##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
    Form 20-F
    (Mark One)o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
    12(g)  OF THE SECURITIES EXCHANGE ACT OF 1934orþ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006.oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          tooro

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
    THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this
    shell company
    report   Commission file number:
    001-33107
  CANADIAN SOLAR INC.
      (Exact name of Registrant as
    specified in its charter)
  N/A
  (Translation of
    Registrants name into English)
  Canada
  (Jurisdiction of incorporation
    or organization)
  Xin Zhuang Industry
    Park
 Changshu, Suzhou
 Jiangsu 215562
 Peoples Republic of
    China
  (Address of principal executive
    offices)
  Securities registered or to be
    registered pursuant to Section 12(b) of the Act:
  Title of Each Class


Name of Each Exchange on Which RegisteredCommon shares with no par
    value


The NASDAQ Stock Market LLC    Securities registered or to be
    registered pursuant to Section 12(g) of the Act:
 None
  (Title of Class)
   Securities for which there is a
    reporting obligation pursuant to Section 15(d) of the
    Act:
 None
  (Title of Class)
     27,270,000
    common shares issued and outstanding,
 excluding 566,190 restricted
    shares, which were subject to restrictions on voting and
    dividend rights and transferability, as of December 31,
    2006.
  o þ
  o þ
  þ o
  Rule 12b-2
 Large accelerated
    filer  o
         Accelerated
    filer  o     Non-accelerated
    filer  þ
  Rule 12b-2 o þ
  (APPLICABLE
    ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS DURING THE PAST FIVE
    YEARS)
  o o




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##### 



TABLE OF
    CONTENTS
  INTRODUCTION


3PART IITEM 1.


Identity of
    Directors, Senior Management and Advisers


3ITEM 2.


Offer Statistics
    and Expected Timetable


3ITEM 3.


Key
    Information


4ITEM 4.


Information on the
    Company


24ITEM 5.


Operating and
    Financial Review and Prospects


38ITEM 6.


Directors, Senior
    Management and Employees


59ITEM 7.


Major Shareholders
    and Related Party Transactions


71ITEM 8.


Financial
    Information


74ITEM 9.


The Offer and
    Listing


75ITEM 10.


Additional
    Information


76ITEM 11.


Quantitative and
    Qualitative Disclosures About Market Risk


82ITEM 12.


Description of
    Securities Other than Equity Securities


83PART IIITEM 13.


Defaults, Dividend
    Arrearages and Delinquencies


83ITEM 14.


Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds


83ITEM 15.


Controls and
    Procedures


83ITEM 16A.


Audit Committee
    Financial Expert


83ITEM 16B.


Code of
    Ethics


83ITEM 16C.


Principal
    Accountant Fees and Services


84ITEM 16D.


Exemptions from the
    Listing Standards for Audit Committees


84ITEM 16E.


Purchases of Equity
    Securities by the Issuer and Affiliated Purchasers


84PART IIIITEM 17.


Financial
    Statements


84ITEM 18.


Financial
    Statements


84ITEM 19.


Exhibits


85EX-1.1 AMENDED AND RESTATED ARTICLES OF CONTINUANCEEX-12.1 CEO CERTIFICATION PURSUANT TO SECTION 302EX-12.2 CFO CERTIFICATION PURSUANT TO SECTION 302EX-13.1 CEO CERTIFICATION PURSUANT TO SECTION 906EX-13.2 CFO CERTIFICATION PURSUANT TO SECTION 906




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INTRODUCTION  Form 20-F
  
    CSI, we, us, our
    company and our are to Canadian Solar Inc.,
    its predecessor entities and its consolidated subsidiaries;
    $ and U.S. dollars are to the
    legal currency of the United States;
    RMB and Renminbi are to the legal
    currency of China;
    C$ refers to the legal currency of Canada;
    Euro or  refers to the legal
    currency of the European Union; and
    China and the PRC are to the
    Peoples Republic of China, excluding, for the purposes of
    this annual report on
    Form 20-F
    only, Taiwan and the special administrative regions of Hong Kong
    and Macau.  Form 20-F
  Form 20-F
   PART I  ITEM 1.
    Identity
    of Directors, Senior Management and Advisers    ITEM 2.
    Offer
    Statistics and Expected Timetable   3




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ITEM 3.
    Key
    Information  A.
    Selected
    Financial Data  Selected
    Consolidated Financial and Operating Data
  Form 20-F. Form 20-F.
    Year Ended December 31,2002


2003


2004


2005


2006(In thousands of US$, except share and per share data, and
    operating data and percentages)Statement of operations
    data:Net revenues

$
4,042


$
4,113


$
9,685


$
18,324


$
68,212Cost of
    revenues(1)


2,628



2,372



6,465



11,211



55,872Gross profit


1,414



1,741



3,220



7,113



12,340Operating
    expenses(1) Selling expenses


81



39



269



158



2,909 General and
    administrative expenses


405



1,039



1,069



1,708



7,923 Research and
    development
    expenses(2)


7



20



41



16



398Total operating expenses


493



1,098



1,379



1,882



11,230Income from operations


921



643



1,841



5,231



1,110Interest expenses














(239
)


(2,194
)Interest income






1



11



21



363Loss on change in fair value of
    derivatives related to convertible notes














(316
)


(6,997
)Loss on financial instruments
    related to convertible notes














(263
)


(1,190
)Other  net


( 
)(3)


10



(32
)


(25
)


(90
)Income tax expense


(81
)


(34
)


(363
)


(605
)


(432
)Minority interests


(215
)


(209
)










 4




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Year Ended December 31,2002


2003


2004


2005


2006(In thousands of US$, except share and per share data, and
    operating data and percentages)Income/(loss) before extraordinary
    gain


625



411



1,457



3,804



(9,430
)Extraordinary gain






350











Net income/(loss)

$
625


$
761


$
1,457


$
3,804


$
(9,430
)Earnings per share, basic and
    diluted Extraordinary gain

$



$
0.02


$



$



$
 Net income (loss)

$
0.04


$
0.05


$
0.09


$
0.25


$
(0.50
)Shares used in computationBasic and diluted


15,427,995



15,427,995



15,427,995



15,427,995



18,986,498Other financial data:Gross margin


35.0
%


42.3
%


33.2
%


38.8
%


18.1
%Operating margin


22.8
%


15.6
%


19.0
%


28.5
%


1.6
%Net margin


15.5
%


18.5
%


15.0
%


20.8
%


(13.8
)%Selected operating
    data:Products sold (in MW) Standard solar
    modules










1.8



3.4



14.7 Specialty solar
    modules and products


0.7



0.7



0.4



0.7



0.2Total


0.7



0.7



2.2



4.1



14.9Average selling price (in
    $      per watt) Standard solar
    modules










3.62



3.92



3.97 Specialty solar
    modules and products

$
5.36


$
5.70


$
5.23


$
5.13



5.89     (1)
    
    Share-based compensation expenses are included in our cost of
    revenues and operating costs and expenses. See
    Item 5A. Operating Results  Overview of
    Financial Results  Share-based Compensation
    Expenses.(2)
    
    We also conduct research and development activities in
    connection with our implementation of solar power development
    projects. These expenditures are included in our cost of
    revenues. See Item 4. Information on the
    Company  B. Business Overview  Solar Power
    Development Projects.(3)
    
    Less than one thousand.  5




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As of December 31,2002


2003


2004


2005


2006(In thousands of US$)Balance Sheet Data:Cash and cash equivalents

$
596


$
1,879


$
2,059


$
6,280


$
40,911Inventories


312



313



2,397



12,163



39,700Accounts receivable, net


1,047



257



636



2,067



17,344Advances to suppliers


3



81



370



4,740



13,484Value added tax recoverable






142



22



815



2,281Other current assets






76



95



163



2,398Property, plant and equipment, net


291



244



453



932



7,910Intangible assets


















39Prepaid-rental


















1,103Deferred tax assets (non-current)






31



15



65



3,639Total assets


2,476



3,053



6,145



27,430



129,634Short-term borrowings














1,300



3,311Accounts payable


488



426



824



4,306



6,874Advances from suppliers and
    customers


113



18



273



2,823



3,225Income tax payable


92



119



407



914



112Embedded derivatives related to
    convertible notes














3,679



Total current liabilities


831



1,201



2,756



15,367



15,855Accrued warranty costs


39



79



167



341



875Convertible notes














3,387



Financial instruments related to
    convertible notes














1,107



Total liabilities


1,131



1,541



3,184



20,463



16,730Total shareholders equity


779



1,512



2,961



6,967



112,904Total liabilities and
    shareholders equity

$
2,476


$
3,053


$
6,145


$
27,430


$
129,634Number of shares outstanding


15,427,995



15,427,995



15,427,995



15,427,995



27,270,000
(4)     (4)
    
    Excluding 566,190 restricted shares, which were subject to
    restrictions on voting and dividend rights and transferability,
    as of December 31, 2006.  Exchange
    Rate Information
  Form 20-F Form 20-F
 6




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Noon Buying RatePeriod

Period End


Average


Low


High(RMB per $1.00)2002


8.2800



8.2772



8.2800



8.27002003


8.2767



8.2771



8.2800



8.27652004


8.2765



8.2768



8.2774



8.27642005


8.0702



8.1826



8.2765



8.07022006


7.8041



7.9579



8.0702



7.8041November


7.8340



7.8622



7.8750



7.8303December


7.8041



7.8220



7.8350



7.80412007January


7.7714



7.7876



7.8127



7.7705February


7.7410



7.7502



7.7632



7.7410March


7.7232



7.7369



7.7454



7.7232April


7.7090



7.7247



7.7345



7.7090May (through May 25)


7.6527



7.6816



7.7065



7.6490     B.
    Capitalization
    and Indebtedness    C.
    Reasons
    for the Offer and Use of Proceeds    D.
    Risk
    Factors  Risks
    Related to Our Company and Our Industry
  Evaluating
    our business and prospects may be difficult because of our
    limited operating history.
   7




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The
    current industry-wide shortage of high-purity silicon may
    constrain our revenue growth and decrease our margins and
    profitability.
      If we
    are unable to secure an adequate and cost effective supply of
    solar cells or reclaimable silicon, our revenue, margins and
    profits could be adversely affected.
     8




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Because
    the markets in which we compete are highly competitive and many
    of our competitors have greater resources than us, we may not be
    able to compete successfully and we may lose or be unable to
    gain market share.
       9




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The
    reduction or elimination of government subsidies and economic
    incentives for solar power could cause demand for our products,
    our revenues, profits and margins to decline.
      Existing
    regulations and policies and changes to these regulations and
    policies may present technical, regulatory and economic barriers
    to the purchase and use of solar power products, which may
    significantly reduce demand for our products.
   10




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If
    solar power technology is not suitable for widespread adoption,
    or sufficient demand for solar power products does not develop
    or takes longer to develop than we anticipate, our revenues may
    not continue to increase or may even decline, and we may be
    unable to sustain our profitability.
    
    cost-effectiveness, performance and reliability of solar power
    products compared to conventional and other renewable energy
    sources and products;
    availability of government subsidies and incentives to support
    the development of the solar power industry;
    success of other alternative energy generation technologies,
    such as wind power, hydroelectric power and biomass;
    fluctuations in economic and market conditions that affect the
    viability of conventional and other renewable energy sources,
    such as increases or decreases in the prices of oil and other
    fossil fuels;
    capital expenditures by end users of solar power products, which
    tend to decrease when the economy slows down;
    deregulation of the electric power industry and broader energy
    industry; and
    changes in seasonal demands for our products, as illustrated by
    the slowdown of our sales to Germany in the fourth quarter of
    2006.    The
    lack or unavailability of financing for on-grid and off-grid
    solar power applications could cause our sales to
    decline.
   11




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Our
    dependence on a limited number of solar cell and silicon raw
    material suppliers could prevent us from timely delivering our
    products to our customers in the required quantities, which
    could result in order cancellations and decreased
    revenues.
    Our
    dependence on a limited number of customers and our lack of
    long-term contracts may cause significant fluctuations or
    declines in our revenues.
    
    reduction, delay or cancellation of orders from one or more of
    our significant customers;
    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.    We may
    not be able to manage our expansion of operations
    effectively.
   12




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Technological
    changes in the solar power industry could render our products
    uncompetitive or obsolete, which could reduce our market share
    and cause our revenues and profit to decline.
      Our
    business depends substantially on the continuing efforts of our
    executive officers, and our business may be severely disrupted
    if we lose their services.
    We
    face risks associated with the marketing, distribution and sale
    of our solar module products internationally. If we are unable
    to effectively manage these risks, they could impair our ability
    to expand our business abroad.
    
    fluctuations in the currency exchange rates of the Euro,
    U.S. dollar and RMB;
    difficulty in engaging and retaining distributors who are
    knowledgeable about and, can function effectively in, overseas
    markets;
    increased costs associated with maintaining marketing efforts in
    various countries; 13




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
    difficulty and cost relating to compliance with the different
    commercial and legal requirements of the overseas markets in
    which we offer our products;
    cultural, language and logistical barriers to working with
    customers in different countries; and
    trade barriers such as export requirements, tariffs, taxes and
    other restrictions and expenses, which could increase the prices
    of our products and make us less competitive in some countries.  Problems
    with product quality or product performance, including defects,
    in our products could damage our reputation, or result in a
    decrease in customers and revenue, unexpected expenses and loss
    of market share.
      Since
    we cannot test our products for the duration of our standard
    warranty periods, we may be subject to unexpected warranty
    expense.
  10-year 25-year
 14




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25-year
  Our
    future growth depends in part on our ability to make strategic
    acquisitions and investments and to establish and maintain
    strategic relationships, and our failure to do so could have a
    material adverse effect on our market penetration and revenue
    growth.
      We may
    not succeed in developing a cost-effective solar cell
    manufacturing capability.
     15




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We may
    fail to successfully bring to market our new specialty solar
    modules and products, which may prevent us from achieving
    increased sales, margins and market share.
    Our
    failure to protect our intellectual property rights in
    connection with new specialty solar modules and products may
    undermine our competitive position.
    We may
    be exposed to infringement, misappropriation or other claims by
    third parties, which, if determined adversely to us, could cause
    us to pay significant damage awards.
    No. 500-05 071241-028)
 16




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If we
    are unable to attract, train and retain technical personnel, our
    business may be materially and adversely affected.
    Fluctuations
    in exchange rates could adversely affect our
    business.
    Product
    liability claims against us could result in adverse publicity
    and potentially significant monetary damages.
    Our
    quarterly operating results may fluctuate from period to period
    in the future.
   17




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Our
    founder, Dr. Shawn Qu, has a substantial influence over our
    company and his interests may not be aligned with the interests
    of our other shareholders.
    Compliance
    with environmental regulations can be expensive, and
    noncompliance with these regulations may result in adverse
    publicity and potentially significant monetary damages, fines
    and suspensions of our business operations.
      We may
    not be successful in establishing our brand names among all
    consumers in important markets and the products we sell under
    our brand name may compete with the products we manufacture on
    an OEM basis for our customers.
   18




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If we
    grant employee share options, restricted shares or other
    share-based compensation in the future, our net income could be
    adversely affected.
  Form 20-F,
  There
    have been historical deficiencies with our internal controls and
    there remain areas of our internal and disclosure controls that
    require improvement. If we fail to maintain an effective system
    of internal controls, we may be unable to accurately report our
    financial results or prevent fraud, and investor confidence and
    the market price of our common shares may be adversely
    impacted.
     19




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Risks
    Related to Doing Business in China
  Uncertainties
    with respect to the Chinese legal system could have a material
    adverse effect on us.
    Fluctuation
    in the value of the Renminbi may have a material adverse effect
    on your investment.
    Restrictions
    on currency exchange may limit our ability to receive and use
    our revenues effectively.
     20




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Our
    business benefits from certain PRC government incentives.
    Expiration of, or changes to, these incentives could have a
    material adverse effect on our operating results.
      There
    may be some uncertainty surrounding a recently adopted PRC
    regulation that requires certain offshore listings to be
    approved by the China Securities Regulatory
    Commission.
   21




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We
    face risks related to health epidemics and other
    outbreaks.
    Risks
    Related to Our Common Shares
  The
    market price for our common shares may be
    volatile.
    
    announcements of technological or competitive developments;
    regulatory developments in our target markets affecting us, our
    customers or our competitors;
    actual or anticipated fluctuations in our quarterly operating
    results;
    changes in financial estimates by securities research analysts;
    changes in the economic performance or market valuations of
    other solar power companies;
    addition or departure of our executive officers and key research
    personnel;
    announcements regarding patent litigation or the issuance of
    patents to us or our competitors;
    fluctuations in the exchange rates between the U.S. dollar,
    the Euro and RMB;
    release or expiry of
    lock-up or
    other transfer restrictions on our outstanding common
    shares; and
    sales or perceived sales of additional common shares.    Substantial
    future sales or perceived sales of our common shares in the
    public market could cause the price of our common shares to
    decline.
   22




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180-day lock-up lock-up lock-up lock-up lock-up
  Your
    right to participate in any future rights offerings may be
    limited, which may cause dilution to your
    holdings.
    Our
    articles of continuance contain anti-takeover provisions that
    could adversely affect the rights of holders of our common
    shares.
      
    Our board of directors has the authority, without approval by
    the shareholders, to issue an unlimited number of preferred
    shares in one or more series. Our board of directors may
    establish the number of shares to be included in each such
    series and may fix the designations, preferences, powers and
    other rights of the shares of a series of preferred shares.
    Our board of directors shall fix and may change the number of
    directors within the minimum and maximum number of directors
    provided for in our articles. Our board of directors may appoint
    one or more additional directors, who shall hold office for a
    term expiring no later than the close of the next annual meeting
    of shareholders, subject to the limitation that the total number
    of directors so appointed may not exceed one-third of the number
    of directors elected at the previous annual meeting of
    shareholders.  You
    may have difficulty enforcing judgments obtained against
    us.
   23




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We may
    be classified as a passive foreign investment company, which
    could result in adverse U.S. federal income tax
    consequences to U.S. holders of our common
    shares.
  non-U.S. corporation
  We
    incur increased costs as a result of being a public
    company.
    ITEM 4.
    Information
    on the Company  A.
    History
    and Development of the Company     24




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(86-512) 6269-6010 (86-512) 5247-7589. 530-2334 530-2001.
  www.csisolar.com. Form 20-F.
  B.
    Business
    Overview  Overview
         25




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Our
    Products
    Standard
    Solar Modules
    Specialty
    Solar Modules and Products
    
    customized solar modules; and
    complete specialty products.      Solar
    Cells
     26




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Solar
    Power Development Projects
      Supply
    Chain Management
      
  Silicon
    Raw Materials
    10-year
 27




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Silicon
    Reclamation Program
    Toll
    Manufacturing Arrangements
    Solar Wafers.
  Solar Cells.
  Direct
    Solar Cell Purchasing and Expansion into Solar Cell
    Manufacturing
       28




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Solar
    Module Manufacturing
      
  (1)
    
    Laser cutting is only necessary for smaller-sized modules.       29




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Quality
    Control and Certifications
      Markets
    and Customers
     30




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
    Germany.  The renewable energy laws in Germany
    require electricity transmission grid operators to connect
    various renewable energy sources to their electricity
    transmission grids and to purchase all electricity generated by
    such sources at guaranteed feed-in tariffs. Additional
    regulatory support measures include investment cost subsidies,
    low-interest loans and tax relief to end users of renewable
    energy. Germanys renewable energy policy has had a strong
    solar power focus, which contributed to Germany surpassing Japan
    as the leading solar power market in terms of annual megawatt
    additions in 2004. According to Solarbuzz, Germany grew 16% to
    968 MW, or 56% of the worlds total solar power
    production in 2006. Germanys feed-in tariff remains one of
    the highest in the world. Our products are used for large-size
    ground mounted solar power field, commercial rooftop and
    residential rooftop installations. According to Solarbuzz, the
    feed-in tariffs for rooftop applications less than 30 KwH and
    between 30 KwH and 100 KwH was 51.8 and 49.28
    (US$68.36 and $65.03) per KwH, respectively, in 2006. Our major
    customers located in Germany in 2006 are ProSolar, Schüco,
    Bihler, Iliotec and Maas.
    Spain.  In Spain, the incentive regime includes
    a national net metering program and favorable interest loans,
    and the actual feed-in tariff for solar power energy is fully
    guaranteed for 25 years and guaranteed at
    80% subsequently. According to Solarbuzz, the feed-in
    tariff for applications less than 100 KwH was
    0.44 (US$0.58) per KwH in 2006. Spain was our second
    largest market after Germany in 2006 and is expected to remain
    at such position in 2007. We sell products in Spain both under
    our own CSI brand name and as an OEM for a major Spanish solar
    company.
    China.  China passed the Renewable Energy Law
    in February 28, 2005, which went into effect on
    January 1, 2006. The Renewable Energy Law authorizes
    relevant authorities to set favorable prices for the purchase of
    on-grid solar power-generated electricity, and provides other
    financial incentives for the development of renewable energy
    projects. In January 2006, Chinas National Development and
    Reform Commission further promulgated two implementation rules
    of the Renewable Energy Law, and other implementation rules are
    expected in the future.  China finances its off-grid solar installations through the now
    completed township program and the current village program. The
    current five-year plan from 2006 to 2010 is targeted to provide
    electricity to 29,000 villages, mainly in Western China. The
    Ministry of Construction has recently promulgated directives
    encouraging the development and use of solar power energy in
    both urban and rural areas. Various local authorities have also
    introduced initiatives to encourage the adoption of renewable
    energy including solar power energy. Furthermore, in October
    2005, the Shanghai municipal government endorsed the
    100,000
    M2
    Project, the goal of which is to install solar energy
    heating systems onto 100,000
    M2
    rooftops in Shanghai in the coming years.We believe that we will be well-positioned to take advantage of
    growth opportunities in the Chinese solar power energy market,
    which is potentially one of the fastest growing markets for
    solar power.  
    United States.  There are now six states that
    offer significant incentives, with California offering the most
    preferential incentives. In January 2006, the California Public
    Utilities Commission enacted the California Solar Initiative, a
    $2.9 billion program that will subsidize solar power
    systems by $2.80 per watt. Due to excessive demand, this
    subsidy has been reduced to the current $2.50 per watt.
    Combined with federal tax credits for solar power usage, the
    subsidy may account for as much as 50% of the cost of a solar
    power system. The program will last from 2007 to 2017 and is
    expected to dramatically increase the use of solar power for
    on-grid applications in California. We have recently built up
    our U.S. sales team and set up a representative office in
    Phoenix, Arizona, to enhance our sales and marketing efforts in
    the U.S.
    Canada.  In March 2006, the province of
    Ontario, Canadas largest province, announced a solar power
    subsidy, by which a fixed price of C$0.42 per KwH is
    offered for solar power transferred to the electrical grid
    starting in the fall of 2006. The program will last
    20 years and is expected to substantially increase the
    market for solar power in Ontario. 31




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
    Japan.  According to Solarbuzz, the Ministry of
    Land, Infrastructure and Transport of Japan recorded that there
    was new construction initiated in 2006 for approximately
    1.3 million residential units including solar power
    systems, a 4.4% increase from 2005 and the fourth consecutive
    year of increases. The Japanese government has implemented a
    series of incentive programs, including the Solar Power
    2030 Roadmap designed to generate up to 100 GW of solar
    power electricity by 2030, as well as provide government
    subsidies for research and development. Solar power energy is
    becoming increasingly competitive and self-sustained in Japan.
    Historically, the Japanese solar power market has been
    relatively closed to non-Japanese solar power players. There
    have been signs, however, that this market is beginning to open
    up to international players.  Sales
    and Marketing
  Standard
    Solar Modules
    
    Sales contracts.  In early 2007, we entered
    into a number of annual sales and distribution agreements with
    most of our customers and deliver standard solar modules
    according to a pre-agreed monthly schedule. We also typically
    require full payment of the contract price by letters of credit
    or telex money transfers prior to shipping. We also occasionally
    use credit term sales to creditworthy customers and may increase
    these sales when expanding our U.S. market.
    OEM manufacturing arrangements.  From time to
    time, to address solar cell shortage issues, we enter into OEM
    arrangements with our customers.    Specialty
    Solar Modules and Products
    Solar
    Power Development Projects
   32




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##### Table of Contents



Customer
    Support and Service
  10-year 25-year
  Competition
    
    supply chain management;
    strength of supplier relationships;
    manufacturing efficiency;
    power efficiency and performance;
    price;
    customer relationships and distribution channels;
    brand name and reputation; and
    aesthetic appearance of solar module products.   33




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Insurance
    Environment
    Matters
      Government
    regulation
    Renewable
    Energy Law and Other Government Directives
     34




---



##### Table of Contents



Environmental
    Regulations
    Restriction
    on Foreign Businesses
    Tax
       35




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##### Table of Contents



Foreign
    Currency Exchange
    
    Foreign Currency Administration Rules (1996), as amended, or the
    Exchange Rules; and
    Administration Rules of the Settlement, Sale and Payment of
    Foreign Exchange (1996), or the Administration Rules;    and/or
  Dividend
    Distribution
    
    Wholly Foreign Owned Enterprise Law (1986), as amended; and
    Wholly Foreign Owned Enterprise Law Implementation Rules (1990),
    as amended.   36




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##### Table of Contents



C.
    Organizational
    Structure    
  D.
    Property,
    Plant and Equipment    
    We have manufacturing facilities and offices in Suzhou that
    occupy approximately 6,050 square meters under a lease that
    will expire in March 2008 and 4,048 square meters under a
    lease that will expire in April 2010. We have the right to renew
    the leases on three-months or six-months prior
    written notice if the terms we offer are not less favorable than
    terms offered by other prospective tenants. We also rent offices
    with an aggregate of approximately 40 square meters in
    Suzhou for our research and development and certain
    administrative personnel under a lease expiring in September
    2008. In Changshu, we rent our facilities of approximately
    4,500 square meters under a three-year lease expiring in
    September 2007.
    CSI Luoyang has obtained the land use rights certificate for a
    piece of land of approximately 35,345 square meters, on
    which we are in the process of constructing the manufacturing
    facility of approximately 4,627.5 square meters for module
    manufacturing together with an office building of approximately
    1,915 square meters.
    CSI Cells has obtained the land use rights certificate for a
    piece of land of approximately 65,661 square meters. We
    recently built a solar cell facility in Suzhou and completed our
    first solar cell production line in the first quarter of 2007.
    The manufacturing facility has approximately 10,000 square
    meters and we are building an office building of approximately
    3,900 square meters on the same land.
    CSI Advanced is applying for the land use rights certificate for
    a piece of land of approximately 40,000 square meters, on
    which we expect to commence the construction of a manufacturing
    facility of approximately 30,000 square meters that is
    designed for module manufacturing. We are targeting to open this
    facility in the first quarter of 2008. We are applying for the
    construction permit required to establish the facility.   37




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##### Table of Contents



ITEM 4A.
    Unresolved
    Staff Comments    ITEM 5.
    Operating
    and Financial Review and Prospects  You should read the following discussion and analysis of our
    financial condition and results of operations in conjunction
    with our consolidated financial statements and the related notes
    included elsewhere in this annual report on
    Form 20-F.
    This discussion may contain forward-looking statements based
    upon current expectations that involve risks and uncertainties.
    Our actual results may differ materially from those anticipated
    in these forward-looking statements as a result of various
    factors, including those set forth under Item 3. Key
    Information  D. Risk Factors or in other parts
    of this annual report on
    Form 20-F.
  A.
    Operating
    Results    
    availability and price of solar cells and silicon raw materials;
    industry demand;
    government subsidies; and
    product mix and pricing.  Availability and Price of Solar Cells, Wafers and Silicon Raw
    Materials.
   38




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##### Table of Contents



Industry and Seasonal Demand.
    Government Subsidies.
  Product Mix and Pricing.
 39




---



##### Table of Contents



year-to-year
  product-by-product
  Overview
    of Financial Results
    Net
    Revenues
   40




---



##### Table of Contents



Year Ended December 31,2003


2004


2005


2006Total Net





Total Net





Total Net





Total NetRegion

Revenues


%


Revenues


%


Revenues


%


Revenues


%(In thousands of US$, except percentages)EuropeGermany

$
20



0.5
%

$
6,499



67.1
%

$
13,801



75.3
%

$
38,788



56.8
%Spain










85



0.8



445



2.4



5,226



7.7Others










42



0.4



1,018



5.6



7,967



11.7Europe Total


20



0.5



6,625



68.4



15,264



83.3



51,981



76.2China


271



6.6



109



1.1



504



2.8



14,091
(2)


20.6North America


3,798



92.3



2,853



29.5



2,556



13.9



2,031



3.0Others


25



0.6



97



1.0




(1)


0.0



109



0.2Total net revenues

$
4,113



100.0
%

$
9,685



100.0
%

$
18,324



100.0
%

$
68,212



100.0
%     (1)
    
    Less than a thousand.(2)
    
    $8.3 million of the $14.1 million net revenues was
    generated from a one-time silicon materials sales that took
    place in the fourth quarter of 2006.  Cost of
    Revenues
    
    solar cells;
    other materials for the production of solar modules such as
    glass, aluminum frame and polymer backing;
    production labor, including salaries and benefits for
    manufacturing personnel;
    warranty costs;
    since the second quarter of 2006, share-based compensation
    expenses for options and restricted shares granted to our
    manufacturing employees and suppliers; and
    other materials, such as electronic components, used for the
    production of our specialty solar modules and products.   41




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##### Table of Contents



10-year 25-year
  Gross
    Profit/ Gross Margin
      lower-than-anticipated
   42




---



##### Table of Contents



Operating
    Expenses
    Selling
    Expenses
    General
    and Administrative Expenses
    Research
    and Development Expenses
     43




---



##### Table of Contents



Share-based
    Compensation Expenses
        Years Ended December 31,2004


2005


2006(In thousands of US$, except for percentages)Share-based compensation expenses
    included in:Cost of revenues










169



2.8
%Selling expenses










1,945



31.7General and administrative expenses










3,942



64.15Research and development expenses










89



1.4Total share-based compensation
    expenses










6,145



100.0
%     Interest
    Expenses
   44




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##### Table of Contents



Loss on
    Change in Fair Value of Derivatives
    Loss on
    Financial Instruments Related to Convertible Notes
    Income
    Tax Expense
       45




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##### Table of Contents



3-year 3-year
    Critical
    Accounting Policies
      Revenue
    Recognition
   46




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##### Table of Contents



Warranty
    Cost
  10-year 25-year 25-year
  Impairment
    of Long-lived Assets
    Allowance
    for Doubtful Accounts
    Inventories
     47




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##### Table of Contents



work-in-process
    Fair
    value of derivative and freestanding financial
    instruments
  over-the-counter
          Income
    Taxes
   48




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##### Table of Contents



Recent
    Accounting Pronouncements
    No. 06-03, No. 06-03). No. 06-03 No. 06-03
   49




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##### Table of Contents



Results
    of Operations
    Years Ended December 31,2004


2005


2006(In thousands of US$, except percentages)Net revenues: Solar modules

$
8,941



92.3
%

$
17,895



97.7
%

$
68,144



99.9
% Others


744



7.7



429



2.3



68




(1)Total net revenues


9,685



100.0
%


18,324



100.0
%


68,212



100
%Cost of revenues Solar modules


5,894



60.9



10,885



59.4



55,804



81.8 Others


571



5.9



326



1.8



68




(1)Total cost of revenues


6,465



66.8



11,211



61.2



55,872



81.9Gross profit


3,220



33.2



7,113



38.8



12,340



18.1Operating expenses Selling expenses


269



2.8



158



0.9



2,909



4.3 General and
    administrative expenses


1,069



11.0



1,708



9.3



7,923



11.6 Research and
    development
    expenses(2)


41



0.4



16



0.1



398



0.6Total operating expenses


1,379



14.2



1,882



10.3



11,230



16.5Income from operations


1,840



19.0



5,231



28.5



1,110



1.6Interest expenses










(239
)


(1.3
)


(2,194
)


(3.2
)Interest income


11



0.1



21



0.1



363



0.5
%Loss on change in fair value of
    derivatives related to convertible notes










(316
)


(1.7
)


(6,997
)


(10.3
)Loss on financial instruments
    relating to convertible bonds










(263
)


(1.4
)


(1,190
)


(1.7
)Other gain/(loss)  net


(31
)


(0.4
)


(25
)


(0.1
)


(90
)


(0.1
)Income before taxes


1,820



18.7



4,409



24.1



(8,998
)


(13.2
)Income tax expense


(363
)


(3.7
)


(605
)


(3.3
)


(432
)


(0.6
)Minority interests






















Income/(loss) before extraordinary
    gain


1,457



15.0



3,804



20.8



(9,430
)


(13.8
)Extraordinary gain






















Net income/(loss)

$
1,457



15.0
%

$
3,804



20.8
%

$
(9,430
)


(13.8
)     (1)
    
    Less than 0.1.(2)
    
    We also conduct research and development activities in
    connection with our implementation of solar power development
    projects. These expenditures are included in our cost of
    revenues. See Item 4. Information on the
    Company  B. Business Overview  Solar Power
    Development Projects.  Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Net Revenues.
 50




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Cost of Revenues.
  Gross Profit.
  Operating Expenses.
        Interest Expenses.
  Loss on Change in Fair Value of Derivatives Related to
    Convertible Notes.
 51




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##### Table of Contents



Loss on Financial Instruments Related to Convertible
    Notes.
  Income Tax Expense.
  Net Income.
  Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Net Revenues.
    Cost of Revenues.
  Gross Profit.
  Operating Expenses.
   52




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##### Table of Contents



Interest Expenses.
  Loss on Change in Fair Value of Derivatives Related to
    Convertible Notes.
  Loss on Financial Instruments Related to Convertible
    Notes.
  Income Tax Expense.
  Net Income.
  B.
    Liquidity
    and Capital Resources  Cash
    Flows and Working Capital
     53




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##### Table of Contents



Year Ended December 31,2003


2004


2005


2006(In thousands of US$)Net cash provided by (used in)
    operating activities

$
1,752


$
440


$
(4,670
)

$
(46,276
)Net cash used in investing
    activities


(441
)


(252
)


(646
)


(7,770
)Net cash provided by financing
    activities










9,330



88,307Net increase (decrease) in cash
    and cash equivalents


1,283



180



4,221



34,631Cash and cash equivalents at the
    beginning of the year


596



1,879



2,059



6,280Cash and cash equivalents at the
    end of the year

$
1,879


$
2,059


$
6,280


$
40,911   Operating
    Activities
    Investing
    Activities
   54




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##### Table of Contents



Financing
    Activities
      Capital
    Expenditures
    Restricted
    Net Assets
    C.
    Research
    and Development, Patents and Licenses,
    Etc.   55




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##### Table of Contents



Silicon materials and reclamation
    technologies.
  Solar module manufacturing technologies. state-of-the-art
  Product development of specialty solar modules and
    products.
  Solar cell manufacturing.
  D.
    Trend
    Information  Form 20-F,
  E.
    Off-balance
    Sheet Arrangements   56




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##### Table of Contents



F.
    Tabular
    Disclosure of Contractual Obligations  Contractual
    Obligations and Commercial Commitments
    Payment Due by PeriodLess than








More thanTotal


1 Year


1-3 Years


3-5 Years


5 Years(In thousands of US$)Short-term debt obligations

$
3,311


$
3,311


$



$



$Interest related to short-term
    debt(1)


32



32











Operating lease obligations


318



222



96







Purchase
    obligations(2)


19,900



12,400



3,750



3,750



Other long-term liabilities
    reflected on the companys balance sheet


875















875Total

$
24,436


$
15,965


$
3,846


$
3,750


$
875     (1)
    
    Interest is derived using 6.3% interest per annum.(2)
    
    Include commitments to purchase production equipment in the
    amount of $9.7 million and commitments to purchase solar
    cells and silicon raw materials in the amount of
    $10.2 million.          G.
    Safe
    Harbor  Form 20-F
  Form 20-F
 57




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##### Table of Contents




    our expectations regarding the worldwide demand for electricity
    and the market for solar power;
    our beliefs regarding lack of infrastructure reliability and
    long-term fossil fuel supply constraints;
    our beliefs regarding the inability of traditional 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 power;
    our beliefs regarding the future shortage or availability of the
    supply of high-purity silicon;
    our beliefs regarding the acceleration of adoption of solar
    power technologies;
    our beliefs regarding the competitiveness of our solar module
    products;
    our expectations with respect to increased revenue growth and
    our ability to achieve profitability resulting from our supply
    chain management;
    our beliefs regarding the effects of environmental regulation;
    our beliefs regarding the changing competitive arena in the
    solar power industry;
    our future business development, results of operations and
    financial condition; and
    competition from other manufacturers of solar power products and
    conventional energy suppliers.  Form 20-F
  Form 20-F Form 20-F.
 58




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##### Table of Contents



ITEM 6.
    Directors,
    Senior Management and Employees  A.
    Directors
    and Senior Management  Form 20-F.
  Name

Age

Position/ TitleShawn (Xiaohua) Qu

43

Chairman, President and Chief
    Executive OfficerBing Zhu

42

Director, Chief Financial OfficerArthur Chien

46

Independent DirectorRobert McDermott

65

Independent DirectorLars-Eric Johansson

60

Independent DirectorGregory Spanoudakis

50

Vice President 
    European SalesRobert Patterson

60

Vice President 
    Corporate and Product Development, 
    General Manager  Canadian OperationsBrian Lu

42

General Manager  Sales
    and SupportBencheng Li

66

Vice President  China
    domestic business developmentLingjun Zhang

41

General Manager, CSI CellsChengbai Zhou

60

Principal Technical FellowXiaohu Wang

51

Vice President  China
    Supply Chain ManagementShanglin Shi

53

Deputy General Manager, China
    OperationGenmao Chen

45

Director of Research and
    Development   Directors
  Dr. Shawn (Xiaohua) Qu tm
  Mr. Bing Zhu
  Mr. Arthur Chien
 59




---



##### Table of Contents



Mr. Robert McDermott
  Mr. Lars-Eric Johansson
  Executive
    Officers
  Mr. Gregory Spanoudakis
  Mr. Robert Patterson start-up
 60




---



##### Table of Contents



Mr. Brian Lu
  Mr. Bencheng Li Sino-American
  Dr. Lingjun Zhang
  Mr. Chengbai Zhou
  Mr. Xiaohu Wang
  Mr. Shanglin Shi
 61




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##### Table of Contents



Mr. Genmao Chen
  Duties
    of Directors
    
    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
    approving the issuance of shares.  B.
    Compensation
    of Directors and Executive Officers  Cash
    Remuneration
    Share-based
    Remuneration
  2006 Share
    Incentive Plan
   62




---



##### Table of Contents



Options
    Common SharesUnderlyingOptions


Exercise PriceName

Granted


(US$/Share)


Date of Grant

Date of ExpirationDirectors:Bing Zhu


116,500



2.12


May 30, 2006

May 29, 2016Arthur Chien


46,600
(1)


4.29


August 8, 2006

August 7, 2016Robert McDermott


46,600
(2)


15.00
(3)

August 8, 2006

August 7, 2016Lars-Eric Johansson


46,600
(2)


15.00
(3)

August 8, 2006

August 7, 2016Directors as a group


256,300Executive Officers:Bing Zhu


116,500
(4)


2.12


May 30, 2006

May 29, 2016Gregory Spanoudakis


116,500



2.12


May 30, 2006

May 29, 2016Xiaohu Wang


89,705



2.12


May 30, 2006

May 29, 2016Brian Lu


83,880



2.12


May 30, 2006

May 29, 2016Lingjun Zhang


75,725



2.12


May 30, 2006

May 29, 2016Guoxin Zhang


69,900



2.12


May 30, 2006

May 29, 2016Robert Patterson


64,075



2.12


May 30, 2006

May 29, 2016Bencheng Li


64,075



2.12


May 30, 2006

May 29, 2016Chengbai Zhou


64,075



2.12


May 30, 2006

May 29, 2016Shanglin Shi


46,600



2.12


May 30, 2006

May 29, 2016Genmao Chen


64,075



4.29


July 17, 2006

July 16, 2016Executive Officers as a
    group


855,110Other Individuals:Twenty-nine individuals as a group


111,025



4.29


May 30, 2006

May 29, 2016Two individuals as a group


51,260



4.29


June 30, 2006

June 29, 2016Hanbing
    Zhang(5)


46,600



4.29


July 28, 2006

July 27, 2016One individual


58,250



12.00
(6)

August 8, 2006

August 7, 2016Two individuals as a group


11,650



15.00
(3)

April 13, 2007

April 12, 2017Three individuals as a group


11,650



12.00
(6)

August 31, 2006

August 30, 2016Four individuals as a group


86,890



12.00
(7)

March 1, 2007

February 28, 2007Other individuals as a
    group


319,075     (1)
    
    Vest in two equal installments, the first upon the date of grant
    and the second upon the first year anniversary of the grant date
    so long as the director remains in service.(2)
    
    All vest upon the date of grant.(3)
    
    The initial public offering price of the common shares.(4)
    
    Included above as held by Mr. Zhu as a director.(5)
    
    The wife of Dr. Qu, our chairman, president and chief
    executive officer. 63




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##### Table of Contents



(6)
    
    80% of the initial public offering price of the common shares.(7)
    
    The average of the closing prices for the five trading days
    preceding the grant date.    Restricted
    Shares
    Restricted SharesName

Granted


Date of Grant

Date of ExpirationExecutive Officers:Gregory Spanoudakis


233,000



May 30, 2006


May 29, 2016Chengbai Zhou


23,300



May 30, 2006


May 29, 2016Bencheng Li


23,300



May 30, 2006


May 29, 2016Xiaohu Wang


18,640



May 30, 2006


May 29, 2016Robert Patterson


11,650



May 30, 2006


May 29, 2016Executive Officers as a
    group


309,890Other Individuals:Eight individuals as a group


23,300
(1)


May 30, 2006


May 29, 2016One individual


116,500
(1)(2)


June 30, 2006


June 29, 2016Hanbing Zhang


116,500
(3)(4)


July 28, 2006


July 27, 2016Other Individuals as a
    group


256,300     (1)
    
    Each holding less than 1% of our total outstanding voting
    securities.(2)
    
    Vest over a two-year period from the date of grant.(3)
    
    The wife of Dr. Qu, our chairman, president and chief
    executive officer.(4)
    
    Vest over a four-year period from the date of grant.    Types of Awards.
  
    options to purchase our common shares; and
    restricted shares, which are non-transferable common shares
    without voting or dividend rights, subject to forfeiture upon
    termination of a grantees employment or service.  Plan Administration.
  Award Agreement.
 64




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##### Table of Contents



Eligibility.
  Acceleration of Awards upon Corporate
    Transactions. change-of-control change-of-control
  Exercise Price and Term of Awards.
    Vesting Schedule.
  Indemnification
    of Directors and Officers
    C.
    Board
    Practices  Terms
    of Directors and Executive Officers
    Committees
    of the Board of Directors
    Audit
    Committee
   65




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
    selecting our independent auditors and pre-approving all
    auditing and non-auditing services permitted to be performed by
    our independent auditors;
    reviewing with our independent auditors any audit problems 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 auditors;
    reviewing major issues as to the adequacy of our internal
    controls and any special audit steps adopted in light of
    material 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;
    meeting separately and periodically with management and our
    internal and independent auditors; and
    reporting regularly to the full board of directors.  Compensation
    Committee
    
    approving and overseeing the compensation package for our
    executive officers;
    reviewing and making recommendations to the board with respect
    to the compensation of our directors;
    reviewing and approving corporate goals and objectives relevant
    to the compensation of our chief executive officer, evaluating
    the performance of our chief executive officer in light of those
    goals and objectives, and setting the compensation level of our
    chief executive officer based on this evaluation; 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
    
    identifying and recommending to the board nominees for election
    or re-election to the board, or for appointment to fill any
    vacancy; 66




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##### Table of Contents




    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;
    identifying and recommending to the board the directors to serve
    as members of the boards committees;
    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.  Interested
    Transactions
    Remuneration
    and Borrowing
    Qualification
    Employment
    Agreements
     67




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##### Table of Contents



and/or
  Directors
    Agreements
    D.
    Employees    As of December 31, 2006Number of Employees


Percentage of TotalManufacturing


198



69.7General and administrative


66



23.2Research and development


15



5.3Sales and marketing


5



1.8Total


284



100
%    68




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##### Table of Contents



E.
    Share
    Ownership    
    each of our directors and executive officers; and
    each person known to us to own beneficially more than 5.0% of
    our common shares.      Shares Beneficially
    Owned(1)Directors and Executive
    Officers(2):

Number


%Shawn (Xiaohua) Qu


13,672,263



49.83
%Arthur
    Chien(3)


23,300



0.08
%Robert
    McDermott(4)


50,600



0.18
%Lars-Eric
    Johannson(5)


51,600



0.19
%Bing
    Zhu(6)


29,125



0.10
%Gregory
    Spanoudakis(7)


145,625



0.52
%Xiaohu
    Wang(8)


31,746



0.11
%Bencheng
    Li(9)


27,669



0.10
%Chengbai
    Zhou(10)


27,669



0.10
%Brian
    Lu(11)


20,970



0.08
%Robert
    Patterson(12)


21,844



0.08
%Lingjun
    Zhang(13)


18,931



0.07
%Guoxin
    Zhang(14)


17,475



0.06
%Shanglin
    Shi(15)


11,650



0.04
%Genmao Chen






All directors and executive
    officers as a group


14,150,467



50.91
%Principal
    Shareholders:HSBC HAV2
    (III) Limited(16)


2,660,288



9.70
%ATS Automation Tooling Systems
    Inc.(17)


1,864,398



6.80
%JAFCO Asia Technology Fund II
    (Barbados)
    Limited(18)


1,373,051



5.00
%Columbia Wanger Asset Management,
    L.P.(19)


2,830,000



10.31
%     (1)
    
    Beneficial ownership is determined in accordance with
    Rule 13d-3
    of the General Rules and Regulations under the Securities
    Exchange Act of 1934, as amended, and includes voting or
    investment power with respect to the securities.(2)
    
    The business address of our directors and executive officers is
    Xin Zhuang Industry Park, Changshu, Jiangsu 215562,
    Peoples Republic of China.(3)
    
    Represents 23,300 common shares issuable upon exercise of
    options held by Mr. Chien. 69




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##### Table of Contents



(4)
    
    Represents 46,600 common shares issuable upon exercise of
    options held by Mr. McDermott and 4,000 common shares that
    Mr. McDermott purchased in the Directed Shares Program
    in connection with our initial public offering in November 2006.(5)
    
    Represents 46,600 common shares issuable upon exercise of
    options held by Mr. Johannson and 5,000 common shares that
    Mr. Johannson purchased in the Directed Shares Program
    in connection with our initial public offering in November 2006.(6)
    
    Represents 29,125 common shares issuable upon exercise of
    options held by Mr. Zhu.(7)
    
    Represents 116,500 vested restricted shares and 29,125 common
    shares issuable upon exercise of options held by
    Mr. Spanoudakis.(8)
    
    Represents 9,320 vested restricted shares and 22,426 common
    shares issuable upon exercise of options held by Mr. Wang.(9)
    
    Represents 11,650 vested restricted shares and 16,019 common
    shares issuable upon exercise of options held by Mr. Li.(10)
    
    Represents 11,650 vested restricted shares and 16,019 common
    shares issuable upon exercise of options held by Mr. Zhou.(11)
    
    Represents 20,970 common shares issuable upon exercise of
    options held by Mr. Lu.(12)
    
    Represents 5,825 vested restricted shares and 16,019 common
    shares issuable upon exercise of options held by
    Mr. Patterson.(13)
    
    Represents 18,931 common shares issuable upon exercise of
    options held by Mr. Zhang.(14)
    
    Represents 17,475 common shares issuable upon exercise of
    options held by Mr. Zhang.(15)
    
    Represents 11,650 common shares issuable upon exercise of
    options held by Mr. Shi.(16)
    
    HSBC HAV2 (III) Limited, a Barbados company, is a
    wholly-owned subsidiary of The HSBC Asian Ventures Fund 2
    Limited (HAV2). The investment manager of HAV2 is a subsidiary
    of HSBC Holdings plc, the holding company of The HSBC Group
    which is listed on The Stock Exchange of Hong Kong Limited,
    London Stock Exchange plc, New York Stock Exchange and
    Société des Bourses Françaises. Please see
    Schedule 13G filed by HAV2 (III) on February 27,
    2007 for information relating to HAV2 (III). The registered
    address for HAV2 (III) is RBTT Trust Corporation, CGI Tower
    Warrens, St. Michael, Barbados.(17)
    
    ATS Automation Tooling Systems Inc. is a company incorporated in
    Ontario, Canada. Please see Schedule 13G filed by ATS on
    March 30, 2007 for information relating to ATS. The
    registered address of ATS is 250 Royal Oak Road, Cambridge,
    Ontario N3H 4R6, Canada. ATS is a public company listed on the
    Toronto Stock Exchange.(18)
    
    JAFCO Asia Technology Fund II (Barbados) Limited is a
    company incorporated in Barbados and is a wholly-owned
    subsidiary of JAFCO. The shares held by JAFCO Asia Technology
    Fund II (Barbados) Limited were transferred from JAFCO,
    which acquired them through the conversion of the convertible
    notes. JAFCO is an exempted company organized and existing under
    the laws of the Cayman Islands and is wholly owned by JAFCO Asia
    Technology Fund II L.P., a limited partnership established
    in the Cayman Islands. JAFCO Asia Technology Holdings II
    Limited, a Cayman Islands company and a wholly-owned subsidiary
    of JAFCO Investment (Asia Pacific) Ltd., is the sole general
    partner of JAFCO Asia Technology Fund II L.P. and controls
    the voting and investment power over the shares owned by JAFCO.
    JAFCO Investment (Asia Pacific) Ltd. is wholly-owned by JAFCO
    Co., Ltd., a public company listed on the Tokyo Stock Exchange.
    Please see Schedule 13G filed by JAFCO on February 21,
    2007 for information relating to JAFCO. The address for JAFCO
    Asia Technology Fund II (Barbados) Limited is
    c/o JAFCO Investment (Asia Pacific) Limited, 6 Battery
    Road, #42-01, Singapore 0499909.(19)
    
    Represents 2,830,000 common shares held by Columbia Wanger Asset
    Management, L.P. Please see Schedule 13G/A filed by
    Columbia Wanger on April 5, 2007 for information relating
    to Columbia Wanger. The principal business address of Columbia
    Wanger is 227 West Monroe Street, Suite 3000, Chicago,
    IL 60606. 70




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##### Table of Contents



Form 20-F.
  ITEM 7.
    Major
    Shareholders and Related Party Transactions  A.
    Major
    Shareholders    B.
    Related
    Party Transactions  Unless otherwise indicated, the share numbers in this section
    do not take into account any post-transaction share splits.
  Issuance,
    Sale and Conversion of Convertible Notes
      Conversion
    of Convertible Notes and Put Option Agreement
    Retained
    Earnings
   71




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Investment
    Agreement
      Registration
    Rights Agreements
    Demand Registration Rights. Form F-3 S-3
  Form F-3
    Registration Rights. Form F-3 S-3, Form F-3 S-3
  Piggyback Registration Rights. Form F-4, S-4 S-8, Form F-3
  Expenses of Registration. Form F-3
 72




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##### Table of Contents



Form F-3 Form 20-F.
  Consultancy
    Agreements
      Shareholder
    Loans
    Guarantees
    and Share Pledges
       73




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##### Table of Contents



Employment
    Agreements
    Equity
    Incentive Plan
    C.
    Interests
    of Experts and Counsel    ITEM 8.
    Financial
    Information  A.
    Consolidated
    Statements and Other Financial Information      No. 500-05 071241-028)
    Dividend
    Policy
     74




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##### Table of Contents



B.
    Significant
    Changes  Form 20-F
    ITEM 9.
    The
    Offer and Listing  A.
    Offering
    and Listing
    Details.        
    the last quarter in 2006 and the first quarter of 2007; and
    each of the past six months.  Sales PriceHigh


LowQuarterly High and
    LowFourth Quarter 2006


16.73



9.43First Quarter 2007


14.36



8.72Monthly Highs and
    LowsNovember 2006


16.73



12.04December 2006


12.24



9.43January 2007


11.87



9.26February 2007


14.36



10.30March 2007


11.68



8.72April 2007


13.88



9.60May 2007 (through May 25)


11.80



9.00   B.
    Plan
    of Distribution    C.
    Markets    D.
    Selling
    Shareholders    E.
    Dilution   75




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##### Table of Contents



F.
    Expenses
    of the Issue    ITEM 10.
    Additional
    Information  A.
    Share
    Capital    B.
    Memorandum
    and Articles of Association  No. 333-138144),
  C.
    Material
    Contracts  Form 20-F.
  D.
    Exchange
    Controls  Foreign
    Currency Exchange
    E.
    Taxation  Material
    Canadian Federal Tax Considerations
  General
  Canada-United
    Form 20-F.
 76




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##### Table of Contents



Form 20-F.
  TAX MATTERS ARE VERY COMPLICATED AND THE CANADIAN FEDERAL TAX
    CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF COMMON
    SHARES WILL DEPEND ON THE SHAREHOLDERS PARTICULAR
    SITUATION. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE
    ANALYSIS OF OR DESCRIPTION OF ALL POTENTIAL CANADIAN FEDERAL TAX
    CONSEQUENCES, AND SHOULD NOT BE CONSTRUED TO BE, LEGAL, BUSINESS
    OR TAX ADVICE DIRECTED AT ANY PARTICULAR PROSPECTIVE PURCHASER
    OF COMMON SHARES. ACCORDINGLY, HOLDERS OR PROSPECTIVE PURCHASERS
    OF COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS FOR
    ADVICE WITH RESPECT TO THE CANADIAN FEDERAL TAX CONSEQUENCES OF
    AN INVESTMENT IN COMMON SHARES BASED ON THEIR PARTICULAR
    CIRCUMSTANCES.
  Dividends
    Disposition
    of Our Common Shares
  60-month
    United
    States Federal Income Taxation
  Form 20-F
 77




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##### Table of Contents



Form 20-F,
    
    banks;
    certain financial institutions;
    insurance companies;
    broker dealers;
    U.S. expatriates;
    traders that elect to mark to market;
    tax-exempt entities;
    persons liable for alternative minimum tax;
    persons holding a common share as part of a straddle, hedging,
    conversion or integrated transaction;
    persons that actually or constructively own 10.0% or more of our
    voting stock;
    persons who acquired common shares pursuant to the exercise of
    any employee share option or otherwise as consideration; or
    persons holding common shares through partnerships or other
    pass-through entities.  INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE
    APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR
    PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE AND LOCAL AND
    FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
    DISPOSITION OF COMMON SHARES.
    
    an individual who is a citizen or resident of the United States;
    a corporation (or other entity taxable as a corporation for
    U.S. federal income tax purposes) organized under the laws
    of the United States, any State or the District of Columbia;
    an estate whose income is subject to U.S. federal income
    taxation regardless of its source; or
    a trust that (1) is subject to the supervision of a court
    within the United States and the control of one or more
    U.S. persons or (2) has a valid election in effect
    under applicable U.S. Treasury regulations to be treated as
    a U.S. person.    Taxation
    of Dividends and Other Distributions on the Common
    Shares
   78




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##### Table of Contents



Canada-United
  Taxation
    of Disposition of Shares
    Passive
    Foreign Investment Company
  non-U.S. corporation
  
    at least 75% of its gross income is passive income (the
    income test), or
    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 asset test). 79




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##### Table of Contents



mark-to-market
  
    the excess distribution or gain will be allocated ratably over
    your holding period for the common shares,
    the amount allocated to the current taxable year, and any
    taxable year prior to the first taxable year in which we became
    a PFIC, will be treated as ordinary income, and
    the amount allocated to each other year will be subject to the
    highest tax rate in effect for that year and the interest charge
    generally applicable to underpayments of tax will be imposed on
    the resulting tax attributable to each such year.      mark-to-market mark-to-market mark-to-market mark-to-market mark-to-market mark-to-market
  mark-to-market
 80




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##### Table of Contents



mark-to-market
      Estate
    Tax
    Information
    Reporting and Backup Withholding
  Form W-9.
    F.
    Dividends
    and Paying Agents    G.
    Statement
    by Experts    H.
    Documents
    on Display  Form F-1, Number 333-138144).
  Form 20-F 1-800-SEC-0330. www.sec.gov
 81




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##### Table of Contents



I.
    Subsidiary
    Information  Form F-1,
  ITEM 11.
    Quantitative
    and Qualitative Disclosures About Market Risk  Foreign
    Exchange Risk
        Interest
    Rate Risk
    ITEM 12.
    Description
    of Securities Other than Equity Securities   82




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##### Table of Contents



PART II  ITEM 13.
    Defaults,
    Dividend Arrearages and Delinquencies    ITEM 14.
    Material
    Modifications to the Rights of Security Holders and Use of
    Proceeds    ITEM 15.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures
  13a-15(3) 15d-15(3)
      Changes
    in Internal Controls
      ITEM 16A.
    Audit
    Committee Financial Expert  Form 20-F.
 83




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##### Table of Contents



ITEM 16B.
    Code
    of Ethics  Form 20-F, www.csisolar.com
  ITEM 16C.
    Principal
    Accountant Fees and Services    For the Year Ended December 31,2004


2005


2006Audit
    fees(1)










334,857Audit-related fees










Tax fees










All other fees










     (1)
    
    Audit fees means the aggregate fees billed for
    professional services rendered by our principal auditors for the
    audit of our annual financial statements.  de minimus
  ITEM 16D.
    Exemptions
    from the Listing Standards for Audit Committees    ITEM 16E.
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers.   PART III  ITEM 17.
    Financial
    Statements    ITEM 18.
    Financial
    Statements  Form 20-F,
  
    Independent Auditors Report
    Consolidated Balance Sheets as of December 31, 2005 and 2006
    Consolidated Statements of Operations and Comprehensive Income
    for the years ended December 31, 2004, 2005 and 2006 84




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##### Table of Contents




    Consolidated Statements of Shareholders Equity for the
    years ended December 31, 2004, 2005 and 2006
    Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2005 and 2006
    Notes to the Consolidated Financial Statements
    Additional Information  Financial Statement
    Schedule I  ITEM 19.
    Exhibits  ExhibitNumber

Description of Document1
.1*

Amended and Restated Articles of
    Continuance and Bylaws of the Registrant, as currently in effect2
.1

Subscription Agreement, dated
    November 16, 2005, in respect of the issue of notes
    convertible into common shares in the capital of Canadian Solar
    Inc., as amended by Supplemental Agreements, dated
    February 28, 2006, March 29, 2006, June 9, 2006
    and July 1, 2006 (incorporated by reference to
    Exhibit 4.1 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.2

Investment Agreement, dated
    November 30, 2005, among the Registrant and the parties
    named therein (incorporated by reference to Exhibit 4.2
    from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.3

Registration Rights Agreement,
    dated November 30, 2005, among the Registrant and other
    parties named therein (incorporated by reference to
    Exhibit 4.3 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.4

Registration Rights Agreement,
    dated October 3, 2006, between the Registrant and ATS
    (incorporated by reference to Exhibit 4.4 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.5

Joinder Agreement, dated
    October 3, 2006, among the Registrant, Dr. Shawn Qu,
    ATS, HSBC HAV 2 (III) Limited and JAFCO Asia Technology
    Fund II (Barbados) Limited (incorporated by reference to
    Exhibit 4.5 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.6

Amended and Restated Certificates
    for the Convertible Notes and the Conditions, for the
    US$5,400,000 and US$2,700,000 Convertible Notes due
    November 30, 2008 issued by the Registrant to HSBC HAV2
    (III) Limited and JAFCO Asia Technology Fund II,
    respectively (incorporated by reference to Exhibit 4.6 from
    our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.7

Amended and Restated Certificates
    for the Convertible Notes and the Conditions, for the
    US$2,350,000 and US$1,300,000 Convertible Notes due
    March 30, 2009 issued by the Registrant to HSBC HAV2
    (III) Limited and JAFCO Asia Technology Fund II,
    respectively (incorporated by reference to Exhibit 4.7 from
    our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.8

Conversion Notices, each dated
    July 1, 2006, Regarding Conversion of Convertible Notes
    into Common Shares in the Capital of the Registrant
    (incorporated by reference to Exhibit 4.8 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.9

Put Option Agreement among
    Dr. Shawn Qu, HSBC HAV (III) Limited and JAFCO Asia
    Technology Fund II, dated July 1, 2006, as amended by
    the Supplemental Put Option Agreement, among Dr. Shawn Qu,
    HSBC HAV (III) Limited, JAFCO Asia Technology Fund II
    and JAFCO Asia Technology Fund II (Barbados) Limited, dated
    July 28, 2006 (incorporated by reference to
    Exhibit 4.9 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)2
.10

Letter Agreement among HSBC HAV2
    (III) Limited, JAFCO Asia Technology Fund II,
    Dr. Shawn Qu and the Registrant Regarding Retained Earnings
    of the Registrant, dated July 28, 2006 (incorporated by
    reference to Exhibit 4.10 from our F-1 registration
    statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006) 85




---



##### Table of Contents



ExhibitNumber

Description of Document2
.11

Registrants Specimen
    Certificate for Common Shares (incorporated by reference to
    Exhibit 4.11 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.1

2006 Share Incentive Plan,
    including forms of Restricted Shares Award Agreement and
    Share Option Agreement (incorporated by reference to
    Exhibit 10.1 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.2

Employment Agreement between the
    Registrant and the Chief Executive Officer of the Registrant
    (incorporated by reference to Exhibit 10.2 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.3

Form of Employment Agreement
    between Registrant and any other Executive Officer of the
    Registrant (incorporated by reference to Exhibit 10.3 from
    our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.4

Strategic Partnership Agreement
    and Performance Reward Plan (2005), dated November 1, 2005,
    between Kunical International Group, Ltd. and the Registrant, as
    amended by the letter agreement dated August 25, 2006
    (incorporated by reference to Exhibit 10.3 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.5

English translation of
    Polycrystalline Silicon Supply Agreement, dated
    September 12, 2005, between the Registrant and Luoyang
    Zhong Gui High Tech Co., Ltd. (incorporated by reference to
    Exhibit 10.5 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.6

English translation of Solar Cell
    Silicon Wafer Agreement, dated July 6, 2006, between the
    Registrant and Jiangxi Saiwei LDK Solar Energy High-Tech
    Limited, as amended by the supplemental agreement, dated
    August 11, 2006 (incorporated by reference to
    Exhibit 10.6 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.7

Written description of prior
    Consulting Agreement between the Registrant and Dr. Shawn
    Qu (incorporated by reference to Exhibit 10.7 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.8

Written description of prior
    Consulting Agreement between the Registrant and Robert Patterson
    (incorporated by reference to Exhibit 10.8 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.9

Security Agreement, dated
    September 30, 2005, between the Registrants and ATS
    (incorporated by reference to Exhibit 10.9 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.10

Promissory Note, dated
    September 30, 2005, issued by the Registrant (incorporated
    by reference to Exhibit 10.10 from our F-1 registration
    statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.11

Agreement of Guarantee, dated
    September 2005, between Xiao Hua Qu a.k.a. Shawn Qu as guarantor
    and ATS as lender (incorporated by reference to
    Exhibit 10.11 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.12

Guarantee and Postponement of
    Claim, undated, from Xiaohua Qu as guarantor and the Royal Bank
    of Canada as the lender (incorporated by reference to
    Exhibit 10.12 from our F-1 registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)4
.13

Commercial Contract, dated
    September 20, 2006, between the Registrant and Swiss Wafers
    AG (incorporated by reference to Exhibit 10.13 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)8
.1

List of Subsidiaries (incorporated
    by reference to Exhibit 21.1 from our F-1 registration
    statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006)11
.1

Code of Business Conduct
    (incorporated by reference to Exhibit 99.1 from our F-1
    registration statement (File
    No. 333-138144),
    as amended, initially filed with the Commission on
    October 23, 2006) 86




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##### Table of Contents



ExhibitNumber

Description of Document12
.1*

CEO Certification Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200212
.2*

CFO Certification Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200213
.1*

CEO Certification Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 200213
.2*

CFO Certification Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Filed with this Annual Report on
    Form 20-F 87




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##### Table of Contents



CANADIAN
    SOLAR INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Report of
    Independent Registered Public Accounting Firm


F-1Consolidated
    Balance Sheets as of December 31, 2005 and 2006


F-2Consolidated
    Statements of Operations for the Years Ended December 31,
    2004, 2005 and 2006


F-3Consolidated
    Statements of Stockholders Equity and Comprehensive
    Income/(Loss) for the three Years Ended December 31, 2004,
    2005 and 2006


F-4Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2004, 2005 and 2006


F-5Notes to the
    Consolidated Financial Statements


F-6Schedule
    1


F-26




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Deloitte
    Touche Tohmatsu Ltd
      F-1




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31, 2005


December 31, 2006$


$(In U.S. dollars)ASSETSCurrent assets:Cash and cash equivalents

$
6,279,795


$
40,910,759Restricted cash


111,785



824,719Accounts receivable, net of
    allowance for doubtful accounts of $117,685 and nil on
    December 31, 2005 and 2006


2,067,162



17,344,445Inventories


12,162,588



39,700,051Value added tax recoverable


814,808



2,280,985Advances to suppliers


4,739,592



13,484,411Prepaid and other current assets


257,110



2,398,103Total current assets


26,432,840



116,943,473Property, plant and equipment, net


931,958



7,909,606Intangible assets






38,949Prepaid-rental






1,103,123Deferred tax assets


65,219



3,638,606TOTAL ASSETS


27,430,017



129,633,757LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowing


1,300,000



3,311,238Accounts payable


4,305,911



6,873,502Other payable


891,859



993,313Advances from suppliers and
    customers


2,822,917



3,225,157Income tax payable


913,962



112,184Amounts due to related parties


431,164



148,636Embedded derivatives related to
    convertible notes


3,679,000



Other current liabilities


1,022,350



1,191,199Total current liabilities


15,367,163



15,855,229Accrued warranty costs


341,032



874,673Convertible notes


3,386,671



Financial instruments related to
    convertible notes


1,107,084



Other non-current liabilities


260,987



TOTAL LIABILITIES


20,462,937



16,729,902Commitments and contingencies
    (Note 14)Stockholders equity:Common shares  no par
    value: unlimited authorized shares, 15,427,995 and
    27,270,000 shares issued and outstanding at
    December 31, 2005 and 2006, respectively


210,843



97,302,391Additional paid-in capital






17,333,897Retained earnings (accumulated
    deficit)


6,647,167



(2,782,697
)Accumulated other comprehensive
    income


109,070



1,050,264Total stockholders equity


6,967,080



112,903,855TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY


27,430,017



129,633,757    F-2




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended


Year Ended


Year EndedDecember 31, 2004


December 31, 2005


December 31, 2006$


$


$(In U.S. dollars)Net revenues:Product

$
8,941,219


$
17,895,383


$
68,144,422Others


743,601



428,417



67,834Total net revenues


9,684,820



18,323,800



68,212,256Cost of revenues:Product


5,893,669



10,885,165



55,804,125Others


571,522



325,713



67,834Total cost of revenues


6,465,191



11,210,878



55,871,959Gross profit


3,219,629



7,112,922



12,340,297Operating expense:Selling expenses


268,994



157,763



2,908,675General and administrative expenses


1,069,470



1,707,674



7,923,923Research and development expenses


40,623



16,381



397,859Total operating expenses


1,379,087



1,881,818



11,230,457Income from operations


1,840,542



5,231,104



1,109,840Other income (expense):Interest expenses






(239,225
)


(2,193,551
)Interest income


11,201



21,721



362,528Loss on change in fair value of
    derivatives






(316,000
)


(6,997,000
)Loss on financial instruments
    related to convertible notes






(263,089
)


(1,189,500
)Other  net


(32,195
)


(25,156
)


(90,187
)Income/(Loss) before taxes


1,819,548



4,409,355



(8,997,870
)Income tax expense


(362,882
)


(605,402
)


(431,994
)Net Income/(Loss)


1,456,666



3,803,953



(9,429,864
)Earning/(Loss) per share-basic and
    diluted

$
0.09


$
0.25


$
(0.50
)Shares used in computation-basic
    and diluted


15,427,995



15,427,995



18,986,498    F-3




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
    INCOME/(LOSS)
  Retained


AccumulatedAdditional


Earnings


Other


Total


TotalCommon


Paid in


(Accumulated


Comprehensive


Stockholder


ComprehensiveShares


Capital


Deficit)


Income (Loss)


Equity


Income/(loss)Number


$


$


$


$


$


$(In U.S. dollars)Balance at December 31, 2003


15,427,995



210,843







1,386,548



(84,966
)


1,512,425Net income














1,456,666







1,456,666



1,456,666Foreign currency translation
    Adjustment


















(7,705
)


(7,705
)


(7,705
)Balance at December 31, 2004


15,427,995



210,843







2,843,214



(92,671
)


2,961,386



1,448,961Net income














3,803,953







3,803,953



3,803,953Foreign currency translation
    Adjustment


















201,741



201,741



201,741Balance at December 31, 2005


15,427,995



210,843







6,647,167



109,070



6,967,080



4,005,694Net loss














(9,429,864
)






(9,429,864
)


(9,429,864
)Share-based compensation










6,144,879











6,144,879Conversion of convertible notes


5,542,005



10,162,215















10,162,215De-recognition of conversion option
    derivative liability










10,928,031











10,928,031Issuance of ordinary shares
    Pursuant to initial public offering


6,300,000



83,323,942















83,323,942Deferred tax associated with IPO
    issuance cost






3,605,391















3,605,391Forgiveness of payable to
    shareholders










260,987











260,987Foreign currency translation
    Adjustment


















941,194



941,194



941,194Balance at December 31, 2006


27,270,000



97,302,391



17,333,897



(2,782,697
)


1,050,264



112,903,855



(8,488,670
)    F-4




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended


Year Ended


Year EndedDecember 31, 2004


December 31, 2005


December 31, 2006$


$


$(In U.S. dollars)Operating activities:Net Income/(loss)


1,456,666



3,803,953



(9,429,864
)Adjustments to reconcile net
    income/(loss) to net cash provided by (used in) operating
    activities:Depreciation and amortization


42,137



81,879



208,538Loss on disposal of property, plant
    and equipment


628







11,072Allowance for doubtful debts


24,507







62,318Allowance for inventories
    obsolescence


258,855







274,947Loss on fair value change of
    derivatives






316,000



6,997,000Loss on financial instruments
    related to convertible notes






263,089



1,189,500Amortization of discount on debt






134,666



706,320Share based compensation










6,144,879Changes in operating assets and
    liabilities:Inventories


(2,343,372
)


(9,771,728
)


(27,812,410
)Accounts receivable


(403,072
)


(1,431,483
)


(14,836,433
)Value added tax recoverable


120,710



(793,206
)


(1,396,221
)Advances to suppliers


(289,430
)


(4,369,335
)


(8,479,625
)Prepaid and other current assets


(19,161
)


(67,899
)


(1,861,085
)Accounts payable


397,184



3,482,266



2,361,064Other payable


(95,847
)


18,122



640,104Advances from suppliers and
    customers


255,629



2,549,686



324,890Amounts due to related parties


96,380



241,741



(282,528
)Accrued warranty costs


87,685



174,451



530,826Income tax payable


288,432



506,604



(1,027,100
)Other current liabilities


557,375



258,723



190,393Deferred taxes


4,244



(67,877
)


294,296Prepaid-rental










(1,087,055
)Deferred taxes


4,244



(67,877
)


294,296Net cash provided by (used in)
    operating activities


439,550



(4,670,348
)


(46,276,174
)Investing activities:Increase in restricted cash






(85,204
)


(686,214
)Purchases of property, plant and
    equipment


(253,570
)


(560,793
)


(7,113,912
)Proceeds from disposal of property,
    plant and equipment


1,321







30,157Net cash used in investing
    activities


(252,249
)


(645,997
)


(7,769,969
)Financing activities:Net proceeds from short-term
    borrowings






1,300,000



1,903,959Proceeds from issuance of
    convertible notes






8,100,000



3,650,000Issuance cost paid on convertible
    debt






(69,685
)


(571,315
)Proceeds from issuance of common
    shares, net of issuance costs










83,323,942Net cash provided by financing
    activities






9,330,315



88,306,586Effect of exchange rate changes


(7,705
)


207,146



370,521Net increase in cash and cash
    equivalents


179,596



4,221,116



34,630,964Cash and cash equivalents at the
    beginning of the year/period


1,879,083



2,058,679



6,279,795Cash and cash equivalents at the
    end of the year/period


2,058,679



6,279,795



40,910,759Supplemental disclosure of cash
    flow information:Interest paid






(3,349
)


(1,471,498
)Income taxes paid


(70,205
)


(166,674
)


(1,340,014
)Supplemental schedule of non-cash
    investing and financing activities:Issuance cost included in other
    payable






571,315



Fixed assets cost included in other
    payable










41,657Conversion of debt to equity










10,162,215    F-5




---



##### Table of Contents



CANADIAN
    SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    FOR THE YEARS ENDED DECEMBER 31, 2004, 2005 AND 2006
    (In U.S. dollars)
  1.
    ORGANIZATION
    AND PRINCIPAL ACTIVITIES      2.
    SUMMARY
    OF PRINCIPAL ACCOUNTING POLICIES  (a)
    Basis
    of presentation    (b)
    Basis
    of Consolidation    (c)
    Use of
    estimates    (d)
    Cash
    and cash equivalents      (e)
    Inventories     F-6




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   work-in-process
  (f)
    Property,
    plant and equipment    Leasehold improvements

Over the shorter of the lease term
    or their estimated useful livesPlant and machinery

10 yearsFurniture, fixtures and equipment

5 yearsMotor vehicles

5 years
     (g)
    Intangible
    assets  5-year
  (h)
    Impairment
    of long-lived assets   F-7




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
  (i)
    Income
    taxes    (j)
    Revenue
    recognition        (k)
    Cost
    of revenue    (l)
    Research
    and development    (m)
    Advertising
    expenses   F-8




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
  (n)
    Warranty
    cost  10-year 25-year
  (o)
    Foreign
    currency translation      (p)
    Foreign
    currency risk    (q)
    Concentration
    of credit risk     F-9




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
    (r)
    Fair
    value of derivatives and financial instruments      (s)
    Earnings
    per Share    (t)
    Stock-based
    compensation    (u)
    Recently
    issued accounting pronouncements      No. 06-03, No. 06-03). No. 06-03 No. 06-03
 F-10




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
     3.
    INVENTORIES    At December 31,


At December 31,2005


2006$


$Raw materials


9,938,165



32,748,305Work-in-process


778,742



5,261,990Finished goods


1,445,681



1,689,75612,162,588



39,700,051
     4.
    ACCOUNTS
    RECEIVABLE AND OTHER RECEIVABLE    5.
    PROPERTY,
    PLANT AND EQUIPMENT, NET    At December 31,


At December 31,2005


2006$


$Leasehold improvements


122,724



205,342Plant and machinery


728,796



1,179,131Furniture, fixtures and equipment


116,554



227,314Motor vehicles


60,831



219,106Total


1,028,905



1,830,893Less: Accumulated depreciation


(181,648
)


(384,889
)Construction in process


84,701



6,463,602Property, plant and equipment, net


931,958



7,909,606
    F-11




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   6.
    SHORT-TERM
    BORROWING    7.
    ACCRUED
    WARRANTY COSTS    At December 31,


At December 31,


At December 31,2004


2005


2006$


$


$Beginning balance


78,896



166,581



341,032Warranty provision


87,685



174,451



603,659Warranty costs incurred










(70,018
)Ending balance


166,581



341,032



874,673
   8.
    CONVERTIBLE
    NOTES      Maturity date.
  Interest.
      Withholding taxes.
 F-12




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   Dividends.
  Conversion.
    Redemption.
  Liquidation preference.
  Pledge of shares.
        
    On March 30, 2006, the Company and the note holders
    executed a supplemental agreement amending certain provisions
    related to events of default prior to conversion or maturity (as
    defined in the subscription F-13




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
  agreement). The original terms required that, in the event of
    default, the Company pay the note holders the greater of a 12%
    interest premium or the fair value of the common stock
    underlying the convertible notes on an if-converted basis. The
    terms of the supplemental agreement state that in an event of
    default the Company must pay an interest premium of 18% per
    annum. The terms of the original agreement created a provision
    which allowed for potential net settlement of the Companys
    common shares, and accordingly, prior to the supplemental
    agreement, the Company was required to bifurcate the conversion
    option from the host debt instrument as it met the test of a
    derivative instrument. Since the supplemental agreement removed
    the net settlement provision the Company was no longer required
    to bifurcate the conversion option. Accordingly, on
    March 30, 2006, the Company derecognized the embedded
    derivative liability related to the conversion option. Because
    the early redemption put option continues to meet the definition
    of a derivative instrument after the March 30, 2006
    modification, the early redemption option continues to be
    recorded by the Company as a derivative liability and reported
    at its fair value with changes in its fair value recognized in
    the statements of operations. The early redemption option was
    valued by an independent valuation using the Black-Scholes
    option pricing model.  
    In addition to revising the provisions related to events of
    default, the March 30, 2006 supplemental agreement revised
    the original subscription agreement to revise the profit after
    tax computation to exclude all costs and charges related to the
    issuance of the convertible notes, including all costs and
    charges related to the recording of the derivative and
    freestanding financial instruments associated with the
    convertible notes, including changes to their fair values. The
    supplemental agreement effectively requires that the Company
    achieve a profit after tax of $6 million for the
    12-month
    period ended February 28, 2006, reduced by the amount of
    all costs and charges related to the issuance of the convertible
    notes and related derivative and freestanding financial
    instruments.    
    On June 9, 2006, the Company and the note holders executed
    a supplemental agreement removing the provision that would have
    given the note holders an adjustment on the conversion price in
    the event the Companys profit after tax for the
    12-month
    period ended February 28, 2006 was less than certain
    predefined amounts.    Interest
    Taxes
  Conversion
  Share split
 F-14




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
                  Year Ended


Year EndedDecember 31, 2005


December 31, 2006$


$Proceeds from issuance of
    convertible notes


8,100,000



Discount on debt


(4,713,329
)


Convertible notes


3,386,671



Financial instruments related to
    convertible notes


1,107,084



Fair value of conversion option


3,654,000



Fair value of early redemption
    option


25,000



Fair value of derivatives related
    to convertible notes


3,679,000




    F-15




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
    9.
    COMMON
    SHARES              10.
    RESTRICTED
    NET ASSETS       F-16




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   11.
    INCOME
    TAX EXPENSE    Year Ended


Year Ended


Year EndedDecember 31, 2004


December 31, 2005


December 31, 2006$


$


$Income/(Loss) before income tax
    expenseCanada


223,521



(801,720
)


(15,218,572
)Other


1,596,027



5,211,075



6,220,7021,819,548



4,409,355



(8,997,870
)Current TaxCanada


147,999



142,666



(115,061
)Other


210,639



530,613



363,719358,638



673,279



248,658Deferred TaxCanada


(20,631
)


(10,507
)


263,309Other


24,875



(57,370
)


(79,973
)4,244



(67,877
)


183,336Income tax expense


362,882



605,402



431,994Deferred TaxIssuance cost










909,261Convertible debts










(161,095
)Accrued warranty costs


(16,235
)


(31,979
)


(180,141
)Tax loss










(241,349
)Other


20,479



(35,898
)


(143,340
)4,244



(67,877
)


183,336
     Open-up
   F-17




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
      At December 31,


At December 31,2005


2006$


$Deferred tax assets:Issuance cost  initial
    public offering






3,012,602Issuance cost 
    convertible notes






137,390Accrued warranty costs


62,640



242,091Tax loss






241,349Others


96,511



194,257Total deferred tax assets


159,151



3,827,689Analysis as:Current


93,932



189,083Non-current


65,219



3,638,606159,151



3,827,689Deferred tax liabilities:Unrealized profit


38,828



4,261Issuance cost 
    convertible notes


20,555



Total deferred tax liabilities


59,383



4,261Analysis as:Current


59,383



4,261Non-current






59,383



4,261
     Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2004


2005


2006$


$


$Combined federal and provincial
    income tax rate


36
%


36
%


36
%Expenses not deductible for tax
    purpose


7
%


8
%


7
%Tax exemption and tax relief
    granted to the Company (Note)


(14
)%


(22
)%


(45
)%Effect of different tax rate of
    subsidiary operation in other jurisdiction


(7
)%


(11
)%


(2
)%Others


(2
)%


3
%


(1
)%20
%


14
%


(5
)%
  F-18




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
  Note:
  Year Ended

Year Ended

Year EndedDecember 31,

December 31,

December 31,2004

2005

2006$

$

$The aggregate dollar effect


255,249



953,804



1,429,352Per share effect  basic
    and diluted


0.02



0.06



0.08
   Law of
    the Peoples Republic of China on Enterprise Income Tax
    12.
    EARNINGS
    PER SHARE    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2004


2005


2006Income/(Loss) available to common
    stockholder  basic and diluted

$
1,456,666


$
3,803,953


$
(9,429,864
)Weighted average number of common
    shares  basic and diluted


15,427,995



15,427,995



18,986,498Basic and diluted Income/(Loss)
    per share

$
0.09


$
0.25


$
(0.50
)
     13.
    RELATED
    PARTY BALANCES AND TRANSACTIONS  Related
    party balances:
     F-19




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   Related
    party transactions:
      14.
    COMMITMENTS  a)  Operating
    lease commitments
      December 31

$2007


221,7512008


96,203Total


317,954
   b)  Commitments
    15.
    SEGMENT
    INFORMATION    Year Ended December 31, 2004SolarPowerProducts


Other


Total$


$


$Revenues from external customers


8,941,219



743,601



9,684,820Cost of revenue


5,893,669



571,522



6,465,191Interest income


11,201







11,201Interest expenses










Segment profit


1,346,535



110,131



1,456,666Segment assets


6,144,992







6,144,992
   F-20




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
  Year Ended December 31, 2005SolarPowerProducts


Other


Total$


$


$Revenues from external customers


17,895,383



428,417



18,323,800Cost of revenue


10,885,165



325,713



11,210,878Interest income


21,721







21,721Interest expenses


239,225







239,225Segment profit


3,738,222



65,731



3,803,953Segment assets


27,099,319



330,698



27,430,017
   Year Ended December 31, 2006SolarPowerProducts


Other


Total$


$


$Revenues from external customers


68,144,422



67,834



68,212,256Cost of revenue


55,804,125



67,834



55,871,959Interest income


362,528







362,528Interest expenses


2,193,551







2,193,551Segment loss


(9,429,864
)






(9,429,864
)Segment assets


129,633,757







129,633,757
     Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2004


2005


2006$


$


$Europe: Germany


6,498,524



13,800,581



38,787,860 Others


126,701



1,462,718



13,192,923Europe Total


6,625,225



15,263,299



51,980,783China


109,074



504,410



14,091,562North America


2,853,078



2,555,805



2,030,850Others


97,443



286



109,061Total net revenues


9,684,820



18,323,800



68,212,256
    F-21




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   16.
    MAJOR
    CUSTOMERS    Year Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2004


2005


2006$


$


$Company A










9,737,337Company B






1,100,725



9,189,588Company C






6,739,649



6,893,121Company D


1,297,996



2,556,107



Company E


1,580,832



1,473,048



575,195Company F


992,853



618,315



Company G


1,244,693



115,602




     17.
    EMPLOYEE
    BENEFIT PLANS      18.
    SHARE
    OPTIONS     F-22




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
   Options
    to Employees
          2006Risk-free rate of return

5.53%Expected option life

6.13 yearsVolatility rate

68%Dividend yield


       WeightedWeighted


AverageNumber


Average


Remaining


Aggregateof Options


Exercise Price


Contract Terms


Intrinsic Value$





$Options outstanding at
    January 1, 2006






Granted


1,384,370



4.09Exercised






Cancelled or Forfeited


(110,675
)


3.38Options outstanding at
    December 31, 2006


1,273,695



4.15Options vested or expected to vest
    at December 31, 2006


1,183,231



4.28



9 years



13,716,333Options exercisable at
    December 31, 2006


116,500



12.86



9 years



228,900    F-23




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
     Restricted
    shares to Employees and Non-employees
        Weighted AverageGrant-DateNumber of Shares


Fair Value$Nonvested at January 1, 2006






Granted


566,190



16.01Exercised






Cancelled or Forfeited






Nonvested at December 31, 2006


566,190



16.01
   19.
    SUBSEQUENT
    EVENTS      210-240
   F-24




---



##### Table of Contents



CANADIAN
    SOLAR INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE
    YEARS ENDED DECEMBER 31, 2004, 2005 AND
    2006  (Continued)
            F-25




---



##### Table of Contents



Additional
    Information  Financial Statements
    Schedule 1  Canadian Solar Inc.
    Financial
    information of parent company
  Balance
    Sheets
  December 31, 2005


December 31, 2006$


$(In U.S. dollars)ASSETSCurrent assets:Cash and cash equivalents


4,527,193



16,345,243Accounts receivable, net of
    allowance for doubtful accounts of $Nil and $Nil on
    December 31, 2005 and 2006


1,934,758



2,336,966Inventories


1,864,056



2,219,710Advances to suppliers


2,830,270



5,300,059Amount due from related parties


9,959,259



26,944,177Prepaid and other current assets


92,182



466,115Total current assets


21,207,718



53,612,270Investment in subsidiaries


11,354,112



65,304,847Deferred tax assets


61,080



3,609,424TOTAL ASSETS


32,622,910



122,526,541LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowing


1,300,000



Accounts payable


3,388,425



499,784Other payable


876,583



8,967Advances from suppliers and
    customers


2,445,903



838,033Income tax payable


317,164



112,184Amounts due to related parties


8,005,223



6,218,885Embedded Derivatives related to
    convertible notes


3,679,000



Other current liabilities


560,756



1,341,053Total current liabilities


20,573,054



9,018,906Accrued warranty costs


328,034



603,780Convertible notes


3,386,671



Financial instruments related to
    convertible notes


1,107,084



Other non-current liabilities


260,987



TOTAL LIABILITIES


25,655,830



9,622,686Stockholders equity:Common shares  no par
    value: unlimited authorized Shares,15,427,995 shares issued
    and outstanding, as of December 31, 2005;
    27,270,000 shares issued and outstanding, as of
    December 31, 2006


210,843



97,302,391Additional paid-in capital






17,333,897Retained earnings (accumulated
    deficit)


6,647,167



(2,782,697
)Accumulated other comprehensive
    income


109,070



1,050,264Total stockholders equity


6,967,080



112,903,855TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY


32,622,910



122,526,541  F-26




---



##### Table of Contents



Financial
    information of parent company
  Statements
    of (Loss) Income
  Year Ended


Year Ended


Year EndedDecember 31, 2004


December 31, 2005


December 31, 2006$


$


$(In U.S. dollars)ModulesNet revenues:Product


15,585,017



28,695,764



77,410,745Others


743,601



428,417



16,767Total net revenues


16,328,618



29,124,181



77,427,512Cost of revenues:Product


14,466,642



27,804,922



74,827,384Others


743,601



428,417



16,767Total cost of revenues


15,210,243



28,233,339



74,844,151Gross profit


1,118,375



890,842



2,583,361Operating expenses:Selling expenses


235,845



3,600



2,510,642Research and development










76,084General and administrative expenses


669,553



888,283



5,903,722Total operating expenses


905,398



891,883



8,490,448(Loss)/income from operations


212,977



(1,041
)


(5,907,087
)Other income (expenses):Interest expenses






(239,225
)


(1,598,415
)Interest income


10,544



17,634



304,636Loss on change in fair value of
    derivatives






(316,000
)


(6,997,000
)Loss on financial instruments
    related to convertible notes






(263,089
)


(1,189,500
)Other-net










(43,969
)Income/(Loss) before taxes


223,521



(801,721
)


(15,431,335
)Income tax expenses


(127,367
)


(132,159
)


(125,606
)Equity in earnings of subsidiaries


1,360,512



4,737,833



6,127,077Net Income/(Loss)


1,456,666



3,803,953



(9,429,864
)Earnings/(Loss) per share-basic
    and diluted

$
0.09


$
0.25


$
(0.50
)Shares used in computation-basic
    and diluted


15,427,995



15,427,995



18,986,498  F-27




---



##### Table of Contents



Financial
    information of parent company
  Statements
    of Stockholders Equity and Comprehensive
    Income/(Loss)
  AccumulatedAdditional


Retained Earnings


Other


Total


TotalCommon


Paid in


(Accumulated


Comprehensive


Stockholder


ComprehensiveShares


Capital


Deficit)


Income (Loss)


Equity


IncomeNumber


$


$


$


$


$


$(In U.S. dollars)Balance at December 31, 2003


15,427,995



210,843







1,386,548



(84,966
)


1,512,425Net income














1,456,666







1,456,666



1,456,666Foreign currency translation
    Adjustment


















(7,705
)


(7,705
)


(7,705
)Balance at December 31, 2004


15,427,995



210,843







2,843,214



(92,671
)


2,961,386



1,448,961Net income














3,803,953







3,803,953



3,803,953Foreign currency translation
    Adjustment


















201,741



201,741



201,741Balance at December 31, 2005


15,427,995



210,843







6,647,167



109,070



6,967,080



4,005,694Net loss














(9,429,864
)






(9,429,864
)


(9,429,864
)Share-based compensation










6,144,879











6,144,879Conversion of convertible notes


5,542,005



10,162,215















10,162,215De-recognition of conversion option
    derivative liability










10,928,031











10,928,031Issuance of ordinary shares
    Pursuant to initial public offering


6,300,000



83,323,942















83,323,942Deferred tax associated with IPO
    issuance cost






3,605,391















3,605,391Forgiveness of payable to
    shareholders










260,987











260,987Foreign currency translation
    Adjustment


















941,194



941,194



941,194Balance at December 31, 2006


27,270,000



97,302,391



17,333,897



(2,782,697
)


1,050,264



112,903,855



(8,488,670
)  F-28




---



##### Table of Contents



Financial
    information of parent company
  Statements
    of Cash Flows
  Year Ended


Year Ended


Year EndedDecember 31, 2004


December 31, 2005


December 31, 2006$


$


$(In U.S. dollars)Operating activities:Net (loss)/income


1,456,666



3,803,953



(9,429,864
)Adjustments to reconcile net
    income to net cash provided by (used in) operating activities:Allowance for doubtful debts


24,507







17,445Loss on fair value change of
    derivatives






316,000



6,997,000Loss on financial instruments
    related to convertible notes






263,089



1,189,500Amortization of discount on debt






134,666



722,053Gain on acquisition of equity
    interest










Equity in earnings of subsidiaries


(1,360,511
)


(4,737,835
)


(6,127,077
)Share based compensation










6,144,879Changes in operating assets and
    liabilities:Inventories


(180,943
)


(1,677,940
)


(355,654
)Accounts receivable


(403,072
)


(1,299,079
)


(402,208
)Amounts due from related parties


(5,531,390
)


(3,941,319
)


(16,984,917
)Advances to suppliers


(230,969
)


(2,584,264
)


(2,469,789
)Other current assets


4,081



(45,092
)


(316,269
)Accounts payable


243,536



2,811,156



(2,888,641
)Other payable


254,425



3,538



(296,300
)Advances from suppliers and
    customers


184,391



2,244,762



(1,607,870
)Amounts due to related parties


5,961,201



798,227



(1,786,340
)Accrued warranty costs


86,295



166,819



275,746Income tax payable


84,157



114,081



(256,834
)Other current liabilities


154,791



238,541



800,853Deferred taxes


(20,631
)


(10,507
)


168,049Net cash provided by (used in)
    operating activities


726,534



(3,401,204
)


(26,606,238
)Investing activities:Investment in subsidiaries


(227,329
)


(3,468,291
)


(46,800,000
)Net cash used in investing
    activities


(227,329
)


(3,468,291
)


(46,800,000
)Financing activities:Net proceeds from short-term
    borrowings






1,300,000



(1,300,000
)Proceeds from issuance of
    convertible notes






8,100,000



3,650,000Issuance cost paid on convertible
    notes






(69,685
)


(571,315
)Proceeded from issuance of common
    shares, net of issuance costs










83,323,942Net cash provided by financing
    activities






9,330,315



85,102,627Effect of exchange rate changes


(7,706
)


201,741



(46,184
)Net increase in cash and cash
    equivalents


491,499



2,662,561



11,818,050Cash and cash equivalents at the
    beginning of the year


1,373,133



1,864,632



4,527,193Cash and cash equivalents at the
    end of the year


1,864,632



4,527,193



16,345,243Supplemental disclosure of cash
    flow information:Interest paid






(3,349
)


876,362
)Income taxes paid


(63,841
)


(28,584
)


Supplemental schedule of non-cash
    investing and financing activities:Issuance cost included in other
    payable






571,315



Conversion of debt to equity










10,162,215  F-29




---



##### Table of Contents



SIGNATURES
  Form 20-F
    By:
    /s/  Shawn
    Qu Name:
    Shawn QuTitle:
    Chairman, President and