Global electricity usage is expected to increase from 14.8 trillion kWh in 2003 to 27.1 trillion kWh by 2025, according to the U.S. Department of Energy’s Internal Energy Outlook 2005. Approximately 65.7% of the world’s electricity is currently produced with fossil fuels.

Solar power systems are used for a variety of residential, commercial and industrial applications generally described as either “on-grid” or “off-grid” in nature. The market for “on-grid” applications, where solar power is used to supplement electricity purchased from the utility network, represents the largest and fastest growing segment of the market. According to Solarbuzz, in 2005, the global on-grid segment grew by 42% to 1,262 MW, and since 2001, the on-grid segment has grown at an average annual rate of approximately 55%.

“Off-grid” markets, where access to utility networks is not physically feasible or economical, offer additional opportunities for solar technology. Off-grid industrial applications include road signs, highway call boxes, communications support along remote pipelines and telecommunications equipment, as well as rural residential applications. Off-grid consumer applications include portable recreational power modules, garden lights, marine lighting and camping equipment. As reported by Solarbuzz, the off-grid market grew at 2% in 2005, to 198 MW, and has grown at an average of 12% per annum since 2001.

According to Solarbuzz, between 2001 and 2005, total annual solar power system installations increased globally from 345 MW to 1,460 MW, representing a compound annual growth rate of 43%, and global installations of solar power systems are expected to grow at a compound annual growth rate of 17% from 1,460 MW in 2005 to 3,250 MW by 2010. Solarbuzz forecasts continued strong growth globally, with sales increasing from $9.8 billion in 2005 to an estimated $18.6 billion by 2010, a 14% compound annual growth rate. Despite this rapid growth, solar energy constitutes only a small fraction of the world’s energy output.

Photowatt International designs, manufactures and sells solar modules and installation kits, and provides solar power system design and other value-added services, principally in Western Europe. The Company also manufactures wafers and solar cells, primarily for use in manufacturing its modules and for sale to third parties on an opportunistic basis. Most of the Company’s products are manufactured in its facility outside of Lyon, France. The Company’s facility in Albuquerque, New Mexico, performs certain module assembly operations for the Company. Solar modules manufactured by the Company are used by businesses, institutions and homeowners to generate electric power. The Company sells its products under the Photowatt and Matrix brands to a network of independent solar power systems distributors and installers.

The Company is currently producing solar cells using refined metallurgical silicon. Currently, solar cells that the Company makes using refined metallurgical silicon have lower efficiencies than solar cells it makes using polysilicon. Polysilicon powder and fines are by-products of the polysilicon production process that many manufacturers have limited use for due to their high levels of impurities. Spheral Solar has developed a proprietary process called OFP technology to convert polysilicon powder and fines into polysilicon clusters that can be used, together with conventional polysilicon, by the Company to make solar cells. The Company purchases dry polysilicon powder and fines from polysilicon manufacturers at significantly lower prices than it purchases polysilicon on the spot market.

Wafers used in solar cells are cut from polysilicon bricks using specialized wire saws. In general, thinner wafers result in lower production costs because more wafers can be produced from each brick. However, very thin wafers are difficult to process because they are more brittle, and substantial technical expertise is required to develop processes that ensure acceptable yields. Wire thickness is also important because it determines how much silicon is lost during the cutting process.

Spheral Solar is developing a technology for a light weight, flexible crystalline solar module designed to compete with both conventional crystalline and thin film technologies. The Company’s Spheral Solar technology incorporates thousands of tiny silicon spheres, bonded between thin, flexible aluminum foil substrates to form solar cells. Spheral Solar is committing significant resources to development and process engineering in an effort to commercially manufacture products using the Company’s Spheral Solar technology.

For fiscal year ended March 31, 2006, cost of revenue was $90.0 million, and represented 74% of revenue, compared to 80% in fiscal year ended March 31, 2005.

Research and development expenses increased from $0.7 million in fiscal year ended March 31, 2005 to $9.3 million in fiscal year ended March 31, 2006.

For fiscal year ended March 31, 2006, amortization was $9.7 million, or 79% higher than in fiscal year ended March 31, 2005.

For fiscal year ended March 31, 2006, shared corporate costs were $0.7 million, or 22% higher than in fiscal year ended March 31, 2005.

For fiscal year ended March 31, 2006, interest expense was $1.7 million, compared with $3 thousand in fiscal year ended March 31, 2005.