##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from  to
 Commission file number: 1- 33208
 SOLARFUN POWER HOLDINGS CO., LTD.
 (Exact name of Registrant as specified in its charter)
 Not Applicable
    
    Cayman Islands(Translation of Registrants name into English)
    
    (Jurisdiction of Incorporation or Organization)
 666 Linyang Road, Qidong, Jiangsu Province 226200, Peoples Republic of China  (Address of Principal Executive Offices)
 Mr. Paul Combs
Vice President of Strategic Planning
Telephone: 8621-26022833
E-mail: paul.combs@solarfun-power.com
Fax: 8621- 26022889
26th Fl. BM Tower
218 Wusong Road
Shanghai 200080
Peoples Republic of China  (Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredAmerican Depositary Shares 
Ordinary Shares, par value US$0.0001 per share
    
    Nasdaq Global Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
 Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the
period covered by the annual report.
  Yes o     No þ
 o þ
 þ o
 o o
  Large accelerated filer o
    
    

    Accelerated filer þ

    Non-accelerated filer o
  U.S.GAAP þ
    
    International Financial Reporting Standards as issued
by the International Accounting Standards Board o
    
    Other o
  o o
 o þ
  Yes o     No o




---



##### 



Table of Contents
 ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    2ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3 KEY INFORMATION
    
    
    2ITEM 4 INFORMATION ON THE COMPANY
    
    
    31ITEM 4A UNRESOLVED STAFF COMMENTS
    
    
    47ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    47ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    74ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    88ITEM 8 FINANCIAL INFORMATION
    
    
    92ITEM 9 THE OFFER AND LISTING
    
    
    93ITEM 10 ADDITIONAL INFORMATION
    
    
    94ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    101ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    101ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    101ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    102ITEM 15 CONTROLS AND PROCEDURES
    
    
    103ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    104ITEM 16B CODE OF ETHICS
    
    
    104ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    105ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    105ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    105ITEM 16F CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    105ITEM 16G CORPORATE GOVERNANCE
    
    
    105ITEM 17 FINANCIAL STATEMENTS
    
    
    105ITEM 18 FINANCIAL STATEMENTS
    
    
    106ITEM 19 EXHIBITS
    
    
    106Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 23.1




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##### Table of Contents



INTRODUCTION
  
    
    ADRsare to the American depositary receipts that evidence our ADSs;
    
    ADSsare to our American depositary shares, each of which represents five ordinary
 shares;
    
    Chinaor the PRC are to the Peoples Republic of China, excluding, for the purpose of
this annual report only, Taiwan and the special administrative regions of Hong Kong and
Macau;
    
    conversion efficiencyare to the ability of photovoltaic, or PV, products to convert
sunlight into electricity, and conversion efficiency rates are commonly used in the PV
industry to measure the percentage of light energy from the sun that is actually converted
into electricity;
    
    cost per wattand price per watt are to the method by which the cost and price of PV
products, respectively, are commonly measured in the PV industry. A PV product is priced
based on the number of watts of electricity it can generate;
    
    GWare to gigawatt, representing 1,000,000,000 watts, a unit of power-generating
capacity or consumption;
    
    MWare to megawatt, representing 1,000,000 watts, a unit of power-generating capacity or
consumption. In this annual report, it is assumed that, based on a yield rate of 95%, 420,000
125mm x 125mm or 280,000 156mm x 156mm silicon wafers are required to produce PV products
capable of generating 1 MW, that each 125mm x 125mm and 156mm x 156mm PV cell generates 2.4 W
and 3.7 W of power, respectively, and that each PV module contains 72
125mm x 125mm PV cells or 54 156mm x 156mm PV cells;
    
    PVare to photovoltaic. The photovoltaic effect is a process by which sunlight is
converted into electricity;
    
    RMB and Renminbi are to the legal currency of China;
    
    series A convertible preference sharesare to our series A convertible preference
 shares, par value US$0.0001 per share;
    
    sharesor ordinary shares are to our ordinary shares, par value US$0.0001 per share.
For the purpose of computing and reporting our outstanding ordinary shares and our basic or
diluted earnings per share, the 9,019,611 ADSs we issued to facilitate the convertible notes
offering are not considered outstanding; and
    
    US$and U.S. dollars are to the legal currency of the United States.
       1




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##### Table of Contents



PART I
 
 ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3 KEY INFORMATION
 A. Selected Financial Data
   2




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##### Table of Contents



Period fromAugust 27,2004(Inception) toDecember 31,
    
    
    Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(In thousands, except share and per share data)Consolidated Statement
of Income DataNet revenuesPhotovoltaic modules
    
    
    
    
    
    
    165,636
    
    
    
    604,317
    
    
    
    2,209,514
    
    
    
    4,626,423
    
    
    
    678,113Photovoltaic cells
    
    
    
    
    
    
    542
    
    
    
    7,182
    
    
    
    52,019
    
    
    
    253,074
    
    
    
    37,094Raw materials
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,726
    
    
    
    66,342
    
    
    
    9,724Photovoltaic
modules processing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,876
    
    
    
    3,229
    
    
    
    473Photovoltaic cells
processing
    
    
    
    
    
    
    
    
    
    
    19,408
    
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    
    
    
    
    166,178
    
    
    
    630,907
    
    
    
    2,395,135
    
    
    
    4,949,068
    
    
    
    725,404Cost of revenuesPhotovoltaic modules
    
    
    
    
    
    
    (139,481
    )
    
    
    (434,493
    )
    
    
    (1,835,702
    )
    
    
    (4,179,156
    )
    
    
    (612,555
    )Photovoltaic cells
    
    
    
    
    
    
    (422
    )
    
    
    (5,983
    )
    
    
    (48,701
    )
    
    
    (241,882
    )
    
    
    (35,454
    )Raw materials
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,123
    )
    
    
    (69,112
    )
    
    
    (10,129
    )Photovoltaic
modules processing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,014
    )
    
    
    (1,208
    )
    
    
    (177
    )Photovoltaic cells
processing
    
    
    
    
    
    
    
    
    
    
    (6,054
    )
    
    
    
    
    
    
    
    
    
    
    Write-downs of
inventory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (815
    )
    
    
    (413,789
    )
    
    
    (60,651
    )Total cost of revenues
    
    
    
    
    
    
    (139,903
    )
    
    
    (446,530
    )
    
    
    (1,997,355
    )
    
    
    (4,905,147
    )
    
    
    (718,966
    )
  3




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##### Table of Contents



Period fromAugust 27,2004(Inception) toDecember 31,
    
    
    Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(In thousands, except share and per share data)Gross profit
    
    
    
    
    
    
    26,275
    
    
    
    184,377
    
    
    
    397,780
    
    
    
    43,921
    
    
    
    6,438Operating expensesSelling expenses
    
    
    
    
    
    
    (5,258
    )
    
    
    (11,883
    )
    
    
    (62,777
    )
    
    
    (87,913
    )
    
    
    (12,886
    )General and
administrative
expenses
    
    
    (629
    )
    
    
    (4,112
    )
    
    
    (52,214
    )
    
    
    (113,756
    )
    
    
    (143,340
    )
    
    
    (21,010
    )Research and
development
expenses
    
    
    
    
    
    
    (750
    )
    
    
    (6,523
    )
    
    
    (27,440
    )
    
    
    (19,679
    )
    
    
    (2,884
    )Total operating
expenses
    
    
    (629
    )
    
    
    (10,120
    )
    
    
    (70,620
    )
    
    
    (203,973
    )
    
    
    (250,932
    )
    
    
    (36,780
    )Operating (loss)
profit
    
    
    (629
    )
    
    
    16,155
    
    
    
    113,757
    
    
    
    193,807
    
    
    
    (207,011
    )
    
    
    (30,342
    )Interest expenses
    
    
    
    
    
    
    (123
    )
    
    
    (8,402
    )
    
    
    (25,978
    )
    
    
    (103,146
    )
    
    
    (15,119
    )Interest income
    
    
    22
    
    
    
    95
    
    
    
    1,326
    
    
    
    16,244
    
    
    
    10,004
    
    
    
    1,446Exchange losses
    
    
    
    
    
    
    (1,768
    )
    
    
    (4,346
    )
    
    
    (25,628
    )
    
    
    (35,230
    )
    
    
    (5,164
    )Other income
    
    
    
    
    
    
    215
    
    
    
    902
    
    
    
    1,507
    
    
    
    15,018
    
    
    
    2,201Other expenses
    
    
    
    
    
    
    (260
    )
    
    
    (836
    )
    
    
    (9,670
    )
    
    
    (25,604
    )
    
    
    (3,752
    )Changes in fair value
of foreign currency
derivatives
    
    
    
    
    
    
    
    
    
    
    (163
    )
    
    
    
    
    
    
    83,090
    
    
    
    12,179Government grants
    
    
    
    
    
    
    
    
    
    
    852
    
    
    
    2,089
    
    
    
    3,480
    
    
    
    510(Loss) income before
income taxes and
minority interest
    
    
    (607
    )
    
    
    14,314
    
    
    
    103,090
    
    
    
    152,371
    
    
    
    (259,399
    )
    
    
    (38,021
    )Income tax benefit
(expense)
    
    
    
    
    
    
    96
    
    
    
    3,132
    
    
    
    (7,458
    )
    
    
    (6,519
    )
    
    
    (956
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    
    3,124
    
    
    
    (14,573
    )
    
    
    (2,136
    )Net (loss) income
    
    
    (607
    )
    
    
    14,410
    
    
    
    105,921
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )Net (loss) income
attributable to
ordinary shareholders
    
    
    (607
    )
    
    
    14,410
    
    
    
    98,695
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )
  4




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##### Table of Contents



Period fromAugust 27,2004(Inception) toDecember 31,
    
    
    Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(In thousands, except share and per share data)Net (loss) income per
share Basic
    
    
    (0.01
    )
    
    
    0.26
    
    
    
    0.95
    
    
    
    0.62
    
    
    
    (1.11
    )
    
    
    (0.16
    ) Diluted
    
    
    (0.01
    )
    
    
    0.22
    
    
    
    0.74
    
    
    
    0.62
    
    
    
    (1.11
    )
    
    
    (0.16
    )Number of shares used
in computation of net
income per share Basic
    
    
    51,994,399
    
    
    
    54,511,540
    
    
    
    103,631,832
    
    
    
    240,054,686
    
    
    
    252,659,614
    
    
    
    252,659,614 Diluted
    
    
    51,994,399
    
    
    
    66,366,469
    
    
    
    142,108,460
    
    
    
    240,054,686
    
    
    
    252,659,614
    
    
    
    252,659,614Net (loss) income per
ADS Basic
    
    
    (0.05
    )
    
    
    1.32
    
    
    
    4.76
    
    
    
    3.08
    
    
    
    (5.55
    )
    
    
    (0.80
    ) Diluted
    
    
    (0.05
    )
    
    
    1.09
    
    
    
    3.72
    
    
    
    3.08
    
    
    
    (5.55
    )
    
    
    (0.80
    )Number of ADS used in
computation of net
income per ADS Basic
    
    
    10,398,880
    
    
    
    10,902,308
    
    
    
    20,726,366
    
    
    
    48,010,937
    
    
    
    50,531,923
    
    
    
    50,531,923 Diluted
    
    
    10,398,880
    
    
    
    13,273,294
    
    
    
    28,421,692
    
    
    
    48,010,937
    
    
    
    50,531,923
    
    
    
    50,531,923
 Period fromAugust 27,2004(Inception) toDecember 31,
    
    
    Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(In thousands, except margin and other operating data)Other Financial DataGross margin
    
    
    
    
    
    
    15.8
    %
    
    
    29.2
    %
    
    
    16.6
    %
    
    
    0.9
    %Operating margin
    
    
    
    
    
    
    9.7
    %
    
    
    18.0
    %
    
    
    8.1
    %
    
    
    (4.2)
    %Net margin
    
    
    
    
    
    
    8.7
    %
    
    
    16.8
    %
    
    
    6.2
    %
    
    
    (5.7)
    %Net cash used in
operating activities
    
    
    (8,180
    )
    
    
    (76,582
    )
    
    
    (523,061
    )
    
    
    (1,020,603
    )
    
    
    (674,040
    )
    
    
    (98,797
    )Other Operating DataAmount of PV cells
produced (including PV
cell processing)(in MW)
    
    
    
    
    
    
    1.0
    (1)
    
    
    26.2
    (2)
    
    
    99.6
    (3)
    
    
    191.5
    (4)Amount of PV modules
produced (in MW):
    
    
    
    
    
    
    5.5
    
    
    
    19.6
    
    
    
    87.2
    
    
    
    177.3Average selling price (in
RMB/W):PV cells
    
    
    
    
    
    
    25.80
    
    
    
    27.03
    
    
    
    21.12
    
    
    
    21.36
    
    
    
    3.13PV modules
    
    
    
    
    
    
    32.34
    
    
    
    31.75
    
    
    
    28.20
    
    
    
    26.77
    
    
    
    3.92
  5




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##### Table of Contents



Notes:(1)
    
    Of which 0.9 MW was used in our PV module production.(2)
    
    Of which 19.9 MW was used in our PV module production.(3)
    
    Of which 86.9 MW was used in our PV module production.(4)
    
    Of which 190.5 MW was used in our PV module production. As of December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(In thousands)Consolidated Balance Sheet DataCash and cash equivalents
    
    
    3,525
    
    
    
    7,054
    
    
    
    1,137,792
    
    
    
    272,928
    
    
    
    410,901
    
    
    
    60,227Restricted cash
    
    
    
    
    
    
    22,229
    
    
    
    33,822
    
    
    
    42,253
    
    
    
    88,137
    
    
    
    12,919Accounts receivable (net of
allowance for doubtful
accounts of RMB Nil, RMB Nil,
RMB11,323,000, RMB2,619,000
and RMB2,267,000 (US$332,283)
as of December 31, 2004, 2005,
2006, 2007 and 2008,
respectively)
    
    
    
    
    
    
    
    
    
    
    147,834
    
    
    
    430,692
    
    
    
    319,537
    
    
    
    46,836Inventories-net
    
    
    4,511
    
    
    
    76,819
    
    
    
    372,504
    
    
    
    728,480
    
    
    
    731,708
    
    
    
    107,249Advance to suppliers  net
    
    
    4,850
    
    
    
    61,312
    
    
    
    238,178
    
    
    
    640,118
    
    
    
    1,145,614
    
    
    
    167,917Other current assets
    
    
    762
    
    
    
    20,705
    
    
    
    75,525
    
    
    
    214,478
    
    
    
    481,749
    
    
    
    70,612Deferred tax assets
    
    
    
    
    
    
    96
    
    
    
    3,400
    
    
    
    7,793
    
    
    
    62,481
    
    
    
    7,158Derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,665
    
    
    
    5,814Amount due from related parties
    
    
    18,000
    
    
    
    
    
    
    
    153
    
    
    
    920
    
    
    
    19
    
    
    
    3Fixed assets-net
    
    
    292
    
    
    
    55,146
    
    
    
    207,449
    
    
    
    702,884
    
    
    
    1,492,575
    
    
    
    218,772Intangible assets-net
    
    
    
    
    
    
    
    
    
    
    12,897
    
    
    
    94,282
    
    
    
    212,736
    
    
    
    31,182Total assets
    
    
    31,940
    
    
    
    243,361
    
    
    
    2,230,432
    
    
    
    3,349,513
    
    
    
    5,157,301
    
    
    
    755,926Short-term bank borrowings
    
    
    
    
    
    
    20,000
    
    
    
    379,900
    
    
    
    965,002
    
    
    
    1,098,832
    
    
    
    161,060Long-term bank borrowings,
current portion
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    15,000
    
    
    
    30,000
    
    
    
    4,397Accounts payable
    
    
    2,221
    
    
    
    18,794
    
    
    
    51,452
    
    
    
    141,709
    
    
    
    217,026
    
    
    
    31,810Notes payable
    
    
    
    
    
    
    20,000
    
    
    
    14,020
    
    
    
    
    
    
    
    39,341
    
    
    
    5,766Accrued expenses and other
liabilities
    
    
    301
    
    
    
    22,920
    
    
    
    33,619
    
    
    
    135,395
    
    
    
    189,028
    
    
    
    27,707Customer deposits
    
    
    
    
    
    
    55,319
    
    
    
    17
    
    
    
    27,628
    
    
    
    9,494
    
    
    
    1,392Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,038
    
    
    
    28,571
    
    
    
    4,187Derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,792
    
    
    
    849Amount due to related parties
    
    
    25
    
    
    
    32,658
    
    
    
    24,486
    
    
    
    92,739
    
    
    
    39,766
    
    
    
    5,829Total current liabilities
    
    
    2,547
    
    
    
    169,691
    
    
    
    527,066
    
    
    
    1,377,473
    
    
    
    1,658,080
    
    
    
    243,031Long-term bank borrowings
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    170,000
    
    
    
    24,918Minority interests
    
    
    
    
    
    
    
    
    
    
    10,151
    
    
    
    100,420
    
    
    
    4,183
    
    
    
    613Total shareholders equity
    
    
    29,393
    
    
    
    73,670
    
    
    
    1,678,215
    
    
    
    1,862,582
    
    
    
    2,118,882
    
    
    
    310,573Total liabilities, mezzanine
equity and shareholders
equity
    
    
    31,940
    
    
    
    243,361
    
    
    
    2,230,432
    
    
    
    3,349,513
    
    
    
    5,157,301
    
    
    
    755,926
  6




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##### Table of Contents



Exchange Rate Information
   Renminbi per U.S. Dollar Noon Buying Rate(1)PeriodEnd
    
    
    Average(2)
    
    
    Low
    
    
    High2004
    
    
    8.2765
    
    
    
    8.2768
    
    
    
    8.2764
    
    
    
    8.27742005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.0702
    
    
    
    8.27652006
    
    
    7.8041
    
    
    
    7,9579
    
    
    
    7.8041
    
    
    
    8.07022007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.2946
    
    
    
    7.81272008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    6.7800
    
    
    
    7.29462008December
    
    
    6.8225
    
    
    
    6.8539
    
    
    
    6.8225
    
    
    
    6.88422009January
    
    
    6.8392
    
    
    
    6.8360
    
    
    
    6.8225
    
    
    
    6.8403February
    
    
    6.8395
    
    
    
    6.8363
    
    
    
    6.8241
    
    
    
    6.8470March
    
    
    6.8329
    
    
    
    6.8360
    
    
    
    6.8240
    
    
    
    6.8438April
    
    
    6.8180
    
    
    
    6.8304
    
    
    
    6.8180
    
    
    
    6.8361May
    
    
    6.8278
    
    
    
    6.8235
    
    
    
    6.8176
    
    
    
    6.8326June (through June 19, 2009)
    
    
    6.8360
    
    
    
    6.8337
    
    
    
    6.8264
    
    
    
    6.8371
 Notes:(1)
    
    For periods prior to January 1, 2009, the exchange rates reflect the noon buying rates as
reported by the Federal Reserve Bank of New York. For periods after January 1, 2009, the
exchange rates reflect the exchange rates as set forth in the H.10 statistical release of the
Federal Reserve Board.(2)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period. B. Capitalization and IndebtednessNot Applicable.C. Reasons for the Offer and Use of ProceedsNot Applicable.
  7




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D. Risk Factors
 Risks Related to Our Company and Our Industry
 Demand for our PV products has been, and may continue to be, adversely affected by the global
financial crisis. The global credit crisis could also make it difficult for our customers and
end-users to finance the purchases of our products.
   Our ability to adjust our raw material costs may be limited as a result of our entering into
multi-year supply agreements with many of our silicon and silicon wafer suppliers, and it may be
difficult for us to respond in a timely manner to rapidly changing market demand, which could
materially and adversely affect our cost of revenues and profitability.
    8




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Prepayments we have provided to our silicon and silicon wafer suppliers expose us to the credit
risks of such suppliers and may increase our costs and expenses, which could in turn have a
material adverse effect on our liquidity.
  We may experience continuing pressure on our profit margins as the average selling price of PV
products continues to be pushed down by the decrease in demand for PV products and the rapid
declines in the spot market silicon and silicon wafer prices.
   9




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Evaluating our business and prospects may be difficult because of our limited operating history,
and our past results may not be indicative of our future performance.
  Our future success substantially depends on our ability to manage our production effectively and to
reduce our manufacturing costs. Our ability to achieve such goals is subject to a number of risks
and uncertainties.
  
    
    our ability to re-negotiate our existing multi-year supply agreements;
    
    our ability to maintain our quality level;
    
    our ability to adjust inventory levels to respond to rapidly changing market demand;
    
    delays and cost overruns in equipment purchases and deliveries;
    
    delays or denial of required approvals by relevant government authorities; and
    
    diversion of significant management attention and other resources to other matters.
   10




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We depend on a limited number of customers for a high percentage of our revenue and the loss of, or
a significant reduction in orders from, any of these customers, if not immediately replaced, would
significantly reduce our revenue and decrease our profitability.
  
    
    reduction, delay or cancellation of orders from one or more of our significant customers;
    
    selection by one or more of our significant distributor customers of our competitors
products;
    
    loss of one or more of our significant customers and our failure to identify additional or
replacement customers;
    
    any adverse change in the bilateral or multilateral trade relationships between China and
European countries, particularly Germany; and
    
    failure of any of our significant customers to make timely payment for our products.
    Our dependence on a limited number of suppliers for a substantial majority of silicon and silicon
wafers could prevent us from delivering our products in a timely manner to our customers in the
required quantities, which could result in order cancellations, decreased revenue and loss of
market share.
   11




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Until the fourth quarter of 2008, there was an industry-wide shortage of silicon and silicon
wafers. If we again experience an industry-wide shortage of silicon and silicon wafers, our
failure to obtain sufficient quantities of silicon and silicon wafers in a timely manner could
disrupt our operations, prevent us from operating at full capacity or limit our ability to expand
as planned, which would reduce, and limit the growth of, our manufacturing output and revenue.
  
    
    the terms of our silicon and silicon wafer contracts with, or purchase orders to, our
suppliers may be altered or cancelled as a result of our ongoing re-negotiations with them;
    
    there are a limited number of silicon and silicon wafer suppliers, and many of our
competitors also purchase silicon and silicon wafers from these suppliers;
    
    since we have only been purchasing silicon and silicon wafers for approximately four
years, our competitors may have longer and stronger relationship with these suppliers than we
do;
    
    some of our silicon and silicon wafer suppliers do not manufacture silicon themselves, but
instead purchase their requirements from other vendors. It is possible that these suppliers
will not be able to obtain sufficient silicon or silicon wafers to satisfy their contractual
obligations to us;
    
    we do not have a long history with our silicon and silicon wafer suppliers and there can
be no assurance that they will be able to meet our production needs consistently or on a
timely basis; and
    
    our purchase of silicon and silicon wafers is subject to the business risk of our
suppliers, one or more of which may go out of business for any one of a number of reasons
beyond our control in the current economic environment.
   12




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We currently have a significant amount of debt outstanding. Our substantial indebtedness may limit
our future financing capabilities and could adversely affect our business, financial condition and
results of operations.
  
    
    making it more difficult for us to fulfill payment and other obligations under our
outstanding debt, including repayment of our long- and short-term credit facilities should we
be unable to obtain extensions for any such facilities before they mature, as well as our
obligations under our 2018 convertible notes;
    
    triggering an event of default if we fail to comply with any of our payment or other
obligations contained in our debt agreements, which could result in cross-defaults causing
all or a substantial portion of our debt to become immediately due and payable;
    
    reducing the availability of cash flow to fund working capital, capital expenditures,
acquisitions and other general corporate purposes, and adversely affecting our ability to
obtain additional financing for these purposes;
    
    potentially increasing the cost of any additional financing; and
    
    putting pressure on our ADS price due to concerns of our inability to repay our debt and
making it more difficult for us to conduct equity financings in the capital markets.
   13




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We require a significant amount of cash to fund our operations as well as meet future capital
requirements. If we cannot obtain additional capital when we need it, our growth prospects and
future profitability may be materially and adversely affected.
  
    
    our future financial condition, results of operations and cash flows;
    
    general market conditions for financing activities by manufacturers of PV and related
products; and
    
    economic, political and other conditions in the PRC and elsewhere.
  We face risks associated with the marketing, distribution and sale of our PV products
internationally, and if we are unable to effectively manage these risks, they could impair our
ability to expand our business abroad.
  
    
    fluctuations in currency exchange rates of the U.S. dollar, Euro and other foreign
currencies against the Renminbi;
    
    difficulty in engaging and retaining distributors and agents who are knowledgeable about,
and can function effectively in, overseas markets;
    
    increased costs associated with maintaining marketing and sales activities in various
countries;
    
    difficulty and costs relating to compliance with different commercial and legal
requirements in the jurisdictions in which we offer our products;
    
    inability to obtain, maintain or enforce intellectual property rights; 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.
  If we are unable to compete in the highly competitive PV market, our revenue and profits may
decrease.
  
    
    manufacturing capacity;
    
    power efficiency;
    
    range and quality of products;
    
    price;
  14




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
    
    strength of supply chain and distribution network;
    
    after-sales inquiry; and
    
    brand image.
   Our profitability depends on our ability to respond to rapid market changes in the PV industry,
including by developing new technologies and offering additional products and services.
    15




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Our future success also depends on our ability to make strategic acquisitions and investments and
to establish and maintain strategic alliances, and failure to do so could have a material adverse
effect on our market penetration, revenue growth and profitability. In addition, such strategic
acquisitions, alliances and investments themselves entail significant risks that could materially
and adversely affect our business.
   Problems with product quality or product performance could result in a decrease in customers and
revenue, unexpected expenses and loss of market share. In addition, product liability claims
against us could result in adverse publicity and potentially significant monetary damages.
   16




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##### Table of Contents



If PV technology is not suitable for widespread adoption, or sufficient demand for PV products does
not develop or takes longer to develop than we anticipated, our sales may not continue to increase
or may even decline, and our revenue and profitability would be reduced.
  
    
    cost-effectiveness of PV products compared to conventional and other non-solar energy
sources and products;
    
    performance and reliability of PV products compared to conventional and other non-solar
energy sources and products;
    
    availability of government subsidies and incentives to support the development of the PV
industry or other energy resource industries;
    
    success of other alternative energy generation technologies, such as fuel cells, wind
power and biomass;
  17




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##### Table of Contents




    
    fluctuations in economic and market conditions that affect the viability of conventional
and non-solar alternative energy sources, such as increases or decreases in the prices of oil
and other fossil fuels;
    
    capital expenditures by end users of PV products, which tend to decrease when the overall
economy slows down; and
    
    deregulation of the electric power industry and the broader energy industry.
 Existing regulations and policies governing the electricity utility industry, as well as changes to
these regulations and policies, may adversely affect demand for our products and materially reduce
our revenue and profits.
   The reduction or elimination of government subsidies and economic incentives for on-grid solar
energy applications could have a materially adverse effect on our business and prospects.
    18




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##### Table of Contents



The lack or inaccessibility of financing for off-grid solar energy applications could cause our
sales to decline.
  Our failure to protect our intellectual property rights may undermine our competitive position, and
litigation to protect our intellectual property rights may be costly.
   We may be exposed to infringement or misappropriation claims by third parties, particularly in
jurisdictions outside China which, if determined adversely against us, could disrupt our business
and subject us to significant liability to third parties, as well as have a material adverse effect
on our financial condition and results of operations.
   19




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##### Table of Contents




    
    pay damage awards;
    
    seek licenses from third parties;
    
    pay ongoing royalties;
    
    redesign our products; or
    
    be restricted by injunctions,
  We may not be able to obtain sufficient patent protection on the technologies embodied in the PV
products we currently manufacture and sell, which could reduce our competitiveness and increase our
expenses.
  We depend on our key personnel, and our business and growth may be severely disrupted if we lose
their services.
   20




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##### Table of Contents



Our recent changes in chief financial officer and chief executive officer may have an adverse
effect on the overall operations of our company and the functioning of our financial controls and
reporting.
    Any failure to achieve and maintain effective internal controls could have a material adverse
effect on our business, results of operations and the market price of our ADSs.
    21




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##### Table of Contents



We have limited insurance coverage and may incur losses resulting from product liability claims or
business interruptions.
   Any environmental claims or failure to comply with any present or future environmental regulations
may require us to spend additional funds and may materially and adversely affect our financial
condition and results of operations.
   22




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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 results of operations.
     23




---



##### Table of Contents



Under the EIT, we may be classified as a Resident Enterprise of the PRC. Such classification
would likely result in negative tax consequences to us and could result in negative tax
consequences to our non-PRC enterprise shareholders and ADS holders.
   Fluctuations in exchange rates could adversely affect our business as well as result in foreign
currency exchange losses.
    24




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##### Table of Contents



Two of our existing shareholders have substantial influence over our company and their interests
may not be aligned with the interests of our other shareholders.
  Risks Related to Doing Business in China
 Adverse changes in political and economic policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could reduce the demand for our
products and materially and adversely affect our competitive position.
  
    
    the amount of government involvement;
    
    the level of development;
    
    the growth rate;
    
    the control of foreign exchange; and
    
    the allocation of resources.
   25




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##### Table of Contents



Uncertainties with respect to the PRC legal system could have a material adverse effect on us.
  Limitations on the ability of our operating subsidiary to pay dividends or other distributions to
us could have a material adverse effect on our ability to conduct our business.
   26




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##### Table of Contents



Restrictions on currency exchange may limit our ability to receive and use our revenue
effectively.
   PRC regulations relating to the establishment of offshore special purpose companies by PRC
residents may subject our PRC resident shareholders to personal liability and limit our ability to
acquire PRC companies or to inject capital into our PRC subsidiary, limit our PRC subsidiarys
ability to distribute profits to us, or otherwise materially and adversely affect us.
   27




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##### Table of Contents



New labor laws in the PRC may adversely affect our results of operations.
  We face risks related to health epidemics and other outbreaks.
  Risks Related to Our Ordinary Shares and ADSs
 The market price for our ADSs may be volatile.
   
    
    announcements of technological or competitive developments;
    
    regulatory developments in our target markets affecting us, our customers or our
competitors;
    
    announcements regarding patent litigation or the issuance of patents to us or our
competitors;
  28




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##### Table of Contents




    
    announcements of studies and reports relating to the conversion efficiencies of our
products or those of our competitors;
    
    actual or anticipated fluctuations in our quarterly operating results;
    
    changes in financial estimates or other material comments by securities analysts relating
to us, our competitors or our industry in general;
    
    announcements by other companies in our industry relating to their operations, strategic
initiatives, financial condition or financial performance or to our industry in general;
    
    announcements of acquisitions or consolidations involving industry competitors or industry
suppliers;
    
    changes in the economic performance or market valuations of other PV technology companies;
    
    addition or departure of our executive officers and key research personnel; and
    
    sales or perceived sales of additional ordinary shares or ADSs.
  Our articles of association contain anti-takeover provisions that could have a material adverse
effect on the rights of holders of our ordinary shares and ADSs.
   29




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##### Table of Contents



Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise
those rights.
  You may be subject to limitations on transfers of your ADSs.
  Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings, and you may not receive distributions with respect to the underlying ordinary
shares if it is impractical to make them available to you.
    30




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##### Table of Contents



We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than under U.S. law, you may have less
protection for your shareholder rights than you would under U.S. law.
  There is also uncertainty as to whether the courts of the Cayman Islands would:
    
    recognize or enforce against us or our directors, judgments of courts of the United States
based on certain civil liability provisions of U.S. securities laws; and
    
    entertain original actions brought in the Cayman Islands, based on certain civil liability
provisions of U.S. securities laws that are penal in nature.
   You may have difficulty enforcing judgments obtained against us.
  
 ITEM 4 INFORMATION ON THE COMPANY
 A. History and Development of the Company
   31




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##### Table of Contents



www.solarfun.com.cn.
  B. Business Overview
 Overview
    32




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##### Table of Contents



Acquisition of Yangguang Solar
   Our Products and Services
  Year Ended December 31,2006
    
    
    2007
    
    
    2008Net
    
    
    % of Net
    
    
    Net
    
    
    % of Net
    
    
    Net
    
    
    % of NetProducts and Services
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues
    
    
    Revenues(RMB)
    
    
    
    
    
    (RMB)
    
    
    
    
    
    (RMB)(In thousands, except percentages)Photovoltaic modules
    
    
    604,317
    
    
    
    95.8
    %
    
    
    2,209,514
    
    
    
    92.3
    %
    
    
    4,626,423
    
    
    
    93.5
    %Photovoltaic cells
    
    
    7,182
    
    
    
    1.1
    %
    
    
    52,019
    
    
    
    2.2
    %
    
    
    253,074
    
    
    
    5.1
    %Photovoltaic modules processing
    
    
    
    
    
    
    
    
    
    
    5,876
    
    
    
    0.2
    %
    
    
    3,229
    
    
    
    Photovoltaic cells processing
    
    
    19,408
    
    
    
    3.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Raw materials
    
    
    
    
    
    
    
    
    
    
    127,726
    
    
    
    5.3
    %
    
    
    66,342
    
    
    
    1.4
    %
  33




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##### Table of Contents



Our Products
 PV Cells
  Dimensions
    
    
    Conversion
    
    
    Thickness
    
    
    MaximumPV Cell Type
    
    (mm×mm)
    
    
    Efficiency (%)
    
    
    (EM)
    
    
    Power (W)Monocrystalline silicon cell
    
    
    125 × 125
    
    
    
    16.2  17.5
    %
    
    
    180  200
    
    
    
    2.41  2.73156 × 156
    
    
    
    16.2  17.5
    %
    
    
    180  200
    
    
    
    3.87  4.18Multicrystalline silicon cell
    
    
    125 × 125
    
    
    
    15.0  16.0
    %
    
    
    180  200
    
    
    
    2.34  2.50156 × 156
    
    
    
    15.0  16.0
    %
    
    
    180  200
    
    
    
    3.64  3.88
   PV Modules
   Dimensions
    
    
    WeightPV Module Manufactured with:
    
    (mm)
    
    
    (Kg)
    
    
    Power (W)Monocrystalline silicon
    
    
    1580 × 808 × 45
    
    
    
    15
    
    
    
    160  1851494 × 1000 × 45
    
    
    
    18
    
    
    
    190  2101652 × 1000 × 50
    
    
    
    22
    
    
    
    200  230Multicrystalline silicon
    
    
    1580 ×  808 × 45
    
    
    
    15
    
    
    
    155  1801494 × 1000 × 45
    
    
    
    18
    
    
    
    185  2051652 × 1000 × 50
    
    
    
    22
    
    
    
    195  225
  Ingots
    34




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##### Table of Contents



Raw Materials
  Our Services
   Raw Materials Supply Management
   Silicon-based Raw Materials
   35




---



##### Table of Contents



E-mei and Jingli.
  36




---



##### Table of Contents



Other Raw Materials
  Production
     37




---



##### Table of Contents



Production Process
  
 Rising is the process during which  cleaning is performed on silicon waters, followed by
treatment of the water surface, which reduces the cells reflection of sunlight and improves
sunlight  capacity.
Diffusion is the process during which certain impurities are introduced into the silicon water
through a thermal process to enable the formation of an electric field within the PV cell.
Fitching is the process that is applied on the border to the waters to prevent direct electrical
shorting between the front and the back of each PV cell.
Secondary rising is the process during which the water surface is chemically cleaned to remove the
silicon dioxide that may have formed on the surface of the water in order to improve the cells
capacity to absorb sunlight.
PECVD is the process which produces a silicon nitride firm on the waters surface in the front,
which improves the PV cells capacity to absorb sunlight.
Through the screen-printing process, negative and positive metal , or electrodes, are printed on
the front and back surfaces of the PV cell.
Silicon and metal electrodes are connected through on electrode firing process in a  high
temperature.
PV cells are tested to determine their electrical performance and  based on their  rate.  
 Multiple PV cells are interconnected based on the desired electrical configurations through
welding.
The interconnected cells are them laid out and  in a vacuum through a heating process. Through
lamination, PV modules are sealed in weatherproof that can withstand high levels of ultraviolet
radiation and moisture.
Assembled PV modules are packaged in  aluminium frames prior to testing.
PV modules are tested to determine their electrical performance.  38




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##### Table of Contents



Melting is the process during which we place reclaimed silicon raw materials into a quartz crucible
in a , where the silicon is melted.
Crystal seed placing is the process during which a thin crystal seed is dipped into the molten
silicon to determine the crystal orientation.
Foundation is the process during which the crystal seed is rotated and then slowly extracted from
the molten silicon to form a single crystal as the molten silicon and crucible cool.
Once the single crystal have been grown to pre-determined specifications, they are surface ground
to produce ignots. Quality Control and Certifications
   Capacity Expansion and Technology Upgrade Plans
    39




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Sales and Distribution
   Year Ended December 31,2006
    
    
    2007
    
    
    2008Net
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    Net
    
    
    NetRevenues
    
    
    % of Net
    
    
    Revenues
    
    
    % of Net
    
    
    Revenues
    
    
    Revenues
    
    
    
    % of Net(RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    (US$)
    
    
    
    Revenues(In thousands, except percentages)Schüco
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    1,099,736
    
    
    
    161,193
    
    
    
    22.2
    %Solar Projekt Energysystem GmbH
    
    
    70,409
    
    
    
    11.2
    %
    
    
    300,742
    
    
    
    12.6
    %
    
    
    *
    
    
    
    *
    
    
    
    *S.E. Project S.R.L.
    
    
    203,133
    
    
    
    32.2
    %
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *Social Capital S.L.
    
    
    175,939
    
    
    
    27.9
    %
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *Suntaics
    
    
    54,856
    
    
    
    8.7
    %
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
    
    
    
    *
 Notes:
 *
    
    Less than 10%   Year Ended December 31,2006
    
    
    2007
    
    
    2008Net
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    Net
    
    
    NetRevenues
    
    
    % of Net
    
    
    Revenues
    
    
    % of Net
    
    
    Revenues
    
    
    Revenues
    
    
    
    % of NetRegion
    
    (RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    (US$)
    
    
    
    Revenues(In thousands, except percentages)Germany
    
    
    197,728
    
    
    
    31.4
    %
    
    
    1,195,788
    
    
    
    49.9
    %
    
    
    2,637,434
    
    
    
    386,579
    
    
    
    53.3
    %Spain
    
    
    179,139
    
    
    
    28.4
    %
    
    
    584,525
    
    
    
    24.4
    %
    
    
    1,246,305
    
    
    
    182,676
    
    
    
    25.2
    %PRC
    
    
    36,219
    
    
    
    5.7
    %
    
    
    200,615
    
    
    
    8.4
    %
    
    
    329,153
    
    
    
    48,245
    
    
    
    6.6
    %Italy
    
    
    204,715
    
    
    
    32.4
    %
    
    
    92,900
    
    
    
    3.9
    %
    
    
    119,272
    
    
    
    17,482
    
    
    
    2.4
    %Others
    
    
    13,106
    
    
    
    2.1
    %
    
    
    321,307
    
    
    
    13.4
    %
    
    
    616,904
    
    
    
    90,422
    
    
    
    12.5
    %Total
    
    
    630,907
    
    
    
    100.0
    %
    
    
    2,395,135
    
    
    
    100.0
    %
    
    
    4,949,068
    
    
    
    725,404
    
    
    
    100.0
    %
  40




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##### Table of Contents



Warranty
  Intellectual Property and Proprietary Rights
     Competition
   41




---



##### Table of Contents



Environmental Matters
  Insurance
  Regulation
   42




---



##### Table of Contents



Renewable Energy Law and Other Government Directives
     th
    43




---



##### Table of Contents



Environmental Regulations
  Restriction on Foreign Businesses
  Tax
    44




---



##### Table of Contents



Foreign Currency Exchange
  
    
    Foreign Exchange Administration Rules (1996), as amended; and
    
    Regulations of Settlement, Sale and Payment of Foreign Exchange (1996).
   Dividend Distribution
  
    
    Wholly Foreign-Owned Enterprise Law (1986), as amended; and
    
    Wholly Foreign-Owned Enterprise Law Implementation Rules (1990), as amended.
  45




---



##### Table of Contents



C. Organizational Structure
  
 (1)
    
    The other shareholders of Shanghai Linyang are three individuals: Mr. Yongliang Gu,
Mr. Rongqiang Cui, our independent director, and Mr. Cuis spouse. Mr. Gu and Mr. Cui are our
shareholders.(2)
    
    Jiangsu Linyang Solarfun Engineering Research and Development Center Co., Ltd. is formerly
named Nantong Linyang Solarfun Engineering Research and Development Center Co., Ltd. It
changed its name on April 9, 2007.
  46




---



##### Table of Contents



D. Property, Plant and Equipment
    
 ITEM 4A UNRESOLVED STAFF COMMENTS
  
 ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 The following discussion should be read in conjunction with the rest of this annual report,
including the consolidated financial statements and notes thereto contained elsewhere in this
annual report. The results discussed below are not necessarily indicative of the results to be
expected in any future periods.
 A. Operating Results
 Overview
    47




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##### Table of Contents



Limited Operating History
  Key Factors Affecting Our Financial Performance
  
    
    industry demand;
    
    average selling price of our PV products;
    
    price and availability of silicon and silicon wafers;
    
    manufacturing capacity; and
    
    process technologies.
  48




---



##### Table of Contents



Industry Demand
  Average Selling Price of Our PV Products
   Price and Availability of Silicon and Silicon Wafers
   49




---



##### Table of Contents



Manufacturing Capacity
    Process Technologies
   50




---



##### Table of Contents



Net Revenues
   Year Ended December 31,2006
    
    
    2007
    
    
    2008Amount
    
    
    % of Net
    
    
    Amount
    
    
    % of Net
    
    
    Amount
    
    
    % of Net(RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    (US$)
    
    
    Revenues(In thousands, except percentages)Net revenues:Photovoltaic
modules
    
    
    604,317
    
    
    
    95.8
    %
    
    
    2,209,514
    
    
    
    92.3
    %
    
    
    4,626,423
    
    
    
    678,113
    
    
    
    93.5
    %Photovoltaic cells
    
    
    7,182
    
    
    
    1.1
    %
    
    
    52,019
    
    
    
    2.2
    %
    
    
    253,074
    
    
    
    37,094
    
    
    
    5.1
    %Raw materials
    
    
    
    
    
    
    
    
    
    
    127,726
    
    
    
    5.3
    %
    
    
    66,342
    
    
    
    9,724
    
    
    
    1.4
    %Photovoltaic
modules
processing
    
    
    
    
    
    
    
    
    
    
    5,876
    
    
    
    0.2
    %
    
    
    3,229
    
    
    
    473
    
    
    
    Photovoltaic cells processing
    
    
    19,408
    
    
    
    3.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    630,907
    
    
    
    100.0
    %
    
    
    2,395,135
    
    
    
    100.0
    %
    
    
    4,949,068
    
    
    
    725,404
    
    
    
    100.0
    %
     51




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##### Table of Contents



Cost of Revenues and Operating Expenses
 Cost of Revenues
  Year Ended December 31,2006
    
    
    2007
    
    
    2008Amount
    
    
    % of Net
    
    
    Amount
    
    
    % of Net
    
    
    Amount
    
    
    % of Net(RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    Revenues
    
    
    (RMB)
    
    
    (US$)
    
    
    Revenues(In thousands, except percentages)Cost of revenues
    
    
    (446,530
    )
    
    
    70.8
    %
    
    
    (1,997,355
    )
    
    
    83.4
    %
    
    
    (4,905,147
    )
    
    
    (718,966
    )
    
    
    99.1
    %Operating expenses:Selling expenses
    
    
    (11,883
    )
    
    
    1.9
    %
    
    
    (62,777
    )
    
    
    2.6
    %
    
    
    (87,913
    )
    
    
    (12,886
    )
    
    
    1.8
    %General and
administrative
expenses
    
    
    (52,214
    )
    
    
    8.3
    %
    
    
    (113,756
    )
    
    
    4.8
    %
    
    
    (143,340
    )
    
    
    (21,010
    )
    
    
    2.9
    %Research and
development
expenses
    
    
    (6,523
    )
    
    
    1.0
    %
    
    
    (27,440
    )
    
    
    1.1
    %
    
    
    (19,679
    )
    
    
    (2,884
    )
    
    
    0.4
    %Total
    
    
    (70,620
    )
    
    
    11.2
    %
    
    
    (203,973
    )
    
    
    8.5
    %
    
    
    (250,932
    )
    
    
    (36,780
    )
    
    
    5.1
    %
  52




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##### Table of Contents



Operating Expenses
  Selling Expenses
   53




---



##### Table of Contents



General and Administrative Expenses
  Research and Development Expenses
  Share Compensation Expenses
     54




---



##### Table of Contents



Taxation
 PRC Enterprise Income Tax
     55




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Revenue Recognition
      56




---



##### Table of Contents



Fixed Assets, Net
  Buildings
    
    20 yearsPlant and machinery
    
    10 yearsFurniture, fixtures and office equipment
    
    5 yearsComputer software
    
    5 yearsMotor vehicles
    
    5 years
    Warranty Costs
   57




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##### Table of Contents



Impairment of Long-Lived Assets
  Goodwill
    Financial Instruments  Currency Derivative Contracts
   58




---



##### Table of Contents



Share-based Compensation
     Accounting for Income Taxes and Uncertain Income Tax Positions
     59




---



##### Table of Contents



Advance to Suppliers
  Consolidated Results of Operations
  Year Ended December 31,2006
    
    
    2007
    
    
    2008(In RMB
    
    
    % of Net
    
    
    (In RMB
    
    
    % of Net
    
    
    (In RMB
    
    
    (In US$
    
    
    % of NetThousands)
    
    
    Revenues
    
    
    Thousands)
    
    
    Revenues
    
    
    Thousands)
    
    
    Thousands)
    
    
    RevenuesConsolidated
Statement of Income
DataNet revenuesPhotovoltaic
modules
    
    
    604,317
    
    
    
    95.8
    %
    
    
    2,209,514
    
    
    
    92.3
    %
    
    
    4,626,423
    
    
    
    678,113
    
    
    
    93.5
    %Photovoltaic cells
    
    
    7,182
    
    
    
    1.1
    %
    
    
    52,019
    
    
    
    2.2
    %
    
    
    253,074
    
    
    
    37,094
    
    
    
    5.1
    %Raw materials
    
    
    
    
    
    
    
    
    
    
    127,726
    
    
    
    5.3
    %
    
    
    66,342
    
    
    
    9,724
    
    
    
    1.4
    %Photovoltaic
modules
processing
    
    
    
    
    
    
    
    
    
    
    5,876
    
    
    
    0.2
    %
    
    
    3,229
    
    
    
    473
    
    
    
    Photovoltaic
cells processing
    
    
    19,408
    
    
    
    3.1
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    630,907
    
    
    
    100.0
    %
    
    
    2,395,135
    
    
    
    100.0
    %
    
    
    4,949,068
    
    
    
    725,404
    
    
    
    100.0
    %Cost of revenuesPhotovoltaic
modules
    
    
    (434,493
    )
    
    
    (68.9
    )%
    
    
    (1,835,702
    )
    
    
    (76.6
    )%
    
    
    (4,179,156
    )
    
    
    (612,555
    )
    
    
    (84.4
    )%Photovoltaic cells
    
    
    (5,983
    )
    
    
    (0.9
    )%
    
    
    (48,701
    )
    
    
    (2.1
    )%
    
    
    (241,882
    )
    
    
    (35,454
    )
    
    
    (4.9
    )%Raw materials
    
    
    
    
    
    
    
    
    
    
    (110,123
    )
    
    
    (4.6
    )%
    
    
    (69,112
    )
    
    
    (10,129
    )
    
    
    (1.4
    )%Photovoltaic
modules
processing
    
    
    
    
    
    
    
    
    
    
    (2,014
    )
    
    
    (0.1
    )%
    
    
    (1,208
    )
    
    
    (177
    )
    
    
    Photovoltaic
cells processing
    
    
    (6,054
    )
    
    
    (1.0
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write-downs of
inventory
    
    
    
    
    
    
    
    
    
    
    (815
    )
    
    
    
    
    
    
    (413,789
    )
    
    
    (60,651
    )
    
    
    (8.4
    )%Total cost of
revenues
    
    
    (446,530
    )
    
    
    (70.8)
    %
    
    
    (1,997,355
    )
    
    
    (83.4
    )%
    
    
    (4,905,147
    )
    
    
    (718,966
    )
    
    
    (99.1
    )%Gross profit
    
    
    184,377
    
    
    
    29.2
    %
    
    
    397,780
    
    
    
    16.6
    %
    
    
    43,921
    
    
    
    6,438
    
    
    
    0.9
    %
  60




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##### Table of Contents



Year Ended December 31,2006
    
    
    2007
    
    
    2008(In RMB
    
    
    % of Net
    
    
    (In RMB
    
    
    % of Net
    
    
    (In RMB
    
    
    (In US$
    
    
    % of NetThousands)
    
    
    Revenues
    
    
    Thousands)
    
    
    Revenues
    
    
    Thousands)
    
    
    Thousands)
    
    
    RevenuesOperating expensesSelling expenses
    
    
    (11,883
    )
    
    
    (1.9
    )%
    
    
    (62,777
    )
    
    
    (2.6
    )%
    
    
    (87,913
    )
    
    
    (12,886
    )
    
    
    (1.8
    )%General and
administrative
expenses
    
    
    (52,214
    )
    
    
    (8.3
    )%
    
    
    (113,756
    )
    
    
    (4.8
    )%
    
    
    (143,340
    )
    
    
    (21,010
    )
    
    
    (2.9
    )%Research and
development
expenses
    
    
    (6,523
    )
    
    
    (1.0
    )%
    
    
    (27,440
    )
    
    
    (1.1
    )%
    
    
    (19,679
    )
    
    
    (2,884
    )
    
    
    (0.4
    )%Total operating
expenses
    
    
    (70,620
    )
    
    
    (11.2
    )%
    
    
    (203,973
    )
    
    
    (8.5
    )%
    
    
    (250,932
    )
    
    
    (36,780
    )
    
    
    (5.1
    )%Operating profit
(loss)
    
    
    113,757
    
    
    
    18.0
    %
    
    
    193,807
    
    
    
    8.1
    %
    
    
    (207,011
    )
    
    
    (30,342
    )
    
    
    (4.2
    )%Interest expenses
    
    
    (8,402
    )
    
    
    (1.3
    )%
    
    
    (25,978
    )
    
    
    (1.1
    )%
    
    
    (103,146
    )
    
    
    (15,119
    )
    
    
    (2.1
    )%Interest income
    
    
    1,326
    
    
    
    0.2
    %
    
    
    16,244
    
    
    
    0.7
    %
    
    
    10,004
    
    
    
    1,466
    
    
    
    0.2
    %Exchange losses
    
    
    (4,346
    )
    
    
    (0.7
    )%
    
    
    (25,628
    )
    
    
    (1.1
    )%
    
    
    (35,230
    )
    
    
    (5,164
    )
    
    
    (0.7
    )%Other income
    
    
    902
    
    
    
    0.1
    %
    
    
    1,507
    
    
    
    0.1
    %
    
    
    15,018
    
    
    
    2,201
    
    
    
    0.3
    %Other expenses
    
    
    (836
    )
    
    
    (0.1
    )%
    
    
    (9,670
    )
    
    
    (0.4
    )%
    
    
    (25,604
    )
    
    
    (3,752
    )
    
    
    (0.5
    )%Changes in fair
value of foreign
currency derivatives
    
    
    (163
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,090
    
    
    
    12,179
    
    
    
    1.7
    %Government grants
    
    
    852
    
    
    
    0.1
    %
    
    
    2,089
    
    
    
    0.1
    %
    
    
    3,480
    
    
    
    510
    
    
    
    Income (loss) before
income taxes and
minority interest
    
    
    103,090
    
    
    
    16.3
    %
    
    
    152,371
    
    
    
    6.4
    %
    
    
    (259,399
    )
    
    
    (38,021
    )
    
    
    (5.3
    )%Income tax benefit
(expense)
    
    
    3,132
    
    
    
    0.5
    %
    
    
    (7,458
    )
    
    
    (0.3
    )%
    
    
    (6,519
    )
    
    
    (956
    )
    
    
    (0.1
    )%Minority interests
    
    
    (301
    )
    
    
    
    
    
    
    3,124
    
    
    
    0.1
    %
    
    
    (14,573
    )
    
    
    (2,136
    )
    
    
    (0.3
    )%Net income (loss)
    
    
    105,921
    
    
    
    16.8
    %
    
    
    148,037
    
    
    
    6.2
    %
    
    
    (280,491
    )
    
    
    (41,113
    )
    
    
    (5.7
    )%Dividend paid to
preference
shareholders
    
    
    (7,226
    )
    
    
    (1.1
    )%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
attributable to
ordinary
shareholders
    
    
    98,695
    
    
    
    15.7
    %
    
    
    148,037
    
    
    
    6.2
    %
    
    
    (280,491
    )
    
    
    (41,113
    )
    
    
    (5.7
    )%
  61




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##### Table of Contents



2008 Compared to 2007
 Net Revenues
  Cost of Revenues and Gross Profit
   Operating Expenses and Operating Profit
     62




---



##### Table of Contents



Interest Income (Expenses), Exchange Losses, Other Income (Expenses), Changes in
Fair Value of Foreign Currency Derivatives and Government Grants
      Income Tax Benefit (Expenses)
  Net Income
   63




---



##### Table of Contents



2007 Compared to 2006
 Net Revenues
  Cost of Revenues and Gross Profit
   Operating Expenses and Operating Profit
    64




---



##### Table of Contents



Interest Income (Expenses), Exchange Losses and Other Income (Expenses)
  Income Tax Benefit (Expenses)
  Net Income
  Inflation
   65




---



##### Table of Contents



B. Liquidity and Capital Resources
  Liquidity
   Year Ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)(In thousands)Net cash used in operating activities
    
    
    (523,061
    )
    
    
    (1,020,603
    )
    
    
    (674,040
    )
    
    
    (98,797
    )Net cash used in investing activities
    
    
    (190,047
    )
    
    
    (538,465
    )
    
    
    (1,169,045
    )
    
    
    (171,351
    )Net cash generated from financing activities
    
    
    1,843,846
    
    
    
    694,204
    
    
    
    1,981,058
    
    
    
    290,371Net increase (decrease) in cash and cash
equivalents
    
    
    1,130,738
    
    
    
    (864,864
    )
    
    
    137,973
    
    
    
    20,223
 Net Cash Used in Operating Activities
   
    
    an increase of RMB547.5 million (US$80.2 million) in advances to suppliers, primarily due
to increased prepayments to our suppliers for purchases of silicon and silicon wafers; and
    
    an increase of RMB417.0 million (US$61.1 million) in inventories primarily as a result of
increased purchases of silicon and silicon wafers.
  66




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##### Table of Contents




    
    an increase of RMB398.2 million in advances to suppliers, primarily due to increased
prepayments to our suppliers for purchases of silicon and silicon wafers;
    
    an increase of RMB359.3 million in inventories principally as a result of increased
purchases of silicon and silicon wafers;
    
    an increase of RMB279.8 million in accounts receivable, primarily due to increased sales
on credit in 2007; and
    
    an increase of RMB170.0 million in prepaid rental expenses associated with the supply
agreement we entered into with E-mei in June 2006, under which we agreed to make prepayments
of RMB220.0 million to secure exclusive rights to purchase the silicon products to be
produced by E-meis future manufacturing facility at a discount to the prevailing market
price for five years starting from the completion of the facility.
  
    
    an increase of RMB295.7 million in inventories principally as a result of increased
purchases of silicon and silicon wafers;
    
    an increase of RMB176.9 million in advances to suppliers, primarily due to increased
prepayments to our suppliers for purchases of silicon and silicon wafers;
    
    an increase of RMB159.2 million in accounts receivable, primarily due to increased sales
on credit in the fourth quarter of 2006; and
    
    a decrease of RMB55.3 million in deposits received from customers, primarily due to our
provision of more preferential credit terms to our customers.
 Net Cash Used in Investing Activities
    67




---



##### Table of Contents



Net Cash Generated from Financing Activities
     Capital Resources and Capital Expenditures
    68




---



##### Table of Contents



Recent Accounting Pronouncements
     69




---



##### Table of Contents



70




---



##### Table of Contents



C. Research and Development, Patents and Licenses
    D. Trend Information
   71




---



##### Table of Contents



E.
    
    Off-Balance Sheet Arrangements
  F.
    
    Tabular Disclosure of Contractual Obligations
  Payment Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    
    1 Year
    
    
    1 to 3 Years
    
    
    3 to 5 Years
    
    
    5 Years(In thousands of RMB)Purchase obligations
relating to machinery and
equipment
    
    
    163,060
    
    
    
    163,060
    
    
    
    
    
    
    
    
    
    
    
    Purchase of land use right
    
    
    9,786
    
    
    
    9,786
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations
relating to raw materials
    
    
    10,347,712
    
    
    
    4,492,484
    
    
    
    2,672,184
    
    
    
    2,152,421
    
    
    
    1,030,623Operating lease obligations
    
    
    11,464
    
    
    
    5,436
    
    
    
    5,985
    
    
    
    43
    
    
    
    Total
    
    
    10,532,022
    
    
    
    4,670,766
    
    
    
    2,678,169
    
    
    
    2,152,464
    
    
    
    1,030,623
 G.
    
    Safe Harbor
  
    
    our expectation with respect to our ability to re-negotiate the terms of our multi-year
supply agreements;
    
    our expectations regarding the worldwide demand for electricity and the market for solar
energy;
    
    our beliefs regarding the effects of environmental regulation, 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;
  72




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
    
    our beliefs regarding the importance of environmentally friendly power generation;
    
    our expectations regarding governmental support for the deployment of solar energy;
    
    our beliefs regarding the acceleration of adoption of solar technologies;
    
    our expectations with respect to advancements in our technologies;
    
    our beliefs regarding the competitiveness of our solar products;
    
    our expectations regarding the scaling of our manufacturing capacity;
    
    our expectations with respect to revenue growth and profitability;
    
    our expectations with respect to our ability to secure raw materials, especially silicon
and silicon wafers, in the future;
    
    competition from other manufacturers of PV products and conventional energy suppliers;
    
    our future business development, results of operations and financial condition; and
    
    future economic or capital market conditions.
    73




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ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A.
    
    Directors and Senior Management
 Directors and Executive Officers
  Name
    
    Age
    
    Position/TitleYonghua Lu
    
    
    45
    
    
    ChairmanHenricus Johannes Petrus Hoskens
    
    
    45
    
    
    Chief Executive OfficerPing Peter Xie
    
    
    45
    
    
    President of ChinaSven Michael Hansen
    
    
    44
    
    
    DirectorErnst A. Bütler
    
    
    65
    
    
    Independent DirectorThomas J. Toy
    
    
    54
    
    
    Independent DirectorYinzhang Gu
    
    
    70
    
    
    Independent DirectorPhilip Comberg
    
    
    41
    
    
    Independent DirectorTerry McCarthy
    
    
    65
    
    
    Director and Interim CFODavid N.K. Wang
    
    
    62
    
    
    Independent DirectorRongqiang Cui
    
    
    67
    
    
    Independent Director
 Directors
 Mr. Yonghua Lu
 Dr. Sven Michael Hansen
 Mr. Ernst A. Bütler
  74




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##### Table of Contents



Mr. Thomas J. Toy
 Mr. Yinzhang Gu
 Dr. Philip Comberg
 Dr. David N.K. Wang
 Mr. Rongqiang Cui
  75




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Executive Officers
 Mr. Henricus Johannes Petrus Hoskens
 Dr. Ping Peter Xie
 Mr. Terry McCarthy
 B.
    
    Compensation
 Compensation
    76




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2006 Share Option Plan
  Administration.
 Option Exercise.
 Termination of Awards.
 Share Split or Combination.
 Amendment and Termination of Plan.
  77




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##### Table of Contents



OrdinarySharesUnderlyingOutstanding
    
    
    ExerciseName
    
    Option
    
    
Price

    
    
    Grant Date
    
    
    Expiration Date(US$/share)Verena Maria Bütler (wife of Ernst A.
Bütler)
    
    
    180,000
    
    
    
    1.8
    
    
    November 30, 2006
    
    November 30, 2016Thomas J. Toy
    
    
    120,000
    
    
    
    1.8
    
    
    November 30, 2006
    
    November 30, 2016Yinzhang Gu
    
    
    180,000
    
    
    
    1.94
    
    
    August 16, 2007
    
    August 16, 2017Philip Comberg
    
    
    300,000
    
    
    
    6.016
    
    
    January 8, 2008
    
    January 8, 2018Terry McCarthy
    
    
    150,000
    
    
    
    1.8
    
    
    November 30, 2006
    
    November 30, 2016Johan van Splunter(1)
    
    
    300,000
    
    
    
    2.04
    
    
    March 14, 2008
    
    March 14, 2018Amy Jing Liu(2)
    
    
    300,000
    
    
    
    2.58
    
    
    October  26, 2007
    
    October 26, 2017125,000
    
    
    
    5.31
    
    
    December 13, 2007
    
    December 13, 2017Alan Qifang Yuan(3)
    
    
    20,000
    
    
    
    2.73
    
    
    November 1, 2007
    
    November 1, 201712,500
    
    
    
    3.55
    
    
    January 29, 2008
    
    January 29, 2018Other employees as a group
    
    
    2,223,900
    
    
    
    1.8
    
    
    November 30, 2006
    
    November 30, 201612,000
    
    
    
    2.87
    
    
    May 10, 2007
    
    May 10, 2017150,000
    
    
    
    2.02
    
    
    August 16, 2007
    
    August 16, 2017300,000
    
    
    
    2.15
    
    
    October 10, 2007
    
    October 10, 2017100,000
    
    
    
    2.14
    
    
    October 10, 2007
    
    October 10, 2017150,000
    
    
    
    2.06
    
    
    October 10, 2007
    
    October 10, 2017100,000
    
    
    
    2.58
    
    
    October 26, 2007
    
    October 26, 201750,000
    
    
    
    2.73
    
    
    November 1, 2007
    
    November 1, 2017260,000
    
    
    
    2.21
    
    
    November 27, 2007
    
    November 27, 2017240,000
    
    
    
    5.31
    
    
    December 13, 2007
    
    December 13, 201750,000
    
    
    
    6.746
    
    
    December 27, 2007
    
    December 27, 2017250,000
    
    
    
    3.55
    
    
    January 29, 2008
    
    January 29, 2018230,000
    
    
    
    2.15
    
    
    March 6, 2008
    
    March 6, 2018Total
    
    
    5,803,400
 Note:(1)
    
    Mr. Johan van Splunter resigned as independent director on April 3, 2009.(2)
    
    Ms. Amy Jing Liu resigned as chief financial officer at the end of March 2009.(3)
    
    Mr. Alan Qifang Yuan resigned as Vice President of Sales and Marketing on April 30, 2009. 2007 Equity Incentive Plan
  Administration.
 Options.
  78




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Restricted Stock.
 Stock Appreciation Rights.
 Performance Units and Performance Shares.
 Restricted Stock Units.
 Amendment and Termination.
  OrdinarySharesUnderlyingOutstanding
    
    
    ExerciseName
    
    Option
    
    
    Price
    
    
    Grant Date
    
    
    Expiration Date(US$/share)Henricus Johannes Petrus
Hoskens(1)
    
    
    800,000
    
    
    
    2.82
    
    
    April 15, 2008
    
    April 15, 2018Ping Peter Xie
    
    
    500,000
    
    
    
    0.61
    
    
    March 17, 2009
    
    March 17, 2019Terry McCarthy
    
    
    25,000
    
    
    
    2.686
    
    
    May 01, 2008
    
    May 01, 2018David N. K. Wang
    
    
    300,000
    
    
    
    0.88
    
    
    April 02, 2009
    
    April 02, 2019Rongqiang Cui
    
    
    300,000
    
    
    
    0.88
    
    
    April 02, 2009
    
    April 02, 2019Amy Jing Liu(2)
    
    
    135,000
    
    
    
    1.344
    
    
    October 16, 2008
    
    October 16, 2018Alan Qifang Yuan(3)
    
    
    150,000
    
    
    
    1.344
    
    
    October 16, 2008
    
    October 16, 2018500,000
    
    
    
    1.01
    
    
    March 17, 2009
    
    March 17, 2019Other employees as a group
    
    
    20,000
    
    
    
    2.77
    
    
    April 28, 2008
    
    April 28, 201820,000
    
    
    
    4.376
    
    
    May 28, 2008
    
    May 28, 201820,000
    
    
    
    2.502
    
    
    July 28, 2008
    
    July 28, 2018380,000
    
    
    
    2.42
    
    
    September 26, 2008
    
    September 26, 20182,011,480
    
    
    
    1.344
    
    
    October 16, 2008
    
    October 16, 2018180,000
    
    
    
    0.936
    
    
    October 28, 2008
    
    October 28, 201830,000
    
    
    
    1.138
    
    
    November 12, 2008
    
    November 12, 201830,000
    
    
    
    1.002
    
    
    November 12, 2008
    
    November 12, 201830,000
    
    
    
    0.992
    
    
    November 12, 2008
    
    November 12, 201820,000
    
    
    
    1.138
    
    
    November 28, 2008
    
    November 28, 201820,000
    
    
    
    0.96
    
    
    December 29, 2008
    
    December 29, 2018200,000
    
    
    
    0.996
    
    
    January 28, 2009
    
    January 28, 201971,000
    
    
    
    1.344
    
    
    March 17, 2009
    
    March 17, 2019300,000
    
    
    
    0.9
    
    
    April 01, 2009
    
    April 01, 2019250,000
    
    
    
    0.912
    
    
    April 12, 2009
    
    April 12, 2019120,000
    
    
    
    0.742
    
    
    April 28, 2009
    
    April 28, 201970,000
    
    
    
    1.452
    
    
    May 27, 2009
    
    May 27, 2019Total
    
    
    6,482,480
  79




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Note:(1)
    
    Mr. Hoskens has resigned as chief executive officer, to be effective as of June 30, 2009.(2)
    
    Ms. Amy Jing Liu resigned as chief financial officer at the end of March 2009.(3)
    
    Mr. Alan Qifang Yuan resigned as Vice President of Sales and Marketing on April 30, 2009.  OrdinarySharesUnderlyingGrantedRestrictedName
    
    Stock Units
    
    
    Grant Date
    
    
    Expiration DateHenricus Johannes Petrus
Hoskens(1)
    
    
    400,000
    
    
    April 15, 2008
    
    April 15, 2018Verena Maria Bütler (wife of
Ernst A Bütler)
    
    
    99,990
    
    
    November 30, 2007
    
    November 30, 201737,500
    
    
    January 1, 2008
    
    January 1, 201837,500
    
    
    January 1, 2009
    
    January 1, 2019Thomas J. Toy
    
    
    99,990
    
    
    November 30, 2007
    
    November 30, 201737,500
    
    
    January 1, 2008
    
    January 1, 201837,500
    
    
    January 1, 2009
    
    January 1, 2019Yinzhang Gu
    
    
    37,500
    
    
    January 1, 2008
    
    January 1, 201837,500
    
    
    January 1, 2009
    
    January 1, 2019Philip Comberg
    
    
    37,500
    
    
    January 1, 2008
    
    January 1, 201837,500
    
    
    January 1, 2009
    
    January 1, 2019Terry McCarthy
    
    
    99,990
    
    
    November 30, 2007
    
    November 30, 201725,000
    
    
    May 1, 2008
    
    May 1, 201837,500
    
    
    January 1, 2008
    
    January 1, 201837,500
    
    
    January 1, 2009
    
    January 1, 2019Johan van
Splunter(2)
    
    
    37,500
    
    
    January 1, 2009
    
    January 1, 2019Total
    
    
    1,137,470
  80




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Note:(1)
    
    Mr. Hoskens has resigned as chief executive officer, to be effective as of June 30, 2009.(2)
    
    Mr. Johan van Splunter resigned as independent director on April 3, 2009. C.
    
    Board Practices
 Committees of the Board of Directors
 Audit Committee
  
    
    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 control 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 our board of directors.
   81




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##### Table of Contents



Compensation Committee
  
    
    approving and overseeing the compensation package for our executive officers;
    
    reviewing and making recommendations to our board of directors 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 our board of directors 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 nominees for election or re-election to our board of
directors, or for appointment to fill any vacancy;
    
    reviewing annually with our board of directors its current composition in light of the
characteristics of independence, age, skills, experience and availability of service to us;
    
    identifying and recommending to our board the directors to serve as members of 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 our board of directors 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.
  82




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Duties of Directors
  Terms of Directors and Executive Officers
   Employment Agreements
     D.
    
    Employees
  As of December 31,2006
    
    
    2007
    
    
    2008Manufacturing and engineering
    
    
    535
    
    
    
    1,618
    
    
    
    3,254General and administration
    
    
    65
    
    
    
    96
    
    
    
    183Quality control
    
    
    41
    
    
    
    158
    
    
    
    225Research and development
    
    
    49
    
    
    
    84
    
    
    
    126Purchasing and logistics
    
    
    31
    
    
    
    84
    
    
    
    178Marketing and sales
    
    
    15
    
    
    
    29
    
    
    
    23Total
    
    
    736
    
    
    
    2,069
    
    
    
    3,989
  83




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84




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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 ordinary shares.
 Shares BeneficiallyOwned(1)(2)Number
    
    
    %Directors and Executive
Officers:Yonghua
Lu(3)
    
    
    38,634,750
    
    
    
    14.33
    %Henricus
Johannes Petrus
Hoskens(4)
    
    
    174,990
    
    
    
    0.065
    %Verena Maria
Bütler (wife of Ernst A. Bütler)
    
    
    12,500
    
    
    
    0.005
    %Thomas J. Toy
    
    
    12,500
    
    
    
    0.005
    %Yinzhang
Gu
    
    
25,000
    
    
    
0.009
%Philip
Comberg
    
    
55,000
    
    
    
0.02
%Terry McCarthy
    
    
    29,165
    
    
    
    0.011
    %Rongqiang
Cui(5)
    
    
    501,750
    
    
    
    0.19
    %All Directors and Executive Officers as a
Group(6)
    
    
    39,445,655
    
    
    
    14.63
    %Major Shareholders:Good Energies II
LP(7)
    
    
    88,178,005
    
    
    
    32.71
    %Yonghua Solar Power Investment Holding
Ltd(8)
    
    
    38,634,750
    
    
    
    14.33
    %Citigroup Venture Capital International Growth
Partnership,
L.P.(9)
    
    
    20,935,241
    
    
    
    7.77
    %LC Fund III,
L.P.(10)
    
    
    4,527,341
    
    
    
    1.68
    %WHF Investment Co.,
Ltd(11)
    
    
    6,271,875
    
    
    
    2.33
    %Hony Capital II,
L.P.(12)
    
    
    254,927
    
    
    
    0.09
    %Citigroup Venture Capital International
Co-Investment,
L.P.(13)
    
    
    1,142,435
    
    
    
    0.42
    %
 Notes :(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 number of ordinary shares outstanding in calculating the percentages for each listed
person includes the ordinary shares underlying options exercisable by such person within
60 days of the date of this annual report on Form 20-F. Percentage of beneficial ownership of
each listed person is based on 269,576,734 ordinary shares outstanding as of June 10, 2009,
as well as the ordinary shares underlying share options exercisable by such person within
60 days of the date of this annual report on Form 20-F. This does not include the 9,019,611
ADSs issued pursuant to the offering of our ADSs in January 2008 as we do not believe that
such transaction will increase the number of ordinary shares considered outstanding for the
purpose of calculating beneficial ownership as a result of our arrangement with an affiliate
of Morgan Stanley. Our total outstanding ordinary shares will be 314,674,789 if the 9,019,611
ADSs are to be included.(3)
    
    Owns Yonghua Solar Power Investment Holding Ltd., a British Virgin Islands company, which
held 38,634,750 ordinary shares in our company as of June 10, 2009. Mr. Lu is the sole
director of Yonghua Solar Power Investment Holding Ltd. and has the right to cast the vote
for such company regarding all matters of our company requiring shareholder approval.
Mr. Lus business address is 666 Linyang Road, Qidong, Jiangsu Province, 226200, Peoples
Republic of China.(4)
    
    Mr. Hoskens has resigned as chief executive officer, to be
effective as of June 30, 2009.(5)
    
    Owns Yongqiang Solar Power Investment Holding Ltd., a British Virgin Islands company, which
held 501,750 ordinary shares in our company as of June 10, 2009. Mr. Cui is the sole
director of Yongqiang Solar Power Investment Holding Ltd. and has the right to cast the vote
for such company regarding all matters of our company requiring shareholder approval.
Mr. Cuis business address is 666 Linyang Road, Qidong, Jiangsu Province, 226200, Peoples
Republic of China.(6)
    
    Includes ordinary shares held by all of our directors and senior executive officers as a
group, as well as the ordinary shares underlying share options held by such directors and
senior executive officers exercisable within 60 days of the date of this annual report on
Form 20-F.
Except Mr. Yonghua Lu, each of our directors and senior executive
officers beneficially owns less than 1% of our ordinary shares.  85




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(7)
    
    Held 81,772,950 ordinary shares and 1,281,011 ADSs as of June 10, 2009. This includes the
1,000,000 ADSs purchased by Good Energies II LP as part of the offering of our ADSs in
January 2008. If these 1,000,000 ADSs are not to be taken into account, Good Energies II LP
would hold 81,772,950 ordinary shares and 281,011 ADSs in our company. On December 31, 2007,
Good Energies Investments (Jersey) Limited transferred its 15,027,312 ordinary shares in our
company to its affiliate Good Energies II LP acting by its general partner Good Energies
General Partner Jersey Limited. The directors of Good Energies General Partner Jersey Limited
are Mr. John Barrett, Mr. Paul Bradshaw, Mr. John Drury, Mr. Fintan Kennedy, Mr. John Hammill
and Mr. Gert-Jan Pieters. The address of each of Good Energies II LP and Good Energies
General Partner Jersey Limited is 3rd Floor, Britannic House, 9 Hope Street, St Helier,
Jersey JE2 3NS, the Channel Islands. We have been informed that voting and investment control
over securities directly owned by Good Energies II LP acting by its general partner Good
Energies General Partner Jersey Limited is held by Cofra Jersey Limited, which wholly owns
Good Energies General Partner Jersey Limited and by Good Energies AG, Good Energies Inc. and
Good Energies (UK) LLP, acting by its managing member Good Energies Investments (Jersey)
Limited, which have been appointed as joint investment managers of Good Energies II LP
pursuant to a management agreement with Good Energies General Partner Jersey Limited. The
address of Good Energies AG is Grafenauweg 4, Zug CH 6301, Switzerland. The address of Good
Energies Inc. is 1114 Avenue of the Americas, Suite 2802, New York, NY 10036, USA. The
business address of each of Good Energies (UK) LLP and Good Energies Investments (Jersey)
Limited is Fifth Floor 29 Farm Street, London, W1J 5RL, England.(8)
    
    Yonghua Solar Power Investment Holding Ltd., a British Virgin Islands company, is owned by
Mr. Yonghua Lu. Mr. Lu is the sole director of Yonghua Solar Power Investment Holding Ltd.
The address of Yonghua Solar Power Investment Holding Ltd. is PO Box 173, Kingston Chambers,
Road Town, Tortola, British Virgin Islands.(9)
    
    Held one ordinary share and 4,187,048 ADSs as of June 10, 2009. The address of Citigroup
Venture Capital International Growth Partnership, L.P. is c/o Citigroup Venture Capital
International Partnership G.P. Limited, 26 New Street, St. Helier, Jersey, Channel Islands
JE4 8PP. We have been informed that voting and investment control over our shares held by
Citigroup Venture Capital International Growth Partnership, L.P. is held by the four
directors of its general partner, Citigroup Venture Capital International Partnership G.P.
Limited, a company formed in Jersey, Channel Islands, who are Dipak Kumar Rastogi, Susan
Johnson, Michael Richardson and Deryk Haithwaite. Citigroup Venture Capital International
Partnership G.P. Limited is a wholly owned Citigroup subsidiary.(10)
    
    Held one ordinary share and 905,468 ADSs as of June 10, 2009. The address of LC Fund III,
L.P. is c/o Legend Capital Limited, 10th Floor, Tower A, Raycom Info. Tech Center, No. 2
Kexueyuan Nanlu, Haidian District, Beijing, 100080, Peoples Republic of China. We have been
informed that voting and investment control over our shares held by LC Fund III, L.P. is held
by Mr. Chuanzhi Liu, Mr. Linan Zhu, Mr. John Huan Zhao, Mr. Hao Chen, Mr. Nengguang Wang and
Mr. Xiangyu Ouyang, the partners and investment committee members of LC Fund III, L.P.(11)
    
    WHF Investment Co., Ltd., a British Virgin Islands company, is owned by the estate of
Mr. Hanfei Wang. Mr. Hanfei Wang, our former director and chief operating officer, was the
sole director of WHF Investment Co., Ltd.. Mr. Hanfei Wang died of natural causes on July 14,
2008. The address of WHF Investment Co., Ltd. is PO Box 173, Kingston Chambers, Road Town,
Tortola, British Virgin Islands.(12)
    
    Held two ordinary shares and 50,985 ADSs as of June 10, 2009 through its wholly owned
subsidiary Brilliant Orient International Limited, a British Virgin Islands company. The
address of Hony Capital II, L. P. is 7th Floor, Tower A, Raycom Info Tech Park, No. 2
Kexueyuan Nanlu, Haidian District, Beijing, 100080, Peoples Republic of China. We have been
informed that voting and investment control over our shares held by Hony Capital II, L.P. is
held by its five-seat investment committee. Among the five representatives of such
committee, three of them, Mr. Chuanzhi Liu, Mr. Linan Zhu and Mr. John Huan Zhao, are
nominees of Hony Capital II, L.P.s general partner, Hony Capital II, GP Limited, a company
incorporated in the Cayman Islands, and the other two representatives are nominees of The
Goldman Sachs Group, Inc. and Sun Hung Kai Properties Limited, which are two of the limited
partners of Hony Capital II, L.P.  86




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##### Table of Contents



(13)
    
    Held 228,487 ADSs as of June 10, 2009. The address of Citigroup Venture Capital
International Co-Investment, L.P. is c/o Citigroup Venture Capital International Partnership
G.P. Limited, 26 New Street, St. Helier, Jersey, Channel Islands JE4 8PP. We have been
informed that voting and investment control over our shares held by Citigroup Venture Capital
International Co-Investment, L.P. is held by the four directors of its general partner,
Citigroup Venture Capital International Partnership G.P. Limited, a company formed in Jersey,
Channel Islands, who are Dipak Kumar Rastogi, Susan Johnson, Michael Richardson and Deryk
Haithwaite. Citigroup Venture Capital International Partnership G.P. Limited is a wholly
owned Citigroup subsidiary.   
    
    the entry into any agreements that would have a value or potential liability in excess of
5% of our net assets or is otherwise likely to be material to us;
    
    any change in the nature or scope of our business;
    
    any joint ventures, strategic alliances, partnerships or similar arrangements with a third
party;
  87




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##### Table of Contents




    
    any recapitalization, merger, asset swap, share sale or transfer of substantially all of
the intellectual properties rights or other assets, or any other extraordinary transaction;
    
    any change to our articles of association; and
    
    entry into any agreement or understanding to do any of the foregoing.
  
 ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A.
    
    Major Shareholders
  B.
    
    Related Party Transactions
  Series A Convertible Preference Shares
  Registration Rights
  
    
    Demand Registrations.Upon request of any of the non-individual holders of our ordinary
 shares which were converted from our series A convertible preference shares, we shall effect
registration with respect to the registrable securities held by such holders on a form other
than Form F-3 (or any comparable form for a registration for an offering in a jurisdiction
other than the United States), provided that we shall only be obligated to effect three such
registrations.
    
    Piggyback Registrations.The holders of our ordinary shares which were converted from
our series A convertible preference shares and their permitted transferees are entitled to
piggyback registration rights, whereby they may require us to register all or any part of
the registrable securities that they hold at the time when we register any of our ordinary
 shares.
    
    Registrations onForm F-3.We have granted the holders of our ordinary shares which were
converted from our series A convertible preference shares and their permitted transferees of
the
registrable securities the right to an unlimited number of registrations under Form F-3 (or any
comparable form for a registration in a jurisdiction other than the United States) to the
extent we are eligible to use such form to offer securities.
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Post-Offering Lock-Up
  Equity Incentive Plan
  Transactions with Certain Shareholders
 
    
    In 2006, Linyang Electronics and Linyang Agricultural Development
(Nantong) Co., Ltd., a company in which the shareholder, our chairman,
Mr. Yonghua Lu, had a beneficial interest as an equity holder, made
cash advances to Linyang China of RMB105.9 million and RMB9.0 million,
respectively, both of which were fully repaid in the same period. In
2006, Linyang Electronics paid approximately RMB0.5 million of
operating expenses on behalf of Linyang China, RMB0.2 million of which
have been subsequently reimbursed by Linyang China. In addition,
Linyang China purchased silicon wafers and other materials from
Linyang Electronics in the amount of RMB2.6 million in 2006, out of
which RMB1.0 million has been paid by Linyang China in the same
period. The purchase was made according to the published prices and
conditions offered by Linyang Electronics to its customers. As of
December 31, 2006, the amount due to Linyang Electronics was
approximately RMB2.6 million, which was unsecured, interest-free and
had no stated terms of repayment. The amount due to Linyang
Electronics was fully repaid in January 2007. In October and November
2006, Linyang China entered into entrusted loan agreements with
Linyang Electronics under which Linyang Electronics lent to Linyang
China an aggregate of RMB80.0 million through a third party PRC bank,
all of which have been subsequently reimbursed by Linyang China. Under
current PRC laws and regulations, PRC companies other than licensed
financial institutions are not permitted to make loans to each other
directly. As a result, companies commonly use indirect entrusted loan
arrangements under which funds are first deposited by the lending
company with a PRC commercial bank, and the PRC commercial bank then
loans the corresponding amount of funds to the borrower pursuant to
the instruction of the lending company. As the principal and interest
of the loan are repaid to the bank, the bank makes corresponding
repayments to the lending company after deducting service fees.
    
    In September 2006, Sichuan Jiayang entered into a PV module purchase
agreement with Linyang Electronics in the amount of RMB0.3 million.
The purchase was made according to the published prices and conditions
offered by Linyang Electronics to its customers. As of December 31,
2006, the amount due to Linyang Electronics was RMB0.3 million. The
amount due to Linyang Electronics was fully repaid in January 2007.
    
    Linyang China entered into a number of agreements with Huaerli
(Nantong) to purchase silicon and silicon wafers in the aggregate
amounts of RMB23.8 million in 2006. The purchase was made according to
the published prices and conditions offered by Huaerli (Nantong) to
its customers. As of December 31, 2006, the amount due to Huaerli
(Nantong) under these purchase agreements was nil. The amount due to
Huaerli (Nantong) was unsecured, interest-free and repayable on
demand. In 2006, Huaerli (Nantong) paid approximately RMB7.6 million
of operating expenses on behalf of Linyang China, all of which have
been subsequently reimbursed by Linyang China in the same period.
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
    
    In the three months ended March 31, 2006, Qidong Huahong granted to
Linyang China the use of a parcel of land with a total area of
24,671 square meters for nil consideration. As a result, in the three
months ended March 31, 2006, we recorded a rental charge of RMB23,000,
based on the fair value of the rental cost incurred by Qidong Huahong
and a corresponding credit to additional paid-in capital. In April
2006, Qidong Huahong entered into a Land Use Rights Transfer Agreement
to transfer the use rights of this land until December 23, 2054 to
Linyang China for a consideration of RMB4.6 million. The full price of
the contract has been paid. In November 2006, Qidong Huahong entered
into two Land Use Rights Transfer Agreements to transfer the use
rights of two parcels of land with a total area of 36,841 square
meters and a manufactory facility for a consideration of
RMB21.9 million.
    
    In 2006, Nantong Linyang Ecological Cultural Co., Ltd., a company
controlled by our chairman, paid approximately RMB0.1 million of
operating expenses on behalf of Linyang China, all of which have been
subsequently reimbursed by Linyang China.
    
    In September 2006, Linyang China entered into a PV module sales
agreement with Linyang Electronics, a company controlled by our
chairman. The amount for 20 modules was RMB0.15 million. The sale was
made according to the published prices and conditions offered by
Linyang China to its customers. As of December 31, 2006, the amount
due from Linyang Technology was RMB0.15 million. The amount due from
Linyang Technology was fully repaid in March 2007.
    
    On June 2, 2006, Linyang BVI agreed to pay US$6.6 million to Linyang
Electronics for the purchase of the equity interests held by Linyang
Electronics in Linyang China and made such payment in August 2006. The
price of the transfer was based on the estimated net asset value of
Linyang China. This transaction was accounted for as a
recapitalization.
    
    On November 18, 2006, Linyang China entered into a management
consulting service agreement with Hony Capital II, L.P. under which,
for a period of one year, Hony Capital II, L.P. agreed to provide
certain management consulting services to Linyang China and to second
Ms. Xihong Deng, managing director of Hony Capital II, GP Limited, the
general partner of Hony Capital II, L.P., to our company to serve as
executive vice president in charge of international business
development. Linyang China agreed to pay an aggregate of RMB4 million
to Hony Capital II, L.P. as consideration for these services under
this agreement. Such management consulting fees were paid by Linyang
China in 2007. Ms. Deng resigned as a member of our board of directors
and as vice president in charge of international sales in 2007.
    
    On March 8, 2007, Linyang China and Qidong Jiaotong Engineer Co.,
Ltd., a company controlled by Mr. Yonghua Lu, our chairman, entered
into a construction service agreement whereby Qidong Jiaotong Engineer
Co., Ltd. provided construction services to Linyang China for
RMB1.3 million.
    
    On March 16, 2007, Linyang China entered into a sales agreement with
Qitian Group under which Linyang China agreed to supply certain
products to Qitian Group for RMB4.0 million.
    
    In April 2007, Linyang China paid RMB1.2 million for equipment
purchases from Linyang Electronics, a company controlled by
Mr. Yonghua Lu, our chairman.
    
    On June 19, 2007, Yangguang Solar entered into a loan agreement with
Nantong Linyang under which Nantong Linyang agreed to loan
RMB7.0 million to Yangguang Solar at an annual interest rate of 5.85%.
The loan was fully repaid in June 2008.
    
    On June 19, 2007, Yangguang Solar entered into a loan agreement with
Qitian Group, a company which then held a 20% interest in Yangguang
Solar, under which Qitian Group agreed to loan RMB3.0 million to
Yangguang Solar at an annual interest rate of 5.85%. This loan was
fully repaid in June 2008.
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
    
    On July 31, 2007, we entered into a share transfer agreement with
Nantong Linyang, a company controlled by Mr. Yonghua Lu, our chairman,
and Qitian Group, to acquire 52% of equity ownership of Yangguang
Solar for a consideration of RMB51.2 million. Nantong Linyang
continues to own an 18% interest in Yangguang Solar. On June 23, 2008,
Linyang China entered into an agreement to acquire the remaining 48%
equity interest in Yangguang Solar from Nantong Linyang, for an
aggregate consideration of approximately RMB355.9 million.
    
    On August 28, 2007, Yangguang Solar entered into a loan agreement with
Qitian Group, a company which then held a 20% interest in Yangguang
Solar, under which Qitian Group agreed to loan RMB1.3 million to
Yangguang Solar at an annual interest rate of 5.85%. This loan was
fully repaid in June 2008.
    
    In October 2007, Linyang China entered into an agreement with Linyang
Electronics, a company controlled by Mr. Yonghua Lu, our chairman,
under which Linyang China agreed to pay a guarantee fee with an annual
rate of 2.0% of the total bank borrowings guaranteed by Linyang
Electronics. In 2008, we have incurred RMB10.1 million (US$1.5
million) for the bank borrowings guaranteed by Linyang Electronics.
    
    On December 26, 2007, Linyang China entered into a supply agreement
with Linyang Electronics, a company controlled by Mr. Yonghua Lu, our
chairman, under which Linyang China purchased raw materials from
Linyang Electronics for RMB23.7 million.
    
    On December 29, 2007, Solarfun Hong Kong entered into a loan agreement
with Hong Kong Huaerli Trading Company Limited, or Hong Kong Huaerli,
a company controlled by Mr. Yonghua Lu, our chairman, under which Hong
Kong Huaerli agreed to loan US$10 million to Solarfun Hong Kong at an
annual interest rate of 8%. The loan was fully repaid in February
2008.
    
    On January 8, 2007, October 29, 2007, November 19, 2007 and January 2,
2008, Linyang China entered into five facility lease agreements with
Linyang Electronics. Linyang China incurred rental expenses of
RMB1.2 million and RMB4.2 million (US$0.6 million) in 2007 and 2008,
respectively.
    
    On January 11, 2008, Solarfun Hong Kong, our 100% indirect subsidiary,
entered into a short-term loan agreement with Hong Kong Huaerli, a
company controlled by Mr. Yonghua Lu, our chairman, under which Hong
Kong Huaerli agreed to loan US$9 million to Solarfun Hong Kong at an
annual interest rate of 8%. The loan was fully repaid in February
2008.
    
    On May 7, 2008, Linyang China entered into an equipment purchase
agreement with Linyang Electronics whereby Linyang China purchased
certain equipment from Linyang Electronics for RMB0.5 million.
    
    On April 12, 2008, July 8, 2008 and October 13, 2008, Linyang China
entered into four service agreements with Nantong Linyang Labor
Service Company, a company controlled by Mr. Yonghua Lu, our chairman,
under which Linyang China agreed to pay an aggregate amount of RMB1.8
million (US$0.3 million) to Nantong Linyang Labor Service Company for
its provision of construction services.
    
    On September 1, 2008 and October 20, 2008, Linyang China entered into
two service agreements with Nantong Linyang Ecological Cultural Co.,
Ltd., a company controlled by Mr. Yonghua Lu, our chairman, under
which Linyang China agreed to pay an aggregate amount of RMB0.6
million (US$0.1 million) to Nantong Linyang Ecological Cultural Co.,
Ltd. for its provision of construction and labor services.
    
    On October 30, 2008, Linyang China entered into a polysilicon purchase
agreement with Ya An Yongwang Silicon Co., Ltd., a company controlled
by Mr. Yonghua Lu, our chairman, under which Linyang China purchased
certain polysilicon from Ya An Yongwang Silicon Co., Ltd. for
RMB8.7 million (US$1.3 million).
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
    
    On December 18, 2008, Linyang China entered into two service
agreements with Qidong Jiaotong Engineering Co., Ltd., a company
controlled by Mr. Yonghua Lu, our chairman, under which Linyang China
agreed to pay an aggregate amount of RMB0.6 million (US$0.1 million)
to Qidong Jiaotong Engineering Co., Ltd. for its provision of
construction services.
    
    On December 25, 2008, Linyang China entered into a framework supply
agreement with Linyang Electronics, a company controlled by
Mr. Yonghua Lu, our chairman, under which Linyang China agreed to
purchase raw materials from Linyang Electronics in the year 2009.
    
    On February 5, 2009, Linyang China entered into a polysilicon purchase
agreement with Ya An Yongwang Silicon Co., Ltd., a company controlled
by Mr. Yonghua Lu, our chairman, under which Linyang China purchased
certain polysilicon from Ya An Yongwang Silicon Co., Ltd. for
RMB9.6 million (US$1.4 million).
    
    On February 17, 2009, Solarfun Hong Kong, our 100% indirect
subsidiary, entered into a manufacturing service agreement with
Q-Cells International GmbH, a company controlled by Good Energies II
LP, under which Solarfun Hong Kong agreed to supply, using PV cells
supplied by Q-Cells International GmbH, on a fixed-price basis no less
than 100 MW of PV modules to Q-Cells International GmbH in each of
2009 and 2010 and granted Q-Cells International GmbH an option to
extend the agreement for one additional year. As a result, in the five
months ended May 31, 2009, the amount of manufacturing service fee due
to Solarfun Linyang under this agreement was RMB59.4 million
(US$8.7
million).
 C.
    
    Interests of Experts and Counsel
  
 ITEM 8 FINANCIAL INFORMATION
 A.
    
    Consolidated Statements and Other Financial Information
  Legal and Administrative Proceedings
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Dividend Policy
   B.
    
    Significant Changes
  
 ITEM 9 THE OFFER AND LISTING
 A.
    
    Offering and Listing Details
    93




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Share PriceHigh
    
    
    LowQuarterly High and LowFourth Quarter 2006 (from December 20, 2006)
    
    
    12.14
    
    
    
    9.96First Quarter 2007
    
    
    16.45
    
    
    
    10.29Second Quarter 2007
    
    
    17.68
    
    
    
    8.28Third Quarter 2007
    
    
    14.64
    
    
    
    9.10Fourth Quarter 2007
    
    
    35.96
    
    
    
    10.26First Quarter 2008
    
    
    37.64
    
    
    
    8.97Second Quarter 2008
    
    
    26.50
    
    
    
    12.31Third Quarter 2008
    
    
    19.99
    
    
    
    10.20Fourth Quarter 2008
    
    
    11.57
    
    
    
    2.68Monthly Highs and LowsDecember 2008
    
    
    5.25
    
    
    
    4.32January 2009
    
    
    6.12
    
    
    
    4.55February 2009
    
    
    5.07
    
    
    
    2.84March 2009
    
    
    5.06
    
    
    
    2.30April 2009
    
    
    4.73
    
    
    
    3.71May 2009
    
    
    7.48
    
    
    
    4.17June 2009 (through June 19, 2009)
    
    
    8.48
    
    
    
    6.57
 B.
    
    Plan of Distribution
  C.
    
    Markets
  D.
    
    Selling Shareholders
  E.
    
    Dilution
  F.
    
    Expenses of the Issue
  
 ITEM 10 ADDITIONAL INFORMATION
 A.
    
    Share Capital
  B.
    
    Memorandum and Articles of Association
  C.
    
    Material Contracts
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D. Exchange Controls
 Foreign Currency Exchange
  
    
    Foreign Exchange Administration Rules (1996), as amended; and
 
    
    Regulations of Settlement, Sale and Payment of Foreign Exchange (1996)
   E. Taxation
 Cayman Islands Taxation
  PRC Taxation
    95




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U.S. Federal Income Taxation
   
    
    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 whose functional currency is not the U.S. dollar;
 
    
    persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or
integrated transaction; or
 
    
    persons that actually or constructively own 10% or more of our voting stock.
  96




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
    
    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 in the United States 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 primary supervision of a court within the United States
and one or more U.S. persons have the authority to control all substantial decisions of the
trust or (2) was in existence on August 20, 1996, was treated as a U.S. person under the
U.S. Internal Revenue Code of 1986, as amended, on the previous day and 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 ADSs or Ordinary Shares
    97




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Taxation of Disposition of ADSs or Ordinary Shares
  Passive Foreign Investment Company
  
    
    at least 75% of its gross income is passive income; 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.
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
    
    the excess distribution or gain will be allocated ratably over your holding period for the
ADSs or ordinary 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.
   de minimis
  99




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Information Reporting and Backup Withholding
   F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
   I. Subsidiary Information
   100




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ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange Risk
    Interest Rate Risk
  
 ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  PART II
 
 ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
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ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    approximately US$68 million to purchase or prepay for raw materials;
 
    
    approximately US$40 million to expand our manufacturing capacity;
 
    
    approximately US$17.9 million to acquire Yangguang Solar; and
 
    
    approximately US$10 million to invest in our research and development activities.
   
    
    approximately US95.6 million for wafer and polysilicon pre-payments;
 
    
    approximately US37.4 million for capital expenditure;
 
    
    US$19.2 million to repay loans from Hong Kong Huaerli, a company controlled by Mr. Yonghua
Lu, our chairman, to Solarfun Hong Kong, our 100% indirect subsidiary; and
 
    
    the remainder for working capital and repayment of our existing bank borrowings.
    102




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ITEM 15 CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
      103




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Attestation Report of the Registered Public Accounting Firm
 
       
   104




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Changes in Internal Controls
  
 ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B CODE OF ETHICS
   105




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ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year Ended December 31,2006
    
    
    2007
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)Audit fees
    
    
    1,560,000
    
    
    
    7,854,600
    
    
    
    6,820,000
    
    
    
    999,634All other fees(1)
    
    
    13,114,990
    
    
    
    1,458,920
    
    
    
    1,700,000
    
    
    
    249,176
 Notes
 (1)
    
    All other fees means the aggregate fees for services rendered in connection with our
public offering in 2006 and our convertible notes offering and continuous ADS offering in
2008.  
 ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 ITEM 16F CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G CORPORATE GOVERNANCE
  PART III
 
 ITEM 17 FINANCIAL STATEMENTS
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ITEM 18 FINANCIAL STATEMENTS
  
    
    Report of Independent Registered Public Accounting Firm
 
    
    Consolidated Balance Sheets as of December 31, 2007 and 2008
 
    
    Consolidated Statements of Income for the Years Ended December 31, 2006, 2007 and 2008
 
    
    Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and 2008
 
    
    Consolidated Statements of Changes in Shareholders Equity for the Years Ended
December 31, 2006, 2007 and 2008
 
    
    Notes to the Consolidated Financial Statements
 
 ITEM 19 EXHIBITS
  ExhibitNumber
    
    Description of Document1.1
    
    
    Memorandum and Articles of Association of Solarfun Power Holdings Co., Ltd. (incorporated by
reference to Exhibit 3.1 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)1.2
    
    
    Form of Second Amended and Restated Memorandum and Articles of Solarfun Power Holdings Co.,
Ltd. (incorporated by reference to Exhibit 3.2 from our F-1 registration statement (File
No. 333-139258), as amended, initially filed with the Commission on December 11, 2006)2.1
    
    
    Specimen Certificate for Ordinary Shares of Solarfun Power Holdings Co., Ltd. (incorporated
by reference to Exhibit 4.2 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)2.2
    
    
    Form of American Depositary Receipt of Solarfun Power Holdings Co., Ltd. (incorporated by
reference to Exhibit 4.1 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)2.3
    
    
    Form of Deposit Agreement Form of Deposit Agreement, among Solarfun Power Holdings Co.,
Ltd., the depositary and owners and holders of the American Depositary Shares (incorporated
by reference to Exhibit 4.3 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)4.1
    
    
    Share Purchase Agreement, dated June 6, 2006, in respect of the issue of series A
convertible preference shares of Solarfun Power Holdings Co., Ltd. (incorporated by
reference to Exhibit 4.4 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)4.2
    
    
    Shareholders Agreement, dated June 27, 2006, among Solarfun Power Holdings Co., Ltd. and
other parties therein (incorporated by reference to Exhibit 4.5 from our F-1 registration
statement (File No. 333-139258), as amended, initially filed with the Commission on
December 11, 2006)
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ExhibitNumber
    
    Description of Document4.3
    
    
    Registration Rights Agreement, dated June 27, 2006, among Solarfun Power Holdings Co., Ltd.
and other parties therein (incorporated by reference to Exhibit 4.6 from our F-1
registration statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006)4.4
    
    
    Agreement Concerning the Limitations on Post-IPO Sale of Shares, dated June 20, 2006, among
certain holders of ordinary shares (incorporated by reference to Exhibit 4.7 from our F-1
registration statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006)4.5
    
    
    Second Shareholders Agreement, dated December 4, 2007, among Solarfun Power Holding Co.,
Ltd. and the other parties therein (incorporated by reference to Exhibit 4.8 from our F-1
registration statement (File No. 333-147627), as amended, initially filed with the
Commission on November 27, 2007)4.6
    
    

The First Amendment to Lock-up Agreement, dated 2007, among Solarfun Power Holding Co., Ltd.
and other parties therein (incorporated by reference to Exhibit 4.9 from our F-1
registration statement (File No. 333-147627), as amended, initially filed with the
Commission on November 27, 2007)4.7
    
    

Amendment to Lock-up Agreement, dated December 4, 2007, among Yonghua Lu, Good Energies
Investment (Jersey) Limited and other parties therein (incorporated by reference to
Exhibit 4.10 from our F-1 registration statement (File No. 333-147627), as amended,
initially filed with the Commission on November 27, 2007)4.8
    
    
    2006 Share Incentive Plan (incorporated by reference to Exhibit 10.1 from
our F-1 registration statement (File No. 333-139258), as amended,
initially filed with the Commission on December 11, 2006)4.9
    
    

2007
Equity Incentive Plan (incorporated by reference to Exhibit 99.2 from
our Form S-8 registration statement (File No. 333-147644), as amended,
initially filed with the Commission on November 27, 2007)4.10
    
    
    Form of Employment Agreement between Solarfun Power Holdings Co., Ltd. and
a Senior Executive Officer of the Registrant (incorporated by reference to
Exhibit 10.2 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)4.11
    
    
    Silicon Supply Agreement, dated June 2, 2006, and Amendments No. 1, No. 2
and No. 3 thereto, dated June 9, 2006, October 8, 2006 and November 17,
2006, respectively, between Jiangsu Linyang Solarfun Co., Ltd. and E-mei
(incorporated by reference to Exhibit 10.8 from our F-1 registration
statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006)4.12
    
    
    Sales Agreement, dated June 10, 2006, between Jiangsu Linyang Solarfun
Co., Ltd. and Social Capital, S.L. (incorporated by reference to
Exhibit 10.9 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006)
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ExhibitNumber
    
    Description of Document4.13
    
    
    Sales Contract, dated November 19, 2006, between Jiangsu Linyang Solarfun
Co., Ltd. and Scatec AS (incorporated by reference to Exhibit 10.10 from
our F-1 registration statement (File No. 333-139258), as amended,
initially filed with the Commission on December 11, 2006)4.14
    
    
    Sales Contract, dated November 19, 2006, between Jiangsu Linyang Solarfun
Co., Ltd. and Scatec AS (incorporated by reference to Exhibit 10.11 from
our F-1 registration statement (File No. 333-139258), as amended,
initially filed with the Commission on December 11, 2006)4.15
    
    
    Agreement of Transfer of Land Use Rights, dated April 8, 2006, between
Jiangsu Linyang Solarfun Co., Ltd. and Qidong Huahong Electronics Co.,
Ltd. (incorporated by reference to Exhibit 10.12 from our F-1 registration
statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006)4.16
    
    
    Summary of Share Transfer Agreements, dated May 27, 2006 and effective as
of June 2, 2006, between Linyang Solar Power Investment Holding Ltd. and
the shareholders of Jiangsu Linyang Solarfun Co., Ltd. (incorporated by
reference to Exhibit 10.13 from our F-1 registration statement (File
No. 333-139258), as amended, initially filed with the Commission on
December 11, 2006)4.17
    
    
    Share Transfer Agreement, dated June 9, 2006, among Linyang Solar Power
Investment Holding Ltd. and various other parties (incorporated by
reference to Exhibit 10.14 from our F-1 registration statement
(File No. 333-139258), as amended, initially filed with the Commission on
December 11, 2006)4.18
    
    
    Share Issue and Transfer Agreement, dated June 12, 2006, among Solarfun
Power Holdings Co., Ltd., Linyang Solar Power Investment Holding Ltd. and
various other parties (incorporated by reference to Exhibit 10.15 from our
F-1 registration statement (File No. 333-139258), as amended, initially
filed with the Commission on December 11, 2006)4.19
    
    
    Deed of Share Transfer, effective as of July 15, 2006, among Linyang Solar
Power Investment Holding Ltd. and various other parties (incorporated by
reference to Exhibit 10.16 from our F-1 registration statement (File
No. 333-139258), as amended, initially filed with the Commission on
December 11, 2006)4.20
    
    
    Management Consulting Service Agreement, dated November 18, 2006, between
Jiangsu Linyang Solarfun Co., Ltd. and Hony Capital II, L.P. (incorporated
by reference to Exhibit 10.17 from our F-1 registration statement (File
No. 333-139258), as amended, initially filed with the Commission on
December 11, 2006)4.21
    
    
    Bid Invitation and Letter of Acceptance for Shanghai Chongming Qianwei
Village 960 KW Solar PV Power Generation Model Project, dated September 28,
2006 and November 9, 2006, respectively (incorporated by reference to
Exhibit 10.18 from our F-1 registration statement (File No. 333-139258),
as amended, initially filed with the Commission on December 11, 2006)4.22
    
    

Letter
of Acceptance for Qitian Group 74 KW On-Grid Application System
Project, dated September 12, 2006 (incorporated by reference to
Exhibit 10.19 from our F-1 registration statement (File No. 333-139258),
as amended, initially filed with the Commission on December 11, 2006)4.23
    
    
    Contract between Jiangsu Linyang Solarfun Co., Ltd. and ISC Konstanz,
dated September 5, 2006 (incorporated by reference to Exhibit 10.20 from
our F-1 registration statement (File No. 333-139258), as amended,
initially filed with the Commission on December 11, 2006)4.24
    
    
    Share Transfer Agreement, dated July 31, 2007, among Nantong Linyang,
Lianyungang Suyuan Group Co., Ltd. and Jiangsu Linyang Solarfun Co., Ltd.
(incorporated by reference to Exhibit 10.31 from our F-1 registration
statement (File No. 333-147627), as amended, initially filed with the
Commission on November 27, 2007)
  109




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##### Table of Contents



ExhibitNumber
    
    Description of Document4.25
    
    
    Contract of Purchase between Schüco International KG and Jiangsu Linyang
Solarfun Co., Ltd. (incorporated by reference to Exhibit 10.33 from our
F-1 registration statement (File No. 333-147627), as amended, initially
filed with the Commission on November 27, 2007)4.26
    
    
    Second and Restated Supply Agreement, dated May 13, 2008, between Solarfun
Hong Kong and Hoku (Exhibit 4.39 from our 20-F annual report filed with
the Commission on June 27, 2008)4.27
    
    
    Investment Agreement, dated November 14, 2007, between Jiangsu Linyang
Solarfun Co., Ltd. and Management Committee of Qidong Economic Development
Zone, Jiangsu Province (incorporated by reference to Exhibit 10.35 from
our F-1 registration statement (File No. 333-147627), as amended,
initially filed with the Commission on November 27, 2007)4.28
    
    
    Contract, dated October 30, 2007, between Yangguang Solar and Ald Vacuum
Technologies GmbH (Exhibit 4.41 from our 20-F annual report filed with the Commission on June 27, 2008)4.29
    
    
    State-owned Land Use Right Grant Contract, dated January 28, 2005, between
Lianyungang Municipal Administration of Land and Resources and Yangguang
Solar Technology Co., Ltd. (Exhibit 4.42 from our 20-F annual report filed with the Commission on June 27, 2008)4.30
    
    
    Equity Transfer Agreement, dated June 23, 2008, among Nantong Linyang,
Qitian Group, Jiangsu Guangyi and Linyang China (Exhibit 4.43 from our
20-F/A amendment to annual report filed with the Commission on June 30, 2008)8.1
    *
    
    Subsidiaries of Solarfun Power Holdings Co., Ltd.11.1
    
    
    Code of Business Conduct and Ethics of Solarfun Power Holdings Co.,
Ltd.(incorporated by reference to Exhibit 99.1 from our F-1 registration
statement (File No. 333-139258), as amended, initially filed with the
Commission on December 5, 2006)12.1
    *
    
    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
and CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200223.1
*
    

Consent
of Independent Registered Public Accounting Firm
 Notes:
 *
    
    Filed with this Annual Report on Form 20-F  110




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##### Table of Contents



SIGNATURE
  SOLARFUN POWER HOLDINGS CO., LTD./s/ Ping Peter XieName:
    Ping Peter XieTitle:
    President of China
of Solarfun Power
Holdings Co., Ltd.   111




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 CONSOLIDATED FINANCIAL STATEMENTS
 As of December 31, 2007 and 2008
and for the years ended December 31, 2006, 2007 and 2008




---



##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageConsolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    
    F-3Consolidated Statements of Income for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-5 - F-6Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-8 - F-57
  F-1




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##### Table of Contents



REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
   F-2




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 
 CONSOLIDATED BALANCE SHEETS
 As of December 31,Note
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    272,928
    
    
    
    410,901
    
    
    
    60,227Restricted cash
    
    
    
    
    
    
    42,253
    
    
    
    88,137
    
    
    
    12,919Accounts receivable (net of allowance for doubtful accounts of
RMB2,619,000 and RMB2,267,000 (US$332,283) as of December 31, 2007
and 2008, respectively)
    
    
    5
    
    
    
    430,692
    
    
    
    319,537
    
    
    
    46,836Inventories  net
    
    
    6
    
    
    
    728,480
    
    
    
    731,708
    
    
    
    107,249Advance to suppliers  net
    
    
    7
    
    
    
    640,118
    
    
    
    1,145,614
    
    
    
    167,917Other current assets
    
    
    8
    
    
    
    214,478
    
    
    
    481,749
    
    
    
    70,612Deferred tax assets
    
    
    28
    
    
    
    3,026
    
    
    
    57,992
    
    
    
    8,501Derivative contracts
    
    
    19
    
    
    
    
    
    
    
    39,665
    
    
    
    5,814Amount due from related parties
    
    
    29
    
    
    
    920
    
    
    
    19
    
    
    
    3Total current assets
    
    
    
    
    
    
    2,332,895
    
    
    
    3,275,322
    
    
    
    480,078Non-current assets:Fixed assets  net
    
    
    9
    
    
    
    702,884
    
    
    
    1,492,575
    
    
    
    218,772Intangible assets  net
    
    
    10
    
    
    
    94,282
    
    
    
    212,736
    
    
    
    31,182Deferred tax assets
    
    
    28
    
    
    
    4,767
    
    
    
    4,489
    
    
    
    657Long-term deferred expenses
    
    
    12
    
    
    
    214,385
    
    
    
    37,444
    
    
    
    5,488Goodwill
    
    
    11
    
    
    
    
    
    
    
    134,735
    
    
    
    19,749Investment
    
    
    13
    
    
    
    300
    
    
    
    
    
    
    
    Total non-current assets
    
    
    
    
    
    
    1,016,618
    
    
    
    1,881,979
    
    
    
    275,848Total assets
    
    
    
    
    
    
    3,349,513
    
    
    
    5,157,301
    
    
    
    755,926LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term bank borrowings
    
    
    14
    
    
    
    965,002
    
    
    
    1,098,832
    
    
    
    161,060Long-term bank borrowings, current portion
    
    
    14
    
    
    
    15,000
    
    
    
    30,000
    
    
    
    4,397Accounts payable
    
    
    
    
    
    
    141,709
    
    
    
    217,026
    
    
    
    31,810Notes payable
    
    
    18
    
    
    
    
    
    
    
    39,341
    
    
    
    5,766Accrued expenses and other liabilities
    
    
    15
    
    
    
    135,395
    
    
    
    189,028
    
    
    
    27,707Customer deposits
    
    
    17
    
    
    
    27,628
    
    
    
    9,494
    
    
    
    1,392Deferred tax liabilities
    
    
    28
    
    
    
    
    
    
    
    1,416
    
    
    
    207Unrecognized tax benefit
    
    
    28
    
    
    
    
    
    
    
    27,385
    
    
    
    4,014Derivative contracts
    
    
    19
    
    
    
    
    
    
    
    5,792
    
    
    
    849Amount due to related parties
    
    
    29
    
    
    
    92,739
    
    
    
    39,766
    
    
    
    5,829Total current liabilities
    
    
    
    
    
    
    1,377,473
    
    
    
    1,658,080
    
    
    
    243,031Non-current liabilities:Long-term bank borrowings
    
    
    14
    
    
    
    
    
    
    
    170,000
    
    
    
    24,918Deferred tax liability
    
    
    28
    
    
    
    9,038
    
    
    
    27,155
    
    
    
    3,980Convertible bonds
    
    
    26
    
    
    
    
    
    
    
    1,178,969
    
    
    
    172,806Total non-current liability
    
    
    
    
    
    
    9,038
    
    
    
    1,376,124
    
    
    
    201,704Commitments and contingencies
    
    
    31Minority interests
    
    
    
    
    
    
    100,420
    
    
    
    4,183
    
    
    
    613Redeemable ordinary shares(par value US$0.0001 per share; nil and
45,098,055 shares authorized; nil and 45,098,055 shares issued and
outstanding at December 31, 2007 and December 31, 2007 and 2008
respectively)
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    5Shareholders EquityOrdinary shares (par value US$0.0001 per share; 500,000,000 and
500,000,000 shares authorized; 241,954,744 shares and 269,060,209 shares issued and outstanding at December 31, 2007 and 2008,
respectively)
    
    
    
    
    
    
    195
    
    
    
    214
    
    
    
    32Additional paid-in capital
    
    
    
    
    
    
    1,601,852
    
    
    
    2,138,624
    
    
    
    313,466Statutory reserves
    
    
    22
    
    
    
    37,548
    
    
    
    47,638
    
    
    
    6,983Retained earnings (accumulated loss)
    
    
    
    
    
    
    222,987
    
    
    
    (67,594
    )
    
    
    (9,908
    )Total shareholders equity
    
    
    
    
    
    
    1,862,582
    
    
    
    2,118,882
    
    
    
    310,573Total liabilities, mezzanine equity and shareholders equity
    
    
    
    
    
    
    3,349,513
    
    
    
    5,157,301
    
    
    
    755,926
   F-3




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 
 CONSOLIDATED STATEMENTS OF INCOME (LOSS)
 For the year ended December 31,Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Net revenues:Photovoltaic modules
    
    
    
    
    
    
    604,317
    
    
    
    2,209,514
    
    
    
    4,626,423
    
    
    
    678,113Photovoltaic cells
    
    
    
    
    
    
    7,182
    
    
    
    52,019
    
    
    
    253,074
    
    
    
    37,094Photovoltaic modules processing
    
    
    
    
    
    
    
    
    
    
    5,876
    
    
    
    3,229
    
    
    
    473Photovoltaic cells processing
    
    
    
    
    
    
    19,408
    
    
    
    
    
    
    
    
    
    
    
    Raw materials
    
    
    
    
    
    
    
    
    
    
    127,726
    
    
    
    66,342
    
    
    
    9,724Total net revenues
    
    
    
    
    
    
    630,907
    
    
    
    2,395,135
    
    
    
    4,949,068
    
    
    
    725,404Cost of revenues:Photovoltaic modules
    
    
    
    
    
    
    (434,493
    )
    
    
    (1,835,702
    )
    
    
    (4,179,156
    )
    
    
    (612,555
    )Photovoltaic cells
    
    
    
    
    
    
    (5,983
    )
    
    
    (48,701
    )
    
    
    (241,882
    )
    
    
    (35,454
    )Photovoltaic modules processing
    
    
    
    
    
    
    
    
    
    
    (2,014
    )
    
    
    (1,208
    )
    
    
    (177
    )Photovoltaic cells processing
    
    
    
    
    
    
    (6,054
    )
    
    
    
    
    
    
    
    
    
    
    Raw materials
    
    
    
    
    
    
    
    
    
    
    (110,123
    )
    
    
    (69,112
    )
    
    
    (10,129
    )Write down of inventories
    
    
    
    
    
    
    
    
    
    
    (815
    )
    
    
    (413,789
    )
    
    
    (60,651
    )Total cost of revenue
    
    
    
    
    
    
    (446,530
    )
    
    
    (1,997,355
    )
    
    
    (4,905,147
    )
    
    
    (718,966
    )Gross profit
    
    
    
    
    
    
    184,377
    
    
    
    397,780
    
    
    
    43,921
    
    
    
    6,438Operating expenses:Selling expenses
    
    
    
    
    
    
    (11,883
    )
    
    
    (62,777
    )
    
    
    (87,913
    )
    
    
    (12,886
    )General and administrative expenses
    
    
    
    
    
    
    (52,214
    )
    
    
    (113,756
    )
    
    
    (143,340
    )
    
    
    (21,010
    )Research and development expenses
    
    
    
    
    
    
    (6,523
    )
    
    
    (27,440
    )
    
    
    (19,679
    )
    
    
    (2,884
    )Total operating expenses
    
    
    
    
    
    
    (70,620
    )
    
    
    (203,973
    )
    
    
    (250,932
    )
    
    
    (36,780
    )Operating profit (loss)
    
    
    
    
    
    
    113,757
    
    
    
    193,807
    
    
    
    (207,011
    )
    
    
    (30,342
    )Interest expenses
    
    
    
    
    
    
    (8,402
    )
    
    
    (25,978
    )
    
    
    (103,146
    )
    
    
    (15,119
    )Interest income
    
    
    
    
    
    
    1,326
    
    
    
    16,244
    
    
    
    10,004
    
    
    
    1,466Exchange losses
    
    
    
    
    
    
    (4,346
    )
    
    
    (25,628
    )
    
    
    (35,230
    )
    
    
    (5,164
    )Other income
    
    
    
    
    
    
    902
    
    
    
    1,507
    
    
    
    15,018
    
    
    
    2,201Other expenses
    
    
    
    
    
    
    (836
    )
    
    
    (9,670
    )
    
    
    (25,604
    )
    
    
    (3,752
    )Changes in fair value of foreign currency derivatives
    
    
    19
    
    
    
    (163
    )
    
    
    
    
    
    
    83,090
    
    
    
    12,179Government grants
    
    
    27
    
    
    
    852
    
    
    
    2,089
    
    
    
    3,480
    
    
    
    510Income (loss) before income taxes and minority interest
    
    
    
    
    
    
    103,090
    
    
    
    152,371
    
    
    
    (259,399
    )
    
    
    (38,021
    )Income tax benefit (expense)
    
    
    28
    
    
    
    3,132
    
    
    
    (7,458
    )
    
    
    (6,519
    )
    
    
    (956
    )Minority interest
    
    
    
    
    
    
    (301
    )
    
    
    3,124
    
    
    
    (14,573
    )
    
    
    (2,136
    )Net income (loss)
    
    
    
    
    
    
    105,921
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )Net income (loss) attributable to ordinary shareholders
    
    
    
    
    
    
    98,695
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )Net income (loss) per share:Basic
    
    
    34
    
    
    RMB
    0.95
    
    
    RMB
    0.62
    
    
    RMB
    (1.11
    )
    
    USD
    (0.16
    )Diluted
    
    
    34
    
    
    RMB
    0.74
    
    
    RMB
    0.62
    
    
    RMB
    (1.11
    )
    
    USD
    (0.16
    )Number of shares used in computation of net income
(loss)per share:Basic
    
    
    34
    
    
    
    103,631,832
    
    
    
    240,054,686
    
    
    
    252,659,614
    
    
    
    252,659,614Diluted
    
    
    34
    
    
    
    142,108,460
    
    
    
    240,054,686
    
    
    
    252,659,614
    
    
    
    252,659,614
   F-4




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year ended December 31,Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Cash flows from operating activities:Net income (loss)
    
    
    
    
    
    
    105,921
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )Adjustments to reconcile net income (loss) to net cash
used in operating activities:Minority interest
    
    
    
    
    
    
    301
    
    
    
    (3,124
    )
    
    
    14,573
    
    
    
    2,136Change of fair value of financial derivatives
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    (33,873
    )
    
    
    (4,966
    )Loss from disposal of a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    56Gain from disposal of intangible asset
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    (3,403
    )
    
    
    (499
    )Depreciation and amortization
    
    
    
    
    
    
    6,562
    
    
    
    27,686
    
    
    
    67,170
    
    
    
    9,845Write down of inventories
    
    
    6
    
    
    
    
    
    
    
    815
    
    
    
    413,789
    
    
    
    60,651Amortization of long-term deferred expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,145
    
    
    
    754Stock compensation expenses
    
    
    23, 24
    
    
    
    25,307
    
    
    
    29,640
    
    
    
    34,826
    
    
    
    5,104Provision for doubtful collection of account receivables
    
    
    5
    
    
    
    11,323
    
    
    
    2,070
    
    
    
    
    
    
    
    Provision for doubtful collection of supplier advances
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    41,962
    
    
    
    6,151Deferred tax benefit
    
    
    27
    
    
    
    (3,304
    )
    
    
    (700
    )
    
    
    (50,068
    )
    
    
    (7,339
    )Warranty provision
    
    
    16
    
    
    
    6,030
    
    
    
    23,109
    
    
    
    27,678
    
    
    
    4,057Warranty reversal
    
    
    16
    
    
    
    
    
    
    
    (1,520
    )
    
    
    
    
    
    
    Unrecognized tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,385
    
    
    
    4,014Others
    
    
    
    
    
    
    197
    
    
    
    6
    
    
    
    2
    
    
    
    1Changes in operating assets and liabilities:Restricted cash
    
    
    
    
    
    
    (11,593
    )
    
    
    (12,968
    )
    
    
    (44,602
    )
    
    
    (6,537
    )Accounts receivable
    
    
    
    
    
    
    (159,157
    )
    
    
    (290,604
    )
    
    
    111,157
    
    
    
    16,292Inventories
    
    
    
    
    
    
    (295,685
    )
    
    
    (359,298
    )
    
    
    (417,016
    )
    
    
    (61,123
    )Advance to suppliers
    
    
    
    
    
    
    (176,866
    )
    
    
    (398,163
    )
    
    
    (547,458
    )
    
    
    (80,242
    )Prepaid rent
    
    
    
    
    
    
    
    
    
    
    (170,000
    )
    
    
    Prepaid expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    (7,328
    )Other current assets
    
    
    
    
    
    
    (54,820
    )
    
    
    (138,823
    )
    
    
    (47,271
    )
    
    
    (6,929
    )Amount due from related parties
    
    
    
    
    
    
    28,889
    
    
    
    (188
    )
    
    
    901
    
    
    
    132Accounts payable
    
    
    
    
    
    
    26,678
    
    
    
    80,094
    
    
    
    103,199
    
    
    
    15,126Accrued expenses and other liabilities
    
    
    
    
    
    
    22,458
    
    
    
    39,668
    
    
    
    (27,857
    )
    
    
    (4,083
    )Amount due to related parties
    
    
    
    
    
    
    
    
    
    
    (23,951
    )
    
    
    (2,038
    )
    
    
    (299
    )Customer deposits
    
    
    
    
    
    
    (55,302
    )
    
    
    27,611
    
    
    
    (18,134
    )
    
    
    (2,658
    )Net cash used in operating activities
    
    
    
    
    
    
    (523,061
    )
    
    
    (1,020,603
    )
    
    
    (674,040
    )
    
    
    (98,797
    )Cash flows from investing activities:Acquisition of fixed assets
    
    
    
    
    
    
    (177,872
    )
    
    
    (494,984
    )
    
    
    (849,544
    )
    
    
    (124,521
    )Restricted cash
    
    
    
    
    
    
    
    
    
    
    4,537
    
    
    
    (1,282
    )
    
    
    (188
    )Acquisition of intangible assets
    
    
    
    
    
    
    (12,988
    )
    
    
    
    
    
    
    (48,517
    )
    
    
    (7,111
    )Acquisition of a subsidiary
    
    
    4
    
    
    
    
    
    
    
    (48,018
    )
    
    
    (267,566
    )
    
    
    (39,218
    )Disposal of (investment in) affiliate
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    300
    
    
    
    44Proceeds from disposal of a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,394
    )
    
    
    (1,377
    )Proceeds from disposal of intangible asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,958
    
    
    
    1,020Proceeds from disposal of fixed assets
    
    
    
    
    
    
    1,113
    
    
    
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    (190,047
    )
    
    
    (538,465
    )
    
    
    (1,169,045
    )
    
    
    (171,351
    )Cash flows from financing activities:Capital contributed by minority interest shareholder
    
    
    
    
    
    
    9,850
    
    
    
    57,800
    
    
    
    65,560
    
    
    
    9,609Net proceeds from issuance of preference shares
    
    
    20
    
    
    
    420,028
    
    
    
    
    
    
    
    
    
    
    
    Net proceeds from issuance of redeemable ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    5Net proceeds from issuance of convertible bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,178,969
    
    
    
    172,806Net proceeds from issuance of ordinary shares
    
    
    21
    
    
    
    1,060,515
    
    
    
    
    
    
    
    489,875
    
    
    
    71,803Dividends paid to preference shareholders
    
    
    
    
    
    
    (7,226
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    6,690
    
    
    
    12,091
    
    
    
    1,772Proceeds from short-term borrowings
    
    
    
    
    
    
    475,720
    
    
    
    1,570,106
    
    
    
    3,119,682
    
    
    
    457,264Payment of short-term borrowings
    
    
    
    
    
    
    (99,820
    )
    
    
    (985,005
    )
    
    
    (2,985,852
    )
    
    
    (437,648
    )Proceeds from long-term borrowings
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    200,000
    
    
    
    29,315Payment of long-term borrowings
    
    
    
    
    
    
    
    
    
    
    (16,000
    )
    
    
    (15,000
    )
    
    
    (2,199
    )Payment of notes payables
    
    
    
    
    
    
    
    
    
    
    (14,020
    )
    
    
    
    
    
    
    Advances from related parties
    
    
    
    
    
    
    114,900
    
    
    
    74,633
    
    
    
    
    
    
    
    Repayment of advances from related parties
    
    
    
    
    
    
    (145,121
    )
    
    
    
    
    
    
    (84,299
    )
    
    
    (12,356
    )Net cash provided by financing activities
    
    
    
    
    
    
    1,843,846
    
    
    
    694,204
    
    
    
    1,981,058
    
    
    
    290,371Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    1,130,738
    
    
    
    (864,864
    )
    
    
    137,973
    
    
    
    20,223Cash and cash equivalents at the beginning of year
    
    
    
    
    
    
    7,054
    
    
    
    1,137,792
    
    
    
    272,928
    
    
    
    40,004Cash and cash equivalents at the end of year
    
    
    
    
    
    
    1,137,792
    
    
    
    272,928
    
    
    
    410,901
    
    
    
    60,227
   F-5




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTD
 For the year ended December 31,Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Supplemental disclosure of cash flow information:Interest paid
    
    
    
    
    
    
    8,048
    
    
    
    31,372
    
    
    
    102,440
    
    
    
    15,015Income tax paid
    
    
    
    
    
    
    
    
    
    
    3,728
    
    
    
    51,273
    
    
    
    7,515Realized gain from derivative contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,216
    
    
    
    7,214Supplemental schedule of non-cash activities:Acquisition of fixed assets included in account
payable, accrued expenses and other liabilities
    
    
    
    
    
    
    
    
    
    
    24,212
    
    
    
    35,904
    
    
    
    5,263
   F-6




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 RetainedNumber of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    earnings
    
    
    
    
    
    
    Totalordinary
    
    
    Ordinary
    
    
    paid-in
    
    
    Statutory
    
    
    (Accumulated
    
    
    
    
    
    
    shareholdersNote
    
    
    shares
    
    
    shares
    
    
    capital
    
    
    reserves
    
    
    losses)
    
    
    Put options
    
    
    equity(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (RMB000)Balance as of December 31, 2005
    
    
    
    
    
    
    100,350,000
    
    
    
    84
    
    
    
    59,783
    
    
    
    1,496
    
    
    
    12,307
    
    
    
    
    
    
    
    73,670Stock compensation expenses
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    22,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,425Share-based compensation
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    2,882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,882Acquisition of put option
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    668
    
    
    
    668Exercise of put option
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (668
    )
    
    
    (668
    )Net proceeds from issuance of common stock
upon IPO
    
    
    
    
    
    
    60,000,000
    
    
    
    47
    
    
    
    1,060,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,060,515Conversion of preference shares
    
    
    
    
    
    
    79,644,754
    
    
    
    62
    
    
    
    419,966
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    420,028Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,921
    
    
    
    
    
    
    
    105,921Cumulative dividends  preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,226
    )
    
    
    
    
    
    
    (7,226
    )Appropriation of statutory reserves
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,528
    
    
    
    (14,528
    )
    
    
    
    
    
    
    Balance as of December 31, 2006
    
    
    
    
    
    
    239,994,754
    
    
    
    193
    
    
    
    1,565,524
    
    
    
    16,024
    
    
    
    96,474
    
    
    
    
    
    
    
    1,678,215Exercise of stock option and vest of RSU
    
    
    24
    
    
    
    604,490
    
    
    
    1
    
    
    
    6,689
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,690Share-based compensation
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    29,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,640Shares issued to depository bank
    
    
    34
    
    
    
    1,355,500
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,037
    
    
    
    
    
    
    
    148,037Appropriation of statutory reserves
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,524
    
    
    
    (21,524
    )
    
    
    
    
    
    
    Balance as of December 31, 2007
    
    
    
    
    
    
    241,954,744
    
    
    
    195
    
    
    
    1,601,852
    
    
    
    37,548
    
    
    
    222,987
    
    
    
    
    
    
    
    1,862,582Exercise of stock option and vesting of RSU
    
    
    24
    
    
    
    1,040,590
    
    
    
    1
    
    
    
    12,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,091Settlement of stock option exercised with
shares held by depository bank
    
    
    
    
    
    
    (1,040,590
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net proceeds from issuance of common stock
from additional equity offering
    
    
    21
    
    
    
    27,105,465
    
    
    
    18
    
    
    
    489,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    489,875Share-based compensation
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    34,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,825Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (280,491
    )
    
    
    
    
    
    
    (280,491
    )Appropriation of statutory reserves
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,090
    
    
    
    (10,090
    )
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    
    
    
    
    269,060,209
    
    
    
    214
    
    
    
    2,138,624
    
    
    
    47,638
    
    
    
    (67,594
    )
    
    
    
    
    
    
    2,118,882Balance as of December 31, 2008, in US$000
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    313,466
    
    
    
    6,983
    
    
    
    (9,908
    )
    
    
    
    
    
    
    310,573
   F-7




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 1. ORGANIZATION AND BASIS OF PRESENTATION
         F-8




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 1. ORGANIZATION AND BASIS OF PRESENTATION (CONTD)
  Date ofincorporation/
    
    Place of
    
    Percentage ofestablishment/
    
    incorporation/
    
    shareholding/Name of subsidiary
    
    acquisition
    
    establishment
    
    ownership
    
    Principal activitiesLinyang Solar Power Investment
Holding Ltd. (Linyang Solar
Power)
    
    May 17, 2006
    
    British Virgin Islands
    
    100%
    
    Investment holdingSolarfun Power Hong Kong Limited
(Solarfun HK)
    
    May 16, 2007
    
    Hong Kong
    
    100%
    
    Investment holding and international procurementSolarfun USA, Inc (Solarfun USA)
    
    September 18, 2007
    
    United States of America
    
    100%
    
    International salesSolarfun Power Deutschland GmbH
(Solarfun Deutschland)
    
    February 14, 2008
    
    Deutschland
    
    100%
    
    International salesJiangsu Linyang Solarfun Co., Ltd. (Linyang Solarfun)
    
    August 27, 2004
    
    The Peoples Republic of China (the PRC)
    
    100%
    
    Development, manufacturing and
sales of photovoltaic (PV) products to overseas customersShanghai Linyang Solar Technology
Co., Ltd. (Shanghai Linyang)
    
    March 29, 2006
    
    The PRC
    
    83%
    
    Sales of PV products to PRC customersJiangsu Linyang Solarfun
Engineering Research and
Development Center Co., Ltd.
(Linyang R&D)
    
    April 9, 2007
    
    The PRC
    
    100%
    
    Research and developmentJiangsu Yangguang Solar
Technology Co., Ltd. (Yangguang
Solar)
    
    July 31, 2007
    
    The PRC
    
    100%
    
    Manufacturing of silicon ingots
  F-9




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Principles of Consolidation
  Investments
 The Equity Method of Accounting for
Investments in Common Stock
  Foreign Currency
 Foreign Currency
Translation
 Convenience Translation
  Use of Estimates
   F-10




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Cash and Cash Equivalents
  Restricted Cash
  Accounts Receivable
  Debt Issuance Costs
  Inventories
  Fixed Assets
  Buildings
    
    20 yearsPlant and machinery
    
    10 yearsFurniture, fixtures and office equipment
    
    5 yearsComputer software
    
    5 yearsMotor vehicles
    
    5 years
  F-11




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Fixed Assets (Contd)
    Intangible Asset
    F-12




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Goodwill
       F-13




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Impairment of Long-Lived Assets
   Fair Value of Financial Instruments
   Financial Instruments  Embedded Foreign Currency Derivatives
  Financial Instrument  Foreign Currency Derivative Contracts
     F-14




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Revenue Recognition
    Accounting for Purchases and Sales of Inventory with the Same Counterparty
   F-15




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Cost of Revenue
  Research and Development Costs
  Advertising Expenditure
  Warranty Cost
  Government Grants
  Accounting for Income Taxes and Uncertain Tax Positions
 Accounting for Income Taxes
  F-16




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Accounting for Income Taxes and Uncertain Tax Positions (Contd)
 Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109
   Value-Added Tax (VAT)
  Leases
   F-17




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Net Income (Loss) Per Share
 Earnings Per Share
 Stock Compensation
 Share-Based Payment Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services
   Comparative Financial Statements
   F-18




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Recent Accounting Pronouncements
 Business Combinations Recognition of Liabilities in Connection
with a Purchase Business Combination
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
   F-19




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Recent Accounting Pronouncements (Contd)
 Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133
  The Hierarchy of Generally Accepted Accounting
Principles
  F-20




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Recent Accounting Pronouncements (Contd)
    Concentration of Risks
 Concentration of credit risk
   F-21




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Concentration of Risks (Contd)
 Concentration of credit risk (Contd)
     F-22




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Concentration of Risks (Contd)
 Concentration of customers
  Concentration of suppliers
   F-23




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
 Concentration of Risks (Contd)
 Current vulnerability due to certain other concentrations
      F-24




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 3. ASSET ACQUISITION
  RMB000
    
    
    US$000Net assets acquired:Property, plant and equipment
    
    
    17,685
    
    
    
    2,592Intangible assets
    
    
    82,324
    
    
    
    12,066Deferred tax assets
    
    
    3,792
    
    
    
    556Current assets
    
    
    3,907
    
    
    
    573Cash and bank balances
    
    
    3,233
    
    
    
    474Current liabilities
    
    
    (14,979
    )
    
    
    (2,196
    )Deferred tax liability
    
    
    (9,118
    )
    
    
    (1,336
    )Minority interest
    
    
    (35,593
    )
    
    
    (5,217
    )51,251
    
    
    
    7,512Cash paid
    
    
    51,251
    
    
    
    7,512
 4. BUSINESS COMBINATION
  RMB000
    
    
    US$000Property, plant and equipment
    
    
    162,313
    
    
    
    23,791Intangible assets
    
    
    96,657
    
    
    
    14,167Deferred tax assets
    
    
    3,843
    
    
    
    563Current assets
    
    
    157,295
    
    
    
    23,055Current liabilities
    
    
    (90,386
    )
    
    
    (13,248
    )Non-current liabilities
    
    
    (88,800
    )
    
    
    (13,015
    )Deferred tax liability
    
    
    (19,125
    )
    
    
    (2,803
    )Goodwill
    
    
    134,735
    
    
    
    19,749356,532
    
    
    
    52,259Cash consideration (Note a)
    
    
    355,872
    
    
    
    52,162Cost of acquisition
    
    
    660
    
    
    
    97Total purchase consideration
    
    
    356,532
    
    
    
    52,259
    F-25




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 5. ACCOUNTS RECEIVABLE
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Beginning balance
    
    
    11,323
    
    
    
    2,619
    
    
    
    384Provision for doubtful debt
    
    
    2,070
    
    
    
    
    
    
    
    Written-off
    
    
    (10,774
    )
    
    
    (352
    )
    
    
    (52
    )Ending balance
    
    
    2,619
    
    
    
    2,267
    
    
    
    332
 6. INVENTORIES  NET
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Raw materials
    
    
    299,059
    
    
    
    488,582
    
    
    
    71,613Work-in-progress
    
    
    237,486
    
    
    
    56,498
    
    
    
    8,281Finished goods
    
    
    191,935
    
    
    
    186,628
    
    
    
    27,355728,480
    
    
    
    731,708
    
    
    
    107,249
   F-26




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 7. ADVANCE TO SUPPLIERS
  8. OTHER CURRENT ASSETS
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)VAT recoverable
    
    
    132,901
    
    
    
    141,868
    
    
    
    20,794Other receivables
    
    
    52,192
    
    
    
    123,989
    
    
    
    18,174Prepaid expenses
    
    
    29,385
    
    
    
    215,892
    
    
    
    31,644214,478
    
    
    
    481,749
    
    
    
    70,612
  F-27




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 8.
OTHER CURRENT ASSETS (CONTD)
    9. FIXED ASSETS  NET
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Buildings
    
    
    87,040
    
    
    
    190,933
    
    
    
    27,986Plant and machinery
    
    
    398,938
    
    
    
    881,210
    
    
    
    129,162Furniture, fixtures and office equipment
    
    
    7,074
    
    
    
    23,769
    
    
    
    3,484Computer software
    
    
    584
    
    
    
    1,764
    
    
    
    259Motor vehicles
    
    
    4,966
    
    
    
    7,542
    
    
    
    1,105Construction-in-progress
    
    
    238,268
    
    
    
    485,877
    
    
    
    71,217736,870
    
    
    
    1,591,095
    
    
    
    233,213Less: Accumulated depreciation
    
    
    (33,986
    )
    
    
    (98,520
    )
    
    
    (14,441
    )702,884
    
    
    
    1,492,575
    
    
    
    218,772
   F-28




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 10. INTANGIBLE ASSETS  NET
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Land use rightsCost
    
    
    95,328
    
    
    
    219,253
    
    
    
    32,138Less: Land use rights disposal
    
    
    
    
    
    
    (3,555
    )
    
    
    (522
    )Less: Accumulated amortization
    
    
    (1,046
    )
    
    
    (2,962
    )
    
    
    (434
    )94,282
    
    
    
    212,736
    
    
    
    31,182
    11. GOODWILL
  As of December 31,2008
    
    
    2008(RMB000)
    
    
    (US$000)Beginning balance
    
    
    
    
    
    
    Goodwill acquired during the year
    
    
    134,735
    
    
    
    19,749Ending balance
    
    
    134,735
    
    
    
    19,749
  F-29




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 12. LONG-TERM DEFERRED EXPENSES
 As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Convertible bond issuance costs (Note 26)
    
    
    44,385
    
    
    
    37,444
    
    
    
    5,488Advanced payments
    
    
    170,000
    
    
    
    
    
    
    
    214,385
    
    
    
    37,444
    
    
    
    5,488
       F-30




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 13. INVESTMENT
   14. BANK BORROWINGS
 As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Total bank borrowings
    
    
    980,002
    
    
    
    1,298,832
    
    
    
    190,375Comprised of:Short-term
    
    
    965,002
    
    
    
    1,098,832
    
    
    
    161,060Long-term, current portion
    
    
    15,000
    
    
    
    30,000
    
    
    
    4,397980,002
    
    
    
    1,128,832
    
    
    
    165,457Long-term, non-current portion
    
    
    
    
    
    
    170,000
    
    
    
    24,918980,002
    
    
    
    1,298,832
    
    
    
    190,375
    F-31




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 14. BANK BORROWINGS (CONTD)
  December 31, 2007
 Amount
    
    
    Secured/guaranteed by(RMB000)20,000
    
    
    Guaranteed by Huaerli (Nantong) Electronics Co., Ltd., a company whose controlling owner is also a
significant shareholder of the Company.278,668
    
    
    Jointly guaranteed by (i) Linyang Electronics Co., Ltd., a company whose controlling owner is also a
significant shareholder of the Company, (ii) a significant shareholder of the Company together with
his spouse, (iii) Qidong Huahong Electronics Co., Ltd., a company whose controlling owner is also a
significant shareholder of the Company, and (iv) the Groups land use right of RMB4,595,937 (Note
10)103,600
    
    
    Jointly guaranteed by (i) Linyang Electronics Co., Ltd., (ii) Solarfun Power Holdings Co., Ltd.60,000
    
    
    Jointly guaranteed by (i) Linyang Electronics Co., Ltd., (ii) Huaerli (Nantong) Electronics Co., Ltd.497,734
    
    
    Guaranteed by Linyang Electronics Co., Ltd.20,000
    
    
    Jointly guaranteed by a significant shareholder of the Company and land use rights of RMB19,805,901.980,002
 December 31, 2008
 Amount
    
    
    Secured/guaranteed by(RMB000)430,000
    
    
    Jointly guaranteed by (i)Solarfun Power Holdings Co., Ltd.
(ii)The Groups land use rights with net book value in aggregate
of RMB36,491,430 (US$5,348,689) (Note 10).160,832
    
    
    Guaranteed by Solarfun Power Holdings Co., Ltd.73,000
    
    
    Guaranteed by Yangguang Solar550,000
    
    
    Guaranteed by Linyang Solarfun30,000
    
    
    Jointly guaranteed by (i) Linyang Solarfun (ii) Letter of credit
provided by the Companys customer which amounted to
RMB30,000,000 (US$4,397,215)55,000
    
    
    Guaranteed by letter of credit provided by the Companys
customer which amounted to RMB50,000000 (US$7,328,692)1,298,832
  F-32




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 14. BANK BORROWINGS (CONTD)
  December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Within 1 year
    
    
    15,000
    
    
    
    30,000
    
    
    
    4,397Within 1-2 years
    
    
    
    
    
    
    90,000
    
    
    
    13,192Within 2-3 years
    
    
    
    
    
    
    80,000
    
    
    
    11,72615,000
    
    
    
    200,000
    
    
    
    29,315
  15. ACCRUED EXPENSES AND OTHER LIABILITIES
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Consideration payable (Note 4)
    
    
    
    
    
    
    55,605
    
    
    
    8,150Accrued warranty costs (Note 16)
    
    
    20,957
    
    
    
    48,635
    
    
    
    7,129Accrued wages
    
    
    16,098
    
    
    
    23,947
    
    
    
    3,510Interest payable for convertible bonds
    
    
    
    
    
    
    19,246
    
    
    
    2,821Income tax payable
    
    
    4,430
    
    
    
    6,306
    
    
    
    924Accrued professional service fees
    
    
    13,204
    
    
    
    7,958
    
    
    
    1,167Accrued land estate tax
    
    
    4,800
    
    
    
    7,534
    
    
    
    1,104VAT payable
    
    
    1,941
    
    
    
    1,779
    
    
    
    261Accrued interest expenses for bank borrowings
    
    
    2,186
    
    
    
    1,339
    
    
    
    196Payables relating to issuance of convertible bonds
    
    
    44,385
    
    
    
    
    
    
    
    Accrued fixed asset purchase
    
    
    8,781
    
    
    
    
    
    
    
    Accrued processing cost
    
    
    4,812
    
    
    
    
    
    
    
    Accrued sales commission
    
    
    3,015
    
    
    
    
    
    
    
    Other accrued expenses
    
    
    7,352
    
    
    
    13,290
    
    
    
    1,948Other liabilities
    
    
    3,434
    
    
    
    3,389
    
    
    
    497135,395
    
    
    
    189,028
    
    
    
    27,707
   F-33




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 16. ACCRUED WARRANTY COSTS
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Beginning balance
    
    
    7,550
    
    
    
    20,957
    
    
    
    3,072Warranty provision
    
    
    23,109
    
    
    
    46,565
    
    
    
    6,825Reversal of expired warranty accrual
    
    
    (1,520
    )
    
    
    
    
    
    
    Warranty claims paid
    
    
    (8,182
    )
    
    
    (18,887
    )
    
    
    (2,768
    )Ending balance
    
    
    20,957
    
    
    
    48,635
    
    
    
    7,129
 17. CUSTOMER DEPOSITS
  18. NOTES PAYABLE
  19. DERIVATIVE CONTRACTS
 As of December 31,2008
    
    
    2008(RMB000)
    
    
    (US$000)Financial assets:Foreign exchange derivative contracts (not
designated as hedging instruments)
    
    
    39,665
    
    
    
    5,814Financial liabilities:Foreign exchange derivative contracts (not
designated as hedging instruments)
    
    
    5,792
    
    
    
    849
  As of December 31, 2008Carrying Value
    
    
    Fair value(RMB000)
    
    
    (US$000)
    
    
    (RMB000)
    
    
    (US$000)Foreign exchange derivative contracts 
Financial assets
    
    
    39,665
    
    
    
    5,814
    
    
    
    39,665
    
    
    
    5,814Foreign exchange derivative contracts 
Financial liabilities
    
    
    5,792
    
    
    
    849
    
    
    
    5,792
    
    
    
    849
  F-34




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 20. SERIES A REDEEMABLE CONVERTIBLE PREFERENCE SHARES
      21. ISSUANCE OF ORDINARY SHARES FROM ADDITIONAL EQUITY OFFERING
   F-35




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 22. STATUTORY RESERVES
   For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)General Reserve Fund
    
    
    13,779
    
    
    
    21,524
    
    
    
    10,090
    
    
    
    1,479Enterprise Expansion Fund
    
    
    749
    
    
    
    
    
    
    
    
    
    
    
    Staff Welfare and Bonus Fund
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,528
    
    
    
    21,524
    
    
    
    10,090
    
    
    
    1,479
 23. STOCK COMPENSATION EXPENSE
    F-36




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 24. SHARE OPTION PLANS
     Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    AggregateNumber of
    
    
    exercise
    
    
    remaining
    
    
    intrinsicoptions
    
    
    price
    
    
    contractual life
    
    
    value(US$)
    
    
    (Years)
    
    
    (US$)Outstanding, January 1, 2007
    
    
    8,012,998
    
    
    
    1.80Granted
    
    
    4,905,667
    
    
    
    2.96Exercised
    
    
    (504,500
    )
    
    
    1.80
    
    
    
    
    
    
    
    2,223,455Forfeited/Cancelled
    
    
    (4,308,665
    )
    
    
    1.83Outstanding, December 31, 2007
    
    
    8,105,500
    
    
    
    2.48
    
    
    
    8.92
    
    
    
    32,827,275Granted
    
    
    5,687,900
    
    
    
    2.12Exercised
    
    
    (915,600
    )
    
    
    1.86
    
    
    
    
    
    
    
    2,350,166Forfeited
    
    
    (1,493,000
    )
    
    
    2.44Outstanding, December 31, 2008
    
    
    11,384,800
    
    
    
    2.35
    
    
    
    8.22
    
    
    
    12,000
  F-37




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 24. SHARE OPTION PLANS (CONTD)
 Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    AggregateNumber of
    
    
    exercise
    
    
    remaining
    
    
    intrinsicoptions
    
    
    price
    
    
    contractual life
    
    
    valueVested and expected to be
vested at December 31, 2008
    
    
    11,384,800
    
    
    
    2.35
    
    
    
    8.22
    
    
    
    12,000Exercisable at December 31, 2008
    
    
    1,813,900
    
    
    
    2.36
    
    
    
    7.92
    
    
    
    0
       F-38




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 24. SHARE OPTION PLANS (CONTD)
  WeightedaverageNumber of
    
    
    grant dateRSUs
    
    
    fair value(US$)Unvested, January 1, 2007
    
    
    
    
    
    
    Granted
    
    
    59,994
    
    
    
    16.35Vested
    
    
    (19,998
    )
    
    
    16.35Forfeited/Cancelled
    
    
    
    
    
    
    Unvested, December 31, 2007
    
    
    39,996
    
    
    
    16.35Granted
    
    
    122,500
    
    
    
    20.06Vested
    
    
    (24,998
    )
    
    
    15.69Forfeited
    
    
    
    
    
    
    Unvested, December 31, 2008
    
    
    137,498
    
    
    
    19.78
     F-39




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 24. SHARE OPTION PLANS (CONTD)
  Granted in 2007
    
    Granted in 2008Risk-free interest rate
    
    3.85%  5.05%
    
    2.12%  4.03%Expected life (years)
    
    5.25  6.29 years
    
    Not applicableExpected dividend yield
    
    0%
    
    0%Expected volatility
    
    65%  86%
    
    75%  80%Sub optimal early exercise factor
    
    Not applicable
    
    4 timesFair value of options at grant date per share
    
    From US$1.32 to US$ 4.87
    
    From US$0.69 to US$ 4.19
   For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Cost of revenue
    
    
    123
    
    
    
    3,200
    
    
    
    3,825
    
    
    
    561Selling expenses
    
    
    19
    
    
    
    905
    
    
    
    3,617
    
    
    
    530General and administrative expenses
    
    
    2,223
    
    
    
    24,489
    
    
    
    26,414
    
    
    
    3,871Research and development expenses
    
    
    517
    
    
    
    1,046
    
    
    
    969
    
    
    
    1422,882
    
    
    
    29,640
    
    
    
    34,825
    
    
    
    5,104
  F-40




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 25. REDEEMABLE ORDINARY SHARES
   26. CONVERTIBLE BONDS
      F-41




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 26.
CONVERTIBLE BONDS (CONTD)
     F-42




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 27. GOVERNMENT GRANTS
  28. INCOME TAXES
 Current Taxation
       F-43




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 28. INCOME TAXES (CONTD)
 Current
Taxation (Contd)
   For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Non-PRC
    
    
    (28,234
    )
    
    
    (59,395
    )
    
    
    5,562
    
    
    
    815PRC
    
    
    131,324
    
    
    
    211,766
    
    
    
    (264,961
    )
    
    
    (38,836
    )103,090
    
    
    
    152,371
    
    
    
    (259,399
    )
    
    
    (38,021
    )
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Current
    
    
    (172
    )
    
    
    (8,158
    )
    
    
    (65,940
    )
    
    
    (9,666
    )Deferred
    
    
    3,304
    
    
    
    700
    
    
    
    59,421
    
    
    
    8,7103,132
    
    
    
    (7,458
    )
    
    
    (6,519
    )
    
    
    (956
    )
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Income tax computed at the statutory
tax rate at 33% for Year 2006 and year
2007 and 25% for Year 2008
    
    
    (34,020
    )
    
    
    (50,282
    )
    
    
    64,850
    
    
    
    9,505Non-deductible expenses
    
    
    (4,337
    )
    
    
    (1,600
    )
    
    
    (2,804
    )
    
    
    (411
    )Tax holidays
    
    
    39,636
    
    
    
    51,708
    
    
    
    (32,533
    )
    
    
    (4,768
    )Research & Development expense
    
    
    
    
    
    
    
    
    
    
    1,104
    
    
    
    162Preferential tax rate
    
    
    8,808
    
    
    
    13,018
    
    
    
    
    
    
    
    Tax rate differences
    
    
    (10,049
    )
    
    
    (19,601
    )
    
    
    (24,870
    )
    
    
    (3,645
    )Deferred tax benefit including change in
tax rate
    
    
    3,304
    
    
    
    355
    
    
    
    2,130
    
    
    
    312Tax credit
    
    
    
    
    
    
    
    
    
    
    16,923
    
    
    
    2,480Changes in the valuation allowance
    
    
    (210
    )
    
    
    (1,056
    )
    
    
    (31,319
    )
    
    
    (4,591
    )3,132
    
    
    
    (7,458
    )
    
    
    (6,519
    )
    
    
    (956
    )
  F-44




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 28. INCOME TAXES (CONTD)
 Current
Taxation (Contd)
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB)
    
    
    (RMB)
    
    
    (RMB)
    
    
    (US$)Basic
    
    
    0.47
    
    
    
    0.22
    
    
    
    (0.13
    )
    
    
    (0.02
    )Diluted
    
    
    0.34
    
    
    
    0.22
    
    
    
    (0.13
    )
    
    
    (0.02
    )
 Deferred taxation
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Deferred tax assets:Current:- Tax Credit
    
    
    
    
    
    
    7,569
    
    
    
    1,110- Warranty provision
    
    
    2,620
    
    
    
    6,079
    
    
    
    892- Inventory write-off
    
    
    79
    
    
    
    63,890
    
    
    
    9,364- Allowance for advances to supplier
    
    
    
    
    
    
    5,245
    
    
    
    769- Allowance for doubtful accounts
    
    
    327
    
    
    
    284
    
    
    
    41- Other
    
    
    
    
    
    
    315
    
    
    
    46Valuation allowance
    
    
    
    
    
    
    (25,390
    )
    
    
    (3,721
    )Net current deferred tax assets
    
    
    3,026
    
    
    
    57,992
    
    
    
    8,501Non-Current:- Pre-operating expenses
    
    
    1,340
    
    
    
    1,047
    
    
    
    153- Tax losses
    
    
    936
    
    
    
    999
    
    
    
    146- Fixed assets
    
    
    6,576
    
    
    
    9,886
    
    
    
    1,449- Long-term deferred expense
    
    
    260
    
    
    
    258
    
    
    
    38- Other
    
    
    35
    
    
    
    35
    
    
    
    5Valuation allowance
    
    
    (4,380
    )
    
    
    (7,736
    )
    
    
    (1,134
    )Net non-current deferred tax assets
    
    
    4,767
    
    
    
    4,489
    
    
    
    657Deferred tax liabilities:Current:- Other
    
    
    
    
    
    
    1,416
    
    
    
    207Current deferred tax liabilities
    
    
    
    
    
    
    1,416
    
    
    
    207Non-Current:- Land use rights
    
    
    9,038
    
    
    
    27,155
    
    
    
    3,980
  F-45




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 28. INCOME TAXES (CONTD)
 Deferrd Taxation (Contd)
    FIN 48 Implementation
    F-46




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 28. INCOME TAXES (CONTD)
 FIN
48 Implementation (Contd)
  2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Beginning balance
    
    
    
    
    
    
    
    
    
    
    Incurred during the year
    
    
    
    
    
    
    27,385
    
    
    
    4,014Ending balance
    
    
    
    
    
    
    27,385
    
    
    
    4,014
  29. RELATED PARTY TRANSACTIONS
 Name and Relationship with Related Parties
 Name of related party
    
    Relationship with the GroupLinyang Electronics Co., Ltd. (Linyang Electronics)
    
    Controlling owner is also
a significant shareholder
of the CompanyNantong Linyang Intelligent Equipment Co., Ltd.
(Intelligent Equipment)
    
    Controlling owner is also
a significant shareholder
of the CompanyHuaerli (Nantong) Electronics Co., Ltd. (Huaerli
Nantong)
    
    Controlling owner is also
a significant shareholder
of the CompanyQidong Huahong Electronics Co., Ltd. (Qidong
Huahong)
    
    Controlling owner is also
a significant shareholder
of the CompanyLinyang Agricultural Development (Nantong) Co., Ltd.
(Linyang Agricultural)
    
    Controlling owner is also
a significant shareholder
of the CompanyNantong Linyang Ecological Cultural Co., Ltd
(Linyang Ecological)
    
    Controlling owner is also
a significant shareholder
of the CompanyNantong Linyang Electric Power Investment Co., Ltd.
(Nantong Linyang)
    
    Controlling owner is also
a significant shareholder
of the CompanyHong Kong Huaerli Trading Co., Ltd. (Hong Kong
Huaerli)
    
    Controlling owner is also
a significant shareholder
of the CompanyShanghai Linyang Electronics Technology Co., Ltd.
(Linyang Technology)
    
    Controlling owner is also
a significant shareholder
of the CompanyQidong Jiaotong Engineering Co., Ltd. (Jiaotong
Engineering)
    
    Controlling owner is also
a significant shareholder
of the CompanyNantong Linyang Labor Service Company (Linyang
Labor Service)
    
    Controlling owner is also
a significant shareholder
of the CompanyYa An Yongwang Silicon Co., Ltd.(Ya An)
    
    Controlling owner is also
a significant shareholder
of the Company
  F-47




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 29. RELATED PARTY TRANSACTIONS (CONTD)
 Significant Related Party Transactions
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Purchase of raw materials from:- Linyang Electronics
    
    
    2,631
    
    
    
    24,355
    
    
    
    39,156
    
    
    
    5,739- Ya An
    
    
    
    
    
    
    
    
    
    
    7,436
    
    
    
    1,090- Linyang Ecological
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    9- Jiaotong Engineering
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    - Huerli Nantong
    
    
    23,762
    
    
    
    
    
    
    
    
    
    
    
    Purchase of services from:- Linyang Ecological
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    65- Linyang Labor Service
    
    
    
    
    
    
    
    
    
    
    1,803
    
    
    
    264Purchase of fixed assets and land use rights from:- Linyang Electronics
    
    
    
    
    
    
    1,207
    
    
    
    2,374
    
    
    
    348- Jiaotong Engineering
    
    
    
    
    
    
    681
    
    
    
    615
    
    
    
    90- Linyang Ecological
    
    
    
    
    
    
    
    
    
    
    314
    
    
    
    46- Qidong Huahong
    
    
    26,460
    
    
    
    
    
    
    
    
    
    
    
    Advances from:- Linyang Electronics
    
    
    105,900
    
    
    
    
    
    
    
    
    
    
    
    - Linyang Agricultural
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    Loans from:- Hong Kong Huaerli
    
    
    
    
    
    
    73,046
    
    
    
    64,668
    
    
    
    9,479- Nantong Linyang
    
    
    
    
    
    
    7,000
    
    
    
    
    
    
    
    - Qitian Group
    
    
    
    
    
    
    4,253
    
    
    
    
    
    
    
    Loan interest:- Hong Kong Huaerli
    
    
    
    
    
    
    
    
    
    
    1,385
    
    
    
    203- Nantong Linyang
    
    
    
    
    
    
    221
    
    
    
    137
    
    
    
    20Expenses incurred in relation to guarantee provided by- Linyang Electronics
    
    
    
    
    
    
    6,717
    
    
    
    10,064
    
    
    
    1,475Factory leased from:- Linyang Electronics
    
    
    
    
    
    
    1,234
    
    
    
    6,084
    
    
    
    892Purchase of Yangguang Solar from:- Nantong Linyang
    
    
    
    
    
    
    
    
    
    
    133,452
    
    
    
    19,561Disposal of an associate to the related party:- Linyang Technology
    
    
    
    
    
    
    
    
    
    
    200
    
    
    
    29Advance paid to the related party:- Linyang Labor Service
    
    
    
    
    
    
    
    
    
    
    309
    
    
    
    45- Linyang Electronics
    
    
    
    
    
    
    6,326
    
    
    
    9,026
    
    
    
    1,323- Linyang Ecological
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    
   F-48




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 29. RELATED PARTY TRANSACTIONS (CONTD)
 Balances with Related Parties
  As of December 31,2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Amount due from related parties:- Others
    
    
    920
    
    
    
    19
    
    
    
    3- Weighted average balances
    
    
    230
    
    
    
    5
    
    
    
    1Amount due to related parties:- Nantong Linyang
    
    
    7,221
    
    
    
    33,363
    
    
    
    4,890- Linyang Electronics
    
    
    7,378
    
    
    
    4,098
    
    
    
    601- Hong Kong Huaerli
    
    
    73,046
    
    
    
    
    
    
    
    - Qidong Huahong
    
    
    
    
    
    
    
    
    
    
    - Qitian Group
    
    
    3,452
    
    
    
    
    
    
    
    - Others
    
    
    1,642
    
    
    
    2,305
    
    
    
    33892,739
    
    
    
    39,766
    
    
    
    5,829
   For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)- Nantong Linyang
    
    
    
    
    
    
    2,844
    
    
    
    15,407
    
    
    
    2,258- Linyang Electronics
    
    
    2,590
    
    
    
    3,192
    
    
    
    6,107
    
    
    
    895- Hong Kong Huaerli
    
    
    
    
    
    
    14,609
    
    
    
    14,609
    
    
    
    2,141- Qidong Huahong
    
    
    21,896
    
    
    
    4,850
    
    
    
    
    
    
    
    - Qitian Group
    
    
    
    
    
    
    1,244
    
    
    
    
    
    
    
    - Others
    
    
    
    
    
    
    291
    
    
    
    679
    
    
    
    100
  30. EMPLOYEE DEFINED CONTRIBUTION PLAN
   F-49




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 31. COMMITMENTS AND CONTINGENCIES
 Acquisition of machineries
  Operating lease commitments
  For the year endedDecember 31, 2008(RMB000)
    
    
    (US$000)Within 1 year
    
    
    5,436
    
    
    
    797Within 1-2 years
    
    
    3,977
    
    
    
    583Within 2-3 years
    
    
    2,008
    
    
    
    294Within 3-4 years
    
    
    43
    
    
    
    6Within 4-5 years
    
    
    
    
    
    
    Total
    
    
    11,464
    
    
    
    1,680
  Purchase of raw materials
  For the year endedDecember 31, 2008(RMB000)
    
    
    (US$000)Within 1 year
    
    
    4,492,484
    
    
    
    658,481Within 1-2 years
    
    
    1,606,706
    
    
    
    235,501Within 2-3 years
    
    
    1,065,478
    
    
    
    156,171Within 3-4 years
    
    
    1,090,871
    
    
    
    159,893Within 4-5 years
    
    
    1,061,550
    
    
    
    155,595Over 5 years
    
    
    1,030,623
    
    
    
    151,06310,347,712
    
    
    
    1,516,704
   F-50




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 31. COMMITMENTS AND CONTINGENCIES (CONTD)
 Purchase of land use rights
  For the year endedDecember 31, 2008(RMB000)
    
    
    (US$000)Within 1 year
    
    
    9,786
    
    
    
    1,434
 Income Taxes
  32. SEGMENT REPORTING
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Germany
    
    
    197,728
    
    
    
    1,195,788
    
    
    
    2,637,434
    
    
    
    386,579Spain
    
    
    179,139
    
    
    
    584,525
    
    
    
    1,246,305
    
    
    
    182,676The PRC
    
    
    36,219
    
    
    
    200,615
    
    
    
    329,153
    
    
    
    48,245Italy
    
    
    204,715
    
    
    
    92,900
    
    
    
    119,272
    
    
    
    17,482Others
    
    
    13,106
    
    
    
    321,307
    
    
    
    616,904
    
    
    
    90,422Total net revenue
    
    
    630,907
    
    
    
    2,395,135
    
    
    
    4,949,068
    
    
    
    725,404
   F-51




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 33. MAJOR CUSTOMERS
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)SCHUCO
    
    
    *
    
    
    
    *
    
    
    
    1,099,736
    
    
    
    161,193Solar Projekt Energysystem GmbH
    
    
    70,409
    
    
    
    300,742
    
    
    
    *
    
    
    
    *S.E. Project S.R.L.
    
    
    203,133
    
    
    
    *
    
    
    
    *
    
    
    
    *Social Capital S.L.
    
    
    175,939
    
    
    
    *
    
    
    
    *
    
    
    
    *Suntaics
    
    
    54,856
    
    
    
    *
    
    
    
    *
    
    
    
    *
 *
    
    Less than 10%. 34. INCOME (LOSS) PER SHARE
  For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Numerator:Net income (loss)
    
    
    105,921
    
    
    
    148,036
    
    
    
    (280,491
    )
    
    
    (41,113
    )Dividends allocated to Preference Shareholders
    
    
    (7,226
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) attributable to ordinary shareholders
    
    
    98,695
    
    
    
    148,036
    
    
    
    (280,491
    )
    
    
    (41,113
    )Denominator:Number of shares outstanding, opening
    
    
    100,350,000
    
    
    
    239,994,754
    
    
    
    240,599,244
    
    
    
    240,599,244Weighted average number of shares issued during the year
    
    
    
    
    
    
    
    
    
    
    11,293,944
    
    
    
    11,293,944New ordinary shares issued from IPO
    
    
    1,972,603
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Preference Share
    
    
    1,309,229
    
    
    
    
    
    
    
    
    
    
    
    New ordinary shares issued in connection with exercise
of options and vesting of RSUs
    
    
    
    
    
    
    59,932
    
    
    
    766,426
    
    
    
    766,426Weighted average number of shares outstanding  basic
    
    
    103,631,832
    
    
    
    240,054,686
    
    
    
    252,659,614
    
    
    
    252,659,614Effect of Preference Shares
    
    
    38,476,628
    
    
    
    
    
    
    
    Weighted average number of shares outstanding  diluted
    
    
    142,108,460
    
    
    
    240,054,686
    
    
    
    252,659,614
    
    
    
    252,659,614Basic net income (loss) per share
    
    RMB
    0.95
    
    
    RMB
    0.62
    
    
    RMB
    (1.11
    )
    
    RMB
    (0.16
    )Diluted net income (loss) per share
    
    RMB
    0.74
    
    
    RMB
    0.62
    
    
    RMB
    (1.11
    )
    
    RMB
    (0.16
    )
    F-52




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 35. FAIR VALUE MEASUREMENT
        
 Fair value measurementat December 31, 2008using Significant Other
    
    
    Total Fair Value atObservable Inputs (Level 2)
    
    
    December 31, 2008RMB000
    
    
    (RMB000)
    
    
    (US$000)Foreign currency derivative- Financial assets
    
    
    39,665
    
    
    
    39,665
    
    
    
    5,814- Financial liabilities
    
    
    5,792
    
    
    
    5,792
    
    
    
    849
 36. SUBSEQUENT EVENTS
  Bank Financing
   F-53




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 36. SUBSEQUENT EVENTS (CONTD)
 LDK Arbitration
  37. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY
  Balance Sheets
 As of December 31,Note
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    6,613
    
    
    
    10,133
    
    
    
    1,485Other receivables
    
    
    
    
    
    
    2,290
    
    
    
    1,773
    
    
    
    260Deferred expenses
    
    
    
    
    
    
    1,902
    
    
    
    1,863
    
    
    
    273Amount due from subsidiaries
    
    
    b
    
    
    
    1,015,353
    
    
    
    2,594,889
    
    
    
    380,343Financial assets
    
    
    
    
    
    
    
    
    
    
    33,787
    
    
    
    4,952Total current assets
    
    
    
    
    
    
    1,026,158
    
    
    
    2,642,445
    
    
    
    387,313Non-current assets:Long-term deferred expenses
    
    
    c
    
    
    
    44,385
    
    
    
    36,871
    
    
    
    5,404Investment in subsidiaries
    
    
    a
    
    
    
    856,675
    
    
    
    659,087
    
    
    
    96,605Total non-current assets
    
    
    
    
    
    
    901,060
    
    
    
    695,958
    
    
    
    102,009Total assets
    
    
    
    
    
    
    1,927,218
    
    
    
    3,338,403
    
    
    
    489,322LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Other payables
    
    
    d
    
    
    
    48,414
    
    
    
    19,805
    
    
    
    2,903Amount due to subsidiaries
    
    
    b
    
    
    
    16,222
    
    
    
    20,715
    
    
    
    3,036Total current liabilities
    
    
    
    
    
    
    64,636
    
    
    
    40,520
    
    
    
    5,939Non-current liabilities:Long-term loan
    
    
    a
    
    
    
    
    
    
    
    1,178,969
    
    
    
    172,806Total non-current assets
    
    
    
    
    
    
    
    
    
    
    1,178,969
    
    
    
    172,806Total Liability
    
    
    
    
    
    
    64,636
    
    
    
    1,219,489
    
    
    
    178,745
  F-54




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 37. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY (CONTD)
 Balance Sheets (Contd)
 As of December 31,Note
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (US$000)Redeemable ordinary shares(par value US$0.0001 per share; nil and 45,098,055 shares issued and outstanding at December 31, 2007 and
December 31, 2008, respectively)
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    5Shareholders EquityOrdinary shares (par value US$0.0001 per share; 500,000,000 and
500,000,000 shares authorized; 241,954,744 shares and 269,060,209 shares issued and outstanding at December 31, 2007 and 2008,
respectively)
    
    
    
    
    
    
    195
    
    
    
    214
    
    
    
    32Additional paid-in capital
    
    
    
    
    
    
    1,601,852
    
    
    
    2,138,624
    
    
    
    313,466Retained earnings (accumulated losses)
    
    
    
    
    
    
    260,535
    
    
    
    (19,956
    )
    
    
    (2,926
    )Total shareholders equity
    
    
    
    
    
    
    1,862,582
    
    
    
    2,118,882
    
    
    
    310,572Total liabilities, mezzanine equity and shareholders equity
    
    
    
    
    
    
    1,927,218
    
    
    
    3,338,403
    
    
    
    489,322
 Statements of Income (loss)
 For the year ended December 31,Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Net revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cost of revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    
    
    
    
    (24,755
    )
    
    
    (11,842
    )
    
    
    (11,548
    )
    
    
    (1,692
    )Operating loss
    
    
    
    
    
    
    (24,755
    )
    
    
    (11,842
    )
    
    
    (11,548
    )
    
    
    (1692
    )Share of profit(loss) from subsidiaries
    
    
    
    
    
    
    134,164
    
    
    
    215,826
    
    
    
    (232,412
    )
    
    
    (34,066
    )Interest income
    
    
    
    
    
    
    107
    
    
    
    13,757
    
    
    
    23
    
    
    
    3Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43,397
    )
    
    
    (6,361
    )Gain due to change in fair value of foreign currency
derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,673
    
    
    
    10,505Exchange loss
    
    
    
    
    
    
    (3,595
    )
    
    
    (69,704
    )
    
    
    (64,830
    )
    
    
    (9,502
    )Income(loss) before tax
    
    
    
    
    
    
    105,921
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income(loss)
    
    
    
    
    
    
    105,921
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )Net income(loss) attributable to ordinary shareholders
    
    
    
    
    
    
    98,695
    
    
    
    148,037
    
    
    
    (280,491
    )
    
    
    (41,113
    )
  F-55




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 37. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY (CONTD)
 Statements of Cash Flows
 For the year ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2008(RMB000)
    
    
    (RMB000)
    
    
    (RMB000)
    
    
    (US$000)Cash flows from operating activities
    
    
    
    
    
    
    (9,787
    )
    
    
    (19,327
    )
    
    
    (2,833
    )Net cash used in investing activities
    
    
    (593,980
    )
    
    
    (1,070,996
    )
    
    
    (1,642,640
    )
    
    
    (240,768
    )Net cash provided by financing activities
    
    
    1,674,686
    
    
    
    6,690
    
    
    
    1,665,486
    
    
    
    244,117Net increase(decrease) in cash and cash equivalents
    
    
    1,080,706
    
    
    
    (1,074,093
    )
    
    
    3,519
    
    
    
    516Cash and cash equivalents at the beginning of year
    
    
    
    
    
    
    1,080,706
    
    
    
    6,613
    
    
    
    969Cash and cash equivalents at the end of year
    
    
    1,080,706
    
    
    
    6,613
    
    
    
    10,132
    
    
    
    1,485
 Notes to the Financial Statements of the Company
   The Equity Method of Accounting for Investments in Common
Stock
       F-56




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##### Table of Contents



SOLARFUN POWER HOLDINGS CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
 37. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY (CONTD)
 Notes to the Financial Statements of the Company (Contd)
          F-57




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description8.1*
    
    Subsidiaries of Solarfun Power Holdings Co., Ltd.12.1*
    
    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
and CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200223.1*
    

Consent
of Independent Registered Public Accounting Firm