UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-33107

CANADIAN SOLAR INC.

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F þ     Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o     No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

82- N/A

 

 

CANADIAN SOLAR INC.

Form 6-K

TABLE OF CONTENTS

Explanatory Notes
Signature
Exhibit Index
Exhibit 99.1	—	Unaudited Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2008 and 2009
Exhibit 99.2	—	Selected Consolidated Financial and Operating Data and Management’s Discussion and Analysis of Financial Condition and Result of Operations for the years ended December 31, 2006, 2007 and 2008 and the Six Months Ended June 30, 2008 and 2009
Exhibit 99.3	—	Consolidated Financial Statements for the Years Ended December 31, 2006, 2007 and 2008
Exhibit 99.4	—	Consent of Independent Registered Public Accounting Firm
Ex-99.1
Ex-99.2
Ex-99.3
Ex-99.4

EXPLANATORY NOTES

     This Current Report on Form 6-K includes (i) the unaudited condensed consolidated financial statements for the six months ended June 30, 2008 and 2009 of Canadian Solar Inc. (the “Company”), attached hereto as Exhibit 99.1, (ii) the Company’s management’s discussion and analysis of financial condition and results of operations for the years ended December 31, 2006, 2007 and 2008 and the six months ended June 30, 2008 and 2009, attached hereto as Exhibit 99.2, (iii) the audited consolidated financial statements as of December 31, 2008 and 2007 and for the years ended December 31, 2006, 2007 and 2008, recast for the retrospective application of adoption of the FASB Staff Position APB No. 14-1 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement (“FSP APB 14-1”), attached hereto as Exhibit 99.3, and (iv) a consent letter of the Company’s independent registered public auditing firm, attached hereto as Exhibit 99.4. The Company is filing this Form 6-K so that these items will be incorporated by reference in the prospectus supplement to the prospectus included in the registration statement on Form F-3 (File No. 333-152325).

     Effective January 1, 2009, the Company adopted FSP APB 14-1, which requires recognition of both the debt and equity components of convertible debt instruments with cash settlement features. The debt component is required to be initially recognized at the fair value of a similar instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the note and the fair value of the debt component. FSP APB 14-1 also requires an accretion of the resulting debt discount over the expected life of the debt. In this Current Report on Form 6-K, the Company is filing its audited consolidated financial statements as of December 31, 2008 and 2007 and for the years ended December 31, 2006, 2007 and 2008, which give effect to the retrospective application of the adoption of FSP APB 14-1.

     Based on the audited consolidated financial statements as of December 31, 2008 and 2007 and for the years ended December 31, 2006, 2007 and 2008, recast for the retrospective application of the adoption of FSP APBB14-1, and the unaudited condensed consolidated financial statements for the six months ended June 30, 2008 and 2009, the Company has prepared its selected consolidated financial and operating data and management’s discussion and analysis of financial condition and results of operations for the years ended December 31, 2006, 2007 and 2008 and the six months ended June 30, 2008 and 2009, which are included in this Form 6-K as Exhibit 99.2 to be incorporated by reference in the prospectus supplement to the prospectus included in the registration statement on Form F-3 (File No. 333-152325).

     In addition, the Company is including with this Current Report on Form 6-K an exhibit consisting of the consent from its independent registered public accounting firm.

     This Form 6-K does not attempt to modify or update any other disclosure set forth in the Company’s Annual Report on Form 20-F for the year ended December 31, 2008 that was filed with the SEC on June 8, 2009, except as required to reflect the adoption of FSP APB 14-1.

SIGNATURE

     Pursuant to the requirements 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: October 13, 2009

EXHIBIT INDEX

Exhibit 99.1	—	Unaudited Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2008 and 2009
Exhibit 99.2	—	Selected Consolidated Financial and Operating Data and Management’s Discussion and Analysis of Financial Condition and Result of Operations for the years ended December 31, 2006, 2007 and 2008 and the Six Months Ended June 30, 2008 and 2009
Exhibit 99.3	—	Consolidated Financial Statements for the Years Ended December 31, 2006, 2007 and 2008
Exhibit 99.4	—	Consent of Independent Registered Public Accounting Firm

EXHIBIT 99.1

CANADIAN SOLAR INC.

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Balance Sheets as of December 31, 2008 and June 30, 2009			F-1
Unaudited Condensed Consolidated Statements of Operations for the Six-month Periods Ended June 30, 2008 and 2009			F-2
Unaudited Condensed Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the Six-month Periods Ended June 30, 2008 and 2009			F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six-month Periods Ended June 30, 2008 and 2009			F-4
Notes to the Unaudited Condensed Consolidated Financial Statements			F-6

CANADIAN SOLAR INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of U.S. Dollars)

		December 31, 2008				June 30, 2009
		$				$
ASSETS
Current assets:
Cash and cash equivalents			115,661				86,832
Restricted cash			20,622				158,558
Accounts receivable, net of allowance for doubtful accounts of $5,606 and $5,091 on December 31, 2008 and June 30, 2009, respectively			51,611				115,679
Inventories			92,683				107,635
Value added tax recoverable			15,900				18,728
Advances to suppliers			24,654				19,572
Foreign currency derivative assets			6,974				—
Prepaid expenses and other current assets			10,910				15,809
Total current assets			339,015				522,813
Property, plant and equipment, net			165,542				172,348
Deferred tax assets			6,966				6,537
Advances to suppliers			43,087				43,582
Prepaid land use right			12,782				12,658
Investment			3,000				3,000
Other non-current assets			263				219
TOTAL ASSETS			570,655				761,157
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings			110,665				266,744
Accounts payable			29,957				59,536
Amounts due to related parties			94				41
Other payables			24,043				21,810
Advances from customers			3,571				4,107
Foreign currency derivative liabilities			—				169
Other current liabilities			4,333				6,608
Total current liabilities			172,663				359,015
Accrued warranty costs			10,847				12,190
Convertible notes			830				848
Long-term borrowings			45,357				30,738
Liability for uncertain tax positions			8,704				9,882
TOTAL LIABILITIES			238,401				412,673
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common shares — no par value: unlimited authorized shares, 35,744,563 and 35,781,293 shares issued and outstanding at December 31, 2008 and June 30, 2009, respectively			395,154				395,252
Additional paid-in capital			(66,705	)			(63,548	)
Retained earnings (Accumulated deficit)			(11,104	)			1,783
Accumulated other comprehensive income			14,909				14,997
Total stockholders’ equity			332,254				348,484
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			570,655				761,157

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CANADIAN SOLAR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands of U.S. Dollars, Except Share And Per Share Data)

		Six-month Periods Ended June 30,
		2008				2009
		$				$
Net revenues			383,820				163,641
Cost of revenues			322,509				144,456
Gross profit			61,311				19,185
Operating expenses:
Selling expenses			5,357				5,110
General and administrative expenses			11,911				10,928
Research and development expenses			749				1,000
Total operating expenses			18,017				17,038
Income from operations			43,294				2,147
Other income (expenses):
Interest expense			(6,332	)			(4,167	)
Interest income			161				3,412
Gain on debt extinguishment			2,430				—
Debt conversion inducement expense			(10,170	)			—
Gain on foreign currency derivatives			—				10,316
Foreign exchange gain			7,693				3,162
Income before income taxes			37,076				14,870
Income tax expense			(6,428	)			(1,983	)
Net income			30,648				12,887
Earnings per share-basic		$	1.10			$	0.36
Shares used in computation-basic			27,738,862				35,692,919
Earnings per share-diluted		$	1.05			$	0.36
Shares used in computation-diluted			29,210,678				35,802,842

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CANADIAN SOLAR INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(In Thousands of U.S. Dollars, Except Share Data)

														Retained				Accumulated
										Additional				Earnings				Other				Total				Total
		Common								Paid-in				(Accumulated				Comprehensive				Stockholders’				Comprehensive
		Shares								Capital				Deficit)				Income				Equity				Income
		Number				$				$				$				$				$				$
Balance at December 31, 2008			35,744,563				395,154				(66,705	)			(11,104	)			14,909				332,254
Share-based compensation			—				—				3,157				—				—				3,157
Exercise of stock options			36,730				98				—				—				—				98
Net income			—				—				—				12,887				—				12,887				12,887
Foreign currency translation adjustment			—				—				—				—				88				88				88
Balance at June 30, 2009			35,781,293				395,252				(63,548	)			1,783				14,997				348,484				12,975

														Retained				Accumulated
										Additional				Earnings				Other				Total				Total
		Common								Paid-in				(Accumulated				Comprehensive				Stockholders’				Comprehensive
		Shares								Capital				Deficit)				Income				Equity				Income
		Number				$				$				$				$				$				$
Balance at December 31, 2007			27,320,389				97,454				34,636				(3,570	)			5,981				134,501
Share-based compensation			—				—				4,535				—				—				4,535
Conversion of convertible notes			3,966,841				182,550				(110,443	)			—				—				72,107
Other			478,815				—				—				—				—				—
Exercise of stock options			337,993				1,825				—				—				—				1,825
Net income			—				—				—				30,648				—				30,648				30,648
Foreign currency translation adjustment			—				—				—				—				8,151				8,151				8,151
Balance at June 30, 2008			32,104,038				281,829				(71,272	)			27,078				14,132				251,767				38,799

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CANADIAN SOLAR INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of U.S. Dollars)

		Six-month Periods Ended June 30,
		2008				2009
		$				$
Operating activities:
Net income			30,648				12,887
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			2,944				9,495
Loss on disposal of property, plant and equipment			—				201
Allowance for doubtful debts			210				(595	)
Write down of inventories			2,012				(6,875	)
Gain on debt extinguishment			(2,430	)			—
Change in fair value of foreign currency derivatives			—				7,143
Amortization of discount on debt			1,163				17
Share-based compensation			4,535				3,157
Debt conversion inducement expense			10,170				—
Changes in operating assets and liabilities:
Inventories			(16,721	)			(8,037	)
Accounts receivable			(80,905	)			(63,588	)
Value added tax recoverable			(4,141	)			(2,821	)
Advances to suppliers			300				4,721
Prepaid expenses and other current assets			(236	)			(4,819	)
Accounts payable			3,434				29,562
Other payables			2,496				1,103
Advances from customers			8,766				533
Amounts due to related parties			(229	)			(53	)
Accrued warranty costs			3,772				1,343
Other current liabilities			9,790				2,274
Prepaid land use right			(4,053	)			129
Liability for uncertain tax positions			2,719				1,178
Deferred taxes			(2,812	)			352
Net cash used in operating activities			(28,568	)			(12,693	)

(Continued)

		Six-month Periods Ended June 30,
		2008				2009
		$				$
Investing activities:
Increase in restricted cash			(17,480	)			(137,870	)
Purchase of property, plant and equipment			(37,586	)			(19,733	)
Net cash used in investing activities			(55,066	)			(157,603	)
Financing activities:
Proceeds from short-term borrowings			104,859				187,068
Proceeds from related-parties borrowings			30,000				—
Repayment of short-term borrowings			(56,597	)			(60,360	)
Proceeds from long-term borrowings			29,423				14,630
Issuance cost paid on convertible notes			(382	)			—
Proceeds from exercise of stock options			1,825				98
Net cash provided by financing activities			109,128				141,436
Effect of exchange rate changes			1,977				31
Net increase (decrease) in cash and cash equivalents			27,471				(28,829	)
Cash and cash equivalents at the beginning of the period			37,667				115,661
Cash and cash equivalents at the end of the period			65,138				86,832
Supplemental disclosure of cash flow information:
Interest paid			(5,486	)			(4,587	)
Income taxes paid			(1,631	)			(1,120	)
Supplemental schedule of non-cash activities:
Property, plant and equipment cost included in other payables			(3,772	)			(14,001	)
Conversion of convertible notes to stockholders’ equity			72,107				—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CANADIAN SOLAR INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2008 AND 2009

(In Thousands of U.S. Dollars, Except Share And Per Share Data And Unless Otherwise Stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

     Canadian Solar Inc. (“CSI”) was incorporated pursuant to the laws of the Province of Ontario in October 2001, and changed its jurisdiction by continuing under the Canadian federal corporate statute, the Canada Business Corporations Act, or CBCA, effective June 1, 2006.

     CSI and its subsidiaries (collectively, the “Company”) are principally engaged in the design, development, manufacturing and marketing of solar power products for global markets. During the periods covered by the unaudited condensed consolidated financial statements, substantially all of the Company’s business was conducted through both CSI and the following operating subsidiaries:

		Date of		Place of		Percentage of
Subsidiary		Incorporation		Incorporation		Ownership
CSI Solartronics (Changshu) Co., Ltd.		November 23, 2001		PRC			100	%
CSI Solar Technologies Inc.		August 8, 2003		PRC			100	%
CSI Solar Manufacture Inc.		January 7, 2005		PRC			100	%
CSI Central Solar Power Co., Ltd.		February 24, 2006		PRC			100	%
Changshu CSI Advanced Solar Inc.		August 1, 2006		PRC			100	%
CSI Cells Co., Ltd.		August 23, 2006		PRC			100	%
Canadian Solar (USA) Inc.		June 8, 2007		USA			100	%
CSI Solar Power Inc.		April 28, 2008		PRC			100	%
Canadian Solar Japan Inc.		June 21, 2009		Japan			100	%
Canadian Solar Solutions Inc.		June 22, 2009		Canada			100	%

2. BASIS OF PRESENTATION

     The Company is responsible for the unaudited condensed consolidated financial statements included in this document, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The Company prepared these statements following the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by GAAP for annual financial statements. These statements should be read in combination with the consolidated financial statements in the Company’s Annual Report on Form 20-F and its subsequent amendments, if any, for the fiscal year ended December 31, 2008.

3. ACCOUNTING CHANGES

     In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires recognition of both the liability and equity components of convertible debt instruments with cash settlement features. The debt component is required to be recognized at the fair value of a similar instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. FSP APB 14-1 also requires an accretion of the resulting debt discount over the expected life of the debt. This FSP was effective since January 1, 2009 and applied retrospectively to all periods presented.

3. ACCOUNTING CHANGES — continued

     The impact of adoption of FSP APB 14-1 on the unaudited condensed consolidated financial statement line items as of December 31, 2008 and for six-month periods ended June 30, 2008 was illustrated in the following tables. Since the majority of the convertible notes were converted into common shares in June 2008, the accounting change did not have material impact on the financial statements for the six-month period ended June 30, 2009.

Unaudited Condensed Consolidated Statements of Operations:

		Six-month Period Ended June 30, 2008
		As Originally				As				Effect of
		Reported				Adjusted				Change
Interest expense			(5,408	)			(6,332	)			(924	)
Gain on debt extinguishment			—				2,430				2,430
Foreign exchange gain			7,574				7,693				119
Income before income taxes			35,451				37,076				1,625
Income tax expense			(5,909	)			(6,428	)			(519	)
Net income			29,542				30,648				1,106

Unaudited Condensed Consolidated Balance Sheets:

		At December 31, 2008
		As Originally				As				Effect of
		Reported				Adjusted				Change
Prepaid expenses and other current assets			10,918				10,910				(8	)
Total current assets			339,023				339,015				(8	)
Deferred tax assets			6,998				6,966				(32	)
Other non-current assets			299				263				(36	)
Total assets			570,731				570,655				(76	)
Convertible notes			1,000				830				(170	)
Total liabilities			238,571				238,401				(170	)
Common shares			294,707				395,154				100,447
Additional paid-in capital			35,538				(66,705	)			(102,243	)
Accumulated deficit			(12,994	)			(11,104	)			1,890
Total stockholders’ equity			332,160				332,254				94
Total liabilities and stockholders’ equity			570,731				570,655				(76	)

4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140”. The statement improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact of this statement on its consolidated financial statements.

4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS — continued

     In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”), which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. SFAS 167 clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. SFAS 167 requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. SFAS 167 also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. SFAS 167 is effective for fiscal years beginning after November 15, 2009. The Company does not expect that the adoption of SFAS 167 will have an impact on the consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 168, “The ‘FASB Accounting Standards Codification’ and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (“Codification”), which officially commenced July 1, 2009, to become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (‘SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The subsequent issuances of new standards will be in the form of Accounting Standards Updates that will be included in the Codification. Generally, the Codification is not expected to change U.S. GAAP. All other accounting literature excluded from the Codification will be considered nonauthoritative. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Effective July 1, 2009, the Company adopted SFAS 168 on its financial statement disclosures as all future references to authoritative accounting literature will be referenced in accordance with the Codification.

5. INVENTORIES

     Inventories consist of the following:

		At December 31,				At June 30,
		2008				2009
		$				$
Raw materials			46,122				39,515
Work-in-process			17,221				50,773
Finished goods			29,340				17,347
			92,683				107,635

6. PROPERTY, PLANT AND EQUIPMENT, NET

     Property, plant and equipment, net consists of the following:

		At December 31,				At June 30,
		2008				2009
		$				$
Buildings			23,855				43,742
Leasehold improvements			1,675				2,194
Machinery			72,018				98,737
Furniture, fixtures and equipment			5,570				5,758
Motor vehicles			1,055				1,130
			104,173				151,561
Less: Accumulated depreciation			(11,889	)			(20,919	)
			92,284				130,642
Construction in process			73,258				41,706
Property, plant and equipment, net			165,542				172,348

     Depreciation expense was $2,925 and $9,395 for the six-month periods ended June 30, 2008 and 2009, respectively. Construction in process represents production facilities under construction.

7. FAIR VALUE MEASUREMENT

     On January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands financial statement disclosure requirements for fair value measurements. The Company’s adoption of SFAS 157 was limited to its financial assets and financial liabilities in 2008, as permitted by FSP 157-2. Starting from January 1, 2009, the Company had fully adopted SFAS 157. The Company does not have any non financial assets or non financial liabilities that it recognizes or discloses at fair value in its financial statements on a recurring basis. The implementation of the fair value measurement guidance of SFAS 157 did not result in any material changes to the carrying values of the Company’s financial instruments on its opening balance sheet on January 1, 2008.

     SFAS 157 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. SFAS 157 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

	•		Level 1 — Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.
	•		Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.
	•		Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

     When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company measures fair value using valuation techniques that use, when possible, current market-based or independently-sourced market parameters, such as interest rates and currency rates.

     The Company’s foreign currency derivative assets or liabilities relate to foreign exchange option or forward contracts involving major currencies such as Euro and USD. Since its derivative assets or liabilities are not traded on an exchange, the Company values them using valuation models. Interest rate yield curves and foreign exchange rates are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds, and accordingly, it classifies these valuation techniques as Level 2 in the hierarchy. The Company considers the effect of its own credit standing and that of its counterparties in valuations of its derivative financial instruments.

     As of December 31, 2008 and June 30, 2009, the fair value measurement of the Company’s foreign currency derivative assets or liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:

Fair Value Measurements at Reporting

Date Using

Quoted Prices

Total Fair

in Active

Significant

Value and

Markets for

Other

Significant

Carrying

Identical

Observable

Unobservable

Value on the

Assets

Inputs

Inputs

As of June 30, 2009

Balance Sheet

(Level 1)

(Level 2)

(Level 3)

Liabilities:

Foreign exchange option contracts

$

169

$

—

$

169

$

—

Total Liabilities

$

169

$

—

$

169

$

—

7. FAIR VALUE MEASUREMENT — continued

		Fair Value Measurements at Reporting
		Date Using
						Quoted Prices
		Total Fair				in Active				Significant
		Value and				Markets for				Other				Significant
		Carrying				Identical				Observable				Unobservable
		Value on the				Assets				Inputs				Inputs
As of December 31, 2008		Balance Sheet				(Level 1)				(Level 2)				(Level 3)
Assets:
Foreign exchange option contracts		$	6,136			$	—			$	6,136			$	—
Foreign exchange forward contracts		$	838			$	—			$	838			$	—
Total Assets		$	6,974				—			$	6,974				—

     The carrying value of cash and cash equivalents, trade receivables, advances to suppliers, accounts payable and short-term borrowings approximate their fair values due to the short-term maturity of these instruments. Long-term bank borrowings approximate their fair value since the contracts were entered into with floating market interest rates.

     The carrying amount of the Company’s outstanding convertible notes as of December 31, 2008 and June 30, 2009 was $830 and $848, respectively, which approximated fair value. The Company did not compute the fair value of its $3 million investment as of December 31, 2008 and June 30, 2009 as it was impracticable to do so without incurring significant cost.

     The Company’s primary objective for holding derivative financial instruments is to manage currency risk. The Company records derivative instruments as assets or liabilities, measured at fair value. The recognition of gains or losses resulting from changes in fair values of those derivative instruments is based on the use of each derivative instrument and whether it qualifies for hedge accounting.

     The Company entered into certain foreign currency derivative contracts to protect against volatility of future cash flows caused by the changes in foreign exchange rates. The foreign currency derivative contracts do not qualify for hedge accounting and, as a result, the changes in fair value of the foreign currency derivative contracts are recognized in the statement of operations. The Company recorded gain on foreign currency derivative contracts as $nil and $10,316 for the six-month periods ended June 30, 2008 and 2009, respectively.

     The effect of fair values of derivative instruments on the unaudited condensed consolidated balance sheets as of December 31, 2008 and June 30, 2009 and the effect of derivative instruments on the unaudited condensed consolidated statements of operations for the six-month period ended June 30, 2009 are as follows:

Derivatives not

Fair Values of Asset Derivatives

designated as

At June 30, 2009

hedging instruments

At December 31, 2008

under Statement 133

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign exchange option contracts

—

Foreign currency derivative assets

$

6,136

Foreign exchange forward contracts

—

Foreign currency derivative assets

838

Total derivatives

—

$

6,974

7. FAIR VALUE MEASUREMENT — continued

Derivatives not

designated as

Fair Values of Liability Derivatives

hedging instruments

At June 30, 2009

At December 31, 2008

under Statement 133

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign exchange option contracts

Foreign currency derivative liabilities

$

169

—

Total derivatives

$

169

—

						Amount of gain recognized in
						income on derivatives
						Six-month Period Ended June 30,
Derivative not designated as hedging		Location of gain recognized				2009
instruments under Statement 133		in income on derivatives				$
Foreign exchange option contracts		Gain on foreign currency derivatives				$	5,069
Foreign exchange forward contracts		Gain on foreign currency derivatives					5,247
Total derivatives						$	10,316

8. BANK BORROWING

     In the six-month period ended June 30, 2009, CSI Cells Co., Ltd., CSI Central Solar Power Co., Ltd. and. Changshu CSI Advanced Solar Inc. entered into several bank note discounting agreements with local Chinese commercial banks for working capital purposes. The total additional bank note financing amounted to $97,786 with maturities within six months. These bank note financings bore an average interest rate of 1.68% per annum and were secured by equivalent amounts of restricted cash deposits.

     In the six-month period ended June 30, 2009, CSI Cells Co., Ltd , CSI Central Solar Power Co., Ltd. and CSI Solar Manufacture Inc. entered into several loan agreements with local Chinese commercial banks for working capital purposes. The total additional bank loans amounted to $89,282 million with maturities within one year. These short-term bank loans bore interest rates ranging from 1.11% to 5.35% per annum and were guaranteed by Canadian Solar Inc. and other subsidiaries within the Company.

     On June 25, 2009, CSI Solar Power Inc. entered into a loan agreement with a local Chinese commercial bank for the expansion of solar module production capacity. The total credit facility under this agreement was $14,630, which was fully utilized as of June 30, 2009, and requires repayment of $1,462 in 2010, $4,390 in 2011, $4,390 in 2012, $2,926 in 2013 and $1,462 in 2014. Interest is due quarterly in arrears. The borrowing was guaranteed by CSI Cells Co., Ltd. and bore a floating interest rate calculated as 95% of the interest rate published by People’s Bank of China for borrowings with the same maturities and does not contain any financial covenants or restrictions.

9. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:

		Six-month Periods Ended
		June 30,
		2008				2009
		$				$
Net income-basic			30,648				12,887
Plus: Interest on convertible notes			45				—
Net income-diluted			30,693				12,887
Shares used in computation-basic			27,738,862				35,692,919
Plus: options			1,421,209				109,923
convertible notes			50,607				—
Shares used in computation-diluted			29,210,678				35,802,842
Earnings per share-basic		$	1.10			$	0.36
Earnings per share-diluted		$	1.05			$	0.36

     The computation of diluted earnings per share excludes 50,607 common shares issuable upon the assumed conversion of the convertible debt for the six-month period ended June 30, 2009, as well as 43,382 and 1,480,824 common shares issuable upon the assumed exercise of share options for the six-month periods ended June 30, 2008 and 2009 respectively, as their effect would have been anti-dilutive.

10. RELATED PARTY BALANCES AND TRANSACTIONS

Related party balances:

     The amount due to related party as of December 31, 2008 and June 30, 2009 is a government award payable to Mr. Shawn Qu, CEO, director and stockholder of the Company, who has beneficial interest in the Company.

Related party transactions:

     The Company borrowed $30,000 in June 2008 from Mr. Shawn Qu, CEO, director and stockholder of the Company, with an interest rate of 7%. The borrowing was used for working capital purposes and was repaid in December 2008.

     During the six-month periods ended June 30, 2008 and 2009, the Company paid loan interest to Mr. Shawn Qu in the amount of $128 and $nil, respectively.

11. COMMITMENTS AND CONTINGENCIES

     In order to secure future silicon materials, solar wafers and solar cell supply, the Company entered into several long-term supply agreements with overseas and domestic suppliers in the past several years. Under such agreements, the suppliers agreed to provide the Company with specified quantities of silicon materials, solar wafers and solar cells, and the Company has made prepayments to these suppliers in accordance with the supply contracts. The prices of some supply contracts were pre-determined and others were subject to adjustment to reflect the prevailing market level when transactions occur.

     The following is a schedule, by year, of future minimum obligation under all supply agreements as of June 30, 2009:

Second Half of Year 2009		$	123,896
Year 2010			474,220
Year 2011			631,457
Year 2012			639,446
Year 2013			599,059
Thereafter			1,113,411
Total		$	3,581,489

12. SEGMENT INFORMATION

     The Company primarily operates in a single reportable business segment that includes the design, development and manufacture of solar power products.

     The following table summarizes the Company’s net revenues generated from different geographic locations:

		Six-month periods ended
		June 30,
		2008				2009
		$				$
Europe			355,924				102,937
Asia			15,522				41,883
America			12,374				18,821
Total net revenues			383,820				163,641

Substantially all of the Company’s long-lived assets are located in the PRC.

13. SHARE OPTIONS

     On May 30, 2006, the Board of Directors approved the adoption of a share incentive plan to provide additional incentives to employees, directors or external consultants. The maximum aggregate number of shares which may be issued pursuant to all awards (including options) is 2,330,000 shares, plus for awards other than incentive option shares, an annual increase to be added on the first business day of each calendar year beginning in 2007 equal to the lesser of one percent (1%) of the number of common shares outstanding as of such date, or a lesser number of common shares determined by the Board of Directors or a committee designated by the Board. The share incentive plan will expire on, and no awards may be granted after, March 15, 2016. Under the terms of the share incentive plan, options are generally granted with an exercise price equal to the fair market value of the Company’s ordinary shares and expire ten years from the date of grant.

Options to Employees

     As of June 30, 2009, there was $7,077 in total unrecognized compensation expense related to share-based compensation awards, which is expected to be recognized over a weighted-average period of 2.77 years. During the six-month periods ended June 30, 2008 and 2009, $2,121, and $2,953 was recognized as compensation expense, respectively. There is no income tax benefit recognized in the income statement for the share-based compensation arrangements in the six-month periods ended June 30, 2008, and 2009.

     For all stock options granted for the six-month periods ended June 30, 2008 and 2009, the Company used the Binomial option-pricing model to estimate the fair value of each stock option grant. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs.

     The following assumptions were used to estimate the stock options granted in the six-month periods ended June 30, 2008 and 2009:

		Six-month Periods Ended June 30,
		2009				2008
Risk free rate			5.40%~5.67	%			5.14%~5.92	%
Contractual life of the option			10 years				10 years
Volatility ratio			81	%			78%~79	%
Dividend yield			—				—
Annual exit rate			3.56	%			8.00	%
Suboptimal exercise factor			6.20				3.27

13. SHARE OPTIONS — continued

     A summary of the option activity is as follows:

										Weighted
						Weighted				Average
						Average				Remaining
		Number of				Exercise				Contract				Aggregate
		Options				Price				Term				Intrinsic Value
						$								$
Options outstanding at January 1, 2009			1,368,873				10.33
Granted			685,500				5.75
Exercised			(36,730	)			2.66
Cancelled or Forfeited			(51,263	)			13.17
Options outstanding at June 30, 2009			1,966,380				8.80			8.4 years					11,379
Options vested or expected to vest at June 30, 2009			1,866,545				8.89			8.3 years					10,749
Options exercisable at June 30, 2009			839,467				11.19			7.7 years					4,233

     The weighted average grant-date fair value of options granted in the six-month periods ended June 30, 2008 and 2009 was $22.64, and $4.61, respectively. The total intrinsic value of options exercised during the six-month periods ended June 30, 2008 and 2009 was $12,243 and $358, respectively.

Options and Restricted shares to Non-employees

     On June 30, 2006, the Company granted 116,500 restricted shares to certain consultants for services to be rendered in the two-year period from the date of grant. These shares vested on the anniversary date of June 30, 2007 and 2008 on the straight-line basis. On April 13, 2007, the Company granted 11,650 share options to its external consultants in exchange for its consulting services. The options had an exercise price of $15 and vested immediately. The Company recorded compensation expenses of $1,521 and $nil during the six-month periods ended June 30, 2008 and 2009 over the vesting period, with the final computation of fair value measured on the vesting date of these non-employee awards.

Restricted shares to Employees

     The Company granted 333,190 and 116,500, restricted shares to employees in May 2006 and July 2006, respectively. The restricted shares were granted at nominal value and generally vest over periods from one to four years based on the specific terms of the grants. The difference between the exercise price of the options and the fair market value of the Company’s ordinary share at the date of grant resulted in total compensation cost of approximately $7,108 that will be recognized ratably over the vesting period. During the six-month periods ended June 30, 2008 and 2009, $893 and $204 were amortized as compensation expenses, respectively.

     As of June 30, 2009, there was $443 of total unrecognized share-based compensation related to unvested restricted share awards. That cost is expected to be recognized over an estimated weighted average amortization period of 1.08 years.

     A summary of the status of the Company’s unvested restricted shares granted to both employee and non-employee is presented below:

						Weighted Average
		Number of				Grant-Date
		Shares				Fair Value
						$
Unvested at January 1, 2009			58,250				14.12
Granted			—				—
Vested			—				—
Cancelled or Forfeited			—				—
Unvested at June 30, 2009			58,250				14.12

     The total fair value of restricted shares vested during the six-month periods ended June 30, 2008 and 2009 was $5,572 and $nil respectively.

14. SUBSEQUENT EVENTS

Subsequent to June 30, 2009, the following events occurred:

	a)		On July 7, 2009, the Company registered a 100% owned subsidiary, CSI Solar Power (China) Inc. (“CSI China”), in Suzhou, China with an initial registered capital of $30,000. The Company plans to transfer all of its direct investments in its Chinese subsidiaries into CSI China so that it becomes the Company’s China investment holding and module sales company. It is currently in planning stage.
	b)		During the period from July 1, 2009 to September 30, 2009, the Company executed several agreements with Chinese commercial banks for working capital loans totaling $183.9 million with maturities ranging from two months to one year and bearing interest from 1.06% to 5.31% per annum.

The Company has evaluated subsequent events, through October 13, 2009.

EXHIBIT 99.2

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

     The following selected statement of operations data for the years ended December 31, 2006, 2007 and 2008 and the balance sheet data as of December 31, 2007 and 2008 have been derived from our audited consolidated financial statements, which give effect to the retrospective application of the adoption of the FASB Staff Position APB No. 14-1 Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement, or FSP APB 14-1. The following selected unaudited consolidated statement of operations data for the six months ended June 30, 2008 and June 30, 2009, and the selected unaudited consolidated balance sheet data as of June 30, 2009, have been derived from our unaudited condensed consolidated financial statements, which have been prepared on the same basis as our audited consolidated financial statements. Our audited financial statements and the accompanying notes and the unaudited condensed financial statements and the accompanying notes are included elsewhere in this current report on Form 6-K. You should read the selected consolidated financial data in conjunction with those financial statements and the related notes and “Operating and Financial Review and Prospects” included elsewhere in this current report on Form 6-K.

     Our selected consolidated statement of operations data for the years ended December 31, 2004 and 2005 and our consolidated balance sheet data as of December 31, 2004, 2005 and 2006 have been derived from audited consolidated financial statements that are not included in this current report on Form 6-K.

     All audited financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results may not be indicative of our results for any future periods.

		Years Ended December 31,																				Six Months Ended June 30,
		2004				2005				2006				2007				2008				2008				2009
																						(unaudited)				(unaudited)
		(In thousands of US$, except share and per share data, and operating data and percentages)
Statement of operations data:
Net revenues		$	9,685			$	18,324			$	68,212			$	302,798			$	705,006			$	383,820			$	163,641
Net income (loss)		$	1,457			$	3,804			$	(9,430	)		$	(175	)		$	(7,534	)		$	30,648			$	12,887
Earnings (loss) per share:
Basic		$	0.09			$	0.25			$	(0.50	)		$	(0.01	)		$	(0.24	)		$	1.10			$	0.36
Diluted		$	0.09			$	0.25			$	(0.50	)		$	(0.01	)		$	(0.24	)		$	1.05			$	0.36
Shares used in computation:
Basic			15,427,995				15,427,995				18,986,498				27,283,305				31,566,503				27,738,862				35,692,919
Diluted			15,427,995				15,427,995				18,986,498				27,283,305				31,566,503				29,210,678				35,802,842
Other financial data:
Gross margin			33.2	%			38.8	%			18.1	%			7.9	%			10.1	%			16.0	%			11.7	%
Operating margin			19.0	%			28.5	%			1.6	%			(0.6	)%			3.4	%			11.3	%			1.3	%
Net margin			15.0	%			20.8	%			(13.8	)%			(0.1	)%			(1.1	)%			8.0	%			7.9	%
Selected operating data:
Products sold (in MW)
— Standard solar modules			1.8				3.4				14.7				83.4				166.5				88.9				66.2
— Specialty solar modules and products			0.4				0.7				0.2				—				—				—				—
Total			2.2				4.1				14.9				83.4				166.5				88.9				66.2
Average selling price (in $  per watt)
— Standard solar modules		$	3.62			$	3.92			$	3.97			$	3.75			$	4.23			$	4.20			$	2.47

		As of December 31,																				As of June 30,
		2004				2005				2006				2007				2008				2009
	(In thousands of US$, except share data)
Balance Sheet Data:
Total assets		$	6,145			$	27,430			$	129,634			$	277,622			$	570,654			$	761,157
Net assets		$	2,961			$	6,967			$	112,904			$	134,501			$	332,254			$	348,484
Long-term debt		$	—			$	—			$	—			$	17,866			$	45,357			$	30,738
Convertible notes		$	—			$	3,387			$	—			$	59,885			$	830			$	848
Capital stock(1)		$	211			$	211			$	97,302			$	97,454			$	395,154			$	395,252
Number of shares outstanding(2)			15,427,995				15,427,995				27,270,000				27,320,389	(2)			35,686,313	(2)			35,723,043	(2)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the audited financial statements and the accompanying notes and the unaudited condensed financial statements and the accompanying notes included elsewhere in this current report on Form 6-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of our annual report on Form 20-F filed on June 8, 2009, as amended on October 13, 2009, or our Form 20-F.

A. Operating Results

     The most significant factors that affect our financial performance and results of operations are:

	•		government subsidies and availability of financing for solar projects;
	•		industry and seasonal demand;
	•		product pricing;
	•		price of solar cells and wafers and silicon raw materials; and
	•		foreign exchange.

     Government Subsidies and Availability of Financing for Solar Projects

     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 and financing for solar projects. The cost of constructing and operating a solar power system substantially exceeds the cost of purchasing power provided by the electric utility grid in many locations at this time. As a result, federal, state and local governmental bodies in many countries, most notably Germany, Spain, Italy, South Korea, the United States, Japan and China, have provided subsidies and economic incentives to reduce dependency on conventional sources of energy. These subsidies and incentives include rebates, tax credits, loan guarantees and other incentives to end users, distributors, system integrators and manufacturers of solar power products, to promote the use of solar energy in on-grid and, to a lesser extent, off-grid applications. The demand for our solar module products, in particular our standard solar modules, is affected significantly by these government subsidies and economic incentives. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Company and Our Industry — Revision, reduction or elimination of government subsidies and economic incentives for solar power could cause demand for our products and our revenues, profits and margins to decline” in our Form 20-F.

     Additionally, the current global economic crisis and limited availability of credit and liquidity could adversely impact our customers’ ability to finance the purchase of our products or to construct solar power projects, and we may also face collection problems with customers facing credit challenges either internally or in the event that their own customers or banking counterparties default, which would adversely affect our business and results of operations. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Company and Our Industry — The execution of our growth strategy is dependent upon the continued availability of third-party financing arrangements for our customers, which is affected by general economic conditions. Tight credit markets could depress demand for solar products, hamper our expansion and materially affect our results of operations” in our Form 20-F.

     In the past, we have been able to partially mitigate collection risk on accounts receivables through trade financing, accounts receivable insurance or security from customers in the form of letters of credit or liens against project assets. There is no guarantee that we will be able to use any of these mechanisms in all cases. For example, deterioration of the credit markets could render our customers and their accounts ineligible for receivables

insurance. In the event that our customers cancel their orders or are unable to obtain financing, we may not be able to recoup prepayments made to suppliers in connection with our customers’ orders, which could have an adverse impact on our financial condition and results of operations.

     Industry and Seasonal Demand

     Our business and revenue growth depends on the demand for solar power. Although solar power technology has been used for several decades, the solar power market has grown significantly in the past several years. See “Item 4. Information on the Company — B. Business Overview” in our Form 20-F for a more detailed discussion of the factors driving the growth of the solar power industry and the challenges that it faces. In addition, industry demand is affected by seasonality. Demand for solar power tends to be lower in the winter, primarily because of adverse weather conditions, particularly in Germany, one of our key markets, which complicate the installation of solar power systems. For example, our sales to Germany slowed significantly in the fourth quarter of 2008 and the first quarter of 2009 due to low seasonal demand and shortfalls in the availability of debt financing, together with inventory clearing efforts by some solar module producers. However, demand from other key markets may offset seasonal fluctuations from time to time. For instance, high demand in the fourth quarter 2007 and the first quarter 2008 from Spain, a warm weather market, allowed us to achieve record sales quarters, despite a slowdown in German sales. We do not believe that we will experience a decline in demand in the fourth quarter of 2009 and the first quarter of 2010 as severe as the one the solar industry experienced in 2008. As governments around the world continue to approve subsidies that encourage the use of solar energy, we expect to be able to take advantage of the diversity of global markets to mitigate some of the effects of seasonality on our business results in the future.

     See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Company and Our Industry — If solar power technology is not suitable for widespread adoption, or sufficient demand for solar power products does not develop or takes longer to develop than we anticipate, our revenues may not continue to increase or may even decline, and we may be unable to sustain our profitability” in our Form 20-F.

     Product Pricing

     We began selling our solar module products in March 2002 and we generated all of our net revenues in 2002 and 2003 from sales of specialty solar modules and products. We did not begin selling standard solar modules until 2004. In 2004, the sale of standard solar modules represented 72.5% of our net revenues. In 2005 and 2006, that percentage increased to 76.9% and 96.8%, respectively, excluding silicon materials sales. In 2007, approximately 96.0% of our solar module product net revenues consisted of standard solar module sales. We generated the remainder of our net revenues primarily from sales of silicon materials. In 2008, approximately 98.2% of our solar module product net revenues consisted of standard solar module sales, with the remainder consisting of sales of silicon materials. In the six months ended June 30, 2009, approximately 99.9% of our solar module product net revenues consisted of standard solar module sales, with the remainder consisting of sales of silicon materials.

     We have been pricing our standard solar modules based on the actual number of watts of electricity that they can generate. In 2009, we began pricing some of our standard solar modules based on the designed electricity-generating capacity of each standard solar module. Overall demand in the solar power industry affects the actual price per watt of our standard solar modules. We price our standard solar modules based on the prevailing market price at the time we enter into sales contracts with our customers, taking into account the size of the contract, the strength and history of our relationship with each customer and the costs of our solar wafers, cells and silicon raw materials. During the first few years of our operations, the average selling prices for standard solar modules rose year-to-year across the industry, primarily because of high demand. Correspondingly, the average selling price of our standard solar module products increased from $3.62 per watt in 2004 to $3.92 per watt in 2005 and $3.97 per watt in 2006, before dropping slightly to $3.75 per watt in 2007 due to temporary industry over-supply. Following a peak in the third quarter of 2008, the industry average selling prices of solar modules declined sharply beginning in the fourth quarter of 2008, as market demand declined sharply and competition increased due to the global financial crisis, the greater maturity of markets and increased manufacturing output. The average selling price of our standard solar module products was $3.30 per watt in the fourth quarter of 2008 and $2.47 per watt in the six months ended June 30, 2009.

     Price of Solar Cells and Wafers and Silicon Raw Materials

     We produce solar modules, which comprise an array of interconnected solar cells encased in a weatherproof frame, and products that use solar modules. Solar cells are the most important component for making solar modules. We currently make our solar cells from mono-crystalline wafers and multi-crystalline silicon wafers through multiple manufacturing steps, including surface texturization, diffusion, plasma-enhanced chemical vapor deposition and surface metallization. Solar wafers comprise the most important material for making solar cells. There presently exists an oversupply of solar cells and wafers as a result of increased capacity and decreased demand in the solar market. This exposes us to inventory write-downs. We have been renegotiating our supply agreements to adjust purchase prices based on prevailing market prices at the time we place each purchase order, and we wrote down inventory in the fourth quarter of 2008. If we are unable, on an ongoing basis, to continue to procure silicon, wafers and cells at prices that decline in line with solar module pricing, our revenues and margins could be adversely impacted, either due to relatively high costs compared to competitors, further write-downs of inventory, or both, and our market share could decline if competitors are able to offer better pricing than we can offer.

     Our flexible vertical integration strategy allows us to some extent to rely on our internal ingot-to-wafer and wafer-to-cell manufacturing capacity to exert greater stability and control over the costs of wafers and cells. This strategy can help to preserve our margins in a declining price environment. Currently, we secure a large percentage of our supply of solar wafers through purchasing from third parties, including entering into tolling arrangements. We also purchase limited quantities of solar cells directly from our suppliers.

     We believe that our current silicon raw material supply agreements, combined with internal capacity and outsourcing arrangements, will enable us to secure or manufacture solar cells and solar wafers sufficient for all of our estimated 2009 production output. We may still enter into long-term supply contracts and we plan to expand our in-house solar cell and wafer manufacturing capability. In the event of a future supply disruption or shortfall in silicon production, we cannot assure you that we will be able to secure sufficient quantities of solar wafers, cells and silicon raw materials to meet our increasing production demand.

     Suppliers of solar wafers and cells and silicon raw materials have typically required customers to make prepayments well in advance of shipment. While we also sometimes require our customers to make partial prepayments, there is typically a lag between the time of our prepayment for solar wafers, cells and silicon raw materials and the time when our customers make prepayments to us. Although for the foreseeable future our supply contracts should not contain prepayment terms, the purchase of solar wafers and cells and silicon raw materials through toll manufacturing arrangements has required, and will continue to require, us to make significant commitments of working capital beyond that generated from our cash flows from operations to support our estimated production output.

     Foreign Exchange

     We pay most of our expenses in Renminbi, which since July 2008 has generally fluctuated in tandem with the U.S. dollar, and in U.S. dollars. However, since 2007, most of our sales have been denominated in Euros. This creates a foreign exchange risk, which can impact our revenues and margins, in the event that the Euro depreciates against the U.S. dollar, as occurred in the second half of 2008. In 2008, we began to hedge our Euro exposure against the U.S. dollar using single put and call collars and forward contracts. We were able to mitigate a substantial portion, but not all, of our exchange rate losses for 2008 by hedging. We also reported an exchange rate gain in the six months ended June 30, 2009. We will continue to hedge our Euro exposure against the U.S. dollar in order to increase our foreign exchange visibility and limit losses. We also expect our U.S. dollar-denominated sales to increase in the remainder of 2009. Increasingly, however, banks are requiring collateral in order to enter into hedging contracts and expenses associated with purchasing currency options have increased. Due to increased volatility in the Euro-U.S. dollar exchange rate and decreased sales visibility caused by the current market environment, the effectiveness of our hedging program may diminish with respect to cost effectiveness, cash management, exchange rate visibility and downside protection.

     Overview of Financial Results

     We evaluate our business using a variety of key financial measures.

     Net Revenues

     We generate revenues primarily from the sale of solar module products, which consist of standard solar modules and specialty solar modules and products. Solar module products accounted for 87.6%, 96.0% and 98.2% of our net revenues in 2006, 2007 and 2008, respectively, and 98.1% and 99.9% of our net revenues for the six months ended June 30, 2008 and 2009, respectively. Since 2007, the resale of silicon has accounted for a small percentage of our total revenue because the competition to obtain silicon materials was much greater than in 2006. Since the fourth quarter of 2008, the solar industry has experienced an oversupply of silicon, and we believe that revenues from the resale of silicon materials in 2009 will be very small.

     In 2008, we had very limited wafer-to-module and cell-to-module tolling businesses, which entailed customers supplying solar wafers and/or solar cells to us and our fashioning these solar wafers and cells into solar modules in our facilities while charging a tolling fee to cover additional materials costs and generate revenue. Going forward, we believe that revenues from our tolling business will be insignificant compared to our overall net revenues. We are looking into providing those of our customers who sell solar systems with value-added services, including project finance, engineering, procurement and construction contracting, and investment activities. We believe this will help to improve our solar module market penetration in the future. The main factors affecting our net revenues include average selling prices per watt and unit volume shipped, which depend on product supply and demand. Our net revenues are net of business tax, value-added tax and returns and exchanges.

     A small number of customers have historically accounted for a major portion of our net revenues. In 2006, 2007 and 2008, and the six months ended June 30, 2008 and 2009, our top five customers during those periods collectively accounted for approximately 53.5%, 78.8%, 52.6%, 61.2% and 53.9%, respectively, of our net revenues, and sales to our largest customer in those periods accounted for 14.3%, 21.1%, 14.7%, 16.4% and 19.6% of our net revenues, respectively. Our four largest customers in 2007 continued to be four of our five largest customers in 2008 and only one largest customer in the six months ended June 30, 2008 continued to be one of our five largest customers in the six months ended June 30, 2009. Changes in our product mix and strategic marketing decisions have resulted in changes in our market concentration from period to period. The following table sets forth, for the periods indicated, certain information relating to our net revenues derived from our customers categorized by their geographic location for the periods indicated:

		Years Ended December 31,																								Six Months Ended June 30,
		2006								2007								2008								2008								2009
										(In thousands of US$, except for percentages)
		Net Revenues				%				Net Revenues				%				Net Revenues				%				Net Revenues				%				Net Revenues				%
Europe		$	51,981				76.2			$	286,588				94.7			$	631,147				89.5			$	355,924				92.7			$	102,937				62.9
Asia			14,200	(1)			20.8				13,605				4.5				41,571				5.9				15,522				4.0				41,883				25.6
America			2,031				3.0				2,605				0.8				32,288				4.6				12,374				3.3				18,821				11.5
Total net revenues		$	68,212				100			$	302,798				100			$	705,006				100			$	383,820				100			$	163,641				100

     Cost of Revenues

     Our cost of revenues consists primarily of the costs of:

	•		solar grade silicon materials;
	•		solar wafers;
	•		materials used in solar cell production, such as metallic pastes;

	•		solar cells;
	•		other materials for the production of solar modules such as glass, aluminum frames, EVA and polymer backsheets;
	•		production labor, including salaries and benefits for manufacturing personnel;
	•		warranty costs;
	•		overhead, including utilities, production equipment maintenance, share-based compensation expenses for options granted to employees in our manufacturing department and other support expenses associated with the manufacture of our PV products;
	•		depreciation and amortization of manufacturing equipment and facilities, which have increased due to capacity expansion, and which are expected to increase as we continue to expand our manufacturing capabilities and construct additional facilities; and
	•		inventory write-downs.

     Solar wafers and cells make up the major portion of our cost of revenues. Where we manufacture solar cells in our own manufacturing facility, the costs of the solar cells consist of: (i) the costs of purchasing solar wafers, (ii) labor costs incurred in manufacturing solar cells, (iii) the costs of other materials and utilities we use for manufacturing the solar cells and (iv) depreciation charges incurred for our solar cell manufacturing facility, equipment and building. In August 2008, we completed the first phase of our production facilities for ingot growth and wafer cutting in Luoyang and subsequently started to produce our own wafers made from either UMgSi or high purity silicon feedstock. We manufacture both monocrystalline and polycrystalline wafers and supply them to our own solar cell manufacturing facility that manufactures UMgSi cells for e-Modules and regular cells. However, we purchase some of the solar wafers and cells that we need directly from wafer and cell suppliers, as our internal wafer and cell production capacity is not sufficient to meet all of our needs.

     We also obtain some of our solar wafers and cells through toll manufacturing arrangements, under which we source and provide silicon feedstock to suppliers of ingots, wafers and cells. These suppliers convert these silicon raw materials into solar wafers and cells that we use for our production of solar modules. The costs of solar wafers and cells that we obtain through these toll manufacturing arrangements consist of: (i) the costs of purchasing silicon feedstock, (ii) labor costs incurred in inventory management, (iii) labor costs incurred in blending silicon feedstock as part of our silicon feedstock blending program and (iv) tolling fees charged by our suppliers under tolling arrangements. The payments we make to our suppliers for the solar wafers and cells and the payment our suppliers make to us for the silicon feedstock that we source are generally settled separately under these tolling arrangements. We do not include the payments we receive for providing silicon feedstock as part of these toll manufacturing arrangements in our net revenues.

     Our cost of revenues also includes warranty costs. We accrue 1.0% of our net revenues as warranty costs at the time revenues are recognized. Prior to June 30, 2009, our standard solar modules were typically sold with two-year warranties for defects in materials and workmanship. We have extended the terms of these warranties from two years to six year since June 2009. We also offer 10-year and 25-year warranties against declines of more than 10% and 20%, respectively, in the initial minimum power generation capacity at the time of delivery for our standard solar modules. Our specialty solar modules and products are typically sold with a one-year guarantee against defects and may, depending on the characteristics of the product, contain a limited warranty of up to 10 years against declines in the minimum power generation capacity specified at the time of delivery.

     Our cost of revenues has historically increased as we increased our net revenues. However, in late 2008, as a result of the global financial crisis, the demand for solar modules and the related cost of silicon materials and solar wafers and cells both decreased sharply. As a result, as of December 31, 2008, we had to make a significant write-down of our previously acquired inventories to market value. This write-down amounted to $23.3 million in 2008 and was included in our cost of revenue for 2008. We have made progress to date in renegotiating existing supply

agreements with our long-term suppliers to adjust purchase prices based on prevailing market prices at the time we place each purchase order.

     Gross Profit/Gross Margin

     Our gross profit is affected by a number of factors, including the average selling prices for our products, our product mix and our ability to cost-effectively manage our supply chain.

     Our gross margin decreased from 18.1% in 2006 to 7.9% in 2007 but increased to 10.1% in 2008. The decrease from 2006 to 2007 was due primarily to the growth of our standard solar module products business. The decrease in gross margin was also attributable to the higher costs of solar cells and silicon materials and the reduced proportion of reclaimable silicon in relation to raw silicon as we continued to grow, and to a decrease in average selling prices for standard solar modules in the fourth quarter of 2006 and the first quarter of 2007 as a result of lower-than-anticipated market demand at that time. The increase in our gross margin from 2007 to 2008 was attributable to higher prices for standard solar modules in the first three quarters of 2008, coupled with a favorable Euro to U.S. dollar exchange rate over the same period. In the fourth quarter of 2008, module prices and our margins decreased due to a dramatic decrease in demand and an unfavorable Euro to U.S. dollar exchange rate.

     Our gross margin decreased from 16.0% for the six months ended June 30, 2008 to 11.7% for the six months ended June 30, 2009. The decrease in gross margin was due primarily to a decrease in the average selling prices of standard solar modules and higher costs of solar cell and silicon material inventories acquired in 2008 that were used in the six months ended June 30, 2009. We believe that after the consumption of those high-cost inventories during the third quarter of 2009, our gross margin could rebound from the current level as prevailing raw material costs and average selling prices could contribute to an improved gross profit spread. We also believe that we may be able to further improve our gross margins through cost savings through research and development and increased production of our in-house ingot-to-wafer and wafer-to-cell manufacturing capacity.

     Operating Expenses

     Our operating expenses include selling expenses, general and administrative expenses and research and development expenses. Our operating expenses have increased in recent years as our business grew. We expect this trend to continue as our net revenues grow in the future.

     Selling Expenses

     Selling expenses consist primarily of salaries, transportation and customs expenses for delivery of our products, sales commissions for sales agents, advertising and promotional and trade show expenses. Since the second quarter of 2006, selling expenses have included share-based compensation expenses for options and restricted shares granted to our sales and marketing personnel. As we expand our business, we will increase our sales and marketing efforts and target potential customers in selected industry sectors in response to evolving industry trends. We expect our selling expenses to increase in the near term as we increase our sales volume, hire additional sales personnel, target more markets and initiate additional marketing programs to reach our goal of building a leading global brand. However, assuming our net revenues increase at the rate we expect, over time, we anticipate that our non-transportation selling expenses will decrease as a percentage of our net revenues while our transportation and customs expenses will increase alongside net revenues due to the cost of insurance and freight terms requested by our customers.

     General and Administrative Expenses

     General and administrative expenses consist primarily of salaries and benefits for our administrative and finance personnel, consulting and professional service fees, government and administration fees, insurance fees and allowances for doubtful debts. Since the second quarter of 2006, our general and administrative expenses have included share-based compensation expenses for options and restricted shares granted to our general and administrative personnel, directors and consultants. We expect our general and administrative expense to increase as we hire additional personnel, upgrade our information technology infrastructure and incur expenses necessary to

fund the anticipated growth of our business. However, assuming our net revenues increase at the rate we anticipate, we expect that our general and administrative expenses will decrease as a percentage of our net revenues.

     Research and Development Expenses

     Research and development expenses consist primarily of costs of raw materials used in our research and development activities, salaries and benefits for research and development personnel and prototype and equipment costs related to the design, development, testing and enhancement of our products and our silicon reclamation program. Since the second quarter of 2006, our research and development activities have included share-based compensation expenses for options and restricted shares granted to our research and development employees. We expense our research and development costs as incurred. To date, our research and development expenses have been minor. They are primarily related to our continuous efforts to improve our solar cell and module manufacturing processes and are not separated from our cost of revenues.

     We expect to devote more efforts to research and development in the future and expect that our research and development expenses will increase as we hire additional research and development personnel, expand and diversify our products portfolio with innovative products, and devote more resources towards using new technologies and alternative materials to grow ingots, cut wafers and manufacture solar cells.

     Share-based Compensation Expenses

     Under our 2006 share incentive plan, we had outstanding a total of 1,978,030 options to purchase our common shares and 58,250 restricted shares as of June 30, 2009. For a description of the options and restricted shares granted, including the exercise prices and vesting periods, see “Item 6. Directors, Senior Management and Employees — B. Compensation of Directors and Executive Officers — Share-based Remuneration — 2006 Share Incentive Plan” in our Form 20-F. Under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” or SFAS 123R, we are required to recognize share-based compensation to employees as compensation expense in our statement of operations based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the equity award.

     As required by SFAS 123R, we have made an estimate of expected forfeitures and are recognizing compensation costs only for those equity awards expected to vest. We estimate our forfeitures based on past employee retention rates and our expectations of future retention rates. We will prospectively revise our forfeiture rates based on actual history. Our share option and restricted share compensation charges may change based on changes to our actual forfeitures.

     For each of the years ended December 31, 2007 and 2008, we recorded share-based compensation expenses of approximately $9.1 million. For the six months ended June 30, 2009, we recorded share-based compensation expenses of approximately $3.2 million, compared to approximately $4.5 million in the six months ended June 30, 2008. We have categorized these share-based compensation expenses in our (i) cost of revenues, (ii) selling expenses, (iii) general and administrative expenses and (iv) research and development expenses, depending on the job functions of the grantees to whom we granted the options or restricted shares. The following table sets forth, for the periods indicated, the allocation of our share-based compensation expenses both in absolute amount and as a percentage of total share-based compensation expenses.

		Years Ended December 31,																								Six Months Ended June 30,
		2006								2007								2008								2008								2009
		(In thousands of US$, except for percentages)
Share-based compensation expenses included in:
Cost of revenues		$	169				2.8	%		$	274				3.0	%		$	350				3.8	%		$	179				3.9	%		$	228				7.2	%
Selling expenses			1,945				31.7				2,287				25.1				1,060				11.7				764				16.9				395				12.5
General and administrative expenses			3,942				64.1				6,277				69.0				7,306				80.3				3,434				75.7				2,254				71.4
Research and development expenses			89				1.4				264				2.9				386				4.2				158				3.5				280				8.9
Total share-based compensation expenses		$	6,145				100.0	%		$	9,102				100.0	%		$	9,102				100.0	%		$	4,535				100.0	%		$	3,157				100.0	%