UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K/A


Amendment
No. 2





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


EXCHANGE
ACT OF 1934





For the
fiscal year ended December 31, 2009





Commission
file number: 333-150768





UNIVERSAL
SOLAR TECHNOLOGY, INC.


(Name of
Small Business Issuer in its charter)





Nevada
            26-0768064(State
      or other jurisdiction of incorporation or
              organization)
            (I.R.S.
      Employer Identification Number)





No. 1
Pingbei Road 2,


Nanping
Science & Technology Industrial Park


Zhuhai
City, Guangdong Province


The
People’s Republic of China 519060





Issuer's
telephone number: 86-756 8682610





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. Yeso  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. Yeso Nox





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 o





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 o   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. (Check one):





Large accelerated filer
      o
            Accelerated filer
      o
            Non-accelerated filero
            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). Yeso  Nox





As of
June 30, 2009, 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 18, 2010:
22,599,974 shares.









EXPLANATORY
NOTE
 
 This
Amendment No. 2 to Form 10-K on Form 10-K/A (the “Second Amended Filing”) amends
the Annual Report on Form 10-K for the fiscal year ended December 31, 2009,
originally filed on March 31, 2010 (the “Original Filing”) and amended by
Amendment No. 1 to Form 10-K on From 10-K/A filed on December 30, 2010 (the
“First Amended Filing”), of Universal Solar Technology, Inc., a Nevada
corporation (“UNSS” or the “Company”). The purpose of this amendment is to
revise (1) Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations to provide more details in the disclosures
under the “Liquidity and Capital Resources” section, and (2) Part II, Item
9A(T). Controls and Procedures to identify additional weaknesses in the
Company’s internal control over financial reporting.









TABLE
OF CONTENTS





PagePART
      ISpecial
      Note Regarding Forward-Looking Statements
              1Item
      1. Business
              1Item
      1A. Risk Factors
              18Item
      2. Properties
              31Item
      3. Legal Proceedings
              32Item
      4. Submission of Matters to a Vote of Security Holders
              32PART
      IIItem
      5. Market for Registrant's Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
              32Item
      6. Selected Financial Data - As a Smaller Reporting Company this item is
      not required
              32Item
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              33Item
      7A. Quantitative and Qualitative Disclosures About Market Risk - As a
      Smaller Reporting Company, this item is not required
              37Item
      8. Financial Statements and Supplementary Data
              37Item
      9. Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
              37Item
      9A(T). Controls and Procedures
              38Item
      9B. Other Information
              39PART
      IIIItem
      10. Directors, Executive Officers and Corporate Governance
              39Item
      11. Executive Compensation
              41Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
              41Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
              41Item
      14. Principal Accountant Fees and Services
              43PART
      IVItem
      15. Exhibits and Financial Statement Schedules
              45SIGNATURES
              46Index
      to Financial Statements
              47







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, PRC on May
10, 2007. A subsidiary, Nanyang Universal Solar Technology Co., Ltd. (“Nanyang
UST”), a wholly foreign owned enterprise (“WFOE”) was registered on September 8,
2008 under the wholly foreign-owned enterprises laws of the People’s Republic of
China (“PRC”) to manufacture our products.





OVERVIEW
OF OUR BUSINESS





We
provide silicon ingots, wafers, high efficiency solar photovoltaic (“PV”) cells
modules and other PV application products in the EU, North America, Asia and
Africa. We believe that demand for our proposed solar products will develop due
to growing energy needs, escalating energy prices, and increasing environmental
concerns.





Our
company was formed in July 2007, and to date has only 32 months of formation,
planning and analysis. On October 7, 2008, we received type test certificate
from Arizona State University Photovoltaic Testing Laboratory that our
Photovoltaic Modules, GYSP-175, satisfied the requirements of International
Electrotechnical Commission (“IEC”) 61215 and 61730 standards. IEC is a leading
global organization that prepares and publishes international standards for all
electrical, electronic and related technologies and its standards are adopted as
national standards by its member countries.  Meeting the IEC standards
removes technical barriers for our products and facilitates trade in the member
countries without going through tests to meet additional standards required by
specific local standards.





This product also passed EU standard
(“VDE”) which is a prerequisite for selling our products in the EU countries.
Since meeting such standards, we have received purchase orders for such product
and are currently using a third-party manufacturer to produce the product. VDE
Testing and Certification Institute or VDE is a neutral and independent body
which ensures thesafety
of electrotechnical
products, systems and installations.The VDE certification are registered
and protected in more than 30 countries.  Manufacturers in over 50
countries worldwide affix the VDE certification to their products. In many
countries, the VDE certification is a standard requirement for
imports.  In some cases, it is even in greater demand than locally
approved certifications.


1





Strategy





As both
global energy demand and concern about air quality intensifies, our strategy is
to leverage our people, technological experience and relationships to develop
and provide innovative solar products to ensure a sustainable world future. We
intend to supply our customers with high efficiency and aesthetically pleasing
PV modules, other PV application products and related solutions. We believe that
aesthetics have been a barrier to a wider adoption of solar cell and solar
module products and systems among commercial and residential consumers. We
intend to provide innovative, modular, and flexible solar products and systems
that can be attractively integrated into building structures and a wide variety
of natural and urban environments.





With
growing global demand for solar power systems and solutions, we plan to scale
our product portfolio and production capacity to meet the demands of an
expanding customer pipeline via infrastructure development, acquisitions, and
continued joint-ventures and strategic outsourcing.





Founders
of Universal Solar and Kuong U were previously engaged in developing PV and PV
applications business through the solar energy department at Zhuhai Yuemao Laser
Facility Engineering Co., Ltd. (“Yuemao Laser”). Yuemao Laser’s main products
are laser scribing, cutting, welding, grooving, and marking machines. Yuemao
Laser's parent company is Yuemao Technology, specializing in steel trade, laser
facility, water purifying facility and real estate investment. Yuemao
Technology’s shareholders are our Chairman, Mr. Wensheng Chen with 50%
ownership, our other director, Ms. Hui Chen 25% ownership, and our President,
Ms. Ling Chen 25% ownership. Hui Chen and Ling Chen are daughters of Wenshen
Chen.





We formed
a subsidiary, Nanyang Universal Solar Technology Co., Ltd. (“Nanyang UST”), a
wholly foreign owned enterprise (“WFOE”) registered under the wholly
foreign-owned enterprises laws of the People's Republic of China ("PRC”) to
manufacture our products. We hope having our manufacturing facilities near the
silicon mine will help access the silicon raw material at competitive
costs.





After the
approval of the WFOE registration of Nanyang UST, we have begun construction of
our manufacturing facilities. We estimate the investment of setting up the total
manufacturing facilities will be approximately $20 million. We are setting up
manufacturing facilities in Nanyang City, Henan Province in China. We plan to
manufacture five types of products: silicon ingots, solar wafers, solar cells,
high efficiency solar PV modules and solar lighting systems. The plant area
covers 10,000 square meters and will include two factories, one office building,
one dormitory and one canteen and is expected to be completed for use around the
middle of 2010. Manufacturing is expected to start in shortly after the
completion of the construction of the facilities. As of December 31, 2009, 10
monocrystalline silicon growers, two monocrystalline wire saws, two solar module
production lines and supporting facilities have been delivered to Nanyang. The
annual capacities of the current equipments are expected to be 16.6 MW silicon
ingots, 7.4 MW solar wafers and 20 MW solar modules. In 2011, we expect to
expand our total annual production capacities to 50 MW silicon ingots, 37 MW
silicon wafers and 30 MW solar modules with 30 monocyrstalline silicon growers,
10 monocrystalline wire saws and 3 solar module production lines.





Before we
setup our new manufacturing facilities mentioned above we will subcontract PV
modules orders and solar lighting system orders to a related party, the solar
department at Yuemao Laser. Currently our anticipated sales of PV modules have
passed EU standard and can be sold in Asia and Europe. Our solar lighting
systems do not require industry standard approval if sold to regions in Africa
and Asia.





We are in
the process of developing relationships with a number of original equipment
manufacturers (OEMs) to further expand our product portfolio. These OEMs have
the potential to provide us with a wide array of complementary products branded
and designed according to the Company’s specifications.





We are
developing several sales channels, including direct sales, as well as via
industry and country specific manufacturer sales representatives and
international strategic partnerships.





In
addition, we are in the process of developing a strong communications campaign
to build awareness among customers via speaking engagements and trade events. In
2009 we attended InterSolar in Munich, Germany and we plan to continue to attend
similar solar PV exhibitions and conferences in both Germany and
USA.





Our
management team is committed to quality design, production, research, and
innovation. We believe that this focus will continue to help us grow and develop
a strong and lasting enterprise. We are committed to improving the global
environment and the health and safety of our employees, customers and
communities. We are working to integrate our environmental mission into the
overall life cycle of our products - from raw material sourcing to end of life
reclamation and recycling.


2





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
Generation





The
electric power industry is one of the world’s largest industrial segments, with
annual revenue of approximately $1.06 trillion in 2004, according to
Datamonitor. According to the International Energy Outlook 2009, net electricity
generation worldwide totals 31.8 trillion kilo watt hours in 2030 in the
reference case, 77 percent higher than the 2006 total of 18.0 trillion kilo watt
hours. The strongest growth in electricity generation is projected for the
non-OECD countries. Non-OECD electricity generation increases by 3.5 percent per
year in the reference case, as rising standards of living increase demand for
home appliances and the expansion of commercial services, including hospitals,
office buildings, and shopping malls. In the OECD nations, where infrastructures
are well established and population growth is relatively slow, much slower
growth in generation is expected, averaging 1.2 percent per year from 2006 to
2030. (http://www.eia.doe.gov/oiaf/ieo/world.html).





Amongst
the mix of primary fuels used to generate electricity worldwide, coal has always
been the most widely used fuel due to its abundance and cheap cost. Though
cheap, coal is a great contributor to pollution and greenhouse gas (GHG)
emissions. As global warming is worsening year after year, countries world-wide
are seeking ways to mitigate GHG emissions.





China
unfortunately has been experiencing drastic environmental degradations in recent
years due to its rapid increase in electricity usage generated from coal. This
is causing major health problems and side effects to its residents and even
residents in some of its neighboring countries. Furthermore, the existing fossil
fuel based infrastructure for the generation, transmission and distribution of
electricity, is inadequate to meet growing demand and is also extremely capital
intensive. Using renewable resources to generate electricity is likely to be a
key contributor in solving the world’s energy crisis. Hence, China and other
countries have been actively engaging in the investment and usage of renewable
natural resources to generate electricity.





Renewable
Resource Market





Renewable
resources include solar, biomass and waste, nuclear, wind, hydraulics, and
geothermal generations. Compared to fossil fuel (oil), renewable resources are
abundant in availability with the appropriate technology. In 2005, 58% of the
world renewable energy came from large hydro machinery (such as dams), 17% from
Biomass heat, 4.6% from wind, and almost 8% from solar and PV. Global
renewable energy capacity grew at rates of 15–30 percent annually for many
technologies during the five-year period 2002–2006, including wind power, solar
hot water, geothermal heating, and off-grid solar PV. The growth of
grid-connected solar PV eclipsed all of these, with a 60 percent annual average
growth rate for the period. Biofuels also grew rapidly during the period, at a
40 percent annual average for biodiesel and 15 percent for ethanol.
(http://www.ren21.net/pdf/RE2007_Global_Status_Report.pdf, page
10).


3





While
currently renewable energy sources only supply a modest fraction of current
energy use, there is great potential for these technologies to rapidly expand in
the future and replace the world’s dependency of fossil fuels. Renewable energy
technologies encompass a broad, diverse array of technologies, and the current
status of these different technologies varies considerably. Some technologies
are already mature and economically competitive (e.g. geothermal and
hydropower), other technologies need additional development steps to become
competitive without subsidies.





Governments
worldwide understand the long term benefits of using renewable resources and are
prioritizing the need to implement these green technologies. The Kyoto Protocol
is a good example of a global effort to mitigate GHGs. In February 2005, China
enacted the Renewable Energy Law that provides certain financial incentives for
the development of renewable energy projects.





Solar
Power Industry





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. Solar Market grew by 30% over in the last 18 years. In Year
2006, the global market for PV energy was 2 GW, grew by 41% compared to the
previous year. Market is projected to grow from $15.6 Billion in 2006 to $69.3
Billion by 2015.
(http://www.saptashvasolar.com/market_opportunity.html).





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.





“On-grid”
& “Off-grid” Applications





Solar
power systems are used for a variety of residential, commercial and industrial
applications generally described as either “on-grid” or “off-grid” in nature.
The market for “on-grid” applications, where solar power is used to supplement
electricity purchased from the utility network, represents the largest and
fastest growing segment of the solar power market. According to Solarbuzz, LLC,
an independent solar energy research and consulting company (“Solarbuzz”), in
2005 the global on-grid segment grew by 42% from what 889MW to 1,262 MW, and
since 2001, the on-grid segment has grown at an average annual rate of
approximately 55%.





On-grid
Applications: On-grid applications generate solar power used to supplement on
grid electricity use or generated and sold to utility networks; this represents
the largest and fastest growing segment of the solar power market. PV modules
enable grid-connected solar power plants to achieve optimal electricity
production – lowering the cost of generating solar electricity and maximizing
the return on investment for the solar system.





Off-grid
Applications: “Off-grid” markets, where access to utility networks is not
physically feasible or economical, offer additional opportunities for solar
technology. Off-grid industrial applications include road signs, highway call
boxes, communications support along remote pipelines and telecommunications
equipment, as well as rural residential applications. Off-grid consumer
applications include portable recreational power modules, garden lights, marine
lighting and camping equipment. As reported by Solarbuzz, the off-grid market
grew at 2% in 2005, from 194MW to 198 MW, and has grown at an average of 12% per
annum since 2001.





System
Manufacturing Value Chain





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 monocrystalline silicon, multicrystalline 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.


4





In the
most widely used crystalline silicon-based solar manufacturing process,
feedstock is melted in high temperature furnaces, 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.











Universal
plans to manufacture solar wafers, solar cell, PV Modules, and solar application
products such as solar lighting systems.





Solar
Power 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.


5





Global
Solar Trends





The solar
power market has grown significantly in the past decade. According to Solarbuzz,
the global solar power market, as measured by annual solar power system
installations, increased from 345 MW in 2001 to 1,460 MW in 2005, representing a
compounded annual growth rate, or CAGR, of 43.4%. By 2015, installed solar
capacity will grow another 347% to over 72 gigawatts as utilities worldwide are
incentivized and forced to adopt sustainable production assets, and as solar
energy reaches price parity in a growing number of markets. (Solar Market
Trends-Regreasing the Solar Wheels, by Nick Hodge, March 20, 2009
http://www.energyandcapital.com/articles/solar-market-trends/847).





The
development and increased usage of solar power is, and for the foreseeable
future will be, affected by the existence of government incentives. A growing
number of countries have established attractive incentive programs for the
development of solar and other renewable energy sources. Countries in Europe,
Canada and Asia and several states in the United States have adopted a variety
of government subsidies to allow renewable sources of electricity to compete
with conventional sources of electricity, such as fossil fuels. Government
subsidies and incentives generally focus on grid-connected systems and take
several forms, including feed-in tariffs, net metering programs, renewable
portfolio standards, rebates, tax incentives and low interest
loans.





Under a
feed-in tariff subsidy, the government sets prices that regulated utilities are
required to pay for renewable electricity generated by end-users. The prices are
then set above market rates and may differ based on system size or application.
Net metering programs enable end-users to sell excess solar electricity to their
local utility in exchange for a credit against their utility bills. Net metering
allows end-users to get “full value” for the electricity generated by renewable
sources, rather than receiving a less desirable rate. The policies governing net
metering vary by state and utility; some utilities pay the end-user upfront,
while others credit the end-user’s bill.





United
States: With annual growth rates of 20-30%, the U.S. solar market continues to
expand at a steady pace. The US recently enacted a major energy bill that
included federal tax credits, purchasing goals and other programs designed to
accelerate the adoption of solar power. In addition, a number of states,
including California, New Jersey and Nevada, have committed substantial
resources to the development and implementation of renewable energy programs.
For example, in early 2006, California announced a $2.9 billion, 10 year
government incentive program to reach 3,000 MW of solar installations by 2017.
This program, will subsidize one-third of the installation costs of all new
systems. In California, a customer who has purchased solar energy products can
receive a cash rebate from the California Energy Commission, a state tax credit
and can take advantage of net metering. The customer’s cash rebate is based on
the capital cost of the solar power system, currently set at $2.60 per
watt.





China: In
2005, China enacted the Renewable Energy Law in order to help reach the
government target of 400 MW and 1,000 MW installed by 2010 and 2020,
respectively. This law authorizes relevant authorities to set favorable prices
for the purchase of surplus on-grid solar-generated electricity and provides
other financial incentives for the development of renewable energy projects. In
addition, the State Council of China and the Ministry of Construction have
recently created directives encouraging the development and use of solar energy
in both urban and rural areas.





Meanwhile,
in 2005, the Shanghai municipal government launched a program called the
“100,000 Roofs Projects.” The goal of this program is to install solar power
systems onto 100,000 roofs (300MW) in Shanghai by 2015.





OUR
PROPOSED PRODUCTS





We are
setting up manufacturing facilities in Nanyang City, Henan Province in China. We
plan to manufacture five types of products: silicon ingots, solar wafers, solar
cells, high efficiency solar PV modules and solar lighting systems. The plant
area covers 10,000 square meters and will include two factories, one office
building, one dormitory and one canteen and is expected to be completed for use
around the middle of 2010. Manufacturing is expected to start in shortly after
the completion of the construction of the facilities. As of December 31, 2009,
ten monocrystalline silicon growers, two monocrystalline wire saws, two solar
module production lines and supporting facilities have been delivered to
Nanyang. The annual capacities of the current equipments are expected to be 16.6
MW silicon ingots, 7.4 MW solar wafers and 20 MW solar modules. In 2011, we
expect to expand our total annual production capacities to 50 MW silicon ingots,
37 MW silicon wafers and 30 MW solar modules with 30 monocyrstalline silicon
growers, 10 monocrystalline wire saws and 3 solar module production
lines.


6





Currently,
we are not producing solar cells.





Our
subsidiary, Kuong U, has satisfied EU standard for its Photovoltaic Modules,
GYSP-175, which is the most common used PV module in the EU market. We have also
obtained certificates IEC 61215 and 61730 from both VDE Testing and
Certification Institute and TUV for meeting those standards.





The
Technical Inspection Organization or TUV is a longstanding German safety testing
and certification organization.  Its certifications are widely
recognized and respected in Europe and are growing in importance in the U.S. and
other countries.  In Germany where the Company has participated in
trade shows focused on solar energy industry, the TUV certification is required
for products displayed at these trade shows.





The
Underwriters Laboratories or UL is an independent product safety certification
organization that has been testing products and writing standards for safety for
more than a century in the U.S. The Company plans to submit its products for
testing in the future as funds permit.





To assist
in securing an EU standard, the company had a prototype product tested by an
independent testing facility. On January 14, 2008, Kuong U entered an agreement
with Arizona State University (“ASU”). During the agreement, Photovoltaic
Testing Laboratory (“PTL”) at ASU will conduct Crystalline Silicon Terrestrial
Photovoltaic (PV) Modules - Design Qualification and Type Approval (IEC 61215)
tests and Photovoltaic (“PV”) Module Safety Qualification Part 2 (IEC 61730-2)
tests on Kuong U’s GYSP-175 photovoltaic modules. A total of ten unconditioned
production modules and one laminate (frameless modules) were sent to the PTL to
complete the test program. Among the agreement, Kuong U paid $37,650 to ASU for
its services. The agreement period is from January 10, 2008 to December 31,
2008. Kuong U received test certificate for that its product GYSP-175
photovoltaic module satisfied IEC 61215 on October 7, 2008.





After
successful completion of the test, PTL has transferred an IEC test data report
to VDE Testing & Certifications Institute in Germany.





According
to http://www.vde.com, The VDE Testing and Certification Institute is accredited
on a national and international level for the area of testing and certification
of electro-technical equipment, components and systems. Testing of
electro-technical products is conducted for safety, electromagnetic
compatibility and other characteristics. The results of testing are evaluated
scientifically and contribute to the development of electro-technical
standards.





VDE is a
professional organization of electrical engineers; issues, in collaboration with
German Institute for Standardization (DIN), standards for the field of
electrical engineering. It also conducts testing and certification much likes UL
in the United States.





Kuong U
contacted VDE directly and established an IEC 61730 evaluation, to include the
construction evaluation requirements of IEC 61730-1, additional IEC 61730-2
module or materials tests, and factory inspection requirement. On January 18,
2008, Kuong U entered ordered testing services for VDE Certification based on
test report from ASU IEC61215 and IEC 21730-2 report. In addition, Kuong U
applied for VDE Certification and test according to IEC 61730-1 Photovoltaic
(PV) module safety qualification Part 1 (IEC 61730-1) with VDE. Total invoiced
fees for VDE certification and testing services are 7,956 EUR.





We
received VDE standard certificates of IEC 61730-1, and 71730-2, and IEC 61215,
as the EU standard allows +10% to -10% allowance, Kuong U would be able to
market and sell its main Photovoltaic Modules, GYSP175 and GYSP180, to EU
countries.





We are
currently developing a strong product portfolio to serve the diverse needs of
our rapidly developing global customer pipeline. Products currently being
marketed, and/or developed include:





·
            PV
  modules


·
            Solar lighting system including
      solar lamps for road and highway
  infrastructure




7





PV
Modules& Systems





Many of
our prototype PV modules are designed for large scale, grid-connected solar
power plants and are sold to leading solar project developers for use in
commercial PV projects. We also plan to provide technical support and product
documentation to customers to ensure that systems are optimized for high
performance and long term reliability.


Sample Prototype Products in PV
Module Series





The
following sample prototypes have been manufactured by Yuamao Laser under an
agreement with us under which we retain all rights to the design of the products
and exclusive rights to market and sell the products.





■ Solar
      modules GYSP-200Characteristics
                Open
      circuit voltage(Voc): 48V
                Optimum
      operating voltage:
                (Vmp)37.5V
                Short
      circuit current(Isc): 5.46A
                Optimum
      operating current(Imp): 5.2A
                Peak
      power(Pm): 200W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):1830x825x50
                Tolerance:
      ±5%
                Weight:16.9kg
                Maximum
      system voltage: 1000V DC■Solar
      modules GYSP-180Characteristics
                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):
      1715x802x45
                Tolerance:
      ±5%
                Weight:
      16.9kg
                Maximum
      system voltage: 1000V DC■Solar
      modules GYSP-175Characteristics
                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):
      1580x808x37
                Tolerance:
      ±5%
                Weight:
      15.3kg
                Maximum
      system voltage: 1000V DC


8




■ Solar
      modules GYSP-160Characteristics
                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): 1588x802x45
                Tolerance:
      ± 5%
                Weight:
      15.6kg
                Maximum
      system voltage: 1000V DC




■ Solar
      modules GYSP-130
                        Characteristics
                        Open
      circuit voltage(Voc): 22.6V
                        Optimum
      operating voltage (Vmp): 17.6V
                        Short
      circuit current (Isc): 7.83A
                        Optimum
      operating current (Imp): 7.35A
                        Peak
      power(Pm): 130W
                      
                      Specifications
                        Monocrystalline
      silicon
                        Dimension
      (mm): 1466x656x40
                        Tolerance:
      ± 5%
                        Weight:
      13.2kg
                        Maximum
      system voltage: 1000V DC■ Solar
      modules GYSP-120
                        Characteristics
                        Open
      circuit voltage(Voc): 22.5V
                        Optimum
      operating voltage (Vmp): 17.5V
                        Short
      circuit current (Isc): 7.12A
                        Optimum
      operating current (Imp): 6.8A
                        Peak
      power(Pm): 120W
                      
                      Specification
                        Monocrystalline
      silicon
                        Dimension
      (mm): 1425X650X40
                        Tolerance:
      ± 5%
                        Weight:
      10.8kg
                        Maximum
      system voltage: 1000V DC■ Solar
      modules GYSP-100Characteristics
                        Open
      circuit voltage(Voc): 21.6V
                        Optimum
      operating voltage (Vmp): 17.4V
                        Short
      circuit current (Isc): 7.24A
                        Optimum
      operating current (Imp): 6.14A
                        Peak
      power(Pm): 100W
                      
                      Specifications
                        Monocrystalline
      silicon
                        Dimension
      (mm): 1425X650X40
                        Tolerance:
      ± 5%
                        Weight:
      10.8kg
                        Maximum
      system voltage: 1000V
DC




9




■ Solar
      modules GYSP-80
                Characteristics
                Open
      circuit voltage(Voc): 21.3 V
                Optimum
      operating voltage (Vmp): 17.4 V
                Short
      circuit current (Isc): 5.2A
                Optimum
      operating current (Imp): 4.6A
                Peak
      power(Pm): 80W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      802X802X35
                Tolerance:
      ±5%
                Weight:
      9.1kg
                Maximum
      system voltage: 720V DC■ Solar
      modules GYSP-65
                Characteristics
                Open
      circuit voltage(Voc): 21.6V
                Optimum
      operating voltage (Vmp): 17.5V
                Short
      circuit current (Isc): 3.51A
                Optimum
      operating current (Imp): 3.71A
                Peak
      power(Pm): 65W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      785X650X28
                Tolerance:
      ±5%
                Weight:
      5kg
                Maximum
      system voltage: 720V DC




■ Solar
      modules GYSP-50Characteristics
                Open
      circuit voltage(Voc): 21.8V
                Optimum
      operating voltage (Vmp): 17.9V
                Short
      circuit current (Isc): 3.0A
                Optimum
      operating current (Imp): 2.81A
                Peak
      power(Pm): 50W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      540X710X35
                Tolerance:
      ±5%
                Weight:
      5.3kg
                Maximum
      system voltage: 720V DC■ Solar
      modules GYSP-40Characteristics
                Open
      circuit voltage(Voc): 21.8V
                Optimum
      operating voltage (Vmp): 17V
                Short
      circuit current (Isc): 2.55A
                Optimum
      operating current (Imp): 2.34A
                Peak
      power(Pm): 40W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      758X534X30
                Tolerance:
      ±5%
                Weight:
      5.8kg
                Maximum
      system voltage: 720V DC■ Solar
      modules GYSP-30Characteristics
                Open
      circuit voltage(Voc): 21.5V
                Optimum
      operating voltage (Vmp): 16.8V
                Short
      circuit current (Isc): 2.02A
                Optimum
      operating current (Imp): 1.79A
                Peak
      power(Pm): 30W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      435X650X25
                Tolerance:
      ±5%
                Weight:
      3.5kg
                Maximum
      system voltage: 720V DC


10




■ Solar
      modules GYSP-20Characteristics
                Open
      circuit voltage(Voc): 21.5V
                Optimum
      operating voltage (Vmp): 16.9V
                Short
      circuit current (Isc): 1.35A
                Optimum
      operating current (Imp): 1.2A
                Peak
      power(Pm): 20W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      605X287X25
                Tolerance:
      ±5%
                Weight:
      3.1kg
                Maximum
      system voltage: 720V DC■ Solar
      modules GYSP-10Characteristics
                Open
      circuit voltage(Voc): 21.5V
                Optimum
      operating voltage (Vmp): 17V
                Short
      circuit current (Isc): 0.71A
                Optimum
      operating current (Imp): 0.58A
                Peak
      power(Pm): 10W
              
              Specifications
                Monocrystalline
      silicon
                Dimension(mm):
      288X310X28
                Tolerance:
      ±5%
                Weight:
      2.1kg
                Maximum
      system voltage: 720V DC




Solar
Lighting Systems





We intend
to provide attractive, efficient and reliable solar powered systems for lighting
applications including parking lot, street lighting, security lighting, general
area lighting, trail and pathway lighting. New products under development relate
to outdoor advertising, billboard and sign lighting, and a variety of transit
applications. Solar powered systems can be used in lighting up dark areas with
dependable off-grid solar power. These systems install easily with no trenching
or wiring.





Solar
powered lighting is a relatively simple concept and an example of a common
off-grid solar application. In a basic way, the system operates like a bank
account. Withdrawals from the battery to power the light source must be
compensated for by commensurate deposits of energy from the solar panels. As
long as the system is designed so deposits exceed withdrawals on an average
daily basis, the battery remains charged and light source is reliably powered.
The sun provides a direct source of energy to the solar panel. The battery is
recharged during the day by direct-current (DC) electricity produced by the
solar panel. The light source is powered by the battery each night. Electronic
controls are used between the battery, light source and solar panels to protect
the battery from overcharge and discharge, and to control the timing and
operation of the light.





The types
of customers for this line of product include:





City,
county, state and federal governments: Streets, roads, signs, intersections,
parks and docks





·
            Department of Defense
      installations: Perimeter security, parking lots,
      recreation


·
            Utilities companies: Emergency
      back-up lighting, remote customer
  lighting


·
            Advertisers: Billboards and
      advertising shelters


·
            Industrial/commercial customers:
      Parking lots, security, welcome
signs


·
            Department of Transportation
      Signage: On/off ramps and rest area
  lighting


·
            Residential developers,
      homeowners associations: Roads, bike paths and identification
      signage


·
            Homeowners: Garden lights, safety
      lighting, etc.




11





Sample
Products in PV Lighting Unit Series





Examples
of our products in the PV Lighting Unit Series, manufactured under our agreement
with Yuamao Laser, include:





GYSL-1
            
            GYSL-65V
      2.5AH Lead-Acid Battery
              8 W
      light tube
              Alternative
      charging Mode
              Car
      charger
              Adaptor
              Solar
      panel
              Charging
      time: 8 times
              Continuously
      work for 30 hours
              Carton
      size 68X40X52
              23.5Kg
            
            6V
      1.5AH Ni-MH Battery
              7
      Lumination Time 8 hours
              Continuous
      Working Time 7 days
              Body
      Material plastic body
              Color
      white/Green/Yellow
              1
      LED 10000mcd 8h 2Batteries
              Carton
      size 35X45x56




GYSL-2
            
            GYSL-3
            
            GYSL-4
            
            GYSL-55V
      2.5AH Lead-Acid Battery
              8W
      Light Tube
              Alternative
      charging Mode
              Car
      charger
              Adaptor
              Solar
      panel
              Charging
      time: 8 times
              Continuously
      work for 30 hours
              Carton
      size 65X42X42.5
              10.5Kg
            
            Stainless
      Steel Body
              8W
      Light Tube
              Continuously
      work for 30 hours
              Carton
      size 65X42X42.5
              16.5Kg
            
            175W
      Solar Energy system
              70Ah
      Battery
              Controller
      7A
              Energy
      Conservation Lamp 15W
              Lumination
      Time 8 hours
              Continuous
      Working Time 7 days
            
            6V
      1.5AH Ni-MH Battery
              7W
      Light Tube
              Charging
      time: 8 times
              Continuously
      work for 30 hours
              Carton
      size 35X42X120
              Color
      White




12





GYSL-7
            
            GYSL-8
            
            GYSL-9
            
            GYSL-10100W
      Solar Energy system
              60Ah
      Battery
              Controller
      10A
              Energy
      Conservation Lamp 15W
              Lumination
      Time 8 hours
              Continuous
      Working Time
              7
      days
            
            45W
      Solar Energy system
              50Ah
      Battery
              Controller
      7A
              Energy
      Conservation Lamp 12W
              Lumination
      Time 8 hours
              Continuous
      Working Time
              7
      days
            
            40W
      Solar Energy system
              65Ah
      Battery
              Controller
      6A
              Energy
      Conservation Lamp 11W
              Lumination
      Time 8 hours
              Continuous
      Working Time
              7
      days
            
            80W
      Solar Energy system
              100Ah
      Battery
              Controller
      7A
              Energy
      Conservation Lamp 10W
              Lumination
      Time 8 hours
              Continuous
      Working Time
              7
      days




PRODUCTION
FACILITIES





We are in
the process of setting up our manufacturing facilities in Nanyang City, Henan
province, China. We have set up production lines for three kinds of
products: solar wafer, silicon ingot and PV- module. Total costs for main
equipments obtained for these production lines are as follows.





Equipment:


Product Line
                          
                          Annual Capacity
                          
                          Equipment Details
                          
                          Total
                            Equipment
                            Costs (US$)Solar
      Wafer
                          
                          7.4
      MW
                          
                          2 wire saws @ $333,818/set
                          
                          $
                          667,636Silicon ingot
                          
                          16.6 MW
                          
                          10 grower @ $125,808/set
                          
                          $
                          1,258,080PV
      Module
                          
                          20
      MW
                          
                          2 lines @ $700,000/line
                          
                          $
                          1,400,000Total:
                          
                          $
                          3,325,716





Land:





We signed
a Land Purchase Agreement on December 1, 2008 with a local government for the
rights to use 71,280 square meters of land for a term of 40 years at the cost of
$5.94 per square meter. Our total cost for the land use rights is $423,420. We
are in the process of obtaining our land use right certificate from the relevant
local government authorities.





Factory:





We are in
the process of completing construction of two factories each covering 2,000
square meters. The construction cost for each factory is estimated at $267,000.
Our total estimated cost of the entire plant area is $1,435,840, which includes
two factories, one dormitory, one office building and one canteen. By December
31, 2009, we have paid $625,696 for the construction of our plant. We estimate
that the construction for the plant will be completed around the middle of
2010.


13





We have
registered our subsidiary, Nanyang UST as a WFOE in Nanyang City, Henan province
in China, under the wholly foreign owned enterprise laws of China. We have
obtained all government approvals in connection with Nanyang UST’s WFOE
status.





We have
received delivery of 10 monocrystalline silicon growers, two monocrystalline
wire saws, two solar PV module production lines and supporting facilities as of
December 31, 2009 at our plant in Nanyang. With these equipments, we annual
production capacities are expected to be 16.6 MW silicon ingots, 7.4 MW solar
wafers and 20 MW solar modules. In 2011, we expect to expand our total
production capacities to 50 MW silicon ingots, 37 MW silicon wafers and 30 MW
solar modules with 30 monocrystalline silicon growers, ten monocrystalline wire
saws and 3 solar module production lines.





RAW
MATERIAL





We do not
currently have agreements with any suppliers for our raw materials. Since the
market for our raw material is not tight and will not be in the foreseeable
future, we do not expect to have any difficulties obtaining our required supply
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.





We plan
to sell our solar wafer products to Suntech Power Holdings Co. (NYSE: STP) in
Wuxi, China, Motech Industries, Inc. in Taiwan and JA Solar Holding (NASDAQ:
JASO) in Hebei Province, China, and other solar cell and solar module producers.
Our Chairman and management have had a multi-year relationship with these
potential customers due to their position with Yuemao Laser, which has sold them
laser equipment.





We plan
to sell our solar cell and solar PV module product to customers in the EU, North
America, Asia and Africa.





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.





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.


14





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.





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.


15





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, 2009, we had 54 full-time employees. Senior management include 4
senior officers with one employee is allotted to the production team; one
employee is allotted to the technical team; one employee is allotted to the
finance team and one is allotted to management. We have 14 employees in our
administration and accounting departments and 36 employees dedicated to
production at our WOFE in Henan. 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.





Subject
to receipt of additional financing, we plan to recruit an additional 250
employees at the new manufacturing facilities in Nanyang City, Henan Province in
China. Our current four management team plan to move to the new manufacturing
facilities as well. We plan to have the following composition of our
organization:





Function
                      
                      Planned HeadcountSales
                      
                      
                      10Administration
      & Accounting
                      
                      
                      26Senior
      Management
                      
                      
                      0Production
                      
                      
                      214Total
                      
                      
                      250





TAX
BENEFITS





As a
WFOE, Nanyang UST is entitled to a two-year exemption from the enterprise income
tax for its first two profitable years of operation, and to a 50% reduction of
its applicable income tax rate of 25% for the succeeding three
years.





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.


16





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.





During
the fiscal year 2009, due to fiscal restraints, we did not devote any resources
to research and development 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.





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.


17





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.





RISKS
RELATING TO OUR COMPANY





WE
ARE AN EARLY STAGE COMPANY AND HAVE NO 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 no 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.





Since our
inception in 2007, we have not received any funds from the issuance of common
stock.  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.


18





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.





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 $421,562 for the year ended December 31, 2009, and 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.


19





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 over 250 additional
employees, secure raw materials from suppliers, set up a manufacturing facility,
establish a distribution channel and secure purchase orders from customers. Each
of these elements carries substantial risk in our ability to execute on them,
including our ability to finance the costs — estimated at $20 million for the
cost to equip a facility to manufacture and to expand our three product lines —
and our ability to successfully manage the startup. These uncertainties could
cause us to significantly change our strategy.





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.





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.


20





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.





We place
substantial reliance upon the efforts and abilities of our executive officers,
Wensheng Chen, our Founder and Chairman; Ling Chen, our President; Jun Ren, Vice
President - Operations; and Renming Li, Vice President - Product Development
& Research. The loss of the services of any of our executive officers could
have a material adverse effect on our business, operations, revenues or
prospects. We do not maintain key man life insurance on the lives of these
individuals. Mr. Wensheng Chen has significant activities outside the company
that put demands on his time that could detract from his management of the
company’s business.





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.





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;


21


·
            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.





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.


22





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.





OUR
DEPENDENCE ON A LIMITED NUMBER OF SUPPLIERS FOR A SUBSTANTIAL PORTION OF SILICON
INGOTS AND SILICON WAFERS COULD PREVENT US FROM DELIVERING OUR PRODUCTS IN A
TIMELY MANNER TO OUR CUSTOMERS IN THE REQUIRED QUANTITIES, WHICH COULD RESULT IN
ORDER CANCELLATIONS, DECREASED REVENUE AND LOSS OF MARKET SHARE.





From
company inception to the date of filing of this report, we have not purchased
any silicon ingots and silicon wafers. We plan to purchase solar cells from
Suntech Power Holdings Co. (NYSE:STP), Motech Industries, Inc. and JA Solar
Holding (NASDAQ: JASO). To develop or secure our relationships with these
suppliers, we may extend interest-free loans or make prepayments to them, or
grant them warrants or other rights to purchase our ordinary shares, which could
increase our costs or expenses. If we fail to develop or maintain our
relationships with these or our other suppliers, we may be unable to manufacture
our products, our products may only be available at a higher cost or after a
long delay, or we could be prevented from delivering our products to our
customers in the required quantities, at competitive prices and on acceptable
terms of delivery. Problems of this kind could cause us to experience order
cancellations, decreased revenue and loss of market share. In general, the
failure of a supplier to supply materials and components that meet our quality,
quantity and cost requirements in a timely manner due to lack of supplies or
other reasons could impair our ability to manufacture our products or could
increase our costs, particularly if we are unable to obtain these materials and
components from alternative sources in a timely manner or on commercially
reasonable terms. We cannot assure you that we will not experience shortfalls of
silicon ingots or silicon wafers from our suppliers in the future or that, in
the event of such shortfalls, we will be able to find other silicon ingots and
silicon wafers suppliers to satisfy our production needs. Any disruption in the
supply of silicon wafers to us may adversely affect our business, financial
condition, results of operations and business prospects.





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 products to a limited number
of customers, including distributors, engineering design firms, system
integrators, other value-added resellers, as well as integrated manufacturers of
PV products. 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.


23





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.





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, including requirements under the Sarbanes-Oxley Act of 2002 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.


24





PROBLEMS
WITH PRODUCT QUALITY OR PRODUCT PERFORMANCE MAY CAUSE US TO INCUR WARRANTY
EXPENSES, DAMAGE OUR MARKET REPUTATION AND PREVENT US FROM ACHIEVING INCREASED
SALES AND MARKET SHARE.





The PV
modules we plan to sell are typically sold with a 20 year warranty and 1-year
warranty for defects in materials and workmanship, respectively. The PV modules
may also contain a 10 year and 20 year warranty against declines of more than
8.0% and 10.0% of initial power generation capacity, respectively. As a result
of these warranties, we would bear the risk of extensive warranty claims long
after we have sold our products and recognized revenues. We have not retained
any third party insurance to cover certain warranty-related claims on our
products. We have not sold any PV modules since inception, and accordingly none
of our PV modules has been in use for more than five years. Because our products
have not been in use, we cannot assure you that our assumptions regarding the
durability and reliability of our products are reasonable. Our warranty
provisions in future may be inadequate, and we may have to incur substantial
expense to repair or replace defective products in the future. Furthermore,
widespread product failures may damage our market reputation and cause our sales
to decline.





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.





LEGISLATIVE
AND REGULATORY ACTIONS AND POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS, INCLUDING
SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002, ARE LIKELY TO IMPACT OUR FUTURE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.





There
have been certain regulatory changes, including the Sarbanes-Oxley Act of 2002,
and there may potentially be new accounting pronouncements or additional
regulatory changes, which will have an impact on our future financial condition
and results of operations.  The Sarbanes-Oxley Act of 2002 and other
rule changes as well as proposed legislative initiatives will increase our
general and administrative costs, as we will incur increased legal and
accounting fees to comply with such rule changes.  In addition,
proposed initiatives are expected to result in changes in certain accounting and
disclosure rules.  These and other potential changes could materially
increase the expenses we report in our financial statements and adversely affect
our operating results.





Section
404 of the Sarbanes-Oxley Act of 2002 requires management to assess its internal
controls over financial reporting and requires auditors to attest to that
assessment. Current regulations of the Securities and Exchange Commission will
require us to (1) include this assessment in our Annual Report on Form 10-K
commencing with the annual report for our fiscal year ending December 31, 2010,
and (2) include this attestation in our Annual Report on Form 10-K commencing
with the annual report for our fiscal year ending December 31,
2010.




25


We will
incur significant increased costs in implementing and responding to the new
requirements. In particular, the rules governing the standards that must be met
for management to assess its internal controls over financial reporting under
Section 404 are complex and require significant documentation, testing and
possible remediation. Our process of reviewing, documenting and testing our
internal controls over financial reporting may cause a significant strain on our
management, information systems and resources. We will have to invest in
additional accounting and software systems. We may be required to hire
additional personnel and to use outside legal, accounting and advisory services.
We will also incur additional fees from our auditors as they perform the
additional services necessary for them to provide their attestation. If we are
unable to favorably assess the effectiveness of our internal controls over
financial reporting when we are required, or if our independent auditors are
unable to provide an unqualified attestation report on such assessment, we may
be required to change our internal controls over financial reporting to
remediate deficiencies. In addition, investors may lose confidence in the
reliability of our financial statements causing our stock price to
decline.





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
RELATING TO THE PEOPLE'S REPUBLIC OF 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.





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.





TO
THE EXTENT OUR ASSETS ARE LOCATED IN CHINA, ANY DIVIDENDS OR PROCEEDS FROM
LIQUIDATION IS SUBJECT TO THE APPROVAL OF THE RELEVANT CHINESE GOVERNMENT
AGENCIES.





Following
the approval of our subsidiary as a WFOE, we plan to set up our manufacturing
facilities in Nanyang city, Henan province, China, our 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 the
foreign exchange control. This may generate additional risk for our investors in
case of dividend payment and liquidation.


26





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.





WE
MAY FACE OBSTACLES FROM THE COMMUNIST SYSTEM IN THE PEOPLE'S REPUBLIC OF
CHINA.





Foreign
companies conducting operations in The People's Republic of China face
significant political, economic and legal risks. The Communist regime in The
People's Republic of China includes a stifling bureaucracy which may hinder
Western investment.





WE
MAY HAVE DIFFICULTY ESTABLISHING ADEQUATE MANAGEMENT, LEGAL AND FINANCIAL
CONTROLS IN THE PEOPLE'S REPUBLIC OF CHINA.





The
People's Republic of China historically has been deficient in Western style
management and financial reporting concepts and practices, as well as in modern
banking, computer and other control systems. We may have difficulty in hiring
and retaining a sufficient number of qualified employees to work in The People's
Republic of China for our wholly foreign owned enterprise (WFOE) in China. As a
result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards.





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 UNITED STATES 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:





·
            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


·
            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.


27





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 27
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.





ANY
DIVIDENDS AND OTHER DISTRIBUTIONS FROM ANY SUBSIDIARIES IN CHINA IS SUBJECT TO
VARIOUS LEGAL AND CONTRACTUAL RESTRICTIONS AND UNCERTAINTIES, AND OUR ABILITY TO
PAY DIVIDENDS OR MAKE OTHER DISTRIBUTIONS TO OUR SHAREHOLDERS ARE NEGATIVELY
AFFECTED BY THOSE RESTRICTIONS AND UNCERTAINTIES.





We plan
to operate manufacturing facilities in Nanyang city, Henan province in China
through PRC subsidiaries.  As a result, our profits available for
distribution to our shareholders are dependent on the profits available for
distribution from PRC subsidiaries.  If the subsidiary incurs debt on
its own behalf, the debt instruments may restrict its ability to pay dividends
or make other distributions, which in turn would limit our ability to pay
dividends on our shares.  Under the current PRC laws, because we are
incorporated in the Nevada, any PRC subsidiaries would be regarded as
Sino-foreign joint venture enterprises in China.  Although dividends
paid by foreign invested enterprises, such as wholly foreign-owned enterprises
and Sino-foreign joint ventures, are not subject to any PRC corporate
withholding tax, the PRC laws permit payment of dividends only out of net income
as determined in accordance with PRC accounting standards and
regulations.  Determination of net income under PRC accounting
standards and regulations may differ from determination under U.S. GAAP in
significant aspects, such as the use of different principles for recognition of
revenues and expenses.  In addition, if we make additional capital
contributions to PRC subsidiaries, (which may occur through the capitalization
of undistributed profits), then additional approval of the PRC government would
be required due to an increase in our registered capital and total investment
..  Under the PRC laws, a Sino-foreign joint venture enterprise is
required to set aside a portion of its net income each year to fund designated
statutory reserve funds.  These reserves are not distributable as cash
dividends.  As a result, our primary internal source of funds of
dividend payments from PRC subsidiaries are subject to these and other legal and
contractual restrictions and uncertainties, which in turn may limit or impair
our ability to pay dividends to our shareholders.  Moreover, any
transfer of funds from us to PRC subsidiaries, either as a shareholder loan or
as an increase in registered capital, is subject to registration with or
approval by PRC governmental authorities. We currently do not intend on paying
any dividends in the future and expect to retain all available funds to support
our operations and to finance growth and development of our business. We have
never declared dividends or paid cash dividends.  Our board of
directors will make any future decisions regarding dividends.  We
currently intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in the
near future.  Therefore, any gains on an investment in our common
stock will likely occur through an increase in our stock price, which may or may
not occur.


28





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.





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.


29





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. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.





NASD
SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY AND
SELL OUR STOCK.





Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's
account.


30





Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure 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 setting up manufacturing facilities in Nanyang City,
Henan Province in China. We plan to manufacture five types of products: silicon
ingots, solar wafers, solar cells, high efficiency solar PV modules and solar
lighting systems. The plant area covers 10,000 square meters and will include
two factories, one office building, one dormitory and one canteen and is
expected to be completed for use around the middle of 2010. Manufacturing is
expected to start in shortly after the completion of the construction of the
facilities. As of December 31, 2009, ten monocrystalline silicon growers, two
monocrystalline wire saws, two solar module production lines and supporting
facilities have been delivered to Nanyang. The annual capacities of the current
equipments are expected to be 16.6 MW silicon ingots, 7.4 MW solar wafers and 20
MW solar modules. In 2011, we expect to expand our total annual production
capacities to 50 MW silicon ingots, 37 MW silicon wafers and 50 MW solar modules
with 30 monocyrstalline silicon growers, 10 monocrystalline wire saws and 5
solar module production lines. 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.


31





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.





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





PART
II





ITEM
5.  MARKET FOR REGISTRANTS 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 froth 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.





Year
                                  
                                  Quarter Ended
                                  
                                  High
                                  
                                  
                                  Low2009
                                  
                                  December
      31
                                  
                                  $
                                  0.58
                                  
                                  
                                  
                                  0.15September
      30
                                  
                                  $
                                  0.15
                                  
                                  
                                  
                                  0.15June
      30
                                  
                                  $
                                  N/A
                                  
                                  
                                  
                                  N/AMarch
      31
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A2008
                                  
                                  December
      31
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/ASeptember
      30
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/AJune
      30
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/AMarch
      31
                                  
                                  
                                  N/A
                                  
                                  
                                  
                                  N/A





SHAREHOLDERS
OF RECORD





As of
March 18, 2010, 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.


32





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





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, Special
Administrative Region of the People's Republic of China (Macau SARC) on May 10,
2007. A subsidiary, Nanyang Universal Solar Technology Co., Ltd. (“Nanyang
UST”), a wholly foreign owned enterprise (“WFOE”) was registered on September 8,
2008 under the wholly foreign-owned enterprises laws of the People’s Republic of
China (“PRC”) to manufacture our products.





We have
generated very limited revenues from our business operations.





We have
completed the development of our prototype product, and selected Yuemao Laser as
the third party manufacturer should we receive orders. We believe the technical
aspects of our prototype products are sufficiently developed and are ready to
market in the EU and elsewhere.





In
addition, we have received test results for our Photovoltaic Modules, GYSP175
and have passed the VDE standard certificates of IEC 61730-1, and 61730-2, and
IEC 61215. As a result of meeting these standards, we are able to market our
Photovoltaic Modules, GYSP175 in Europe.





We have
also registered our subsidiary, Nanyang UST as a WFOE in Nanyang City, Henan
Province, China, under the foreign owned enterprise laws of China. We plan to
manufacturing five types of products: silicon ingots, solar wafers, solar cells,
high efficiency solar PV modules and solar lighting systems.





We must
raise cash from sources other than operations. Our only other source for cash at
this time is investments by others in our company. We must raise cash to
implement our project and continue our operations in China. We have raised total
net proceeds of $241,733 in a stock offering in 2008, we do not know how long
the money will last, however, we do believe it will last twelve months. We have
begun China operations with money raised from this offering.





We have
begun China operations but we cannot guarantee that we will be able to sustain
our China operations if we are unable to successfully sell our PV modules
products internationally. We may quickly use up the proceeds from our stock
offering in 2008 and will need to find alternative sources of funding, like a
second public offering, a private placement of securities, or loans from our
officers or others in order for us to maintain our operations. At the present
time, we have not made any arrangements to raise additional cash, other than
through the stock offering in 2008 and private loans from our Chairman and a
company owned by our Chairman. If we need additional cash and cannot raise it we
will either have to suspend operations until we do raise the cash, or cease
operations entirely. Once we exhaust our net proceeds from the stock offering in
2008, we will have to revert to obtaining additional money as described in this
paragraph. Other than as described in this paragraph, we have no other financing
plans.





PLAN
OF OPERATION





As of
December 31, 2009, we have not begun production and have not generated
significant revenue. We continue to obtain loans from our Chairman and a company
owned by our Chairman to fund operations and the construction of our
manufacturing facilities in Henan. We plan to begin production at our Henan
facilities in the middle of 2010 and expect to generate revenue from the sales
of such products.





In 2009
and 2008 we have accomplished the following milestones:





1. We
entered into a 40 year Land Purchase Agreement on December 1, 2008 for the land
use right for 71,280 square meters of land at the cost of approximately $5.94
per square meter for a total of $423,420 with the local government in Nanyang
City, China. We expect to receive the necessary land use certificate from the
local government imminently in 2010. We are completing construction of two
factories with each covering 2,000 square meters. The construction cost for
building one factory is estimated to be $267,000. The total construction cost
for the entire plant is estimated at $1,435,840, which includes two factories,
one dormitory, one office building and one canteen. As of December 31, 2009, we
have paid $625,696 for the construction of our plant. We expect the construction
of the plant to be completed by the middle of 2010.


33





4. We
registered our subsidiary Nanyang UST as a Wholly Foreign Owned Enterprise
(WFOE) in Nanyang City, Henan Province in China in the third quarter in 2008. We
have received all necessary permits and licenses from the Nanyang Industrial and
Commerical Administration Bureau on March 7, 2009.





Looking
forward to 2010, we plan to accomplish the following:





1. Raise
capital through both equity and debt financing to expand production capabilities
to 50 MW ingot, 37 MW wafers and 30 MW solar modules per year in Nanyang City,
China.





2.
Profitably market and sell our products.





Limited
Operating History; Need for Additional Capital





There is
no historical financial information about us upon which to base an evaluation of
our performance. We have generated very limited revenues. We cannot guarantee
that we will be successful in our business operations. Our business is subject
to risks inherent in the establishment of a new business enterprise, including
limited capital resources and possible cost overruns due to price and cost
increases in services and products.





To become
profitable, we have to sell our products and generate revenue. In addition,
because our new WFOE manufacturing setup in China will require additional
investment, we are seeking both equity and debt financing to provide the capital
required to implement our business plan in China.





We have
no assurance that future financing will be available to us on acceptable terms.
If financing is not available on satisfactory terms, we may be unable to
continue, develop or expand our operations into China. Equity financing could
result in additional dilution to existing shareholders.





RESULTS
OF OPERATIONS





Comparison
of Years ended December 31, 2009 to December 31, 2008:





Revenue.
Our revenue for the year ended December 31, 2009 increased by $680,259 or 5,900%
to $691,731 compared to $11,454 for the year ended December 31,
2008.  The increase in our revenue is mainly attributed to an increase
in sales of products manufactured by third parties due to increase in customer
demand for our products.





Cost of
Sales.  Our cost of sales increased by $608,512 from $10,985
for the year ended December 31, 2008 to $619,497 for the same period in 2009.
The increase is attributable to the increase in sales of products manufactured
by third parties.





General and
Administrative Expenses.  General and administrative expenses
increased by $30,645 or 10% to $343,445 for the year ended December 31, 2009
from $312,800 for the same period in 2008. The increase was mainly due to
expenses associated with consulting, legal and audit expenses associated with
the registration of our common stock with the SEC, the fees for salary and
office expenses.





Net
Loss.  Net loss increased by $74,569 or 21.5% to $421,562 for
the year ended December 31, 2009 from $346,993 for the same period in
2008.  The increase in net loss is mainly due to reasons discussed
above.





LIQUIDITY
AND CAPITAL RESOURCES





As of
December 31, 2009, we had total assets of $5,495,825 and total liabilities of
$5,852,826 and we had cash of $1,115,047.


34





Net cash
used in operating activities was $492,158 which is an increase of $240,530 or
95.6% from net cash used in operating activities of $251,628 for the same period
in 2008. The increase was mainly due to imputed interest on loans from related
parties and prepaid expenses and other current assets, such as value added taxes
for equipment purchased for our manufacturing facilities.





Net cash
used in investing activities for the fiscal year 2009 was $3,610,754, an
increase of 753% from $423,420 for the same period in 2007. This increase was
due to construction cost, equipment purchase associated with our new facilities
in Nanyang City.





Net cash
provided by financing activities for the fiscal year 2009 was $4,926,230, an
increase of $4,069,907 or 475% from $856,323 for the same period in 2008. This
increase was due to increase of loans from related parties.




We are
actively seeking additional external funding, but to date we have not
consummated any financing transactions other than personal loans from our Chief
Executive Officer and a loan from a related party, Yuemao Technology, a company
owned by our Chief Executive Officer, which was made to Nanyang
UST.
  There
are two outstanding loans from our Chief Executive Officer.  One loan
is in the amount of $22,485, bears interest at 5% per annum and is due on
November 1, 2013. The other loan had a balance of $2,185,219 as of December 31,
2009, was non-interest bearing and was due on demand.  This loan was
amended on May 5, 2010 to bear interest at 1% per annum and to extend the due
date to December 1, 2013. During the years 2009 and 2010 before the loan was
amended, interest was imputed at 5% and was charged to additional paid in
capital.
  The
loan from Yuemao Technology had a balance of $3,252,300 as of December 31, 2009.
This loan was non-interest bearing and was due on demand.  On May 5,
2010 this loan was amended to bear interest at 1% per annum and to extend the
due date to December 1, 2013. During the years 2009 and 2010 before the loan was
amended, interest was imputed at 5% and charged to additional paid in
capital.


During
fiscal 2010, the Company plans to complete some of its manufacturing facilities
and dormitory building in its wholly owned subsidiary of Nanyang Universal Solar
Technology Co., Ltd. (“NUST”).  As a result, the Company expects to
have a great demand of capital resources than previous fiscal
years.





The
Company’s demands of capital resources can be divided into three
categories.





(1)
            Capital
      demand in daily operations.  This category of capital demand
      includes expenses/cash demands incurred from public company operations,
      for instance legal fees, audit/review fees and other consulting fees; and
      capital demands incurred from the Company’s operating entity of NUST,
      including management staff and production workers’ wages and other utility
      fees such as electricity and water, etc.  The Company expects to
      demand around $120,000 per month under this
  category.


(2)
            Capital
      demand for building up manufacturing facilities in NUST.  The
      Company plans to invest about $3,000,000 during fiscal 2010 in purchasing
      machineries and building up other long-term
  assets.


(3)
            Capital
      demand for further expand NUST to produce new products.  If the
      Company’s cash flow status allows, it plans to invest $15,000,0000 in NUST
      to further expand the Company's current workshops in order to enable the
      Company to produce solar battery
products.





As of
December 31, 2009, the Company did not have sufficient capital to meet its
objectives of development.  In the short-term, due to low profit
margin 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 general sufficient cash to support its operations.
Therefore, in the foreseeable future related-parities including the Company's
CEO, Mr. Chen and companies that he controls intends to provide financial
resources to meet the Company's daily cash needs, as referred to in categories
(1) and (2) above.  The Company plans to raise funds from domestic and
foreign banks and/or financial institutions to raise new capital in the future
to meet capital demands described in category (3) above.




As of
December 31, 2010, the Company has invested approximately $2.9 million for the
purchasing of new equipment and the construction of NUST’s manufacturing
facilities.  Going forward, the Company anticipates that it will
require an additional $18 million to build a new solar battery manufacturing
facility 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).


35





Certain
amounts included in the 2008 financial statement have been reclassified to
conform to the 2009 financial statement presentation.





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.





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.





Nanyang
UST obtained the right to use a parcel of land for its office and production
facilities.  Pursuant to the contract from the local government of the
PRC, the contract expires in 2048.  This land use right was recorded
at cost and will be amortized over the life of the lease when the land is in
service.





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 Statement of Financial
Accounting Standards No. 109 (ASFAS 109") 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, SFAS 109
requires recognition of future tax benefits, such as carryforwards, 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.


36





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 computed by dividing net income 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, 2009
and 2008 there were no common stock equivalents outstanding.





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.





NEW
ACCOUNTING PRONOUNCEMENTS





In August
2009, the FASB updated the accounting standards to provide additional guidance
on estimating the fair value of a liability in a hypothetical transaction where
the liability is transferred to a market participant. The standard is effective
for the first reporting period, including interim periods, beginning after
issuance. The Company does not expect the adoption to have a material effect on
its consolidated results of operations and financial condition





In
June 2009, FASB established Accounting Standards Codification TM (“ASC”) as
the single source of authoritative accounting principles recognized by the FASB
in the preparation of financial statements in conformity with the GAAP. The
Codification supersedes all non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the
Codification non-authoritative. The Codification was effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. We adopted the new guidance for the quarter ended
September 30, 2009, which changed the way we reference accounting standards in
our disclosures. Adoption of the Codification is not expected to have a material
impact on the Company’s results of operations or financial
position.





In
May 2009, FASB issued new guidance establishing general standards of
accounting for disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued, or
subsequent events. An entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009. Adoption of this standard
does not have a material impact on the Company’s results of operations or
financial position.





ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
required for smaller reporting company.





ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA





The full
text of our audited financial statements as of December 31, 2009 and 2008 begins
on page F-1 of this report.





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





None.


37


ITEM
9A(T).  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, 2009, 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, 2009. 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,
2009.





The
specific material weakness identified by the Company’s management as of December
31, 2009 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 for our operating subsidiaries are not required to meet or apply
U.S. GAAP requirements. They need substantial training to meet the higher
demands of 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.




•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
2009.  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.


38





• 
         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.





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, 2009 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.





ITEM
9B.  OTHER INFORMATION





None.





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.


39





Name
                                  
                                  Age
                                  
                                  Position
                                  
                                  Date Of AppointmentWensheng Chen
                                  
                                  77
                                  
                                  Chief Executive Officer and Chairman of the Board ofDirectors
                                  
                                  July 25, 2007,Ling Chen
                                  
                                  46
                                  
                                  President, Chief Financial Officer, Treasurer, Secretary andBoard Director
                                  
                                  July 25, 2007





BIOGRAPHIES
OF OFFICERS AND DIRECTORS





Wensheng
Chen, Founder, 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. He 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, 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.





Ling
Chen, President and Chief Financial Officer and Board Director





Ling Chen
currently serves as the President, Chief Financial Officer, Treasurer, Secretary
and Board Member of Universal Solar and 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. 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.





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.





SECTION
16(A) BENEFICIAL OWNERSHIP COMPLIANCE





Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers and directors and persons who own more than 10% of a registered class
of our 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. Executive officers, directors and
greater than 10% shareholders are required by the Securities and Exchange
Commission regulations to furnish our Company with copies of all Section 16(a)
reports they file. Our executive officers, directors and 10% shareholders have
not complied with Section 16(a) filing requirements.


40





ITEM
11. EXECUTIVE COMPENSATION





The
executives of the Company received no compensation from the Company for the year
ended December 31, 2009. The Company currently has no agreements for
compensation of its executives, and has no stock option plan or other equity
compensation plan for its employees. The following table sets forth compensation
we paid to the following employee, officer and our Chairman of the board during
the years ended December 31, 2009 and 2008.





Name
                              
                              Year
                              
                              Salary
                              
                              
                              Bonus
                              
                              
                              Stock
                              
                              
                              Option
                              
                              
                              Non-Equity
                              
                              
                              Nonqualified
                              
                              
                              Other
                              
                              
                              TotalWensheng
      Chen
                              
                              2009
                              
                              $
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              02008
                              
                              $
                              10,215
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              10,215Ling
      Chen
                              
                              2009
                              
                              $
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              02008
                              
                              $
                              10,215
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              $
                              10,215





We have
no Outstanding Equity Awards and director compensation plan.





Employment
Agreements; Termination of Employment and Change of Control
Arrangements





We have
no employment agreements with our executive officers.





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 18, 2010 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 18, 2010. 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
                          
                          Chairman
      of the Board of Directors
                          
                          
                          15,000,000
                          (1)
                          
                          
                          66.4
                          %Ling
      Chen
                          
                          President
      & Chief Financial Officer
                          
                          
                          193,233
                          (2)
                          
                          
                          *
                          %All
      executive officers and directors as a group (2 persons)
                          
                          
                          15,193,233
                          
                          
                          
                          67.3
                          %5%
      ShareholderHui
      Chen
                          
                          
                          
                          
                          5,000,000
                          
                          
                          
                          22.1Yumin
      Liu
                          
                          
                          
                          
                          15,000,000
                          (3)
                          
                          
                          66.4
                          %


*
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.


(3)
Includes 10,000,000 shares held by Mr. Wensheng Chen, Ms. Liu’s
husband.





Item
13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS





Founders
of Universal Solar and Kuong U were previously engaged in developing PV modules
and PV applications business 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 Chief Financial Officer) are daughters of Wensheng Chen (our
Chairman of the Board and Chief Executive Officer).


41





We have
developed our prototype products through the solar department at Yuemao Laser.
Prototypes have been manufactured by Yuamao Laser under an agreement with us
under which we retain all rights to the design of the products and exclusive
rights to market and sell the products. Based on the agreement between Kuong U
and Yuemao Laser, Yuemao Laser has been developing these prototype products
without an up-front payment. According to the agreement, Kuong U will pay Yuemao
Laser a 1% royalty fee on Kuong U’s actual products sales.





Until our
manufacturing facilities are built we plan to subcontract the manufacturing of
our PV module products to the solar department at Yuemao Laser. Prices for such
contract manufacturing have not been determined.





On
November 2, 2008 we entered into an oral loan agreement with our Chairman and
CEO, Mr. Wenshen Chen for the principal amount of $22,485. The loan matures in
five years and carries an annual interest rate of 5%. Interest was imputed in
the amount of $1,124 for the year ended December 31, 2009





From
March 1, 2009 to December 31, 2009, our Chairman and CEO, Mr. Wensheng Chen paid
various expense and payables on equipments and building construction for the
Company, expenses including consulting, legal and audit fees and expenses. These
payments on behalf of the Company are considered as personal loans to the
Company. The total loan to the Company was in the principal amount of
HK$16,949,985.13, approximately US$2,184,853. This loan is due on demand. Mr.
Chen has waived all interests for this loan and interest was imputed in the
amount of $57,203 for the year ended December 31, 2009.





On
December 1, 2009, we signed a loan agreement with Yuemao Technology for the
principal amount of RMB22,200,000, approximately US$3,252,300. The loan matures
in six months to three years. The annual interest rate is same as the one-year
ending rate of Central Bank in PRC. Interest was imputed in the amount of
$13,551 for the year ended December 31, 2009. The loan was mainly used in
equipment purchase, plant construction and other expenses.





The
Company has developed prototype products through the solar department though a
related party company with no charge.





During
the year ended December 31, 2009, the Company purchased solar panels totaling
$619,497 from a company owned by our CEO. We still owe the related company
HK$1,837,775, approximately US$236,889.





On March
27, 2007, Kuong U entered a consulting agreement with Allstar Capital Inc.
(“Allstar”). On February 28, 2008, Kuong U and Allstar amended and restated the
consulting agreement.





According
to Amended and Restated Consulting Agreement, among other things, Allstar and
its chosen consultants provide advice on the capital structure of UST, financing
options, types of financial instruments to be offered, and the market segment
for which the financial instruments are suitable. In addition, Allstar and its
chosen consultants will also provide linguistic services for UST, including
assisting with translations from English to Chinese and Chinese to English;
introduce professional firms and individuals to UST, including a U.S. law firm,
a U.S. accounting firm, a broker dealer and investment bank; and provide advice
on UST’s incorporation in the state of Nevada. Allstar and its chosen
consultants also advise UST, with the help of UST’s U.S. securities counsel, on
its registered offering of common stock and related filing with U.S. Securities
and Exchange Commission and, when UST engages a market maker, to file its
applications with the Financial Industry Regulatory Authority (FINRA) to be
quoted on Over-the-counter Bulletin Board.





Hongtao
Shi, Liuyi Zhang and Fred Chang are partner consultants at Allstar Capital Inc.
Yulan He was an individual finder for Allstar. Ms. He introduced UST to Allstar.
Pursuant to a Revenue and Success Sharing Agreements between (i) Allsar and
Hongtao Shi and (ii) Allstar and Liuyi Zhang and a Finder Agreement between
Allstar and Yulan He, these individuals and companies received the following
percent of cash from Allstar when it received the above described cash payments
from UST:


Name of Individuals
                        
                        % of SharingHongtao
      Shi
                        
                        
                        35
                        %Liuyi
      Zhang
                        
                        
                        25
                        %Yulan
      He
                        
                        
                        15
                        %Allstar
                        
                        
                        25
                        %Total
                        
                        
                        100
                        %


42


UST paid
Allstar $75,000 after S-1 registration statement was declared
effective on June 30, 2008 and $50,000 after the common stock was admitted for
quotation on the Over-the-counter Bulletin Board in 2009 by FINRA. UST has
satisfied all payment obligations to Allstar pursuant to agreements between UST
and Allstar.





On June
19, 2007, Avenndi, LLC (“Avenndi”) entered a consulting agreement with Kuong U.
Avenndi is a corporate strategy and consultancy firm based in Los Angeles,
California. Avenndi recommended various corporate strategies and actions aimed
to improve the company’s overall business image and value. Furthermore, Avenndi
assisted UST in the development of a business information memorandum and
executive business summary for UST. UST paid $12,000 for Avenndi’s
services.





On
January 8, 2009, Avenndi, LLC (“Avenndi”) entered a second consulting agreement
with Universal Solar Technology, Inc. for continued services to assist UST to
revise its business information memorandum and executive business summary. UST
paid $4,000 and 5,000 common shares for Avenndi’s services.





In
February 2008, pursuant to the Revenue and Success Sharing Agreements between
(i) Allsar and Hongtao Shi and (ii) Allstar and Liuyi Zhang, the Finder
Agreement between Allstar and Yulan He, and the agreement between Allstar and
Avenndi, LLC, these individuals and companies received an allocation of common
shares from UST when UST issued Allstar a total 942,408 common shares as payment
upon entering into the Amended and Restated Consulting Agreement.





Three of
the recipients of an allocation of Allstar’s common shares from UST designated a
nominee controlled by them to be the record holder of the shares. Hongtao Shi,
Liuyi Zhang and Allstar designated the following companies: First Prestige, Inc,
JD Infinity Holdings, Inc. and Catalpa Holdings, Inc., to hold the common
shares. All of these three companies are the British Virgin Islands’ companies.
First Prestige, Inc. is controlled by Hongtao Shi; JD Infinity Holdings, inc. is
controlled by Liuyi Zhang; and Catalpa Holdings, Inc. is controlled by Fred
Chang. In addition, Avenndi, LLC is controlled by John Kennedy and Allstar
Capital Inc. is a Maryland registered consulting company owned by Fred
Chang.





The
designees listed below are the current holders of the 942,408 common shares
issued by UST in June 2008:





First
      Prestige, Inc.
                
                
                326,343JD
      Infinity Holdings, Inc.
                
                
                233,102Catalpa
      Holdings, Inc.
                
                
                233,102Yulan
      He
                
                
                139,861Avenndi
      LLC
                
                
                10,000





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Auditor
Fees and Services in Our 2009 and 2008 Fiscal Years





Our
registered independent public accounting firm is Paritz & Company, P.A. The
fees billed by Paritz & Company, P.A. in 2009 and 2008 are as
follows:





2009
                  
                  
                  2008Audit
      Fees
                  
                  $
                  26,000
                  
                  
                  $
                  27,500Audit-Related
      Fees
                  
                  
                  -
                  
                  
                  
                  -Total
      Audit and Audit-Related Fees
                  
                  $
                  26,000
                  
                  
                  $
                  27,500Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  -All
      Other Fees
                  
                  
                  4,500
                  
                  
                  
                  -Total
      for independent public audit firms
                  
                  $
                  30,050
                  
                  
                  $
                  27,500


43


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 include accounting consultations related to accounting, financial reporting
or disclosure matters not classified as "Audit 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.


44


PART
IV





ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES




(a)
              (1)
              Financial
      StatementsSet
      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
                                      
                                      47Report
      of Independent Registered Public Accounting Firm
                                      
                                      F-1Balance
      Sheets
                                      
                                      F-2Statements
      of Operations
                                      
                                      F-3Statement
      of Changes in Stockholder’s Equity (Deficit)
                                      
                                      F-4Statements
      of Cash Flows
                                      
                                      F-5Notes
      to Financial Statements
                                      
                                      F-6*Page
      F-1 follows page 47 to this annual report on Form 10-K.
  (2)
                Financial
      Statement SchedulesSchedule
      I: Parent Only Financial Statements (p.
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)21.1
                                    
                                    List
      of Subsidiaries(1)31.1*
                                    
                                    Certification
      of Principal Executive Officer and 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 and 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.


45




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:
January 31, 2011





Universal
      Solar Technology, Inc.By:
            /s/
      Wensheng ChenWensheng
      ChenChief
      Executive Officer, Interim Acting Chief Financial Officer and Chairman of
      the Board of Directors(Principal Executive Officer and Principal Financial and Accounting
      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
            
            TITLE/s/ Wensheng Chen
            
            CEO,
      Interim Acting Chief Financial
      Officer and ChairmanWensheng Chen
            
            (Principal Executive Officer
      and Principal Financial and Accounting Officer)
            
            January
      31, 2011/s/ Ling Chen
            
            DirectorLing Chen
            
            
            
            January
      31, 2011


46





Index
to Financial Statements





Reports
      of Independent Registered Public Accounting Firm
                
                F-1Balance
      Sheets as of December 31, 2009 and 2008
                
                F-2Statements
      of Operations for the Years Ended December 31, 2009 and
    2008
                
                F-3Statements
      of Changes in Stockholders' Equity (Deficit) for the Years Ended December
      31, 2009 and 2008
                
                F-4Statements
      of Cash Flow for the Years Ended December 31, 2009 and
2008
                
                F-5Notes
      to Financial Statements
                
                F-6Schedule
      I: Parent Only Financial Statements
                
                S-1Balance
      Sheet as of December 31, 2009 and 2008
                
                S-1Statement
      of Operations and comprehensive Income for the Years Ended December 31,
      2009 and 2008
                
                S-2Statement
      of Cash Flow for the Years Ended December 31, 2009 and
2008
                
                S-3


47


REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





Board of
Directors


Universal
Solar Technology, Inc. and Subsidiary





We have
audited the accompanying consolidated balance sheets of Universal Solar
Technology Inc. and Subsidiary as of December 31, 2009 and 2008 and the related
consolidated statements of operations and other comprehensive income (loss),
changes in stockholders’ equity 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
$4,353,215 and the Company has incurred net loss of $925,466 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 Subsidiary as of December 31, 2009 and 2008, 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 23,
2010


F-1





UNIVERSAL
      SOLAR TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSDecember
      31, 2009
                                                                                      
                                                                                      
                                                                                      December
      31, 2008ASSETSCURRENT
      ASSETS:Cash
                                                                                      
                                                                                      $
                                                                                      1,115,047
                                                                                      
                                                                                      
                                                                                      $
                                                                                      259,025Prepaid
      expenses and other current assets
                                                                                      
                                                                                      
                                                                                      319,123
                                                                                      
                                                                                      
                                                                                      
                                                                                      26,666Inventories
                                                                                      
                                                                                      
                                                                                      42,956
                                                                                      
                                                                                      
                                                                                      
                                                                                      -TOTAL
      CURRENT ASSETS
                                                                                      
                                                                                      
                                                                                      1,477,126
                                                                                      
                                                                                      
                                                                                      
                                                                                      285,691Deposits
      for future deliveries of property and equipment
                                                                                      
                                                                                      
                                                                                      312,362
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Land
      use right, net of accumulated amortizationof $11,452 and $0,
      respectively
                                                                                      
                                                                                      
                                                                                      411,391
                                                                                      
                                                                                      
                                                                                      
                                                                                      423,420Property
      and equipment, net of accumulated depreciationof $3,446 and $0,
      respectively
                                                                                      
                                                                                      
                                                                                      3,294,946
                                                                                      
                                                                                      
                                                                                      
                                                                                      -TOTAL
      ASSETS
                                                                                      
                                                                                      $
                                                                                      5,495,825
                                                                                      
                                                                                      
                                                                                      $
                                                                                      709,111LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
                                                                                      
                                                                                      $
                                                                                      154,813
                                                                                      
                                                                                      
                                                                                      $
                                                                                      42,450Due
      to related parties-current portion
                                                                                      
                                                                                      
                                                                                      5,675,528
                                                                                      
                                                                                      
                                                                                      
                                                                                      749,298TOTAL
      CURRENT LIABILITIES
                                                                                      
                                                                                      
                                                                                      5,830,341
                                                                                      
                                                                                      
                                                                                      
                                                                                      791,748Due
      to related parties- non-current portion
                                                                                      
                                                                                      
                                                                                      22,485
                                                                                      
                                                                                      
                                                                                      
                                                                                      22,485TOTAL
      LIABILITIES
                                                                                      
                                                                                      
                                                                                      5,852,826
                                                                                      
                                                                                      
                                                                                      
                                                                                      814,233STOCKHOLDERS'
      DEFICIENCY:Preferred
      stock, $0.0001 par value, 10,000,000
      shares authorized,0 shares issued and
      outstanding
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Common
      stock, $0.0001 par value, 90,000,000
      shares authorized, issued and outstanding22,599,974 shares
      and 22,574,974 shares, respectively
                                                                                      
                                                                                      
                                                                                      2,260
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,257Additional
      paid-in capital
                                                                                      
                                                                                      
                                                                                      553,826
                                                                                      
                                                                                      
                                                                                      
                                                                                      416,273Accumulated
      deficit
                                                                                      
                                                                                      
                                                                                      (925,466
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (503,904
                                                                                      )Accumulated
      other comprehensive income (loss)
                                                                                      
                                                                                      
                                                                                      12,379
                                                                                      
                                                                                      
                                                                                      
                                                                                      (19,748
                                                                                      )TOTAL
      STOCKHOLDERS' DEFICIENCY
                                                                                      
                                                                                      
                                                                                      (357,001
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (105,122
                                                                                      )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                                                                                      
                                                                                      $
                                                                                      5,495,825
                                                                                      
                                                                                      
                                                                                      $
                                                                                      709,111





See notes
to consolidated financial statements.


F-2




UNIVERSAL
      SOLAR TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS)Year
      Ended
                                                        
                                                        
                                                        Year
      EndedDecember
      31, 2009
                                                        
                                                        
                                                        December
      31, 2008SALES
                                                        
                                                        $
                                                        691,713
                                                        
                                                        
                                                        $
                                                        11,454COSTS
      AND EXPENSES:Cost
      of sales
                                                        
                                                        
                                                        619,497
                                                        
                                                        
                                                        
                                                        10,985Selling,
      general and administrative expenses
                                                        
                                                        
                                                        343,445
                                                        
                                                        
                                                        
                                                        312,800TOTAL
      COSTS AND EXPENSES
                                                        
                                                        
                                                        962,942
                                                        
                                                        
                                                        
                                                        323,785LOSS
      FROM OPERATIONS
                                                        
                                                        
                                                        (271,229
                                                        )
                                                        
                                                        
                                                        (312,331
                                                        )Interest
      expense
                                                        
                                                        
                                                        (148,490
                                                        )
                                                        
                                                        
                                                        (36,616
                                                        )Dividend
      and interest income
                                                        
                                                        
                                                        1,892
                                                        
                                                        
                                                        
                                                        471Gain
      (loss) on foreign currency transactions
                                                        
                                                        
                                                        (3,735
                                                        )
                                                        
                                                        
                                                        1,483NET
      LOSS
                                                        
                                                        
                                                        (421,562
                                                        )
                                                        
                                                        
                                                        (346,993
                                                        )OTHER
      COMPREHENSIVE INCOME (LOSS):Foreign
      currency translation adjustment
                                                        
                                                        
                                                        32,127
                                                        
                                                        
                                                        
                                                        (14,634
                                                        )COMPREHENSIVE
      LOSS
                                                        
                                                        $
                                                        (389,435
                                                        )
                                                        
                                                        $
                                                        (361,627
                                                        )Loss
      per common share -basic and diluted
                                                        
                                                        $
                                                        (0.02
                                                        )
                                                        
                                                        $
                                                        (0.02
                                                        )Weighted
      average number of shares outstanding-basic
      and diluted
                                                        
                                                        
                                                        22,587,988
                                                        
                                                        
                                                        
                                                        20,997,561





See notes
to consolidated financial statements.


F-3





UNIVERSAL
      SOLAR TECHNOLOGY, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCYCOMMON
                                              
                                              
                                              ADDITIONAL
                                              
                                              
                                              
                                              
                                              
                                              OTHERSTOCK
                                              
                                              
                                              PAID-IN
                                              
                                              
                                              ACCUMULATED
                                              
                                              
                                              COMPREHENSIVESHARES
                                              
                                              
                                              AMOUNT
                                              
                                              
                                              CAPITAL
                                              
                                              
                                              DEFICIT
                                              
                                              
                                              INCOME
      (LOSS)
                                              
                                              
                                              TOTALBALANCE-
      DECEMBER 31, 2007
                                              
                                              
                                              20,000,000
                                              
                                              
                                              $
                                              2,000
                                              
                                              
                                              $
                                              128,757
                                              
                                              
                                              $
                                              (156,911
                                              )
                                              
                                              $
                                              (5,114
                                              )
                                              
                                              $
                                              (31,268
                                              )Stock
      issued for services
                                              
                                              
                                              942,408
                                              
                                              
                                              
                                              94
                                              
                                              
                                              
                                              9,330
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              9,424Sale
      of common stock
                                              
                                              
                                              1,632,566
                                              
                                              
                                              
                                              163
                                              
                                              
                                              
                                              241,570
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              241,733Imputed
      interest on stockholder loan
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              36,616
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              36,616Foreign
      currency translation adjustment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (14,634
                                              )
                                              
                                              
                                              (14,634
                                              )Net
      loss
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (346,993
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (346,993
                                              )BALANCE
      - 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
                                              )





See notes
to consolidated financial statements.


F-4





UNIVERSAL
      SOLAR TECHNOLOGY INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSYear
      Ended
                                                      
                                                      
                                                      Year
      EndedDecember
      31, 2009
                                                      
                                                      
                                                      December
      31, 2008OPERATING
      ACTIVITIES:Net
      loss
                                                      
                                                      $
                                                      (421,562
                                                      )
                                                      
                                                      $
                                                      (346,993
                                                      )Adjustments
      to reconcile net loss to netcash used in operating
      activities:Imputed
      interest on loans from related parties
                                                      
                                                      
                                                      133,806
                                                      
                                                      
                                                      
                                                      36,616Stock
      issued for services
                                                      
                                                      
                                                      3,750
                                                      
                                                      
                                                      
                                                      9,424Depreciation
      of property and equipment
                                                      
                                                      
                                                      3,446
                                                      
                                                      
                                                      
                                                      -Amortization
      of land use right
                                                      
                                                      
                                                      11,452
                                                      
                                                      
                                                      
                                                      -Changes
      in operating assets and liabilities:Prepaid
      expenses and other current assets
                                                      
                                                      
                                                      (292,457
                                                      )
                                                      
                                                      
                                                      (26,087
                                                      )Inventory
                                                      
                                                      
                                                      (42,956
                                                      )
                                                      
                                                      
                                                      -Accounts
      payable and accrued expenses
                                                      
                                                      
                                                      112,363
                                                      
                                                      
                                                      
                                                      75,412NET
      CASH USED IN OPERATING ACTIVITIES
                                                      
                                                      
                                                      (492,158
                                                      )
                                                      
                                                      
                                                      (251,628
                                                      )INVESTING
      ACTIVITIES:Deposits
      for future deliveries of equipment
                                                      
                                                      
                                                      (312,362
                                                      )
                                                      
                                                      
                                                      -Acquisition
      of property and equipment
                                                      
                                                      
                                                      (3,298,392
                                                      )
                                                      
                                                      
                                                      (423,420
                                                      )NET
      CASH USED IN INVESTING ACTIVITIES
                                                      
                                                      
                                                      (3,610,754
                                                      )
                                                      
                                                      
                                                      (423,420
                                                      )FINANCING
      ACTIVITIES:Loans
      from related parties
                                                      
                                                      
                                                      4,926,230
                                                      
                                                      
                                                      
                                                      614,590Sale
      of common stock
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      241,733NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                                      
                                                      
                                                      4,926,230
                                                      
                                                      
                                                      
                                                      856,323EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                                      
                                                      
                                                      32,704
                                                      
                                                      
                                                      
                                                      (13,433
                                                      )INCREASE
      IN CASH
                                                      
                                                      
                                                      856,022
                                                      
                                                      
                                                      
                                                      167,842CASH
      - BEGINNING OF PERIOD
                                                      
                                                      
                                                      259,025
                                                      
                                                      
                                                      
                                                      91,183CASH
      - END OF PERIOD
                                                      
                                                      $
                                                      1,115,047
                                                      
                                                      
                                                      $
                                                      259,025Supplemental
      disclosures of cash flow information:Interest
      paid
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -Income
      taxes paid
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      -





See
notes to consolidated financial statements.


F-5





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





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.





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, 2009, the Company had negative
working capital of $4,353,215 and a stockholders’ deficiency of $357,001.
Further, the Company has incurred net losses of $925,466 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.


F-6





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





Cash


The
Company maintains cash with financial institutions both in the United States and
the Peoples 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.





Inventories


Inventories
consist of raw material, work in process and supply materials which are stated
at the lower of cost or market.





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.





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.


F-7





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





Income (loss) per common
share


Basic
income (loss) per common share amounts is computed by dividing net income 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, 2009 and 2008 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.





New accounting
pronouncements


In August
2009, the FASB updated the accounting standards to provide additional guidance
on estimating the fair value of a liability in a hypothetical transaction where
the liability is transferred to a market participant. The standard is effective
for the first reporting period, including interim periods, beginning after
issuance. The Company does not expect the adoption to have a material effect on
its consolidated results of operations and financial condition


In
June 2009, FASB established Accounting Standards Codification TM (“ASC”) as
the single source of authoritative accounting principles recognized by the FASB
in the preparation of financial statements in conformity with the GAAP. The
Codification supersedes all non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not included in the
Codification are non-authoritative. The Codification was effective for financial
statements issued for interim and annual periods ending after September 15,
2009. We adopted the new guidance for the quarter ended September 30, 2009,
which changed the way we reference accounting standards in our disclosures.
Adoption of the Codification is not expected to have a material impact on the
Company’s results of operations or financial position.


In
May 2009, FASB issued new guidance establishing general standards of
accounting for disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued, or
subsequent events. An entity should apply the requirements to interim or annual
financial periods ending after June 15, 2009. Adoption of this standard
does not have a material impact on the Company’s results of operations or
financial position.


F-8





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





3.
LAND USE RIGHT





On
December 1, 2008, NUST acquired the right to use a parcel of land
approximating  71,280 square meters for forty (40) 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 40 year term of the
contract.





4.
PROPERTY AND EQUIPMENT





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





Building
      construction in progress
                      
                      $
                      1,019,760Production
      equipment
                      
                      
                      2,219,913Office
      equipment
                      
                      
                      11,123Automobile
                      
                      
                      47,596Total
                      
                      
                      3,298,392Less
      accumulated depreciation
                      
                      
                      3,446Property
      and equipment- net
                      
                      $
                      3,294,946





The plant
construction was completed in January 2010 and government approvals are expected
by March 2010.





5. DEPOSIT FOR FUTURE DELIVERIES OF
PROPERTY AND EQUIPMENT


As of
December 31, 2009, NUST has contracted to acquire certain undelivered
production equipment costing  a total of approximately 6,539,600 RMB
($958,051 translated at the December 31, 2009 exchange rate). The agreements
provide for NUST’s payment of certain deposits prior to the delivery of the
equipment. As of December 31, 2009, a total of approximately 2,132,167 RMB
($312,362 translated at the December 31, 2009 exchange rate) has been paid to
the respective vendors as deposits.


F-9





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





6. DUE TO RELATED
PARTIES





Due to
related parties consists of:


December
                        31,
                      
                      
                      December
                        31,2009
                      
                      
                      2008Due
      to Company’s chairman and chief executive officer, non-interest
      bearing, due on demand (interest imputed at 5%)
                      
                      $
                      2,185,219
                      
                      
                      $
                      698,836Due
      to Zhuhai Yuemao Laser Facility Engineering Co., Ltd. (“Yuemao
      Laser”) with non interest bearing and due on demand.
                      
                      
                      238,009
                      
                      
                      
                      50,462Loan
      payable to Yuemao Technology Ltd. (“Yuemao Technology’) (See note
      7)
                      
                      
                      3,252,300Due
      to Company’s chairman and chief executive officer pursuant to loan
      agreement dated November 2, 2008, interest at 5%, due November 1,
      2013
                      
                      
                      22,485
                      
                      
                      
                      22,485Total
                      
                      
                      5,698,013
                      
                      
                      
                      771,783Current
      portion
                      
                      
                      (5,675,528
                      )
                      
                      
                      (749,298
                      )Non-current
      portion
                      
                      $
                      22,485
                      
                      
                      $
                      22,485





Both
Yuemao Laser and Yuemao Technology are PRC companies and controlled by the
Company’s chairman and chief executive officer.





7.
RELATED PARTY TRANSACTIONS





In the
year ended December 31, 2009, Kuong U purchased solar PV modules from Yuemao
Laser, a PRC company controlled by the Company’s chairman and chief executive
officer, at a total cost of $619,497 and sold the modules to two customers for
total sales of $ 691,713. In 2008, the Company purchased solar panels totaling
$10,985 from a company owned by the Company’s chairman and chief executive
officer.


F-10





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





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 (approximately
$1,547 translated at the December 31, 2009 exchange rate). Rent expense for
the years ended December 31, 2009 and 2008 was approximately $17,500 and
$15,500, respectively.





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, a
PRC company controlled by the Company’s chairman and chief executive officer.
Loans previously provided to NUST without interest and with no maturity were
revised to provide for interest at a rate prevailing for comparable one
year loans and a maturity date of June 1, 2010 to December 1, 2012 at Yuemao’s
discretion. For the period December 1, 2009 to December 31, 2009 interest was
accrued at 5%.





8.
MAJOR CUSTOMER





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.





9.
INCOME TAXES





The
Company has not recorded a provision for United States federal income tax for
the periods presented since it incurred net losses in such periods.





The
Company’s Chinese subsidiaries are governed by the Income Tax Law of the
People’s Republic of China concerning private enterprises, which are generally
subject to tax at a statutory rate of 25% on taxable income.





As of
December 31, 2009, the Company had approximately $110,000 and $440,000 of net
operating loss carry-forwards for income tax purposes in the United States
and China, respectively.





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, 2009 will
be realized. Accordingly, the Company has provided a 100% allowance against the
deferred tax asset in the financial statements at December 31, 2009. The Company
will continue to review this valuation allowance and make adjustments as
appropriate.





10.
COMMITMENTS AND CONTINGENCIES





Prototype product
development agreement





On April
29, 2008, Kuong U entered into an agreement with Yuemao Laser whereby Yuemao
Laser is to develop certain prototype solar energy products for Kuong U. Under
the agreement, Kuong U is obligated to pay a royalty fee quarterly to Yuemao
Laser equal to 1% of Kuong U’s sales from the prototype
products.


F-11





UNIVERSAL
SOLAR TECHNOLOGY, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009





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.





11.
SUBSEQUENT EVENTS





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





F-12




Schedule
I: Condensed Parent Only Financial Statements





UNIVERSAL
      SOLAR TECHNOLOGY, INC.BALANCE
      SHEETSDecember
      31,2009
                                          
                                          
                                          2008AssetsCash
                                          
                                          $
                                          20,965
                                          
                                          
                                          $
                                          1,745Deposit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          22,500Total
      Assets
                                          
                                          
                                          20,965
                                          
                                          
                                          
                                          24,245Liabilities
      and Shareholders' DeficiencyInvestment
      in and advances to Subsidiaries
                                          
                                          
                                          354,357
                                          
                                          
                                          
                                          106,882Accrued
      expenses
                                          
                                          
                                          1,124Due
      to Shareholders
                                          
                                          
                                          22,485
                                          
                                          
                                          
                                          22,485Total
      Liabilities
                                          
                                          
                                          377,966
                                          
                                          
                                          
                                          129,367Shareholders'
      Deficiency:
                                          
                                          
                                          (357,001
                                          )
                                          
                                          
                                          (105,122
                                          )Total
      Liabilities And Stockholders' Deficiency
                                          
                                          $
                                          20,965
                                          
                                          
                                          $
                                          24,245


S-1





UNIVERSAL
      SOLAR TECHNOLOGY, INC.STATEMENT
      OF OPERATIONSYear
      Ended
                                                  December
      31, 2009
                                                
                                                Year
      Ended
                                                  December
      31, 2008Loss
      from investment in subsidiaries
                                                
                                                $
                                                (304,616
                                                )
                                                
                                                $
                                                (347,043
                                                )Cost
      And Expenses:Selling,
      General And Administrative Expenses
                                                
                                                
                                                116,946
                                                
                                                
                                                
                                                -Total
      Costs And Expenses
                                                
                                                
                                                116,946
                                                
                                                
                                                
                                                (347,043
                                                )Net
      Loss
                                                
                                                $
                                                (421,562
                                                )
                                                
                                                $
                                                (347,043
                                                )


S-2





UNIVERSAL
      SOLAR TECHNOLOGY, INC.STATEMENT
      OF CASH FLOWSYear
      Ended
                                                December
      31,
                                                2009
                                              
                                              
                                              Year
      Ended
                                                December
      31,
                                                2008OPERATING
      ACTIVITIES:Net
      Loss
                                              
                                              $
                                              (421,562
                                              )
                                              
                                              $
                                              (347,043
                                              )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Loss
      from investment in subsidiaries
                                              
                                              
                                              304,616
                                              
                                              
                                              
                                              347,043Stock
      based compensation
                                              
                                              
                                              3,750Changes
      in operating assets and liabilities:Prepaid
      expense and other current assets
                                              
                                              
                                              22,500
                                              
                                              
                                              
                                              (22,500
                                              )NET
      CASH USED IN OPERATING ACTIVITIES
                                              
                                              
                                              (90,696
                                              )
                                              
                                              
                                              (22,500
                                              )INVESTING
      ACTIVITIES:(Investment
      in) repayment from subsidiaries
                                              
                                              
                                              109,916
                                              
                                              
                                              
                                              (240,000
                                              )NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                                              
                                              
                                              109,916
                                              
                                              
                                              
                                              (240,000
                                              )FINANCING
      ACTIVITIES:Loan
      from shareholder
                                              
                                              
                                              
                                              
                                              
                                              
                                              22,485Sale
      of common stock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              241,733NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                              
                                              
                                              -
                                              
                                              
                                              
                                              264,218EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                              
                                              
                                              -
                                              
                                              
                                              
                                              27INCREASE
      IN CASH
                                              
                                              
                                              19,220
                                              
                                              
                                              
                                              1,745CASH
      - BEGINNING OF YEAR
                                              
                                              
                                              1,745
                                              
                                              
                                              
                                              -CASH
      - END OF YEAR
                                              
                                              $
                                              20,965
                                              
                                              
                                              $
                                              1,745


S-3