Solar power systems are used for a variety of residential, commercial and industrial applications generally categorized as either “on-grid” or “off-grid.” “Off-grid” applications represent PV systems that operate on a stand-alone basis to provide electricity independent of an electricity transmission grid. “On-grid” applications represent PV systems that are connected to an electricity transmission grid and feeds electricity generated into the electricity transmission grid.

The market for “on-grid” applications, where solar power is used to supplement electricity purchased from a public utility network, represents the largest and fastest growing segment of the market. The “Balanced Energy” forecast scenario prepared by Solarbuzz, a solar energy research and consulting firm, forecasted worldwide installations of PV systems to increase from 1,744 megawatts in 2006 to 4,177 megawatts in 2011.

“Off-grid” markets offer opportunities to access solar energy where access to public utility networks is not physically or economically feasible. “Off-grid” markets include consumer applications such as portable recreation power modules and garden lighting, industrial applications, such as road signs, highway call boxes and support systems for communications systems, and rural residential applications.

The global PV market, as measured by annual solar power system installations at end-user locations, increased from 345 megawatts in 2001 to 1,744 megawatts in 2006, according to Solarbuzz. The Solarbuzz “Balanced Energy” forecast scenario forecasted global PV industry revenues and PV system installations to be US$18.6 billion and 4,177 megawatts, respectively, in 2011. Germany, Japan and the United States were the three largest single-country markets for PV industry installations in 2005.

A polysilicon ingot is formed by melting, purifying and solidifying polysilicon feedstock into a brick-shaped ingot. Most of the Company’s ingots weigh up to 260 kilograms and reach the size of 690 millimeters x 690 millimeters x 240 millimeters. The polysilicon ingots are then cut into blocks. The Company’s polysilicon blocks are generally available in two different sizes: 125 millimeters x 125 millimeters x 240 millimeters and 156 millimeters x 156 millimeters x 240 millimeters. The Company uses its polysilicon blocks to produce polysilicon wafers.

A PV cell is a device made from a polysilicon wafer that converts sunlight into electricity by a process known as the photovoltaic effect. The conversion efficiency of a PV cell is the ratio of electrical energy produced by the cell to the energy from sunlight that reaches the cell. The conversion efficiency of PV cells is determined to a large extent by the quality of wafers used to produce the PV cells, which is, in turn, determined by the mix of different types of polysilicon raw materials used in the ingot casting process.

The Company generally uses all of its PV cells in the production of its PV modules. A PV module is an assembly of PV cells that are electrically interconnected, laminated and framed in a durable and weatherproof package.

A PV 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 store electricity. The Company produces PV systems and also designs, assembles, sells and installs stand-alone PV systems for lighting systems, mobile communication base stations and residential applications.

Gross profit was RMB 89.6 million (US$11.6 million) in the first quarter of 2007, which significantly increased from gross profit of RMB 47.2 million in the first quarter of 2006.

Operating expenses were RMB 48.6 million (US$6.3 million) in the first quarter of 2007, which significantly increased from operating expenses of RMB 11.6 million in the first quarter of 2006.

Income from operations was RMB 41.0 million (US$5.3 million) in the first quarter of 2007, which increased by 15.1% from income from operations of RMB 35.6 million in the first quarter of 2006.

Net interest expense was RMB 18.9 million (US$2.4 million) in the first quarter of 2007, which significantly increased from net interest expense of RMB 4.8 million in the first quarter of 2006.

Net income, excluding the minority interest of RMB 14.0 million (US$1.8 million), was RMB 8.3 million (US$1.1 million) in the first quarter of 2007, which decreased from net income of RMB 25.0 million in the first quarter of 2006.