UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31, 2010





Commission file number: 333-150768





UNIVERSAL SOLAR TECHNOLOGY, INC.


(Exact name of registrant as specified in its charter)





Nevada



26-0768064(State or other jurisdiction ofincorporation)



(I.R.S. Employer IdentificationNumber)No. 1 Pingbei Road 2,

Nanping Science &

Technology Industrial Park

Zhuhai City, Guangdong

Province

The People’s Republic of

China 519060(Address of principal executiveoffices and zip code)86-756 8682610(Registrant’s telephone number,including area code)





Securities registered under Section 12(b) of the Exchange Act: None




Securities registered under Section 12(g) of the Exchange Act: None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈   No x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x No  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ̈   No  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” or a smaller reporting company in Rule 12b-2 of the Exchange Act.





Large accelerated filer  ̈
Accelerated filer  ̈Non-accelerated filer  ̈
Smaller reporting company x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈  No x





As of June 30, 2010, the registrant’s common stock was not trading on active markets and therefore had no readily determinable market value.





The number of shares outstanding of the registrant’s Common Stock on March 30, 2011: 22,599,974 shares.











TABLE OF CONTENTS




PART I
3ITEM 1.     BUSINESS
3ITEM 1A.  RISK FACTORS
14ITEM 2.     PROPERTIES
25ITEM 3.     LEGAL PROCEEDINGS
26PART II
27ITEM 5.     MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
27ITEM 6.     SELECTED FINANCIAL DATA
27ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
27ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
33ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
34ITEM 9A.  CONTROLS AND PROCEDURES
34ITEM 9B.   OTHER INFORMATION
36PART III
37ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
37ITEM 11.    EXECUTIVE COMPENSATION
38ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
39ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
40ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES
41PART IV
42ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
42SIGNATURES
43INDEX TO FINANCIAL STATEMENTS
44




2


PART I




SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS




On one or more occasions, we may make forward-looking statements in this Annual Report on Form 10-K regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings.




We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K.




Unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” and “the Company” refer specifically to Universal Solar Technology, Inc.




ITEM 1.
BUSINESS




ORGANIZATIONAL HISTORY




Universal Solar Technology, Inc. was incorporated in the State of Nevada on July 24, 2007. It operates through its wholly owned subsidiary, Kuong U Science & Technology (Group) Ltd. (“Kuong U”), a company incorporated in Macau, People’s Republic of China (“PRC”) on May 10, 2007 and its subsidiary, Nanyang Universal Solar Technology Co., Ltd. (“NUST”), a wholly foreign owned enterprise (“WFOE”) registered on September 8, 2008 under the wholly foreign-owned enterprises laws of the PRC.




In 2009, prior to construction of NUST’s factory, which is located in Henan province, PRC, we subcontracted the manufacture of photovoltaic (“PV”) modules and solar lighting systems to Zhuhai Yuemao Laser Facility Engineering Co., Ltd. (“Yuemao Laser”), a related party.  In July 2010, NUST’s newly constructed factory started operations, and in September 2010, began shipping silicon wafers to the market in China.  Since then, we have been devoting ourselves to extending our product lines to include higher value-added products, expanding production capacity, lowering production costs and increasing our market share.




OVERVIEW OF OUR BUSINESS




We primarily manufacture, market and sell silicon wafers to manufacturers of solar cells. In addition, we manufacture PV modules with solar cells purchased from third parties.





Product Line 1 - Silicon Wafers




We produce silicon wafers by extracting purified mono-crystalline silicon from virgin poly-silicon feedstock utilizing mono-crystalline silicon ingot growers. Then we cut the purified mono-crystalline silicon ingots into silicon wafers with multi-wire saws. Silicon wafers are one of the most important components in solar cells.




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  As of December 31, 2010, we have ten mono-crystalline silicon ingot growers. Maximum production capacity of each mono-crystalline silicon ingot grower is approximately one ton of mono-crystalline silicon ingots per month. Our current mono-crystalline silicon ingot production capacity is approximately 120 tons per annum.
  We are also equipped with five multi-wire saws, each of which can produce approximately 70 silicon wafers per kilogram of mono-crystalline silicon ingot. Based on an estimated 2.8 watts (W) per silicon wafer, our current silicon wafer production capacity is approximately 20MW per annum.
  Our manufacturing facilities began its start-up phase in September 2010. During 2010, during our start-up phase, the capacity utilization rate of our silicon wafer production machines fluctuated between 25% and 50%.
  Product Line 2 – PV Modules
  We have two semi-automatic production lines that manufacture PV modules. Our existing production capacity is approximately 20MW of PV modules per annum. During 2010, we produced various types of PV module samples; however we did not produce PV module products in commercial quantities.  Currently, we purchase solar cells from third parties that we use to manufacture PV modules.
  Overview of Properties, Plant and Equipment
  We have acquired land-use rights to 71,346 square meters in Henan Province, PRC for industrial usage.  The land use rights expire on July 23, 2060. We began the construction of our manufacturing facilities on this site in 2008.  As of December 31, 2010, we have completed the construction of two workshops, each of which comprise 2,016 square meters.  Both of these workshops are in operation and we have in the process of constructing an additional three workshops, which we expect to complete by the end of 2011.
  As of December 31, 2010, the net book value of our property, plant and equipment was $6,278,577.
  Operation
  In July 2010, we began manufacturing silicon wafers. In September 2010, we began to ship our silicon wafers to customers primarily located in China. In 2011, we plan to expand sales of our products to the EU, North America and Africa.
  We are also expanding the production capacity of our existing product lines through the Purchase of additional equipment and recruitment of personnel.  We also plan to produce solar cells by ourselves and provide advanced applications of solar energy to complete the value chain of this industry.
  Key Financial Indicators
  During the year ended December 31, 2010, we realized net sales of $2,396,839 and generated a gross profit of $221,372, representing a gross profit margin of 9.2%. Loss from operations for fiscal 2010 was $475,552. Net loss for fiscal 2010 was $593,808.
  As of December 31, 2010, we had cash of $392,958, and a net book value for property, plant, equipment and land-use rights of $6,693,118. At December 31, 2010, we had total liabilities of $10,150,349 and an accumulated deficit of $1,519,274.
  During 2010, we invested $3,594,252 in acquiring property, plant and equipment. We also raised $2,121,212 through short-term loans from local financial institutions at reasonably low interest rates.


4




STRATEGY




Our growth strategy covers various aspect of our business.




First of all, we plan to complete the value chain of solar energy industry by acquiring the ability of producing solar cells.  There are several alternatives to achieve this goal.




(1).
Build up solar cells production facilities. We have reserved a block of land within our existing manufacturing facility in Henan province of the PRC, which can be employed to build up three to four new workshops to produce solar cells. Advantages of setting up solar cells production facility by ourselves include:




a)
Complete product family – If solar cells manufacturing facilities have been successfully built in NUST, we will be able to produce fully range of products of the solar energy industry, namely silicon ingots, silicon wafers, solar cells and PV modules.




b)
Higher profitability - If our plan to build up solar cells manufacturing facility in NUST turns out to be successful, we will gain access to substantially all added-value of the industry chain. Moreover, our overall profitability will be increased due to lower transportation costs of semi-finished products within the production processes, better quality control of products, etc.




However, building up solar cells manufacturing facility requires significant investment on purchasing equipment and building up workshops. It is estimated that $18 million will be needed to build up solar cells production facility. There are also barriers in technological aspect and shortage of qualified personnel.




(2).
Acquiring existing solar cells factory. We are screening solar cells factories that are on the one hand buying our silicon wafers to produce solar cells as our customers; and on the other hand selling solar cells to us to produce PV modules as our suppliers. Acquiring an existing factory is strategically wise for us to achieve the goal of adding our solar cells production capability. The reasons are as follow:




a)
Lower cost of acquisition in terms of monetary resources - As a public company, we are able to acquire solar cells factory through issuing shares as full or partial consideration to its current owners/shareholders to acquire a targeted factory, thus the acquisition requires less monetary resources than otherwise.




b)
Quick expansion – Acquiring an existing solar cells factory requires significantly less time than building up a new one by ourselves. Thus we will be able to access solar cells production capacity in a much quicker fashion.




(3).
Building up strategic relationship with solar cells factory. Acquiring existing solar cells factory also has disadvantages, for example such acquisition normally requires the Company to issue a considerable amount of shares at once, which will be inevitably dilutive to existing shareholders. Evaluation of the value of targeted factory is time consuming and could be difficult, and it also takes efforts to build up the synergy between the mergered companies of different cultures and organization history. Due to the nature of the industry chain, building up strategic relationship through entering into long-term purchasing/selling agreement with solar cells factory is a quick and flexible way to indirectly gain access to solar cells production capacity. At the same time, it is also less reliable and the effect of cost reduction is decreased.




Secondly, we plan to lower down cost of production for each unit product through expansion of existing production capacity. We are purchasing new mono-crystalline silicon growers and multi-wire saws to expand our production capacity. Our hope is to lower down cost of production by producing at a larger scale.




Thirdly, we plan to lower raw materials purchasing price by increasing the amount of purchase. We are in negotiation with virgin poly-silicon suppliers for a lower purchasing price with reasonably large amount of purchase and proper means of payment. For instance, it is estimated that unit price of raw materials will decrease 10% if we buy in bulk.




5




OUR MARKET




As worldwide demand for electricity continues to increase, the electric power industry is facing several challenges:




·
Fossil fuel supply constraints: Limited supply and escalating consumption of coal, oil, and natural gas continue to drive up wholesale electricity prices, resulting in higher electricity costs for consumers.




·
Infrastructure constraints: In many parts of the world, electricity demand exceeds the capacity of existing electricity generation, transmission and distribution infrastructure.




·
Desire for energy security: As political and economic instability in key oil and natural gas producing regions have increased, governments are increasingly focusing on developing reliable and secure energy sources.




·
Environmental concerns: Long-term use of fossil fuels is associated with a range of environmental issues including global warming, air pollution and water pollution, the increased prevalence of which is driving increased environmental awareness.




Electricity Production




The past two decades have witnessed China’s significant increase of electricity production. According to United Nations Statistical Commission, China’s gross electricity production increased from 621,200 million Kilowatt-hours in 1990 to 3,281,553 million Kilowatt-hours in 2007, with compound annual growth rate of 10.3%. Comparably, during the same period, United State’s gross electricity production increased from 3,179,247 million Kilowatt-hours to 4,348,856 million Kilowatt-hours, representing compound annual growth rate of 1.9%. Obviously, China is becoming one of the largest electricity production countries. The following chart underlines gross electricity production of several major countries during the period of 1990 to 2007.









Data source: United Nations Statistical Commission (http://data.un.org)





6


Electricity Production Using Solar Power




Solar power, or solar energy is a source of energy that uses radiation emitted by the Sun. It is a renewable energy source that has been used in many traditional technologies for centuries. Solar power is also in widespread use where other power supplies are absent, such as in remote locations and in space. In recent years, solar energy has been used greatly in the generation of electricity.




Producing electricity with solar power has the following benefits:




Environmental Friendliness and Renewability: Solar power is one of the most environmentally friendly renewable resources available for electricity generation. It does not produce air or water emissions, noise, vibrations or any waste generation.




Peak Energy Generation Ability: Solar power is well-suited to match peak energy needs as maximum sunlight hours generally correspond to peak demand periods when electricity prices are at their highest.




Easily Located with End Users: Unlike other renewable resources such as hydroelectric and wind power, solar power can be utilized anywhere that receives sunlight and directly at the site where the power will be shed. As a result, solar power avoids the expense of, and energy losses associated with, transmission and distribution of electricity from large-scale electrical plants to end users.




No Fluctuations in Operating Costs: Unlike fossil or nuclear fuel, solar energy does not have fuel price volatility. Although there is variability in the amount and timing of sunlight over the day, season and year, a properly sized and configured system can be designed for high reliability while supplying electricity on a long-term, fixed-cost basis.




Reliability and Durability: Without moving parts or the need for periodic maintenance, solar power systems are among the most reliable forms of electricity generation. Accelerated aging tests have shown that solar modules can operate for at least 25 to 30 years without requiring major maintenance.




Modularity: Solar systems are easily modularized and scalable, and therefore can be deployed in many different sizes and configurations to meet the specific needs of the user. Solar modules are increasingly used to serve as both a power generator and the exterior of a building. Like architectural glass, PV modules can be installed on the roofs and facades of residential and commercial buildings.




Given the apparent advantages of solar power-based electricity production, many countries across the world are developing their electricity production capability with solar energy. According to United Nations Statistical Commission, in 1997 Germany produced 8 million Kilowatt-hours with solar power, while it produced 3,075 million Kilowatt-hours in 2007, denoting annual compound annual growth rate of 81.3% but only accounts for 0.5% of Germany’s gross electricity production of the 2007.




Although China has been producing much more electricity than before, its ability of producing electricity with solar power remains weak.




7


Data source: United Nations Statistical Commission (http://data.un.org)




The market for solar electricity production in China is promising. We believe higher demand for solar energy, furthered by concerns about global warming, will drive increases in the annual revenues of the global solar equipment industry. The interest manifested by many electricity customers in solar cells as a “green” alternative to fossil fuels is also likely to spur increases in production of high-purity silicon required for the cells, according to the report by Photon Consulting, a German research group.




Value Chain of Solar Energy Industry




Currently, Universal Solar plans to emphasize the use of silicon based technologies in its products as a majority of installed solar systems around the world employ crystalline silicon technologies. Crystalline silicon cells are manufactured using mono-crystalline silicon, multi-crystalline silicon or string ribbon technology. The crystalline silicon-based solar power manufacturing value chain starts with the processing of quartz sand to produce metallurgical-grade silicon. This material is further purified into semiconductor-grade or solar-grade polysilicon feedstock.




In the most widely used crystalline silicon-based solar manufacturing process, feedstock is melted in mono-crystalline silicon ingot growers, and then formed into ingots through a crystallization process. Ingots are cut and shaped, then sliced into wafers using high precision cutting techniques. Wafers are manufactured into solar cells through a multiple step manufacturing process that entails etching, doping, coating and applying electrical contacts. Solar cells are then interconnected and packaged to form solar modules, which together with system components such as batteries and inverters, are distributed to installers, systems integrators, service providers or directly to end-users, for installation for on-grid or off-grid systems.




8








At current stage, we are capable of producing silicon ingots with virgin poly-silicon feedstock; cutting silicon ingots into wafers; and manufacturing PV modules with solar cells purchased from outside vendors. We plan to manufacture solar cells and other advanced applications to complete the value chain of this industry.




OUR PRODUCTS




At current stage, we have two primary product lines: (1) silicon wafers and (2) PV modules.




Silicon Wafers




Currently, we are producing various types of silicon wafers. Silicon wafers are made of mono-crystalline silicon with purity over 99.9999%. Resistivity varies from one to three ohms.



The shape of silicon wafer is a square with rounded corners. Side length of square is 125mm with diameter of rounded corners of 150mm or 165mm.




PV Modules




Our PV modules are designed for large scale, grid-connected solar power plants. At current stage, we purchase solar cells from outside vendors to produce PV modules.




Solar modules GYSP-160

Characteristics

Open circuit voltage (Voc): 43.2V

Optimum operating voltage (Vmp): 35V

Short circuit current (Isc): 5.1A

Optimum operating current (Imp): 4.59A

Peak power(Pm): 160W

Specifications

Monocrystalline silicon

Dimension (mm): 1588×802×45

Tolerance: ± 5%

Weight: 15.6kg

Maximum system voltage: 1000V DC




9




Solar modules GYSP-175

Characteristics

Open circuit voltage(Voc): 44.06V

Optimum operating voltage:

(Vmp) 35.5V

Short circuit current (Isc): 5.25A

Optimum operating current(Imp):

4.95A

Peak power(Pm): 175W

Specifications

Monocrystalline silicon

Dimension(mm): 1580×808×37

Tolerance: ±5%

Weight: 15.3kg

Maximum system voltage: 1000V DCSolar modules GYSP-180

Characteristics

Open circuit voltage(Voc): 44.9V

Optimum operating voltage:

(Vmp) 38.6V

Short circuit current (Isc): 5.1A

Optimum operating current(Imp): 4.68A

Peak power(Pm): 180W

Specifications

Monocrystalline silicon

Dimension(mm): 1715×802×45

Tolerance: ±5%

Weight: 16.9kg

Maximum system voltage: 1000V DC




OUR PROPERTIES




Land:




On December 1, 2008, NUST acquired a piece of land in the size of approximately 71,345.70 square meters in Fangcheng County, Nanyang City, Henan province of the PRC for a cost of RMB 2,886,300 (approximately $444,046). On July 27, 2010, “Certificate of Right of Use of Land” for this land was issued to NUST.




Factory:




During 2010, we have completed two workshops, office building, dormitory and canteen in NUST’s manufacturing facility in Nanyang City, Henan province of the PRC. We have also made arrangements to build up another three workshops. As of December 31, 2010, three new workshops were completed about 80% of total construction work.




RAW MATERIAL




We do not currently have agreements with any suppliers for our raw materials. Currently, the raw materials used in the manufacture of our products are readily available and to date we have not experienced any difficulty in obtaining any raw materials.  We believe that these raw materials will continue to be readily available for the foreseeable future, and we do not anticipate any difficulties in obtaining any raw materials.




TARGET MARKETS AND PRINCIPAL CUSTOMERS




Our management team has engineering, product development and international sales backgrounds in advanced laser technologies, solar cell manufacturing, and solar manufacturing machinery design and sales.  We intend to leverage our strong industry contacts and relationships to develop a strong global customer pipeline.




At current stage, we mainly provide our products to meet demand of the Chinese market. We also plan to sell our solar cell and solar PV module product to customers in the EU, North America, Asia and Africa when time is right.




In 2010 three customers accounted for approximately 56%, 13% and 11% of sales, no other customer accounted for over 10% of sales.  In 2009, as a result of a one-time sale to a single customer, one customer accounted for approximately 92% of sales.  However, no further sales have been made to this customer and we are not dependent on this customer for any future revenue.




10


SALES AND MARKETING




We intend to develop several sales channels - direct sales, industry specific / country specific manufacturer’s sales representatives, and international strategic partnerships. The Company’s sales strategy is designed to capitalize its existing strong management relationships, rapidly growing market segments and emerging trends. At the current stage, the Company is focusing most of its sales efforts in Chinese market and we plan to explore markets in other countries in the future.




Direct Sales




Our executive team has the unique advantage of being able to leverage relationships from our strategic partner, Yuemao, whose business interests include steel trade, silicon laser technologies, water purifying facilities and real estate investments. The team has developed strong domestic and international relationships through their success in launching and developing an advanced laser technology company, Yuemao Laser, which focuses on serving the needs of the solar wafer and solar industry.




The executive team also handles direct sales activities, while managing operations, product line enhancements, customer care, as well as vendor and agent relationships. A dedicated direct sales force and senior sales executives will be hired to sell to targeted trade channels in China, the US and Europe. This expanded direct sales team is expected to be the major force behind our growth. Emphasis will be given to growing and qualifying large accounts and or high margin products across markets in the European Union member countries.




Manufacturers’ Sales Representatives




We also intend to align ourselves with a number of specialized representatives and performance based contractors. These consist of individuals or small groups, who dedicate their respective sales and marketing efforts to either a limited number of companies or particular industry segments. They are small firms, each with 1-5 salespeople that we may have under contract. They will introduce our higher margin products to potential new customers in new industry segments.




International Distribution & Strategic Partners




We are evaluating potential contracts with a number of strategic distributors and partners in international markets in Asia (outside of China), South America, and Eastern Europe. These distributors will be encouraged to enter into agreements with the Company which require each organization to produce a minimum annual “dollar” sales amount per territory.




Public Relations




We are committed to raising our profile and leveraging additional publicity. To this end, we plan to expand our dialogue with leading industry analysts and trade publications. We plan to have members of our management speak at trade conferences, and contribute articles and press releases to market-specific publications. This will encourage industry analysts to view us as a keen innovator, activist, and campaigner in the promotion of solar power across a variety of applications.




We are planning a communications campaign focusing on trade events, panel discussions, speaking engagements, white papers, pitch letters, press announcements, direct marketing and advertising. The primary goal is to reinforce sales efforts by promoting positive testimonials and success stories from our initial base of clients, while also being an advocate and educator for renewable and sustainable energy sources. By participating in seminars and industry conferences, our management team intends to develop stronger awareness and relationships with current and potential customers.




11


During 2010, we retained Dragon Gate Investment Partners LLC to provide us with investor relations services and have entered into a contract with Business Wire to distribute out new release.




Advertising




We intend to initiate a conservative, yet effective advertising campaign in major trade publications that will identify us as a quality purveyor of new, innovative, and attractively designed solar modules and technologies.




COMPETITION




The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete within the larger electric power industry. Within the renewable energy industry, Universal Solar believes that the main sources of competition are crystalline silicon solar module manufacturers, other thin film solar module manufacturers and companies developing solar thermal and concentrated photovoltaic technologies. Among photovoltaic module and cell manufacturers, the principal methods of competition are price per watt, production capacity, conversion efficiency and reliability. We believe that we can compete favorably with respect to these factors; however, we also believe that our growing focus on providing aesthetically pleasing modular solutions and an array of value added services and products helps further differentiate us from similar peers.




Our product designs, price points, relationships, infrastructure, quality control standards, and industry contacts represent substantial competitive advantages. We maintain a substantially lower cost structure than competitors based in the US and Europe. Foreign competitors currently cannot match us on pricing, technological innovation, and efficient use of low cost manufacturing resources. Furthermore, our competitive advantage in China is protected by significant knowledge of government regulations, business practices, and strong relationships.




With respect to our Chinese competitors, we view our strong marketing abilities and flexibility in rapidly bringing new products to market as our key advantages. It should be noted that many competitors are larger and have more financial resources, larger production capacities and greater brand name recognition which may, as a result, put them in a better position to adapt to changes in the industry or the economy as a whole. Additionally, because global supply of pure silicon is becoming scarce due to high demand in solar-powered appliances and technologies, we are evaluating opportunities to acquire and or enter into a joint-venture with a silicon mine that will help control cost pressures of related rising silicon prices.




PRINCIPAL OFFICE




Our principal office is located at No. 1 Pingbei Road 2, Nanping Science & Technology Industrial Park, Zhuhai City, Guangdong Province, the People’s Republic of China 519060.




EMPLOYEES AND ORGANIZATION




As of December 31, 2010, we had 131 full-time employees.  Senior management includes 5 senior officers.  We have 14 employees in our administration and accounting departments and 80 employees dedicated to production at NUST.  None of our employees are covered by a collective bargaining agreement and we have never experienced a work stoppage, and we consider our labor relations to be excellent.






12




RESEARCH AND DEVELOPMENT




Subject to receipt of additional financing, we plan to devote continuously a substantial amount of resources to research and development by focusing our efforts on the following areas.




Improving conversion efficiency of solar modules: One of the most promising ways of increasing the conversion efficiency of solar modules is maximizing the number of photons that reach the absorption layer of the semiconductor material so that they can be converted into electrons, maximizing the number of electrons that reach the surface of the cadmium telluride and minimizing the electrical losses between the semiconductor layer and the back metal conductor. We believe that our ability to achieve higher module efficiencies is primarily a function of rapidly transferring new technology developments into high-throughput module production and continuously making incremental improvements to the solar module and the manufacturing process internally or in conjunction with outsourced manufactures.




Optimization of Systems: We are planning to commit resources to reduce the cost and optimize the effectiveness of components in its photovoltaic system by collecting filed performance data to identify opportunities for module and process improvement and improve the performance of systems that use our modules. In addition, the Company uses this data to enhance predictive models and simulations for the end-users.




Flexibility in Design & Quick Implementation of Innovations: We are committed to being flexible to meet customer needs and being able to evolve quickly with market innovations and demands. The Company closely monitors trends and developing technologies in order to help insure its ability to meet both current and future customer preferences.




Providing Attractive & Flexible Lighting Systems and Solar Modules: Often overlooked by competitors, we are keen to implement and market new module designs and lighting systems that allow for better building and environmental integration. Staying in tune with architectural preferences and ahead of peers will help the Company thrive and prosper.




Due to financial restraints, we were unable to devote any resources to research and development in 2010 and 2009 as planned.




GOVERNMENT REGULATION




This section sets forth a summary of the most significant regulations or requirements that affect our business activities in China or our shareholders’ rights to receive dividends and other distributions from us.




Renewable Energy Law and Other Government Directives




In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006. The Renewable Energy Law sets forth policies to encourage the development and use of solar energy and other non-fossil energy. The renewable energy law sets out the national policy to encourage and support the use of solar and other renewable energy and the use of on-grid generation. It also authorizes the relevant pricing authorities to set favorable prices for the purchase of electricity generated by solar and other renewable power generation systems.




The law also sets out the national policy to encourage the installation and use of solar energy water-heating systems, solar energy heating and cooling systems, solar photovoltaic systems and other solar energy utilization systems. It also provides the general principles regarding financial incentives for the development of renewable energy projects. The projects, as listed in the renewable energy industry development guidance catalogue, may obtain preferential loans from financial institutions and can enjoy tax preferences. The State Council is authorized to stipulate the specific tax preferential treatments. However, so far, no rule has been issued by the State Council pertaining to this matter. In January 2006, China’s National Development and Reform Commission promulgated two implementation directives of the Renewable Energy Law. These directives set out specific measures in setting prices for electricity generated by solar and other renewal power generation systems and in sharing additional expenses occurred. The directives further allocate the administrative and supervisory authorities among different government agencies at the national and provincial levels and stipulate responsibilities of electricity grid companies and power generation companies with respect to the implementation of the Renewable Energy Law.




13


China’s Ministry of Construction also issued a directive in June 2005, which seeks to expand the use of solar energy in residential and commercial buildings and encourages the increased application of solar energy in different townships. In addition, the State Council promulgated a directive in July 2005 which sets out specific measures to conserve energy resources.




Environmental Regulations




We are subject to a variety of foreign, federal, state and local governmental regulations related to environmental protection. The major environmental regulations applicable to our proposed manufacturing facility include the Environmental Protection Law of the PRC, the Law of PRC on the Prevention and Control of Water Pollution, Implementation Rules of the Law of PRC on the Prevention and Control of Water Pollution, the Law of PRC on the Prevention and Control of Air Pollution, Implementation Rules of the Law of PRC on the Prevention and Control of Air Pollution, the Law of PRC on the Prevention and Control of Solid Waste Pollution, and the Law of PRC on the Prevention and Control of Noise Pollution.




Our proposed research and development activities and manufacturing facility are expected to use, generate and discharge toxic, volatile or otherwise hazardous chemicals and wastes. If we fail to comply with present or future environmental laws and regulations, we could be subject to fines, suspension of production or a cessation of operations. In addition, under some foreign, federal, state and local statutes and regulations, a governmental agency may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for the release or otherwise was not at fault.




Intellectual Property Rights




The Patent Law (1984), as amended by the Decision on Amending the Patent Law (2000), and the Implementing Rules of the Patent Law (2001), as amended by the Decision on Amending the Implementing Rules of the Patent Law (2002) provide the application and protection of patents. An invention patent shall be valid for twenty years and an external design patent and a utility model patent shall be valid for ten years, commencing on their application dates, respectively. Any persons or entities using a patent without the consent of the patent owner, making counterfeits of patented products, or conducting other activities which infringe upon patent rights will be held liable for compensation to the patent owner, fines charged by the administrative authorities and even criminal punishment.




Our success depends, in part, on our ability to conduct business without infringing on the proprietary rights of others. We rely primarily on a combination of trade secrets, as well as employee and third party confidentiality agreements to safeguard our intellectual property.




ITEM 1A.  RISK FACTORS




An investment in our common stock is speculative and involves an extremely high degree of risk and uncertainty. You should carefully consider the risks described below, together with the other information contained in this prospectus, including the consolidated financial statements and notes thereto of our Company, before deciding to invest in our common stock. The risks described below are not the only ones facing our Company. Additional risks not presently known to us or that we presently consider immaterial may also adversely affect our Company. If any of the following risks occur, our business, financial condition and results of operations and the value of our common stock could be materially and adversely affected.




14





RISKS RELATED TO OUR COMPANY




We are an early stage company and have limited operating history on which to evaluate our potential for future success.




Our company was formed in July 2007, and to date has only a short period of formation, planning, analysis and testing. In addition, we have very limited operating history under our proposed business model upon which you can evaluate our business and prospects.




There can be no assurance that we will derive significant revenues from products sales.




We are an early stage company. You must consider the risks and uncertainties frequently encountered by early stage companies in new and rapidly evolving markets such as competing technologies, lack of customer acceptance of a new or improved service or product and obsolescence of the technology before it can be fully commercialized. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition will be materially and adversely affected.




Doubts exist about our ability to continue as a going concern.




If we do not obtain additional capital, we may be unable to sustain our business.




We are actively seeking additional funding, but to date have not entered into any agreements or other arrangements for such financing. There can be no assurance that the required additional financing will be available on terms favorable to us or at all.




Without additional funding, the company will not be able to pursue its business model. If adequate funds are not available or are not available on acceptable terms when required, we would be required to significantly curtail our operations and would not be able to fund the development of the business envisioned by our business model. These circumstances could have a material adverse effect on our business and our ability to continue to operate as a going concern.  If additional funds are raised through the issuance of equity or convertible debt securities, our then existing shareholders may experience substantial dilution, and such securities may have rights, preferences and privileges senior to those of our common stock.




If we need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.




As we implement our growth strategies, we may experience increased capital needs and we may not have enough capital to fund future operations without additional capital investments. Our capital needs will depend on numerous factors, including (1) our profitability; (2) the release of competitive products by our competition; (3) the level of our investment in research and development; and (4) the amount of our capital expenditures. We cannot assure you that we will be able to obtain capital in the future to meet our needs.




If we cannot obtain additional funding, we may be required to:




·
reduce our investments in research and development;




·
limit our marketing efforts; and




·
decrease or eliminate capital expenditures.




Such reductions could have a material adverse effect on our business and our ability to compete.




Even if we do find a source of additional capital, we may not be able to negotiate acceptable terms and conditions for receiving the additional capital. Any future capital investments could dilute or otherwise materially and adversely affect the holdings or rights of our existing shareholders. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock. We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.




15


We may have difficulty raising necessary capital to fund operations as a result of market price volatility of our shares of common stock.




If our business development plans are successful, we may require additional financing to continue to develop and exploit existing and new technologies and to expand into new markets. The exploitation of our technologies may, therefore, be dependent upon our ability to obtain equity financing through debt and equity or other means. In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performance, underlying asset values or prospects of such companies.




For these reasons, our shares of common stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control. Such volatility may make it more difficult to find investors willing to invest in our common stock, or to negotiate equity financing or terms that are acceptable to us.




We have incurred losses in certain prior periods and may incur losses in the future.




We incurred net losses of $593,808 and $421,562 for the years ended December 31, 2010 and 2009, respectively. We may incur losses in the future. We expect our costs and expenses to increase as we expand our operations. Our ability to achieve and maintain profitability depends on the growth rate of the solar power market, the continued global market acceptance of solar power products in general and our future products in particular, the pricing trend of solar power products, the competitiveness of our proposed products as well as our ability to provide new products to meet the demands of our customers and our ability to control our costs and expenses. We may not be able to achieve or sustain profitability on a quarterly or annual basis.




There are significant risks in executing our business strategy and our business plans could change.




To execute our business plan, we will need to recruit additional employees, complete the construction of our manufacturing facility, establish a distribution channel and secure purchase orders from customers.  Our ability to manage each of these factors is subject to substantial risk, including our ability to finance the costs.  For example, the cost to equip our manufacturing facility and to expand solar cells product lines is estimated to be approximately $18 million.  If we are unable to successfully execute on our business plan, our business, results of operations and financial condition will be materially and negatively impacted.




To maximize our potential for future growth and achieve our expected revenues, we need to manage growth in our current operations.




In order to maximize potential growth, we believe that we must establish our manufacturing and marketing operations. This will place a significant strain on our management and on our operational, accounting, and information systems. We expect that as we grow we will need to improve our financial controls, operating procedures, and management information systems to handle increased operations. We will also need to effectively train, motivate, and manage our employees. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating the revenues we expect.




We cannot assure you that our organic growth strategy will be successful.




One of our growth strategies is to grow organically by increasing the distribution and sales of our products in new markets outside of China. However, many obstacles to entering new markets exist, such as the costs associated with entering into new markets, developing and implementing effective marketing efforts abroad and maintaining attractive foreign exchange ratios. We cannot, therefore, assure you that we will be able to successfully overcome such obstacles and establish our products in any additional markets. Our inability to successfully implement our organic growth strategy may have a negative impact on our growth strategy and on our future financial condition, results of operations or cash flows.




16


We cannot assure you that our acquisition growth strategy will be successful.




In addition to our organic growth strategy we also expect to grow through strategic acquisitions. We intend to pursue opportunities to acquire businesses that are complementary or related to our existing product lines or may execute a potential joint venture or acquisition with a silicon mine or other strategic partner.  We may not be able to locate suitable acquisition or joint venture candidates at prices that we successfully consider appropriate.  If we do identify an appropriate candidate, we may not be able to successfully negotiate the terms of an acquisition, finance the acquisition on terms that are satisfactory to us or if the acquisition occurs successfully, integrate the acquired business into our existing business.  Acquisitions of businesses or other material operations may require debt financing or additional equity financing, resulting in leverage or dilution of ownership. Integration of acquired business operations could disrupt our business by diverting management away from day-to-day operations.  The difficulties of integration may be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures.  We also may not be able to maintain key employees or customers of an acquired business or realize cost efficiencies or synergies or other benefits we anticipated when selecting our acquisition candidates.  In addition, we may need to record write-downs from future impairments of intangible assets, which could reduce our future reported earnings. At times, acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition which will be required to comply with laws of the People’s Republic of China (“PRC”), to the extent applicable.  There can be no assurance that any proposed acquisition will be able to comply with PRC requirements, rules and/or regulations, or that we will successfully obtain governmental approvals to the extent required, which may be necessary to consummate such acquisitions.




If we are not able to implement our strategies to achieve our business objectives, our business operations and financial performance may be adversely affected.




Our business plan and growth strategy is based on currently prevailing circumstances and the assumption that certain circumstances will or will not occur, as well as the inherent risks and uncertainties involved in various stages of development.  However, there is no assurance that we will be successful in implementing our strategies or that our strategies, even if implemented, will lead to the successful achievement of our objectives.  If we are not able to successfully implement our strategies, our business operations and financial performance may be adversely affected.




We depend on our key management personnel and the loss of their services could adversely affect our business.




Our business management and operations significantly relied on key personnel’s services.  If key personnel terminated their services with the Company, we may have risk of inability to identify qualified suitable personnel to replace them in a timely manner, and therefore, our business could be adversely affected if that occurs.




Failure to attract and retain personnel could have an adverse impact on our operations.




Our future success depends on our ability to identify, attract, hire, retain and motivate other well-qualified managerial, technical, sales and marketing personnel.  There is intense competition for these individuals, and there can be no assurance that these professionals will be available in the market or that we will be able to meet their compensation requirements.






17




RISKS RELATED TO OUR BUSINESS




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 we may be unable to sustain profitability.




The PV market is at a relatively early stage of development and the extent to which PV products will be widely adopted is uncertain.  Market data in the PV industry are not as readily available as those in other more established industries where trends can be assessed more reliably from data gathered over a longer period of time.  If PV technology proves unsuitable for widespread adoption or if demand for PV products fails to develop sufficiently, we may not be able to grow our business or generate sufficient revenues to achieve profitability.  In addition, demand for PV products in our targeted markets, including China, may not develop or may develop to a lesser extent than we anticipated. Many factors may affect the viability of widespread adoption of PV technology and demand for PV products, including:




·
availability of government subsidies and incentives to support the development of the PV industry;




·
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;




·
success of other alternative energy generation technologies, such as fuel cells, wind power and biomass;




·
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, coal, natural gas and other fossil fuels;




·
cost and availability of credit, loans and other funding mechanisms to finance the installation and maintenance of PV systems. For example, a rise in interest rates would likely render existing financings more expensive and be an obstacle for potential financings that would otherwise spur the growth of the PV industry;




·
capital expenditures by end users of PV products, which tend to decrease when the economy slows down; and




·
deregulation of the electric power industry and broader energy industry.




We potentially face intense competition from other companies producing solar energy and other renewable energy products.




The PV market is intensely competitive and rapidly evolving. According to Photon International’s survey in March 2006, as of the end of 2005, 94 companies in the world produced PV cells and 153 companies produced PV modules. The solar PV industry also saw a boom in silicon production facilities around the world, responding to silicon feedstock shortages of recent years. Solar PV manufacturers were signing long-term contracts to ensure a growing supply, and silicon manufacturers are consistently announcing plans to build new plants.  By the end of 2007, more than 70 silicon manufacturing facilities were being constructed or planned. (http://www.ren21.net/pdf/RE2007_Global_Status_Report.pdf, Page 19). Many of our potential competitors have established more prominent market positions, and if we fail to attract and retain customers and establish successful distribution networks in our target markets for our products, we will be unable to generate sales.  Our competitors include PV divisions of large conglomerates such as Royal Sanyo Group and Sharp Corporation, specialized cell manufacturers such as Q-Cells AG, as well as integrated manufacturers of PV products such as Renewable Energy Corporation and SolarWorld AG.  Some of our potential competitors have also become vertically integrated, from upstream silicon wafer manufacturing to PV system integration. We expect to compete with future entrants to the PV market that offer new technological solutions. We may also face competition from semiconductor manufacturers, a few of which have already announced their intention to start production of PV cells. Many of our potential competitors are developing or currently producing products based on new PV technologies, including thin film, ribbon, sheet and nano-technologies, which they believe will ultimately cost the same as or less than crystalline silicon technologies similar to ours. In addition, the entire PV industry also faces competition from conventional and non-solar renewable energy technologies.  Due to the relatively high manufacturing costs compared to most other energy sources, solar energy is generally not competitive without government incentive programs.




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Most of our potential competitors have substantially greater financial, technical, manufacturing and other resources than we do.  Greater size in some cases provides them with a competitive advantage with respect to manufacturing costs because of their economies of scale and their ability to purchase raw materials at lower prices.  For example, those companies that also manufacture semiconductors may source both semiconductor grade silicon wafers and solar grade silicon wafers from the same supplier.  As a result, those companies may have stronger bargaining power with the supplier and have an advantage over us in negotiating favorable pricing, as well as securing silicon ingot and silicon wafer supplies at times of shortages.  Many of our potential competitors also have greater brand name recognition, more established distribution networks and larger customer bases.  In addition, many of our potential competitors have well-established relationships with our current and potential distributors and have extensive knowledge of our target markets.  As a result, they may be able to devote greater resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Our failure to adapt to changing market conditions and to compete successfully with existing or new entrants may materially and adversely affect our financial condition and results of operations.  Our failure to develop and introduce new PV products could render our products uncompetitive or obsolete, and reduce our sales and market share.




The PV industry is rapidly evolving and competitive.  We will need to invest significant financial resources in research and development to keep pace with technological advances in the PV industry and to effectively compete in the future.  However, research and development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our research results. Our significant expenditures on research and development may not reap corresponding benefits.  A variety of competing PV technologies that other companies may develop could prove to be more cost-effective and have better performance than our PV products.  Therefore, our development efforts may be rendered obsolete by the technological advances of others.  Breakthroughs in PV technologies that do not use crystalline silicon could mean that companies such as us that currently rely entirely on crystalline silicon would encounter a sudden, sharp drop in sales.  Our failure to develop and introduce new PV products could render our products uncompetitive or obsolete, and result in a decline in our market share.




Intense competition from existing and new entities may adversely affect our revenues and profitability.




We compete with other companies, many of whom are developing, or can be expected to develop, products similar to ours.  Some of our competitors are more established than we are, and have significantly greater financial, technical, marketing and other resources than we presently possess. Some of our competitors have greater name recognition and a larger customer base.  These competitors may be able to respond more quickly to new or changing opportunities and customer requirements and may be able to undertake more extensive promotional activities, offer more attractive terms to customers, and adopt more aggressive pricing policies.  We intend to create greater brand awareness for our brand name so that we can successfully compete with our competitors. We cannot assure you that we will be able to compete effectively with current or future competitors or that the competitive pressures we face will not harm our business.




19


Our dependence on a limited number of customers may cause significant fluctuations or declines in our revenues.




We plan to sell a substantial portion of our wafers and PV modules to a limited number of customers, including distributors, engineering design firms, system integrators, other value-added resellers, as well as integrated manufacturers of PV modules. To date, we have not had any customers or any sales. We plan to conduct our sales to customers typically through non-exclusive, short-term arrangements where the contract prices are typically agreed upon between our customers and us on a quarterly basis, and as such, our actual revenues can vary significantly. We anticipate that our dependence on a limited number of customers would continue for the foreseeable future.  Consequently, any one of the following events may cause material fluctuations or declines in our revenues and have a material adverse effect on our results of operations:




·
reduction, delay or cancellation of orders from one or more significant customers;




·
selection by one or more significant customers of products competitive with ours;




·
loss of one or more significant customers and our failure to identify additional or replacement customers; and




·
failure of any significant customers to make timely payment for our products.




Changes to existing regulations over the utility sector and the PV industry may present technical, regulatory and economic barriers to the purchase and use of PV products, which may significantly reduce demand for our products.




The market for power generation products is heavily influenced by government regulations and policies concerning the electric utility industry, as well as the internal policies of electric utilities companies. These regulations and policies often relate to electricity pricing and technical interconnection of end user-owned power generation.  In a number of countries, these regulations and policies are being modified and may continue to be modified.  End users’ purchases of alternative energy sources, including PV products, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our PV products.  For example, utility companies commonly charge fees to larger, industrial customers for disconnecting from the electricity transmission grid or for having the capacity to use power from the electricity transmission grid for back-up purposes.  These fees could increase end users’ costs of using our PV products and make our PV products less desirable, thereby having an adverse effect on our business, prospects, results of operations and financial condition.




We anticipate that our PV products and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters in various countries.  It is also burdensome to track the requirements of individual localities and design equipment to comply with the varying standards.  Any new government regulations or utility policies pertaining to our PV products may result in significant additional expenses to us, our distributors and end users and, as a result, could cause a significant reduction in demand for our PV products.




The reduction or elimination of government subsidies and economic incentives for on-grid solar energy applications could cause demand for our products and our revenues to decline.




Almost all of our solar cells sold are eventually utilized in the on-grid market, where the solar power systems are connected to the utility grid and generate electricity to feed into the grid. We believe that the near-term growth of the market for on-grid applications depends in large part on the availability and size of government subsidies and economic incentives. The reduction or elimination of subsidies and economic incentives may adversely affect the growth of this market or result in increased price competition, either of which could cause our revenues to decline.




Today, when upfront system costs are factored into cost per kilowatt, the cost of solar power substantially exceeds the cost of power furnished by the electric utility grid in many locations. As a result, national and local governmental bodies in many countries, most notably in Germany, Spain, Italy, the United States and China, have provided subsidies and economic incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to distributors, system integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applications and to reduce dependence on other forms of energy. These government economic incentives could potentially be reduced or eliminated altogether. The solar power industry is currently moving towards the economies of scale necessary for solar power to become cost-effective in a non-subsidized market. Reductions in, or eliminations of, subsidies and economic incentives for on-grid solar energy applications could result in decreased demand for our products and cause our revenues to decline.




20


We may incur significant costs to ensure compliance with U.S. corporate governance and accounting requirements.




We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements and other rules implemented by the Securities and Exchange Commission and the NASDAQ OTCBB. We expect all of these applicable rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.




We have limited insurance coverage and may incur losses resulting from product liability claims or business interruptions.




If we secure any PV product sales, we would be exposed to risks associated with product liability claims in the event that the use of the PV products sold results in injury. Since our proposed products are electricity producing devices, it is possible that users could be injured or killed by the products, whether by product malfunctions, defects, improper installation or other causes. We have not sold any products and, due to limited historical experience, we are unable to predict whether product liability claims will be brought against us in the future or the effect of any resulting adverse publicity on our business. Moreover, we may have only limited product liability insurance and may not have adequate resources to satisfy a judgment in the event of a successful claim against us. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments. In addition, as the insurance industry in China is still in an early stage of development, business interruption insurance available in China offers limited coverage compared to that offered in many other countries.




Acts of terrorism, responses to acts of terrorism and acts of war may impact our business and our ability to raise capital.




Future acts of war or terrorism, national or international responses to such acts, and measures taken to prevent such acts may harm our ability to raise capital or our ability to operate, especially to the extent we depend upon activities conducted in foreign countries, such as China.  In addition, the threat of future terrorist acts or acts of war may have effects on the general economy or on our business that are difficult to predict.  We are not insured against damage or interruption of our business caused by terrorist acts or acts of war.




RISKS RELATED TO DOING BUSINESS IN CHINA




Currency conversion and exchange rate volatility could adversely affect our financial condition.




The PRC government imposes control over the conversion of Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People's Bank of China publishes an exchange rate, which we refer to as the People’s Bank of China exchange rate, based on the previous day's dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the People’s Bank of China exchange rate according to market conditions. Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises, for use on current account items, including the distribution of profits to foreign investors, is permissible. Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.




21


Enterprises in the PRC (including Foreign Investment Enterprises) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.




China’s economic policies could affect our business.




To the extent our assets will be located in China and to the extent our revenue will be derived from our operations in China, our results of business and prospects would be subject to the economic, political and legal developments in China.




While China’s economy has experienced a significant growth in the past twenty years, growth has been irregular, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of China, but may also have a negative effect on us. For example, our sales results and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations with our future customers.




The economy of China has been transitioning from a planned economy to a more market-oriented economy. In recent years the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform and the reduction of state ownership of productive assets and the establishment of corporate governance in business enterprises; however, a substantial portion of productive assets in China are still owned by the Chinese government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over China's economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.




Because our assets and operations might be located in china, you may have difficulty enforcing any civil liabilities against us under the securities and other laws of the U.S. or any state.




We are a holding company, and all of our assets might be located in the Republic of China. In addition, our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon these non-residents, or to enforce against them judgments obtained in United States courts, including judgments based upon the civil liability provisions of the securities laws of the United States or any state.




There is uncertainty as to whether courts of the Republic of China would enforce:




l
Judgments of United States courts obtained against us or these non-residents based on the civil liability provisions of the securities laws of the United States or any state; or




l
In original actions brought in the Republic of China, liabilities against us or non-residents predicated upon the securities laws of the United States or any state. Enforcement of a foreign judgment in the Republic of China also may be limited or otherwise affected by applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or similar laws relating to or affecting creditors' rights generally and will be subject to a statutory limitation of time within which proceedings may be brought.




22


The PRC legal system embodies uncertainties, which could limit law enforcement availability.




The PRC legal system is a civil law system based on written statutes. Unlike common law systems, decided legal cases have little precedence.  In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general.  The overall effect of legislation over the past 32 years has significantly enhanced the protections afforded to various forms of foreign investment in China.  Each of our PRC operating subsidiaries and affiliates is subject to PRC laws and regulations.  However, these laws and regulations change frequently and the interpretation and enforcement involve uncertainties. For instance, we may have to resort to administrative and court proceedings to enforce the legal protection that we are entitled to by law or contract.  However, since PRC administrative and court authorities have significant discretion in interpreting statutory and contractual terms, it may be difficult to evaluate the outcome of administrative court proceedings and the level of law enforcement that we would receive in more developed legal systems. Such uncertainties, including the inability to enforce our contracts, could affect our business and operation.  In addition, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Accordingly, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to the industries in which we operate, including the promulgation of new laws. This may include changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws.  These uncertainties could limit the availability of law enforcement, including our ability to enforce our agreements with the government entities and other foreign investors.




Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.




In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire "control" over domestic companies or assets, even in the absence of legal ownership; (2) adding requirements relating to the source of the PRC resident's funds used to establish or acquire the offshore entity; (i) covering the use of existing offshore entities for offshore financings; (3) purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (4) making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.




23


We believe our stockholders who are PRC residents as defined in Circular 75 have registered with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries.  However, we cannot provide any assurances that their existing registrations have fully complied with, and they have made all necessary amendments to their registration to fully comply with, all applicable registrations or approvals required by Circular 75.  Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies.  For example, our present and prospective PRC subsidiaries' ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders.  In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75.  We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures.  A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries' ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.




The value of our common stock will be affected by the foreign exchange rate between U.S. dollars and RMB, and between those currencies and other currencies in which our sales may be denominated.  For example, if we need to convert U.S. dollars into RMB for our operational needs and the RMB appreciates against the U.S. dollar at that time, our financial position, our business, and the price of our common stock may be harmed.  Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of declaring dividends on our common stock or for other business purposes and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of our earnings from our subsidiaries in China would be reduced.




We may be exposed to liabilities under the foreign corrupt practices act, and any determination that we violated the foreign corrupt practices act could have a material adverse effect on our business.




We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business.  We have operations, agreements with third parties and we make sales in China.  Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents or distributors of our Company, even though they may not always be subject to our control.  It is our policy to implement safeguards to discourage these practices by our employees.  However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible.  Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.




RISKS RELATED TO CORPORATE AND STOCK MATTERS




Our stock is a penny stock. Trading of our stock may be restricted by the SEC's penny stock regulations which may limit a stockholder's ability to buy and sell our stock.




Our stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.  Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.”  The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse.  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.




24


In addition, Rule 15g-2 requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii)reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.




Shares eligible for future sale may adversely affect the market price of our common stock, as the future sale of a substantial amount of our restricted stock in the public marketplace could reduce the price of our common stock.




From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act ("Rule 144"), subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading -volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our company that has satisfied a two-year holding period. Any substantial sale of common stock pursuant to Rule 144 or pursuant to any resale prospectus may have an adverse effect on the market price of our securities.




We have a high concentration of stock ownership and control, and a small number of shareholders have the ability to exert significant control in matters requiring shareholder votes and may have interests that conflict with yours.




Our common stock ownership is highly concentrated. See “Principal Shareholders.”  As a result, a relatively small number of shareholders, acting together, have the ability to control all matters requiring shareholder approval, including the election of directors and approval of mergers and other significant corporate transactions.  This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company.  It could also deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and it may affect the market price of our common stock.  In deciding how to vote on such matters, those shareholders’ interests may conflict with yours.




ITEM 2.
PROPERTIES




Our principal executive offices are located at No. 1 Pingbei Road 2, Nanping Science & Technology Industrial Park, Zhuhai City, Guangdong Province, the People’s Republic of China 519060. This is the office of our Chairman and CEO, Mr. Wensheng Chen.  Our telephone number at our principal executive office is 86-756-8682610.




We are in the process of constructing manufacturing facilities in Nanyang City, Henan Province in China. We currently have two product lines: silicon wafers and PV modules. As of December 31, 2010, two workshops, office building, dormitory and canteen had been completed.




On December 1, 2008, NUST acquired land-use rights for a piece of land in the size of 71,345.70 square meters for fifty years for RMB 2,886,300 ($422,843).  The land-use cost of RMB 2,886,300 ($422,843 converted at the currency exchange rate of US$1 = RMB 6.825 as of December 31, 2009) is being amortized using the straight line method over the fifty years. On July 27, 2010, the “Certificate of Right of Use of Land” has been issued to NUST, which will expire on July 23, 2060.




25


We have reserved a domain and intend to maintain an Internet website at www.ustnevada.com in both Chinese and English languages. Information on our websites is not part of this report.




ITEM 3.
LEGAL PROCEEDINGS




We are currently not involved in any litigation that could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of the Company’s subsidiaries or of the Company's subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.




26


PART II




ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES




MARKET INFORMATION




Prior to August 21, 2009, there was no active market for our securities. On August 21, 2009, our common stock began to be quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “UNSS.” The following table sets forth for the indicated periods, the high and low bid prices as reported on the OTCBB. The quotations represent inter-dealer prices without retail markup, mark down or commission, and may not necessary represent actual transactions.




2010

High


LowQ1

$
0.58


$
0.58Q2

$
0.57


$
0.15Q3

$
0.5


$
0.45Q4

$
0.45


$
0.442009

High


LowQ1


N/A



N/AQ2


N/A



N/AQ3

$
0.15


$
0.15Q4

$
0.58


$
0.15




SHAREHOLDERS OF RECORD




As of March 25, 2011, there were 31 holders of record of our common stock, not including holders who hold their shares in street name.




DIVIDENDS




We have never paid cash dividend on our common stock. We intend to keep future earnings, if any, to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.  Our future payment of dividend will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors.




ITEM 6.
SELECTED FINANCIAL DATA




Not required for smaller reporting company.




ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




OVERVIEW OF OUR BUSINESS




We primarily manufacture, market and sell silicon wafers to manufacturers of solar cells. In addition, we produce PV modules utilizing solar cells purchased from outside vendors.




27




Product Line 1 - Silicon Wafers




We produce silicon wafers by extracting purified mono-crystalline silicon from virgin poly-silicon feedstock utilizing mono-crystalline silicon ingot growers. Then we cut the purified mono-crystalline silicon ingots into silicon wafers with multi-wire saws. Silicon wafers are one of the most important components of solar cells.




As of December 31, 2010, we had ten mono-crystalline silicon ingot growers. Maximum production capacity of each mono-crystalline silicon ingot grower is approximately one ton of mono-crystalline silicon ingots per month. Thus, our current production capacity is approximately 120 tons of mono-crystalline silicon ingots per annum.




We are also equipped with five multi-wire saws, each of which can produce approximately 70 silicon wafers per kilogram of mono-crystalline silicon ingot. Based on an estimated 2.8W per silicon wafer, our current production capacity is approximately 20MW per annum.




In 2010, our manufacturing facilities were in the start-up phase.  As a result, the capacity utilization rate of our silicon wafer production equipment fluctuated between 25% to 50%.




Product Line 2 - PV Modules




Currently, we purchase solar cells from outside vendors to manufacture PV modules. We have two semi-automatic PV module production lines. Our existing production capacity is approximately 20MW of PV modules per annum. During 2010, we produced various types of PV module samples; however we did not produce commercial quantities of PV modules.




Overview of Properties, Plant and Equipment




We have acquired land-use rights to 71,346 square meters in Henan province, PRC for industrial use.  The land use rights expire on July 23, 2060.  In 2008, we began construction of our manufacturing facilities on this site. As of December 31, 2010, we completed the construction of two workshops and we are in the process of constructing an additional three workshops, which we expect to finish in 2011.




As of December 31, 2010, net book value of our property, plant and equipment was $6,278,577.




Operation




In July 2010, we began to manufacture silicon wafers. In September 2010, we began to ship silicon wafers to customers primarily located in China. We plan to expand sales of our products to the EU, North America and Africa.




In 2011 we plan to expand our production capacity by purchasing additional equipment and adding qualified personnel. In 2010 we implemented a training program to attract and train new employees. We eventually plan to manufature solar cells utilizing our own silicon wafers to complete the value chain of this industry.




RESULTS OF OPERATIONS




Comparison of Years ended December 31, 2010 to December 31, 2009:




Revenue. Our revenue for the year ended December 31, 2010 increased by $1,705,126 or 246.5% to $2,396,839 compared to $691,713 for the year ended December 31, 2009.  During fiscal 2010, all revenue was generated from sales of products produced in NUST’s newly constructed manufacturing facilities. In contrast, during 2009, all of our revenue was generated from sales of products manufactured by third parties.




28


Cost of Sales.  Our cost of sales increased by $1,555,970 from $619,497 for the year ended December 31, 2009 to $2,175,467 for the same period in 2010. The increase in cost of sales was mainly due to increased sales. During 2010, due to decrease of market price of our products, we charged $98,660 as provision for obsolete stocks into cost of goods sold.




General and Administrative Expenses. General and administrative expenses consist primarily of salaries and other personnel-related costs, professional fees, etc. General and administrative expenses increased by $254,225 or 74% to $597,670 for the year ended December 31, 2010 from $343,445 for the same period in 2009.  The increase was mainly due to increased amount of employees in NUST.




Selling expenses. Selling expenses include salaries of sales personnel, advertising, and other selling expenses.  Selling expense for the year ended December 31, 2010 was $99,254, during fiscal 2009, the Company did not incur any selling expenses.  The increased amount of selling expenses was mainly due to the expansion of our sales force and the launch of our sales campaign to boost our brand awareness and market share.




Interest expenses.Interest expenses decreased by $34,955 or 23.5% from $148,490 for fiscal 2009 to $113,535 for the same period of 2010. The decrease of interest expenses was mainly due to the amendment of various loan agreements between the Company and related parities to decrease the interest rate from 5% per annum in 2009 to 1% per annum in 2010. Interest expenses of $66,986 incurred during 2010 from loans of various related parties including Mr. Wensheng Chen, Yuemao Technology and Yuemao Laser was added to additional paid-in capital. During 2010, the Company borrowed $2,121,212 from local financial institution, pursuant to short-term loans.  Interest of $46,549 has been charged into interest expenses. (see Note 9 in Notes to Consolidated Financial Statements)




Net Loss.  Net loss increased by $172,246 or 40.9% to $593,808 for the year ended December 31, 2010 from $421,562 for the same period in 2009.  The increase in net loss is mainly due to reasons discussed above.




LIQUIDITY AND CAPITAL RESOURCES




As of December 31, 2010, we had total assets of $9,306,256 and total liabilities of $10,150,349.  Cash and cash equivalents at December 31, 2010 were $392,958.




During the year ended December 31, 2010, cash used in operations was $403,146, a decrease of 18% from $492,158 for the same period of 2009. The decrease was mainly due to increase in accounts payable and accrued expenses.




Net cash used in investing activities for the fiscal year 2010 was $3,594,252 in connection with acquisition of property and equipment and costs associated with the construction of our new factory. Comparably, during the year ended December 31, 2009, net cash used in investing activities was $3,610,754, including $3,298,392 in connection with the acquisition of property and equipment and costs associated with the construction of our new factory.  Amount paid as deposits for future delivery of equipment was $312,362 during fiscal 2009.




Net cash provided by financing activities in fiscal year 2010 was $3,168,906, a 35.7% decrease from $4,926,230 for the same period in 2009.  This decrease was mainly due to a decrease in short-term loans received from related parties.  During fiscal 2010, the Company raised $2,121,212 from short-term loans borrowed from a local financial institution.




As of December 31, 2010, the Company had negative working capital of $1,484,406 and a stockholders’ deficiency of $844,093. Further, the Company had accumulated deficit of $1,519,274 since inception.  The Company’s difficult financial position, continuous losses and low share price and inactive stock trading volume have caused difficulties for raising funds from financial market.




29


Related Party Loans




Related parties

Maturity rate

Interest rate


December 31, 2010


December 31, 2009Mr. Wensheng Chen, Chief Executive Officer and Chairman of the Board

December 1, 2013


1
%

$
3,161,969


$
2,207,704Ms. Ling Chen, President

Due on demand


0
%


106,137



-Zhuhai Yuemao Laser Facility Engineering Co., Ltd. (“Yuemao Laser”)

December 1, 2013


1
%


177,620



238,009Yuemao Science & Technology Group (“Yuemao Technology”)

December 1, 2013


1
%


3,404,545



3,252,300Total







$
6,850,271


$
5,698,013Due to related parties - current portion








31,832



5,675,528Due to related parties - non-current portion







$
6,818,439


$
22,485




Mr. Wensheng Chen, Chairman and Chief Executive Officer of the Company.




As of December 31, 2009, amounts due Mr. Wensheng Chen were $2,207,704.  During the year ended December 31, 2010, Mr. Chen paid various expenses on behalf of the Company. As of December 31, 2010, amounts due Mr. Wensheng Chen were $3,161,969.  During the reporting period, all loans borrowed from Mr. Wensheng Chen bear interest at the rate of 1% per annum.  During fiscal 2010, the Company accrued interest on these loans of $31,669.  In 2010, Mr. Chen waived interest accrued during 2010 on these loans and the amount of $31,669 was added to additional paid-in capital.




Ms. Ling Chen, President of the Company




During the year ended December 31, 2010, Ms. Ling Chen paid various expenses on behalf of the Company in the amount of $106,137. As of December 31, 2010, amounts due Ms. Chen were $106,137 The amouns advanced by Ms. Chen bear no interest and are due on demand.




Yuemao Science & Technology Group (“Yuemao Technology”)




Yuemao Technology is a private company established under the laws of the PRC and controlled by our Chairman and Chief Executive Officer, Mr. Wensheng Chen. On December 1, 2009, NUST entered into a RMB 22,200,000 ($3,252,300 translated at the December 31, 2009 exchange rate) loan agreement with Yuemao Technology.  During fiscal 2010, Yuemao Technology paid various expenses on behalf of the Company and loans borrowed from Yuemao Technology bear interest at the rate of 1% per annum. As of December 31, 2010, amounts due Yuemao Technology were $3,404,545. Yuemao Technology has waived interest accrued during 2010 and the amount of $32,794 has been added to additional paid-in capital.




Zhuhai Yuemao Laser Facility Engineering Co., Ltd.  (“Yuemao Laser”)




Yuemao Laser is a private company established under the laws of the PRC and controlled by our Chairman and Chief Executive Officer, Mr. Wensheng Chen.  As of December 31, 2009, amounts due Yuemao Laser were $238,009.  During fiscal 2010, amounts borrowed from Yuemao Laser bear interest at the rate of 1% per annum.  As of December 31, 2010, amounts due Yuemao Laser were $177,620. Yuemao Laser has waived interest accrued during 2010 and the amount of $2,523 has been added to additional paid-in capital.




Future Cash Requirements




During fiscal 2010, the Company completed the construction of two workshops, one dormitory building and one canteen. During 2011, the Company plans to raise approximately $18 million to complete construction of a solar cell production facility. As a result, the Company expects to require significantly greater capital resources compared to the previous fiscal year.




The Company’s cash requirements can be divided into two categories.




(1)
Capital demand in daily operations.  This includes costs associated with being a public company, including legal fees, audit/review fees and other professional fees; and costs incurred by the Company’s operating subsidiary, including wages, utilities and other operating costs.  The Company expects to its cash requirements under this category to be approximately $120,000 per month.




30




(2)
Capital demand for the construction of its solar cell production facility or acquiring a company with existing solar cell production capacity.  For example, if the Company’s cash flow allows, it plans to invest $18 million in NUST to further expand the Company’s current workshops in order to enable the Company to produce solar cells.




As of December 31, 2010, the Company does not have sufficient capital to meet its planned expansion.  In the short-term, due to low profit margins, the Company does not expect to achieve positive cash flow. In addition, given the Company’s short operating history, it is difficult to predict when the Company would begin to generate sufficient cash to support its operations. Therefore, in the foreseeable future related-parities including the Company’s CEO, Mr. Wensheng Chen and companies that he controls intend to provide financial resources to meet the Company’s daily cash needs, as referred to in categories (1) above.  The Company plans to raise funds from domestic and foreign banks and/or financial institutions to increase working capital in order to meet capital demands described in category (2) above.




Going forward, the Company anticipates that it will require an additional $18 million to build new solar cells manufacturing facilities if the Company is able to raise the funds.




Without additional funding, the Company will not be able to pursue its business model. If adequate funds are not available or are not available on acceptable terms when required, we would be required to significantly curtail our operations and would not be able to fund the development of the business envisioned by our business model.  These circumstances could have a material adverse effect on our business and result in our ability to continue to operate as a going concern.




CRITICAL ACCOUNTING POLICIES




Basis of presentation




The consolidated financial statements include the accounts of the Company and all of its subsidiaries.  All significant inter-company accounts and transactions have been eliminated. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. Our functional currency is the Chinese Renminbi (RMB); however, the accompanying financial statements have been translated and presented in United States dollars (USD).




Certain amounts included in the 2009 financial statement have been reclassified to conform to the 2010 financial statement presentation.




Uses of estimates in the preparation of financial statements




The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  Actual results could differ from those estimates.




Inventories




Inventories are stated at the lower of cost, determined on the weighted average method, and net realizable value. Work in progress and finished goods are composed of direct material, direct labor and a portion of manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to complete and dispose.




31




Property and equipment




Property and equipment are recorded at cost. Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method for financial reporting purposes, whereas accelerated methods are used for tax purposes.




Maintenance, repairs and minor renewals are charged to expense when incurred.  Replacements and major renewals are capitalized.




Impairment of long-lived assets




Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.  For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value.  If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.




Research and development costs




Research and development costs are charged to expenses as incurred.




Deferred income taxes




The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes”, which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, ASC 740 requires recognition of future tax benefits, such as carry-forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.




Currency translation




Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (”RMB”).  Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.




The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.




Income (loss) per common share




Basic income (loss) per common share amounts are calculated by dividing net income (loss) by weighted-average common stock outstanding during the period. Diluted income (loss) per common share are calculated using weighted-average shares outstanding, adjusted for the dilutive effect of shares issuable upon the assumed exercise of common stock equivalents. As of December 31, 2010 and 2009 there were no common stock equivalents outstanding.




32




Comprehensive income




Comprehensive income is defined to include all changes in equity except those resulting from investments by shareholders and distributions to shareholders.  Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.  Comprehensive income includes net income and the foreign currency translation gain, net of tax.




RECENT ACCOUNTING PRONOUNCEMENTS




In January 2010, the FASB issued ASU No. 2010-02—Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This update amends Subtopic 810-10 and related guidance to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; and (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity, but does not apply to: (i) sales of in substance real estate; and (ii) conveyances of oil and gas mineral rights. The amendments in this update are effective beginning in the period that an entity adopts FAS 160 (now included in Subtopic 810-10). The adoption of the provisions in ASU 2010-02 did not have an impact on the Company’s consolidated financial statements.




Effective January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements,” which requires new disclosures related to transfers in and out of levels 1 and 2 and activity in level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. Except for the expanded disclosure requirement the adoption of the provisions in ASU 2010-06 did not have an impact on the Company’s consolidated financial statements.




In February 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the disclosure requirements related to Subsequent Events (Topic 855). This guidance includes the definition of a Securities and Exchange Commission filer, removes the definition of a public entity, redefines the reissuance disclosure requirements and allows public companies to omit the disclosure of the date through which subsequent events have been evaluated. This guidance is effective for financial statements issued for interim and annual periods ending after February 2010. This guidance did not materially impact the Company’s results of operations or financial position, but did require changes to the Company’s disclosures in its financial statements.




Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.




ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not required for smaller reporting company.




ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The full text of our audited financial statements as of December 31, 2010 and 2009 begins on page F-1 of this report.




33




ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




None.




ITEM 9A. CONTROLS AND PROCEDURES




Disclosure Controls and Procedures




Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures as defined in SEC Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Annual Report.  Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our CEO and CFO, to allow timely decisions regarding required disclosures.  Based on their evaluation, our CEO and CFO have concluded that, as of December 31, 2010, our disclosure controls and procedures were ineffective.




Management Report on Internal Control over Financial Reporting




Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published consolidated financial statements. Internal control over financial reporting is promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Therefore, even effective internal control over financial reporting can only provide reasonable assurance with respect to the financial statement preparation and presentation.




Our management has conducted, with the participation of our CEO and CFO, an assessment, including testing of the effectiveness, of our internal control over financial reporting as of December 31, 2010. Management’s assessment of internal control over financial reporting was conducted using the criteria in Internal Control over Financial Reporting - Guidance for Smaller Public Companies issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, management identified deficiencies that were determined to be a material weakness.




A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Because of the material weakness described below, management concluded that our internal control over financial reporting was ineffective as of December 31, 2010.




The specific material weakness identified by the Company’s management as of December 31, 2010 is described as follows:




·
The current staff in the accounting department are inexperienced in U.S. GAAP and they were primarily engaged in ensuring compliance with PRC accounting and reporting requirements. Since our operating subsidiaries are based in China, and in accordance to PRC laws and regulations, they are required to apply PRC GAAP, rather than U.S. GAAP. Our internal accounting staff need substantial training in US GAAP in order to fully meet the requirements as a U.S. public company. The accounting skills and understanding necessary to fulfill the requirements of U.S. GAAP-based reporting, including the preparation of financial statements and consolidation, are inadequate. The Company did not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of U.S. GAAP commensurate with the Company’s financial reporting requirements, which was determined to be a material weakness.




34




·
The Company is lacking qualified resources to perform the internal audit functions properly. In addition, the scope and effectiveness of the Company’s internal audit function are yet to be developed.




·
We currently do not have an audit committee.




Remediation Initiative




·
We are committed to identifying and hiring personnel with accounting knowledge and experience to fulfill the requirements of U.S. GAAP-based reporting including the preparation of financial statements and consolidation.




·
We are committed to establishing the internal audit functions but due to limited qualified resources in the region, we were not able to hire sufficient internal audit resources before the end of 2010.  However, internally we established a central management center to recruit more senior qualified people in order to improve our internal control procedures.  Externally, we are looking forward to engage an accounting firm to assist the Company in improving the Company’s internal control system based on COSO Framework.   In the future, we also will increase our efforts to hire the qualified resources.




·
We intend to establish an audit committee of the board of directors as soon as practicable.  We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls.




Conclusion




The Company does not have adequate staffing and supervision within the bookkeeping and accounting operations of our Company. The relatively small number of employees who have bookkeeping and accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.




As we are not aware of any instance in which the company failed to identify or resolve a disclosure matter or failed to perform a timely and effective review, we determined that the addition of personnel to our bookkeeping and accounting operations is not an efficient use of our resources at this time and not in the interest of shareholders.




Despite of the material weakness and deficiencies reported above, the Company’s management believes that its consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.




This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report in this Annual Report.




35


Changes in Internal Control over Financial Reporting




There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




ITEM 9B.  OTHER INFORMATION




None.




36


PART III




ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




MANAGEMENT AND BOARD OF DIRECTORS




The following table sets forth the names and ages of our current directors and executive officers, their principal offices and positions and the date each such person became a director or executive officer of our company. Our executive officers are elected annually by the Board of Directors. Our directors serve one year terms until their successors are elected. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. In addition, there were no arrangements or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer. Currently, directors are not compensated for serving on the Board of Directors. We have not established compensation or executive committees. Currently, our entire board of directors serves as our audit committee. Because of the small size of the Company and the risk attendant to a small public company, we are currently unable to attract an audit committee financial expert to our Board of Directors. None of our directors are independent within the meaning set forth in the rules of NASDAQ as currently in effect.




Name

Age


Position


Date of

AppointmentWensheng Chen

78


Chief Executive Officer and Chairman of the Board


July 25, 2007Ling Chen

47


President, Treasurer, Secretary and Board Director


July 25, 2007Xin Ma

34


Chief Financial Officer (1)


March 28, 2011











(1)
Xin Ma was appointed Chief Financial Officer on March 28, 2011.




BIOGRAPHIES OF OFFICERS AND DIRECTORS




Wensheng Chen, Chief Executive Officer & Chairman of the Board




Mr. Wensheng Chen is the founder of Universal Solar and currently serves as the Company’s Chief Executive Officer and Chairman. On December 28, 2010, our Board of Directors appointed Mr. Wensheng Chen as Interim Acting Chief Financial Officer of the Company and he served in that capacity until March 28, 2011.




Mr. Chen has over 40 years executive experience in technology manufacturing, sales, and product innovation. He is also the Founder and a current Board Member of Yuemao Laser which supplies laser scribing, cutting, welding, and grooving to solar cell and modules manufacturers such as SunTech Power Holdings. Mr. Chen worked as manager and executive at Shenyang Liming Machine Making Company from 1958 to 1984. In 1984 he founded a trading company in Beijing. In 1999, Mr. Chen established Yuemao Laser in Zhuhai City. He studied at Liaoning University and majored in TV Broadcasting from 1964 to 1967. In 1967 he continued his education by majoring in politics and philosophy. As the founder of the Company, Mr. Chen has a wealth of experience in running businesses in China, which has given him broad management expertise and a knowledge and understanding of business issues in China.




37


Ling Chen, President and Director




Ms. Ling Chen currently serves as the President, Treasurer, Secretary and member of the Board of Directors of Universal Solar.




Ms. Ling Chen has over twenty-five years of business consulting and advisory experience. She is the daughter of Mr. Wensheng Chen and has been a shareholder and advisor to Yuemao Laser since 1999. Ms. Ling Chen held various management positions with Shenyang Associates, a retail shopping mall company from October 1982 to November 1990. From November 1991 to 1997 she held various positions with Shenyang Shopping Mall. Ms. Chen’s experience of exploring new markets in China enables her to provide the Board with an understanding of the operation of the Chinese markets.




Xin Ma, Chief Financial Officer




M. Xin Ma was appointed as the Company’s Chief Financial Officer on March 28, 2011. Since January 2009, Mr. Ma has also served as the Vice President of Kiwa Bio-Tech Products Group Corporation (“Kiwa”), a U.S. publicly-traded company based in China. From January 2006 to December 2008, Mr. Ma was Kiwa’s Associate Chief Financial Officer. Mr. Ma received a MSc. in Management in 2005 and a MSc. in Finance in 2006 from the University of Leicester in England. Mr. Ma’s experience in financial management and his experience as an associate Chief Financial Officer for a U.S. publicly traded company provides him with an understanding of the operations of publicly-traded company in the U.S. as well as an understanding of the reporting requirements and rules and regulations of the SEC.




INDEMNIFICATION OF DIRECTORS AND OFFICERS




Our articles of incorporation limit the liability of directors to the maximum extent permitted by Nevada law. This limitation of liability is subject to exceptions including intentional misconduct, obtaining an improper personal benefit and abdication or reckless disregard of director duties. Our articles of incorporation and bylaws provide that we may indemnify its directors, officer, employees and other agents to the fullest extent permitted by law. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification. We currently do not have such an insurance policy.




Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.


Director Compensation
  Currently, the Company’s Board of Directors does not include any independent members and the Company does not compensate any member for his or her service on the Company's Board.


SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE




Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and directors and persons who own more than 10% of a registered class of equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities on forms 3, 4 and 5 respectively.  We do not have a class of securities registered under the Securities Exchange Act of 1934.  As a result, our officers and directors and 10% shareholders are not subject to the reporting requirements of Section 16(a).




ITEM 11.
EXECUTIVE COMPENSATION




Mr. Wensheng Chen received no compensation as Chief Executive Officer during fiscal  2010 and 2009. On December 28, 2010, Mr. Wensheng Chen was appointed Interim Acting Chief Financial Officer of the Company and received no compensation for his services as Chief Financial Officer.




Ms. Ling Chen served as President, Treasurer and Secretary and received no compensation for the years ended December 31, 2010 and 2009.








38


Option exercises and vested stock








Outstanding equity awards






Employment Agreements; Termination of Employment and Change of Control Arrangements




On March 28, 2011, our Board of Directors appointed Xin Ma as Chief Financial Officer.




The Company entered into a two-year employment agreement with Mr. Ma pursuant to which the Company will pay Mr. Ma a salary of RMB 30,000 per month (approximately $55,000 per annum).  Mr. Ma is also entitled to a three (3) month severance package of salary and benefits if his employment is terminated without cause or in the event of a merger, sale of assets, or dissolution of the Company.





ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS




The following table sets forth certain information regarding beneficial ownership of common stock as of March 30, 2011 by each of our directors, each of our named executive officers; all executive officers and directors as a group and each person who is known by us to beneficially own more than 5% of our outstanding common stock. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of stock. The percentage of beneficial ownership is based upon 22,599,974 shares of Common Stock outstanding as of March 30, 2011. Unless otherwise identified, the address of the directors, officers of the Company listed above is the company’s principal business address.




Name

Position Held

Shares Owned


%OwnedOfficers and DirectorsWensheng Chen

Chief Executive Office and Chairman of the Board


15,000,000
(1)


66.4
%Ling Chen

President


193,233
(2)


*
%Xin Ma

Chief Financial Officer


-



-All executive officers and directors as a group (3 persons)


15,193,233



67.2
%5% ShareholderHui Chen




5,000,000



22.1
%


* Less than 1%.


(1) Includes 5,000,000 shares held by Yumin Liu, Mr. Chen’s wife.


(2) Shares are held by Xiaodong Wu, Ms. Chen’s husband.




39




ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE




Founders of Universal Solar and Kuong U were previously engaged in developing PV modules and PV applications through the solar energy department at Yuemao Laser. Yuemao Laser's parent company is Yuemao Science & Technology Group (“Yuemao Technology”). Yuemao Technology’s shareholders are our Chairman and largest shareholder, Mr. Wensheng Chen with 50% ownership, Ms. Hui Chen 25% ownership, and Ms. Ling Chen 25% ownership. Hui Chen and Ling Chen (our President and member of the Board) are daughters of Wensheng Chen (our Chairman of the Board and Chief Executive Officer).




Mr. Wensheng Chen, Chairman and Chief Executive Officer of the Company.




As of December 31, 2009, amounts due to Mr. Chen were $2,207,704. During the year ended December 31, 2010, Mr. Chen paid various expenses on behalf of the Company.  As of December 31, 2010, amount due Mr. Wensheng Chen were $3,161,969. All loans borrowed from Mr. Wensheng Chen bear interest at the rate of 1% per annum. During fiscal 2010, the Company accrued interest of $31,669. Mr. Wensheng Chen waived all interest accrued during 2010 and the amount of $31,669 has been added to additional paid-in capital.




Kuong U rents its executive office space from the daughter of the Company’s Chairman and Chief Executive Officer under a four-year contract, expiring April 30, 2011, which provides for monthly rent of HKD 12,000 (approximately $1,542 translated at the December 31, 2010 exchange rate). Rent expense for the years ended December 31, 2010 and 2009 was approximately $18,500 and $17,500, respectively.




Ms. Ling Chen, President of the Company




During the year ended December 31, 2010, Ms. Ling Chen loaned the Company $106,137 for working capital. As of December 31, 2010, amounts due Ms. Chen were $106,137.  This loan  bears no interest and is due on demand.




Yuemao Science & Technology Group (“Yuemao Technology”)




Yuemao Technology is a private company established under the laws of the PRC and controlled by our Chairman and Chief Executive Officer, Mr. Wensheng Chen. On December 1, 2009, NUST entered into a RMB 22,200,000 ($3,252,300 translated at the December 31, 2009 exchange rate) loan agreement with Yuemao Technology. During fiscal 2010, Yuemao Technology paid various expenses on behalf of the Company.  Amounts borrowed from Yuemao Technology bear interest at the rate of 1% per annum. As of December 31, 2010, amounts due Yuemao Technology were $3,404,545. Yuemao Technology has waived interest accrued during 2010 and the amount of $32,794 has been added to additional paid-in capital.




Zhuhai Yuemao Laser Facility Engineering Co., Ltd.  (“Yuemao Laser”)




Yuemao Laser is a private company established under the laws of the PRC and controlled by our Chairman and Chief Executive Officer, Mr. Wensheng Chen. As of December 31, 2009, amounts due Yuemao Laser were $238,009. During fiscal 2010, loans borrowed from Yuemao Laser bear interest at the rate of 1% per annum. As of December 31, 2010, amounts due Yuemao Laser were $177,620. Yuemao Laser has waived interest accrued during 2010 and the amount of $2,523 has been added to additional paid-in capital.




During the year ended December 31, 2009, Kuong U purchased solar PV modules from Yuemao Laser at a total cost of $619,497 and sold the modules to two customers for total sales of $691,713.  No transactions of the same kind between the Company and Yuemao Laser occurred during 2010.




40


ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES




AUDITOR FEES AND SERVICES IN OUR 2010 AND 2009 FISCAL YEARS




Our registered independent public accounting firm is Paritz & Company, P.A. The fees billed by Paritz & Company, P.A. in 2010 and 2009 are as follows:




2010


2009Audit Fees

$
34,000


$
26,000Audit-Related Fees


-



-Total Audit and Audit-Related Fees

$
34,000


$
26,000Tax Fees


-



-All Other Fees


-


$
4,500Total for independent public audit firms

$
34,000


$
30,050





Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated annual financial statements, and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Paritz & Company, P.A. in connection with statutory and regulatory filings or engagements.




AUDIT-RELATED FEES




Audit-Related Fees include accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit Fees.” Audit-related fees for 2010 and 2009 were both zero.




TAX FEES




Tax Fees include tax compliance, tax advice and tax planning services. These services related to the preparation of various state and federal tax returns and review of Section 409A compliance.




We incurred no aggregate fees and expenses for the 2010 and 2009 fiscal years.




ALL OTHER FEES




We incurred no other fees for the 2010 and 2009 fiscal years.




POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS




Since we did not have a formal audit committee, our board of directors served as our audit committee.  We have not adopted pre-approval policies and procedures with respect to our accountants in 2010.  All of the services provided and fees charged by our independent registered accounting firms in 2010 were approved by the board of directors.





41




PART IV




ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




(a) (1) Financial Statements





Set forth below is a list of our audited financial statements included in Item 8 of this annual report on Form 10-K.





Statement

Page*Index to Financial Statements

44Report of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets

F-2Consolidated Statements of Operations and Comprehensive Loss

F-3Consolidated Statement of Changes in Stockholder’s Deficiency

F-4Consolidated Statements of Cash Flows

F-5Notes to Financial Statements

F-6*Page F-1 follows page 44 to this annual report on Form 10-K.





(2) Financial Statement Schedules





Schedule I: Parent Only Financial Statements (page S-1)





(b) Index to Exhibits required by Item 601 of Regulation S-K.





Exhibit No.

Description3.1

Articles of Incorporation(1)3.2

Bylaws of the Company(1)10.1

Agreement between Kuong U Science & Technology (Group) Ltd. and the Arizona Board of Regents on behalf of Arizona State University(1)10.2

Prototype Product Development Agreement between Kuong U Science & Technology (Group) Ltd. and Zhuhai Yuemao Laser Facility Engineering Co., Ltd.(1)10.3

Land Purchase Agreement dated December 1, 2008(2)10.4

Sales contracts by and between the Company and Kotak Urja Private Limited dated February 26, 2009(3)10.5

Loan Agreement dated December 1, 2009 by and between Nanyang Universal Solar Technology Co., Ltd. and Zhuhai Yuemao Laser Facility Engineering Co., Ltd.(3)10.6

Employment Agreement, dated March 28, 2011, between Universal Solar Technology Inc. and Xin Ma. (4)21.1

List of Subsidiaries*31.1*

Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended*32.1*

Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended*32.1*

Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive Officer)*32.2*

Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Financial Officer)*


*Filed herewith


(1)  Filed as exhibit to the Company’s Registration Statement on Form S-1 on May 9, 2008.


(2)  Filed as exhibit to the Company’s Annual Report on Form 10-K on March 31, 2010.


(3) Filed as exhibit to the Company’s Annual Report on Form 10-K/A on December 30, 2010.


(4) Filed as an exhibit to the Current Report on Form 8-K on March 28, 2011.


42





SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




Date: March 30, 2011




Universal Solar Technology, Inc.By
/s/ Wensheng ChenWensheng ChenChief Executive Officer, Chairman of the Board of Directors(Principal Executive Officer)





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:





SIGNATURE

TITLEBy
/s/ Wensheng Chen

Chief Executive Officer, Chairman of the Board of Directors

March 30, 2011Wensheng Chen

(Principal Executive Officer)By
/s/ Xin Ma

Chief Financial OfficerXin Ma

(Principal Financial and Accounting Officer)

March 30, 2011By
/s/ Ling Chen

Director

March 30, 2011Ling Chen




43




INDEX TO FINANCIAL STATEMENTS




Reports of Independent Registered Public Accounting Firm
F-1Consolidated Balance Sheets as of December 31, 2010 and 2009
F-2Consolidated Statements of Operations for the Years Ended December 31, 2010 and 2009
F-3Consolidated Statements of Changes in Stockholders’ Deficiency for the Years Ended December 31, 2010 and 2009
F-4Consolidated Statements of Cash Flow for the Years Ended December 31, 2010 and 2009
F-5Notes to Consolidated Financial Statements
F-6





44


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors


Universal Solar Technology, Inc. and Subsidiaries




We have audited the accompanying consolidated balance sheets of Universal Solar Technology Inc. and Subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of operations and other comprehensive loss, changes in stockholders’ deficiency and cash flows for the years then ended.  Our audit also included the financial statement Schedule I. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.




We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.




The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As shown on the accompanying balance sheet, the Company’s current liabilities exceeded its current assets by $1,484,406 and the Company has incurred net loss of $1,519,274 since inception. These circumstances raise substantial doubt about its ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Solar Technology, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.




/s/ Paritz & Company, P.A.




Hackensack, New Jersey


March 28, 2011




F-1




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


December 31,2010


2009ASSETSCURRENT ASSETSCash and cash equivalents

$
392,958


$
1,115,047Accounts receivable, net


30,455



-Inventories


469,079



42,956Prepaid expenses and other current assets


955,012



319,123TOTAL CURRENT ASSETS


1,847,504



1,477,126Deposits for future deliveries of property and equipment


75,452



312,362Land use right, net of accumulated amortization of $22,777 and$11,452, respectively


414,541



411,391Property, plant and equipment, net of accumulated depreciationof $177,584 and $ 3,446, respectively


6,278,577



2,275,186Construction in process


690,182



1,019,760TOTAL ASSETS

$
9,306,256


$
5,495,825LIABILITIES AND STOCKHOLDERS' DEFFICIENCYCURRENT LIABILITIESAccounts payable and accrued expenses

$
1,178,866


$
154,813Short-term loan


2,121,212



-Due to related-parties - current portion


31,832



5,675,528TOTAL CURRENT LIABILITIES


3,331,910



5,830,341Due to related-parties - non-current portion


6,818,439



22,485TOTAL LIABILITIES


10,150,349



5,852,826STOCKHOLDERS' DEFICIENCYPreferred stock, $0.0001 par value, 10,000,000 shares authorized,none issued and outstanding


-



-Common stock, $0.0001 par value, 22,599,974 shares issued andoutstanding


2,260



2,260Additional paid-in capital


620,812



553,826Accumulated deficit


(1,519,274
)


(925,466
)Accumulated other comprehensive income


52,109



12,379TOTAL STOCKHOLDERS' DEFICIENCY


(844,093
)


(357,001
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY

$
9,306,256


$
5,495,825




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS





F-2




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


Year Ended December 31,2010


2009SALES

$
2,396,839


$
691,713COST OF SALES


2,175,467



619,497GROSS PROFIT


221,372



72,216OPERATING EXPENSESGeneral and administrative


597,670



343,445Selling expenses


99,254



-TOTAL OPERATING EXPENSES


696,924



343,445LOSS FROM OPERATIONS


(475,552
)


(271,229
)Interest expenses


(113,535
)


(148,490
)Dividend and interest income


(1,518
)


1,892Loss on foreign currency transactions


(3,203
)


(3,735
)NET LOSS


(593,808
)


(421,562
)OTHER COMPREHENSIVE INCOMEForeign currency translation adjustment


39,730



32,127COMPREHENSIVE LOSS

$
(554,078
)

$
(389,435
)Loss per common share - basic and diluted

$
(0.02
)

$
(0.02
)Weighted average number of shares outstanding - basic and diluted


22,599,974



22,587,988




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS




F-3





UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY





OTHERCOMMON STOCK


ADDITIONAL


ACCUMULATED


COMPREHENSIVESHARES


AMOUNT


PAID-INCAPITAL


DEFICIT


INCOME (LOSS)


TOTALBALANCE - DECEMBER 31, 2008


22,574,974


$
2,257


$
416,273


$
(503,904
)

$
(19,748
)

$
(105,122
)Stock issued for services


25,000



3



3,747



-



-



3,750Imputed interest on loans from related parties


-



-



133,806



-



-



133,806Foreign currency translation adjustment


-



-



-



-



32,127



32,127Net loss


-



-



-



(421,562
)


-



(421,562
)BALANCE - DECEMBER 31, 2009


22,599,974



2,260



553,826



(925,466
)


12,379



(357,001
)Imputed interest on loans from related parties


-



-



66,986



-



-



66,986Foreign currency translation adjustment


-



-



-



-



39,730



39,730Net loss


-



-



-



(593,808
)


-



(593,808
)BALANCE - DECEMBER 31, 2010


22,599,974


$
2,260


$
620,812


$
(1,519,274
)

$
52,109


$
(844,093
)




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS




F-4




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS




Year Ended December 31,2010


2009OPERATING ACTIVITIES:Net loss

$
(593,808
)

$
(421,562
)Adjustments to reconcile net loss to net cash used in operatingactivities:Imputed interest on loans from related parties


66,986



133,806Stock issued for services


-



3,750Depreciation of property and equipment


174,021



3,446Amortization of land use right


10,932



11,452Inventory markdown


98,660



-Changes in operating assets and liabilities:Accounts receivable


(30,455
)


-Inventory


(523,304
)


(42,956
)Prepaid expenses and other assets


(624,899
)


(292,457
)Accounts payable and accrued expenses


1,018,721



112,363NET CASH USED IN OPERATING ACTIVITIES


(403,146
)


(492,158
)CASH FLOWS USED IN INVESTING ACTIVITIES:Deposits for future delivery of equipment


247,668



(312,362
)Acquisition of property and equipment


(3,841,920
)


(3,298,392
)NET CASH USED IN INVESTING ACTIVITIES


(3,594,252
)


(3,610,754
)CASH FLOWS PROVIDED BY FINANCING ACTIVITES:Short-term loan


2,121,212



-Loans from related parties


1,047,694



4,926,230Sale of common stock


-



-NET CASH PROVIDED BY FINANCING ACTIVITIES


3,168,906



4,926,230Effect of exchange rate changes on cash


106,403



32,704Increase (decrease) cash


(722,089
)


856,022Cash - Beginning of period


1,115,047



259,025Cash - End of period

$
392,958


$
1,115,047Supplemental disclosures of cash flow information:Interest paid

$
9,805


$
-Income taxes paid

$
-


$
-




SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS




F-5




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010


1.
BUSINESS DESCRIPTION




Universal Solar Technology, Inc. (the “Company”) was incorporated in the State of Nevada on July 24, 2007. The Company operates through its wholly-owned subsidiaries, Kuong U Science & Technology (Group) Ltd. (“Kuong U”), a company incorporated in Macau, Peoples Republic of China (“PRC”) on May 10, 2007, and Nanyang Universal Solar Technology Co., Ltd. (“NUST”), a company incorporated in Nanyang, PRC on September 8, 2008. The Company sells solar photovoltaic (“PV”) modules.




2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Basis of presentation




The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant inter-company accounts and transactions have been eliminated. These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.




Certain amounts included in the 2009 financial statement have been reclassified to conform to the 2010 financial statement presentation.




Currency translation




The reporting currency of the Company is the United States dollar. The functional currency of Kuong U is the Hong Kong dollar. The functional currency of NUST is the Chinese Yuan (”RMB”).  Revenue and expense accounts of our two subsidiaries are translated into United States dollars at the average rates during the period, and balance sheet items are translated at year-end rates, except for equity accounts which are translated at historical rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.




The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.




Going concern




The financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. At December 31, 2010, the Company had negative working capital of $1,484,406 and a stockholders’ deficiency of $844,093. Further, the Company has incurred net losses of $1,519,274 since inception. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The Company plans to improve its financial condition by raising capital in a private placement of its securities. However, there is no assurance that the Company will be successful in accomplishing this objective. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.




Uses of estimates in the preparation of financial statements




The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  Actual results could differ from those estimates.




Cash




The Company maintains cash with financial institutions both in the United States and the People’s Republic of China (“PRC”). The financial institutions in PRC are not insured or otherwise protected.  Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution.




F-6
 
  UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010


Accounts Receivable




Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. The Company performs ongoing credit evaluations of its customers and establishes an allowance for doubtful accounts when amounts are not considered fully collectable. The allowance for doubtful accounts was zero for the year ended December 31, 2010 and 2009, respectively.




Inventories




Inventories are stated at the lower of cost, determined on the weighted average method, and net realizable value. Work in progress and finished goods are composed of direct material, direct labor and a portion of manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to complete and dispose.




Property and equipment




Property and equipment are recorded at cost. Once placed in service, depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight line method.




Maintenance, repairs and minor renewals are charged to expense when incurred.  Replacements and major renewals are capitalized.




Impairment of long-lived assets




Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.  For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value.  If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable.  Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.




Revenue recognition




Revenue from product sales is recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) the price is fixed or determinable, (3) collectibility is reasonably assured, and (4) delivery has occurred. Persuasive evidence of an arrangement and fixed price criteria are satisfied through purchase orders. Collectibility criterion is satisfied through credit approvals. Delivery criterion is satisfied when the products are shipped to a customer and title and risk of loss pass to the customer in accordance with the terms of sale. The Company has no obligation to accept the return of products sold other than for replacement of damaged products. Other than quantity price discounts negotiated with customers prior to billing and delivery (which are reflected as a reduction in sales), the Company does not offer any sales incentives or other rebate arrangements to customers.




Research and development costs




Research and development costs are charged to expenses as incurred. The research and development costs was zero for the year ended December 31, 2010 and 2009, respectively.




F-7
 
  UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010


Deferred income taxes




The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “Income Taxes,” which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, ASC 740 requires recognition of future tax benefits, such as carry-forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.




Income (loss) per common share




Basic income (loss) per common share amounts is calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted income (loss) per common share are calculated using weighted-average shares outstanding, adjusted for the dilutive effect of shares issuable upon the assumed exercise of common stock equivalents. As of December 31, 2010 and 2009 there were no common stock equivalents outstanding.




Comprehensive income (loss)




Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by shareholders and distributions to shareholders. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income (loss) are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income (loss) and the foreign currency translation adjustment, net of tax.




Fair value of financial instruments




The Company’s financial instruments consist of cash, prepaid expenses, inventories, accounts payable and accrued expenses, and due to related parties. The fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to their short term maturity.




Recent accounting pronouncements




In January 2010, the FASB issued ASU No. 2010-02—Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This update amends Subtopic 810-10 and related guidance to clarify that the scope of the decrease in ownership provisions of the Subtopic and related guidance applies to (i) a subsidiary or group of assets that is a business or nonprofit activity; (ii) a subsidiary that is a business or nonprofit activity that is transferred to an equity method investee or joint venture; and (iii) an exchange of a group of assets that constitutes a business or nonprofit activity for a non-controlling interest in an entity, but does not apply to: (i) sales of in substance real estate; and (ii) conveyances of oil and gas mineral rights. The amendments in this update are effective beginning in the period that an entity adopts FAS 160 (now included in Subtopic 810-10). The adoption of the provisions in ASU 2010-02 did not have an impact on the Company’s consolidated financial statements.




Effective January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements,” which requires new disclosures related to transfers in and out of levels 1 and 2 and activity in level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. Except for the expanded disclosure requirement the adoption of the provisions in ASU 2010-06 did not have an impact on the Company’s consolidated financial statements.




In February 2010, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that amends the disclosure requirements related to Subsequent Events (Topic 855). This guidance includes the definition of a Securities and Exchange Commission filer, removes the definition of a public entity, redefines the reissuance disclosure requirements and allows public companies to omit the disclosure of the date through which subsequent events have been evaluated. This guidance is effective for financial statements issued for interim and annual periods ending after February 2010. This guidance did not materially impact the Company’s results of operations or financial position, but did require changes to the Company’s disclosures in its financial statements.




F-8




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010




Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.


3.
INVENTORIES
  As of December 31, 2010 and 2009, inventories, net, consist of:
 
 December 31,2010


2009Raw materials

$
248,263


$
-Finished goods


226,313



-Work in process


5,077



-Supply Materials


88,086



42,956567,739



42,956Allowance on inventories


(98,660
)


-Inventories - net


469,079



42,956


4.
PREPAID EXPENSES AND OTHER CURRENT ASSETS







December 31,2010


2009Input Value Added Tax

$
657,738


$
296,252Other prepaid expenses


297,274



22,871$
955,012


$
319,123


5.
LAND-USE RIGHT




On December 1, 2008, NUST acquired the right to use a block of land of 71,345.70 square meters for fifty years for its office and production facilities from the local government in the PRC. The cost of RMB 2,886,300 ($422,843 translated at the December 31, 2009 exchange rate) is being amortized using the straight line method over the fifty years’ time.




As of December 31, 2010 and 2009, net value of land use right were $414,541 and $411,391, respectively. Only July 27, 2010, the “Certificate of Right of Use of Land” has been issued to NUST.




F-9




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010




6.
PROPERTY, PLANT AND EQUIPMENT




As of December 31, 2010 and 2009, property, plant and equipment, net, consist of:




December 31,2010


2009

LifeBuilding

$
1,624,357


$
-

30 YearsProduction equipment


4,703,892



2,219,913

10 YearsOffice equipment


61,543



11,123

3 YearsAutomobile


66,369



47,596

5 YearsTotal


6,456,161



2,278,632Less accumulated depreciation


(177,584
)


(3,446
)Property, plant and equipment - net

$
6,278,577


$
2,275,186




7.
CONSTRUCTION IN PROGRESS




As of December 31, 2010 and 2009, amount of construction in progress were $690,182 and $1,019,760, respectively. Estimated costs to complete the construction in progress after December 31, 2010 are approximately $2 million. Construction is expected to be completed in 2011.




8.
DEPOSIT FOR FUTURE DELIVERIES OF PROPERTY AND EQUIPMENT




As of December 31, 2010, NUST has contracted to acquire certain undelivered production equipment. The agreements provide for NUST’s payment of certain deposits prior to the delivery of the equipment. As of December 31, 2010 and 2009, a total of $75,452 and $312,362 had been paid to the respective vendors as deposits.




9.
SHORT-TERM LOAN




During the year ended December 31, 2010. The Company entered into three short-term loan agreements with Fangcheng County Hong Yu Industrial Development and Investment Company. These loans are currently in default. The Company is in the process of negotiation with Fangcheng Hong Yu for renewal of the short-loan agreement.
  The following table sets forth detailed information of three short-term loans.
  Principal amount

(in USD)

Maturity date

Interest rate

(per annum)757,576

December 31, 2010

5.31%757,576

January 13, 2011

9.60%606,060

January 20, 2011

9.60%


F-10




UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010




10.
DUE TO RELATED PARTIES




Due to related parties consists of:




Related parties

Maturity rate

Interest rate


December 31, 2010


December 31, 2009Mr. Wensheng Chen, Chief Executive Officer, Chairman of Board

December 1, 2013


1
%

$
3,161,969


$
2,207,704Ms. Ling Chen, President

Due on demand


0
%


106,137



-Zhuhai Yuemao Laser Facility Engineering Co., Ltd. (“Yuemao Laser”)

December 1, 2013


1
%


177,620



238,009Yuemao Science & Technology Group (“Yuemao Technology”)

December 1, 2013


1
%


3,404,545



3,252,300Total







$
6,850,271


$
5,698,013Due to related parties - current portion








31,832



5,675,528Due to related parties - non-current portion







$
6,818,439


$
22,485




Both Yuemao Laser and Yuemao Technology are PRC companies and controlled by the Company’s chairman and Chief Executive Officer, Mr. Wensheng Chen.




Mr. Wensheng Chen, Chairman and Chief Executive Officer of the Company.




Non-Trade Transactions




As of December 31, 2009, amount due to Mr. Chen was $2,207,704.  During twelve months ended December 31, 2010, Mr. Chen has paid various expenses on behalf of the Company.   As of December 31, 2010, amount due to Mr. Wensheng Chen was $3,161,969.  During 2010 all loans borrowed from Mr. Wensheng Chen bears interest at the interest rate of 1% per annum.  During fiscal 2010, the Company accrued interests of $31,669.  Mr. Wensheng Chen has never charged the Company for any interests and the amount of $31,669 had been imputed into additional paid-in capital.




Ms. Ling Chen, President of the Company




Non-Trade Transactions




During the year ended December 31, 2010, Ms. Ling Chen has paid $106,137 of various expenses on behalf of the Company.  As of December 31, 2010, amount due to Ms. Chen was $106,137, such loan from Ms. Ling Chen bears no interests and due on demand.




Trade Transaction




Kuong U rents its executive office space from the daughter of the Company’s Chairman and Chief Executive Officer under a four-year contract, expiring April 30, 2011 which provides for monthly rent is HKD 12,000 ($1,542 translated at the December 31, 2010 exchange rate). Rent expense for the years ended December 31, 2010 and 2009 was approximately $18,500 and $17,500, respectively.




F-11
 
  UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010


Yuemao Science & Technology Group (“Yuemao Technology”)




Yuemao Technology is a private company established under the laws of the PRC and controlled by our Chairman and Chief Executive Officer, Mr. Wensheng Chen.




Non-Trade Transaction




On December 1, 2009, NUST entered into a RMB 22,200,000 ($3,252,300 translated at the December 31, 2009 exchange rate) loan agreement with Yuemao Technology.  During fiscal 2010, Yuemao Technology had paid various expenses on behalf of the company and loans borrowed from Yuemao Technology carries interests at the interest rate of 1% per annum.  As of December 31, 2010, amount due to Yuemao laser was $3,404,545.  Yuemao Technology has never charged the Company for any interests and the amount of $32,794 had been imputed into additional paid-in capital.




Zhuhai Yuemao Laser Facility Engineering Co., Ltd.  (“Yuemao Laser”)




Yuemao Leaser is a private company established under the laws of the PRC and controlled by our Chairman and Chief Executive Officer, Mr. Wensheng Chen.




Non-Trade Transactions




As of December 31, 2009, amount due to Yuemao Laser was $238,009.  During fiscal 2010, loans borrowed from Yuemao Laser carries interests at the interest rate of 1% per annum.  As of December 31, 2010, amount due to Yuemao Laser was $177,620 Yuemao Laser has never charged the Company for any interests and the amount of $2,523 had been imputed into additional paid-in capital.




Trade Transactions




During the year ended December 31, 2009, Kuong U purchased solar PV modules from Yuemao Laser at a total cost of $619,497 and sold the modules to two customers for total sales of $ 691,713.  No transactions in the same kind between the Company and Yuemao Laser had been processed during twelve months ended December 31, 2010.




11.
MAJOR CUSTOMER




In twelve months ended December 31, 2010, the Company has sold all of its products to customers located in China. Three customers accounted for approximately 56%, 13% and 11% of sales. No single customer accounted for over 10% of sales.




In the year ended December 31, 2009, one customer located in India accounted for approximately 92% of sales. Under the terms of these sales, the Company is obligated to replace nonworking modules for a period of one year from the date of deliveries. This is a one-time order and are not dependent on this customer for future revenues.




12.
INCOME TAXES




The Company’s Chinese subsidiaries are governed by Income Tax Law of the PRC concerning private-run enterprises, which are generally subject to taxes at a statutory rate of 25% on income reported in the statutory financial statements prepared in accordance with PRC GAAP after appropriate tax adjustments. Operating loss can be carryforwarded for five years in China and 20 years in the U.S.
 
 As of December 31, 2010, the Company had approximately $1,150,000 and $315,000 of net operating loss carryforwards for income tax purposes in China and the United States, respectively, which will expire between 2014 to 2030.


F-12
 
  UNIVERSAL SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2010


Based on management's present assessment, the Company has determined it to be more likely than not that a deferred tax asset attributable to the future utilization of the net operating loss carry-forward as of December 31, 2010 will be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at December 31, 2010. The Company will continue to review this valuation allowance and make adjustments as appropriate.




13.
COMMITMENTS AND CONTINGENCIES




Vulnerability due to operations in PRC




The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than 20 years, there is no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.




The PRC has adopted currency and capital transfer regulations.  These regulations require that the Company comply with complex regulations for the movement of capital. Because most of the Company’s future revenues will be in RMB, any inability to obtain the requisite approvals, or any future restrictions on currency exchanges, will limit the Company’s ability to fund its business activities outside China or to pay dividends to its shareholders.




The Company’s assets will be predominantly located inside China. Under the laws governing foreign invested enterprises in China, dividend distribution and liquidation are allowed, but subject to special procedures under the relevant laws and rules. Any dividend payment will be subject to the decision of the board of directors and subject to foreign exchange rules governing such repatriation.  Any liquidation is subject to both the relevant government agency’s approval and supervision, as well as the foreign exchange control.




In addition, the results of business and prospects are subject, to a significant extent, to the economic, political and legal developments in China.




While China’s economy has experienced significant growth in the past twenty years, growth has been irregular, both geographically and among various sectors of the economy.  The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources.  Some of these measures benefit the overall economy of China, but may also have a negative effect on the Company. The Company’s sales and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations.




Foreign companies conducting operations in the PRC face significant political, economic and legal risks. The Communist regime in the PRC includes a stifling bureaucracy which may hinder Western investment. Any new government regulations or utility policies pertaining to the Company’s PV products may result in significant additional expenses to the Company, Company distributors and end users and, as a result, could cause a significant reduction in demand for the Company’s PV products.




14.
SUBSEQUENT EVENTS




The Company has evaluated subsequent events through the filing date of these financial statements issued and has determined that there were no subsequent events to recognize or disclose in these financial statements.


F-13


Schedule I: Condensed Parent Only Financial Statements





UNIVERSAL SOLAR TECHNOLOGY, INC.


BALANCE SHEETS





December 31,2010


2009AssetsCash

$
1,534


$
20,965Total Assets


1,534



20,965Liabilities and Stockholders' DeficiencyInvestment in and advances to Subsidiaries


693,362



354,357Accrued expenses and other payables


66,889



1,124Due to Stockholders


85,376



22,485Total Liabilities


845,627



377,966Stockholders' Deficiency


(844,093
)


(357,001
)Total Liabilities and Stockholders' Deficiency

$
1,534


$
20,965





S-1


UNIVERSAL SOLAR TECHNOLOGY, INC.


STATEMENTS OF OPERATIONS





Year ended December 31,2010


2009Loss from investment in subsidiaries

$
(470,596
)

$
(304,616
)Cost and ExpensesSelling, general and administrative expenses


123,212



116,946Total cost and expenses


123,212



116,946Net Loss

$
(593,808
)

$
(421,562
)





S-2


UNIVERSAL SOLAR TECHNOLOGY, INC.


STATEMENTS OF CASH FLOWS





Year ended December 31,2010


2009OPERATING ACTIVITESNet Loss

$
(593,808
)

$
(421,562
)Adjustments to reconcile net loss to net cash used in operating activities:Loss from investment in subsidiaries


470,596



304,616Stock-based compensation


-



3,750Prepaid expenses and other current assets


-



22,500Accrued expenses and other payables


65,765



-NET CASH USED IN OPERATING ACTIVITIES


(57,447
)


(90,696
)INVESTING ACTIVITIES(Investment in) repayment from subsidiaries


(24,875
)


109,916NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES


(24,875
)


109,916FINANCING ACTIVITIESLoan from stockholders


62,891



-NET CASH FROM FINANCING ACTIVITIES


62,891



-EFFECT OF EXCHANGE RATE CHANGES ON CASH


-



-INCREASE IN CASH


(19,431
)


19,220CASH - BEGINNING OF YEAR


20,965



1,745CASH - END OF YEAR

$
1,534


$
20,965





S-3