Global demand for electric power has grown consistently at a rate of 2%-5% annually in the past decade in line with the continued increase in reliance on electricity-dependent technologies worldwide, according to the Energy Information Administration of the U.S. Department of Energy.

In particular, demand for electric power has increased at a high rate in emerging economies such as China, where reliable electricity is critical to continued industrialization and economic growth. According to International Energy Outlook 2006 published by the U.S. Department of Energy, worldwide electricity consumption is expected to increase from 14.8 trillion kilowatt hours, or kWh, in 2003 to 30.1 trillion kWh in 2030, while during the same period, demand is expected to grow at 4% per year in non-OECD (Organisation for Economic Co-operation and Development) economies.

The PV market worldwide has experienced significant growth since the beginning of this decade. According to Solarbuzz, the global PV market increased from 345 MW in 2001 to 1,460 MW in 2005 in terms of total annual PV installations. In addition, PV industry revenue increased from US$7 billion in 2004 to US$9.8 billion in 2005.

Cumulative installed PV electricity generation capacity also expanded by 39% in 2005, and currently exceeds 5 GW worldwide. Furthermore, investment in new plants to manufacture PV cells exceeded US$1 billion in 2005. According to Solarbuzz, annual PV installations are expected to increase to 3.9 GW, and PV industry revenue is expected to increase to US$23.1 billion by 2010.

A PV cell is a semiconductor device that converts sunlight into electricity by a process known as the photovoltaic effect.

The key technical efficiency measurement of PV cells is the conversion efficiency rate. In general, the higher the conversion efficiency rate, the lower the production cost of PV modules per watt because more power can be incorporated into a given size package.

The Company currently produces a variety of PV cells ranging from 200 microns to 240 microns in thickness, with the substantial majority of these PV cells having a thickness of 220 microns.

A PV module is an assembly of PV cells that have been electrically interconnected and laminated in a durable and weather-proof package. The Company has been selling a wide range of PV modules, currently ranging from 5W to 200W in power output specification, made primarily from the PV cells it manufactures.

The Company is developing modules with higher power to meet the rising expansion of on-grid configurations. The majority of the PV modules the Company currently offers to its customers range in power between 160W and 200W.

The Company provides PV cell processing services to convert silicon wafers into PV cells on behalf of third parties, including some of its silicon suppliers. For these PV cell processing service arrangements, the Company “purchases” raw materials from a customer and at the same time agree to “sell” a specified quantity of PV cells back to the same customer.

A solar application system consists of one or more PV modules that are physically mounted and electrically interconnected, with system components such as batteries and power electronics, to produce and reserve electricity. The Company has commenced its commercial activities to provide solar system integration services to end-users in China through its subsidiary.

Cost of revenue was RMB267.4 million (US$33.8 million) in the nine months ended September 30, 2006, compared to RMB75.6 million in the same period in 2005.

Operating expenses were RMB40.3 million (US$5.1 million) in the nine months ended September 30, 2006, compared to RMB5.8 million in the same period in 2005.

Interest expenses in the nine months ended September 30, 2006 were RMB3.9 million (US$0.5 million).

Net income was RMB72.9 million (US$9.2 million) in the nine months ended September 30, 2006 and RMB4.2 million in the same period in 2005.