as Suntech Power Holdings Co., Ltd., Trina Solar Limited, Yingli Green Energy Holding Company Limited and the PV product division of Sharp Corporation, a large conglomerate. We also face

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competition from other thin film manufacturers such as First Solar, Inc., United Solar Ovonic, LLC, the PV product division of Energy Conversion Devices, Inc. and Kaneka Corporation. We may also compete with new entrants to the PV product market, including those that may offer more advanced technological solutions or may have greater financial resources. Furthermore, the solar power industry faces competition from conventional energy and non-solar renewable energy providers. Due to relatively high manufacturing costs compared to most other energy sources, solar energy is generally not competitive without government incentive programs.

Many of our existing and potential competitors have substantially greater financial, technical, manufacturing and other resources than we do. Our large competitors may have a manufacturing cost advantage because of their economies of scale and their ability to purchase 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 customers and have extensive knowledge of our target markets. As a result, they 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, as more Chinese and international PV module manufacturers continue to invest in China and take advantage of lower production and labor costs in China, we may face increasing pricing pressure and decreasing demand for our products as well as increasing competition for qualified personnel. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors may have a material adverse effect on our business, financial condition, results of operations and prospects.

Our profit margins may decrease in future periods as a result of the prevailing market price of PV products and the change of our product mix.

Demand for PV products has decreased as a result of the recent global financial crisis, but the supply of PV products has increased significantly as many manufacturers of PV products worldwide, including our company, have significantly expanded their manufacturing capacity in recent years. Beginning in the fourth quarter of 2008, this oversupply has resulted in reductions in the prevailing market prices of PV products as manufacturers have reduced their average selling prices. In addition, the recent reduced demand for PV products and industry-wide oversupply of polysilicon have led to a decline in the cost of polysilicon, which has significantly reduced the raw material costs for crystalline silicon PV module manufacturers and contributed to greater pricing pressure for PV modules.

Our product mix has affected, and is expected to continue to affect the average selling price of our products and our gross margin. Sales of PV modules for off-grid applications constituted a majority of our total revenues in each of the three fiscal years ended June 30, 2009 and the three months ended September 30, 2009. As we continue to ramp up production, we expect sales of our PV modules for PV power stations to represent an increasingly larger proportion of our total revenues. We believe that this shift would have some negative impact on our gross margin, because sales of our PV modules for off-grid applications generally yield higher margins than sales of our PV modules for PV power stations.

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We have limited experience in the PV power station market, and we may be unable to manage the growth of our solar power generation solutions business or successfully operate in the PV power station market.

We began selling PV modules for PV power stations in the fiscal year ended June 30, 2008. Since then, we have provided PV modules for a PV power station project located in South Korea. We have also been supplying PV modules to a customer in Thailand who plans to build a solar power station in Thailand. In addition, we are in active discussions with a number of local government authorities in China to encourage them to promote our PV modules for solar power station projects to be built in their respective regions. We plan to continue to market our PV modules to project developers, owners of PV power stations and relevant local government authorities.

However, as we have limited experience in the PV power station market, we cannot assure you that we can successfully operate and expand in this area. For example, we may not have the necessary research and development, engineering, project management or sales and marketing capabilities to adequately meet our customers' requirements with respect to product design or operational or after-sales services. In addition, the application of thin film PV modules in large- scale PV power station projects may entail additional space, parts, components or labor costs in the construction of the power stations, which may reduce or eliminate the low-cost advantage that our thin film PV modules enjoy over crystalline silicon based PV modules. Furthermore, we cannot assure you that the PV power station projects that we are pursuing will be implemented or that we will be selected as the provider of PV modules for these PV power station projects.

We have limited experience in the high value-added BIPV market, and we may be unable to manage the growth of our BIPV business or successfully operate in the BIPV market.

We have limited experience in the BIPV market as we only entered the BIPV market in the fiscal year ended June 30, 2007. Sales from PV modules for BIPV applications have only represented a relatively small percentage of our total revenues in the past. We cannot assure you that we can successfully operate and expand in this area. For example, we may not have the necessary research and development capabilities or marketing and sales personnel to meet the needs of our end customers and distributors or to manage our growth. In addition, as PV modules for BIPV applications generally have higher average selling prices compared to PV modules for other PV applications, we expect competition in the BIPV market to intensify as more companies, including thin film PV product manufacturers and specialized construction companies, may choose to enter this market. Many of our existing and potential competitors may have substantially greater financial, technical, manufacturing and other resources than we do. Furthermore, it may take significant time for our products to gain acceptance in the market. If we were unable to manage the growth of our BIPV business or if our PV modules for BIPV applications failed to meet the needs of our end customers and distributors, a material adverse effect on our reputation, business and prospects would occur.

Changes to existing government incentive policies and regulations may present technical, regulatory and economic barriers to the purchase and use of PV products, which may have a material adverse effect on our business and prospects.

Demand for our products depends substantially on government incentives aimed to promote greater use of solar power. In many countries in which we are currently, or intend to become

14



active, the PV product markets, particularly the market for on-grid PV systems, would not be commercially viable without government incentives. This is because the costs of generating electricity from solar power currently exceeds, and we believe will continue to exceed for the next several years, the costs of generating electricity from conventional or non-solar renewable energy sources.

The scope of government incentives for solar power depends, to a large extent, on political, policy and fiscal developments relating to environmental concerns in a given country, which could lead to a significant reduction in or a discontinuation of the support for renewable energies in such country. As a result, governments in China, and many of our overseas target markets, such as Thailand, South Korea and the United States, have provided subsidies and economic incentives to encourage the use of renewable energy such as solar power and reduce dependency on conventional fossil fuels as a source of energy. These subsidies and economic incentives have been in the form of capital cost rebates, feed-in tariffs, tax credits, net metering and other incentives to end users, distributors, system integrators and manufacturers of solar power products. The demand for PV products is significantly affected by the availability of government subsidies and economic incentives.

Nonetheless, the lack of implementation details for recent incentive schemes released by PRC government authorities may cause demand for PV products, including our products, not to grow as rapidly as we expect, if at all. In addition, political changes in a particular country could result in significant reductions or eliminations of subsidies or economic incentives, and the effects of the recent global financial crisis may affect the fiscal ability of governments to offer certain types of incentives, such as tax credits, at the level previously targeted, if at all. Electric utilities that have significant political lobbying powers may also seek changes in the relevant legislation in their markets that may adversely affect the development and commercial acceptance of solar energy. A significant reduction in the scope or discontinuation of government incentive programs, especially those in China and our target overseas markets, could cause demand for our products and our revenues to decline, and have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, we anticipate that our PV products 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. Any new government regulations or utility policies pertaining to our PV modules may result in significant additional expenses for us, our resellers and end customers and, as a result, could significantly reduce demand for our products.

If PV technology is not suitable for widespread adoption, or sufficient demand for PV products does not develop or takes longer to develop than we anticipate, our sales may not continue to increase or may even decline, and we may be unable to sustain profitability.

The solar power industry is at a relatively early stage of development and the extent to which PV products will be widely adopted is uncertain. Market data, analyses and histories in the solar power industry are not as readily available or accessible as those in other more established industries. If PV technology proves unsuitable for widespread adoption or if demand for PV products fails to develop sufficiently, we may not be able to maintain sufficient capacity utilization of our facilities, grow our business or generate sufficient revenues to sustain our profitability. In addition, demand for PV products in our target markets, including

15



China, South Korea, Thailand and the United States, 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 PV products, including:

the cost and availability of credit, loans and other funding mechanisms to finance the installation and maintenance of PV systems, particularly in the current economic environment;

capital expenditures by end-users of PV products, which tend to decrease when the economy slows down;

fluctuations in economic and market conditions that affect the viability of conventional and non-solar alternative energy sources, such as increases or decreases in the prices of oil, coal, natural gas and other fossil fuels;

cost-effectiveness of PV products compared to conventional and other non-solar energy sources and products;

performance and reliability of PV products compared to conventional and other non-solar energy sources and products;

availability of government subsidies and incentives to support the development of the solar power industry;

public perception of the direct and indirect benefits of adopting renewable energy technology;

success of other alternative energy generation technologies, such as fuel cells, wind power and biomass; and

deregulation of the electric power industry and the broader energy industry.

Our failure to further improve our technology, develop and introduce new PV products or respond to rapid market changes and technological development in the solar energy industry could render our products uncompetitive or obsolete, and, consequently, 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 rapidly evolving solar power industry and to effectively compete in the future. Research and development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our research results. In addition, other companies are developing a variety of competing PV technologies, including copper indium gallium diselenide and cadmium telluride, which could produce PV modules that prove more cost-effective or perform better than our PV modules. Therefore, our development efforts may be rendered obsolete by the technological advances of others. Our failure to further improve our technology, develop and introduce new PV products or respond to rapid market changes and technology evolutions in the solar energy industry could render our products uncompetitive or obsolete, and reduce our sales and market share.

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Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations, and we may not be able to effectively manage our expansion of operation.

We have a limited operating history. We commenced operations in 1993, became a manufacturer of thin film solar batteries in 1995 and began commercial production in 1998. We expanded our annual manufacturing capacity to 5 MW in 2006 and gradually expanded to 45 MW by October 2008. As of the end of August 2009, our annual manufacturing capacity reached 115 MW. Because our thin film manufacturing lines have only been in operation for a limited period of time, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects.

Although our total revenues grew from RMB26.2 million in the fiscal year ended June 30, 2007 to RMB272.8 million in the fiscal year ended June 30, 2008, to RMB541.5 million (US$79.3 million) in the fiscal year ended June 30, 2009, and to RMB254.6 million (US$37.3 million) in the three months ended September 30, 2009, we may be unable to achieve similar growth, or grow at all, in future periods. Our ability to grow is affected by a number of factors, including changes in economic conditions. Accordingly, you should not rely on our results of operations for any prior period as an indication of our future performance.

In addition, to manage the growth of our operations, we will be required to improve our operational and financial systems, procedures and controls, and our manufacturing capacity and operations, while expanding, training and managing our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with our customers, suppliers and other third parties. We cannot assure you that our current and planned operations, personnel, systems, internal procedures and controls will be adequate to support our future growth. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.

If we grant share options, restricted shares or other equity incentives in the future, our operating results could be materially adversely affected.

We are authorized to issue share options, restricted shares or other equity incentives for up to 10,000,000 ordinary shares in the future to our management and other personnel under our 2009 share incentive plan. We account for share-based compensation by recognizing, as an expense, the fair value of share options and other equity incentives based on the fair value of equity-classified awards on the date of the grant, with the compensation expense recognized generally over the period in which the recipient is required to provide service in exchange for the equity award. If we grant options, restricted shares and other equity incentives to our employees in the future, we could incur significant compensation expenses which could materially reduce our net income, and your investment in our ADSs could be significantly diluted.

We may be unable to establish and maintain an effective system of internal control over financial reporting, and, as a result, we may be unable to accurately report our financial results or prevent fraud.

Upon completion of this offering, we will become a public company in the United States that is, or will be subject to, the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act, or Section 404, and we expect that we will be required to include a report from management on

17



our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending June 30, 2011. In addition, our independent registered public accounting firm must independently report on the effectiveness of our internal control over financial reporting. Our management or our independent registered public accounting firm may conclude that our internal controls are not effective. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our reporting processes, which could materially and adversely affect the trading price of our ADSs.

Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. In connection with the audits of our consolidated financial statements for the period from July 1, 2006 through June 30, 2009, a number of control deficiencies in our internal control procedures were identified which could adversely affect our ability to initiate, authorize, record, process and report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of our consolidated financial statements that is more than inconsequential will not be prevented or detected. Specifically, those control deficiencies identified include, among others: (i) a lack of a formalized U.S. GAAP closing and reporting process; (ii) insufficient number of accounting personnel with U.S. public company reporting and U.S. GAAP reporting experience; (iii) a lack of formalized written policy on credit control and monitoring system and retention of related documentation; (iv) inadequate controls over filing, generating and amending documents in respect of sales, purchase and capital transactions; (v) inadequate control processes in the application of the Enterprise Resources Planning System; and (vi) inconsistent implementation of approval procedures established in our policies and guidelines. In the past, we also had certain other control deficiencies, which have since been remedied other than the remaining deficiencies discussed above.

In order to remedy the remaining deficiencies, we are undertaking several measures to further improve our internal control over financial reporting. We appointed a new chief financial officer in July 2009, who has experience with and knowledge of U.S. GAAP. In October, 2009, we engaged Ernst & Young, an independent internal control consulting firm, to review our internal control processes, policies and procedures in order to assist us in identifying deficiencies in our internal controls over financial reporting. We plan to provide further training to our financial and accounting staff to enhance their knowledge of U.S. GAAP. We are also in the process of preparing detailed financial closing procedures and an internal accounting policies manual for our accounting staff. We are also preparing an internal policy manual on credit control and monitoring system and retention of related documentation. However, the implementation of these measures may not fully address the control deficiencies in our internal control over financial reporting, and we cannot yet conclude that they have been fully remedied.

We plan to remedy these deficiencies in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. Our failure to establish and maintain

18



an effective system of internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial reporting processes, which in turn could harm our business and negatively impact the trading price of our ADSs.

Our future success substantially depends on our ability to successfully expand our manufacturing capacity, manage our facilities, utilize our manufacturing capacity, and reduce our manufacturing costs. Our ability to achieve such goals is subject to a number of risks and uncertainties.

Our future success depends on our ability to manage our manufacturing and facilities effectively and to reduce our manufacturing costs. We plan to expand our annual manufacturing capacity to 145 MW by the end of 2009. However, we cannot assure you that future demand will be sufficient to utilize our manufacturing capacity effectively. If the end markets of our PV products fail to grow or grow at a slower rate than we expect or decrease, the utilization rate of our equipment may be reduced.

In addition, if the capacity of any of the new manufacturing lines fails to reach the originally designed levels, we may not be able to achieve the intended economic benefit from the new manufacturing lines in full or at all, which may materially and adversely affect our financial condition and results of operations. Our efforts to reduce our manufacturing costs include lowering our material costs, improving manufacturing productivity, curtailing expansion plans and related capital expenditures, and adopting additional efficient manufacturing processes. If we are unable to achieve these goals, we may be unable to decrease our costs per watt, maintain our competitive position and improve our profitability. Our ability to achieve such goals is subject to significant risks and uncertainties, including:

our ability to continue driving down cost of materials per watt;

our ability to improve conversion efficiency;

delays and cost overruns as a result of a number of factors, many of which may be beyond our control, such as long lead times or delays with certain equipment vendors relating to equipment required to establish our manufacturing lines;

our ability to address safety and quality issues;

delays or denial of required approvals by relevant government authorities; and

diversion of significant managerial and other resources to other matters.

Furthermore, we may not be able to reduce or maintain our manufacturing costs when we focus on improving the conversion efficiencies or other performance standards of our modules. If we are unable to establish or successfully make improvements to our manufacturing facilities or to reduce our manufacturing costs, or if we encounter any of the risks described herein, we may be unable to improve our business as planned. Moreover, we cannot assure you that, if we do achieve our improvement and cost reduction goals, we will be able to generate sufficient customer demand for our PV products.

19


If our manufacturing equipment fails, we encounter difficulties with our manufacturing technology or our equipment suppliers fail to perform their contracts, we could experience manufacturing disruptions and fail to satisfy our contractual requirements.

Some of our manufacturing equipment is customized to our manufacturing lines based on designs or specifications that we provide to our equipment manufacturers, which then undertake a specialized process to manufacture the custom equipments. As a result, the equipment is not readily available from multiple vendors and would be difficult to repair or replace if it were damaged or stopped working. If any piece of equipment fails, operations along the entire manufacturing line could be interrupted and we could be unable to produce enough PV modules to satisfy our contractual requirements under our sales contracts.

In addition, the manufacture of PV modules is a highly complex process. Minor deviations in the manufacturing process can cause substantial decreases in yield and, in some cases, can cause manufacturing to be suspended or yield no output. As we have limited experience with the technology and operation of automated manufacturing lines, we cannot assure you that we would be able to attain the designed yield or sustain manufacturing on our new 70 MW automated manufacturing line.

Our technologies, particularly those related to our new automated manufacturing line, may have unforeseen negative consequences on our yields or our PV module efficiency or reliability once they are put into commercial manufacturing or they may not enable us to realize the cost reductions we hope to achieve. If we do not achieve planned yields, our product costs could increase, and our product availability would decrease. In addition, the failure of our equipment suppliers to supply equipment and maintenance services in a timely manner or on commercially reasonable terms could delay our expansion plans and otherwise disrupt our manufacturing schedule or increase our manufacturing costs, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Any failure or unanticipated delay in securing any major certification for our modules could impair our sales and have a material adverse effect on our business, financial condition, results of operations and prospects.

In order to expand the sales of our amorphous thin film PV modules, we have submitted for product certifications of IEC 61646 and UL 1703 from Underwriters Laboratories Inc., or UL, of the United States and for certifications of IEC 61646 and IEC 61730 from TüV Immissionsschutz und Energiesysteme GmbH, or TüV of Germany. However, we cannot assure you that we will receive the relevant certifications in a timely fashion. For example, we could experience an unanticipated delay in securing a necessary certification, which would reduce the desirability of our PV products in the marketplace and impair sales of our modules. Many of our customers rely on our ability to secure international certifications or meet regulatory requirements as an indication of the quality of our PV modules, and may be unable or unwilling to purchase PV modules without such certifications. Any failure or unanticipated delay in securing any necessary or desired certification for our modules could negatively impact our sales, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We depend on short-term sales contracts in the off-grid market.

Sales of PV modules for off-grid applications have constituted a significant portion of our total revenues in each of the three fiscal years ended June 30, 2009 and the three months ended

20



September 30, 2009 and are expected to continue to contribute significantly to the growth of our business. A substantial portion of these thin film PV modules are sold to a select number of off-grid product distributors and manufacturers through non-exclusive sales contracts with terms of one year or less. To our knowledge, this is common industry practice in the sales of PV modules for off-grid market applications. A significant percentage of these contracts do not contain pricing terms or specify delivery schedules. As a result, any decision by one or more of our customers to reduce or terminate orders during a certain period of time could have an adverse effect on our sales for those periods. As our existing short-term sales contracts expire, we may be unable to renew them with our desired customers on favorable terms or at all, which may materially and adversely affect our business and results of operations. In addition, our dependence on short-term contracts results in a lack of predictability of order flows, as we plan our raw materials procurement and manufacturing activities based, to a significant extent, on our expectations of future sales. We sell a substantial portion of our PV products, particularly those for solar home systems and other off-grid applications, through distributors and value-added resellers such as system integrators. Because we have limited contact with our end users in these markets, we rely substantially on our distributors to gauge demand. As such, we have little or no ability to independently predict sales or market demand, and it remains extremely difficult for us, or our investors, to assess our prospective financial and operational performance. Any failure to accurately predict demand in the markets we serve would materially adversely affect our results of operations, financial condition and business.

We source many of our key raw materials and components from a limited number of third-party suppliers and their failure to perform could cause manufacturing delays and impair our ability to deliver PV modules to customers in required quantities and at competitive prices.

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 PV modules or increase our manufacturing costs. We source many of our key raw materials and components from 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, some of our suppliers are small companies that may be unable to meet our increasing demand for raw materials and components as we implement our planned expansion. We may be unable to identify new suppliers or qualify their products for use on our manufacturing lines in a timely manner and on commercially reasonable terms. Raw materials and components from new suppliers may also be less suited for our technology and yield PV modules with lower conversion efficiencies, higher failure rates and higher rates of degradation than PV modules manufactured with the raw materials from our current suppliers. A constraint on our manufacturing may cause us to be unable to meet our customers' demands, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

By focusing our sales and marketing on power plant applications, we may increasingly depend on a smaller number of customers, and such dependency may cause significant fluctuations or declines in our revenues.

We currently sell a substantial portion of our PV products to a limited number of customers, including distributors, exporters, manufacturers and project developers, contractors and owners. In the fiscal year ended June 30, 2009, our largest customer and our top five customers accounted for 14.0% and 34.8% of our total revenues, respectively. In the three months ended

21



September 30, 2009, our largest customer and our top five customers accounted for 9.3% and 37.3% of our total revenues, respectively. As we expand our manufacturing capacity, we anticipate developing additional customer relationships in other markets and regions, which will help reduce our customer and geographic concentration and dependence. However, the expansion of our business into producing PV modules for large-scale PV power stations, which could utilize a large percentage of our manufacturing capacity and thereby limit our capacity for new projects, may result in increased reliance on a smaller group of customers. If such dependency develops, any one of the following events may cause material fluctuations or declines in our revenues and have a material adverse effect on our results of operations:

reduction, delay or cancellation of orders from one or more of our significant customers;

substitution of our products by one or more of our significant distributor customers with our competitors' alternative products;

loss of one or more of our significant customers and our failure to identify additional or replacement customers; and

failure of any of our significant customers to make timely payment for our products.

In addition, a significant portion of our outstanding accounts receivables is derived from sales to a limited number of customers. The accounts receivable with the largest and the second largest balance represented 26.0% and 10.0% of the balance of the account as of June 30, 2009, respectively. The failure of any of these customers to meet their payment obligations would materially and adversely affect our financial position, liquidity and results of operations.

We require a significant amount of cash to fund our operations and meet future capital requirements. If we cannot obtain additional capital, our growth prospects and future profitability may be materially and adversely affected.

We require a significant amount of cash to meet future capital requirements, which are difficult to plan in the rapidly changing solar power industry. In particular, we will need capital to increase our aggregate manufacturing capacity based upon strategic considerations in order to remain competitive. Future acquisitions, expansions or market changes or other developments may cause us to require additional funds. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including:

our financial condition, results of operations and cash flows;

general market conditions for financing activities by manufacturers of solar power products; and

economic, political and other conditions in the PRC and elsewhere.

If we are unable to obtain funding in a timely manner or on commercially acceptable terms, or at all, our growth prospects and future profitability may decrease materially.

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Credit terms we provide for our customers may expose us to the credit risks of such customers and may increase our costs and expenses, which could in turn have a material adverse effect on our liquidity.

We have benefited from the abundance and affordability of credit before the recent global financial crisis. Previously, many of our customers were able to obtain credit to purchase our products and to finance their operations or projects utilizing our products on attractive terms. Given the current economic environment, particularly the tightening of the credit markets, we have extended and may continue to extend credit to many new and existing customers who cannot otherwise obtain credit or provide them with more favorable credit terms, including increasing credit limits and extending the time period before payments are due, after prudently assessing the credit worthiness of such customers by evaluating their collective payment histories and their operating and financial conditions. The extended payment periods to our customers may create additional demands on our working capital, as well as increase defaults in accounts receivable if the world economy continues to deteriorate. In addition, some of these customers are new customers with whom we have not historically had extensive business dealings or are small companies that may be relatively more vulnerable to the changing economic environment. The failure of any of our new or existing customers to meet their payment obligations under the credit terms granted could have a material adverse effect on our business, financial condition, results of operations and prospects.

We maintain allowances for doubtful receivables for estimated losses that may result from the failure of customers to make required payments. While our lack of formalized written policy on credit control and monitoring system and the retention of related documentation has not affected the quality of such assessment and consequently has not had a significant effect on the amount we maintain as allowances for doubtful receivables, it could become an important factor when we become a public company upon the completion of this offering and as we continue to grow our business. For a more detailed discussion of our credit control deficiency, see "—We may be unable to establish and maintain an effective system of internal control over financial reporting, and, as a result, we may be unable to accurately report our financial results or prevent fraud."

Problems with product quality, product performance or workmanship may cause us to incur warranty expenses, damage our market reputation and prevent us from achieving increased sales and market share and we may need to offer warranties with extended terms.

We generally offer warranties with terms satisfactory to customers in order to remain competitive in the market. Our products are typically sold with warranties for up to one year for defects in materials and workmanship in accordance with industry standards in off-grid and BIPV markets. We do not make provisions for our standard one-year warranty for defects in materials and workmanship due to the short duration of the one-year warranties, our assumptions regarding the durability, stability and reliability of our products and the lack of warranty claims we have received to date. On a case by case basis, we provide warranties with extended periods to a select number of customers in response to their requests. For instance, we provided a warranty to one customer for our products for up to ten years for compliance with the quality and technical specifications provided in the relevant contract and against defects in materials and workmanship. We also provided a warranty to another customer for up to 25 years against defects in equipment and workmanship and up to 10 and 25 years against declines of more than 10% and 20% of rated power, respectively. We make provisions

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for warranty costs for these warranties with extended periods at an accrual rate of 1% of the sales. Due to the absence of warranty claims we have received to date, we reference our competitors' accrual history, taking into consideration the intended applications and specifications of these competitors' products compared to our products and the periods of the warranties offered by these competitors. Our provisions for warranty costs may not accurately reflect our exposure to warranty claims. As of June 30 and September 30, 2009, our accrued warranty costs amounted to RMB2.6 million (US$0.4 million) and RMB2.8 million (US$0.4 million), respectively.

Because our products and workmanship have been in use for only a relatively short period, we cannot assure you that our assumptions regarding the durability, stability and reliability of our products are reasonable. For example, our thin film PV modules could experience more power degradation than what we expect. Our warranty provisions may be inadequate, and we may have to incur substantial expenses to repair or replace defective products and provide repairs in the future.

As our product mix changes and sales of our PV modules for on-grid applications represent an increasingly larger proportion of our total sales, it may be necessary for us to offer warranties with extended periods to remain competitive in the on-grid market. We may also be required to provide warranties with extended periods in the off-grid market if the competitive conditions of the off-grid market change. This may require us to make additional provisions as warranty costs, which may have a material and adverse effect on our results of operations.

Furthermore, widespread product failures and workmanship defects may damage our market reputation and have a material adverse effect on our business, financial condition, results of operations and prospects.

We face risks associated with the marketing, distribution and sale of our PV products internationally, and if we are unable to effectively manage these risks, they could impair our ability to expand our business abroad.

In the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, 25.5% and 19.6% of our total revenues were derived from direct sales to customers outside of China. As our business grows, our sales directly to customers in the international markets, such as Thailand, South Korea, Hong Kong and the United States, are expected to increase. For some of these regions, such as the United States, we do not have sales track records. The international marketing, distribution and sale of our PV products expose us to a number of risks, including:

difficulty with staffing and managing overseas operations;

fluctuations in currency exchange rates;

increased costs associated with developing and maintaining marketing and distribution presence in various countries;

challenges in providing customer service and support in these markets;

challenges in managing our sales channels effectively;

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difficulties and costs of exporting PV products overseas while complying with the different commercial, legal and regulatory requirements of the overseas markets in which we offer our products;

failure to develop appropriate risk management and internal control structures tailored to overseas operations;

difficulty in ensuring the compliance of our distributors and customers with the sanctions imposed by the Office of Foreign Assets Control on various foreign states, organizations and individuals;

inability to obtain, maintain or enforce intellectual property rights;

unanticipated changes in prevailing economic conditions and regulatory requirements; and

government policies favoring domestic companies in certain foreign markets or trade barriers including export requirements, tariffs, taxes and other restrictions and expenses, such as South Korea's policy emphasizing smaller system sizes in the new feed-in tariff system, intended to increase the market share of domestic players in the renewable energy industry in the country. These government policies or trade barriers could increase the prices of our products and make us less competitive in those countries.

If we are unable to effectively manage these risks, they could impair our ability to expand our business abroad and have a material adverse effect on our business, financial condition, results of operations and prospects.

Our business depends substantially on the continuing efforts of our executive officers and our ability to attract, train and retain qualified technical personnel, and our business may be severely disrupted if we lose their services.

Our future success depends substantially on the continued services of our executive officers and our ability to attract, train and retain qualified technical personnel. In particular, we depend on the services of Yi Li, our founder, chief executive officer and the chairman of our board of directors. Recruiting and retaining capable personnel, particularly those with expertise in the solar power industry, 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.

We do not maintain key man life insurance for any of our executive officers or technical personnel. If one or more of our executive officers or technical personnel are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. In addition, if any of our executives or technical personnel joins a competitor or forms a competing company, we may lose some of our customers. Each of our executive officers and technical personnel has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. However, if any disputes arise, we cannot assure you of, in light of uncertainties associated with the PRC legal system, the extent to which any of these agreements could be enforced in China, where most of our executive officers and technical personnel reside and hold some of their assets.

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Our controlling shareholder has substantial influence over our company and its interests may not be aligned with your interests, and we are exempt from some of the corporate governance requirements of the New York Stock Exchange.

Yi Li, our founder, chief executive officer and chairman of our board of directors, beneficially owns approximately 61.72% of our outstanding shares as of the date of this prospectus, assuming the automatic conversion of all of our outstanding Series A convertible redeemable preferred shares at an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus. As such, Mr. Li has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for your ADSs as part of a sale of our company. These actions may be taken even if they are opposed by our other shareholders.

In addition, we are a "controlled company" as defined under New York Stock Exchange Listing Manual Section 303A.00 because Mr. Li owns more than 50% of our outstanding ordinary shares. As a result, for so long as we remain a controlled company as defined under that rule, we are exempt from, and you are not provided with the benefits of, some of the corporate governance requirements of the New York Stock Exchange, or the NYSE, including requirements that:

a majority of our board of directors must be independent directors;

the compensation of our chief executive officer must be determined or recommended by a compensation committee comprised solely of independent directors; and

our director nominees must be selected or recommended by a nomination/corporate governance committee comprised solely of independent directors.

As a result, our independent directors will not have as much influence over our corporate policy as they would if we were not a controlled company.

In addition, as a foreign private issuer, we are exempt from some of the corporate governance requirements of the NYSE by virtue of being a foreign private issuer. We are required to provide a brief description of the significant differences between our corporate governance practices and the corporate governance practice required to be followed by U.S. domestic companies under the NYSE rules. The standards applicable to us are considerably different than the standards applied to U.S. domestic issuers. For instance, we are not required to:

have a majority of the board be independent (other than due to the requirements for audit committee under the Exchange Act, as amended, or the Exchange Act);

have a minimum of three members in our audit committee;

have a compensation committee, a nominating or corporate governance committee;

provide annual certification by our chief executive officer that he or she is not aware of any non-compliance with any corporate governance rules of the NYSE;

have regularly scheduled executive sessions with only non-management directors; or

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have at least one executive session of solely independent directors each year.

We intend to rely on some or all of these exemptions. As a result, you are not provided with the benefits of certain corporate governance requirements of the NYSE.

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.

As of September 30, 2009, we owned 18 patents in China and had one patent application pending in each of the United States, Japan and Germany. In addition, we had exclusive rights to use 57 patents and had exclusive access to 35 pending patent applications in China under a license agreement entered into with our founder and chief executive officer, Yi Li, in September 2008 as supplemented by a supplemental license agreement we entered into with Mr. Li in September 2009. The development of such patents we license from Mr. Li were led by Mr. Li using our resources, including our research and development personnel, raw materials, equipment and facilities and have been registered or applied for registration in the name of Mr. Li for administrative simplicity. Under the agreements entered into with Mr. Li, such patents are made available to us at zero consideration until Mr. Li has transferred all legal and beneficial ownership of these patents to us. We rely primarily on patent, trademark, trade secret, copyright law and other contractual restrictions to protect our intellectual property. Nevertheless, these afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. 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, results of operations and prospects. Furthermore, certain aspects of our business rely on the technologies covered by the patents, including granted patents and patents under application licensed to us by Mr. Li, which we do not own. Our rights to such technologies are governed by contractual licensing terms, and in case of any breach of these contractual terms, we would have to rely on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. See "—Risks related to doing business in China—Uncertainties with respect to the PRC legal system could have a material adverse effect on us."

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 as well as divert our 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. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

Implementation of PRC intellectual property laws has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries.

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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.

Our success depends largely on our ability to use and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity and scope of legal claims relating to PV technology patents involve complex scientific, legal and factual questions and analyses and, therefore, may have highly uncertain outcomes. 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 proceeding to which we may become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, pay ongoing royalties or redesign our products or subject us to injunctions prohibiting the manufacture and sale of our products 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 products until resolution of such litigation.

Our business, results of operations and financial condition would be materially and adversely affected if our sales outside China were to be restricted by intellectual property claims by third parties.

As of September 30, 2009, we did not have any patents outside of China. The protection of our proprietary technologies outside of China is limited, although we have sold, and expect to continue to sell, a substantial portion of our products outside of China. Since the protection afforded by our current patents only covers China, others may independently develop substantially equivalent technologies, or otherwise gain access to our proprietary technologies, and obtain patents for such intellectual properties in other jurisdictions, including the countries to which we sell our products. If any third parties are successful in obtaining patents for technologies that are substantially equivalent or the same as the technologies we use in our products in any of our markets before we do and enforce their intellectual property rights against us, our ability to sell products containing the allegedly infringing intellectual property in those markets will be materially and adversely affected and we may be liable for damages and subject to other penalties. If we are required to stop selling such allegedly infringing products, seek licenses and pay royalties for the relevant intellectual properties, or redesign such products with non-infringing technologies, our business, results of operations and financial condition may be materially and adversely affected.

Changes to existing regulations covering the utility sector and the solar power industry may present technical, regulatory and economic barriers to the purchase and use of PV products, which may significantly reduce demand for our products.

The market for power generation products is heavily influenced by government regulations and policies concerning the electric utility industry, as well as the internal policies of electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of end-user-owned power generation. In a number of countries, these regulations and policies are being modified and may continue to be modified. End-users' purchases of alternative energy sources, including PV products, could be deterred by these regulations and policies, which could significantly reduce the potential demand for our PV products. For example, utility companies commonly charge fees to larger, industrial customers

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for disconnecting them from the electricity transmission grid or for having the capacity to use power from the electricity transmission grid for back-up purposes. These fees could increase end-users' costs of using our PV products and make our PV products less desirable, adversely affecting our business, prospects, results of operations and financial condition.

We anticipate that our PV products and their installation will continue to 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 in various countries. It is also burdensome to track the requirements of individual localities and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our PV products may result in significant additional expenses to us, our customers or end users and, as a result, could significantly reduce demand for our PV products. Such a reduction could result in a material adverse effect on our business, financial condition, results of operations and prospects.

Compliance with environmental regulations can be expensive, and non-compliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

As our manufacturing processes generate noise, waste water, gaseous and other industrial wastes, we are required to comply with all national and local regulations regarding protection of the environment. We are in compliance with present environmental protection requirements and have all necessary environmental permits to conduct our business. However, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. We believe that we have necessary permits to conduct our business as it is presently conducted. If we fail to comply with present or future environmental regulations, however, we may be required to pay substantial fines, suspend production or cease operations. We use, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our research and development and manufacturing activities. Any failure by us to control the use of, or to restrict adequately the discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations.

We do not have products liability or business interruption insurance and may incur losses resulting from product liability claims or business interruptions.

As with other manufacturers of PV products, we are exposed to risks associated with product liability claims in the event our PV products result in injuries. Since our products are electricity producing devices, it is possible that users could be injured or killed by our products, whether by product malfunctions, defects, improper installation or other causes. We only commenced commercial shipment of PV modules for BIPV applications and PV power stations in the fiscal year ended June 30, 2008, and, due to limited experience in these markets, 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 do not have product liability insurance and may not have adequate resources 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. Payment of such claims could have a material adverse effect on our business, financial condition, results of operations and prospects.

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In addition, as the insurance industry in China is still in an early stage of development, business interruption insurance available in China offers limited coverage compared to that offered in many other countries. We do not maintain any business interruption insurance coverage. As a result, any business disruption or natural disaster could result in substantial costs and diversion of resources. Such business interruptions could have a material adverse effect on our business, financial condition, results of operations and prospects.

We may incur additional costs, experience manufacturing disruptions or fail to satisfy our contractual requirements if we were forced to relocate from our Futian facility during the lease term or if we cannot renew our lease.

We lease 1,261 square meters of manufacturing facility in Futian district, Shenzhen, where our 5 MW manufacturing line for PV modules for consumer applications is located. We also lease 606 square meters of space nearby as an employee dormitory. The lease for these properties will expire on December 31, 2010. The landlord has not been able to provide us with relevant building ownership certificates. Our PRC legal advisor, Jingtian & Gongcheng, has advised us that due to the lack of the relevant building ownership certificates, we cannot be certain that the landlord's ownership of these properties is not subject to any dispute or that all requisite governmental approvals have been obtained in connection with the construction of these properties. As such, third parties, including relevant government authorities, may interfere with our use and occupation of these leased properties during the term of the lease or prevent us from renewing the leases as they expire. As a result, we may be forced to relocate. Although only a small portion of our manufacturing capacity is located on these properties, unplanned relocation may cause us to incur additional moving costs and interrupt our production schedule. As a result, we may be unable to produce enough PV modules to satisfy our contractual requirements under our sales contracts or otherwise meet out sales targets. All of these consequences could have a material adverse effect on our business, financial condition, results of operations and prospects.

Most of our manufacturing, storage, administrative and research and development facilities are located in Shenzhen, China. Any damage or disruption at these facilities would have a material adverse effect on our business, financial condition and results of operations.

A significant amount of our manufacturing, storage, administrative, research and development facilities are located in the city of Shenzhen in Guangdong Province, China. A natural disaster such as a fire, flood or earthquake, or other unanticipated catastrophic event, including power interruption, telecommunications failure, equipment failure, explosion, fire, break-in, terrorist attack or act or war, could significantly disrupt our ability to manufacture our products and to operate our business.

If any of our manufacturing facilities or material equipment were to experience any significant damage or downtime, we might be unable to meet our manufacturing targets and our business could suffer. Any damage or disruption at these facilities could have a material adverse effect on our business, financial condition, results of operations and prospects.

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Risks related to doing business in China

Adverse changes in the political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.

Almost all of our operations are conducted in China and some of our sales are made in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

the amount of government involvement;

the level of development;

the growth rate;

the control of foreign exchange; and

the allocation of resources.

While the Chinese economy has grown significantly in the past 20 years, the growth has been uneven both geographically and among different sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also negatively affect us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations applicable to us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. In recent years the PRC government has implemented measures emphasizing market-oriented reforms, the reduction of state ownership of productive assets and the establishment of sound corporate governance. The PRC government still owns a substantial portion of the productive assets in China. The continued control of these assets and other aspects of the national economy by the PRC government could materially and adversely affect our business. The PRC government also exercises significant control over Chinese economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the PRC government to slow the pace of growth of the Chinese economy could result in decreased capital expenditures by solar energy users, which in turn could reduce demand for our products.

Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall level of economic growth and the level of renewable energy investments and expenditures in China, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

We conduct a significant portion of our business through our subsidiary, Trony Science. Trony Science is generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises, or WFOEs. The PRC

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legal system is generally based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

Fluctuations in exchange rates have had, and could continue to have, an adverse affect on our results of operations and may have a material adverse effect on your investment.

Our sales are mainly denominated in Renminbi, with the remainder in U.S. dollars, while a substantial portion of our costs and expenses is denominated Renminbi with the remainder in U.S. dollars. Fluctuations in currency exchange rates have had a limited impact on our result of operations in the past, as most of overseas end-users of our products purchased our products through distributors, who made payment to us in Renminbi. However, as we continue to expand, we expect sales to international customers denominated in U.S. dollars to increase and we may begin selling in Euros or other currencies, such as the Korean won or Thai baht. Continued fluctuations in exchange rates, particularly among the U.S. dollar and Renminbi, could result in foreign exchange losses and affect our gross and net profit margins.

In addition, our reporting currency is Renminbi and our sales denominated in foreign currencies need to be translated into Renminbi when they are recorded as our revenues. Therefore, depreciation of foreign currencies in which our sales are denominated, such as the U.S. dollar, against the Renminbi will cause our reported revenues to decline. Any further depreciation of foreign currencies in which our sales are denominated against the Renminbi will continue to adversely affect our revenues and results of operations.

Furthermore, the change in value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China's political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. As of September 30, 2009, this change in policy has resulted in approximately 21.2% appreciation of the Renminbi against the U.S. dollar since July 2005. While the international reaction to the Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar. As a significant portion of our costs and expenses is denominated in Renminbi, the revaluation in July 2005 and potential future revaluation has and could further increase our costs. In addition, any significant revaluation of the Renminbi may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on, our ordinary shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of

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the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

A significant portion of our revenues and expenses is denominated in Renminbi. If our revenues denominated in Renminbi increase or expenses denominated in Renminbi decrease in the future, we may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared, if any, in respect of our ordinary shares. Under China's foreign exchange regulations, our PRC subsidiary is generally able to pay dividends in foreign currencies, without prior approval from the State Administration of Foreign Exchange in China, or the SAFE, by complying with certain procedural requirements. However, the PRC government may take further measures in the future to restrict access to foreign currencies for current account transactions.

Foreign exchange transactions by our PRC subsidiary under the capital account continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities, including the SAFE. In particular, if our PRC subsidiary borrows foreign currency loans from us or other foreign lenders, these loans must be registered with the SAFE, and if we finance our PRC subsidiary by means of additional capital contributions, these capital contributions must be approved by certain government authorities including the Ministry of Commerce or its local counterparts. These limitations could affect the ability of our PRC subsidiary to obtain foreign exchange through debt or equity financing.

We may rely on dividends paid by our PRC operating subsidiary for our cash needs, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business.

We conduct substantially all of our business through our operating subsidiary incorporated in China. We may rely on dividends paid by our PRC subsidiary for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established in China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits determined in accordance with accounting standards and regulations in China.

Our PRC subsidiary, a WFOE, is also required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its respective registered capital. Its statutory reserves are not distributable as loans, advances or cash dividends. In addition, if our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends or make other distributions to us. Any limitations on the ability of our PRC subsidiary to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

In addition, under a new PRC tax law that became effective in January 2008 and the Arrangement between the PRC and the Hong Kong Special Administrative Region on Avoidance of Double Taxation and Prevention of Fiscal Evasion, or the Double Taxation

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Arrangement, which became effective on January 1, 2007, any dividends from our PRC subsidiary paid to us through Grand Sun, our Hong Kong subsidiary, may be subject to a withholding tax at a rate of 5%. On August 24, 2009, the State Administration of Taxation released the Administrative Measures for Non-Residents Enjoying Tax Treaty Benefits (Trial Implementation), or the Measures, which took effect on October 1, 2009. Under the Measures, Grand Sun needs to obtain approval from the Shenzhen Branch of the State Administration of Taxation in order to enjoy the preferential withholding tax rate of 5% in accordance with the Double Taxation Arrangement. To date, the Shenzhen Branch of the State Administration of Taxation has not published relevant implementing regulations for the Measures. As a result, there is no assurance that Grand Sun will be able to enjoy the preferential withholding tax rate. The withholding tax on dividends may be exempted or reduced by the PRC State Council. Furthermore, the ultimate tax rate will be determined by treaty between the PRC and the tax residence of the holder of the PRC subsidiary. We are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds we receive from this offering to make loans or additional capital contributions to our PRC operating subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

In utilizing the proceeds we receive from this offering in the manner described in "Use of proceeds," as an offshore holding company of our PRC subsidiary, we may make loans to our PRC subsidiary, or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary are subject to PRC regulations and approvals. For example, loans by us to our wholly owned subsidiary in China that is a foreign-invested enterprise to finance its activities cannot exceed statutory limits, being the difference between the registered capital and total investment amount, and must be registered with the SAFE, or its local branch. Otherwise, such foreign-invested enterprise should increase its total investment amount.

We may also decide to finance our wholly owned subsidiary by means of capital contributions. These capital contributions must be approved by the PRC Ministry of Commerce or its local counterpart. We cannot assure you that we will be able to complete these government registrations or obtain the relevant government approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our subsidiary or any of its subsidiaries. Failure to complete these registrations or obtain approvals may delay or prevent us from using the proceeds we receive from this offering to make loans or additional capital contributions to our PRC operating subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

The discontinuation of any preferential tax treatment currently available to us or the increase in the enterprise income tax in the PRC could result in a decrease of our net income, materially and adversely affecting our results of operations.

Before China's new Enterprise Income Tax Law, or the EIT Law, and its implementation regulations became effective on January 1, 2008, entities operating in the PRC were typically subject to the old EIT rate of 33% (30% state tax and 3% local tax). However, pursuant to certain tax policies, a preferential tax rate of 15% was available to Trony Science and other foreign investment manufacturing enterprises located in the Shenzhen Special Economic Zone.

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Under the EIT Law, effective on January 1, 2008, domestically-owned enterprises and foreign-invested enterprises are typically subject to a uniform tax rate of 25%. However, companies that previously enjoyed preferential tax treatment were afforded a transition period by the implementation regulations. Trony Science enjoyed such a preferential tax treatment and thus would be eligible for transition period rates of 18%, 20%, 22%, 24% and 25% in the calendar years of 2008, 2009, 2010, 2011 and 2012, respectively.

However, Trony Science is eligible for an even more favorable tax rate. While the new tax law equalizes the tax rates for typical foreign invested enterprises, or FIEs, and domestically-owned enterprises, preferential tax treatment would continue to be given to companies in certain encouraged sectors and to those re-classified as new high technology companies enjoying special support from the state. Trony Science, a WFOE registered and operating in a high-tech zone in Shenzhen, was approved to be qualified as a "new high technology enterprise" on December 16, 2008, and was entitled to a 15% preferential rate beginning April 2009 and lasting for three years.

If significant changes in the business operations, manufacturing technologies or other criteria cause Trony Science to no longer meet the criteria as a "new high technology enterprise," such status will be terminated from the year of such change. Any significant increase in our income tax expenses may have a material adverse effect on our profit for the year.

Reduction or elimination of preferential tax treatments we enjoy or imposition of additional taxes on Trony Science may significantly increase our income tax expenses and materially reduce our net income, which could have a material adverse effect on our business, prospects, results of operations and financial condition.

We may be classified as a "resident enterprise" for PRC enterprise income tax purposes, which could result in unfavorable tax consequences to us.

The EIT Law provides that enterprises established outside of China whose "effective management" is located in China are considered "resident enterprises" and are generally subject to the unified 25% tax rate on their entire profits. Under the implementation regulations to the EIT Law, "effective management" is defined as material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Substantially all of our operational management is currently based in the PRC. However, the EIT Law and the implementation regulations have only recently taken effect. It is still unclear how the EIT Law and the implementations will be interpreted and enforced. Currently, there are no detailed rules governing the procedures and specific criteria for determining "effective management" which are applicable to Trony Solar or Grand Sun, our Hong Kong subsidiary. If the "effective management" of Trony Solar and Grand Sun were deemed to be located in the PRC, both companies would be treated as resident enterprises for PRC tax purposes. Therefore, all profits from both companies, and other companies with "effective management" in the PRC, would be subject to the 25% unified tax rate promulgated by the EIT Law. This imposition would have an impact on our effective tax rate.

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The approval of the PRC Securities Regulatory Commission, or the CSRC, may be required in connection with this offering under a recently adopted PRC regulation. Any requirement to obtain prior CSRC approval could delay this offering and the failure to obtain this approval, if required, could have a material adverse effect on our business, operating results, reputation and trading price of our ADSs, and could also create uncertainties for this offering.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the "Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors," or the new M&A rule, which took effect on September 8, 2006, to more effectively regulate foreign investment in PRC domestic enterprises. The new M&A rule also requires special purpose vehicles, or SPVs, formed for overseas listing purposes and controlled by PRC individuals to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.

The application of this new M&A rule is currently unclear. However, our PRC counsel, Jingtian & Gongcheng, has advised us that based on its understanding of the current PRC laws, rules and regulations and the new M&A rule, the new M&A rule does not require that we obtain prior CSRC approval for the listing and trading of our ADSs on the NYSE, because our acquisition of the equity interest in our PRC subsidiary is not subject to the new M&A rule because our PRC subsidiary was already a foreign-invested enterprise before September 8, 2006, the effective date of the new M&A rule.

Jingtian & Gongcheng has further advised us that their opinions summarized above are subject to the timing and content of any new laws, rules and regulations or clear implementations and interpretations from the CSRC in any form relating to the new M&A rule.

However, if the CSRC or another PRC regulatory agency subsequently determines CSRC prior approval was required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations, limit our operating privileges, delay or restrict the repatriation of the proceeds from this offering into China or payment or distribution of dividends by our PRC subsidiary, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. Also, if the CSRC later requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our ADSs.

We cannot predict when the CSRC may promulgate additional implementing rules or other guidance, if at all. If implementing rules or guidance is issued prior to the completion of this offering and consequently we conclude we are required to obtain CSRC approval, this offering will be delayed until we obtain CSRC approval, which may take several months or longer. Furthermore, any delay in the issuance of such implementing rules or guidance may create additional uncertainties with respect to this offering. Moreover, implementing rules or

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guidance, to the extent issued, may fail to resolve current ambiguities under this new PRC regulation. Uncertainties or negative publicity regarding this new PRC regulation could have a material adverse effect on the trading price of our ADSs.

The new M&A rule establishes more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The new M&A rule establishes additional procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a Chinese domestic enterprise.

In the future, we may want to grow our business in part by acquiring complementary businesses, although we do not have any plans to do so at this time. Complying with the requirements of the new M&A rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Recent PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders or our PRC subsidiary to penalties, limit our ability to distribute capital to our PRC subsidiary, limit our PRC subsidiary's ability to distribute funds to us, or otherwise adversely affect us.

The SAFE issued a public notice in October 2005, or the SAFE Circular No. 75, requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the SAFE Circular No. 75 as SPVs. PRC residents who are shareholders of SPVs established before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006. Further, PRC residents are required to file amendments to their registrations with the local SAFE branch if their SPVs undergoes a material event involving changes in capital, such as changes in share capital, mergers and acquisitions, share transfers or exchanges, spin-off transactions or long-term equity or debt investments. The SAFE subsequently issued relevant guidance to its local branches for the implementation of the SAFE Circular No. 75. This guidance standardizes more specific and stringent supervision on the registration requirement relating to the SAFE Circular No. 75 and further requests PRC residents holding any equity interests or options in SPVs, directly or indirectly, controlling or nominal, to make an overseas investment foreign exchange registration with the SAFE.

Certain current beneficial owners of our shares who are PRC residents are in the process of applying to relevant local branch of the SAFE for registration in accordance with SAFE Circular No. 75. These applications have not been approved and we cannot assure you when these applications will be approved, if at all. In addition, we may not be fully informed of the identities of all our beneficial owners who are PRC residents, we do not have control over our beneficial owners and we cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular No. 75. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular No. 75, or the failure of future beneficial owners of our company who are PRC residents to

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comply with the registration procedures set forth in SAFE Circular No. 75, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions imposed by the PRC government, limit our ability to contribute additional capital to our PRC subsidiaries, thereby affecting our ability to use the proceeds we will receive from this offering in China, limit our PRC subsidiaries' ability to pay dividends or make distributions to us or otherwise materially and adversely affect our business. See "Regulations—Foreign currency exchange."

Under the implementation rules and guidances issued by the SAFE, PRC citizens who are granted share options by an overseas publicly-listed company are required, through a PRC agent who may be the PRC subsidiary of such overseas publicly-listed company, to register with the SAFE and complete certain other procedures related to the share options.

We and our PRC citizen employees who will be granted share options in the future, or PRC optionees, will be subject to these regulations when our company becomes an overseas publicly-listed company. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions. However, as these rules were only recently promulgated, it is currently unclear as to how they will be interpreted and implemented. See "Regulations—Regulation of certain onshore and offshore transactions."

We face risks related to health epidemics and other outbreaks of contagious diseases, including avian flu, SARS, and swine flu.

Our business could be adversely affected by the effects of avian flu, SARS, swine flu or another epidemic or outbreak. During April and May 2009, there were outbreaks of highly pathogenic swine flu, caused by the H1N1 virus, in certain regions of the world, including parts of Asia. In 2007 and early 2008, there were reports of outbreaks of a highly pathogenic avian flu, caused by the H5N1 virus, in certain regions of Asia and Europe. In 2005 and 2006, there were reports of the occurrences of avian flu in various parts of China, including a few confirmed human cases.

An outbreak of avian flu in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, particularly in Asia. Additionally, any recurrence of SARS, a highly contagious form of atypical pneumonia, similar to the occurrence in 2003 which affected China, Hong Kong, Taiwan, Singapore, Vietnam and certain other countries, would have similar adverse effects. These outbreaks of contagious diseases, and other adverse public health developments in China, would have a material adverse effect on our business operations. These could include restrictions on our ability to travel or to ship our products outside of China, as well as cause temporary closure of our manufacturing facilities. Such closures or travel or shipment restrictions would severely disrupt our operations and adversely affect our financial condition and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of avian flu, SARS, swine flu or any other epidemic.

The implementation of the PRC Labor Contract Law may significantly increase our operating expenses and adversely affect our business and results of operations.

On June 29, 2007, the PRC National People's Congress enacted the Labor Contract Law, which became effective on January 1, 2008. The Labor Contract Law formalizes workers' rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade unions and provides for specific standards and procedure for the termination of an

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employment contract. In addition, the Labor Contract Law requires the payment of a statutory severance pay upon the termination of an employment contract in most cases, including in cases of the expiration of a fixed-term employment contract. The implementation of the Labor Contract Law may significantly increase our operating expenses, in particular our personnel expenses, as the continued success of our business depends significantly on our ability to attract and retain qualified personnel. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law may also limit our ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The continuation or worsening of recent trends toward price inflation in China could erode some of the advantages of operating in a relatively low-cost jurisdiction such as China, which could negatively affect our competitive advantages and our results of operations.

In recent years, inflation in China has increased. According to the National Bureau of Statistics of China, consumer price inflation in China was 1.5%, 4.8% and 5.9% in 2006, 2007 and 2008, respectively. Because we purchase raw materials from suppliers in China, this price inflation has increased the costs of the raw materials we must purchase for manufacturing. This trend risks counteracting the competitive advantage we enjoy as a result of the relatively lower manufacturing costs we incur from operating in China. If inflationary trends continue in China, China could lose its competitive advantage as a low-cost manufacturing venue, which could in turn lessen any competitive and reputational advantages we gain through China-based manufacturing. Accordingly, inflation in China may weaken our competitiveness in our markets and have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks related to our ADSs and this offering

There has been no prior public market for our ADSs or ordinary shares, and you may not be able to sell your ADSs at or above the initial public offering price.

Before this initial public offering, there was no public market for our ADSs or ordinary shares. We cannot assure you that an active public market for our ADSs will develop or that the market price of our ADSs will remain at or above their initial public offering price. The initial public offering price of our ADSs will be determined, in part, by negotiations among us and the underwriters and may not be indicative of prices that will prevail in the trading market. You may be unable to resell your ADSs at a price that is attractive to you.

The market price of our ADSs may be volatile.

The market price for our ADSs may be volatile and subject to wide fluctuations in response to factors such as actual or anticipated fluctuations in our quarterly operating results, changes in financial estimates by securities research analysts, announcements by us or our competitors of material acquisitions, strategic partnerships, joint ventures or capital commitments, fluctuations of exchange rates between RMB and the U.S. dollar, release of lock-up or other transfer restrictions on our outstanding shares or ADSs, and economic or political conditions in China.

In addition, the performance, and fluctuation in market prices, of other companies with operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes of our ADSs. Furthermore, the securities

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market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

Compliance with rules and requirements applicable to public companies may cause us to incur increased costs, and any failure by us to comply with such rules and requirements could negatively affect investor confidence in us and cause the market price of our ADSs to decline.

Upon completion of this offering, we will become a public company in the United States. 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, or the Sarbanes-Oxley Act, as well as rules and regulations implemented by the SEC and the NYSE, have required public companies to maintain significantly heightened corporate governance practices. We expect these rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly.

Complying with these rules and requirements may be especially difficult and costly for us because we may have difficulty locating sufficient personnel in China with experience and expertise in U.S. GAAP and U.S. public-company reporting requirements, and such personnel may command high salaries relative to what similarly experienced personnel would earn in the United States. If we cannot employ sufficient personnel to ensure compliance with these rules and regulations, we may need to rely more on outside legal, accounting and financial experts, which may be very costly.

Furthermore, we will incur additional costs associated with our public company reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. If we fail to comply with these rules and requirements, or are perceived to have weaknesses with respect to our compliance, we could become the subject of governmental enforcement actions and investor confidence could be negatively impacted and the market price of our ADSs could decline.

We may not be able to pay any dividends on our ordinary shares and ADSs.

Under Cayman Islands law, we may only pay dividends out of our profits or our share premium account subject to our ability to service our debts as they become due in the ordinary course of business. Our ability to pay dividends will therefore depend on our ability to generate sufficient profits. We cannot assure you that we will declare dividends of any amounts, at any rate or at all in the future. We have not paid any dividends in the past. Future dividends, if any, will be at the discretion of our board of directors, subject to the approval of our shareholders, and will depend upon our results of operations, our cash flows, our financial condition, the payment of our subsidiaries of cash dividends to us, our capital needs, our future prospects and other factors that our directors may deem appropriate.

You should refer to the "Dividend policy" section in this prospectus for additional information regarding our current dividend policy and the risk factor entitled "—Risks related to doing business in China—Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary shares may become subject to taxes under PRC tax laws" below for additional legal restrictions on the ability of our PRC subsidiary to pay dividend to us.

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Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary shares may become subject to taxes under PRC tax laws.

Under the EIT Law and related implementation regulations, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are "non-resident enterprises," which do not have an establishment or place of business in the PRC, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC unless a treaty otherwise provides. For example, according to the Double Taxation Arrangement, dividends paid to enterprises incorporated in Hong Kong are subject to a withholding tax of 5%. However, according to the Circular regarding the Implementation of Dividend-Related Provisions in the Tax Treaty issued by the State Administration of Taxation in February 2009, if the main purpose of an offshore arrangement is to obtain a preferential tax treatment, PRC tax authorities have the discretion to adjust the preferential tax rate enjoyed by the relevant offshore entity. As our Hong Kong subsidiary, Grand Sun International Investment Limited, or Grand Sun, is an intermediate holding company and is not engaged in any commercial activities in Hong Kong, the tax authorities may regard the main purpose of Grand Sun as obtaining a lower withholding tax rate of 5%. As a result, the tax authorities may levy a higher withholding tax rate to dividends received by Grand Sun from Trony Science.

If we are considered a PRC "resident enterprise," it is unclear whether dividends we pay with respect to our ordinary shares or ADSs, or the gain you may realize from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and be subject to PRC tax. If we are required under the EIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that are "non-resident enterprises," or if you are required to pay PRC income tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected.

Future financing may cause a dilution in your shareholding or place restrictions on our operations.

We may be required to raise additional funding to meet our working capital or capital expenditure requirements in the future. Raising such funding through issuance of new equity or equity-linked securities may dilute in the percentage ownership of our then existing shareholders. Alternatively, if we meet such funding requirements through additional debt financing, such debt financing arrangements may place restrictions on us that could:

limit our ability to pay dividends or require us to seek consents for the payment of dividends;

increase our vulnerability to general adverse economic and industry conditions;

limit our ability to pursue our business strategies;

require us to dedicate a substantial portion of our cash flows from operations to service our debt, thereby reducing the availability of our cash flow to fund capital expenditures, working capital requirements and other general corporate needs; and

limit our flexibility in planning for, or reacting to, changes in our business and our industry.

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Future sales or issuances, or perceived intentions of future sales or issuances, of substantial amounts of our ordinary shares or ADSs could adversely affect the price of our ADSs.

If our existing shareholders sell, or are perceived as intending to sell, substantial amounts of our ordinary shares or ADSs, including any ordinary shares acquired from the exercise of outstanding options, or those that may be issued following this offering, the market price of our ADSs could fall. Such sales, or perceived potential sales, by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities in the future at a time and place we deem appropriate.

The 19,500,000 ADSs representing 29,250,000 ordinary shares offered in this offering will be eligible for immediate resale in the public market without restrictions, and those held by our existing shareholders may also be sold in the public market in the future, subject to the restrictions contained in Rule 144 and Rule 701 under the U.S. Securities Act of 1933, or the Securities Act, and the applicable lock-up agreements. Our officers, directors and certain of our existing shareholders have agreed with the underwriters not to sell or otherwise dispose of any of their shares for 180 days after the date of this prospectus. Additionally, one of our existing shareholders holding 1,650,000 of our ordinary shares has entered into a lock-up agreement with the underwriters for 90 days after the date of this prospectus. If any existing shareholder or shareholders sell a substantial amount of ordinary shares after the expiration of the lock-up period, the prevailing market price for our ADSs could be adversely affected. See "Underwriting" and "Shares eligible for future sale" for additional information regarding resale restrictions.

In addition, we may issue additional ADSs or ordinary shares for future acquisitions or other purposes. If we issue additional ADSs or ordinary shares, your ownership interests in our company would be diluted and this in turn could have a material adverse effect on the price of our ADSs.

Anti-takeover provisions in our third amended and restated memorandum and articles of association may discourage a third party from offering to acquire our company, which could limit your opportunity to sell your ADSs at a premium.

Our third amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in change of control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction. For example, our board of directors will have the authority, without further action by our shareholders, to issue preference shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preference shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors issues preference shares, the market price of our ordinary shares may fall and the voting and other rights of the holders of our ordinary shares may be adversely affected.

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You will experience immediate and substantial dilution in the net tangible book value of ADSs purchased.

The initial public offering price per ADS will be substantially higher than the net tangible book value per ADS prior to the offering. Consequently, when you purchase ADSs in the offering at the assumed initial public offering price of US$10.00, the midpoint of the estimated range of the initial public offering price, you will incur immediate dilution of US$7.39 per ADS. See "Dilution." In addition, you may experience further dilution to the extent that additional ordinary shares are issued upon the exercise of options and warrants that we may grant from time to time, and the conversion of our convertible notes.

You may not be able to exercise your right to vote.

As an ADS holder, you may only exercise voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the ordinary shares underlying your ADSs.

Pursuant to our third amended and restated memorandum and articles of association, we may convene a shareholders' meeting upon a ten-day notice. When a shareholder's meeting is convened, you may not receive sufficient advance notice to withdraw the ordinary shares underlying your ADSs to allow you to vote with respect to any specific matter. If we give timely notice, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to instruct the depositary to vote the ordinary shares underlying your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

You may not receive distributions on ordinary shares or any value for them if it is unlawful or impractical to make them available to you.

Subject to the terms and conditions of the deposit agreement, the depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs, in which case it may determine not to make such a distribution. Neither we nor the depositary has any obligation to register ADSs, ordinary shares, rights or other securities subject to such distribution under U.S. securities laws. Neither we nor the depositary has any obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive the distribution we make on our ordinary shares or any value for them if it is unlawful or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

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You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time and from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may not be able to participate in rights offerings or elect to receive stock dividends and may experience dilution of your holdings, and the sale, deposit, cancellation and transfer of our ADSs issued after exercise of rights may be restricted.

If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to you after consultation with us. We cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered by us under the provisions of the Securities Act. We can give no assurance that we can establish an exemption from the registration requirements under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, you may be unable to participate in our rights offerings and may experience dilution of your holdings. The depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them. In addition, U.S. securities laws may restrict the sale, deposit, cancellation and transfer of ADSs issued after exercise of rights.

As a foreign private issuer, we are not required to provide you with the same information as an issuer organized in the United States, therefore, you may not be afforded the same protections or information you would have if you invested in United States domestic issuers.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

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We will be required to file an annual report on Form 20-F within six months of the end of each fiscal year ending on or prior to June 30, 2011 and within four months of the end of each fiscal year thereafter. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the stock exchanges on which our ordinary shares are listed. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by United States domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a United States domestic issuer.

You may face difficulties in protecting your interests because we are incorporated under Cayman Islands law.

We are incorporated in the Cayman Islands and our corporate affairs are governed by our third amended and restated memorandum and articles of association and by the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, or the Cayman Companies Law, and common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law may not be as clearly established as they would be under statutes or judicial precedents in existence in the United States. In particular, the Cayman Islands has a less developed body of securities law as compared to the United States and provides significantly less protection to investors. Therefore, our public shareholders may have more difficulties in protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before federal courts of the United States.

There is uncertainty as to whether the courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the federal securities laws of the United States or the securities laws of any state or territory within the United States or (ii) entertain original actions brought in the courts of the Cayman Islands, against us or our directors and officers predicated upon the federal securities laws of the United States or the securities laws of any state or territory within the United States.

The Cayman Islands would recognize as a valid judgment, a final and conclusive judgment in person obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that: (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands. It is unlikely that a monetary award ordered by a U.S. court as a result of a fine or a penalty arising under the U.S. federal securities laws would be recognized as valid, or enforced, by the courts of the Cayman Islands. You may

45



experience difficulties in effecting service of legal process and enforcing judgments against us and our management.

You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.

Substantially all of our assets and our operating subsidiary are located in China. In addition, most of our directors and officers reside within China and Singapore. As a result, it may not be possible to effect service of process within the United States or elsewhere outside of China upon most of our directors and officers, including with respect to matters arising under the U.S. federal securities laws or applicable state securities laws. Moreover, our PRC legal advisors, Jingtian & Gongcheng, have advised us that China is not a party to any treaties providing for reciprocal enforcement of judgments of courts with the United States, the United Kingdom, Japan or most other western jurisdictions. As a result, recognition and enforcement in China of judgments of a court in the United States or any other jurisdictions mentioned above in relation to any matter may be difficult or impossible.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to U.S. holders.

Based on the projected composition of our income and valuation of our assets, including goodwill, we do not expect to be considered a passive foreign investment company, or PFIC, for United States federal income tax purposes for our taxable year ending December 31, 2009, and we do not expect to become one in the future, although there can be no assurance in this regard. A non-U.S. corporation will be considered a PFIC for any taxable year if either (i) at least 75% of its gross income is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income. The market value of our assets may be determined in large part by the market price of our ADSs and ordinary shares, which is likely to fluctuate after this offering. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. If we are treated as a PFIC for any taxable year during which U.S. holders hold ADSs or ordinary shares, certain adverse United States federal income tax consequences could apply to such U.S. holders. See "Taxation—United States federal income tax considerations—Passive foreign investment company."

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Special note regarding forward looking statements

This prospectus contains forward-looking statements that relate to our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled "Prospectus summary," "Risk factors," "Use of proceeds," "Management's discussion and analysis of financial condition and results of operations," "Our industry" and "Business." These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under "Risk factors," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, these forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

our expectations regarding the worldwide demand for solar energy;

our beliefs regarding the inability of conventional fossil fuel-based generation technologies to meet the demand for electricity;

our beliefs regarding the importance of environmentally friendly power generation;

our expectations regarding governmental support for the deployment of solar energy;

our beliefs regarding the competitiveness of our products;

our expectations with respect to revenue growth, profitability and our manufacturing capacities;

our goal to continue to improve the conversion efficiency rates of our PV modules while reducing manufacturing costs;

competition from other manufacturers of PV products, conventional energy suppliers and non-solar renewable energy providers;

the availability and costs of credit that we and our customers may require;

our future business development, results of operations, cash flows and financial condition; and

future economic or capital market conditions.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we reference in this prospectus and have filed as

47



exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

This prospectus also contains data related to the PV market worldwide and in China. These market data, including market data from (i) Marketbuzz 2009, the Annual World Photovoltaic Market Review published by Solarbuzz, an independent solar energy research firm; (ii) a report commissioned by us and prepared by Photon Consulting, a solar energy research firm and consultancy, in 2009; and (iii) Solar Generation V-2008, a report published by European Photovoltaic Industry Association, an international industry association in the solar power industry and Greenpeace, a non-governmental organization. We have not independently verified these marketing data. The PV market may not grow at the rates projected by the market data, or at all. The failure of the market to grow at the projected rates may have a material adverse effect on our business and the market price of our ADSs. In addition, the rapidly changing nature of the PV market subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

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Use of proceeds

We estimate that we will receive net proceeds from this offering of approximately US$134.5 million, or approximately US$161.7 million if the underwriters exercise their option to purchase additional ADSs in full, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$10.0 per ADS, the midpoint of the range shown on the cover of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$10.0 per ADS would increase (decrease) the net proceeds to us from this offering by US$13,950,000, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds we will receive from this offering for the following purposes:

approximately US$100.0 million to expand our manufacturing facilities and manufacturing lines; and

approximately US$30.0 million to repay the following outstanding related-party loan.
 
Lender
  Date of
borrowing

  Due date
  Principal
(in RMB)

  Principal
(in US$)

  Annual
interest
rate (%)

 

Lakes Invest Limited(1)

    October 14, 2009     April 14, 2010(2)   n/a     30,000,000   3.5
 

(1)   Under the terms of a shareholder loan agreement between us and Lakes Invest Limited, a major shareholder of ours beneficially owned by our chairman and chief executive officer, the repayment by us to ICBC International Finance Ltd. in full of a loan extended by ICBC International Finance Ltd. to Lakes Invest Limited will be deemed repayment in full of the amount we owe Lakes Invest Limited under the shareholder loan agreement. For more details, see "Related party transactions—Loans from related parties." Upon the completion of this offering, we intend to use a portion of the net proceeds we receive from this offering to repay in full, on behalf of Lakes Invest Limited, the amount owed to ICBC International Finance Ltd. by Lakes Invest Limited.

(2)   The loan has a term of six months, which may be extended to one year if this offering has not occurred within the initial term, and may be further extended to 30 days after this offering if this offering is completed within the 30 day period prior to the first anniversary of the loan.

We intend to use the remaining portion of the net proceeds we will receive from this offering for working capital and other general corporate purposes.

The foregoing use of our net proceeds from this offering represents our current intentions based upon our present plans and business condition. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations, competitive developments and the rate of growth, if any, of our business. Accordingly, our management will have significant discretion in the allocation of the net proceeds we will receive from this offering. Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes. Pending their use, we intend to place our net proceeds in short-term bank deposits.

In utilizing the proceeds from this offering, as an offshore holding company, we are permitted, under PRC laws and regulations, to provide funding to our consolidated PRC entities only through loans or capital contributions and to other entities only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our consolidated PRC entities or make additional capital contributions

49



to our consolidated PRC entities to fund their capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk factors—Risks related to doing business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds we receive from this offering to make loans or additional capital contributions to our PRC operating subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders.

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Dividend policy

Since our incorporation, we have never declared or paid any dividends, nor do we have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, shareholders' interests and other factors that our board of directors may deem relevant.

We are a holding company incorporated in the Cayman Islands. Our ability to pay dividends depends substantially on the payment of dividends to us by our subsidiary in China. In particular, our PRC subsidiary may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. Moreover, pursuant to relevant PRC laws and regulations applicable to our subsidiary in the PRC, our PRC subsidiary is required to set aside a certain amount of its accumulated after-tax profits each year, if any, to fund statutory reserves. These reserves may not be distributed as cash dividends. Furthermore, if any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us.

If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American depositary shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

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Capitalization

The following table sets forth our capitalization as of September 30, 2009:

on an actual basis;

on a pro forma basis to reflect the automatic conversion of all of our outstanding Series A convertible redeemable preferred shares into 13,500,000 ordinary shares upon completion of this offering, which is calculated based on an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus; and

on a pro forma, as adjusted basis to reflect (1) the automatic conversion of all of our outstanding Series A convertible redeemable preferred shares into 13,500,000 ordinary shares upon completion of this offering and (2) the issuance and sale of 22,500,000 ordinary shares in the form of ADSs by us in this offering, each at an assumed initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs.

As of the date of this prospectus, there has been no material change to our capitalization as set forth below.

You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Selected consolidated

52



financial and operating data" and "Management's discussion and analysis of financial condition and results of operations."

   
 
  As of September 30, 2009  
 
  Actual   Pro forma   Pro forma,
as adjusted
 
(in thousands)
  RMB
  US$
  RMB
  US$
  RMB
  US$
 
   

Debt(1):

                                     

Unsecured and unguaranteed loan from a related party

    266,072     38,978     266,072     38,978     266,072     38,978  

Secured and unguaranteed long-term bank borrowing

    27,700     4,058     27,700     4,058     27,700     4,058  

Total debt

    293,722     43,036     293,772     43,036     293,772     43,036  

Mezzanine equity:

                                     

Series A convertible redeemable preferred shares (US$0.0001 par value; 6,027,191 shares authorized and 6,027,191 shares issued and outstanding) (liquidation value RMB368,615 (US$54,000))

    360,272     52,778                  

Shareholders' equity:

                                     

Ordinary shares (US$0.0001 par value; 493,972,809 shares authorized and 100,000,000 shares issued and outstanding, 113,500,000 shares issued and outstanding on a pro forma basis, 136,000,000 shares issued and outstanding on a pro forma, as adjusted basis

    69     10     78     11     92     13  

Additional paid-in capital(2)

    67,890     9,946     551,055     80,727     1,469,165     215,225  

Retained earnings

    264,740     38,783     141,838     20,779     141,838     20,779  

Accumulated other comprehensive income

    4,566     669     4,566     669     4,566     669  

Total shareholders' equity(2)

    337,265     49,408     697,537     102,186     1,615,661     236,686  

Total capitalization(2)

    991,309     145,222     991,309     145,222     1,909,433     279,722  
   

(1)   Does not include a shareholder loan in the amount of US$30.0 million we borrowed from Lakes Invest Limited, a major shareholder of ours beneficially owned by our chairman and chief executive officer, on October 14, 2009. For details, see "Related party transactions—Loans from related parties."

(2)   A US$1.00 increase (decrease) in the assumed initial public offering price of US$10.00 per ADS would increase (decrease) each of total shareholders' equity and total capitalization by US$14.0 million, after deducting the estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs.

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Dilution

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net tangible book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

Our net tangible book value as of September 30, 2009 was US$49.4 million, US$0.49 per ordinary share and US$0.74 per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, minus the amount of our total consolidated liabilities. Dilution is determined by subtracting net tangible book value per ordinary share from the assumed initial public offering price per ordinary share, which is the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

Without taking into account any other changes in such net tangible book value after September 30, 2009, other than to give effect to (i) the automatic conversion of all of our outstanding Series A convertible redeemable preferred shares into 13,500,000 ordinary shares upon completion of this offering, (ii) the issuance and sale of 22,500,000 ordinary shares in the form of ADSs by us in this offering, each at the assumed initial public offering price of US$10.00 per ADS, the midpoint of the estimated range of the initial public offering price, and after deduction of underwriting discounts and commissions and estimated offering expenses of this offering payable by us, our adjusted net tangible book value as of September 30, 2009 would have increased to US$236.7 million or US$1.74 per ordinary share or US$2.61 per ADS. This represents an immediate increase in net tangible book value of US$1.25 per ordinary share, or US$1.87 per ADS, to the existing shareholders and an immediate dilution in net tangible book value of US$4.93 per ordinary share, or US$7.39 per ADS, to investors purchasing ADSs in this offering. The following table illustrates such per share dilution:

 

Assumed initial public offering price per ADS

  US$10.00

Net tangible book value per ordinary share as of September 30, 2009

  US$0.49

Adjusted net tangible book value per ordinary share after giving effect to this offering and the ordinary share issuances described above

  US$1.74

Adjusted net tangible book value per ADS after giving effect to this offering and the ordinary share issuances described above

  US$2.61

Amount of dilution in net tangible book value per ordinary share to new investors in this offering

  US$4.93

Amount of dilution in net tangible book value per ADS to new investors in this offering

  US$7.39
 

A US$1.00 increase (decrease) in the assumed initial public offering price of US$10.00 per ADS would increase (decrease) our pro forma net tangible book value after giving effect to the offering by US$14.0 million, or by US$0.12 per ordinary share and by US$0.18 per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other expenses of this offering.

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The following table summarizes, on a pro forma basis, the number of ordinary shares purchased from us as of September 30, 2009, the total consideration paid to us and the average price per ordinary share/ADS paid by existing investors and by new investors purchasing ordinary shares evidenced by ADSs in this offering at the assumed initial public offering price of US$10.00 per ADS before deducting the underwriting discounts and commissions and other estimated offering expenses payable by us.

   
 
  Ordinary shares
purchased
  Total consideration    
   
 
 
  Average
price per
ordinary
share

  Average
price per
ADS

 
 
  Number
  Percent
  Amount
  Percent
 
   

Existing shareholders

    113,500,000 (1)   83.5 % US$ 45,000,000     23.1 % US$ 0.40   US$ 0.59  

New investors

    22,500,000     16.5     150,000,000     76.9     6.67     10.00  
       

Total

    136,000,000     100.0 % US$ 195,000,000     100.0 % US$ 1.43   US$ 2.15  
   

(1)   Ordinary shares include 13,500,000 ordinary shares available upon the automatic conversion of Series A convertible redeemable preferred shares held by JPMorgan Special Situations (Mauritius) Limited and Intel Capital Corporation, which is calculated based on an initial public offering price of US$10.00 per ADS, the midpoint of the estimated public offering price range set forth on the cover of this prospectus. The Series A convertible redeemable preferred shares will be automatically converted into our ordinary shares at the closing of this offering. See "Description of share capital—History of securities issuances."

A US$1.00 increase (decrease) in the assumed initial public offering price of US$10.00 per ADS would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per ADS paid by all shareholders by US$15.0 million, and US$0.17, respectively, assuming no change in the number of ADSs sold by us and the selling shareholders as set forth on the cover page of this prospectus and without deducting underwriting discounts and commissions and other offering expenses payable by us.

The dilution to new investors will be US$4.79 per ordinary share and US$7.18 per ADS, if the underwriters exercise in full their option to purchase additional ADSs.

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Exchange rate information

The following table sets forth exchange rate information for the periods indicated.

   
 
  Exchange rate  
Period (RMB per US$1.00)
  Period end
  Average(1)
  Low
  High
 
   

Fiscal year ended June 30, 2005

    8.2765     8.2766     8.2770     8.2764  

Fiscal year ended June 30, 2006

    7.9943     8.0702     8.2765     7.9943  

Fiscal year ended June 30, 2007

    7.6120     7.8157     8.0018     7.6120  

Fiscal year ended June 30, 2008

    6.8591     7.2780     7.6181     6.8591  

Fiscal year ended June 30, 2009

    6.8302     6.8357     6.8842     6.7800  

First quarter ended September 30, 2009

    6.8262     6.8306     6.8358     6.8247  

Most recent six months

                         
 

May 2009

    6.8278     6.8235     6.8326     6.8176  
 

June 2009

    6.8302     6.8334     6.8371     6.8264  
 

July 2009

    6.8319     6.8317     6.8342     6.8300  
 

August 2009

    6.8299     6.8323     6.8358     6.8299  
 

September 2009

    6.8262     6.8277     6.8303     6.8247  
 

October 2009

    6.8264     6.8267     6.8292     6.8248  
 

November 2009 (through November 13)

    6.8260     6.8265     6.8278     6.8255  
   

(1)   Averages are calculated using the average of the daily rates during the relevant period.

We publish our financial statements in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. For all dates and periods through December 31, 2008, exchange rates of Renminbi into U.S. dollars are based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. For January 1, 2009 and all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at a rate of RMB6.8262 to US$1.00, the exchange rate set forth as of September 30, 2009. No representation is made that the Renminbi amounts referred to in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. On November 13, 2009, the exchange rate was RMB6.8260 to US$1.00.

The People's Bank of China issued a public notice on July 21, 2005 increasing the exchange rate of the Renminbi against the U.S. dollar by approximately 2% to RMB8.11 per US$1.00. Further to this notice, the PRC government has reformed its exchange rate regime by adopting a managed floating exchange rate regime based on market supply and demand with reference to a portfolio of currencies. Under this new regime, the Renminbi will no longer be pegged to the U.S. dollar. As of September 30, 2009, this change in policy has resulted in approximately 21.2% appreciation of the Renminbi against the U.S. dollar since July 2005. The PRC government may decide to adopt an even more flexible currency policy in the future, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.

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Enforceability of civil liabilities

We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include that the Cayman Islands has a less developed body of securities laws than the United States and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to sue before the federal courts of the United States. Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, among us, our officers, directors and shareholders be subject to arbitration.

All of our current operations are conducted in China, and substantially all of our assets are located in China. All of our directors and substantially all of our officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside of the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon us or such persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Law Debenture Corporate Services Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Walkers, our counsel as to Cayman Islands law, and Jingtian & Gongcheng, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:

recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state or territory within the United States.

Walkers has further advised us that:

a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, and which was neither obtained in a waiver nor is of a kind of enforcement of which is contrary to natural justice or the public policy of the Cayman Islands may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under common law; and

57


it is unlikely that a monetary award ordered by a U.S. court as a result of a fine or a penalty arising under the U.S. federal securities laws would be recognized as valid, or enforced, by the courts of the Cayman Islands.

Jingtian & Gongcheng has further advised us that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions, provided that the foreign judgments do not violate the basic principles of laws of the PRC or its sovereignty, security or social and public interests.

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Selected consolidated financial and operating data

The following selected consolidated statements of operations data for the three years ended June 30, 2007, 2008 and 2009, and consolidated balance sheet data as of June 30, 2008 and 2009 have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus and have been audited by Deloitte Touche Tomhatsu, an independent registered accounting firm. The selected condensed consolidated financial data as of June 30, 2005, 2006 and 2007 and for the fiscal years ended June 30, 2005 and 2006 have been omitted, as such information is not available on the basis that is consistent with the consolidated financial data included in this prospectus and cannot be prepared in accordance with U.S. GAAP without unreasonable effort or expense. The following selected consolidated statement of operations data and other consolidated financial data for the three-month periods ended September 30, 2008 and 2009 and consolidated balance sheet data as of September 30, 2009 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited interim condensed consolidated financial statements on the same basis as we prepared our audited consolidated financial statements. The unaudited interim condensed consolidated financial statements include all adjustments, consisting only of normal and recurring adjustments, which we consider necessary for a fair presentation of our financial position and operating results for the periods presented.

You should read the selected consolidated financial data in conjunction with those financial statements and the related notes and "Management's discussion and analysis of financial condition and results of operations" included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of our results expected for any future periods.

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  Fiscal year ended June 30,   Three months ended
September 30,
 
(in thousands, except share
and per share data)

  2007
RMB

  2008
RMB

  2009
RMB

  2009
US$

  2008
RMB

  2009
RMB

  2009
US$

 
   

Consolidated Statements of Operations Data

                                       

Total revenues

    26,237     272,817     541,462   $ 79,321     140,603     254,599   $ 37,297  

Total cost of revenues

    (15,074 )   (150,333 )   (311,457 ) (45,627 )   (78,929 )   (153,259 ) (22,452 )

Gross profit

    11,163     122,484     230,005   33,694     61,674     101,340   14,845  

Selling and distribution expenses

    (1,340 )   (2,901 )   (3,891 ) (570 )   (725 )   (1,110 ) (163 )

General and administrative expenses

    (5,676 )   (16,400 )   (20,616 ) (3,020 )   (5,354 )   (7,981 ) (1,169 )

Research and development expenses

    (1,716 )   (3,084 )   (5,535 ) (811 )   (1,027 )   (2,986 ) (437 )

Government grants

    3,387     3,050     3,650   535     600        

Other income

    129     7     47   7            

Income from operations

    5,947     103,156     203,660   29,835     55,168     89,263   13,076  

Interest income

    39     85     430   63     23     375   55  

Interest expense

    (95 )       (1,994 ) (292 )       (3,332 ) (488 )

Income before income taxes

    5,891     103,241     202,096   29,606     55,191     86,306   12,643  

Income tax expenses

    (724 )   (17,475 )   (37,201 ) (5,450 )   (10,328 )   (13,852 ) (2,029 )

Net income

    5,167     85,766     164,895   24,156     44,863     72,454   10,614  

Deemed distribution on Series A convertible redeemable preferred shares—accretion of redemption premium

            (46,106 ) (6,754 )       (15,366 ) (2,251 )

Net income attributable to holders of ordinary shares

    5,167     85,766     118,789   17,402     44,863     57,088   8,363  

Earnings per share:

                                       

—Basic and diluted—ordinary shares

    0.05     0.86     1.14   0.17     0.45     0.54   0.08  

—Basic—Series A convertible redeemable preferred shares

    N/A     N/A     11.32   1.66     0.45     3.09   0.45  

Weighted average shares used in earnings per share calculation:

                                       

—Basic and diluted—ordinary shares

    100,000,000     100,000,000     100,000,000   100,000,000     100,000,000     100,000,000   100,000,000  

—Basic—Series A convertible redeemable preferred shares

    N/A     N/A     4,528,627   4,528,627     33,026     6,027,191   6,027,191  
   

60


 

   
 
  As of June 30,   As of September 30,  
(in thousands)
  2008
RMB

  2009
RMB

  2009
US$

  2009
RMB

  2009
US$

 
   

Consolidated Balance Sheets Data

                               

Cash and cash equivalents

    4,364     20,962   $ 3,071     57,492   $ 8,422  

Restricted cash

        35,019     5,130     34,063     4,990  

Accounts receivable

    28,178     70,511     10,329     120,622     17,670  

Inventories

    13,058     27,951     4,095     25,625     3,754  

Amount due from a related party

    666     4,133     605          

Amounts due from directors

    60     202     30     195     29  

Total current assets

    50,420     160,315     23,485     257,489     37,721  

Property, plant and equipment, net

    259,362     811,819     118,927     863,389     126,482  

Deposits for purchase of plant and equipment

    324,493     22,118     3,240     55,447     8,123  

Total assets

    641,856     1,003,494     147,006     1,185,607     173,686  

Accounts payable

    23,716     24,675     3,615     41,798     6,123  

Accrued expenses and other current liabilities

    88,997     16,386     2,400     41,273     6,046  

Income taxes payable

    14,544     12,749     1,868     17,625     2,582  

Amounts due to related parties

    8,207     5,784     847          

Amount due to a director

    54,590     41,397     6,064     41,384     6,063  

Amounts due to shareholders

    8,076     2,246     329     2,244     329  

Short-term bank borrowings

    7,250     42,200     6,182     42,200     6,182  

Total current liabilities

    205,380     145,437     21,306     186,524     27,325  

Accrued warranty costs

    1,534     2,574     378     2,794     409  

Government grants

        5,980     876     4,980     730  

Loan from a related party

    266,818     262,476     38,451     266,072     38,978  

Long-term bank borrowings

    32,750     30,250     4,431     27,700     4,058  

Total liabilities

    506,482     446,717     65,442     488,070     71,500  

Mezzanine equity:

                               

Series A convertible redeemable preferred shares

        276,569     40,516     360,272     52,778  

Total shareholders' equity

    135,374     280,208     41,048     337,265     49,408  

Total liabilities, mezzanine equity and shareholders' equity

    641,856     1,003,494   $ 147,006     1,185,607   $ 173,686  
   

 

   
 
  Fiscal year ended June 30,   Three months
ended
September 30,
 
 
  2007
  2008
  2009
  2008
  2009
 
   

Other Consolidated Financial Data (in percentages)

                               

Gross margin

    42.5     44.9     42.5     43.9     39.8  

Operating margin

    22.7     37.8     37.6     39.3     35.1  

Net margin

    19.7     31.4     30.5     31.9     28.5  

Selected Operating Data

                               

Total PV modules sold (in MW)

    1.5     18.2     39.5     10.6     20.6  
   

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Management's discussion and analysis of
financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected consolidated financial and operating data" and our audited consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk factors" and elsewhere in this prospectus.

Overview

We are one of the world's leading thin film solar product and solution providers as measured by production output in 2008, according to a report commissioned by us and prepared by Photon Consulting. According to this report, we were China's only thin film PV module producer ranked in the top ten globally by production output in 2008. As of the end of August 2009, our annual manufacturing capacity reached 115 MW. We use amorphous silicon technology and we design, develop, manufacture and sell our PV modules based on our proprietary manufacturing process and technology.

We offer more than 200 different varieties of PV modules in order to meet different customer needs. Our PV modules can be used in off-grid applications, including solar home systems, consumer products and street and lawn lamps. We believe that we are one of the leading producers of thin film PV modules for off-grid applications globally measured by production output. We also manufacture large modules that can be used in BIPV applications and PV power stations. We plan to continue to maintain and improve our leading position in the off-grid market, develop and market high-margin BIPV products and increasingly focus on the PV power station market. Our diverse and expanding customer base includes distributors, exporters, manufacturers and project developers, contractors and owners in China, South Korea and Thailand.

We commenced operations in 1993, became a manufacturer of thin film solar batteries in 1995 and began commercial production in 1998. We expanded our annual manufacturing capacity to 5 MW and began manufacturing PV modules for off-grid systems on a commercial scale in 2006, and gradually increased our annual manufacturing capacity to 45 MW by October 2008. In July 2009, we completed construction of our 70 MW fully-automated manufacturing, which commenced commercial production in August 2009, bringing our annual manufacturing capacity to 115 MW. We expect that by the end of 2009, our annual manufacturing capacity will reach 145 MW as a result of the further expansion of our existing 70 MW manufacturing line.

We believe that our self-designed equipment and proprietary manufacturing process have built-in flexibilities to allow us to expand manufacturing capacity rapidly and cost-effectively through modifications to, and optimizing the manufacturing process of, existing manufacturing lines. This advantage, when combined with our increasing scale and low-cost China-based manufacturing, allowed us to achieve an average manufacturing cost of approximately US$1.15 and US$1.09 per watt for the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, respectively, which we believe were among the lowest in the world.

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We operate and manage our business as a single segment, which represents the design, development, and manufacture and sales of PV products. We do not account for the results of our operations on a geographic or other basis, and we do not allocate expenses among our various products and services.

We believe the most significant factors that directly or indirectly affect our financial performance and results of operations include:

industry demand;

government subsidies and economic incentives;

our manufacturing capacity expansion;

pricing of PV products;

our product mix; and

our manufacturing cost.

Industry demand

Our business expansion and revenue growth depend on industry demand for solar energy products. The PV industry has grown significantly from the late 1990s to 2008 and the growth is expected to continue. According to Solarbuzz, the market, as measured by annual PV system installed capacities, grew at a CAGR of 53.0% from 1,086 MW in 2004 to 5,948 MW in 2008. Under Solarbuzz's "Green World" forecast scenario, annual PV system installed capacities are expected to increase from 5,291 MW in 2009 to 14,792 MW in 2013, representing a CAGR of 29.3% from 2009 to 2013.

Beginning in the second half of 2008, the global financial crisis has significantly reduced the demand for products requiring significant initial capital expenditures, including the demand for solar energy products. Despite the current global financial crisis, we believe that solar energy continues to have significant future growth potential and that demand for our products will grow significantly over the long run. According to Solarbuzz and based on our industry knowledge, we expect that such strong market growth will mainly be driven by economic growth, rising electricity demand, continuing government incentives, national goals for energy independence, the need for power grids to meet peak electricity demand and enhanced environmental awareness. More importantly, solar energy is becoming increasingly competitive when compared with conventional electricity due to narrowing cost differentials as a result of greater economies of scale for manufacturing PV modules, lower equipment and raw material costs and improved conversion and production efficiencies.

Future market growth will also be affected by the growth of the global economy, the stability of the financial markets and the ability of PV product manufacturers to further expand production capacity and reduce manufacturing costs.

Government subsidies and economic incentives

We believe that the demand for our PV modules in the near term will be significantly affected by the availability of government subsidies and economic incentives in our target markets. Today, the cost of solar power substantially exceeds the cost of electricity generated from conventional fossil fuels. Governments in China and in many of our target markets, such as

63



South Korea, Thailand, and the United States, provide various subsidies and economic incentives to encourage the use of solar energy.

China has been our largest market and, for the near future, we plan to continue to focus our main marketing and sales effort there. Authorities from various levels of the PRC government have released detailed statements on incentive schemes for the solar energy industry in recent years. New policies are expected to expand China's nascent solar market and change its character, dramatically increasing the number of large on-grid ground-mounted systems as well as BIPV and other applications.

Nonetheless, the lack of implementation details for recent incentive schemes released by PRC government authorities may cause demand for PV products, including our products, not to grow as rapidly as we expect, if at all. In addition, political changes in a particular country could result in significant reductions or eliminations of subsidies or economic incentives, and the effects of the recent global financial crisis may affect the fiscal ability of governments to offer certain types of incentives, such as tax credits. A significant reduction in the scope or discontinuation of government incentive programs, especially those in China and our target overseas markets, could cause demand for our products and our revenues to decline, and have a material adverse effect on our business, financial condition, results of operations and prospects.

Our manufacturing capacity expansion

We have rapidly expanded our manufacturing capacity to accommodate the growing demand for our products. This increasing capacity allows us to post higher revenues as we produce and sell more PV products, and increases our economies of scale.

We commenced operations in 1993, became a manufacturer of thin film solar batteries in 1995 and began commercial production in 1998. According to an article published in 2005 by Industry and Technology Intelligence Services, a national project sponsored by the Department of Industrial Technology of Ministry of Economic Affairs of Taiwan, we became the second-largest thin film solar battery manufacturer in the world in 2004. In 2006, we expanded our annual manufacturing capacity to 5 MW and began manufacturing PV modules for off-grid systems on a commercial scale, and gradually increased our annual manufacturing capacity to 45 MW by October 2008. In July 2009 we completed the construction of our 70 MW fully-automated manufacturing line, which commenced commercial production in August 2009, bringing our annual manufacturing capacity to 115 MW. We currently produce PV modules of up to 1.0 square meter in size. This new manufacturing line can be adjusted with limited additional capital investment to produce PV modules of 1.8 square meters in size.

We believe that our self-designed equipment and proprietary manufacturing process have built-in flexibilities to allow us to expand manufacturing capacity rapidly and cost-effectively through modifications to, and optimizing the manufacturing process of, existing manufacturing lines. We expect that by the end of 2009, our annual manufacturing capacity will reach 145 MW as a result of the further expansion of our existing 70 MW manufacturing line.

Our capacity expansion has enabled us to increase both our product shipment and total revenues over the past three fiscal years and the three months ended September 30, 2009. In the three fiscal years ended June 30, 2007, 2008, and 2009 and the three months ended September 30, 2009, we sold 1.5 MW, 18.2 MW, 39.5 MW and 20.6 MW of PV products,

64



respectively, and our total revenues amounted to RMB26.2 million, RMB272.8 million, RMB541.5 million (US$79.3 million) and RMB254.6 million (US$37.3 million), respectively.

Pricing of PV products

Pricing of our PV products is principally affected by the overall demand in the PV industry and by the average PV module manufacturing cost per watt. We price our PV modules based on the prevailing market prices when we enter into sales contracts with our customers or when our customers place their purchase orders with us. We also consider the size of the contract or the purchase order, the history and strength of our relationship with a particular customer, our raw material costs and other factors.

Demand for PV products has decreased as a result of the global financial crisis, but the supply of PV products has increased significantly as many manufacturers of PV products worldwide, including our company, have engaged in significant manufacturing capacity expansion in recent years. Beginning in the fourth quarter of 2008, this oversupply has resulted in reductions in the prevailing market prices of PV products as manufacturers have reduced their average selling prices. In addition, the recent industry-wide reduced demand for PV products and oversupply of polysilicon have led to a decline in the polysilicon price, which has significantly reduced the raw material costs for crystalline silicon PV module manufacturers and allowed them to reduce their selling prices of PV modules. This has contributed to greater pricing pressure on our thin film PV modules and negatively affected our profit margins.

We expect that the prices of PV products to continue to decline over time due to an increased supply of PV products, reduced manufacturing costs from new technologies and increased economies of scale, and continuing decreases in the prices of polysilicon and silicon wafers for crystalline silicon based manufacturers.

Our product mix

We derive revenues from sales of PV modules for off-grid applications, including solar home systems, consumer products and street and lawn lamps. We also derive revenue from sales of PV modules for BIPV applications and PV power stations. Our product mix has affected, and is expected to continue to affect the average selling price of our PV modules and our gross margin. The pricing of our PV modules for off-grid applications has been and, we expect, will continue to be more stable than that of our PV modules for on-grid applications due to our long-term relationships with distributors and manufacturers of off-grid applications in this fragmented market. As a result, gross margins for our PV modules for off-grid applications are generally higher compared to our PV modules for PV power stations. In addition, the prices of off-grid applications, particularly those installed in remote locations, have been competitive compared with alternative options taking into account lower operating and maintenance costs, increased reliability and longer operating lifetimes. Given the lack of viable energy alternatives in these communities, revenues from such applications and average selling prices of such applications are less susceptible to the effects of economic decline.

Sales of PV modules for off-grid solar applications have constituted a majority of our total revenues in each of the three fiscal years ended June 30, 2009 and the three months ended September 30, 2009. As we continue to ramp up production, we expect sales of our PV modules for PV power stations to represent an increasingly larger proportion of our total sales. We believe that this shift will negatively impact our gross margin, since sales of our PV modules for off-grid applications generally yield higher gross margins than sales of our

65



PV modules for PV power stations. However, the sales volume of our PV modules for PV power stations are generally higher than that of off-grid applications, which likely generates higher gross profit amounts despite the lower gross margins from the sale of our PV modules for such PV power stations. We are also focused on developing and marketing PV modules for high-margin BIPV applications, which may offset some of the negative impact of increased sales of our PV modules for PV power stations to our gross margin. In particular, we believe that the average selling prices of our PV modules for customized BIPV applications are and will continue to be substantially higher than those of our other products, partially offset by the increased manufacturing costs for these PV modules due to complicated design and additional wastage in the manufacturing process. As a result, we believe that our PV modules for customized BIPV applications will yield a higher gross margin.

Our manufacturing costs

Our manufacturing costs are lower than that of crystalline silicon PV module manufacturers. We believe that our ability to provide low-cost solutions stems primarily from the following factors:

With thin film technology, we only use approximately 1% to 2% of the silicon materials used to produce crystalline silicon PV modules;

Unlike the crystalline silicon manufacturing process, our thin film production is a fully integrated and continuous process with higher manufacturing efficiency;

Our self-designed equipment and proprietary manufacturing process, especially our experience in designing and assembling commercial-scale plasma-enhanced chemical vapor deposition, or PECVD, and physical vapor deposition, or PVD, equipment for deposition, enable us to expand manufacturing capacity rapidly and cost-effectively. The cost of our 70 MW automated manufacturing line installed in July 2009 was approximately RMB560 million (US$82.0 million). Our design capability also allows us to ramp up production quickly in response to increases in market demand and changes in technology; and

As we conduct substantially all of our operations in China, we are able to capitalize on the low cost of labor and materials, manufacturing facilities and utilities. We can realize such cost savings in manufacturing, research and development and other technical resources, sales and marketing, and administration.

In addition, we have implemented a number of continuous improvement programs, including:

continuously improving the conversion efficiency of our PV modules to increase production volume with the same number of PV modules; and

increasing our manufacturing capacity to take advantage of greater economies of scale.

For the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, the average manufacturing cost for our PV modules was approximately US$1.15 and US$1.09 per watt, respectively, which we believe is significantly lower than that of the crystalline silicon PV module manufacturers and among the lowest in thin film manufacturing.

The recent price drop of the major raw material for crystalline silicon PV modules, polysilicon, significantly reduced the raw material costs for crystalline silicon PV module manufacturers and allowed them to reduce their selling prices of PV modules. Nevertheless, we expect that our

66



thin film PV modules will remain more cost-effective to manufacture than crystalline silicon PV modules for the foreseeable future. A substantial portion of the manufacturing cost of our thin film PV modules relates to costs of other materials and our manufacturing process. As we continue to improve our manufacturing process, increase the conversion efficiency of our PV modules and expand our capacity to benefit from greater economies of scale, the effect of reduction in polysilicon price on our competitiveness in terms of manufacturing costs is partially mitigated.

Revenues

We derive revenues from sales of PV modules for off-grid applications, including solar home systems, consumer products and street and lawn lamps. We also derive revenue from sales of PV modules for BIPV applications and PV power stations.

The following table sets out a breakdown of our revenues for our PV modules by application category, and each expressed as a percentage of our total revenues, for the periods indicated:

   
 
  Fiscal year ended June 30,   Three months ended September 30,  
 
  2007   2008   2009   2008   2009  
 
  in
thousands
of RMB

  % of total
revenues

  in
thousands
of RMB

  % of total
revenues

  in
thousands
of RMB

  in
thousands
of US$

  % of total
revenues

  in
thousands
of RMB

  % of total
revenues

  in
thousands
of RMB

  in
thousands
of US$

  % of total
revenues

 
   

PV modules for off-grid applications

    26,237     100.0     254,066     93.1     482,068   $ 70,620     89.0     135,669     96.5     223,906   $ 32,801     87.9  

PV modules for BIPV applications

            18,751     6.9     45,019     6,595     8.3     4,934     3.5     30,693     4,496     12.1  

PV modules for PV power stations

                    14,375     2,106     2.7                      
                       

Total revenues

    26,237     100.0     272,817     100.0     541,462   $ 79,321     100.0     140,603     100.0     254,599   $ 37,297     100.0  
   

We currently sell a substantial portion of our PV products to a limited number of customers, including distributors, exporters, manufacturers and project developers, contractors and owners. In the three fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009, our largest customer accounted for 28.0%, 56.0%, 14.0% and 9.3% of our total revenues, respectively. Our largest customer in the two fiscal years ended June 30, 2008 and 2009 and the three months ended September 30, 2009 was a customer in Thailand that is engaged in the development of solar energy, highways, power stations, telecommunications and transportation. We do not expect such customer to account for a higher percentage of our revenues in the fiscal year ending June 30, 2010 than that in the fiscal year ended June 30, 2009. Our other major customers in the fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009 were mainly China-based distributors and manufacturers.

The loss of any of our major customers, especially our largest customer, could have an adverse effect on our business. As we expand our manufacturing capacity, we anticipate developing additional customer relationships in other markets and regions, which will reduce our customer and geographic concentration and dependence. Conversely, the expansion of our business into producing PV modules for large-scale PV power stations which could utilize a large percentage of our manufacturing capacity and thereby limit our capacity for new projects, may result in a concentration of our customers.

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Our sales have not been affected by seasonality and we do not expect seasonality to have a material impact to our sales in the future.

Cost of revenues and operating expenses

The following table sets forth our cost of revenues and operating expenses as percentages of our total revenues for the periods indicated.

   
 
  Fiscal year ended June 30,   Three months
ended
September 30,
 
 
  2007
  2008
  2009
  2008
  2009
 
   

Cost of revenues

    57.5%     55.1%     57.5%     56.1%     60.2%  

Operating expenses

                               
 

Selling and distribution expenses

    5.1         1.1         0.7         0.5         0.4      
 

General and administrative expenses

    21.6         6.0         3.8         3.8         3.1      
 

Research and development expenses

    6.5         1.1         1.0         0.7         1.2      
       
 

Total operating expenses (excluding other operating income and government grant)

    33.2%     8.2%     5.5%     5.0%     4.7%  
   

Cost of revenues

Our cost of revenues primarily consists of:

the cost of raw materials used in manufacturing, such as transparent conductive oxide, or TCO, coated glass and silane, which constitute the most critical raw materials for our products, as well as ethylene vinyl acetate, tempered glass, lead wire and solar connectors.

manufacturing overhead, including salaries and benefits for personnel directly involved in manufacturing activities, depreciation of manufacturing equipment and facilities, water and electricity, consumables, rent and other expenses associated with the manufacturing of our products. Due to our capacity expansion, manufacturing overhead expenses have increased significantly in absolute terms. We expect the manufacturing overhead to continue to increase in absolute terms in the future as we continue to expand our manufacturing capacity and build new facilities; and

accrued warranty costs. Our products are typically sold with warranties for up to one year for defects in materials and workmanship in accordance with industry standards in the off-grid and BIPV markets. On a case by case basis, we provide warranties with extended periods to a select number of customers at their request. As of June 30, and September 30, 2009, our accrued warranty costs amounted to RMB2.6 million (US$0.4 million) and RMB2.8 million (US$0.4 million), respectively. We have not experienced significant warranty claims in the three fiscal years ended June 30, 2009 and the three months ended September 30, 2009. Due to the short duration of the one-year warranty for defects in materials and workmanship, our assumptions regarding the durability, stability and reliability of our products and the absence of warranty claims received to date, we expect future costs related to the one-year warranty to be insignificant and we did not make any related provisions for warranty costs. We make provisions for warranty costs for the extended warranties that we provide to a select number of customers at an accrual rate of 1% of the sales. In the aggregate, we do not expect provisions for warranty costs to be significant in the future.

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Our cost of revenues as a percentage of our total revenues increased to 57.5% in the fiscal year ended June 30, 2009 from 55.1% in the fiscal year ended June 30, 2008, after decreasing from 57.5% in the fiscal year ended June 30, 2007. Such percentage further increased to 60.2% in the three months ended September 30, 2009. The decrease in cost of revenues as a percentage of our total revenues from the fiscal year ended June 30, 2007 to the fiscal year ended June 30, 2008 was primarily attributable to a reduction in our manufacturing overhead as a percentage of our total revenues and decreases in the cost of our raw materials. The increase in cost of revenues as a percentage of our total revenues from the fiscal year ended June 30, 2008 to the fiscal year ended June 30, 2009 was primarily attributable to increases in the cost of our raw materials, partially offset by the decrease of our manufacturing overhead as a percentage of our revenues. The increase in our cost of revenues as a percentage of total revenues in the three months ended September 30, 2009 was primarily attributable to a decrease in the average selling price of our products during the period, which was partially offset by a decrease in the average purchase price of raw materials during the same period.

Operating expenses

Our operating expenses consist of selling and distribution expenses, general and administrative expenses and research and development expenses.

Selling and distribution expenses.  Selling and distribution expenses primarily consist of salaries for personnel directly involved in the selling and distribution activities, transportation costs of products, travel and promotion expenses and other office expenses attributable to our sales and distribution activities. Our selling and distribution expenses as a percentage of our total revenues decreased significantly every fiscal year from the fiscal year ended June 30, 2007 to the fiscal year ended June 30, 2009 and further decreased in the three months ended September 30, 2009. This decrease was primarily due to our ability to support the expansion of our business with a relatively small sales and distribution department and our ability to increase our sales level with limited promotional efforts.

General and administrative expenses.  General and administrative expenses consist primarily of salaries and benefits for our administrative, human resources and finance personnel, and also include fees and expenses of auditing, legal, consulting and other professional services, and traveling costs.

Research and development expenses.  Research and development expenses primarily consist of salaries and benefits for our research and development personnel, raw materials used in our research and development activities, travel and other expenses. We expense our research and development costs as incurred. We believe that research and development is critical for our strategic objectives of enhancing our technologies, reducing manufacturing costs and meeting the changing requirements of our customers.

Our operating expenses as a percentage of our total revenues decreased drastically from 33.2% in the fiscal year ended June 30, 2007 to 8.2% in the fiscal year ended June 30, 2008 and 5.5% in the fiscal year ended June 30, 2009 and was further reduced to 4.7% in the three months ended September 30, 2009. The decrease was mainly attributed to cost savings from increased economies of scale in our operations. We conduct a majority of our development, design and manufacturing operations in China, where the costs of skilled labor, engineering and technical resources, as well as land, facilities and utilities, tend to be lower than those in more

69



developed countries. We have been able to increase operating efficiencies and expand our manufacturing capacity in a cost-effective manner.

Government grants

Government grants include cash subsidies as well as advance subsidies we received from the PRC government. Such subsidies are generally provided in relation to the research and development of solar energy products. Government grants recognized in the consolidated statements of operations amounted to RMB3.4 million, RMB3.1 million and RMB3.7 million (US$0.5 million) for the fiscal years ended June 30, 2007, 2008 and 2009, respectively. We did not recognize any grants in the three months ended September 30, 2009.

Taxation

Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax in the Cayman Islands. Additionally, dividend payments made by us are not subject to withholding tax in the Cayman Islands.

Our Hong Kong subsidiary, Grand Sun Hong Kong International Investment Limited, is subject to Hong Kong profit tax, at a rate of 17.5% for fiscal year ended June 30, 2007 and 16.5% for each of the fiscal years ended June 30, 2008 and 2009 and the three months ended September 30, 2009. There is no withholding tax on the dividends distributed from our Hong Kong subsidiary.

We are subject to taxation in China by virtue of the business our PRC subsidiary conducts there.

PRC enterprise income tax

Before the EIT Law and its implementation rules became effective on January 1, 2008, entities operating in the PRC were typically subject to the Enterprise Income Tax rate of 33% (30% state tax and 3% local tax). However, pursuant to certain tax incentive policies, a preferential tax rate of 15% was available to foreign invested enterprises located in the Shenzhen Special Economic Zone, including Trony Science.

Under the EIT Law, effective on January 1, 2008, domestically-owned enterprises and foreign invested enterprises are typically subject to a uniform tax rate of 25%. However, companies that previously enjoyed preferential tax treatments were afforded a transition period by the implementation regulations of the EIT Law. Trony Science enjoyed such a preferential tax treatment and thus would be eligible for a gradual increase of tax rate to 25% in five years beginning January 1, 2008. Specifically, the applicable rate under this transitional arrangement would be 18%, 20%, 22%, 24% and 25% for the years of 2008, 2009, 2010, 2011 and 2012, respectively. Since Trony Science is an enterprise operating in the Shenzhen Special Economic Zone, it is eligible for the aforementioned transitional arrangement.

For those enterprises entitled to tax holidays, such tax holidays shall continue until their expiration in accordance with previous tax laws, regulations and relevant regulatory documents, but where a tax holiday has not yet started, it shall be deemed to commence from 2008, the first effective year of the new tax law.

Trony Science had been fully entitled to the tax holiday aforementioned. Despite the transitional arrangement with the gradual increase of tax rate, Trony Science should be able to

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opt for another more favorable preferential tax treatment by its new high technology enterprise status below.

Under the new tax law, companies engaged in certain encouraged sectors including those classified as "new high technology enterprises" by the relevant PRC authorities are entitled to a preferential tax rate of 15%. Trony Science was certified as a "new high technology enterprise" on December 18, 2008. In April 2009, upon its completion of required registration with the tax authority in-charge, Trony Science became entitled to the preferential tax rate of 15% rate from April 2009 for three years.

If Trony Science ceases to qualify for its current preferential EIT rates, we will consider options that may be available at the time that would enable the entity to qualify for other preferential tax treatment. To the extent we are unable to offset the expiration or the inability to obtain preferential tax treatment with new tax exemptions, tax incentives or other tax benefits, our effective tax rate will increase. The amount of income tax payable by Trony Science or any other subsidiaries we establish in the PRC in the future will depend on various factors, including, among other things, the results of operations and taxable income of, and the statutory tax rate applicable to, such PRC subsidiaries.

The PRC central or provincial government could eliminate or reduce the preferential tax treatment in the future, which, as a result, would lead to an increase in our effective tax rate. Upon the eventual lapse of the preferential EIT rates of these subsidiaries, our effective tax rate will increase in the future.

Taxable presence exposure in the PRC

Under the EIT Law, enterprises established under the laws of non-PRC jurisdictions, but whose "effective management" is located in the PRC, should be treated as resident enterprises for PRC tax purposes. Under the implementation rules of the EIT Law, "effective management" is defined as material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise.

Substantially all of our operational management is currently based in the PRC, and remains in the PRC. If the "effective management" of our Cayman Islands company and our Hong Kong company were deemed to be located in the PRC, both companies would be treated as resident enterprises for PRC tax purposes. Therefore, all profits from both companies, and other companies with "effective management" in the PRC, would be subject to the 25% unified tax rate promulgated by the EIT Law. This imposition would have an impact on our effective tax rate.

However, if both our Cayman Islands company and Hong Kong company were treated as resident enterprises for PRC tax purposes, dividends distributed from our PRC subsidiary to our Hong Kong company and ultimately to our Cayman Islands company could be exempt from withholding tax in China.

Critical accounting policies

We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the consolidated

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financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management's judgment.

Revenue recognition

We recognize revenue for PV module sales when persuasive evidence of an arrangement exists, in the form of written agreements, delivery of the product has occurred, title and risk of loss have been transferred to the customer, the sales price is fixed or determinable, and the collectability of the resulting receivable is reasonably assured. We recognize revenue from service contracts upon completion of all services, assuming all other revenue recognition criteria have been met. We sell our PV modules to distributors, exporters, manufacturers and project developers, contractors and owners. Our written agreements contain customary product warranties and do not include any post shipment obligations, any right of return or credit provisions.

A majority of the sales contracts provide that the customers take delivery of and inspect the products for acceptance at our manufacturing premises. We fulfill our obligations when the customers take delivery of the products, except for one contract, in which product acceptance is established only when the products are put into use by the customer. In this contract, revenue is only recognized once acceptance from the customer is received. The customers arrange for the shipping of the goods and bear all the costs of shipping and the risks associated with loss or damage of the goods from the point of delivery.

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 collectability of the resulting receivable. We have extended credit with a credit period ranging from 60 days to 120 days to customers and assessed a number of factors to determine whether collection was reasonably assured including the customers' credit worthiness. We have not experienced significant issues in our collections.

Long-lived assets

We depreciate and amortize our property, plant and equipment using the straight-line method of accounting over the estimated useful lives of the assets. We make estimates of the useful lives of property, plant and equipment in order to determine the amount of depreciation expense to be recorded during each reporting period. We estimate the useful lives at the time the assets are acquired based on historical experience with similar assets as well as anticipated technological or other changes. If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, we might shorten the useful lives assigned to these assets, which would result in the recognition of increased depreciation and amortization expense in future periods. There has been no change to the estimated useful lives during the periods presented.

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We evaluate long-lived assets, including property, plant and equipment, which are subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We assess recoverability by comparing the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, we recognize an impairment charge based on the amount by which the carrying amount of the asset exceeds the fair value of the asset. We estimate the fair value of the asset based on the best information available, including prices for similar assets and, in the absence of an observable market price, the results of using a present value technique to estimate the fair value of the asset. We did not recognize any impairment loss during each of the three fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009.

Warranty costs

We generally warrant our products for up to one year for defects in materials and workmanship in accordance with industry standards in the off-grid and BIPV markets. Due to the short duration of the one-year warranties for defects in materials and workmanship, our assumptions regarding the durability, stability and reliability of our products and the absence of warranty claims received to date, we expect future costs related to the one-year warranty to be insignificant. As a result, we did not make provisions for our standard one-year warranty for defects in materials and workmanship for all years presented. On a case by case basis, we provide warranties with extended periods to a select number of customers at their request. For instance, we provided a warranty to one customer for our products for up to ten years for compliance with the quality and technical specifications provided in the contract and against defects in materials and workmanship. We also provided a warranty to another customer for up to 25 years against defects in equipment and workmanship and up to 10 and 25 years against declines of more than 10% and 20% of rated power, respectively. We maintain warranty reserves to cover potential liabilities that could arise under these warranties. We made provisions for warranty costs for these warranties with extended periods at an accrual rate of 1% of the sales. Due to limited warranty claims to date, we estimate the costs of warranties based on assessment of our competitors' accrual history, taking into consideration the intended applications and specifications of these competitors' products as compared to our product and the periods of the warranties offered by these competitors. We employ internal quality control procedures at various stages throughout our design, raw material procurement and manufacturing processes to identify and solve quality issues and to maintain and improve the quality of our products. For details on our internal quality control procedures, see "Business—Quality assurance and certifications." As a result of these internal quality control procedures, we believe that certain aspects of the quality of our products are comparable to those of our competitors with respect to equipment defects, workmanship and other quality and technical specifications for which we may provide warranties. Such comparability analysis forms part of the basis for our belief that the accrual history of our competitors provides a reasonable reference for our estimated warranty costs. Actual warranty costs are accumulated and charged against the accrued warranty liability. To the extent that accrual warranty costs differ from the estimates, we will prospectively revise the accrual rate for such costs. Accrued warranty costs related to our warranties of RMB1.5 million, RMB2.6 million (US$0.4 million) and RMB2.8 million (US$0.4 million) were provided at June 30, 2008 and 2009 and September 30, 2009, respectively. Our estimates for determining the accruals for warranty costs may be

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affected by substandard materials that could be provided by our suppliers and new product developments.

Inventories

Our inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method. Cost comprises direct materials, direct labor and related manufacturing overhead incurred in bringing the inventories to their present location and condition. We routinely evaluate the value of our inventories in light of market conditions and record write-downs against the cost of inventories for a decline in net realizable value. The evaluation takes into consideration a number of factors including historical and forecasted consumption of our raw materials, our sales contract of finished goods on hand, marketability of our inventories, anticipated change in market selling price, risk of obsolescence of our inventories due to changes in technology or developments to our product offerings, changes in governmental regulations over time and other factors.

We recognized no inventory write-downs for each of the three fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009.

Income tax and valuation allowance against deferred tax assets

We estimate income tax expense for each jurisdiction in which we operate and for each period presented, which includes estimating current tax exposure as well as assessing realizable deferred tax assets and deferred tax liabilities.

As of June 30, 2008 and 2009 and September 30, 2009, our deferred tax assets were RMB1.4 million, RMB2.6 million (US$0.4 million) and RMB2.7 million (US$0.4 million), respectively, primarily resulting from temporary differences between accounting and tax basis on warranty provision, property, plant and equipment and government grants. We recognize deferred income taxes for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, and net operating loss carry forwards and credits by applying enacted statutory tax rates applicable to future years. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our valuation allowance would increase our net income in the period such determination was made. Likewise, if we determined that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our valuation allowance would be charged to our consolidated statements of operations in the period such determination is made. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. Significant management judgment based upon the possible sources of taxable income, and the evidence available for each possible sources of taxable income on a jurisdiction by jurisdiction basis, is required in determining income tax expense and deferred tax assets and liabilities. The weight given to the potential effect of negative and positive evidence is proportionate to the strengths of the evidence that can be objectively verified. For the fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009, the Company concluded that it was more likely than not that all of the deferred tax assets would be realized, and a valuation allowance was not required based on its evaluation and weighting of the positive and negative evidence.

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Allowances for doubtful receivables

We maintain allowances for doubtful receivables for estimated losses that may result from the failure of customers to make required payments. Although we do not have a formalized written policy on credit control and monitoring systems, we review the accounts receivable on a periodic basis and make specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, number of days sales outstanding, a measure of the average number of days that we take to collect revenues after a sale has been made, the customer's past payment history and current credit-worthiness and current economic trends. We did not recognize any bad debt expenses during each of three fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009.

Our selected quarterly results of operations

We believe that comparisons of our most recent fiscal quarters, which we have included below, provide useful information for investors regarding our results of operations and illustrate the recent trends in our business and operations. However, you should not rely on these quarter-to-quarter comparisons of our historical results to predict our future performance. There are many factors, including those discussed under "Risk Factors" and elsewhere in this prospectus that could have a material adverse effect on our business and operating results. The following table presents our selected quarterly results of operations for the seven quarters ended September 30, 2009. You should read the following table in conjunction with our consolidated financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited financial information on the same basis as our audited consolidated financial statements. The financial information reflects all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. The selected historical quarterly results presented below are not necessarily indicative of the results that may be expected for any future quarters or for any full year.

   
 
  Three months ended  
(in thousands)
  March 31,
2008
RMB

  June 30,
2008
RMB

  September 30,
2008
RMB

  December 31,
2008
RMB

  March 31,
2009
RMB

  June 30,
2009
RMB

  September 30,
2009
RMB

 
   

Total revenues

    72,050     102,535     140,603     124,897     127,991     147,971     254,599  

Total cost of revenues

    (39,920 )   (55,679 )   (78,929 )   (69,247 )   (73,894 )   (89,387 )   153,259  

Gross profit

    32,130     46,856     61,674     55,650     54,097     58,584     101,340  

Selling and distribution expenses

    (904 )   (629 )   (725 )   (1,344 )   (870 )   (952 )   (1,110 )

General and administrative expenses

    (4,981 )   (4,980 )   (5,354 )   (4,873 )   (5,158 )   (5,231 )   (7,981 )

Research and development expenses

    (962 )   (905 )   (1,027 )   (1,518 )   (1,431 )   (1,559 )   (2,986 )

Government grants

    1,000     1,500     600     3,050              

Other income

        7             47          

Income from operations

    26,283     41,849     55,168     50,965     46,685     50,842     89,263  

Interest income (expenses), net

    12     10     23     143     (796 )   (934 )   (2,957 )

Income before income taxes

    26,295     41,859     55,191     51,108     45,889     49,908     86,306  

Income tax expenses

    (4,458 )   (6,948 )   (10,328 )   (10,175 )   (8,512 )   (8,186 )   (13,852 )

Net income

    21,837     34,911     44,863     40,933     37,377     41,722     72,454  
   

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Results of operations

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations. Each item has also been expressed as a percentage of our total revenues. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

   
 
  Fiscal year ended June 30,   Three months ended September 30,  
 
  2007   2008   2009   2008   2009  
(in thousands)
  RMB
  % of
total
revenues

  RMB
  % of
total
revenues

  RMB
  US$
  % of
total
revenues

  RMB
  % of
total
revenues

  RMB
  US$
  % of
total
revenues

 
   

Consolidated Statements of Operations Data

                                                                         

Total revenues

    26,237     100.0     272,817     100.0     541,462   $ 79,321     100.0     140,603     100.0     254,599   $ 37,297     100.0  

Cost of revenues

    (15,074 )   57.5     (150,333 )   55.1     (311,457 )   (45,627 )   57.5     (78,929 )   56.1     (153,259 )   (22,452 )   60.2  
                       

Gross profit

    11,163     42.5     122,484     44.9     230,005     33,694     42.5     61,674     43.9     101,340     14,845     39.8  

Selling and distribution expenses

    (1,340 )   5.1     (2,901 )   1.1     (3,891 )   (570 )   0.7     (725 )   0.5     (1,110 )   (163 )   0.4  

General and administrative expenses

    (5,676 )   21.6     (16,400 )   6.0     (20,616 )   (3,020 )   3.8     (5,354 )   3.8     (7,981 )   (1,169 )   3.1  

Research and development expenses

    (1,716 )   6.5     (3,084 )   1.1     (5,535 )   (811 )   1.0     (1,027 )   0.7     (2,986 )   (437 )   1.2  

Government grants

    3,387     12.9     3,050     1.1     3,650     535     0.6     600     0.4              

Other income

    129     0.5     7     0.0     47     7     0.0                      
                       

Income from operations

    5,947     22.7     103,156     37.8     203,660     29,835     37.6     55,168     39.3     89,263     13,076     35.1  

Interest income (expense), net

    (56 )   0.2     85     0.0     (1,564 )   (229 )   0.3     23     0.0     (2,957 )   (433 )   1.2  
                       

Income before income taxes

    5,891     22.5     103,241     37.8     202,096     29,606     37.3     55,191     39.3     86,306     12,643     33.9  

Income tax expenses

    (724 )   2.8     (17,475 )   6.4     (37,201 )   (5,450 )   6.8     (10,328 )   7.4     (13,852 )   (2,029 )   5.4  
                       

Net income

    5,167     19.7     85,766     31.4     164,895   $ 24,156     30.5     44,863     31.9     72,454   $ 10,614     28.5  
   

Three months ended September 30, 2009 compared to three months ended September 30, 2008

Total revenues.    Our total revenues increased by 81.1% from RMB140.6 million in the three months ended September 30, 2008 to RMB254.6 million (US$37.3 million) in the three months ended September 30, 2009. The increase was primarily due to a significant increase in sales volume of our products, which was driven by an increased demand for our PV modules by our existing customers and the expansion of our customer base. We were able to increase our production volume to satisfy market demand with our newly expanded manufacturing capacity. We sold an aggregate of 20.6 MW of PV modules in the three months ended September 30, 2009 compared to 10.6 MW in the three months ended September 30, 2008. Our total revenues were largely derived from sales to customers in China, who in turn sell our products directly or as part of their final products to their customers worldwide, including manufacturers and end users. Sales to our customers in China accounted for 80.4% of our total revenues in the three months ended September 30, 2009, compared to 70.1% in the three months ended

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September 30, 2008. Apart from sales to customers in China, we also derived revenues from sales directly to customers in Hong Kong, Thailand and other countries in the three months ended September 30, 2009. The number of customers contributing 10% or more of our total revenues decreased from two in the three months ended September 30, 2008 to zero in the three months ended September 30, 2009. In the three months ended September 30, 2008, these two customers accounted for 33% of our total revenues. We intend to continue to diversify our customer base in order to achieve balanced and sustainable sales growth.

Cost of revenues.    Our cost of revenues increased by 94.3% from RMB78.9 million in the three months ended September 30, 2008 to RMB153.3 million (US$22.5 million) in the three months ended September 30, 2009. The increase in our cost of revenues was primarily due to the significant increase in the volume of PV modules sold in the three months ended September 30, 2009 and an increase in our depreciation costs from RMB6.3 million to RMB10.2 million (US$1.5 million), as we began to depreciate capitalized construction costs in connection with our new 70 MW manufacturing line, which commenced commercial production in August 2009. Our cost of revenues as a percentage of total revenues increased to 60.2% in the three months ended September 30, 2009 from 56.1% in the three months ended September 30, 2008. This increase was primarily attributable to a decrease in the average selling price of our products during the three months ended September 30, 2009, which was partially offset by a decrease in the average purchase price of raw materials during the same period. This increase was also partially attributable to a temporary increase in the amount of materials used in our manufacturing process as we adjusted our new 70 MW manufacturing line for commercial production, which we expect to complete prior to the end of 2009.

Gross profit.    As a result of the foregoing, our gross profit increased by 64.2% from RMB61.7 million in the three months ended September 30, 2008 to RMB101.3 million (US$14.8 million) in the three months ended September 30, 2009, and our gross margin decreased from 43.9% in the three months ended September 30, 2008 to 39.8% in the three months ended September 30, 2009.

Selling and distribution expenses.    Our selling and distribution expenses increased by 57.1% from RMB0.7 million in the three months ended September 30, 2008 to RMB1.1 million (US$0.2 million) in the three months ended September 30, 2009. The increase was mainly attributable to increased traveling expenses from RMB0.1 million to RMB0.3 million (US$44,000) and promotion expenses from RMB0.1 million to RMB0.3 million (US$44,000). Selling and distribution expenses as a percentage of our total revenues decreased from 0.5% in the three months ended September 30, 2008 to 0.4% in the three months ended September 30, 2009, as a result of economies of scale in our sales and marketing activities and our ability to increase our sales level with limited promotional efforts, which was further strengthened by strong market demand. We anticipate that our selling and distribution expenses as a percentage of our total revenues will increase as we continue to enhance our sales and marketing efforts to support our business expansion and capture additional market opportunities.

General and administrative expenses.    Our general and administrative expenses increased by 48.1% from RMB5.4 million in the three months ended September 30, 2008 to RMB8.0 million (US$1.2 million) in the three months ended September 30, 2009. This increase was primarily due to an increase in staff costs from RMB2.1 million to RMB3.7 million (US$0.5 million) as a result of increased headcount, an increase in travel, entertainment and office related expenses from RMB0.8 million to RMB1.5 million (US$0.2 million) and an increase in other expenses from

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RMB0.2 million to RMB0.9 million (US$0.1 million). This increase was partially offset by a foreign exchange gain of RMB0.1 million (US$14,649) in the three months ended September 30, 2009 compared to a foreign exchange loss of RMB0.3 million in the three months ended September 30, 2008. General and administrative expenses as a percentage of our total revenues decreased from 3.8% in the three months ended September 30, 2008 to 3.1% in the three months ended September 30, 2009.

Research and development expenses.    Our research and development expenses increased by 200.0% from RMB1.0 million in the three months ended September 30, 2008 to RMB3.0 million (US$0.4 million) in the three months ended September 30, 2009. This increase was primarily due to an increase in the research and materials used in the testing process from RMB163,000 to RMB1.1 million (US$161,000) and an increase in the staff costs from RMB0.7 million to RMB1.5 million (US$220,000). Research and development expenses as a percentage of our total revenues increased from 0.7% in the three months ended September 30, 2008 to 1.2% in the three months ended September 30, 2009, as we continue to increase our research and development efforts.

Government grants.    We recognized government grants in connection with research and development projects chosen by various government authorities in the amount of RMB0.6 million in the three months ended September 30, 2008. We did not recognize any income from government grants in the three months ended September 30, 2009.

Income from operations.    As a result of the foregoing, income from operations increased by 61.8% from RMB55.2 million in the three months ended September 30, 2008 to RMB89.3 million (US$13.1 million) in the three months ended September 30, 2009.

Interest income (expense), net.    We recorded net interest income of approximately RMB23,000 in the three months ended September 30, 2008 compared to net interest expense of RMB3 million (US$0.4 million) in the three months ended September 30, 2009. Our net interest income in the three months ended September 30, 2008 was primarily due to interest generated from cash deposits. Our net interest expense in the three months ended September 30, 2009 was primarily due to interest we paid for bank borrowings and imputed interest expenses in connection with a related party loan. We used such bank borrowings and related party loan to fund the construction of our new 70 MW fully-automated manufacturing line and capitalized relevant interest expenses prior to the commencement of commercial production of this manufacturing line in August 2009.

Income tax expenses.    Our income tax expenses increased by 35.0% from RMB10.3 million in the three months ended September 30, 2008 to RMB13.9 million (US$2.0 million) in the three months ended September 30, 2009, primarily as a result of a significant increase in our taxable income. Our effective income tax rate decreased from 19% in the three months ended September 30, 2008 to 16% in the three months ended September 30, 2009 primarily because Trony Science, our operating subsidiary in China, was entitled to a 15% preferential rate since April 2009 as a "new high technology enterprise." Trony Science will continue to be entitled to such a preferential rate until April 2012 under current governmental approvals.

Net income.    As a result of the cumulative effect of the above factors, net income increased by 61.5% from RMB44.9 million in the three months ended September 30, 2008 to RMB72.5 million (US$10.6 million) in the three months ended September 30, 2009. Our net

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margin decreased from 31.9% in the three months ended September 30, 2008 to 28.5% in the three months ended September 30, 2009.

Year ended June 30, 2009 compared to year ended June 30, 2008

Total revenues.    Our total revenues increased by 98.5% from RMB272.8 million in the fiscal year ended June 30, 2008 to RMB541.5 million (US$79.3 million) in the fiscal year ended June 30, 2009. The increase was primarily due to a significant increase in our manufacturing capacity and a corresponding increase in sales volume of our products, which were driven by an increased demand for our PV modules by our customers. We sold an aggregate of 39.5 MW of PV modules in the fiscal year ended June 30, 2009 compared to 18.2 MW in the fiscal year ended June 30, 2008. The significant increase in our capacity and the volume of our products sold was driven primarily by a significant increase in market demand for our products from our existing customers, as well the expansion of our customer base in the fiscal year ended June 30, 2009.

Our total revenues were largely derived from sales to customers in China, who in turn sell our products directly or as part of their final products to their customers worldwide, including manufacturers and end users. Sales directly to our customers in China accounted for 74.5% of our total revenues in the fiscal year ended June 30, 2009, compared to 35.5% in the fiscal year ended June 30, 2008. Apart from sales to customers in China, our total revenues for the fiscal year ended June 30, 2009 were also derived from sales directly to customers in South Korea and Thailand.

Sales to our largest customer decreased to 14.0% of our total revenues in the fiscal year ended June 30, 2009 from 56.0% in the fiscal year ended June 30, 2008. We intend to further diversify our customer base in order to achieve balanced and sustainable growth.

Cost of revenues.    Our cost of revenues increased by 107.3% from RMB150.3 million in the fiscal year ended June 30, 2008 to RMB311.5 million (US$45.6 million) in the fiscal year ended June 30, 2009. The increase in our cost of revenues was primarily due to the significant increase in the volume of PV modules we sold in the fiscal year ended June 30, 2009. Our cost of revenues as a percentage of total revenues increased to 57.5% in the fiscal year ended June 30, 2009 from 55.1% in the fiscal year ended June 30, 2008. The increase was primarily attributable to increase in cost of raw material used as a percentage of our total revenues from 37.3% to 41.9%, partially offset by a decrease of our manufacturing overhead incurred as a percentage of our total revenues from 17.1% to 16.7% resulting from economies of scale.

Gross profit.    As a result of the foregoing, our gross profit increased by 87.8% from RMB122.5 million in the fiscal year ended June 30, 2008 to RMB230.0 million (US$33.7 million) in the fiscal year ended June 30, 2009, and our gross margin decreased from 44.9% in the fiscal year ended June 30, 2008 to 42.5% in the fiscal year ended June 30, 2009.

Selling and distribution expenses.    Our selling and distribution expenses increased by 34.5% from RMB2.9 million in the fiscal year ended June 30, 2008 to RMB3.9 million (US$0.6 million) in the fiscal year ended June 30, 2009. The increase was mainly attributable to increased traveling expenses from RMB0.6 million to RMB1.4 million (US$0.2 million) and staff costs from RMB1.2 million to RMB1.6 million (US$0.2 million) in the fiscal year ended June 30, 2009. Selling and distribution expenses as a percentage of our total revenues decreased from 1.1% in the fiscal year ended June 30, 2008 to 0.7% in the fiscal year ended June 30, 2009.

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General and administrative expenses.    Our general and administrative expenses increased by 25.6% from RMB16.4 million in the fiscal year ended June 30, 2008 to RMB20.6 million (US$3.0 million) in the fiscal year ended June 30, 2009. This increase was primarily due to increases in staff costs from RMB4.0 million to RMB9.1 million (US$1.3 million) resulting from increased headcount, travel and entertainment expenses from RMB1.4 million to RMB2.5 million (US$0.4 million), and office related expenses from RMB0.9 million to RMB1.4 million (US$0.2 million). This increase was partially offset by a foreign exchange gain of approximately RMB0.4 million (US$59,000) in the fiscal year ended June 30, 2009 compared to a foreign exchange loss of RMB1.4 million in the fiscal year ended June 30, 2008. General and administrative expenses as a percentage of our total revenues decreased from 6.0% in the fiscal year ended June 30, 2008 to 3.8% in the fiscal year ended June 30, 2009.

Research and development expenses.    Our research and development expenses increased by 77.4% from RMB3.1 million in the fiscal year ended June 30, 2008 to RMB5.5 million (US$0.8 million) in the fiscal year ended June 30, 2009. The increase in our research and development expenses was primarily due to an increase in staff costs from RMB2.3 million to RMB3.9 million (US$0.6 million) and an increase in traveling and entertainment expenses related to research and development activities from RMB0.2 million to RMB0.4 million (US$59,000). Research and development expenses as a percentage of our total revenues decreased from 1.1% in the fiscal year ended June 30, 2008 to 1.0% in the fiscal year ended June 30, 2009.

Government grants.    Government grants recognized in connection with research and development projects chosen by various government authorities increased by 19.4% from RMB3.1 million in the fiscal year ended June 30, 2008 to RMB3.7 million (US$0.5 million) in the fiscal year ended June 30, 2009.

Income from operations.    As a result of the foregoing, income from operations increased by 97.4% from RMB103.2 million in the fiscal year ended June 30, 2008 to RMB203.7 million (US$29.8 million) in the fiscal year ended June 30, 2009.

Interest income (expense), net.    We recorded net interest income of RMB0.1 million in the fiscal year ended June 30, 2008, compared to net interest expense of RMB1.6 million (US$0.2 million) in the fiscal year ended June 30, 2009. Our net interest income in the fiscal year ended June 30, 2008 was primarily due to the interest generated from cash deposits. Our net interest expense in the fiscal year ended June 30, 2009 was primarily due to the significant increase in our use of short-term debt, and, to a lesser extent, an increase in the average interest rate we paid for debt in the fiscal year ended June 30, 2009.

Income tax expenses.    Our income tax expenses increased by 112.6% from RMB17.5 million in the fiscal year ended June 30, 2008 to RMB37.2 million (US$5.4 million) in the fiscal year ended June 30, 2009 primarily as a result of the significant increase in our taxable income. Our effective income tax rate increased from 16.9% in the fiscal year ended June 30, 2008 to 18.4% in the fiscal year ended June 30, 2009.

Net income.    As a result of the cumulative effect of the above factors, net income increased by 92.2% from RMB85.8 million in the fiscal year ended June 30, 2008 to RMB164.9 million (US$24.2 million) in the fiscal year ended June 30, 2009. Our net margin decreased from 31.4% in the fiscal year ended June 30, 2008 to 30.5% in the fiscal year ended June 30, 2009.

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Year ended June 30, 2008 compared to year ended June 30, 2007

Total revenues.    Our total revenues increased significantly from RMB26.2 million in the fiscal year ended June 30, 2007 to RMB272.8 million in the fiscal year ended June 30, 2008. The increase was primarily due to a significant increase in our manufacturing capacity and the corresponding increase in sales volume of our products, which were driven by an increased demand for our PV modules by our existing customers, as well as the expansion of our customer base. We sold an aggregate of 1.5 MW of PV products in the fiscal year ended June 30, 2007 compared to 18.2 MW in the fiscal year ended June 30, 2008.

In the fiscal year ended June 2008, we first started to sell our PV modules outside of China. Sales to our largest customer, a customer in Thailand, accounted for approximately 56.0% of our total revenues in the fiscal year ended June 30, 2008. In the fiscal year ended June 30, 2008, we had one customer who accounted for 10% or more of our total revenues, while in the fiscal ended June 30, 2007, we had three customers accounting for 10% or more of our total revenues. We intend to further diversify our geographic presence and customer base in order to achieve balanced and sustainable growth.

Cost of revenues.    Our cost of revenues increased significantly from RMB15.1 million in the fiscal year ended June 30, 2007 to RMB150.3 million in the fiscal year ended June 30, 2008. This increase was primarily due to the significant increase in the volume of PV products we sold in the fiscal year ended June 30, 2008. Our cost of revenues as a percentage of total revenues has decreased to 55.1% in the fiscal year ended June 30, 2008 from 57.5% in the fiscal year ended June 30, 2007. The decrease was primarily attributable to decreases in our manufacturing overhead incurred as a percentage of our total revenues from 30.0% to 17.1% and cost of our raw material used as a percentage of our total revenues from 39.5% to 37.3% as a result of our increasing scale.

Gross profit.    As a result of the foregoing, our gross profit increased significantly from RMB11.1 million in the fiscal year ended June 30, 2007 to RMB122.5 million in the fiscal year ended June 30, 2008 and our gross margin increased from 42.5% in the fiscal year ended June 30, 2007 to 44.9% in the fiscal year ended June 30, 2008.

Selling and distribution expenses.    Our selling and distribution expenses increased by 123.1% from RMB1.3 million in the fiscal year ended June 30, 2007 to RMB2.9 million in the fiscal year ended June 30, 2008. The increase in our selling and distribution expenses was primarily due to increases in travel and entertainment expenses from RMB0.3 million to RMB1.0 million and staff costs from RMB0.6 million to RMB1.2 million as a result of our increased sales. Selling and distribution expenses as a percentage of our total revenues decreased from 5.1% in the fiscal year ended June 30, 2007 to 1.1% in the fiscal year ended June 30, 2008.

General and administrative expenses.    Our general and administrative expenses increased by 187.7% from RMB5.7 million in the fiscal year ended June 30, 2007 to RMB16.4 million in the fiscal year ended June 30, 2008. The increase in our general and administrative expenses was primarily due to significant increases in fees and expenses incurred for consulting services and professional service fees (including audit fee) from RMB0.1 million to RMB4.6 million and staff costs from RMB1.2 million to RMB4.0 million. General and administrative expenses as a percentage of our total revenues decreased from 21.6% in the fiscal year ended June 30, 2007 to 6.0% in the fiscal year ended June 30, 2008. The decrease was mainly attributed to cost savings from increased economies of scale.

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Research and development expenses.    Our research and development expenses increased by 82.4% from RMB1.7 million in the fiscal year ended June 30, 2007 to RMB3.1 million in the fiscal year ended June 30, 2008. The increase in our research and development expenses was primarily due to increases in staff costs from RMB1.3 million to RMB2.3 million and travel and entertainment expenses from RMB47,000 to RMB0.2 million. Research and development expenses as a percentage of our total revenues decreased from 6.5% in the fiscal year ended June 30, 2007 to 1.1% in the fiscal year ended June 30, 2008 as the magnitude of increase in raw material and miscellaneous expenses used in research and development is smaller compared to the increase in our total revenues.

Government grants.    Government grants recognized in connection with research and development projects chosen by various government authorities decreased by 8.8% from RMB3.4 million in the fiscal year ended June 30, 2007 to RMB3.1 million in the fiscal year ended June 30, 2008.

Income from operations.    As a result of the forgoing, income from operations increased significantly from RMB5.9 million in the fiscal year ended June 30, 2007 to RMB103.2 million in the fiscal year ended June 30, 2008.

Interest income (expense), net.    We generated a net interest expense in the amount of RMB0.1 million in the fiscal year ended June 30, 2007, compared to a net interest income of RMB0.1 million in the fiscal year ended June 30, 2008. Our net income expense in the fiscal year ended June 30, 2007 was primarily due to the interest generated from our outstanding short-term and long-term bank borrowings. Our net interest income in the fiscal year ended June 30, 2008 was primarily due to the interest generated from cash deposits.

Income tax expenses.    Our income tax expenses increased significantly from RMB0.7 million in the fiscal year ended June 30, 2007 to RMB17.5 million in the fiscal year ended June 30, 2008 primarily as a result of the significant increases in our taxable income. Our effective income tax rate increased from 12.3% in the fiscal year ended June 30, 2007 to 16.9% in the fiscal year ended June 30, 2008.

Net income.    As a result of the cumulative effect of the above factors, net income increased significantly from RMB5.2 million in the fiscal year ended June 30, 2007 to RMB85.8 million in the fiscal year ended June 30, 2008. Our net margin increased from 19.7% in the fiscal year ended June 30, 2007 to 31.4% in the fiscal year ended June 30, 2008.

Liquidity and capital resources

To date, we have financed our operations primarily through proceeds from cash flows from operations, proceeds from the issuance of Series A convertible redeemable preferred shares, as well as short-term and long-term bank borrowings and related-party loans. As of June 30, 2009, we had RMB21.0 million (US$3.1 million) in cash and cash equivalents, most of which were denominated in Renminbi. As of September 30, 2009, we had RMB57.5 million (US$8.4 million) in cash and cash equivalents, most of which were denominated in U.S. dollars due to the release of US$10 million from escrow in connection with the issuance of our Series A convertible redeemable preferred shares. Our cash and cash equivalents primarily consist of cash on hand, demand deposits and liquid investments with original maturities of three months or less that are placed with banks and other financial institutions.

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As of both June 30 and September 30, 2009, our short-term bank borrowings totaled RMB32.0 million (US$4.7 million). Our short-term bank borrowings outstanding bore an annual average interest rate at 4.37% in the fiscal year ended June 30, 2009 and a quarterly average interest rate of 4.37% in the three months ended September 30, 2009, and are secured by a corporate guarantee provided by our Hong Kong subsidiary Grand Sun and restricted cash provided by Grand Sun. The balance of the restricted cash was RMB34.1 million (US$5.0 million) as of September 30, 2009. These borrowings have terms of one year, and expire at various times within one year. These loans were borrowed from various financial institutions. We have historically been able to obtain extensions of our short-term loans shortly before they mature. We plan to repay these short-term bank borrowings with cash generated by our operating activities in the event we are unable to obtain extensions of these facilities or alternative funding in the future. As of both June 30 and September 30, 2009, we had available unutilized short-term bank loan facilities of RMB18.0 million (US$2.6 million). We expect to be able to obtain additional bank borrowings through short-term bank loans should we need additional funding for working capital and capital expenditures.

On October 14, 2009, we borrowed US$30.0 million from Lakes Invest Limited, a major shareholder of ours beneficially owned by our chairman and chief executive officer, under a shareholder loan agreement we entered into on October 2, 2009. The loan bears an annual interest rate of 3.5%, payable quarterly. The loan has a term of six months, which may be extended to one year if this offering has not occurred within the initial term, and may be further extended to 30 days after this offering if this offering is completed within the 30 day period prior to the first anniversary of the loan. Lakes Invest Limited borrowed the amount from ICBC International Finance Ltd. to fund this shareholder loan. Under the shareholder loan agreement, we are obligated to repay in full the outstanding amount owed to ICBC International Finance Ltd. by Lakes Invest Limited on behalf of Lakes Invest Limited within a 30-day period after the completion of this offering using a portion of the net proceeds we receive from the offering. This repayment will discharge our obligations under the shareholder loan agreement. We intend to comply with this requirement.

As of June 30 and September 30, 2009, long-term bank borrowings amounted to RMB40.5 million (US$5.9 million) and RMB37.9 million (US$5.6 million), respectively, including an amount of RMB10.2 million (US$1.5 million) and RMB10.2 million (US$1.5 million) classified as long-term loan, current portion, respectively. This loan bore an annual average interest rate of 5.76% in the fiscal year ended June 30, 2009 and a quarterly average interest rate of 5.76% in the three months ended September 30, 2009. This loan is secured by a pledge of our property and is repayable in installments over a five year period, of which, the first installment of RMB0.9 million was due in January 2009. As of both June 30 and September 30, 2009, we had available unutilized long-term bank loan facilities of RMB55.3 million (US$8.1 million).

As of June 30 and September 30, 2009, we had a loan from a related party which totaled RMB262.5 million (US$38.5 million) and RMB266.1 million (US$39.0 million), respectively. The loan is unsecured, interest-free and initially repayable in 2010. Under a supplemental agreement entered into in June 2009, the repayment of the loan is extended for another two years and will be due in full in 2012 while other terms remained unchanged.

As of June 30, 2009, we had amounts due to related parties which totaled RMB5.8 million (US$0.8 million). The amounts were unsecured, interest-free and repayable on demand. We repaid those amounts in full during the three months ended September 30, 2009.

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As of June 30 and September 30, 2009, we had amount due to a director which totaled RMB41.4 million (US$6.1 million) and RMB41.4 million (US$6.1 million), respectively. The amount is unsecured, interest-free and repayable on demand.

As of June 30 and September 30, 2009, we had amounts due to shareholders which totaled RMB2.2 million (US$0.3 million) and RMB2.2 million (US$0.3 million), respectively. The amounts are interest-free, non-interest bearing and have no fixed repayment term.

Cash flows

The following table sets forth a summary of our cash flows for the periods indicated:

   
 
  Fiscal year ended June 30,   Three months ended
September 30,
 
(in thousands)
  2007
RMB

  2008
RMB

  2009
RMB

  2009
US$

  2008
RMB

  2009
RMB

  2009
US$

 
   

Net cash provided by operating activities

    18,066     198,854     131,699   $ 19,293     71,140     74,253   $ 10,877  

Net cash used in investing activities

    (43,684 )   (543,555 )   (358,705 )   (52,548 )   (90,191 )   (95,632 )   (14,009 )

Net cash generated by financing activities

    28,458     344,789     242,774     35,565     255,906     57,955     8,490  

Effect of exchange rate change

    (43 )   (703 )   830     122     200     (46 )   (7 )

Net increase (decrease) in cash

    2,797     (615 )   16,598     2,432     237,055     36,530     5,351  

Cash and cash equivalent at the beginning of the period

    2,182     4,979     4,364     639     4,364     20,962     3,071  

Cash and cash equivalent at the end of the period

    4,979     4,364     20,962   $ 3,071     241,419     57,492   $ 8,422  
   

Operating activities

Net cash provided by operating activities for the three months ended September 30, 2009 was RMB74.3 million (US$10.9 million), which was primarily attributable to (i) our net income of RMB72.5 million (US$10.6 million) driven primarily by a significant increase in sales of our products, (ii) an increase in our accounts payable of RMB17.1 million (US$2.5 million) as a result of an increase in the purchase of raw materials and (iii) an increase in accrued expenses and other current liabilities of RMB14.1 million (US$2.1 million), partially offset by a significant increase in accounts receivable of RMB50.1 million (US$7.3 million) as a result of the significant increase in sales of our products.

Net cash provided by operating activities for the fiscal year ended June 30, 2009 was RMB131.7 million (US$19.3 million), which was primarily attributable to our net income of RMB164.9 million (US$24.2 million) driven by a significant increase in sales of our products, partially offset by (i) significantly larger increases in accounts receivable of RMB42.3 million (US$6.2 million), (ii) an increase in inventories of RMB14.9 million (US$2.2 million) and (iii) an increase in amount due from a related party of RMB3.5 million (US$0.5 million).

Net cash provided by operating activities for the fiscal year ended June 30, 2008 was RMB198.9 million, which was primarily attributable to the following factors: (i) net income of RMB85.8 million driven by a significant increase in sales of our products, (ii) an increase in accrued expenses and other current liabilities of RMB79.5 million, (iii) an increase in accounts payable of RMB20.5 million, and (iv) an increase in income taxes payable of RMB13.8 million,

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partially offset by (a) an increase in accounts receivable of RMB17.2 million and (b) an increase in inventories of RMB3.9 million.

Net cash provided by operating activities for the fiscal year ended June 30, 2007 was RMB18.1 million, which was primarily attributable to the following factors: (i) net income of RMB5.2 million, and (ii) an increase in accrued expenses and other current liabilities of RMB30.3 million, partially offset by (a) an increase in prepaid expenses and other current assets of RMB8.1 million, (b) an increase in inventories of RMB5.0 million, and (c) a decrease in accounts payable RMB3.8 million.

A primary factor affecting our operating cash flows is the timing of cash receipts from sales of PV modules and payments to suppliers for purchase of raw materials in the ordinary course of business. Although our total revenues and net income increased significantly in the fiscal year ended June 30, 2009 compared to those in the fiscal year ended June 30, 2008, net cash provided by operating activities decreased primarily because we sold more of our products for BIPV applications and PV power stations and we offered customers of these products longer payment periods compared to those offered to customers of our PV modules for off-grid applications, because we believe that these customers are more credit worthy after assessing their credit worthiness by evaluating their collective payment histories and operating and financial conditions. Going forward, we expect our sales of PV modules for BIPV applications and PV power stations to continue to increase and we expect such trend to have a negative impact to our cash flow. However, as we increase our manufacturing capacity and our sales, we expect cash provided from operating activities to increase and cash provided from operating activities to continue to be a major source of liquidity for us.

We observed overall improved trends in the aging of our accounts receivables and our days sales outstanding, a measure of the average number of days that we take to collect revenues after a sale has been made, as of and for the three months ended September 30, 2009 from the fiscal year ended June 30, 2007. As of September 30, 2009, more than 88% of our accounts receivable were aged less than thirty days, which percentage was 3%, 96% and 71% as of June 30, 2007, 2008 and 2009, respectively. In addition, less than 1% of our accounts receivable as of September 30, 2009 were aged more than ninety days, which percentage was 71%, nil and 5% respectively, as of June 30, 2007, 2008 and 2009. Our days sales outstanding for the three months ended September 30, 2009 was 34 days, compared to 148 days, 26 days and 33 days for the fiscal years ended June 30, 2007, 2008 and 2009, respectively. While the aging of accounts receivable as of and days sales outstanding for the fiscal year ended June 30, 2009 increased as compared to those as of and for the fiscal year ended June 30, 2008, we observe overall improving trends in both measurements from the fiscal year ended June 30, 2007 to the three months ended September 30, 2009.

To date, we have collected all of our accounts receivable outstanding as of June 30, 2009.

Investing activities

Net cash used in investing activities for the three months ended September 30, 2009 was RMB95.6 million (US$14.0 million), which was attributable to the following factors: (i) our deposits paid for purchase of property, plant and equipment of RMB85.9 million (US$12.6 million) and (ii) our purchase of property, plant and equipment of RMB10.7 million (US$1.6 million).

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Net cash used in investing activities for the fiscal year ended June 30, 2009 was RMB358.7 million (US$52.5 million), which was attributable to the following factors: (i) our purchase of property, plant and equipment of RMB301.6 million (US$44.2 million), (ii) an increase in restricted cash of RMB35.0 million (US$5.1 million), and (iii) our deposits paid for purchase of property, plant and equipment of RMB22.1 million (US$3.2 million).

Net cash used in investing activities for the fiscal year ended June 30, 2008 was RMB543.6 million, which was attributable to the following factors: (i) our deposits paid for purchase of property, plant and equipment of RMB320.0 million and (ii) our purchase of property, plant and equipment of RMB244.7 million, both of which were for the expansion of our manufacturing lines, partially offset by repayments of advances to independent third parties of RMB21.2 million.

Net cash used in investing activities for the fiscal year ended June 30, 2007 was RMB43.7 million, which was primarily attributable to the following factors: (i) our purchase of property, plant and equipment of RMB45.4 million and (ii) advances to independent third parties of RMB10.0 million, partially offset by repayments of advances to independent third parties of RMB15.2 million.

Financing activities

Net cash generated from financing activities for the three months ended September 30, 2009 was RMB58.0 million (US$8.5 million), which was primarily attributable to the proceeds from the issuance of our Series A convertible redeemable preferred shares of RMB68.3 million (US$10.0 million), partially offset by (i) repayment of advances from related parties of RMB5.8 million (US$0.8 million), (ii) repayments of bank borrowings of RMB2.6 million (US$0.4 million) and (iii) prepayments of expenses in connection with this offering of RMB2.0 million (US$0.3 million).

The proceeds from issuance of our Series A convertible redeemable preferred shares of RMB68.3 million (US$10.0 million) represent the subscription receivable withheld by an escrow agent pending the testing of fulfillment of certain financial metrics under the share purchase agreement in connection with the issuance of our Series A convertible redeemable preferred shares and had no cash flow impact to us in fiscal year ended June 30, 2009. On August 14, 2009, we obtained a waiver from the shareholders of the Series A convertible redeemable preferred shares, or the Series A shareholders, under which each Series A shareholder unconditionally and irrevocably waived the requirement in the share purchase agreement that the financial covenants be satisfied as a condition to the release of the US$10.0 million being held in escrow. The Series A shareholders agreed to authorize the escrow agent to release the sum of US$10.0 million to us as soon as possible following the date of the waiver, which amount we subsequently received in August 2009.

Net cash generated from financing activities for the fiscal year ended June 30, 2009 was RMB242.8 million (US$35.6 million), which was primarily attributable to the following factors: (i) proceeds from issuance of our Series A convertible redeemable preferred shares of RMB237.6 million (US$34.8 million) and (ii) an increase in new bank borrowings of RMB72.5 million (US$10.6 million), partially offset by (a) repayment of bank borrowings of RMB40.0 million (US$5.9 million), (b) repayments of advances from shareholders of RMB21.9 million (US$3.2 million), and (c) repayments of advances from directors of RMB18.5 million (US$2.7 million).

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Net cash generated from financing activities for the fiscal year ended June 30, 2008 was RMB344.8 million, which was primarily attributable to the following factors: (i) a loan from a related party of RMB305.0 million and (ii) new bank borrowings of RMB40.0 million, partially offset by (a) repayment of advances from directors of RMB13.0 million and (b) repayments of advances from related parties of RMB12.2 million.

Net cash generated from financing activities for the fiscal year ended June 30, 2007 was RMB28.5 million, which was primarily attributable to the following factors: (i) advances from directors of RMB20.2 million and (ii) advances from related parties of RMB17.6 million, partially offset by repayments of advances from related parties of RMB6.8 million.

Capital expenditures

We made capital expenditures of RMB48.8 million, RMB564.7 million, RMB323.7 million (US$47.4 million) and RMB96.6 million (US$14.2 million) in the three fiscal years ended June 30, 2007, 2008 and 2009 and the three months ended September 30, 2009, respectively. In the past, our capital expenditures were used primarily to acquire land use rights for the building of manufacturing facilities, construct our manufacturing facilities and expand our manufacturing lines. We estimate that our capital expenditures in the fiscal year ending June 30, 2010 will be approximately RMB780.0 million (US$114.3 million), which will be used primarily to expand our manufacturing lines. We plan to fund our fiscal year ending June 30, 2010 capital expenditures substantially with cash from operations, shareholder loans, additional borrowings from third parties and proceeds from this initial public offering.

We believe that our current cash and cash equivalents, anticipated cash flow from operations and proceeds from this initial public offering will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures for at least the next 12 months. Our future cash requirements will depend on many factors, including our operating income, costs to build additional manufacturing capacity, market acceptance of our products or other changing business conditions and future developments, including any investments or acquisitions we may decide to pursue. We may require additional cash to repay existing debt obligations or to re-finance our existing debts or due to changing business conditions or other future developments. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending institutions. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

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Contractual obligations

The following table sets forth our contractual obligations as of June 30, 2009:

   
 
  Contractual obligations  
(in thousands of RMB)
  Less than
1 year

  1-3 years
  3-5 years
  More than
5 years

  Total
 
   

Loan from a related party(1)

        305,000             305,000  

Bank borrowings(2)

    44,187     35,798             79,985  

Operating lease commitments

    1,493     905             2,398  

Capital commitments

    49,315                 49,315  
       
 

Total

    94,995     341,703             436,698  
   

(1)   The loan is interest-free and the amount presented is based on the undiscounted cash flow at settlement. The carrying amount of the loan shown on our consolidated balance sheet as of June 30, 2009 is RMB262.5 million and is arrived at based on an imputed interest rate of 7.56% for comparable long-term borrowings on the initial loan inception date and 5.40% on the loan extension date.

(2)   Includes future interest obligations.

As of June 30, 2009, we had 6,027,191 outstanding Series A redeemable convertible preferred shares with a redemption value of RMB368.8 million (US$54.0 million).

Other than the contractual obligations set forth above, we do not have any other long-term debt obligations, operating lease commitments, capital commitments or other long-term liabilities.

Off-balance sheet arrangements

We have not entered into, nor do we expect to enter into, any off-balance sheet arrangements. We also have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. In addition, we have not entered into any derivative contracts that are indexed to our equity interests and classified as owners' equity. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

Inflation

Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China, changes in the consumer price index in China were 1.5%, 4.8% and 5.9% in 2006, 2007 and 2008, respectively.

Quantitative and qualitative disclosures about market risk

Foreign exchange risk

A substantial portion of our sales is currently denominated in Renminbi, with the remainder in U.S. dollars, while a substantial portion of our costs and expenses is denominated in Renminbi,

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with the remainder in U.S. dollars. A substantial portion of our short-term and long-term borrowings is denominated in Renminbi. Under relevant PRC regulations, our PRC subsidiary is required to convert the foreign currencies it receives into Renminbi within specified time periods and prior to disbursement.

Fluctuations in currency exchange rates could have a significant effect on our financial stability due to a mismatch among various foreign currency-denominated assets and liabilities. Fluctuations in exchange rates, particularly among the U.S. dollar and Renminbi, affect our net profit margins and would result in foreign currency exchange gains and losses on our foreign currency denominated assets and liabilities. Our exposure to foreign exchange risk primarily relates to foreign currency exchange gains or losses resulting from timing differences between the signing of sales contracts or raw material supply contracts and the receipt of payment and the settlement or disbursement relating to these contracts. We may experience additional foreign exchange losses in the future to the extent we hold the proceeds of this offering in U.S. dollars.

We use the Renminbi as the reporting currency for our consolidated financial statements. Our company's functional currency is the U.S. dollar and the functional currency of our subsidiaries is the Renminbi or Hong Kong Dollar. All of our subsidiaries' transactions in currencies other than the Renminbi and Hong Kong dollar during the year are recorded at the exchange rates prevailing on the relevant dates of such transactions. Monetary assets and liabilities of our subsidiaries existing at the balance sheet date denominated in currencies other than the Renminbi are re-measured at the exchange rates prevailing on such date. Exchange differences are recorded in our consolidated statements of operations. Gains and losses resulting from translation of our consolidated financial statements from U.S. dollars into Renminbi are recorded in other comprehensive income in equity. Fluctuations in exchange rates may also affect our consolidated financial statements and operations. For example, to the extent that we need to convert U.S. dollars received in this offering into Renminbi for our operations, appreciation of Renminbi against the U.S. dollar would have an adverse effect on the amount of Renminbi that we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amounts available to us. Considering the amount of our cash balance denominated in U.S. dollar, as of June 30, 2009, a 1.0% change in the exchange rates between the Renminbi and the U.S. dollar will result in an increase or decrease of RMB489,000 (US$72,000) for our total amount of cash balance. Considering the amount of our cash balance denominated in U.S. dollars, as of September 30, 2009, a 1.0% change in the exchange rates between the Renminbi and the U.S. dollar will result in an increase or decrease of RMB851,000 (US$125,000) for the total amount of our cash balance.

We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure in foreign exchange risk.

Interest rate risk

Our exposure to interest rate risk primarily relates to interest expenses incurred by our short-term and long-term bank borrowings, as well as interest income generated by excess cash invested in demand deposits and liquid investments with original maturities of three months or less. Such interest-earning instruments carry a degree of interest rate risk. Our future interest

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expense may increase due to changes in market interest rates. We have not used, and do not expect to use in the future, any derivative financial instruments to hedge our interest risk exposure.

Considering the amount of our total bank loans outstanding as of June 30, 2009, a 1.0% change in the interest rates will result in an increase or decrease of RMB725,000 (US$106,000) for our consolidated net income for the fiscal year ended June 30, 2009. Considering the amount of our total bank loans outstanding as of September 30, 2009, a 1.0% change in the interest rates will result in an increase or decrease of RMB699,000 (US$102,000) for our consolidated net income for the three months ended September 30, 2009.

Recently issued accounting pronouncements

In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised 2007), "Business Combinations," or SFAS No. 141R. The objective of SFAS No. 141R is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141R requires an acquirer to recognize any assets and non-controlling interests acquired and liabilities assumed to be measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of the consideration may be resolved beyond a reasonable doubt. This revised approach replaces SFAS No. 141's allocation process in which the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their respective fair values. This statement applies prospectively to business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141R is not expected to have a material impact on our financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interest in Consolidation Financial Statements—an Amendment of Accounting Research Bulletin No. 51," or SFAS No. 160. This statement amends ARB 51 and establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It requires non-controlling interest (minority interest) to be recognized as equity in the consolidated financial statements and separate from the parent's equity and the amount of consolidated net income (loss) to include amounts attributable to both the parent and the non-controlling interest. SFAS No. 160 clarifies that changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income (loss) when a subsidiary is deconsolidated and also requires expanded disclosures regarding the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of SFAS No. 160 is not expected to have a material impact on our financial position, results of operations or cash flows.

In February 2008, the FASB issued FSP SFAS No. 157-2, "Effective Date of FASB Statement No. 157," which defers the effective date of SFAS No. 157 for all non-recurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning

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after November 15, 2008 and interim periods within those fiscal years. We are currently evaluating the impact of adoption of SFAS No. 157 for non-recurring fair value measurements of non-financial assets and liabilities.

In March 2008, the FASB issued SFAS No. 161, "Disclosure about Derivative Instruments and Hedging Activities, an Amendment of SFAS No. 133," or SFAS No. 61. SFAS No. 161 enhances the required disclosures under SFAS No. 133 in order to provide the investing community additional transparency in an entity's financial statements and to more adequately disclose the impact investments in derivative instruments and use of hedging have on an entity's financial position, results of operations and cash flows. SFAS No. 161 is effective for annual and interim periods beginning after November 15, 2008, with early application allowed. The adoption of SFAS No. 161 is not expected to have a material impact on our financial position, results of operations and cash flows and disclosures.

In April 2008, FASB issued FSP SFAS No. 142-3, "Determination of the Useful Life of Intangible Assets," or FSP SFAS No. 142-3, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R. FSP SFAS No. 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. Since this guidance will be applied prospectively, on adoption, there will be no impact to our current financial position, results of operations and cash flows.

In June 2008, the FASB ratified the consensus reached by the Task Force in Emerging Issues Task Force, EITF Issue 07-5, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock;" or EITF 07-5. EITF 07-5 is effective for fiscal years and interim periods beginning after December 15, 2008. This Issue's "fixed-for-fixed, plus fair value inputs model" is largely consistent with current interpretations of the phrase "indexed to an entity's own stock." However, in certain circumstances, EITF 07-5 may result in changes to those accounting conclusions and may have impact on issuers of equity-linked financial instruments (e.g., options or forward contracts) or instruments containing embedded features (e.g., embedded conversion options in a convertible instrument) that have (1) exercise or settlement contingency provisions, (2) a strike price that is subject to adjustment, or (3) a strike price that is denominated in a currency other than the entity's functional currency. We are currently evaluating the impact the adoption of EITF 07-5 will have on our consolidated financial statements.

In October 2008, the FASB issued FSP SFAS No. 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active," or FSP SFAS No. 157-3. FSP SFAS No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides guidance on the key considerations in determining the fair value of a financial instrument when the market for these instruments is not active. The clarifying guidance provided in FSP SFAS No. 157-3 did not result in a change to our financial position, results of operations and cash flows.

In November 2008, the FASB ratified the consensus reached by the Task Force in Issue No. 08-6, "Equity Method Investment Accounting Considerations," or EITF 08-6. Because of the significant changes to the guidance on subsidiary acquisitions and subsidiary equity transactions and the

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increased use of fair value measurements as a result of Statements 141(R) and 160, questions have arisen regarding the application of that accounting guidance to equity method investments. EITF 08-6 provides guidance for entities that acquire or hold investments accounted for under the equity method. This issue is effective for transactions occurring in fiscal years and interim periods beginning on or after December 15, 2008. Early adoption is not permitted. We do not expect the adoption of EITF 08-6 to have a material impact on our financial position, results of operations and cash flows.

In April 2009, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies," or FSP 141(R)-1, which amends the guidance in SFAS 141R to establish a model for pre-acquisition contingencies. Under the FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer follows the recognition criteria in SFAS 5 and FIN 14 to determine whether the contingency should be recognized as of the acquisition date or after it. The FSP is effective for business combinations whose acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of SFAS No. 141R is not expected to have a material impact on our financial position, results of operations and cash flows.

In April 2009, the FASB issued FSP FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly," or FSP 157-4. FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. We do not expect the adoption of FSP 157-4 to have a material impact on our consolidated financial statements or the fair values of its assets and liabilities.

In April 2009, the FASB issued FSP No. FAS 115-2 and 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," or FSP FAS 115-2 and FAS 124-2. The FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The FSP is effective for fiscal years, and interim periods within those fiscal years beginning on or after June 15, 2009. Early adoption is permitted for fiscal years, and interim periods ending after March 15, 2009. We do not expect the adoption of FSP FAS 115-2 and FAS 124-2 to have a material impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events," or SFAS No. 165. SFAS No. 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 will be effective for interim or annual

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period ending after June 15, 2009 and will be applied prospectively. The adoption of this statement did not have a material impact on our financial position, results of operations and cash flows.

In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140," or SFAS No. 166. SFAS No. 166 improves the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. SFAS 166 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. We are evaluating the impact the adoption of SFAS 166 will have on our consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162." The FASB Accounting Standards Codification™ (Codification) will become the single source of authoritative nongovernmental U.S. GAAP recognized by the FASB. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. On the effective date of this statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. The adoption of SFAS No. 168 is not expected to have a material impact on our financial position, results of operations and cash flows.

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Our industry

Global solar market

The solar energy market is one of the most rapidly growing renewable energy markets and has grown significantly over the past decade. According to Solarbuzz, this market grew at a CAGR of 53.0%, from 1,086 MW in 2004 to 5,948 MW in 2008, in terms of annual PV system installed capacities. Despite this robust growth, solar power accounts for less than 1% of global electricity generation, providing significant room for future development. Solarbuzz's "Green World" scenario forecasts that annual PV system installed capacities will increase from 5,291 MW in 2009 to 14,792 MW in 2013, representing a CAGR of 29.3% from 2009 to 2013. The following tables demonstrate the rapid growth of this sector:

World solar PV installation (GW)   World solar PV market forecast (GW)

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Source: Solarbuzz, Green World scenario

 

 

The growth of the solar energy market is driven by rising electricity demand, increasing cost-competitiveness of solar-generated electricity, continuing government incentives, increasing desire for energy independence from volatile commodity markets, ability of solar power systems to meet peak electricity demand, rising demand for distributed energy generation systems and enhanced environmental awareness. Future market expansion will also depend on the growth of the global economy, the stability of the financial markets and the ability of PV product manufacturers to further expand production capacity.

The global solar energy market can be divided into two major application segments: the on-grid segment (in which electricity is fed into an electricity transmission grid for sale) and the off-grid segment (where access to an electricity transmission grid is not physically available or economically feasible).

On-grid market applications range from small domestic systems mounted on roofs of residential or commercial buildings to large on-grid ground-mounted systems such as solar power stations. According to Solarbuzz, the global on-grid market grew by 117.9%, from 2,629 MW in 2007 to 5,728 MW in 2008, and accounts for 96.3% of the total solar energy market in 2008.

The off-grid market includes rural residential applications such as solar home systems, garden lighting systems, industrial applications such as road signs, street lighting, highway call boxes and communications support along remote pipelines, and telecommunications equipment. Compared to on-grid applications, off-grid applications tend to have lower operating and maintenance costs, longer operating lifetimes and higher factory gate prices. Off-grid

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applications generally represent a suitable option for electricity supply in dispersed communities or communities located far away from the electricity grids. Given the lack of viable energy alternatives in these communities, revenues from such applications are less susceptible to the effects of the global economic downturn. According to Solarbuzz, the global off-grid market grew by 11.7%, from 197 MW in 2007 to 220 MW in 2008. According to European Photovoltaic Industry Association, or EPIA, an international industry association in the solar power industry, and Greenpeace, a non-governmental organization, off-grid applications are expected to represent an increasingly larger percentage of the global PV market, as measured by annual PV installations. EPIA and Greenpeace predict that global annual PV installations will reach 35 gigawatts, or GW, and 105GW in 2020 and 2030, respectively, under their moderate scenario. Under the same scenario, the number of people using off-grid home systems will reach 837 million and 2,023 million by 2020 and 2030, respectively. EPIA and Greenpeace also predict that off-grid applications will capture approximately 20% and 30% of the market share by 2020 and 2030, respectively.

According to Solarbuzz, today, the cost of solar power exceeds retail electric rates in many locations. As a result, federal, state and local government bodies in many countries, including our target markets, such as China, South Korea, Southeast Asia, Africa, Europe and the United States, have provided incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy and to reduce dependency on other forms of energy. For a discussion on such incentives in China, see "Regulations—Renewable energy law and government directives." In South Korea, in 2007, the government increased the cap on its feed-in tariff for solar energy in cumulative installations from 20 MW to 100 MW and lifted the per system cap of 3 MW. In 2008, total program cap was increased from 100 MW to 500 MW until October 2011. In Thailand, a similar feed-in tariff program called "adder system" was provided in 2007 together with other financial incentives such as tax incentives and soft loan. In Africa, many solar projects are financed by pan-African rural electrification programs implemented through local governments and donor agencies. In Europe, attractive feed-in tariff rates are provided in Spain, Germany, Italy and other European countries. In the United States, federal government offers a 30% tax credit to business and personal with no limit, which incentive program was extended to 2016 in October 2008. Furthermore, over 20 new programs were introduced in 14 states to encourage installation of solar PV include net metering, state tax credits and full sales tax exemption.

China's solar market

China's solar energy market is still relatively small compared to many developed markets. However, this market has grown rapidly in recent years, mainly due to rising demand for electricity and increasing government incentives. According to Solarbuzz, China's annual PV system installations rose 52.2%, from 23 MW in 2007 to 35 MW in 2008. In 2008, cumulative PV generation capacity reached 150 MW. Off-grid rural electrification and industrial projects represent most of the PV generation capacity installed in China.

China's long-term renewable energy policy has been shaped by the government's central planning agency, the National Development and Reform Commission, or the NDRC. In August 2007, the NDRC issued the Medium and Long-term Development Plan for Renewable Energy, or the NRDC Plan, which describes the national government's financial incentives for the

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renewable energy industry for the multi-year period ending 2020, with an estimated required investment amount of approximately US$300 billion. The plan also calls for increasing the overall installation capacity for solar energy to 300 MW by 2010 and 1.8 GW by 2020. It has been reported that these targets may rise to 10 GW to 20 GW by 2020.

In addition to the NRDC Plan, PRC government authorities have recently announced the following incentive schemes:

In April 2009, the PRC Ministry of Finance and the Ministry of Housing and Urban-Rural Development jointly issued the "Guidelines for Declaration of Demonstration Project of Solar Photovoltaic Building Applications," which created a subsidy of up to RMB20 (US$2.93) per watt for BIPV projects using solar-integrated building materials and components and up to RMB15 (US$2.20) per watt for BIPV projects using solar-integrated materials for rooftops or walls.

In July 2009, the PRC Ministry of Finance announced the Golden Sun Program to support the demonstration and application of the PV industry in China. Under this program, on-grid PV systems will be subsidized at 50% of total investment costs while off-grid PV systems installed in remote regions with no access to grid will be subsidized at 70% of total investment costs. The program seeks to encourage the installation of demonstration projects with an aggregate capacity of 500 MW. A majority of these projects will be on-grid ground-mounted projects. Subsidized systems must be at least 300 kW in size and owned by investors with assets of at least RMB100 million (US$14.6 million).

The PRC government is in the process of finalizing the details of its national feed-in tariff program, which is expected to be one of the most important incentive programs introduced in 2009.

Regional governments have also introduced, and are expected to continue to introduce, detailed incentive schemes to encourage regional use of solar energy. Recently announced examples include the following:

In June 2009, the Jiangsu provincial government announced three-year feed-in tariffs of RMB4.3 (US$0.63) per kilowatt hour, or kWh, for BIPV projects, RMB3.7 (US$0.54) per kWh for rooftop PV modules and RMB2.15 (US$0.31) per kWh for ground installations, with these amounts reduced in 2010 to RMB3.5 (US$0.51) per kWh, RMB3.0 (US$0.44) per kWh and RMB1.7 (US$0.25) per kWh and in 2011 to RMB2.9 (US$0.42) per kWh RMB2.4 (US$0.35) per kWh and RMB1.4 (US$0.21) per kWh, respectively. In June 2009, the Jiangsu provincial government also announced a PV industry promotion roadmap to achieve an installation base of 400 MW by 2011.

In June 2009, the Ningxia provincial government announced a new energy promotion roadmap which laid out an objective to achieve PV installation base of 100 MW, 600 MW and 2.0 GW by 2010, 2015 and 2020, respectively.

In May 2009, the Zhejiang provincial government announced a new solar initiative which will facilitate the construction of one million square meters of roof-top solar power stations and the installation of solar street lights on one hundred streets, bringing the total PV system installed capacity in Zhejiang Province to 50 MW by 2012. The plan also stated that the

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    government will encourage financial institutions to provide financial support for new energy projects.

Many solar projects supported by government incentives are currently in the pipeline, including the 1.0 MW project at Wuwei in Gansu Province currently in construction, the 66 MW project in Shilin, Yunan Province, the 100 MW project in Dunhuang, Gansu Province, and a proposed 1.0 GW system in the Qaidam Basin, Qinghai Province.

Potential for significant cost reductions

Cost differentials between solar energy and conventional energy sources have narrowed due to greater economies of scale for manufacturing PV modules, lower equipment and raw material costs and improved conversion and production efficiencies. In addition, once installed, PV systems typically require lower maintenance and little or no fuel, resulting in substantial savings in operating expenses over the expected 20- to 25-year life of the system.

The PV industry is still a nascent industry and has the potential for significant cost reductions. According to the International Energy Outlook 2009 published by the U.S. Department of Energy, although prices for electricity from PV energy may not become widely competitive with wholesale prices for electricity from conventional generating technologies in the near future, they may already be competitive with high retail electricity prices in regions with high sunlight exposure, such as California, Spain and Italy. Additional gains in conversion and production efficiencies and further cost reductions through greater economies of scale for manufacturing PV modules and lower equipment and raw material costs will further lower the cost of solar energy and increase its competitiveness with respect to conventional electricity.

Thin-film PV products

The thin film market has experienced rapid growth in the past few years. According to Solarbuzz, 893 MW of thin film PV modules were manufactured worldwide in 2008, representing growth of 123.3% over 2007, while the number of crystalline PV modules produced increased by 96.3%. Due to this faster growth rate, thin film represents an increasingly large portion of the total PV industry. In 2008, thin film modules represented 13.0% of global production, more than double the 2004 production share of 5.6%, according to Solarbuzz.

The ramp-up in the scale of thin film manufacturing over the next few years will depend on the successful transition from small volume pilot plants to high volume commercial manufacturing facilities at prices and performance-levels sufficiently attractive to the market.

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The following charts show the expected growth of world thin film PV modules production and world crystalline silicon PV modules production for the next several years:

World thin film PV modules production (MW)

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World crystalline silicon PV modules production (MW)

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Source: Solarbuzz, Green World scenario

Thin film technology offers several cost and performance advantages over crystalline silicon technology, including:

Lower manufacturing cost.  Costs of energy consumption and silicon materials represent a substantial portion of the cost of producing PV modules. The energy consumed in the thin film PV manufacturing process is significantly less than that consumed in the crystalline silicon PV module manufacturing process. In addition, thin film PV modules are significantly thinner than conventional crystalline solar PV modules. As a result, the silicon materials used in thin film PV module manufacturing are only approximately 1% to 2% of those used to produce crystalline silicon PV modules. This cost advantage is partially offset by the recent decline in polysilicon prices.

Integrated manufacturing process.  Unlike the crystalline silicon manufacturing process, thin film production is a fully integrated and continuous process, which has the effect of increasing manufacturing efficiency.

Superior product performance in various environments.  Certain types of thin film PV modules, such as amorphous silicon based thin film modules, generate more electricity than crystalline silicon PV modules with similar power output ratings in certain environments, including high temperature and low light conditions.

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However, thin film technology also faces a number of disadvantages when compared to crystalline silicon, including:

Limited operating history.  In contrast to crystalline silicon PV modules, no thin film PV modules have been in service for their entire estimated useful lives, limiting the data available to validate estimates of the applicable degradation rate.

Lower conversion efficiency and added space.  We believe the average conversion efficiency of thin film PV modules in high commercial volume (over 20 MW per year) is currently approximately 30% to 65% lower than the current average conversion efficiency of readily available crystalline silicon PV modules. Since conversion efficiency has a significant impact on cost-per-watt, low conversion efficiencies may make it difficult for some thin film manufacturers to achieve a competitive cost-per-watt.

Additional installation space required.  Compared to crystalline PV modules, thin film PV modules require more space to produce a given amount of electricity, due to lower conversion efficiency. This may cause the total installation cost of thin film systems to be greater than that of crystalline silicon systems of same installed capacity. As a result, the price per watt of thin film PV modules is typically lower than that of crystalline silicon PV modules in order to be competitive.

Different thin film technologies

There are three main types of thin film technologies, silicon-based thin film, cadmium telluride and copper indium diselenide/copper indium gallium diselenide. They represented approximately 43.0%, 54.0% and 3.0% of total solar power manufacturing in 2008, respectively:

Silicon-based thin film.  Silicon-based thin film modules are manufactured from chemical vapor deposition of silane and hydrogen gas. Under certain parameters, this disposition can yield amorphous silicon, nanocrystalline silicon or crystalline silicon on glass.

Cadmium Telluride, or CdTe.  Cadmium and tellurium are used as the photosensitive materials in a thin film PV cell. Because cadmium is a toxic material, there are concerns over the adoption of this technology.

Copper Indium Diselenide/Copper Indium Gallium Diselenide, or CIS and CIGS.  CIS and CIGS are multi-layered thin film modules made out of copper, indium and selenide. CIS and CIGS face potential materials sourcing issues with indium. There has been no commercial scale manufacturing of CIGS.

The world's major thin film manufacturers employ "in-house" developed thin film manufacturing designs while a few new market entrants produce thin film based on turn-key process equipment supplied by Applied Materials, Inc. or Oerlikon Corporation.

Amorphous silicon thin film technology, one of the most commonly used silicon-based thin film technologies, offers several advantages over other types of thin film including:

Greater application potential.  Amorphous silicon PV modules can be manufactured in low deposition temperatures, allowing for the use of different substrates. Due to their greater versatility in size and substrate, amorphous silicon PV modules are typically suited for more

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    applications than traditional crystalline silicon PV modules and other thin film PV modules, including applications requiring flexible, lightweight and transparent materials. For example, because amorphous silicon PV modules can be more easily integrated into facades, roofs and other structures, they are better suited for BIPV solutions that require embedding solar materials in building materials.

Well-tested and proven non-toxic.  Amorphous silicon PV modules incorporate no heavy metals or toxic compounds into finished products. In contrast, conventional crystalline silicon PV modules contain lead-based cell interconnections, and thin film technologies such as CdTe and CIGS contain toxic materials in finished products.

Minimal material risk.  Amorphous silicon thin film is a well-characterized and relatively easily deposited material that has been used in semiconductors and flat panel displays. In contrast, the availability of Cadmium and Indium used in CdTe and CIGS is limited.

Despite these advantages, amorphous silicon thin film technology has shown the potential to yield products at a competitive cost only at efficiency levels that are lower than that of the other two types of thin film technologies. Manufacturing of amorphous silicon thin film modules generally requires higher capital costs, particularly with respect to equipment, and applications that use this type of thin film also generally require a larger area than those of other types of thin film.

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Business

Overview

We are one of the world's leading thin film solar product and solution providers, as measured by production output in 2008, according to a report commissioned by us and prepared by Photon Consulting, a solar energy research firm and consultancy. According to this report, we were China's only thin film PV module producer ranked in the top ten globally by production output in 2008. As of the end of August, 2009, our annual manufacturing capacity reached 115 MW. We use amorphous silicon technology and we design, develop, manufacture and sell our PV modules based on our proprietary manufacturing process and technology.

We believe that our self-designed equipment and proprietary manufacturing process have built-in flexibilities to allow us to expand manufacturing capacity rapidly and cost-effectively through modifications to, and optimizing the manufacturing process of, existing manufacturing lines. This advantage, when combined with our increasing scale and low-cost China-based manufacturing, allowed us to achieve an average annual manufacturing cost of approximately US$1.15 and US$1.09 per watt for the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, respectively, which we believe was among the lowest in the world.

We distinguish ourselves from other thin film solar companies with our strong research and development capabilities, which are evidenced by the awards and recognition we have received. In 2008, the PRC Ministry of Housing Construction for Urban and Rural Areas selected us as the preferred provider of BIPV products as part of their initiative to support the development of green energy. In 2007, four members of our management team were selected to serve on China's national BIPV technical standard committee. Since our inception in 1993, we have accumulated substantial intellectual property in the thin film PV industry. As of September 30, 2009, we had 18 patents and exclusive rights to use 57 patents in China.

We commenced operations in 1993, became a manufacturer of thin film solar batteries in 1995 and began commercial production in 1998. We expanded our annual manufacturing capacity to 5 MW and began manufacturing PV modules for off-grid systems on a commercial scale in 2006, and gradually increased our annual manufacturing capacity to 45 MW by October 2008. In July 2009, we completed construction of our 70 MW fully-automated manufacturing line, which commenced commercial production in August 2009, bringing our annual manufacturing capacity to 115 MW. We expect that by the end of 2009, our annual manufacturing capacity will reach 145 MW as a result of the further expansion of our existing 70 MW manufacturing line.

We offer more than 200 different varieties of PV modules to meet different customer needs. Our PV modules can be used in off-grid applications, including solar home systems, consumer products and street and lawn lamps. We believe that we are one of the leading producers of thin film PV modules for off-grid applications globally measured by production output. We also manufacture large modules that can be used in BIPV applications and PV power stations. We plan to continue to maintain and improve our leading position in the off-grid market, develop and market high-margin BIPV products and increasingly focus on the PV power station market. Our diverse and expanding customer base includes distributors, exporters, manufacturers and project developers, contractors and owners in China, South Korea and Thailand.

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Leveraging our design and engineering capabilities and deep industry experience, we also provide owners and operators of PV power stations and other customers with a diverse range of value-added solutions and services. For example, we recently provided technical guidance, equipment selection, and other services in project implementation, construction management and system optimization to an EPC firm based in South Korea in its construction of a 1.0 MW on-grid power station project. We also assisted this EPC firm in preparing relevant technical documents to facilitate its obtaining of project financing from banks. The project was completed in May 2009 using our PV modules.

Our total revenues increased from RMB26.2 million in the fiscal year ended June 30, 2007 to RMB272.8 million in the fiscal year ended June 30, 2008 and to RMB541.5 million (US$79.3 million) in the fiscal year ended June 30, 2009, representing a CAGR of 354.6% over the three fiscal years. Our net income increased from RMB5.2 million in the fiscal year ended June 30, 2007 to RMB85.8 million in the fiscal year ended June 30, 2008 and to RMB164.9 million (US$24.2 million) in the fiscal year ended June 30, 2009, representing a CAGR of 463.1% over the three fiscal years. In the three months ended September 30, 2009, our total revenues and net income amounted to RMB254.6 million (US$37.3 million) and RMB72.5 million (US$10.6 million), respectively, representing an increase of 81.1% and 61.5% over the same period in 2008, respectively.

Our competitive strengths

We believe that the following competitive strengths will sustain our rapid growth and enable us to continue to compete effectively:

Low-cost solutions driving global cost leadership

For the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, the average manufacturing cost for our PV modules was approximately US$1.15 and US$1.09 per watt, respectively, which we believe is significantly less than that of crystalline silicon PV module manufacturers and among the lowest in thin film manufacturing. We believe our ability to provide low-cost solutions stems from several factors:

Our manufacturing expertise and proprietary technology have enabled us to internally design and develop manufacturing lines and key equipment that allow us to produce our PV modules efficiently and cost-effectively.

Our PV modules require approximately 1% to 2% of the silicon materials needed for crystalline silicon PV modules of similar power output. Cost of silicon materials typically represents a substantial portion of the cost of producing crystalline silicon PV modules.

As we conduct substantially all of our operations in China, we are able to capitalize on the low cost for labor and materials, manufacturing facilities and utilities.

Proprietary manufacturing process and self-designed key equipment

Using our proprietary technology and expertise, we design the critical elements of our manufacturing lines and much of the important equipment used in our manufacturing process. We believe our self-designed equipment and proprietary manufacturing process have built-in flexibilities to allow us to expand manufacturing capacity rapidly and cost-effectively through modifications to, and optimizing the manufacturing process of, existing manufacturing lines, or to modify and adjust our manufacturing lines for commercial production of new or improved

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product designs faster and more cost-effectively than most of our competitors. Our ability to ramp up production quickly in response to increases in market demand or changes in technology allows us to capture market opportunities and increase our market share timely. This flexibility also enables us to achieve significant operational and financial advantages over companies that purchase turn-key amorphous silicon thin film solutions. These advantages include lower capital investment, shorter time-to-build and time-to-market, greater flexibility in manufacturing process optimization, lower maintenance time and costs and greater flexibility to manufacture products to the specifications of our customers. For instance, our proprietary technology and expertise allow for the flexibility to manufacture PV modules of specified sizes of up to 1.0 square meter, which can be increased to 1.8 square meters with limited additional capital investment. This is especially beneficial for BIPV applications, which require a greater level of product customization than other applications.

Leading position in the rapidly expanding global thin film market in general and the off-grid market in particular

We are one of the world's leading thin film solar product and solution providers, as measured by production output in 2008, according to a report commissioned by us and prepared by Photon Consulting. According to this report, we were also China's only thin film PV module producer ranked in the top ten globally by production output in 2008. Following the commencement of commercial production of our new 70 MW fully automated manufacturing line, our annual manufacturing capacity reached 115 MW in August 2009. We plan to further expand our annual manufacturing capacity to approximately 145 MW by the end of 2009. We believe that we are well positioned to leverage our brand name and well-established customer relationships to capture significant expansion opportunities in the rapidly growing thin film markets.

We derive a significant portion of our revenues from sales of our PV modules for off-grid applications and believe that we are one of the leading producers of thin film PV modules for off-grid applications globally measured by production output. According to Solarbuzz, off-grid applications are currently economically self-sustainable and present significant market opportunities. The pricing of our PV modules for off-grid applications has been and, we expect will continue to be, more stable than that of our PV modules for on-grid applications. We have established long-term relationships with a select number of China-based exporters and manufacturers of off-grid applications as well as a select number of foreign-based distributors and manufacturers. Our amorphous thin film PV modules generate more electricity than crystalline silicon PV modules with similar power rates in certain environments, including those with high temperature and low light. In addition, due to the unique features of amorphous thin film technology, certain off-grid applications, such as street and lawn lamps, can adopt simpler designs with fewer components to achieve cost savings. As a result, we believe that we are well positioned to remain competitive and maintain and improve our leading market position in the off-grid market.

A wide range of product offerings for diverse end applications

Unlike our competitors with relatively more concentrated revenue streams, we derive our income from PV modules that can be used in a wide range of end applications, including off-grid applications such as solar home systems, consumer products and street and lawn lamps, BIPV applications and PV power stations. As a result of our accumulated product development capabilities, we offer more than 200 varieties of products for various applications. We believe

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that our ability to customize the design, size, shape and technical specifications of our PV modules for various end applications enables us to provide convenience to and better serve the needs of our customers. As a result, we believe we are able to strengthen relationships with our customers, attract more customers and generate higher revenue from existing customers.

Our business and future growth depend on a number of factors, including changes in market conditions, government subsidies and economic incentives in our target markets. These changes typically impact the markets for each category of end-applications differently. For instance, the market for off-grid applications is generally less susceptible to economic downturns. We believe that our ability to customize the design, size, shape and technical specifications of our PV modules for various end applications has enabled and will continue to enable us to maintain and grow our business despite difficult market conditions or unfavorable changes in government subsidies and economic incentives. It will also provide us with increased flexibility to prepare for and react to these adverse conditions and changes and allow us to take advantage of any favorable changes.

Distinguished research and development capabilities providing key technology competitiveness

We believe that our distinguished research and development capabilities allow us to meet customer demands more quickly, reliably and affordably than many of our competitors. As of September 30, 2009, we had a research and development team with 75 employees. Yi Li, our founder and chief executive officer, also chairs China's national BIPV technical standard committee. Three other members of our management team are also on this 23-member committee. With ownership of 18 patents and exclusive access to 57 patents in solar manufacturing, we enjoy one of the largest pools of thin film patents in China. We have won a number of awards for our technological innovation from central and provincial governments. We were also selected by the PRC Ministry of Housing Construction for Urban and Rural Areas in 2008 as the preferred provider of BIPV products as part of their initiative to support the development of green energy. We believe this recognition provides us with an additional endorsement of our quality and capabilities, and enables us to generate greater interest among customers for our BIPV products. In addition, a number of our research projects have won government grants and subsidies.

Experienced, cohesive and stable management team well-positioned to deliver profitable growth

We have an experienced management team with strong technology expertise and a long track record in the thin film solar energy industry in China. Under the leadership of our management team, we have increased our research and development capability, our manufacturing capacity, and, as a result, our revenues and profits. Our experienced senior management and research personnel, team cohesion and low turnover are essential factors in our ability to compete effectively in the solar power industry, realize greater cross department synergies and capture additional profits at different points in the solar power value chain.

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Our strategies

Leveraging our strong research and manufacturing capacities, we seek to grow rapidly into the world's leading thin film PV product and solution provider, and to build ourselves into a first-class brand in the global PV industry through the following strategies:

Leverage our strength in research and development and proprietary technologies to improve conversion efficiencies and reduce costs

We intend to continue to develop and implement new product and process technologies and design more advanced equipment to manufacture PV modules with higher conversion efficiencies in a cost-effective manner and on a large scale. We plan to further strengthen our research and development and manufacturing engineering capabilities. We believe that the close interaction between our research and development and manufacturing engineering teams will enable us to modify and adjust our manufacturing lines for commercial production more quickly than most of our competitors once we have successfully developed new technologies.

We also intend to further improve our manufacturing techniques and processes to reduce our manufacturing costs. We seek to continue to increase manufacturing efficiency and product quality and reduce the amount of raw materials required. For instance, we have implemented a manufacturing software system to improve the efficiency of our PECVD equipment and factory devices, increase the effectiveness and uniformity of applying PECVD technology on glass of larger size and enhance our process management and quality control procedures. We plan to further reduce our manufacturing costs by reducing our raw material costs. We intend to purchase certain of our raw materials directly from foreign suppliers as opposed to purchasing from China-based importers, as we currently do. In addition, we plan to identify reputable domestic suppliers from whom we can obtain materials of similar quality to those from overseas suppliers at significantly lower prices. We also expect to reduce our unit cost of raw materials as we expand our production, benefiting from economies of scale.

Maintain and enhance our leading market position in the off-grid market

According to Solarbuzz, off-grid applications present significant market opportunities. We plan to maintain and improve our leading market position in the growing off-grid market through the following efforts:

strengthening our long-term relationships and developing new relationships with domestic manufacturers of off-grid applications to secure recurring orders of larger size;

strengthening existing relationships and building new relationships with China-based exporters and distributors and manufacturers based in our target overseas markets and building and enhance direct selling forces to increase sales of our PV modules for off-grid applications in these markets;

increasing market awareness of the technological and cost advantages of our amorphous thin film modules for off-grid applications over traditional crystalline PV modules to increase the market share of amorphous thin film modules in the off-grid market; and

participating in industry conferences and trade shows and collaborating with exporters and local distributors to increase market awareness of our products and brand name, particularly in our target overseas markets.

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We also plan to expand our PV module offerings for additional applications in the off-grid market, such as pre-packaged off-grid irrigation systems.

Expand our presence in the high-margin BIPV market

In comparison with traditional standard PV modules, higher value-added product areas such as BIPV have become some of the most profitable segments of the solar market. The inherent characteristics of thin film technology, such as its stability, transparency and aesthetics, tend to make it a better solution for BIPV. We intend to pursue opportunities in the market for BIPV applications, which would allow us to leverage our product and manufacturing strengths.

We believe that there is a growing market for BIPV in China and an increasing demand for customized BIPV applications. In April 2009, the PRC Ministry of Finance and the Ministry of Housing and Urban-Rural Development jointly issued the "Guidelines for Declaration of Demonstration Project of Solar Photovoltaic Building Applications," which set a subsidy of up to RMB20 (US$2.93) per watt for BIPV projects using solar-integrated building materials and components and up to RMB15 (US$2.20) per watt for BIPV projects using solar-integrated materials for rooftops or walls. We expect these government subsidies to further increase demand for BIPV products. We also plan to form strategic alliances with EPC firms and other project developers and contractors as well as manufacturers in China and become their preferred supplier of BIPV products, which had contributed to our involvement in several large-scale domestic BIPV projects in the past.

Actively pursue opportunities in the PV power station market

The PV power station market is expected to continue to grow rapidly, aided by government incentives and easing financing conditions. We believe the cost per watt of our amorphous silicon thin film PV modules is significantly lower than that of crystalline silicon PV modules and is among the lowest of our thin film competitors. Using our relatively inexpensive modules in PV power stations lowers project costs and makes it easier for project sponsors to meet their financial objectives. We believe that we are well positioned to capture opportunities in this large and growing market due to our increased manufacturing capacity.

We plan to maintain and enhance our cost leadership by improving the conversion efficiencies of our PV modules, increasing module size, expanding our operation to benefit from economies of scale and introducing modules that are pre-installed in our factories to reduce customer installation costs. We believe that these efforts will significantly help increase our sales in the power station market. We plan to market directly to owners and operators of PV power stations as well as provincial and municipal governments in the PRC market. We have recently entered into two non-binding cooperation framework agreements with certain local government entities in connection with, among other things, the construction of PV power stations. We also plan to further develop our sales network and build relationships with distributors in overseas markets with high potential for growth. We expect to work closely with these institutions to fully develop our potential in the PV power station market. We also plan to improve awareness of amorphous silicon thin film technology and our brand by participating in industry conferences and trade shows. In addition, we aim to strengthen our value-added system solution service capabilities, including our ability to provide pre-sale consultancy, design, engineering and after-sale maintenance and support services to assist customers in meeting their solar energy system needs and financial objectives.

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Focus on the China market to capture market opportunities created by recent government policies

China's nascent solar market, which was previously dominated by off-grid rural and industrial projects, is set for significant future growth. We believe we have significant cost and technological advantages over many of our domestic competitors, who either utilize crystalline silicon-based technology or purchase turn-key amorphous silicon thin film solutions, as well as significant cost and home market advantages over our international competitors. We plan to work closely with various local government authorities in China to target specific groups of project owners such as government agencies, utilities, infrastructure builders (including airports, railroads and convention centers) as well as distributors to capture this opportunity.

Increase manufacturing capacity to drive market leadership

Our proprietary self-designed amorphous silicon thin film manufacturing line is highly scalable, allowing us to expand rapidly, gain market share by capitalizing on the shortage of thin film supply and benefit from economies of scale in production and reduced material procurement costs. As of the end of August, 2009, our annual manufacturing capacity reached 115 MW, which represents one of the highest manufacturing capacities among solar module manufacturers that utilize amorphous silicon thin film technology. We believe we are well-positioned to maintain our market position through our ability to scale up our manufacturing capacity relatively quickly and cost-effectively.

We intend to increase manufacturing capacity in a controlled manner to ensure that such expansion is completed in an efficient way at competitive price points closely aligned with market demand.

Our products

We design, develop, manufacture and market a variety of solar thin film PV modules using amorphous silicon technology. Our PV modules are used to provide reliable and environmentally friendly electric power for consumer, residential, commercial, industrial and public utility applications in various markets worldwide. The current average conversion efficiency rate of our PV modules is approximately 6.0% on 1.0 square meter glasses. We have recently started to use a double junction structure in the manufacturing of a small portion of our PV modules. In a double junction structure, cells with two matching p-i-n structures are stacked to form layers. Because this design has demonstrated less light induced degradation, we have been able to yield an average conversion efficiency rate of approximately 6.3% for double junction PV modules since we started to apply this technique. We define conversion efficiency rate as the stabilized conversion efficiency rate of our PV modules that is achievable after a light soaking degradation process. For more details, see "—Manufacturing—Light soaking degradation tests."

Our thin film PV modules are created by depositing thin layers of non-crystalline form of silicon onto a glass substrate, where the individual cells are connected through a monolithically integrated process during the deposition steps instead of being assembled as individual cells. Energy is converted into direct-current, or DC, electricity when sunlight hits a PV module. PV modules can be inter-connected to form a solar power system. PV systems are used for both on-grid generation, in which electricity generated is fed into an electricity transmission grid for sale, and off-grid generation, for locations where access to the electricity transmission grid is not physically available or economically feasible. The DC electricity may be routed directly to

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power a DC load or charge a battery bank. In grid-tied applications, an inverter is used to convert the DC electricity from the PV system into alternating current, or AC electricity, which can be interconnected directly to the electric utility grid to power AC appliances. In addition, PV systems usually have mounting structures, cable cords to route the power, and circuit protection.

Our PV modules can be used in the following three categories of applications:

off-grid applications;

BIPV applications; and

PV power stations.

Off-grid applications

We manufacture PV modules for off-grid solar home systems and sell primarily to China-based exporters and manufacturers and a select number of foreign distributors and manufacturers. Such off-grid solar home systems are particularly suited to rural areas that are not connected to the public electricity grid. An off-grid solar home system consists of a PV module plate, control system, accumulator cell and DC-AC inverter. The PV module plate captures solar power and converts it into electricity, which is then stored in the accumulator cell. The control system regulates the system and prevents the accumulator cell from becoming overly-charged or overly-discharged. The DC-AC inverter converts the DC electricity dispensed from the accumulator cell into AC electricity, which can be used by household appliances.

We also manufacture PV modules for use in off-grid consumer products such as calculators, watches and toys. We started to manufacture PV modules for consumer products such as solar-powered calculators, watches and toys in 1995 and began commercial production in 1998. According to an article published in 2005 by Industry and Technology Intelligence Services, a project sponsored by the Department of Industrial Technology of Ministry of Economic Affairs of Taiwan, we were the second-largest thin film solar battery manufacturer in the world in 2004. We are currently the supplier for a number of major domestic and international manufacturers, such as Kinpo Electronics Inc. and Zhenyi Electronics (Shenzhen) Co., Ltd.

We also manufacture PV modules used in other off-grid applications such as street and lawn lamps and primarily sell to domestic manufacturers. As cities in China search for ways to reduce electric consumption, many have begun conducting pilot projects for solar-powered street lamps.

BIPV applications

Since amorphous silicon PV modules are more easily integrated into facades, roofs and other structures, they are generally better suited for BIPV solutions that require embedding solar materials in building materials. We entered the BIPV market in the fiscal year ended June 30, 2007.

We produce two types of PV modules for BIPV applications: sealed insulating amorphous silicon glass, which has a hollow design, and laminated amorphous silicon glass, which has a laminated design.

We provide our BIPV products and BIPV solution services directly to project developers, contractors and owners. For example, our PV modules are installed on the outside walls of the

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Guangzhou TV Tower, which is currently in construction and expected to be completed in 2009. In July 2008, we provided an integrated BIPV system for the Zhongjian Building in Changsha, Hunan province. In 2008, we provided PV modules for Jianke Building in Shenzhen, Guangdong Province. In 2006, we provided an integrated BIPV system for Nanshan Software Park in Shenzhen, Guangdong Province. We have recently entered into a non-binding cooperation agreement with a local government entity in connection with, among other things, BIPV projects. We also sell our PV modules to glass curtain wall manufacturers in China.

In 2008, we were selected by the PRC Ministry of Housing Construction for Urban and Rural Areas as the preferred provider of BIPV products as part of their initiative to support the development of green energy. We believe this recognition provides us with an additional endorsement of our quality and capabilities, and enables us to generate greater interest among customers for our BIPV products.

PV power stations

We provide large-sized PV modules to project developers and owners of PV power stations. A PV power station consists of a series of solar power systems that are physically mounted and electrically interconnected to produce and store electricity. We began providing PV modules for PV power stations in the fiscal year ended June 30, 2008. We have since provided PV modules to an EPC firm based in South Korea in its construction of a 1.0 MW on-grid power station project. The project was completed in May 2009. We have also been supplying PV modules to a customer in Thailand who plans to build a solar power station in Thailand and currently use our PV modules for other purposes. In addition, we are in active discussions with a number of local government authorities in China to encourage them to promote our PV modules for solar power station projects to be built in their respective regions. We have recently entered into two non-binding cooperation framework agreements with certain local government entities in connection with, among other things, the construction of PV power stations.

Leveraging our design and engineering capabilities and deep industry experience, we also provide owners and operators of PV power stations with a diverse range of value-added solutions and services. For example, we provided technical guidance and equipment selection, as well as other services in project implementation, construction management and system optimization to the South Korean EPC firm. We also assisted this EPC firm in preparing relevant technical documents to facilitate its obtaining of project financing from banks.

We plan to continue to expand our operations in the PV power station market and enhance our value-added service capabilities. We believe that recent PRC government stimulus measures targeting this market will provide us with opportunities to provide our PV modules for government-sponsored PV power station projects.

Manufacturing

We built our first amorphous silicon thin film PV module manual manufacturing line in the Futian district of Shenzhen in 1998, which was expanded to 5 MW in 2006. We subsequently launched our 40 MW semi-automated manufacturing line in 2008. Our 40 MW semi-automated manufacturing line combines automated and manual operations to take advantage of our location in China, where the costs of skilled labor, engineering and technical resources, as well as land, manufacturing equipment, facilities and utilities, tend to be lower than those in developed countries.

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In July 2009, we completed construction of our 70 MW manufacturing line, which commenced commercial production in August 2009, bringing our annual manufacturing capacity to 115 MW. This 70 MW manufacturing line is fully automated and has a high throughput. We will continue to assess and adjust our combination of automated and manual operations to optimize the costs and productivity of our manufacturing process.

We expect that by the end of 2009, our annual manufacturing capacity will reach 145 MW as a result of the further expansion of our existing 70 MW manufacturing line. We plan to construct a 60 MW manufacturing line, which is expected to commence commercial production in the first half of 2010. We intend to expand our manufacturing capacity in a controlled manner to ensure that we complete such expansion in an efficient way at competitive costs and in a manner closely aligned with market demand.

Proprietary manufacturing process and self-designed equipment

We design our manufacturing lines with proprietary technology, expertise and equipment at certain key manufacturing steps, including coating and testing. This integrated process improves manufacturing efficiency and reduces glass breakage. We have also self-designed and assembled PECVD and PVD equipments, which are crucial in amorphous silicon thin film PV module manufacturing. Our proprietary PECVD chamber design enables us to reduce the use of silane gas and energy consumption.

We believe our proprietary manufacturing process and self-designed equipment have built-in flexibilities which allow us to expand manufacturing capacity rapidly and cost-effectively through modifications to, and optimizing the manufacturing process of, existing manufacturing lines, or to modify and adjust our manufacturing lines for the commercial production of new or improved product designs faster and more cost-effectively than most of our competitors. Our ability to ramp up production quickly in response to increases in market demand or changes in technology allows us to capture market opportunities and increase our market share timely. This flexibility also enables us to achieve significant operational and financial advantages over companies that purchase turn-key amorphous silicon thin film solutions. These advantages include lower capital investment, shorter time-to-build and time-to-market, greater flexibility in manufacturing process optimization and lower maintenance time and costs. For instance, our proprietary technology and expertise allow for the flexibility to manufacture PV modules of different sizes (up to 1.8 square meters) and of varying specifications, allowing us to produce PV modules that closely meet customer requirements. The ability to produce PV modules of different sizes and specifications by making minor adjustments to the equipment used in our manufacturing lines is especially beneficial for BIPV applications since BIPV applications require a greater level of product customization than other applications. This flexibility also makes it less expensive and easier to meet specific customer requirements and needs.

The cost of our 70 MW fully-automated manufacturing line installed in July 2009 was approximately RMB560 million. This manufacturing line can be adjusted with limited additional capital investment to produce PV modules of 1.8 square meters in size.

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Manufacturing process

The diagram below illustrates our manufacturing process:

GRAPHIC

Our manufacturing process for making PV modules, depicted above, begins with a laser scribe on the TCO coated glass substrate followed by a cleaning process. We then effectuate the amorphous silicon deposition with our proprietary deposition process based on the PECVD technique. The junction partner zinc oxide is deposited on top of the amorphous silicon-coated plate layer, and the second scribe is accomplished before the metal conductive layer coating process. The monolithic cell structure is completed with the third scribe, where a polymer laminate is laid down and the encapsulating glass sheet is bonded to the substrate glass. Electrical leads and junction boxes are added at the finishing step. The completed module is tested and binned by performance.

Depending on the size of the PV module produced, the manufacturing process typically takes approximately three to four hours.

Light soaking degradation tests

The conversion efficiency of amorphous thin film PV modules typically declines approximately 10% to 30% from the initial conversion efficiency rate over a period of time after being exposed to light. The extent of the decline depends on a number of factors, including the quality of the material and module design.

In accordance with industry practice, we specify conversion efficiency based on the performance of our amorphous thin film PV modules after the conversion efficiency stabilizes. To collect such a measurement, we conduct light soaking degradation tests on a small percentage of our PV modules by exposing them under natural light with electric load until their conversion efficiency reaches a stabilized stage. Our light soaking degradation tests typically last approximately three to four weeks. Based on our testing results, the conversion efficiency of our amorphous thin film PV modules decreases approximately 20% to 25% from its initial value before it stabilizes.

We conduct the tests substantially in accordance with the "Thin-film terrestrial photovoltaic (PV) modules—Design qualification and type approval", or IEC 61646, an international standard for certifying thin film PV module performance, adopted by the International Electrotechnical Commission, an international standards organization. IEC 61646 specifies a sequence of testing procedures, taking into account the degradation behavior of thin-film PV modules due to exposure to light, to be performed at a select number of recognized labs around the world. A manufacturer will receive IEC 61646 certification for its thin film PV module if, among other conditions, the measured maximum output of such thin film PV module after the testing procedures is no less than 90% of the minimum value specified by the manufacturer. We engaged Underwriters Laboratories Inc., or UL, of the United States and TüV Immissionsschutzund Energiesysteme GmbH, or TüV of Germany to certify our PV modules.

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In connection with the UL certification, we completed the preliminary testing procedure in June 2009 and have made adjustments to our PV modules and our manufacturing process to comply with the recommendations given to us based on the preliminary testing by UL. We submitted an application for the full listing to UL in August 2009, which procedure typically takes another 3 months or longer, depending on the testing load at UL. We expect to receive our certification from UL by December 31, 2009. We also submitted an application for IEC 61646 certification from TüV. We expect to start the testing procedure shortly and receive the certification by December 31, 2009.

In order to reduce the extent of conversion efficiency degradation of our amorphous thin film PV modules, we employ buffer layer design in our commercial production, which is a film design technique used to reduce lattice mismatch between layers and improve stability. We also intend to use multi-junction and light-trapping techniques. These techniques reduce the layer thickness of the silicon materials, which is widely recognized as a key factor in conversion efficiency degradation. We also plan to implement micro-crystalline thin-film deposition technology, which is an alternative manufacturing technology with proven track record of reducing PV module conversion efficiency degradation.

Raw materials

Our manufacturing process employs a variety of raw materials to construct a complete PV module. Of those raw materials, the following six are critical to our manufacturing process: TCO coated glass panels, silane, ethylene vinyl acetate, tempered glass, lead wire and solar connectors. Before we use these materials in our manufacturing process, a supplier must generally undergo a qualification process, the length of which depends 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 manufacturing process is TCO coated glass, which we purchase from suppliers in China, who in turn source the TCO coated glass from Japanese suppliers. Our second most critical raw material is silane, which we primarily source from a Chinese branch of a U.K. supplier. We also source a limited quantity of silane from a Chinese supplier. We acquire the remainder of our raw materials from a limited number of domestic suppliers. We order our raw materials on a monthly basis, and we generally maintain approximately one month of inventory. The sales prices in our raw material supply contracts are determined at the beginning of each calendar year, but they typically contain an adjustment clause to account for raw material price increases or decreases throughout the year.

Research and development

We focus our research and development activities principally on development and implementation of product and process technologies that enhance the conversion efficiency of our PV modules, increase the size of our PV modules and reduce our manufacturing costs. To this end, we engage in a range of thin film PV research, product development and application development programs, as well as PECVD and PVD equipment engineering projects. As a result of our research and development efforts, we have been able to achieve over 6.0% conversion efficiency on 1.0 square meter glasses in volume manufacturing, over 6.3% conversion efficiency in small scale production utilizing the double junction structure and attain 12.0%

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conversion efficiency in laboratory tests. We also work on PV modules that are pre-installed in our factories to reduce customer installation costs.

Our achievements in research and development derive from the strength of our research and development team, which comprised of 75 employees.

Our founder, chairman of our board of directors and chief executive officer, Yi Li, has extensive experience in the amorphous silicon thin film solar industry. He has been recognized by China's central and provincial governments for his technological innovation. Mr. Li obtained the First Prize in the Science and Technology Progress Award from the National Trade Department in 1996, the Third Prize in the National Science and Technology Progress Award from the National Science and Technology Committee in 1997, and the Golden Prize for Innovation in 2004 from the Association of French Inventors and Manufacturers based in Paris, France. In January 2006, Mr. Li received a golden prize for outstanding Chinese patented invention from the World Intellectual Property Organization and the State Intellectual Property Office of the PRC for his invention of internal-connecting amorphous silicon PV modules and their fabrication method. Our research and development team is led by our chief technology officer, Mr. Shengming Hu, who has over 10 years of experience in the thin film solar energy industry and has accumulated in-depth knowledge and expertise.

Mr. Li also chairs China's national BIPV technical standard committee, and three other members of our team have also been elected as members of this 23-member committee. This committee is directly administered by the Office of the National Standardization Management Committee.

We have won a number of awards for our technological innovation from central and provincial governments in China. In 2009, we also received the BlueSky Award from the United Nations Industrial Development Organization—Shenzhen International Technology Promotion Centre for Sustainable Development for our low cost amorphous silicon BIPV products. This award is intended to recognize new technologies that have a significant measurable impact on the environment, economy and society and that are cost effective in commercial applications. In addition, we were selected by the PRC Ministry of Housing Construction for Urban and Rural Areas in 2008 as the preferred provider of BIPV products as part of their initiative to support the development of green energy. In addition, a number of our research projects have won government grants and subsidies. For example,

In June 2009, we were chosen by the PRC Ministry of Science and Technology to participate in a project under the National High Technology Research and Development Program, also known as the 863 Program, which is funded and administered by the PRC government with an aim to stimulate the development of advanced technologies in a wide range of fields within the PRC. The PRC Ministry of Science and Technology has agreed to provide a RMB0.8 million grant for the research and development of low-cost manufacturing of flexible amorphous silicon PV modules to which we are entitled RMB0.4 million. The project is expected to be completed in 2010.

In March 2009, we were awarded by the Science and Technology Agency of Guangdong Province to undertake the research and development demonstration project on the cost-effective manufacturing of amorphous/microcrystalline silicon PV modules. The Science and Technology Agency of Guangdong Province has agreed to provide a RMB2.5 million

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    grant in connection with the project, to which we are entitled RMB1.5 million. The project is expected to be completed in December 2011.

In November 2008, we were awarded by the Office of Production and Research of the Ministry of Education of Guangdong Province to undertake the research and development of cost-effective amorphous/microcrystalline silicon heterojunction PV modules. The Office of Production and Research of the Ministry of Education of Guangdong Province has agreed to provide a RMB1.0 million grant in connection with the project, to which we are entitled RMB0.4 million. The project is expected to be completed in December 2010.

In December 2006, we were awarded by the Economic and Trade Commission of Guangdong Province to undertake the research and development of low-cost technologies and equipment for BIPV applications, and were provided with a RMB3.0 million grant in connection with the project in March 2007.

Going forward, we intend to continue to focus our research and development efforts in the following areas:

Increase conversion efficiencies in a cost-effective manner.  Our research efforts focus on thin film design and deposition technology, with the goal of improving the stabilized conversion efficiency of our PV modules. Our current programs include developing novel uses of various silane and doping gases that enhance deposition speed and quality; light trapping structures that improve absorption and optimize film layer thickness and stability; coating processing techniques in window layer design, interface optimization and buffer layer for crystal lattice matching and defect reduction; metal oxide coating for improved optical and electric performance; hetero-junctions formed with amorphous and microcrystalline silicon layers, or with amorphous silicon and silicon-based alloys, for improved efficiency and stability.

Increase size of PV modules without compromising conversion efficiencies.  Our research efforts are also focused on achieving the same conversion efficiency on 1.8 square meter glasses that we can currently achieve on 1.0 square meter glasses.

Reduce module costs.  Our product development programs integrate the latest advances in TCO glass, laser scribing, encapsulation materials and processing equipment into a coherent module construction technology. Our goal is to reduce the average PV module manufacturing cost to below US$1.00 per watt in the near future.

Develop and commercialize flexible PV modules.  We are developing PV modules that can be made from more flexible substrates. Compared with our current PV modules which are made from glass, a rigid substrate, PV modules made from more flexible substrates are lighter, more impact resistant, more flexible and easier to install, making them well-suited for portable electronics, roof installations and space, military or other special applications. We have successfully tested TCO layer coating, amorphous silicon deposition and metal conductive layer coating on flexible substrates, and expect to begin small-scale production of flexible PV modules by the end of 2010.

Develop strategic applications to broaden our customer base.  We deploy resources in the development of fast installation techniques for utility-scale PV power stations, which we believe will improve user-friendliness and reduce the installation costs of our products. We also deploy resources in the development of several strategic applications such as

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    pre-packaged off-grid irrigation systems. We believe that these applications can help us attract a wider range of customers.

Further automate our manufacturing lines.  We focus on developing thin film fabrication technology that incorporates highly automated, large scale manufacturing systems with high manufacturing efficiency and product flexibility. Our proprietary manufacturing flow design aims at greatly reducing our unit manufacturing cost. We aim to implement our manufacturing flow design in our new manufacturing facilities.

Our research and development expenses amounted to RMB1.7 million, RMB3.1 million, RMB5.5 million (US$0.8 million) and RMB3.0 million (US$0.4 million) in the fiscal years ended June 30, 2007, 2008 and 2009, respectively and the three months ended September 30, 2009.

Sales and marketing

Sales and marketing channels and strategies

We use different distribution channels and deploy different sales and marketing strategies for different end-application markets.

The off-grid market.    Sales of PV modules for off-grid applications have constituted a significant portion of our total revenues in each of the three fiscal years ended June 30, 2009 and the three months ended September 30, 2009 and are expected to continue to contribute significantly to the growth of our business. We sell PV modules for solar home systems primarily to a select number of China-based exporters who distribute our PV modules to solar home system manufacturers in our target overseas markets through their trade relationships and a select number of foreign distributors. We have also established long-term relationships with a number of domestic manufacturers, who assemble solar home systems using our PV modules for sales into our target overseas markets, and certain foreign manufacturers. We sell PV modules for consumer applications primarily to domestic and international electronics manufacturers, whose products reach end users in China as well as our target overseas markets. We sell our PV modules for street and lawn lamps primarily to domestic manufacturers whose products are sold and used worldwide.

We sell a substantial percentage of these PV modules through non-exclusive sales contracts with terms of one year or less, which, to our knowledge, is common industry practice in the off-grid market. In addition, a significant percentage of these contracts do not contain pricing terms or specify delivery schedules. See "Risk Factors—We depend on short-term sales contracts." However, we maintain a close relationship with our customers to better understand market demands and customer needs to enable us to more effectively plan our manufacturing tasks and procurement of raw materials.

Due to the high level of product recognition we enjoy for our PV modules for off-grid applications, especially consumer applications, we maintain long-term relationships with many of our customers. We plan to continue cultivating our existing relationships to secure recurring orders of larger sizes by enhancing communications with these customers and responding to their manufacturing needs in a timely manner. We also plan to continue to proactively approach distributors and manufacturers to better understand market demands and customer needs. Our PV modules for solar home systems do not currently have a significant presence in the nascent China solar home system market. To further expand the reach of our PV modules

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for off-grid applications in our target overseas markets, we plan to strengthen existing and build new relationships with exporters and local distributors in these overseas markets. We also plan to build and enhance local direct selling forces.

The BIPV market.    We provide our BIPV products and services to project developers, contractors and owners in China. We were selected by the PRC Ministry of Housing and Construction for Urban and Rural Areas as the preferred provider of BIPV products. We also sell our PV modules to glass curtain wall manufacturers in China.

We intend to continue to form strategic alliances with China's leading EPC companies and other project developers and contractors as well as manufacturers and become their preferred supplier of BIPV products, which had contributed to our involvement in several large-scale domestic BIPV projects in the past. In June 2009, we entered into a strategic cooperation agreement with a subsidiary of the Fifth Bureau of China State Construction Engineering, one of the largest building contractors in China, or the Fifth Bureau, for the supply of BIPV products in the central regions of China. In September 2009, we also entered into a strategic cooperation agreement with Beijing Landsky Lighting Engineering Co., Ltd., or Landsky, the designated lighting system supplier for National Stadium (also known as Bird's Nest), the main venue of Beijing 2008 Olympic Games, for the supply of BIPV products in the northern regions of China. Both of these two companies are our existing customers.

The PV power station market.    We provide PV modules for PV power stations and value-added solutions and services to project developers and owners of PV power stations in overseas markets. We have supplied PV modules and services to an EPC firm based in South Korea in its construction of a 1.0 MW on-grid power station.

We plan to market directly to owners and operators of PV power stations as well as provincial and municipal governments in the PRC market. We have recently entered into two non-binding cooperation framework agreements with certain local government entities in connection with, among other things, the construction of PV power stations. We also plan to further develop our sales network and build relationships with distributors in overseas markets with high potential for growth. We expect to work closely with these institutions to fully develop our potential in the PV power station market. We also plan to improve awareness of amorphous silicon thin film technology and our brand in the PV power station market by participating in industry conferences and trade shows. In addition, we aim to strengthen our value-added system solution service capabilities, including our ability to provide pre-sale consultancy, design, engineering and after-sale maintenance and support services to assist customers in meeting their solar energy system needs and financial objectives.

Sales and marketing activities

Our sales and marketing team works closely with our research and development, manufacturing and procurement teams to coordinate our product development activities, product launches and ongoing demand and supply planning. We engage in a wide range of marketing programs, including industry conferences, trade fairs and public relations events. We also focus on improving our customer service. For instance, we have established representative offices in Beijing and Changsha in order to provide responsive and high quality service to domestic customers across the country.

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Quality assurance and certifications

Our quality control procedures start with our design process, where we employ failure analysis based on established engineering principles and in accordance with industry practices. Our quality control procedures also include quality assurance of raw materials, which includes careful selection of reputable suppliers globally, sourcing critical materials from leading manufacturers, annual evaluation of our major suppliers and inspection of raw materials upon their arrival at our factories. Raw materials that fail our inspection are returned to the suppliers. We have also established quality control measures that are consistent with thin-film PV manufacturing industry standards at key stages throughout our manufacturing process. If we detect a problem, we will perform a failure analysis to determine the relevant cause. We conduct various performance tests on our finished products before they are inventoried and again before they are shipped. We generally warrant our products for up to one year for defects in materials and workmanship in accordance with industry standards in the off-grid and BIPV markets. On a case by case basis, we provide warranties with extended periods to a select number of customers at their request. For instance, we provided a warranty to one customer for our products for up to ten years for compliance with the quality and technical specifications provided in the contract and against defects in materials and workmanship. We also provided a warranty to another customer for up to 25 years against defects in equipment and workmanship and up to 10 and 25 years against declines of more than 10% and 20% of rated power, respectively.

We are expecting to receive many types of international certifications for our quality assurance programs, which we believe demonstrate our technological capabilities and instill customer confidence. The following table sets forth the major certifications we have received or are expecting to receive, and major test standards our products have met or are expected to meet as of September 30, 2009.

 
Certification test dates
  Certification or test standard
  Relevant products
 
September 5, 2002   ISO 9001:2000 quality system certification, established by the International Organization for Standardization, an organization formed by delegates from member countries to establish international quality assurance standards for products and manufacturing processes.   The design and manufacture of thin film PV cells, modules and application systems

Various dates from June 2003 to December 2008

 

CE certifications, issued by Electronic Technology Systems Dr. Genz GmbH and Waltek Services Co., Ltd., each an international operating test and certification center. An indication that our products have reached "European Conformity."

 

Certain models of our PV modules and charge controller for our PV System
 

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In addition, we have also submitted for product certifications of IEC 61646 and UL 1703 from UL and for certifications of IEC 61646 and IEC 61730 from TüV.

Intellectual property

We rely primarily on a combination of patents, trademarks and trade secrets, as well as employee and third party confidentiality agreements to protect our intellectual property. As of September 30, 2009, we held 18 patents in China, including five invention patents, 12 utility model patents and one packaging design patent. We also had one patent application pending in each of the United States, Japan and Germany. Historically, certain patents used in our business have been registered or applied for registration in the name of our founder and chief executive officer, Yi Li, in China for administrative simplicity. The development of such patents was led by Mr. Li using our resources, including our research and development personnel, raw materials, equipment and facilities. We entered into license agreements with Mr. Li in January 2006 and October 2007, which agreements were superseded by a license agreement we entered into with Mr. Li in September 2008, as further supplemented by a supplemental license agreement we entered into with Mr. Li in September 2009. As a result, as of September 30, 2009, we had exclusive rights to use 57 patents, including eight invention patents, 35 utility model patents and 14 packaging design patents in China, and exclusive access to 35 pending patent applications in China. Under these agreements, such patents are made available to us at zero consideration until Mr. Li has transferred all legal and beneficial ownership of these patents to us. 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.

The validity period for utility patents and packaging design patents we own is 10 years, and the validity period for invention patents we own is 20 years, starting from the date the application was filed. We have rights to the utility patents, packaging design patents and invention patents we license from Mr. Li from the licensing date until the expiry date of those patents. As with patent rights in most other jurisdictions, a patent holder in China enjoys the exclusive right to exclude others from using, licensing or otherwise exploiting the patent in China. However, patents we own or have exclusive rights to use could be challenged in China or elsewhere, which could be costly to defend and could divert our management from their normal responsibilities. See "Risk factors—Risks related to our company and our industry—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."

We do not believe the expiration or loss of any of the current patents we own or have the exclusive right to use would materially harm our business. We do not know if our patent applications, applications for patent license or any such applications in the future will result in patents being issued with the scope of the claims we seek, if at all, or whether any patents we receive or have the exclusive right to use may be challenged, invalidated or declared unenforceable.

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

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covered by patents or patent applications, including our proprietary technology and designs in thin-film solar manufacturing equipment, technical processes, 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 their employment with us. We also require our customers and business partners to enter into confidentiality agreements before we disclose any sensitive aspects of our PV modules, technology or business plans.

We maintain nine trademark registrations, including the names Trony, the Chinese characters "chuangyi," and our logo, in China. We are also in the process of applying for seven additional trademarks. We also maintain three trademark registrations, including the name Trony and our logo, in each of the United States, Japan and the European Union. As our brand name is becoming more recognized in the solar market, we are working to increase, maintain and enforce our rights in our trademark portfolio, the protection of which is important to our reputation and branding.

In an effort to stop or forestall the export of imitation and knock-off products, we have registered our Trony trademark and one of our core patents with customs officials in the PRC. PRC customs procedures provide for the seizure of any exports they inspect that are found to infringe on trademarks on file with them.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our technology. It is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as laws in the United States. In addition, our competitors may independently develop technology similar to ours. Our precautions may not prevent misappropriation or infringement of our intellectual property.

As of the date of this prospectus, we have not been subject to any material intellectual property claims against us.

Competition

The market for PV products is intensely competitive and rapidly evolving. The number of PV product manufacturers is rapidly increasing due to the growing demand for PV products and the PV industry's relatively low barriers to entry. Within the global PV industry, we face competition from crystalline silicon PV module manufacturers, as well as other thin film PV module manufacturers. We also compete with conventional energy and non-solar renewable energy providers.

Cost differentials between solar energy and conventional energy sources have narrowed due to greater economies of scale for manufacturing PV modules, lower equipment and raw material costs and improved conversion and production efficiencies. In addition, once installed, PV systems typically require lower maintenance and little or no fuel, resulting in substantial savings in operating expenses over the expected 20- to 25-year life of the system. We plan to continue to drive down our costs and improve conversion efficiencies of our PV modules. Compared with crystalline silicon PV technology, thin film technology enables manufacturers to

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produce PV modules with approximately 1% to 2% of the silicon materials used to produce crystalline silicon PV modules. Cost of silicon materials represents a substantial portion of the cost of producing crystalline silicon PV modules. However, the significant decrease in the cost of polysilicon caused by the recent reduced demand for PV products and oversupply of polysilicon have reduced the manufacturing cost of crystalline silicon PV modules, which is expected to lead to greater price competition from manufacturers of these products.

Thin film PV module manufacturing has only been commercialized recently. Although researchers have been developing thin film technology for over 20 years, they were only recently able to integrate the technology into a PV module manufacturing line. Unlike the crystalline silicon manufacturing process, thin film production is a fully-integrated and continuous process, which has the effect of increasing manufacturing efficiency. However, in contrast to crystalline silicon PV modules, no thin film PV modules have been in service for their entire estimated useful life. Therefore, there is limited data available to prove how thin film PV modules, including our PV modules, will perform over their estimated 20- to 25-year useful life.

In addition, we believe the average conversion efficiency of thin film PV modules in high commercial volume (over 20 MW per year) is approximately 30% to 65% lower than the current average conversion efficiency of readily available crystalline silicon PV modules. Low conversion efficiencies may make it difficult for some thin film manufacturers to achieve a competitive cost-per-watt. Furthermore, as compared to crystalline silicon PV modules, thin film PV modules require more space to install for the same amount of power generation output, due to lower conversion efficiency. Despite their better performance in various environments, including high temperature and low light, this may cause the total installation of thin film systems to cost more than crystalline silicon systems of same installed capacity.

Our competitors include conventional crystalline PV cell and module manufacturers such as Suntech Power Holdings Co., Ltd., Trina Solar Limited, Yingli Green Energy Holding Company Limited and the PV product division of Sharp Corporation, a large conglomerate.

We also face competition from other thin film players such as First Solar, Inc., United Solar Ovonic, LLC, the PV product division of Energy Conversion Devices, Inc. and Kaneka Corporation. First Solar, Inc. has announced its intention to invest in the China market, which may allow it to take advantage of lower production and labor costs in China. We may also compete with new entrants to the PV product market, including those that may offer more advanced technological solutions or may have greater financial resources. Furthermore, the solar power industry faces competition from conventional energy and non-solar renewable energy providers. Due to relatively high manufacturing costs compared to most other energy sources, solar energy is generally not competitive without government incentive programs. See "Risk factors—Risks related to our company and our industry—We face intense competition from manufacturers of crystalline silicon PV modules, thin film PV modules, and non-solar renewable energy and conventional energy providers."

Environmental matters

We believe we have obtained all of the environmental permits necessary to conduct our business. Our manufacturing processes generate noise, waste water, gaseous wastes and other industrial wastes. However, we have devoted efforts to reduce such wastes to acceptable levels

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under applicable regulations. We have installed various types of anti-pollution equipment in our facilities to reduce, treat, and where feasible, recycle the wastes generated in our manufacturing process. We believe we are currently in compliance with all applicable environmental laws and regulations. Our operations are subject to regulation and periodic monitoring by local environmental protection authorities. If we fail to comply with present or future environmental laws and regulations, we could be subject to fines, suspension of production or a cessation of operations.

Employees

We had 302, 519, 581 and 603 employees as of June 30, 2007, 2008, and 2009 and September 30, 2009, respectively. The following table sets forth the number of our employees in each of our areas of operations and as a percentage of our total workforce as of June 30 and September 30, 2009:

   
 
  As of  
 
  June 30, 2009   September 30, 2009  
 
  Employees
  Percentage
  Employees
  Percentage
 
   

Manufacturing, Procurement and Logistics

    455     78.3%     466     77.3%  

Research and Development

    72     12.4         75     12.4      

Sales and Marketing

    13     2.2         16     2.7      

Administration and Management

    28     4.8         32     5.3      

Finance

    13     2.3         14     2.3      
   

Total

    581     100.0%     603     100.0%  
   

Our success depends to a significant extent upon our ability to attract, retain and motivate qualified personnel, and our personnel are selected through a rigorous process. We recruit graduates from colleges and universities. We also recruit employees through various other channels, including advertisements in trade journals and postings on job recruitment websites. From time to time, we employ senior technical and managerial personnel through executive search firms and manufacturing personnel through government-established employment agencies. We plan to significantly increase the number of employees in the remainder of 2009 to support our growth strategy.

As of September 30, 2009, 30.2% of our employees held college or higher degrees. All of our manufacturing line employees have post-high school technical degrees or high school diplomas. A number of our employees have overseas education and industry experience. We provide continuous in-house and on-site training to our employees.

We are required under PRC law to make contributions to our employee benefit plans including pension, work-related injury benefits, maternity insurance, medical and unemployment benefit plans. Our contributions are made based on specified percentages of the salaries, bonuses, housing funds and certain allowances of our employees, up to a maximum amount specified by the respective local government authorities where we operate our businesses. Our total contribution for such employee benefits required by applicable regulations amounted to RMB0.3 million, RMB1.0 million, RMB2.4 million (US$0.4 million) and RMB0.7 million (US$103,000) in the fiscal years ended June 30 2007, 2008 and 2009 and the three months ended September 30, 2009, respectively.

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Our employees are not covered by any collective bargaining agreement. We believe that we maintain good working relationships with our employees.

Facilities

Our corporate headquarters are located in the Pavilion Century Tower in Shenzhen, where we lease an aggregate of 540 square meters of office space. Our main manufacturing and our research and development facilities are located at the Trony Industrial Park in the Baolong Industrial Zone of the Longgang District in Shenzhen, where we own the right to use a parcel of land of approximately 42,000 square meters, of which approximately 10,000 square meters have been utilized. Our employee dormitory and logistics center are also located on this parcel of land. In the Longgang facility, we have installed an aggregate of 110 MW of manufacturing lines and plan to install additional manufacturing lines as well as expand the capacity of existing manufacturing lines. In Futian district in Shenzhen, we lease 1,261 square meters of manufacturing facility, where our 5 MW manufacturing line for the manufacturing of consumer products is located, 606 square meters of building space as an employee dormitory and 1,164 square meters of office space. In particular, we plan to commence a project to expand our newly installed 70 MW fully-automated manufacturing line in our Longgang facility, which commenced commercial production in August 2009. We estimate that the cost of such expansion will be approximately RMB120.0 million (US$17.6 million). We plan to finance this project with a shareholder loan from Lakes Invest Limited. We expect that the project will be completed by the end of 2009, which will bring our annual manufacturing capacity to 145 MW. We believe that our existing and planned facilities are adequate for our requirements for the foreseeable future.

Insurance

We maintain property insurance policies with reputable insurance companies covering our equipment and facilities. These insurance policies cover losses due to fire, earthquake, flood and a wide range of other natural disasters. Insurance coverage for our fixed assets other than land amounted to over RMB293 million (US$43.0 million) as of September 30, 2009. We also maintain insurance policies in respect of marine, air and inland transit risks for the export of our products based on the arrangements in the agreements. We do not maintain product quality insurance or key-man life insurance for our executive officers. We consider our insurance coverage to be adequate. However, significant damage to any of our manufacturing facilities and buildings, whether as a result of fire or other causes, could have a material adverse effect on our results of operations. We paid an aggregate of approximately RMB303,000 (US$44,000) and nil in insurance premiums in the fiscal year ended June 30, 2009 and the three months ended September 30, 2009, respectively.

Legal, arbitral and administrative proceedings

We are currently not a party to any material legal, arbitral or administrative proceedings, and we are not aware of any threatened material legal, arbitral or administrative proceedings against us. We may from time to time become a party to various legal, arbitral or administrative proceedings arising in the ordinary course of our business.

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Regulations

Renewable energy law and government directives

China in recent years has undertaken the following initiatives to encourage the development of the renewable energy sector and, in particular, the solar energy sector:

Off-grid electrification projects supporting solar energy.  Off-grid rural electrification projects have been the largest segment in China's PV market. In 2000, the PRC government initiated the RMB10 billion Brightness Program with the goal of providing electricity to nearly 30 million people by 2015. The program seeks to install as much as 320 MW of PV capacity by 2015. China's Renewable Energy Development Project, another program to supply solar home systems to the rural population, ended in 2008. The program supported installation of 402,000 PV systems for public facilities and private households—providing light to more than 2 million homes at a total PV capacity of approximately 11.3 MW.

Renewable Energy Law.  In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006. The Renewable Energy Law sets forth policies to encourage the development and use of solar energy and other non-fossil energy and their on-grid application. It authorizes the relevant pricing authorities to set favorable prices for the purchase of electricity generated by solar and other renewable power generation systems. It also sets forth China's national policy to encourage the installation and use of solar energy water-heating systems, solar energy heating and cooling systems, solar PV systems and other solar energy utilization systems. In addition, it provides financial incentives, such as national funding, preferential loans and tax preferences for the development of renewable energy projects.

National directive to expand solar energy usage in residential and commercial buildings. China's Ministry of Construction issued a directive in June 2005, which seeks to expand the use of solar energy in residential and commercial buildings and encourages the increased application of solar energy in various townships. In addition, China's State Council promulgated a directive in July 2005, which sets forth specific measures to conserve energy.

Special funding for renewable energy applications in building construction.  On September 4, 2006, China's Ministry of Finance and Ministry of Construction jointly promulgated the Interim Measures for Administration of Special Funds for Application of Renewable Energy in Building Construction, which provides that the Ministry of Finance will arrange special funds to support the application of renewable energy in building construction in order to enhance building energy efficiency, protect the ecological environment and reduce the consumption of fossil energy. These special funds provide significant support for the application of solar energy in hot water supply, refrigeration and heating, PV technology and lighting integrated into building construction materials.

Financial subsidies and preferential tax regulations for renewable energy industry. In August 2007, the NDRC issued the Medium and Long-term Development Plan for Renewable Energy which describes the national government's financial incentives for the renewable energy industry for the multi-year period ending 2020, with an estimated required investment amount of approximately US$300 billion. The plan also calls for increasing the overall installation capacity for solar energy to 300 MW by 2010 and 1.8 GW by 2020. Recent policy

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    statements have indicated that these targets may rise to 400 MW to 500 MW by 2010 and 2 GW by 2020.

Energy Conservation Law.  On April 1, 2008, the PRC Energy Conservation Law came into effect. Among other objectives, this law encourages the utilization and installation of solar power facilities in buildings for energy-efficiency purposes.

Regional government solar initiatives.  Regional governments have also introduced, and are expected to continue to introduce, detailed incentive schemes to encourage regional use of solar energy. Recently announced examples include the following:

In June 2009, the Jiangsu provincial government announced three-year feed-in tariffs of RMB4.3 (US$0.63) per kWh, for BIPV projects, RMB3.7 (US$0.54) per kWh for rooftop PV modules and RMB2.15 (US$0.31) per kWh for ground installations, with these amounts reduced in 2010 to RMB3.5 (US$0.51) per kWh, RMB3.0 (US$0.44) per kWh and RMB1.7 (US$0.25) per kWh and in 2011 to RMB2.9 (US$0.42) per kWh RMB2.4 (US$0.35) per kWh and RMB1.4 (US$0.21) per kWh, respectively. In June 2009, the Jiangsu provincial government also announced a PV industry promotion roadmap to achieve an installation base of 400 MW by 2011.

In June 2009, the Ningxia regional government announced a new energy promotion roadmap which laid out an objective to achieve PV installation base of 100 MW, 600 MW and 2.0 GW by 2010, 2015 and 2020, respectively.

In May 2009, the Zhejiang provincial government announced a new solar initiative which will facilitate the construction of one million square meters of roof-top solar power stations and the installation of solar street lights on one hundred streets, bringing the total PV system installed capacity to 50 MW by 2012 in Zhejiang Province. The plan also stated that the government will encourage financial institutions to provide financial support for new energy projects.

National and local government subsidies for PV technology applications in building construction.

In March 2009, China's Ministry of Finance promulgated the Interim Measures for Administration of Government Subsidy Funds for Application of Solar Photovoltaic Technology in Building Construction, or the Interim Measures, to support the demonstration and the promotion of solar PV applications in China. Local governments are encouraged to issue and implement supporting policies for the development of solar PV technology. These Interim Measures, set forth subsidy funds set at RMB20 per watt for 2009 to cover solar PV systems integrated into building construction that have a minimum capacity of 50 kilowatt peak.

In April 2009, the Ministry of Finance and the Ministry of Housing and Urban-Rural Development jointly issued the "Guidelines for Declaration of Demonstration Project of Solar Photovoltaic Building Applications." These guidelines created a subsidy of up to RMB20 (US$2.93) per watt for BIPV projects using solar-integrated building materials and components and up to RMB15 (US$2.20) per watt for BIPV projects using solar-integrated materials for rooftops or walls.

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Renewable energy incentive plan.  The PRC government is currently drafting a renewable energy incentive plan, which is expected to accelerate the growth in China's solar power industry. The estimated PV manufacturing capacity in 2020 under this plan will be more than four times larger than under the previous plan released in 2007.

National subsidies for solar power applications.  In July 2009, the Ministry of Finance promulgated the Notice for Application of Renewable Energy in Building Construction in Rural Areas, under which the government would support the application of solar energy in building construction for houses and schools in rural areas. The program is expected to provide 60% of the construction costs for buildings with solar power applications. In addition, the Ministry of Finance promulgated the Notice for Application of Renewable Energy in Exemplary Cities, under which the central government would provide subsidies for exemplary cities for a term of three years based on areas with solar power applications.

National subsidies for building PV systems.  In July 2009, the PRC Ministry of Finance announced the Golden Sun Program to support the demonstration and application of the PV industry in China. Under this program, on-grid PV systems will be subsidized to cover 50% of total investment costs while off-grid PV systems installed in remote regions with no access to grid will be subsidized to cover 70% of total investment costs. The program seeks to encourage the installation of demonstration projects with an aggregate capacity of 500 MW. A majority of these projects will be on-grid ground-mounted projects. Subsidized systems must be at least 300 kW in size and owned by investors with assets of at least RMB100 million.

Environmental regulations

Our research and development and manufacturing activities may use, generate and discharge toxic, volatile or otherwise hazardous chemicals and wastes. We are subject to a variety of governmental regulations related to the storage, use and disposal of hazardous materials. We are subject to various PRC laws and regulations with respect to environmental protection, the prevention and control of water, air, noise and solid waste pollution, and construction project environmental protections.

Work Safety Law

The Work Safety Law, or WSL, was adopted at the 28th meeting of the Standing Committee of the Ninth People's Congress on June 29, 2002, and was promulgated for implementation as of November 1, 2002. The WSL is applicable to the work safety for entities engaging in manufacturing and business operation activities within the PRC. Such entities must comply with the WSL and other relevant laws and regulations concerning work safety and strengthen the administration of work safety, establish and perfect the system of responsibility for work safety, ensure conditions for safe manufacturing, and ensure safety in manufacturing.

Regulations on labor protection

The PRC Labor Contract Law was promulgated on June 29, 2007 and became effective on January 1, 2008. This law governs the establishment of employment relationships between employers and employees, and the conclusion, performance and termination of, and the amendment to, employment contracts. To establish an employment relationship, a written

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employment contract must be signed. In the event that no written employment contract is signed at the time of establishment of an employment relationship, a written employment contract must be signed within one month after the date on which the employer engages the employee.

Product Quality Law

According to the PRC Product Quality Law, manufacturers shall be liable for the quality of products that they produce and sellers shall take reasonable actions to ensure the quality of the products they sell. The seller is responsible for the repair, exchange or refund of the products if the product displays the following defects:

the product sold does not have the attribute or function it ought to have, and there was no advance explanation or statement made to that effect;

the product sold does not comply with the adopted standards indicated on the product or its package; or

the product sold does not comply with similar product quality as indicated by means of product instruction or sample.

The manufacturer is to compensate the user of the defective product for harm caused by the defective product to any person or property other than the defective product itself, unless the manufacturer is able to provide evidence that:

it did not put the product into circulation;

the defect did not exist at the time the product was put into circulation, or it came into being afterwards; or

the state of scientific or technological knowledge when the product was circulated was not such as to allow the defect be discovered.

The seller is to compensate the user of the defective product for harm caused by the defective product to any person or property other than the defective product itself if such defect is caused by the seller. A person who is harmed or whose property is damaged by the defective product may claim such loss against the manufacturer or the seller.

Restrictions on foreign businesses and investments

The principal regulation governing foreign ownership of solar PV businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue, updated and effective as of December 1, 2007. Under this regulation, the solar PV business is listed as an industry where foreign investments are encouraged.

Dividend distribution

The principal regulations governing distribution of dividends by WFOEs, include:

Corporation Law of 1993, as amended;

Wholly Foreign-Owned Enterprise Law of 1986, as amended; and

Wholly Foreign-Owned Enterprise Law Implementation Rules of 1990, as amended.

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Under the current regulatory regime in China, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. After making up for any deficit in prior years pursuant to the PRC laws, a WFOE in China is required to set aside at least 10% of its after-tax profit calculated in accordance with PRC accounting standards and regulations each year as its general reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a WFOE has the discretion to allocate a portion of its after-tax profits to its staff welfare and bonus funds, which is likewise not distributable to its equity owners except in the event of a liquidation of the foreign-invested enterprise.

Foreign currency exchange

China regulates foreign currency exchanges primarily through the following rules and regulations:

Foreign Currency Administration Rules of 1996, as amended; and

Administrative Rules of the Settlement, Sale and Payment of Foreign Exchange of 1996.

Changes in foreign exchange and foreign investment regulations in China may affect our ability to invest in China and the ability of our PRC subsidiary to pay dividends and service debts in foreign currencies. Renminbi is not presently a freely convertible currency. Under the current PRC regulations, conversion of Renminbi is permitted in China for routine current-account foreign exchange transactions, including trade and service related foreign exchange transactions, payment of dividends and service of foreign debts. Conversion of Renminbi for most capital-account items, such as direct investments, investments in PRC securities markets and repatriation of investments, however, is still subject to the approval of the SAFE.

Pursuant to the above-mentioned administrative rules, foreign-invested enterprises may buy, sell and/or remit foreign currencies for current-account transactions at banks in China with authority to conduct foreign exchange business by complying with certain procedural requirements, such as presentation of valid commercial documents. For most capital-account transactions, approval from SAFE is a pre-condition. Capital investments by foreign-invested enterprises outside China are also subject to limitations and requirements in China, such as prior approvals from the PRC Ministry of Commerce, the SAFE and the NDRC.

Regulation of certain onshore and offshore transactions

In October 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Circular No. 75, which became effective as of November 1, 2005, and was further supplemented by an implementing notice issued by the SAFE on November 24, 2005. Circular No. 75 suspends the implementation of two prior regulations promulgated in January and April of 2005 by SAFE. Circular No. 75 states that Chinese residents, whether natural or legal persons, must register with the relevant local SAFE branch prior to establishing or taking control of an offshore entity established for the purpose of overseas equity financing involving onshore assets or equity interests held by them.

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The term "Chinese legal person residents" as used in the Circular No. 75 refers to those entities with legal person status or other economic organizations established within the territory of China. The term "Chinese natural person residents" as used in the Circular No. 75 includes all Chinese citizens and all other natural persons, including foreigners, who habitually reside in China for economic benefit. The SAFE implementing notice of November 24, 2005 further clarifies that the term Chinese natural person residents as used under Circular No. 75 refers to those "Chinese natural person residents" defined under the relevant PRC tax laws and those natural persons who hold any interests in domestic entities classified as "domestic-funding" interests.

Chinese residents are required to complete amended registrations with the local SAFE branch upon (i) transfer of equity interests or assets of an onshore enterprise to the offshore entity, or (ii) subsequent overseas equity financing by such offshore entity. Chinese residents are also required to complete amended registrations or filing with the local SAFE branch within 30 days of any material change in the shareholding or capital of the offshore entity, such as changes in share capital, share transfers and long-term equity or debt investments, and provision of security. Chinese residents who have already incorporated or gained control of offshore entities that have made onshore investment in China before Circular No. 75 was promulgated must register their shareholding in the offshore entities with the local SAFE branch on or before March 31, 2006.

Under Circular No. 75, Chinese residents are further required to repatriate back into China all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under Circular No. 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholder loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction.

Taxation

See "Taxation—People's Republic of China taxation."

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Management

Directors and executive officers

The following table sets forth information regarding our directors and executive officers as of the date of this prospectus.

 
Name
  Age
  Position/Title
 
Yi Li     40   Chairman of the Board of Directors and Chief Executive Officer
Yixiang Chen     45   Director and Executive Vice President
David Ka Hock Toh     57   Independent Director
Chia-Wei Woo     71   Independent Director
Howard Chu     45   Chief Financial Officer
Shengming Hu     45   Chief Technology Officer
Guoliang Wu     30   Vice President of Sales
Huashan Wang     48   Vice President of Marketing
Tak Man Cheung     59   Vice President of Manufacturing
Xiaojun Kang     32   Vice President of Administration
 

Yi Li co-founded our company in 1993 and was elected as our chairman and chief executive officer in September 1993. He is currently the executive director of Guangdong Solar Energy Association, the chairman of China's national BIPV technical standard committee, and a member of the Photovoltaic Professional Committee of the China Solar Energy Society. From January 1994 to January 1995, Mr. Li was the deputy president of Shenzhen Hi-tech Industry Association, and served as the deputy general manager of Shenzhen Yukang Solar Industry Co., Ltd. From August 1991 to August 1993, Mr. Li worked at Shenzhen Materials and Goods Industry & Trade (Group) Co., Ltd. Mr. Li received a bachelor's degree in precision instrument from Shenzhen University in 1991, and a master's degree in business administration from Huazhong University of Science and Technology in 1999.

Yixiang Chen has served as our executive director and executive vice president since November 2006. He has more than 10 years of experience in management positions as technical inspector and general manager, focusing on security systems installation, marketing and research and development. Mr. Chen was certified as a first grade engineer in China by Honeywell International Inc. in 1996. He was also a part-time lecturer at the Commerce College of Huaqiao University in 2006.

David Ka Hock Toh will become a director of our company upon commencement of trading of our ADSs on the NYSE. Mr. Toh is also an independent director of Want Want China Holdings Limited, a company listed on the Hong Kong Stock Exchange that manufactures and sells snack foods and beverages. Mr. Toh is an independent director of Franklin Offshore Holdings Pte. Ltd., a provider of offshore oil and gas support services. From July 2007 to July 2009, Mr. Toh was chairman of the advisory board of CNP Tax & Advisory Pte. Ltd., a tax advisory firm. From July 1999 to July 2007, Mr. Toh was the leader for providing tax advice on mergers and acquisitions transactions in Asia and head of the China desk for PricewaterhouseCoopers. From 1990 to 1999, he was the head of corporate tax at Coopers & Lybrand, Singapore, an international auditing and accounting services firm, before Coopers & Lybrand merged with Pricewaterhouse to form PricewaterhouseCoopers. From 1975 to 1990, he worked at various

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accounting firms in Hong Kong and Sydney. Mr. Toh received his bachelor's degree in commerce from the University of New South Wales in Australia in 1975 and is a member of the Institute of Chartered Accountants in Australia.

Professor Chia-Wei Woo will become an independent non-executive director of our company upon commencement of trading of our ADSs on the NYSE. Professor Woo is president emeritus and university professor emeritus of Hong Kong University of Science and Technology, at which he served for 13 years as founding president. He currently serves as an independent non-executive director of Lenovo Group, Shanghai Industrial Holdings, an overseas investment company established by the Shanghai municipal government and listed on the Hong Kong Stock Exchange, and First Shanghai Investments. Professor Woo was president of San Francisco State University as the first Chinese-American to head a major university in the United States, from 1983 to 1988. From 1979 to 1983, Professor Woo was provost and professor of physics at the University of California at San Diego. From 1968 to 1979, Professor Woo taught physics at Northwestern University. Professor Woo received his Ph.D. degree in physics at Washington University in 1966 and carried out postdoctoral research at the University of California at San Diego from 1966 to 1968. Professor Woo published extensively in various fields of physics and received many honors and awards for professional achievement and civic contributions, including a number of fellowships and honorary degrees, the Eleanor Roosevelt Humanitarian Award by the United Nations Association in San Francisco, Gold Bauhinia Star by the government of Hong Kong, Commander of the Most Excellent Order of the British Empire by the queen of the United Kingdom and Chevalier de la Légion d'Honneur by the president of France.

Howard Chu has served as our chief financial officer since July 2009. Prior to joining our company, he was the assistant to the chairman of United Energy Group Limited from October 2008 to June 2009. From May 2006 to April 2008, he was the chief investment officer of Shanghai Century Acquisition Corporation. From February 2001 to February 2006, he was a director of HSBC Markets (Asia) Limited. From November 1999 to January 2001, he co-founded myrice.com and served as the Co-CEO of the company. From 1992 to 1999, he was a director in the corporate finance department at ABN AMRO Asia Corporate Finance Limited. Mr. Chu received a bachelor's degree in science in electrical engineering from the University of Rochester, New York in 1986 and a master's degree in business administration from Columbia University in 1990.

Shengming Hu has served as our chief technology officer since 2007. Mr. Hu is currently the commissioner and vice secretary general of China's national BIPV technical standard committee. He served as our assistant chief engineer in 2006 and the manager of our quality control department from 1999 to 2005. Prior to joining our company in 1999, he was the manager of quality control department at Shenzhen Nanya Technology Co., Ltd. from 1997 to 1999. Mr. Hu received a master's degree in condensed matter physics from Peking University in 1996.

Guoliang Wu has served as our vice president of sales since March 2006. Prior to joining our company in 2006, he was a senior sales manager at ZTE Corporation from January 2004 to November 2005. From October 2002 to November 2003, he worked as an engineer at Vodafone UK. Mr. Wu received a bachelor's degree in international finance from Shenzhen University in 1998, a second bachelor's degree in electronic engineering and application from the University of Central Lancashire in England in 2000.

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Huashan Wang has served as our vice president of marketing since 2009. Prior to joining our company in 2009, Dr. Wang was the global marketing technical manager of GE Plastics (now known as SABIC Innovative Plastics) from 2004 to 2008. From 2001 to 2004, he was a Six Sigma Master Black Belt of GE Polymershapes, responsible for initiating, executing and managing project improvement. From 1999 to 2001, he served as a Pacific business leader and an operation manager for the Pacific region at GE Toshiba Silicones Co., Ltd. He served as the general manager from 1997 to 1999 and as a marketing manager from 1996 to 1997 at GE (Shanghai) Drive Systems. From 1994 to 1996, he was the China country manager in control technique of Emerson Electric Co. Dr. Wang received a bachelor's degree in electrical engineering from Xi'an Jiaotong University in 1982 and his PhD in control theory from Imperial College in London in 1988.

Tak Man Cheung has served as our vice president of production since December 2008. Prior to joining our company in 2008, he served as the PRC senior operation manager of Traxon Technologies Ltd. From 1998 to 2001, he served as the general manager of Huagang Optoelectronic Components (Huizhou) Co., Ltd. From 2001 to 2008, he served as the general manager of Huizhou Desay Optoelectronic Technology Co., Ltd. Mr. Cheung received a bachelor's degree in electronic engineering from the National Cheng Kung University of Taiwan in 1972.

Xiaojun Kang has served as our vice president of administration since 2009. Prior to joining our company in January 2007, he served as the manager of the customer service department for western European areas at ZTE Corporation from May 2002 to January 2007. From October 2000 to February 2002, he served as the technical support engineer of Shenzhen Huawei Technologies Co., Ltd. From September 1999 to October 2000, he worked at the 5th Postal and Telecom Research Institution. Mr. Kang received a bachelor's degree in electronic power systems and automation from Southeast University in 1999.

The address of our directors and executive officers is c/o Suite 1217-1225, the Pavilion Century Tower, 4002 North Hua Qiang Road, Shenzhen, 518028, People's Republic of China.

Board of directors

Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess with the care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care, our directors must ensure compliance with our memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

convening shareholders' annual general meetings and reporting its work to shareholders at such meetings;

declaring dividends and distributions;

appointing officers and determining the term of office of officers;

exercising the borrowing powers of our company and mortgaging the property of our company; and

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approving the transfer of shares of our company, including the registering of such shares in our share register.

Committees of the board of directors

Our board of directors will establish an audit committee, a compensation committee and a corporate governance and nominating committee upon commencement of trading of our ADSs on the NYSE.

Audit committee

Our audit committee will initially consist of Messrs. David Ka Hock Toh and Chia-Wei Woo, each of whom satisfies the requirements of New York Stock Exchange Listed Company Manual, or NYSE Manual, Section 303A. Mr. David Ka Hock Toh will be the chairman of our audit committee and meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Our board of directors has determined that both members of the audit committee will be "independent directors" within the meaning of NYSE Manual Section 303A.02 and will meet the criteria for independence set forth in Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:

selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm;

reviewing with our independent registered public accounting firm any audit issues or difficulties and management's response;

reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

discussing the annual audited financial statements with management and our independent registered public accounting firm;

reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of significant control deficiencies;

annually reviewing and reassessing the adequacy of our audit committee charter;

such other matters that are specifically delegated to our audit committee by our board of directors from time to time; and

meeting separately and periodically with management, our internal auditor and independent registered public accounting firm.

Compensation committee

Our compensation committee will initially consist of Messrs. David Ka Hock Toh and Chia-Wei Woo. Our board of directors has determined that each member of the compensation committee will be an "independent director" within the meaning of NYSE Manual Section 303A.02. Our compensation committee assists the board in reviewing and approving

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the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

approving and overseeing the compensation package for our executive officers;

reviewing and making recommendations to the board with respect to our compensation policies and the compensation of our directors; and

reviewing periodically and making recommendations to the board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Corporate governance and nominating committee

Our corporate governance and nominating committee will initially consist of Messrs. David Ka Hock Toh and Chia-Wei Woo. Our board of directors has determined that each member of the corporate governance and nominating committee will be an "independent director" within the meaning of NYSE Manual Section 303A.02. The corporate governance and nominating committee assists the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy of the board;

reviewing annually with the board the current composition of the board in light of the characteristics of independence, age, skills, experience and availability of service to us;

advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any corrective action to be taken; and

monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Our board of directors has adopted a code of business conduct and ethics, which will be applicable to our senior executive and financial officers. Our code of business conduct and ethics will be filed as an exhibit to the registration statement that includes this prospectus.

In addition, our board of directors will adopt a set of corporate governance guidelines. The guidelines will reflect certain guiding principles with respect to the structure of our board of directors, procedures and committees. These guidelines are not intended to change or interpret any law, or our third amended and restated memorandum and articles of association.

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Interested transactions

A director may vote in respect of any contract or transaction in which he or she is interested, provided that the nature of the interest of any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote on that matter.

Remuneration and borrowing

The directors may determine remuneration to be paid to the directors. The compensation committee assists the directors in reviewing and approving the compensation structure for the directors. The directors may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of our company or of any third party.

Qualification

There is no shareholding qualification for directors.

Terms of directors and executive officers

Our executive officers are elected by and serve at the discretion of the boar