UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

(Mark One)

 

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

OR

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

For the fiscal year ended December 31, 2015.

OR

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

For the transition period from              to             

OR

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-33911

 

 

 

RENESOLA LTD

(Exact name of Registrant as specified in its charter)

 

 

 

N/A

(Translation of Registrant’s name into English)

 

British Virgin Islands

(Jurisdiction of incorporation or organization)

 

No. 8 Baoqun Road

Yaozhuang Town

Jiashan County

Zhejiang Province 314117

People’s Republic of China

(Address of principal executive offices)

 

Yuanyuan (Maggie) Ma
Chief Financial Officer

No. 8 Baoqun Road

Yaozhuang County

Jiashan Town

Zhejiang Province 314117

People’s Republic of China

Tel: +86-573-8477-3321

Fax: +86-573-8477-3383

E-mail: yuanyuan.ma@renesola.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered

American Depositary Shares, each representing

two shares, no par value per share

  New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

203,205,688 shares, no par value per share, as of December 31, 2015

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

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No    x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x   No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨ Accelerated filer   x Non-accelerated filer  ¨

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP   x    International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨    Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ¨    No  ¨

 

 

 

 

 

 

table of contents

 

    Page
INTRODUCTION    
PART I   2
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 2
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 2
ITEM 3. KEY INFORMATION 2
ITEM 4. INFORMATION ON THE COMPANY 36
ITEM 4A. UNRESOLVED STAFF COMMENTS 59
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 59
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 89
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 98
ITEM 8. FINANCIAL INFORMATION 100
ITEM 9. THE OFFER AND LISTING 101
ITEM 10. ADDITIONAL INFORMATION 102
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 113
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 114
PART II   115
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 115
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 115
ITEM 15. CONTROLS AND PROCEDURES 116
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 118
ITEM 16B. CODE OF ETHICS 118
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 118
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 119
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 119
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT 120
ITEM 16G. CORPORATE GOVERNANCE 120
ITEM 16H. MINE SAFETY DISCLOSURE 120
PART III   120
ITEM 17 FINANCIAL STATEMENTS 120
ITEM 18 FINANCIAL STATEMENTS 120
ITEM 19. EXHIBITS 120

 

 

 

 

INTRODUCTION

 

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

 

·“we,” “us,” “our company,” “our” or “ReneSola” refers to ReneSola Ltd, a British Virgin Islands company, its predecessor entities and its subsidiaries;

 

·“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report on Form 20-F only, Taiwan, and the special administrative regions of Hong Kong and Macau;

 

·“RMB” or “Renminbi” refers to the legal currency of China; all references to “$,” “dollars” and “U.S. dollars” refer to the legal currency of the United States; all references to “£” and “pounds sterling” refer to the legal currency of the United Kingdom; all references to “€” or “Euro” refer to the official currency of the European Union and the currency that is used in certain of its member states;

 

·“ADSs” refers to our American depositary shares, each of which represents two shares, and “ADRs” refers to the American depositary receipts that evidence our ADSs; and

 

·“shares” refers to shares of ReneSola Ltd with no par value.

 

All discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

 

Consistent with industry practice, we measure our solar wafer manufacturing capacity and production output in watts, or W, or megawatts, or MW, representing 1,000,000 W, of power-generating capacity. We believe MW is a more appropriate unit to measure our manufacturing capacity and production output compared to pieces of wafers, as our solar wafers differ in size, thickness, power output and conversion efficiency. We manufacture both monocrystalline and multicrystalline wafers, and solar cells using these two types of wafers have different conversion efficiencies.

 

For disclosure of operating data as of and after January 1, 2013 and prior to January 1, 2014, we have assumed an average conversion efficiency rate of 19.0% and 17.8% for solar cells using our monocrystalline wafers and multicrystalline wafers, respectively. Based on this conversion efficiency, for wafers produced on or after January 1, 2013 and prior to January 1, 2014, we have assumed that (i) each 125 mm by 125 mm monocrystalline wafer can generate approximately 2.7 W of power, (ii) each 156 mm by 156 mm monocrystalline wafer can generate approximately 4.2 W of power and (iii) each 156 mm by 156 mm multicrystalline wafer can generate approximately 4.2 W of power.

 

For disclosure of operating data as of and after January 1, 2014 and prior to January 1, 2015, we have assumed an average conversion efficiency rate of 19.2% and 17.8% for solar cells using our monocrystalline wafers and multicrystalline wafers, respectively. Based on this conversion efficiency, for wafers produced on or after January 1, 2014 and prior to January 1, 2015, we have assumed that (i) each 125 mm by 125 mm monocrystalline wafer can generate approximately 2.88 W of power, (ii) each 156 mm by 156 mm monocrystalline wafer can generate approximately 4.45 W of power and (iii) each 156 mm by 156 mm multicrystalline wafer can generate approximately 4.23 W of power. Power generation assumptions for each wafer may change in the future.

 

For disclosure of operating data as of and after January 1, 2015 and prior to January 1, 2016, we have assumed an average conversion efficiency rate of 19.5% and 18.35% for solar cells using our monocrystalline wafers and multicrystalline wafers, respectively. Based on this conversion efficiency, for wafers produced on or after January 1, 2015 and prior to January 1, 2016, we have assumed that (i) each 156 mm by 156 mm monocrystalline wafer can generate approximately 4.55 W of power and (ii) each 156 mm by 156 mm multicrystalline wafer can generate approximately 4.34 W of power. Power generation assumptions for each wafer may change in the future.

 

We also measure our ingot manufacturing capacity and production output in MW based on our general yield, in MW, of solar wafers under our current manufacturing process.

 

 

 

 

All references to “PV” are to photovoltaic. The photovoltaic effect is a process by which sunlight is converted into electricity.

 

This annual report on Form 20-F includes our audited consolidated balance sheets as of December 31, 2014 and 2015 and our audited consolidated income statements, statements of comprehensive income (loss), changes in equity and cash flows for each of the three years ended December 31, 2015.

 

This annual report contains translations of certain Renminbi amounts into U.S. dollars at the rate of RMB6.4778 to $1.00, the noon buying rate in effect on December 31, 2015 as set forth in the H.10 Statistical Release of the Federal Reserve Bank Board. We make no representation that the Renminbi or dollar amounts referred to in this annual report on Form 20-F could have been or could be converted into dollars or Renminbi, as the case may be, at any particular rate or at all. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Fluctuations in exchange rates may have a material adverse effect on your investment.” On April 22, 2016, the noon buying rate was RMB6.5004 to $1.00.

  

PART I

 

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not Applicable.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not Applicable.

 

ITEM 3.KEY INFORMATION

 

A.Selected Financial Data

 

Our Selected Consolidated Financial Data

 

The following selected data from the consolidated income statements for the years ended December 31, 2013, 2014 and 2015 and the selected consolidated balance sheet data as of December 31, 2014 and 2015 are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected data from the consolidated income statements for the years ended December 31, 2011 and 2012 and the consolidated balance sheet data as of December 31, 2011, 2012 and 2013 are derived from our consolidated financial statements, which are not included in this annual report. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The historical results are not necessarily indicative of results to be expected in any future period.

 

   For the Year Ended December 31, 
   2011   2012   2013   2014   2015 
   (in thousands, except percentage, share and per share data) 
Consolidated Statement of Income Data                    
Net revenues(1)  $985,279   $969,132   $1,519,635   $1,561,497   $1,282,031 
Cost of revenues(2)   (885,332)   (1,007,269)   (1,406,530)   (1,352,214)   (1,094,157)
Gross profit (loss)   99,947    (38,137)   113,105    209,283    187,874 
Operating (expenses) income:                         
Sales and marketing   (21,127)   (31,203)   (75,595)   (93,067)   (72,295)
General and administrative   (38,550)   (50,882)   (55,633)   (67,294)   (59,290)
Research and development   (47,055)   (44,102)   (46,452)   (52,575)   (43,905)

 

2 

 

  

   For the Year Ended December 31, 
   2011   2012   2013   2014   2015 
   (in thousands, except percentage, share and per share data) 
Other operating (expenses) income   18,327    1,656    45,886    11,870    16,920 
Impairment of long-lived assets       (6,438)   (202,757)        
Goodwill impairment       (6,161)            
Intangible asset impairment       (3,764)            
Total operating expenses   (88,405)   (140,894)   (334,551)   (201,066)   (158,570)
Income (loss) from operations   11,542    (179,031)   (221,446)   8,217    29,304 
Non-operating income (expenses):                         
Interest income   7,862    7,118    8,443    5,010    2,875 
Interest expense   (37,190)   (50,629)   (52,109)   (49,016)   (43,418)
Foreign exchange (losses) gains   6,612    1,386    (368)   (27,009)   (2,137)
Gains on repurchase of convertible notes   28,350            7,048    13,693 
Gains (losses) on derivatives, net   (15,297)   (54)   634    6,058    (6,031)
Fair value change of warrant liability           3,203    7,455    1,313 
Gain on disposal of subsidiaries   (193)           8,253     
Other-than-temporary impairment loss on available-for-sale investment   (6,207)                
Total non-operating (expenses)   (16,063)   (42,179)   (40,197)   (42,201)   (33,705)
Income (loss) before income tax, non-controlling interests   (4,520)   (221,210)   (261,643)   (33,984)   (4,401)
Income tax benefit (expenses)   4,851    (21,352)   2,723    350    (674)
Net income (loss)   331    (242,562)   (258,920)   (33,634)   (5,075)
Less:  Net income (loss) attributable to non-controlling interests   2    (47)   (4)   (4)    
Net income (loss) attributable to holders of ordinary shares  $333   $(242,515)  $(258,916)  $(33,630)  $(5,075)
Earnings (loss) per share:                         
Basic  $0.00   $(1.40)  $(1.42)  $(0.17)  $(0.02)
Diluted  $0.00   $(1.40)  $(1.42)  $(0.17)  $(0.02)
Earnings (loss) per ADS:                         
Basic  $0.00   $(2.81)  $(2.85)  $(0.33)  $(0.05)
Diluted  $0.00   $(2.81)  $(2.85)  $(0.33)  $(0.05)
Weighted average number of shares used in computing earnings per share:                         
Basic   173,496,901    172,671,369    182,167,908    203,550,049    204,085,041 
Diluted   173,870,162    172,671,369    182,167,908    203,550,049    204,085,041 
Other Consolidated Financial Data                         
Gross margin   10.1%   (3.9)%   7.4%   13.4%   14.7%
Operating margin   1.2%   (18.5)%   (14.6)%   0.5%   2.3%
Net margin   0.0%   (25.0)%   (17.0)%   (2.2)%   (0.4)%

 

3 

 

  

   For the Year Ended December 31, 
   2011   2012   2013   2014   2015 
   (in thousands, except percentage, share and per share data) 
Selected Consolidated Operating Data                         
Solar power products shipped (in MW)(3)   1,294.8    2,219.3    3,218.0    2,878.2    2,748.8 

 

 

(1)Includes $6.8 million, $63.7 million, $3.1 million, $2.9 million and $0.05 million of net revenues from products sold to related parties in 2011, 2012, 2013, 2014 and 2015, respectively.

 

(2)Includes $6.7 million, $68.3 million, $3.6 million, $2.7 million and $0.05 million of cost of revenues of solar products sold to related parties in 2011, 2012, 2013, 2014 and 2015, respectively.

 

(3)Includes solar ingots, wafers, cells and modules shipped, as well as solar wafers and modules shipped from processing services.

 

   As of December 31, 
   2011   2012   2013   2014   2015 
   (in thousands) 
Consolidated Balance Sheet Data                         
Cash and cash equivalents  $379,039   $93,283   $86,773   $99,848   $38,045 
Restricted cash   58,335    174,828    262,127    121,862    140,338 
Accounts receivable and notes receivable, net   129,636    216,835    236,576    125,743    161,166 
Inventories   154,182    254,880    359,577    357,361    193,171 
Total current assets   832,922    873,779    1,206,798    859,531    637,750 
Property, plant and equipment, net   980,165    1,102,562    863,093    750,298    630,462 
Advances for purchases of property, plant and equipment   25,867    8,317    2,214    1,756    382 
Advances to suppliers—noncurrent   17,644    5,928    5,627         
Total assets   1,948,976    2,058,325    2,139,751    1,669,008    1,346,320 
Short-term borrowings   570,894    733,618    673,096    654,675    668,788 
Advances from customers—current   58,238    40,384    99,499    84,412    28,101 
Total current liabilities   989,377    1,442,229    1,712,973    1,336,792    1,103,862 
Total equity   601,141    364,403    169,107    135,156    111,934 
Total liabilities and equity  $1,948,976   $2,058,325   $2,139,751   $1,669,008    1,346,320 

 

B.Capitalization and Indebtedness

 

Not Applicable.

 

C.Reasons for the Offer and Use of Proceeds

 

Not Applicable.

 

D.Risk Factors

 

Risks Related to Our Business

 

Our financial leverage may hamper our ability to expand and may materially affect our results of operations. Our borrowing levels and the tightening of credit generally in the industry in the PRC may adversely impact our ability to obtain new financing.

 

We have relied on short-term and long-term borrowings and capital markets financing to fund a portion of our capital requirements and expect to continue to do so in the future. We have significant borrowings from commercial banks in China, which consist primarily of short-term borrowings. As of December 31, 2015, we had short-term borrowings of $668.8 million, of which $415.8 million was attributable to trade financing. As of December 31, 2015, we also had long-term borrowings of $38.8 million. Our working capital deficit was $477.3 million and $466.1 million as of December 31, 2014 and 2015, respectively.

 

4 

 

  

The amount of our borrowings could constrain our operational flexibility, including requiring a substantial portion of our cash flows to be set aside to service our debt obligations, increasing our exposure to interest rate fluctuations and limiting our ability to obtain additional financing. Furthermore, the PRC government may pass measures to tighten credit, including trade financing, available in the PRC market. All of the above may impair our ability to obtain financing on favorable terms, or at all. In addition, we may not be able to raise necessary funding on favorable terms, or at all, to refinance our debt obligations. If our cash flows and capital resources are insufficient to service our debt obligations, our business, prospects and financial conditions may be materially and adversely affected. If we fail to obtain additional sources of financing, we may not be able to continue to fund our operations or business.

 

We intend to obtain additional debt obligations to finance our operations and future expansion. To the extent we are successful in obtaining additional financing, we will allocate an increasing portion of our cash flows to service our debt obligations. This could impair our ability to make necessary capital expenditures, develop business opportunities or make strategic acquisitions. Our business may not generate sufficient cash flows from operations in the future to service our debt and make necessary capital expenditures, in which case we may seek additional financing, dispose of certain assets or seek to refinance some or all of our debt. In addition, these alternatives may not be implemented on satisfactory terms, if at all. In the event that we are unable to meet our debt obligations when they become due or if our creditors take legal action against us for repayment upon any default, we may have to liquidate our long-term assets to repay our creditors. This would materially and adversely affect our operations and prevent us from successfully implementing our business strategy. In addition, we may have difficulty converting our long-term assets into current assets in such a situation and may suffer losses from the sale of our long-term assets and may not be able to continue our business.

 

Volatile market and industry trends, in particular, unfavorable changes in supply or demand for solar power products throughout the value chain, and continued substantial downward pressure on the prices of our products will have a negative impact on our business and results of operations.

 

The sales volume and prices of our solar power products depend on a variety of factors, including supply and demand for solar power products in key solar markets. The solar industry has seen an increase in demand for solar power products due in part to the improvement of global economic conditions since 2009, when the global economic downturn materially reduced demand for solar power products. Despite a recovery in demand, the prices of solar power products have been volatile in recent years due to the unstable supply of solar power products. The solar industry is expected to continue to be highly competitive. Increased production efficiencies and improved technologies may further reduce costs of polysilicon and other silicon raw materials, which have already declined significantly over the past few years. Potential further expansion of manufacturing capacity in the future by our competitors, by us or by potential new entrants into the market, given the relatively low barriers to entry, may result in continued excess capacity in the industry. In addition, decreases in prices of other energies such as oil, electricity and wind power may also negatively affect the demand for solar power products, as well as projects.

 

If the markets for solar power products continue to suffer from oversupply resulting in reduced prices or if we are unable to lower our costs in line with the decline in prices, by, for example, increasing our manufacturing efficiency, securing polysilicon feedstock and consumables at lower costs, achieving technological advances and/or other means reasonably available to us, our business and results of operations would be materially and adversely affected.

 

Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers and disruptions in such markets and could materially and adversely affect our business, results of operations, financial conditions and prospects.

 

Trade actions initiated in the United States or other jurisdictions, including the European Union and India, and the resulting anti-dumping and countervailing duties imposed on solar imports in those jurisdictions have caused disruptions in the solar markets, resulted in additional costs to our customers and materially and adversely affected our business. Specifically:

 

5 

 

  

·In 2011, solar panel manufacturing companies in the United States filed anti-dumping and countervailing duty petitions with the U.S. government, which resulted in the institution of anti-dumping and countervailing duty investigations relating to imports into the United States of crystalline silicon photovoltaic, or CSPV, cells, whether or not assembled into modules, from China. In November 2012, the U.S. International Trade Commission, or the USITC, upheld higher anti-dumping and countervailing duty tariffs that had been imposed in October 2012 by the U.S. Department of Commerce, or the USDOC. As the preliminary results of the first administrative review process for the 2012 to 2013 review period were issued by USDOC in January 2015, the anti-dumping rate for approximately 20 Chinese exporters (including us) was 1.82%, significantly below the average net cash deposit rate initially projected. The countervailing duty rate applicable to us was 15.68%. In July 2015, the USDOC issued its final results for the administrative review process for the 2012 to 2013 review period, which set an anti-dumping duty rate applicable to us at 9.67% and countervailing duty rate applicable to us at 20.94%. In August 2015, the U.S. Court of International Trade sustained the USITC’s final determination. In December 2015, the U.S. Court of International Trade sustained the USDOC’s final determination. The rates at which duties will be assessed and payable for the first review period will be subject to the completion of the ongoing litigation at U.S. Court of International Trade. Decisions on these appeals are not expected until late 2016 or 2017;

A second and third administrative review, which will assess duties for our imports into the United States during December 1, 2013 through November 30, 2014 and December 1, 2014 through November 30, 2015, and which could be lower or higher than the deposit rates for these imports, have been initiated. The actual duty rates at which entries of covered merchandise will be finally assessed may differ from the announced deposit rates because they are subject to completion of ongoing administrative reviews of the anti-dumping and countervailing duty orders, expected to be in July 2016 and September 2016. The final determination on the deposit rates may affect our financial condition and results of operations;

 

·On December 31, 2013, SolarWorld Industries America, Inc., the U.S. subsidiary of SolarWorld AG, filed a new trade action at the USDOC and the USITC accusing Chinese producers of certain CSPV cells and modules of dumping their products into the United States and of receiving countervailable subsidies from the Chinese authorities. This trade action also accused Taiwanese producers of certain CSPV cells and modules of dumping their products into the United States. Excluded from these new actions were those Chinese-origin solar products covered by the 2012 rulings detailed above. We were identified as one of a number of Chinese producers exporting subject goods to the U.S. market. We also have affiliated U.S. operations that import goods subject to these new investigations. We were named as one of the mandatory respondents related to an anti-dumping investigation, so that we received an individual rate based on an investigation of our U.S. imports. We have fully cooperated and intend to continue to cooperate with the investigation proceedings and to pursue the best outcome. On December 16, 2014, the USDOC announced its affirmative final determinations in the anti-dumping duty investigations of imports of certain CSPV products from China and Taiwan, and the countervailing duty investigation of imports of certain CSPV products from China. The USDOC determined that imports of certain CSPV products were dumped in the United States from China and Taiwan and imports of certain CSPV products from China received countervailable subsidies. Following the USDOC’s determination, on January 21, 2015, the USITC announced its affirmative final determination that imports of certain CSPV products from mainland China and Taiwan materially injured the domestic industry. As a result of the USITC’s affirmative determinations, the USDOC issued countervailing duty orders on imports of these products from mainland China and anti-dumping duty orders on imports of these products from China and Taiwan. On February 18, 2015, the USDOC amended its final affirmative countervailing duty determination to correct an error regarding the inclusion of a subsidy program that was not properly reflected on the record of the investigation. Under the amended final determination of the USDOC, we received a final dumping cash deposit rate of 78.42% and a final countervailing cash deposit rate of 38.43% for our U.S. imports. The U.S. system imposes final duties retroactively, so that the actual duty rates at which our U.S. imports will be finally assessed may differ from the announced cash deposit rates based on the completion of administrative reviews which will be conducted related to these anti-dumping and countervailing duty orders. On April 7, 2016, the USDOC initiated its first administrative review, which will assess duties for our imports into the United States covering the period July 31, 2014 through January 31, 2016. The first administrative review is anticipated to conclude by around the first half of 2017. The final dumping and countervailing duties resulting from the first administrative review may negatively affect our financial condition and results of operations;

 

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·On June 4, 2013, the European Union imposed provisional anti-dumping duties on Chinese solar panels at the starting rate of 11.8% until August 6, 2013, and an increased rate of an average of 47.6% from that date. However, on July 27, 2013, the European Union trade commissioner announced his satisfaction with an offer of a price undertaking submitted by Chinese solar panel exporters, including us, under which, according to reports, Chinese solar panel exporters have agreed to limit their exports of solar panels to the European Union and for no less than a minimum price per watt, in exchange for the European Union’s agreement to forgo the imposition of anti-dumping duties on these imports of solar panels from China. The accord was approved by the European Commission on August 2, 2013. According to the accord, solar panels imported into the European Union from China after the annual quota is reached will be subject to anti-dumping duties. According to the reported official statements by the European Union trade commissioner, this accord also could be used to resolve the parallel anti-subsidy investigation, commenced by the European Union on November 8, 2012, prior to the imposition of provisional anti-subsidy measures. On August 7, 2013, the European Commission announced that it would not impose any provisional measures in its anti-subsidy investigation. On December 5, 2013, the European Council announced its final decision imposing definitive anti-dumping and anti-subsidy duties on imports of CSPV cells and modules originating from or consigned from China. An average duty of 47.7%, consisting of the anti-dumping and anti-subsidy duties, will be applied for a period of two years beginning on December 6, 2013 to Chinese solar panel exporters who cooperated with the European Commission’s investigations. On the same day, the European Commission announced its decision to confirm the acceptance of the price undertaking offered by Chinese export producers with the China Chamber of Commerce for Import and Export of Machinery and Electronic Product in connection with the anti-dumping proceeding and to extend the price undertaking to the anti-subsidy proceeding, which will exempt them from both anti-dumping and anti-subsidy duties;

 

Starting in 2014, the European Commission audited the top eight solar companies in terms of shipments with respect to their compliance with the price undertaking. In March 2015, the European Commission notified us of a potential compliance issue with the undertaking agreement, mainly due to the impracticality of monitoring our OEM producers and undertaking practice. In June 2015, the European Commission notified us that they had excluded us from the companies from which they had accepted the undertaking. As a result, we will have to pay the anti-dumping duty and countervailing duty when we export products that originated from China. However, our OEM products manufactured outside of China are not subject to anti-dumping duty or countervailing duty and can be transacted freely without any duties and any limitation of the undertaking agreement;

 

On December 5, 2015, the European Commission initiated expiry (sunset) reviews of the anti-dumping and countervailing measures on imports of CSPV modules and key components (i.e., cells) originating in or consigned from China. The result of the expiry reviews can only be either extending the measures at their existing level or terminating the measures, and the measures cannot be amended. Also on December 5, 2015, the European Commission initiated an interim (changed circumstances) review limited to the question whether cells should be excluded from the scope of the measures. The anti-dumping and countervailing measures on imports of CSPV modules and key components (i.e., cells) originating in or consigned from China will, in any event, remain in force for the duration of the reviews and may subsequently be extended for up to five years. The reviews must be terminated by March 4, 2017;

 

As the European Union is the largest market for solar power products, and China is the largest producer of solar panels, anti-dumping and/or countervailing duties imposed on imports of solar power products into the European Union from China will continue to affect the stability of the solar markets;

 

On March 15, 2015, the European Commission opened an investigation into how it should adapt the Minimum Import Price to take account of price changes in the market for PV modules. The review was closed on January 6, 2016 without changing the Minimum Import Price adaptation mechanism;

 

·In November 2012, India initiated an anti-dumping investigation on imported solar products from China, Taiwan, the United States, and Malaysia. The scope of the Indian complaint was thin-film and CSPV cells and modules, as well as “glass and other suitable substrates.” On May 22, 2014, India’s Ministry of Commerce and Industry, Department of Commerce released its final findings that certain exports from the United States, China, Taiwan and Malaysia have been dumped in the Indian market and recommended imposing additional duties ranging from $0.64 to $0.81 per watt of electricity produced on solar cell imports from these countries. However, in September 2014, India’s Ministry of Finance decided against imposing any such duties;

 

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·Import restrictive proceedings initiated in China and any anti-dumping or countervailing duties imposed by Chinese authorities on silicon imports could increase the costs of polysilicon and hence our cost of production. In 2012, some solar power product producers in China filed anti-dumping and countervailing actions with the PRC Ministry of Commerce. In July and November 2012, the PRC Ministry of Commerce initiated an investigation into the import of polycrystalline silicon from the United States, the European Union and South Korea. On July 18, 2013, the PRC Ministry of Commerce announced that it would impose temporary security deposits on imports of solar-grade polysilicon at rates as high as 57% for U.S. suppliers and 48.7% for South Korean suppliers. On January 20, 2014, the PRC Ministry of Commerce announced the final action that it would impose a countervailing duty at the rate of 2.1% and an anti-dumping duty at rates ranging from 53.3% to 57% on imports of solar-grade polysilicon from U.S. suppliers and an anti-dumping duty at rates ranging from 2.4% to 48.7% on imports from South Korean suppliers in the next five years. On April 30, 2014, the PRC Ministry of Commerce announced the final action that it would impose a countervailing duty at the rate of 1.2% on imports of solar-grade polysilicon and an anti-dumping duty at rates ranging from 14.3% to 42% on imports of solar-grade polysilicon from European Union suppliers in the next two years. On August 14, 2014, the PRC Ministry of Commerce and the General Administration of Customs of the PRC announced that they will cease to accept applications for import business of solar-grade polycrystalline silicon starting from September 1, 2014. Importation of the above-mentioned silicon pursuant to import business contracts which were approved by the PRC Ministry of Commerce before September 1, 2014 is permitted to continue until the termination date of the respective contracts. Although we do not import any polysilicon from the United States, approximately 36.4% of our total polysilicon supply in 2015 was purchased from a South Korean supplier, which is subject to a 2.4% temporary security deposit imposed by China, and only approximately 2.1% of our total polysilicon supply in 2015 was purchased from a Germany supplier , which is not subject to temporary security deposit imposed by China, we cannot assure you that we will not be subject to any such deposit requirements in the future;

 

·On May 14, 2014, the Australian Anti-Dumping Commission initiated an investigation into the alleged dumping of certain CSPV modules or panels exported to Australia from China. We were named as one of the mandatory respondents related to such anti-dumping investigation. We fully cooperated with the investigation proceedings. In December 2014, the Australian Anti-Dumping Commission published the Investigation Verification Report which indicated that the assessed dumping margin for ReneSola Australia is -0.3%. On April 7, 2015, the Australian Anti-Dumping Commission found that the alleged dumping had only caused a negligible injury to the Australian industry, according to a “Statement of the Essential Facts.” On this basis, the Commission later terminated the investigation on October 6, 2015. However, following an application for review by Tindo Manufacturing Pty Ltd, the sole manufacturer in Australia of certain crystalline silicon PV modules or panels, with the Anti-Dumping Review Panel on November 5, 2015, the decision to terminate the investigation was revoked by the Australian Anti-Dumping Review Panel on January 8, 2016, and the investigation resumes. As a result, although we only generated 3.6%, 3.7% and 2.1% of our total revenue from Australia in 2013, 2014 and 2015, respectively, we cannot guarantee you that the final determination, if decided against us, will not materially and adversely affect our cash flows and operating results; and

 

·On December 5, 2014, the Canada Border Services Agency, or CBSA, initiated investigations on the alleged injurious dumping and subsidies of certain photovoltaic modules and laminates originating in or exported from China.  On June 3, 2015, the president of the CBSA made final determinations of dumping and subsidies with respect to the above products from China. The final margin of dumping for our multicrystalline modules with an export price of no less than RMB5.08 per watt and for our monocrystalline modules with an export price of no less than RMB6.31 per watt is 9.3%, and the subsidies rate for our module products is RMB0.003 per watt. On June 3, 2015, the CBSA released final determinations of dumping and subsidies which found dumping calculated by way of a ministerial specification based on a nonmarket economy finding applicable to all cooperative exporters and ascertained a Canadian solar-specific subsidies rate of RMB0.014 per watt. On July 3, 2015, the Canadian International Trade Tribunal determined that the Canadian industry was not negatively affected as a result of imported modules but was threatened with negative impact. As a result of these findings, definitive duties have been imposed on imports of Chinese solar modules into Canada starting on July 3, 2015. We have ceased exporting modules to Canada since the effectiveness of such definitive duties.

 

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If we are unable to effectively manage these risks related to international sales, our ability to expand our business abroad will be materially and severely impaired and our cost of raw materials could increase. Other trade barriers in these and other markets, such as export requirements, taxes and other restrictions and expenses, may also be erected which could make our exports less competitive in some countries.

 

Our polysilicon manufacturing facilities may not achieve our planned utilization rate or operational efficiency, which may negatively affect our profit margin. Any issues with our polysilicon manufacturing facilities as a result of operating hazards and natural disasters may limit our ability to manufacture such products.

 

In 2012, we completed the construction of a polysilicon manufacturing facility in Meishan, Sichuan Province, through our wholly owned subsidiary, Sichuan ReneSola Silicon Material Co., Ltd., or Sichuan ReneSola, which was established in Sichuan Province in August 2007. We ramped up our polysilicon manufacturing facility in two phases. Phase I of our polysilicon facility had been in full operation since the beginning of 2011 and Phase II of the facility was completed in June 2013. Prior to our operation of the polysilicon manufacturing facility in Sichuan Province, we did not have any experience operating polysilicon production facilities. Manufacturing polysilicon is a highly complex chemical process and we may not be able to produce polysilicon of sufficient quantity and quality or at a cost comparable to or lower than those of other polysilicon manufacturers or on schedule to meet our wafer manufacturing requirements. Minor deviations in the manufacturing process can cause substantial decreases in yield and in some cases cause production to be suspended or to yield no output. In addition, our production cost was higher than previously expected due to continuous trial runs, system testing, purchases of trichlorosilane, or TCS, and minimal activated hydrogenation processes. At the end of September 2013, we concluded that our efforts to sufficiently reduce the cost of polysilicon production as compared to the prevailing market price were not successful. After conducting a further internal assessment, we determined that it was no longer feasible to operate our Phase I facility without incurring a loss and to recognize an impairment charge in our wafer segment accordingly. Production at the Phase I facility was permanently discontinued in October 2013. Our remaining Phase II polysilicon facility currently has an annual manufacturing capacity of 6,000 metric tons and was running in full capacity and helped to contribute positively to our cash flows in 2015.

 

If our remaining polysilicon production facility experiences any additional delays or defect in operations, we may suffer a setback to our raw material procurement strategy. We may also fail to manufacture polysilicon of sufficient quantity, quality or at competitive costs compared to the polysilicon available from the market, thereby making our polysilicon manufacturing facility uneconomical to run, which would negatively impact our profit margin and financial results. If the price of polysilicon and other raw materials rise and we are required to make purchases at higher than anticipated market rates, our profit margin may be further negatively impacted. If our polysilicon production facility does not perform as planned we may be unable to recover our investments or be forced to write down the value of the assets.

 

Because our polysilicon manufacturing capabilities are concentrated in our manufacturing facilities in Sichuan Province, any problem in our facilities may limit our ability to manufacture such products. We may encounter problems in our manufacturing facilities as a result of, among other things, production failures, construction delays, human error, equipment malfunction or process contamination, which could seriously harm our operations. We may also experience fires, floods, droughts, power losses and similar events beyond our control that would affect our facilities. Operating hazards and natural disasters, such as earthquakes may also cause interruption to our operations, property and/or environmental damage as well as personal injuries, and any of these incidents may have a material adverse impact on our results of operations. On April 20, 2013, a strong earthquake hit part of Sichuan Province, resulting in significant casualties and property damage. Also, in July 2013, flooding in Sichuan Province caused a delay in our polysilicon production. While we did not suffer any significant loss or experience any significant disruption due to the earthquake or the flooding mentioned above, if a similar disaster were to occur in the future that affects any place where we have major operations, our operations could be disrupted and affected by loss of personnel and damage to property. Although we carry business interruption insurance, losses incurred or payments required to be made by us due to operating hazards or natural disasters that are not fully insured may have a material adverse effect on our financial condition and results of operations.

 

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Our long-lived assets may be subject to impairment.

 

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or that the useful life of the asset is shorter than originally estimated. We recognize an impairment loss in the event the carrying amount exceeds the estimated future undiscounted cash flows attributable to such assets. The impairment charge recognized is based on the amount by which the carrying amount asset exceeds its fair value. At the end of September 2013, we concluded that our efforts to sufficiently reduce the cost of polysilicon production as compared to the prevailing market price were not successful. After conducting a further internal assessment we determined that it was no longer feasible to operate our Phase I facility without incurring a loss and to recognize the impairment charge in our wafer segment accordingly. Production at the Phase I facility was permanently discontinued in October 2013. Although we have not recorded any asset impairment since 2014, if we are forced to write down the value of our long-lived assets again in the future, these non-cash asset impairments could materially and negatively affect our results of operations in the period in which they are recorded.

 

We require a substantial amount of cash to fund our operations. If we fail to obtain additional capital when we require it, our prospects and future profitability may be materially and adversely affected.

 

We require a significant amount of cash to fund our operations. We require capital to fund any expansion of our manufacturing capacities and our research and development activities in order to remain competitive in the solar industry. Future expansions, changes in market conditions or other developments will also cause us to require additional funds. Due to prevailing market conditions and industry practice, we have been providing longer credit terms to a number of customers (as it has become customary in the industry to do so), which has had a negative effect on our cash flows. Such customers who have high credit worthiness may be granted longer credit terms; however, we do not amend contracts once delivery is deemed to have occurred. Moreover, as of December 31, 2015, our current liabilities exceeded our current assets by $466.1 million. While we had cash and cash equivalents of $38.0 million as of December 31, 2015 and operating cash flow of $2.2 million for the year ended December 31, 2015, we had short-term bank borrowings of $667.7 million as of December 31, 2015, all due within one year, and the current portion of our long-term bank borrowings amounted to $1.1 million as of December 31, 2015, which is not expected to be renewed.

 

As of December 31, 2015, several factors have raised substantial doubts about our ability to continue as a going concern for the foreseeable future, including: (i) we incurred a net loss of $5.1 million for the year ended December 31, 2015, (ii) as of December 31, 2015, our current liabilities exceeded our current assets by $466.1 million, and (iii) there was a put option held by the convertible bond holders, whereby on March 15, 2016 they could require us to repurchase for cash all or any portion of their notes at a price equal to 100% of the principle amount plus any accrued and unpaid interest. As of December 31, 2015, the convertible notes payable balance was $26.1 million. We subsequently repurchased all of the outstanding convertible notes in the first quarter of 2016. These factors could adversely affect our ability to meet our ongoing financing needs as well as to obtain third party financing, which is subject to a number of uncertainties, including our future financial condition, operations and reputation, general market conditions in our industry and economic, political and other conditions in China and elsewhere. For example, weakening global economic conditions and macroeconomic factors in the PRC, such as credit tightening policies implemented by the Chinese government, may negatively impact our ability to obtain financing in a timely manner or on commercially acceptable terms.

 

We may not be able to refinance our borrowings as they mature. In the event that we are unable to obtain extensions of these borrowings or sufficient alternative financing at reasonable terms to make repayments, as we do not expect to be able to generate sufficient cash from operating activities in 2016 to repay all of these borrowings, we may not be able to repay such borrowings in full or at all when due. If we were to default on the repayment of these borrowings, we would not be able to continue our operations as a going concern. Moreover, future turbulence in global economic conditions and the potential impact on the liquidity of financial institutions may have an adverse effect on our ability to fund our operations and future expansion through borrowings or our ability to borrow on terms that we believe to be reasonable, or at all. Our operations, results of operations and growth prospects may be materially and adversely affected if the global economic conditions worsen or do not improve.

 

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We face uncertainties in connection with the implementation of our business strategy to transform our business focus from wafer and module manufacturing to global energy efficient products and services and downstream solar power projects.

 

At the end of 2012, we started to implement our business strategy to transform the focus of our business from solar wafer manufacturing to module manufacturing. The shift in our business focus was completed in 2013. In connection with this business transformation, we have implemented a number of strategic initiatives, including increasing our module sales and marketing staff and expanding our in-house module manufacturing capacity from 500 MW to 1.2 gigawatt, or GW, which we believe to have been executed with highly efficient equipment and advanced technologies. Starting from early 2014, we began to expand our operations into the broader energy efficient products and services business and into downstream solar power projects. However, we cannot assure you that we will be able to continue to implement our business strategy and initiatives effectively and efficiently or that our transformation will result in improved production, sales or operating results or generate shareholder value in the long term. Moreover, as we shift our emphasis from solar product manufacturing to solar product-related and other energy-efficient product-related services we also have to compete with existing players in the services sectors including distribution and logistics companies, many of whom are established players with greater resources, longer relationships with customers, greater brand recognition and larger scales of production. Our ability to transform to and expand into the services business is also subject to significant risks and uncertainties, including without limitation, having potentially greater operating costs, excess inventory and having lower shipments due to a greater focus on smaller projects and smaller customers.

 

Our solar power project initiatives require significant initial investments. These downstream expansion plans may include investments in project companies and joint ventures and forming strategic alliances with third parties. There is a risk that we may not be able to obtain the necessary funding to fully invest in these solar power projects, or that investments in these projects will significantly impact our working capital as a result of a slowdown in reinvestment of cash relative to our traditional wafer and module business. Additionally, our experience in the solar power products manufacturing industry may not be as relevant or applicable in downstream markets. If our transformation strategy and initiatives do not achieve their intended results, or if we do not compete successfully against existing players in the services and downstream solar markets, our business, operations and financial results may be materially and adversely impacted. Furthermore, we may not be able to manage entities which we invest in or provide adequate resources to such entities to maximize the return on our investments. We may not be able to secure the government approvals or licenses required for construction and operation of solar power projects in a timely manner, or at all. In the case of potential joint ventures and strategic alliances with third parties, we may face risks associated with the sharing of proprietary information, loss of control of operations that are material to our business and profit sharing arrangements. We may also consider acquisitions of existing downstream players, in which we may face difficulties related to the integration of the operations and personnel of acquired businesses and the division of resources between our existing and acquired operations.

 

We cannot assure you that we will be successful in expanding our business into the solar power projects markets along the solar power product value chain. Any failure to successfully identify, execute and integrate our acquisitions, investments, joint ventures and alliances as part of entering into the solar power projects markets may have a material adverse impact on our growth, business prospects and results of operations, which could lead to a decline in the price of our ADSs.

 

Our ability to expand the pipeline of our solar power project business exposes us to a number of risks and uncertainties.

 

As a greater proportion of our net revenue may be derived from our solar power project business, we will be increasingly exposed to the risks associated with solar power projects. Further, our future success largely depends on our ability to expand our solar power project pipeline. The risks and uncertainties associated with our solar power project business and our ability to expand our solar power project pipeline include:

 

·the need to raise funds to develop greenfield or purchase late-stage solar power projects, which we may be unable to obtain on commercially reasonable terms or at all;

 

·the uncertainty of being able to sell the projects or secure purchasers in a timely manner, in which case we may need to operate such projects for an extended period of time;

 

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·the uncertainty of being able to receive full payment for the sold projects upon completion or receive payment in a timely manner;

 

·failure to cause the joint venture to operate in a way satisfactory to us or any dispute with our joint venture partners if we adopt a joint venture structure to develop projects or enter into new geographic markets;

 

·delays and cost overruns as a result of a number of factors, many of which are beyond our control, including delays in regulatory approvals, construction, grid-connection and customer acceptance testing;

 

·delays or denial of required approvals, permits or licenses by relevant government authorities in connection with the construction, grid-connection and operation of solar power projects;

 

·failure to negotiate favorable payment terms with components and services suppliers;

 

·unforeseeable engineering problems, construction or other unexpected delays and contractor performance shortfalls;

 

·labor, components and materials supply delays, shortages or disruptions, or work stoppages;

 

·failure to execute power purchase agreements or other arrangements that are commercially acceptable to us;

 

·diversion of significant management attention and other resources; and

 

·failure to execute our project pipeline expansion plan effectively.

 

If we are unable to successfully expand our solar power project business, and in particular, our solar power project pipeline, we may be unable to expand our business, maintain our competitive position, improve our profitability, and generate the cash flows we have currently forecasted.

 

Failure to increase our manufacturing capacity or output and expand our module sales business as planned may materially and adversely affect our overall business and competitiveness. Volatility in and large decrease of prices of solar power products may cause significant fluctuations or declines in our revenue.

 

Most of our wafer sales, particularly sales to our major customers, are made under purchase orders based on the spot market rates. While we are subject to certain long-term sales contracts, the pricing terms and volumes under such contracts can be subject to renegotiations in situations where there is substantial market volatility. We also have short-term sales contracts and long-term framework contracts that provide for variable pricing and volume terms with our customers. Therefore, volatility or significant decreases in the prices of solar power products have subjected us, and may subject us, to major fluctuations or declines in our revenue under our renegotiated long-term contracts, short-terms sales contracts and long-term framework contracts.

 

Volatility in polysilicon prices and changes in supply and demand for solar power products may give rise to disputes between us and our suppliers or customers, which may have a material adverse effect on our business and results of operations.

 

Polysilicon is an essential raw material in the production of our solar power products. We currently produce 6,000 metric tons of polysilicon internally, but it is not sufficient to meet our total demand. In 2015, the market price of polysilicon declined from $21 per kilogram to $14 per kilogram. If prices rise in the future, we will incur higher costs relating to the external purchase of polysilicon, which may adversely affect our overall profitability. On the contrary, if the actual prices of polysilicon and our finished products are less favorable than our forecast, we may be exposed to inventory write-downs on a net realizable value basis, which may have an adverse effect on our results of operations. In addition, we have entered into long-term polysilicon purchase agreements with international suppliers. In the past, the long-term polysilicon purchase agreements we entered into with international suppliers did not provide for price adjustments in the event of fluctuations in the market price of polysilicon. In 2012, we renegotiated with these suppliers for each purchase order during the year ended December 31, 2012 and successfully changed the terms to be close to the market price. If we are unable to make similar arrangements in the future, we may incur higher raw material costs than market prices or our competitors who are not bound by long-term supply contracts for fixed prices, which in turn could have a material adverse effect on our competitiveness, results of operations and financial condition. Furthermore, in light of the volatility of polysilicon prices and changes in supply and demand for solar power products, our suppliers and customers may become involved in negotiations or disputes with us regarding terms and conditions of the agreements or arrangements with them, including the quantity and price of the products to be delivered under existing agreements or arrangements. Any negotiation or litigation arising out of these disputes could distract management from the day-to-day operation of our business, subject us to potentially significant legal expenses, result in the forfeiture of our deposits under long-term polysilicon contracts and interrupt the sourcing of our polysilicon or the sales of our solar power products, which could materially and adversely affect our business and results of operations.

 

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Volatility in the prices of, and any failure to secure the supply of, other raw materials may have a material adverse effect on our business and results of operations.

 

In addition to polysilicon, we also depend on the supply of other raw materials such as steel and slurry for our production activities. Given our focus on cost reductions in a market where our products are subject to industry-wide downward pricing pressure, we may be outbid by purchasers in other industries or other players in the same industry for such raw materials. If we are unable to secure the supply of such raw materials at reasonable costs, we may experience interruptions to our production or otherwise incur significant costs that could have a material adverse effect on our business and results of operations.

 

Moreover, we are subject to fluctuations in the prices of other raw materials. If we are unable to manage such risks, we may incur substantial costs when the prices of such raw materials increase significantly or experience write-downs in our inventory when their prices decline, which in turn could have a material adverse effect on our business, financial condition and results of operations.

 

We may be exposed to intellectual property infringement or misappropriation claims by third parties which, if determined adversely to us, could cause us to pay significant damage awards.

 

Our success depends largely on our ability to use and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity and scope of claims relating to solar power technology patents involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. We may be subject to litigation involving claims of patent infringement or violation of intellectual property rights of third parties. For example, equipment we design may infringe the intellectual property rights of third parties. The defense and assertion of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be both costly and time-consuming and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any such litigation or proceedings against us could subject us to significant liabilities to third parties, including requiring us to seek licenses from third parties, to pay ongoing royalties or to pay monetary and punitive damages or subjecting us to injunctions that prohibit the manufacture and sale of our products or the use of our equipment. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation, which could result in losses and adversely affect our results of operations and reputation.

 

If our internal control system fails to detect, prevent or remedy risks in our business as intended or if there is any misconduct by our employees in violation of our policies or applicable laws and regulations, our business, financial condition and results of operations could be materially and adversely affected, and our reputation could be severely damaged.

 

We maintain an internal control system consisting of components such as an internal control department, a whistleblower hotline and other channels for internal reporting, and policies and procedures that are designed to monitor and control potential risk areas relevant to our business operations. However, due to the inherent limitations in the design and implementation of any internal control system, we cannot assure you that our internal control system will be able to identify, prevent and remedy all risks arising from our business activities as intended or otherwise effectively be implemented, monitored or managed by us. Moreover, we cannot guarantee all of our employees will act in compliance with our employee policies and be applicable laws and regulations. Any misconduct or violation by our employees could adversely affect our business and reputation or lead to regulatory sanctions being imposed against us or causing us to incur litigation costs.

 

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In addition, as we continue to transform the focus of our business from solar wafer manufacturing to both solar wafer and module manufacturing, and to further expand our product lines and breadth of operations globally, our business operations will become more complex. Starting from early 2014, we began to expand our operations into the broader energy efficient products and services business and into downstream solar power projects. Although we will continue to reassess and seek ways to improve upon our internal control system as necessary, the transformation and expansion of our business operations may give rise to additional internal control risks that are currently unknown to us, despite any efforts to anticipate such risks.

 

If our internal control system fails to detect risks in our business as intended or to be effectively implemented, monitored and managed, or if we fail to adopt new internal control procedures commensurate with our expanding business operations, or if our employees fail to comply with our policies and applicable laws and regulations, our business, financial condition and results of operations could be materially and adversely affected, and our reputation could be severely damaged.

 

Cyber security risks and breaches could adversely affect our business and disrupt our operations.

 

We are subject to cyber security risks and may incur costs to minimize those risks. Cyber security breaches, such as unauthorized access, accidents, employee error or malfeasance, computer viruses, computer hackings or other disruptions, could compromise the security of our data and infrastructure, thereby exposing such information to unauthorized access by third parties. Techniques used to obtain unauthorized access to, or to sabotage systems, change frequently and generally are not recognized until launched against a target. We may be required to expend significant capital and other resources to remedy, protect against or alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. Any security breaches that occur could disrupt our operations, increase our security costs, or expose us to potential losses due to data corruption or information leakage, which could have a material adverse effect on our business.

 

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

 

Our solar wafers sold to customers are subsequently made into modules and assembled in solar power systems, which are either connected to the utility grid and generate electricity to feed into the grid or installed to supply electricity to businesses and residents. We also sell solar modules directly to customers. We believe that the near-term growth of the market for on-grid applications continues to depend on the availability and size of government subsidies and economic incentives. If the reduction or elimination of government subsidies and economic incentives are not implemented prudently, such reduction or elimination may adversely affect the growth of this market or result in increased price competition, either of which could cause our revenues to decline.

 

When upfront system costs are factored into the cost of electricity generation, the cost of solar power substantially exceeds the cost of power generated from conventional means in many markets. As a result, national and local governmental bodies in many countries, most notably in Germany, China, Spain, Italy, the United States, Japan, Australia, Bulgaria and Romania, have provided subsidies and economic incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar power and to reduce dependence on other forms of energy.

 

However, as the solar power industry continues to develop, these government subsidies and economic incentives have been reduced and could continue to be reduced or be eliminated altogether. For example, in 2011, a decrease in payment to solar power producers, in the form of feed-in tariffs and other reimbursements and a reduction in available financing caused a decrease in the growth in a number of solar power projects in the European markets. Certain reductions in feed-in-tariff programs have continued in 2012 and 2013 across Europe, including Germany, Italy, Spain, Romania and the Czech Republic. The feed-in-tariff reduction continued in 2014 in Germany. In China, the State Council issued the Several Opinions of the State Council on Promoting the Healthy Development of the Photovoltaic Industry on July 4, 2014, which requires relevant authorities to reasonably adjust and reduce the feed-in tariff for on-grid PV projects. The execution period of feed-in tariffs for PV projects is set at 20 years in principle. According to the Notice re Leveraging the Price to Promote the Healthy Development of the Photovoltaic Industry issued by the Department of Price of the PRC National Development and Reform Commission, or the NDRC, on August 26, 2013, since September 1, 2013, the feed-in-tariff in China has been reduced to a range of RMB0.90 per kilowatt hour, or kwh, to RMB1.00/kwh depending on the project location, from RMB1.15/kwh for projects approved prior to July 1, 2011 or from RMB1.00/kwh for projects approved after July 1, 2011. On December 22, 2015, the NDRC issued the Notice on Improving the Feed-in Tariff Policies for Onshore Wind Power/Photovoltaic Power Generation, which provides the benchmarking feed-in tariff of photovoltaic power generation for the year of 2016. NDRC continued to adopt the measures that divided the country into three solar resources districts, of which the feed-in tariffs are RMB0.80/kwh, RMB0.88/kwh and RMB0.98/kwh. See “Item 4. Information on the Company—B. Business Overview—Regulation—Renewable Energy Law and Other Government Directives.” Although 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, the reduction or elimination of government subsidies and economic incentives for on-grid solar power applications could result in decreased demand for our products and cause our revenues to decline. Although, under the most recently proposed five-year plan, we expect China to become one of the largest markets for solar power products in 2015 and beyond, and although we have seen substantial growth in markets such as the United States, Japan, and Australia, Europe continues to be an important market. As European governments continue to decrease their subsidies, Chinese solar power products may continue to experience excess capacity, which could impact the demand and pricing of our solar power products, which could materially and adversely impact our revenues and profitability.

 

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Turbulence in global financial markets and economies may adversely affect the solar industry, the demand for solar power products, and our operating results, financial condition and liquidity.

 

Demand for solar power products is influenced by macroeconomic factors such as global economic conditions, the supply and the prices of other energy products, such as oil, coal and natural gas, as well as government regulations and policies concerning the electric utility industry. A decrease in prices of fossil fuels, for example, could reduce demand for alternative forms of energy, such as solar power. We are affected by the solar market and industry trends. In 2011, payments to solar power producers decreased as governments in Europe, under pressure to reduce sovereign debt levels, reduced subsidies such as feed-in tariffs, which tariffs require public utility companies to pay higher prices for solar power than for power generated through conventional means. In 2012, continued instability in the European financial markets coupled with continued oversupply in the solar market contributed to difficult market conditions for solar power producers. In 2013, the solar sector recovered as solar product manufacturers adopted a more rational approach, a series of industry restructuring and integration took place and market demand increased. The solar sector continued to stabilize with increased global demand in 2014 and 2015 so that some solar manufactures restarted their plans to expand their capacity. However these market conditions may not last in the long-run if potentially increased manufacturing capacity and insufficient rationalization of capacity drive the market into continued oversupply, which may adversely affect the prices of solar power products.

 

There may still be substantial uncertainties in the global credit and lending environment. If the demand for solar power products deteriorates due to these macroeconomic factors or solar market and industry trends, our liquidity and financial condition, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs, and the liquidity and financial condition of our customers may be adversely affected. This would delay and lengthen our cash collection cycles and negatively impact our operating results. Additionally, our share price may decrease if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a global economic downturn.

 

We operate in a highly competitive market and many of our competitors have greater resources than we do, we may not be able to compete successfully and we may lose or be unable to gain market share.

 

The solar market is increasingly competitive and continually evolving, which may result in price reductions, reduced profit margins or loss of market share by us. Our competitors include integrated solar power product manufacturers, specialized solar wafer manufacturers, solar wafer manufacturing divisions of large conglomerates, specialized cell and module manufacturers, polysilicon suppliers with ingot and wafer manufacturing capacities, integrated module manufacturers, end-market system integrators and solar project developers. Many of our competitors have longer operating histories, stronger market positions, larger manufacturing capabilities, greater resources, better brand name recognition and better access to favorably priced silicon raw materials than we do. Some of our competitors have an established track record in large-scale polysilicon manufacturing and they may have an advantage over us in polysilicon feedstock costs. Many of our competitors also have more established distribution networks and larger customer bases. 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. The key barriers to enter into our industry at present consist of access to capital resources, advanced manufacturing technologies, a competitive cost structure and skilled personnel. If these barriers disappear or become more easily surmountable, new competitors may successfully enter our industry. If we fail to compete successfully, our business would suffer and we may lose or be unable to gain market share.

 

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One of the competitive factors in solar power industry is conversion efficiency. Conversion efficiency of solar power products is not only determined by the quality of solar wafers but is also dependent on the solar cell and module manufacturing processes and technologies. Therefore, solar wafer manufacturers usually assume the conversion efficiency of their solar wafers based on the conversion efficiency of solar cells and modules manufactured by their customers. There is a lack of publicly available information on the conversion efficiency of solar wafers and accordingly, investors may not be able to obtain a comprehensive view of our competitive position vis-à-vis our competitors.

 

Our future success substantially depends on our ability to closely monitor and accurately predict market demand and to efficiently manage our manufacturing capacity to either meet increased demand or avoid under-utilization of our production facilities due to lower-than-expected demand. This exposes us to a number of risks and uncertainties.

 

We intend to reach a balance between closely matching our manufacturing capacity and production output to market demand for our products. If we are unable to do so, the low utilization rate of production facilities may result in high production cost, which would adversely affect our profitability. Our failure to accurately predict market demand may also result in our lack of manufacturing capacity required to meet increased demand. Our ability to achieve a balance between the increase in manufacturing capacity and the changes in market demand is subject to significant risks and uncertainties, including:

 

·the ability to quickly adjust our manufacturing capacity and output while the industry is rapidly evolving;

 

·the ability to maintain existing customer relationships, attract new customers and expand our market share;

 

·the ability to implement new and upgraded operational and financial systems, procedures and controls to adapt to the strains associated with fast growth and expansion or rapid decrease in demand;

 

·the ability to favorably renegotiate our equipment supply contracts previously entered into for our wafer manufacturing in accordance with changes in our expansion plan;

 

·the ability to maintain a financially healthy level of liquidity, and to manage our liquidity if we are unable to obtain additional funds and/or refinance existing debt on commercially viable terms or at all;

 

·the occurrence of construction delays and cost overruns;

 

·any occurrence of industrial disturbances, which are more likely to arise when we suffer overcapacity and our workers are not fully employed, or when our suppliers are not paid in a timely fashion;

 

·the ability to install and test new production equipment on a timely basis;

 

·the delay or denial of required approvals by relevant government authorities; and

 

·any significant diversion of management attention.

 

If we are unable to successfully manage our manufacturing capacity to respond to market demand, or if we fail to resolve any of the risks and uncertainties described above, we may be unable to expand our business as planned. Therefore, we cannot assure you that we can meet our targeted production costs and consequently stay competitive. Moreover, even if we are able to manage our growth, we may be unable to secure sufficient customer orders, which could adversely affect our business and operations.

 

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If we are dependent on a limited number of customers, we may experience significant fluctuations or declines in our revenues.

 

In the past, we sold a substantial portion of our solar wafers to a limited number of customers. Since the end of 2011, we have increasingly focused our efforts on solar module development and production and have become a module manufacturer and reduced our dependence on a limited number of solar wafer customers. In 2015, our top five wafer customers accounted for approximately 49.5% of our wafer sales and 7.6% of our net revenues and our largest wafer customer accounted for approximately 17.1% of our wafer sales and 2.6% of our net revenues. Our top five module customers accounted for approximately 31.6% of our module sales and 22.7% of our net revenues and our largest module customer accounted for approximately 15.8% of our module sales and 11.3% of our net revenues. We also expanded into downstream solar power projects in early 2014, which further diversified our business offering.

 

However, if we fail to further diversify our customer base, including by adding certain new international customers, any one of the following events may cause material fluctuations or declines in our revenues:

 

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

 

·unilateral change of contractual technological specifications by one or more of our customers;

 

·failure to reach an agreement with our customers on the pricing terms or sales volumes under various contracts;

 

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

 

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

 

We are exposed to credit risks of our customers.

 

In our module sales business, we derive revenues from credit sales, generally with payment schedules due according to negotiated contracts, which have longer credit periods and more flexible terms when compared to our wafer contracts. As a result of the disruptions in the financial markets and other macroeconomic challenges which have affected the global economy, our customers may experience difficulties in making timely payment to us. Any inability of our customers to pay us timely, or at all, may materially and adversely affect our cash flows and operating results.

 

We incurred and may incur in the future impairment losses on our investments in equity securities.

 

Since October 2009, we have held a minority equity interest in a polysilicon manufacturer or the investee whose shares were traded on the Toronto Stock Exchange, or the TSX. If the fair value of these shares declines below their cost basis and we determine that the decline is permanent, we are required to record an impairment loss for the applicable period. In 2009, due to the rapid decline of the investee’s share price as a result of the difficult operating environment for its core business, such as the rapid decline of polysilicon prices, we recorded impairment losses of $13.4 million. We recorded further impairment losses of $6.2 million in 2011 due to the same reason. The investee filed for bankruptcy protection under the Companies’ Creditors Arrangement Act of Canada, or CCAA, in January 2012. As a result of the commencement of proceedings under the CCAA, in February 2012, the TSX determined to delist the investee’s shares due to its failure to meet the continued listing requirements of the TSX. As a result, the investment was fully written off in 2011. We may make investments in the future and as a result incur additional expenses as a result of impairment of such investments if their values decline. Any losses incurred could have a material adverse effect on our financial condition and results of operations.

 

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We may not be able to use certain deferred tax assets, which could have a negative impact on our net income.

 

We recorded approximately $16.2 million as deferred tax assets on our consolidated financial statements as of December 31, 2015. Our ability to use net operating losses to offset earnings is dependent on a number of factors, including our ability to generate taxable income in future years. Should future results of operations or other factors cause us to determine that it is not likely that we will generate sufficient taxable income to fully utilize our deferred tax assets, we would then be required to establish a valuation allowance against such deferred tax assets. We would increase our income tax expense by the amount of the tax benefit we do not expect to realize. This would negatively impact our net income and could have a material adverse effect on our results of operations and our financial position.

 

If we are unable to effectively manage risks related to international sales, our ability to expand our business abroad would be materially and severely impaired.

 

In 2015, approximately 76.6% of our net revenues were generated from customers outside of China, Taiwan and Hong Kong. We expanded our international sales efforts in the last several years by focusing on sales to international solar companies with global distribution capabilities. As we continue to expand our business internationally, we plan to increase sales of our solar-related and other energy efficient products and projects. The marketing, distribution and sales of our solar power and energy efficient products in international markets expose us to a number of risks, including:

 

·fluctuations in currency exchange rates, such as exchange rate volatility between the Euro and the U.S. dollar and the continuing trend of appreciation of the Renminbi against the U.S. dollar;

 

·increased costs associated with maintaining marketing efforts in various countries;

 

·difficulty and costs relating to compliance with the different commercial, environmental and legal requirements of the overseas markets in which we offer our products;

 

·difficulty in engaging and retaining sales personnel who are knowledgeable about, and can function effectively in, overseas markets;

 

·trade actions initiated in the United States or other jurisdictions, including the European Union and India, and the resulting anti-dumping and countervailing duties imposed on solar imports in those jurisdictions. See also “—Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers and disruptions in such markets and could materially and adversely affect our business, results of operations, financial conditions and prospectus”;

 

·import restrictive proceedings initiated in China and any anti-dumping or countervailing duties imposed by Chinese authorities on silicon imports, which could increase the costs of polysilicon and hence our cost of production. See also “—Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers and disruptions in such markets and could materially and adversely affect our business, results of operations, financial conditions and prospectus”;

 

·trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries;

 

·failure to comply with international sanction laws, including the rules and regulations promulgated by the office of Foreign Assets Control of the U.S. Department of the Treasury; and

 

·failure to control the increase of our operating expenses without a commensurate increase in our revenues as we hire additional sales and marketing personnel in connection with the expansion of our module sales business.

 

If we are unable to effectively manage these risks related to international sales, our ability to expand our business abroad will be materially and severely impaired.

 

Our module operations and expansion into downstream solar power projects may cause us to compete with our current customers.

 

As of December 31, 2015, through our subsidiary ReneSola Jiangsu Ltd., formerly known as Wuxi Jiacheng Solar Energy Technology Co., Ltd., or ReneSola Jiangsu, we had an annual module manufacturing capacity of 1.2 GW. Our module sales business has caused us to compete directly with some of our wafer customers, particularly as we increased the sales of our own branded modules in the market. As a result, our relationships with some of our customers have been affected. In addition, as we implement our business strategy to expand our downstream solar power projects, the competition between us and other solar power projects players in the market is likely to intensify. If our customers stop purchasing wafers, modules or any upstream products from us altogether due to our competition with them or other reasons, our business and results of operations will be materially and adversely affected.

 

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We may not be able to successfully outsource production of certain of our solar power products.

 

In the past, our module shipping requirements exceeded our production capacity from time to time, and we outsourced some of our production needs to meet our target amount, including under arrangements where related and third parties manufactured modules for us under supervision. We currently expect that our module production capacity will be sufficient to meet our shipping requirements. If our shipping requirements exceed our production capacity again in the future, we may not be able to successfully outsource the production of solar modules at the cost, terms and quality satisfactory to us. We may incur additional costs to cure any defects or any delay in shipments and be exposed to additional risks in connection with outsourcing. We may also adjust our outsourcing capacity according to the market demands and company strategies. Any early termination of the contracts with the outsourcing parties may cause us to incur penalties.

 

Furthermore, we currently do not possess sufficient cell manufacturing capacity to meet the needs of our module manufacturing business and have to rely on external supplies of solar cells, which may not provide us with solar cells at the desirable quality or cost as compared to internal supplies. Further, we cannot be certain that external suppliers will meet our needs in a timely manner. There can be no assurance that there will continue to be an adequate supply of solar cells in the future or that we will continue to be able to procure quality solar cell supplies at prices acceptable to us in a timely manner. Furthermore, we cannot assure you that our solar cell manufacturing capacity will expand sufficiently and in a cost-effective manner to meet the internal demands from our module manufacturing business. Any disruption in the supply of solar cells could have a material adverse impact on our module business, which could in turn have an adverse effect on our business and results of operations.

 

Any significant claims under the product warranty obligations we assumed during our acquisition of ReneSola Jiangsu and under the product warranty of our solar modules may materially and adversely affect our profitability.

 

Historically, our solar modules were typically sold with a warranty for minimum power output for up to 20 years following the date of sale. We also provided warranties for our solar modules against defects in materials and workmanship for a period of two years from the date of sale. We do not provide similar warranties for our solar wafers. We began selling solar modules in June 2009 after our acquisition of ReneSola Jiangsu. In connection with our acquisition of ReneSola Jiangsu, we also assumed all of the product warranty obligations that ReneSola Jiangsu granted to its customers on its module products. ReneSola Jiangsu provides warranties for minimum power output for up to 25 years following the date of sale. ReneSola Jiangsu also provides warranties for solar modules against defects in materials and workmanship for a period of five to ten years from the date of sale. We are obligated to meet the performance requirements in accordance with ReneSola Jiangsu’s warranty policy. As a result of the long warranty periods, we bear the risk of extensive warranty claims long after we have sold our products and recognized revenues. If we receive significant warranty claims from the customers of ReneSola Jiangsu and the amount of warranty costs accrued exceeds our estimates, we will need to recognize higher warranty costs and our profits may be adversely affected.

 

We have been required to make assumptions regarding the durability and reliability of our solar modules. Our assumptions could prove to be materially different from the actual performance of our solar modules, causing us to incur substantial expense to repair or replace defective solar modules in the future. As we continue to expand our solar module business, we may be exposed to increased warranty claims. If our warranty provisions turn out to be inadequate, we may have to incur substantial expense to repair or replace defective products in the future. See “—Problems with product quality or product performance could result in increased costs, damage to our reputation and loss of revenues and market share.” Any increase in the defect rate of our products would cause us to increase the amount of our warranty reserves and have a correspondingly negative impact on our operating results. Furthermore, widespread product failures may damage our market reputation, reduce our market share and cause our sales to decline.

 

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Restrictive covenants and undertakings under our bank loans may limit the manner in which we operate and an event of default under the loan may adversely affect our operations.

 

We have entered into short-term and long-term loans with commercial banks in China and overseas. These loans contain certain restrictive covenants that limit our ability to, among other things, (i) dispose of or provide guarantees, pledges or mortgages on our operating assets in any manner that will increase risk to the lenders, (ii) repay shareholders loans or loans from our related parties, (iii) distribute dividends to shareholders, (iv) enter into other financial obligations to third parties, and (v) take part in any mergers or acquisitions. For more information about the loan agreements, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.” With our expansion into the downstream solar power projects business, we may continue to incur additional construction debt in connection with the development of solar power projects. Any breach by us of the various undertakings and covenants in our existing or future loan agreements may give such banks the right to demand immediate repayment of the outstanding loan amounts. We cannot assure you whether we will be subject to, or be able to fulfill, such undertaking in the future. Any failure to maintain any of the above covenants or undertakings could result in an acceleration of obligations under the facility agreement, which would have a material adverse effect on our business. In addition, the breach of any of the covenants and undertakings in any loan agreement may trigger the cross-default provisions in substantially all of our loan agreements and/or the cross-acceleration provisions in some of those loan agreements, thereby giving the lenders the right to accelerate our loan repayment obligations. As a result, we are limited in the manner in which we conduct our business and may be unable to engage in certain business activities or finance our future operations or capital needs.

 

Our recent and future capacity expansion has and will continue to utilize equipment with customized designs that will be contract manufactured by new suppliers, which subjects us to a number of risks.

 

Historically, we purchased all of our furnaces for the production of multicrystalline ingots from foreign equipment suppliers. From 2010 to 2011, we collaborated with a domestic equipment supplier in China to develop our own customized multicrystalline furnaces. We have used considerable resources on the development of these furnaces. Although our new multicrystalline furnaces have achieved satisfactory results to date, these furnaces may not achieve satisfactory results in the future and the equipment supplier may not be able to continue to manufacture and deliver the multicrystalline furnaces we require in a timely manner or be able to meet our quality and technical requirements. In addition, from time to time we may require additional customized equipment in connection with our business operation and manufacturing capacity expansion, whether in polysilicon manufacturing, wafer manufacturing, cell manufacturing or module manufacturing. As such equipment is not readily available from vendors and would be difficult to repair or replace, problems with quality or performance of the equipment or with timely delivery will negatively impact our expansion plans and may result in the failure to grow our revenues or reduce our manufacturing costs as originally intended. Problems with quality or performance of our products as a result of poor equipment performance or failure could result in losses and adversely affect our results of operations and reputation.

 

Our polysilicon raw material suppliers may fail to supply us with polysilicon in a timely manner, at a favorable price, or with the quantity or quality we require, which may materially and adversely affect our financial condition and results of operations.

 

Any failure by our suppliers in supplying us with polysilicon in a timely manner and with the quantity or quality or at the level of pricing we require may adversely and materially impact our ability to fulfill our obligation in producing and delivering solar power products to our customers in accordance with the sales contracts we entered into with such customers. From time to time, we become involved in negotiations and disputes with certain suppliers that supply us with polysilicon with quality defects or regarding quantity and price. Any negotiation or litigation arising out of these disputes could distract management from the day-to-day operation of our business subjects us to potentially significant legal expenses, the forfeiture of our advance payments to our polysilicon raw material suppliers and interruption of our polysilicon supply, which could materially and adversely affect our business and results of operations.

 

Our advance payments to our silicon raw material suppliers expose us to the credit risk of such suppliers, which may materially and adversely affect our financial condition and results of operations.

 

As of December 31, 2015, the outstanding advance payments in connection with our procurement agreements amounted to approximately $18.5 million. We typically made such advance payments without receiving any collateral. To the extent that there was collateral and/or security attached to the advance payments, it is uncertain whether we will be able to enforce the collateral or the security or if the advance payment can be repaid in full upon enforcement on such collateral or security. Any litigation arising out of disputes relating to such prepayments could subject us to potentially significant legal expenses, distract management from the day-to-day operation of our business and expose us to risks for not being able to collect damages awarded to us, all of which could materially and adversely affect our financial condition and results of operations.

 

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We may not be able to recover such advance payments and would suffer further losses should any supplier fail to fulfill its delivery obligations under its supply contract, which would include failure to provide sufficient quantity of raw materials or raw materials of such quality as specified in the contract or should a supplier’s stock price be less than the price agreed to settle to our claim. For example, we terminated a polysilicon feedstock purchase agreement with a supplier in 2009 due to its breach of the agreement terms and the supplier issued to us its publicly listed shares that carried a value equivalent to the value of our outstanding prepayment, based on the closing price of the shares on the day of the settlement agreement, as a settlement of its obligations under the agreement. Since these shares were issued to us in October 2009, their price has fallen significantly and, as a result, we have been required to record an impairment loss in 2009 and 2011. The supplier filed for bankruptcy protection under the CCAA in January 2012. As a result, we have fully written off the investment in the supplier. See “—We incurred and may incur in the future impairment losses on our investments in equity securities.” Similar claims by us for advance payments in the future would expose us to the credit risks of the suppliers and capital market risks and therefore materially and adversely affect our financial condition and results of operations.

 

Future acquisitions, investments or alliances may have an adverse effect on our business.

 

If we are presented with appropriate opportunities, we may make additional investment into our solar power projects in the United Kingdom, Japan, United States and other emerging markets, or acquire or invest in technologies, businesses or assets that are strategically important to our business or form alliances with key players in the solar power industry to further expand our business. Such acquisitions and investments could expose us to potential risks, including risks associated with the assimilation of new operations, technologies and personnel, unforeseen or hidden liabilities, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions and potential loss of, or harm to, our relationships with employees, customers and suppliers as a result of the integration of new businesses. We may not be able to maintain a satisfactory relationship with our partners or handle other risks associated with future alliances, which could adversely affect our business and results of operations. Investments in new businesses may also divert our cash flow from servicing our debt and making necessary capital expenditures. In addition, we may incur impairment losses on our acquisitions and investments in equity securities.

 

We may lack sufficient experience in identifying, financing or completing large investments or acquisitions or joint venture transactions. Such transactions and the subsequent integration processes would require significant attention from our management. In addition, we may expand our business into international markets. In our international expansion, we may face economic, regulatory, legal and political risks inherent in having relationships, operations and sales in other jurisdictions, including challenges caused by distance and linguistic and cultural differences, as well as the potential for longer collection periods and for difficulty in collecting accounts receivable and enforcing contractual obligations. Expansion into new markets may also place significant additional burdens on our senior management and our sales and marketing teams. The diversion of our management’s attention and any difficulties encountered with respect to the acquisitions, investments, alliances, expansion or in the process of integration could have an adverse effect on our ability to manage our business. Any failure to integrate any acquired or new businesses or joint ventures into our operations successfully and any material liabilities or potential liabilities of any acquired businesses or joint ventures that are not identified by us during our due diligence process for such acquisitions or investments could adversely affect our business and financial condition.

 

If solar power technology is proven not suitable for widespread adoption, or if demand for solar power products continues to lag behind their supply, our revenues may decline and we may be unable to achieve or sustain profitability.

 

The solar market is still in development and the extent of acceptance of solar power products remains uncertain. Historical and current market data on the solar power industry are not as readily available as those for established industries where trends can be assessed more reliably from data gathered over a longer period of time. In addition, demand for solar power products has not developed as fast as many market players have anticipated. Many factors may affect the viability of widespread adoption of solar power technology and demand for solar power products, including:

 

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·cost-effectiveness, performance and reliability of solar power products compared to conventional and other renewable energy sources and products;

 

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

 

·fluctuations in economic and market conditions that affect the viability of conventional and other renewable energy sources, such as increases or decreases in the prices of oil and other fossil fuels or decreases in capital expenditures by end-users of solar power products;

 

·fluctuations in interest rates, which may affect the effective prices paid for solar power products by end-users who rely on long-term loans to finance their purchases; and

 

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

 

We have formulated our expansion plan based on the expected growth of the solar market. If solar power technology is proven not viable for widespread adoption or the demand for solar power products continues to decline, our revenues may continue to suffer and we may be unable to sustain our profitability.

 

We may experience difficulty in achieving acceptable yields and product performance, or may experience production curtailments or shutdowns.

 

The technology for the manufacture of solar power products is continuously being modified in an effort to improve yields and product performance. Microscopic impurities such as dust and other contaminants, difficulties in the manufacturing process or unsuccessful adoption of new processing technologies or malfunctions of the equipment or facilities used can lower yields or increase the silicon consumption rate, cause quality control problems, interrupt production or result in losses of products in process. We may also experience floods, droughts, earthquakes, power losses, labor disputes and similar events within or beyond our control that would affect our operations. See also “—Our polysilicon manufacturing facilities may not achieve our planned utilization rate or operational efficiency, which may negatively affect our profit margin. Any issues with our polysilicon manufacturing facilities as a result of operating hazards and natural disasters may limit our ability to manufacture such products.”

 

Any unplanned transmission line maintenance work with short notices from local electricity transmission line operators may force our production to shut down, limit our ability to manufacture products and to fulfill our commitments to customers on a timely basis. Our polysilicon, wafer and cell manufacturing processes may generate hazardous waste. Although our technology and equipment are designed to minimize and eliminate the leakage of such waste, unexpected accidents may result in environmental consequences, production curtailments, shutdowns or reduced productions and even cause property damage, personal injury or loss of life. Any such event could result in civil lawsuits or regulatory enforcement proceedings, which in turn could lead to significant liabilities.

 

Advances in solar power technology could render our products uncompetitive or obsolete, which could reduce our market share and cause our sales and profit to decline. The solar market is characterized by evolving technology and customer needs. Some of our competitors may devise production technology that enables them to produce larger and thinner wafers with higher quality than our products at a higher yield and lower cost. In addition, some producers have focused on developing alternative forms of solar power technology, such as thin-film technology. We will need to invest significant financial resources in research and development to maintain our market position, keep pace with technological advances in the solar power industry and effectively compete in the future. Our failure to further refine our products and technology or to develop and introduce new solar power products could cause our products to become uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline. In addition, if we or our customers are unable to manage product transitions, our business and results of operations would be negatively affected.

 

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Our business depends substantially on the continuing efforts of our executive officers and key employees, and our business may be severely disrupted if we lose their services.

 

Our future success depends substantially on the continued services of our executive officers and key employees, such as Mr. Xianshou Li, our chairman and chief executive officer. If Mr. Xianshou Li, other executive officers or key employees were unable or unwilling to continue in their present positions, we may be unable to replace them easily, in a timely manner, or at all. Our business may be severely disrupted, our financial conditions and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and retain personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may lose customers, suppliers, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us, which contains non-competition provisions. However, if any dispute arises between our executive officers and us, these agreements may not be enforceable in China, where these executive officers reside, in light of uncertainties with China’s legal system. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

 

Our future success depends, to a significant extent, on our ability to attract, train and retain qualified personnel, particularly technical personnel with expertise in the solar power industry. Since our industry is characterized by high demand and intense competition for talent, there can be no assurance that we will be able to attract or retain qualified technical staff or other highly-skilled employees that we will need to achieve our strategic objectives. As our business has grown rapidly, our ability to train and integrate new employees into our operations may not meet the growing demands of our business. If we are unable to attract and retain qualified personnel, our business may be materially and adversely affected. In addition, it is typical in the solar industry for highly-skilled employees to enter into employment agreements that contain strict non-competition provisions with their employers. If a dispute arises involving our employee, his or her former employer and us, such as a dispute over the violation of non-competition provision or other restrictive covenants, it could result in our loss of such key employee and adversely impact our operation and business. Any prolonged litigation may also result in substantial costs and diversion of resources and adversely impact our business and reputation.

 

Problems with product quality or product performance could result in increased costs, damage to our reputation and loss of revenues and market share.

 

From time to time, we encounter sales returns due to non-conformity with customers’ specifications and are required to replace our products promptly. While in the past we had an insignificant return rate, we cannot assure you that in the future our products will not contain defects that are not detected until after they are shipped or installed. Any proven defects could lead to return or refund of our products under our warranties, cause us to incur additional costs and divert the attention of our personnel from our operations. Similarly, if we fail to maintain the consistent quality of our other products via effective quality control, we may deliver products with defects or other quality problems, which may result in increased costs associated with replacements or other remedial measures. Product defects and the possibility of product defects could also cause significant damage to our market reputation and reduce our product sales and market share.

 

If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud and investor confidence and the market price of our ADSs may be adversely impacted.

 

We are subject to reporting obligations under U.S. securities laws. The U.S. Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must audit and report on the effectiveness of the company’s internal control over financial reporting. Our reporting obligations as a public company have placed, and will continue to place, a significant strain on our management, operational and financial resources and systems for the foreseeable future.

 

Therefore, we have established a system of internal control over financial reporting and we constantly reevaluate those controls and our related systems. Our management has evaluated the effectiveness of our internal control over financial reporting, as required by Rule 13-a-15(c) of the Exchange Act of 1934, as amended, or the Exchange Act, and we have concluded that our internal control over financial reporting was effective for our fiscal year ended December 31, 2015. If we fail to maintain the adequacy of our internal controls, our management may conclude that our internal control over financial reporting is not effective in the future. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and to prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our ADSs.

 

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Moreover, as we further grow our business, particularly moving up the solar power product value chain into new business areas and expanding our operations globally, we are required to adopt additional procedures and safeguards with respect to our accounting and financial reporting systems, including revenue recognition procedures, to ensure the accuracy and timeless of our financial reporting and our ability to prevent fraud. Devising and implementing new procedures take time and resources and cause us to incur additional costs. There will be inherent limitations to such procedures and can be no assurance that such procedures will always work as intended or will be effective. Any failure by us to devise or properly implement adequate procedures to maintain effective control over financial reporting when we expand into new business areas or shift our business focus could have a material adverse effect on our results of operations and financial condition.

 

Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.

 

We rely primarily on patent and trademark laws, trade secrets and other contractual restrictions to protect our intellectual property. Nevertheless, these afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate to provide us with meaningful protection or commercial advantage. For example, we had 235 patents in China, 86 pending patent applications in China, and 4 pending international patent applications as of December 31, 2015. We cannot assure you that our patent applications will be eventually issued with sufficiently broad coverage to protect our technology and products. As a result, third parties may be able to use the technologies that we have developed and compete with us, which could have a material adverse effect on our business, financial condition or operating results. In addition, contractual arrangements, such as the confidentiality and non-competition agreements and terms between us and our research and development personnel, afford only limited protection and the actions we may take to protect our trade secrets and other intellectual property may not be adequate. Our failure to protect our intellectual property and proprietary rights may undermine our competitive position. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property and proprietary rights. Policing the unauthorized use of proprietary technology can be difficult and expensive. In particular, the laws and enforcement procedures of the PRC and certain other countries are uncertain or do not protect intellectual property rights to the same extent as do the laws and enforcement procedures of the United States. See “—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.” We may need to resort to court proceedings to enforce our intellectual property rights in the future. For example, we filed a case with the First Intermediate Court of Beijing against Tongxiangshenhong, a manufacturer of lighting equipment in China, in May 2014 with respect to its misappropriation of “YUHUIYANGGUANG” as trademarks over certain of its lighting equipment products. The court decided in August 2015 and partly rejected the registration of “YUHUIYANGGUANG” on solar water heater, solar collector and solar heat collector by Tongxiangshenhong, while granting it the registration on street lamp, a lamp cover, a lighting device with luminous tube, lighting apparatus and device and automobile lamp. We appealed this case to the Superior Court of Beijing, which upheld the lower court’s decision in December 2015. Litigation relating to our intellectual property might result in substantial costs and diversion of resources and management attention away from our business. An adverse determination in any such litigation will impair our intellectual property and proprietary rights and may harm our business, prospects and reputation.

 

Compliance with environmental regulations can be expensive, and non-compliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

 

As our manufacturing processes, including producing polysilicon, producing ingots, slicing wafers and producing solar cells and modules, generate noise, waste water and gaseous and other industrial waste, we are required to comply with all applicable regulations regarding protection of the environment. We are in compliance with present environmental protection requirements in all material respects and have all material environmental permits necessary to conduct our business. However, if more stringent regulations are adopted in the future, the cost of compliance with these new regulations could be substantial. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. We use, generate and discharge toxic, volatile and otherwise hazardous chemicals and waste in our research and development and manufacturing activities. Any failure by us to control the use of or to adequately restrict the discharge of hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations.

 

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Our solar module products must comply with the applicable environmental regulations where they are installed and we may incur expenses to design and manufacture our products so as to comply with such regulations. For example, we increased our expenditures to comply with the European Union’s Restriction of Hazardous Substances Directive, which took effect in July 2006, by reducing the amount of lead and other restricted substances used in our solar module products. Furthermore, we may need to comply with the European Union’s Waste Electrical and Electronic Equipment Directive if solar modules and products are re-classified as consumer electronics under the directive or if our customers located in other markets demand that they comply with this directive. This would require us to implement manufacturing process changes, such as changing the soldering materials used in panel manufacturing in order to continue to sell into these markets. If compliance is unduly expensive or unduly difficult, we may lose market share and our financial results may be adversely affected.

 

Increasing environmental concerns and climate change risks associated with fossil fuel-based power generation have created political momentum to implement strategies aimed at the reduction of emissions of carbon dioxide and certain other gases commonly referred to as “greenhouse gases.” Renewable energy sources such as solar power help address these environmental concerns, and governments around the world have implemented a variety of policy initiatives to accelerate the development and adoption of solar power. While passage of climate change legislation or other regulatory initiatives that regulate or restrict emissions of greenhouse gases may encourage use of solar power and accordingly increase demand for our products and services, this could also cause us to incur additional direct costs in complying with any new environmental regulations during our manufacturing and research and development processes, as well as increased indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that get passed on to us.

 

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

 

As the insurance industry is still developing in China, the product liability insurance and business interruption insurance available in China offer limited coverage compared to that offered in many other countries. We currently have property insurance, commercial general liability insurance, quality insurance, accident insurance, machine damage insurance, transportation insurance, credit sale insurance as well as key-man life insurance, director and officer liability insurance. We do not maintain any insurance for business interruption. Any business disruption or natural disaster could result in substantial costs and a diversion of resources, which would have an adverse effect on our business and results of operations.

 

Similar to other solar power product manufacturers, we are exposed to risks associated with product liability claims if the use of our solar power products results in injury. Since our solar wafers are made into electricity generating devices and our solar modules generate electricity, it is possible that users could be injured or killed by our products as a result of product malfunctions, defects, improper installation or other causes. We cannot predict whether product liability claims will be brought against us in the future or the effect of any resulting negative publicity on our business. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments.

 

The audit reports included in this annual report are prepared by auditors who are not inspected by the U.S. Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

 

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required by the laws in the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws in the United States and professional standards. Because our auditors are located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

 

Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

 

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The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

 

Proceedings instituted by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act.

 

Starting in 2011 the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under PRC law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the China Securities Regulatory Commission, or CSRC.

 

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including our independent registered public accounting firm. A first instance trial of the proceedings in July 2013 in the SEC's internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the current proceeding against all four firms.

 

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our ADSs may be adversely affected.

 

If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

 

We face risks related to health epidemics and other outbreaks.

 

Our business could be adversely affected by the effects of avian flu, severe acute respiratory syndrome, or SARS, swine flu or another epidemic or outbreak. From 2005 to present, there have been reports on the occurrence of avian flu in various parts of China and elsewhere in Asia, including a few confirmed human cases and deaths. There have also been an outbreak of swine flu occurred in Mexico and the United States and there have been recent cases in China and elsewhere in Asia. Most recently, Shanghai has activated an emergency plan in response to cases of death and serious illness caused by a swine flu virus in the local region. Any prolonged occurrence or recurrence of avian flu, SARS, swine flu or other adverse public health developments in China may have a material adverse effect on our business operations. Our operations may be impacted by a number of health-related factors, including, among other things, quarantines or closures of our facilities, which could severely disrupt our operations, the sickness or death of our key officers and employees, and a general slowdown in the Chinese economy. Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our business and results of operations. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of avian flu, SARS, swine flu or any other epidemic.

 

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Risks Related to Doing Business in China

 

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position.

 

We conduct substantially all of our business operations in China. As the solar industry is highly sensitive to business and personal discretionary spending levels, it tends to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past decades, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. Furthermore, the PRC government may pass measures to tighten credit, including trade financing, available in the PRC market, which could materially impact our financing. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. As the PRC economy is increasingly intricately linked to the global economy, it is affected in various respects by downturns and recessions of major economies around the world, such as the recent financial services and economic crises of these economies. The various economic and policy measures the PRC government enacts to forestall economic downturns or shore up the PRC economy could affect our business.

 

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China are still owned by the state-owned enterprises. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government 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. Future actions and policies of the PRC government could materially affect our liquidity and access to capital and our ability to operate our business.

 

Uncertainties with respect to the PRC legal system could adversely affect us.

 

We are a holding company and we conduct our business primarily through our subsidiaries incorporated in China. These subsidiaries are generally subject to laws and regulations applicable to foreign investment in China. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

 

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Expiration of, or changes to, current PRC tax incentives that our business enjoys could have a material adverse effect on our results of operations.

 

Our subsidiaries ReneSola Zhejiang Ltd., formerly known as Zhejiang Yuhui Solar Energy Source Co., Ltd., or ReneSola Zhejiang, ReneSola Jiangsu and Sichuan ReneSola currently qualify as high-new technology enterprises and enjoy a reduced income tax rate of 15%. The current high-new technology enterprise status of ReneSola Zhejiang, ReneSola Jiangsu and Sichuan ReneSola was renewed in 2015 and will be valid for a term of three years until December 31, 2017. However, we cannot assure you that new laws may not change the preferential treatment granted to our subsidiaries. Any loss or substantial reduction of the tax benefits enjoyed by us would reduce our net profit.

 

Moreover, under the Enterprise Income Tax Law and its relevant implementation rules promulgated by National People’s Congress of China and State Council of China which took effect in 2008, enterprises organized under the laws of jurisdictions outside of China with their de facto management bodies located within China may be considered PRC resident enterprises and, therefore, subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Regulation of the Enterprise Income Tax Law defines “de facto management body” as an establishment that exerts substantial overall management and control over the operation, personnel, financial affairs, assets and other aspects of the enterprise. If a majority of the members of our management team continues to be located in China, we may be deemed as a PRC tax resident enterprise and, therefore, subject to PRC enterprise income tax at the rate of 25% on our worldwide income except that the dividends we received from our PRC subsidiaries may be exempt from the enterprise income tax to the extent that such dividends are deemed as dividends among PRC resident enterprises. If our current tax benefits expire or otherwise become unavailable to us for any reason, our profitability may be materially or adversely affected.

 

In addition, all of our PRC subsidiaries are required to pay value added tax, or VAT, with respect to their respective gross sales proceeds. Prior to July 2007, when exporting products, ReneSola Zhejiang was entitled to a 13% refund of VAT that it had already paid or borne. However, starting July 1, 2007, such VAT refund was reduced to 5%, which materially affects the gross margin of our overseas sales. According to the latest tax regulation, the VAT refund applicable to ReneSola Zhejiang has been reverted to 13% from April 1, 2009. The VAT refund applicable to ReneSola Jiangsu is 17%. Our profitability may be materially and adversely affected if this VAT refund changes significantly and frequently.

 

Our ability to make distributions and other payments to our shareholders depends to a significant extent upon the distribution of earnings and other payment made by ReneSola Zhejiang.

 

We conduct substantially all of our operations through ReneSola Zhejiang. Our ability to make distributions or other payments to our shareholders depends on payments from ReneSola Zhejiang. The payment of dividends by entities organized in China is subject to limitations. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Pursuant to the Detailed Rules for the Implementation of the Law of the People’s Republic of China on Wholly Foreign-owned Enterprises, effective on March 1, 2014, ReneSola Zhejiang is also required to set aside at least 10% of its after-tax profit, if any, to fund certain statutory reserve funds until the accumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. ReneSola Zhejiang is also required to allocate a portion of its after-tax profits, as determined by its board of directors, to its staff welfare and bonus funds, which may not be distributed to equity owners. In addition, when ReneSola Zhejiang incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. For example, according to certain loan agreements between ReneSola Zhejiang and its banks, ReneSola Zhejiang is not permitted to pay dividends for any given year if it has no after-tax profit or any principal or interest due in that year that has not been paid.

 

Under the Enterprise Income Tax Law, dividends payable by us and gains on the disposition of our shares or ADSs could be subject to PRC taxation.

 

Pursuant to the new PRC Enterprise Income Tax Law and its Implementing Regulation, which became effective on January 1, 2008, a 10% withholding tax applies to dividends, interests, rent or royalties payable by a foreign-invested enterprise, such as our PRC subsidiary, to any of its non-resident enterprises investors for PRC enterprise income tax purposes unless any such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The British Virgin Islands, where our company was incorporated, does not have such a treaty with China. Thus, we expect that a 10% withholding tax will apply to dividends paid to us by our PRC subsidiaries if we are classified as a non-resident enterprise. Circular CaiShui [2008] No.1 jointly issued by the State Administration of Taxation and Minister of Finance on February 22, 2008 further clarifies that dividends distributed by foreign-invested enterprise to foreign investors out of the profits generated before January 1, 2008 are still exempt from withholding tax even if they are paid after January 1, 2008. Our PRC entities’ undistributed earnings, generated after January 1, 2008, have been and will be permanently reinvested to the PRC entities. Therefore, no dividend withholding tax was accrued.

 

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We are incorporated in the British Virgin Islands. Under the new PRC Enterprise Income Tax Law and its Implementing Regulation, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a PRC resident enterprise. The Implementing Regulation defines the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” Substantially all of our management members are based in the PRC. Accordingly, we may be considered a PRC resident enterprise. If we are determined to be a PRC resident enterprise following the “de facto management bodies” concept, our shareholders and ADS holders who are deemed non-resident enterprise may be subject to the new PRC Enterprise Income Tax Law at the rate of 10% upon the dividends paid by us or the gains on the disposition of our shares or ADSs; similarly, our noteholders who are deemed non-resident enterprise may be subject to the PRC Enterprise Income Tax Law at the rate of 10% upon the interest of the notes paid by us and the gains realized on the conversion, sale, exchange or redemption of such notes.

 

Fluctuations in exchange rates may have a material adverse effect on your investment.

 

Our sales in China are denominated in Renminbi, and our export sales are generally denominated in U.S. dollars, Euros, Australian dollars, Japanese yen, British pounds, South African rand, Mexican peso and Indian rupee. Our costs and capital expenditures are largely denominated in Renminbi and foreign currencies, including U.S. dollars, Euros, British pounds and Japanese yen. Fluctuations in exchange rates could affect our net profit margins and could result in foreign exchange losses and operating losses. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currencies.

 

The value of the Renminbi against the U.S. dollar, the Euro and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy caused the Renminbi to appreciate approximately 21.5% against the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July 2008, the Renminbi traded within a narrow band against the U.S. dollar until June 2010, remaining within 1% of its July 2008 high but never exceeding it. In June 2010, the People’s Bank of China announced that the PRC government would reform the Renminbi exchange rate regime and increase the flexibility of the exchange rate. Starting from March 17, 2014, the People’s Bank of China widened the band to 2% around which the value of the Renminbi is allowed to deviate from the daily reference rate, which may allow for greater volatility in the U.S. dollar and Renminbi exchange rate. To further improve the Renminbi exchange rate mechanism, the People’s Bank of China announced that government authorities shall continue to improve the marketization of the Renminbi exchange rate mechanism, increase efforts to introduce a market-determined exchange rate, promote international balance of payments, and improve the floating exchange rate system based on market supply and demand in its Guiding Opinions on implementing the Several Opinions of the General Office of the State Council on Support for Stable Growth of Foreign Trade on June 6, 2014. In the long term, Renminbi may further depreciate against U.S. dollar or other foreign currencies, depending on the market supply and demand with reference to a basket of currencies. It is difficult to predict how long the current situation may last and when and how it may change again.

 

In addition, as we rely entirely on dividends paid to us by our operating subsidiaries in China, any significant depreciation of the Renminbi against the U.S. dollar may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on, our shares. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. As a proportion of our revenue is paid to us in Euro and Japanese yen, fluctuation between the Euro and the Renminbi as well as yen and the Renminbi may also have a material effect on our results of operations.

 

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Restrictions on currency exchange may limit our ability to receive and use our revenues or financing effectively.

 

A significant portion of our revenues and expenses are denominated in Renminbi. If our revenues denominated in Renminbi increase or expenses denominated in Renminbi decrease in the future, we may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared, if any, in respect of our shares or ADSs. Under China’s existing foreign exchange regulations, ReneSola Zhejiang is able to pay dividends in foreign currencies, without prior approval from State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, we cannot assure you that the PRC government will not take further measures in the future to restrict access to foreign currencies for current account transactions.

 

Foreign exchange transactions by ReneSola Zhejiang under capital accounts continue to be subject to significant foreign exchange controls and require the approval of or registration with PRC governmental authorities. In particular, if ReneSola Zhejiang borrows foreign currency loans from us or other foreign lenders, these loans must be registered with SAFE and if we finance by means of additional capital contributions, these capital contributions must be approved or registered by certain government authorities including the PRC Ministry of Commerce, SAFE and the State Administration of Industry and Commerce, or SAIC, or their local counterparts. These limitations could affect the ability of ReneSola Zhejiang to conduct foreign exchange transactions in China, and could affect our business and financial condition.

 

If we are required to obtain the prior approval of the China Securities Regulatory Commission for the listing and trading of our ADSs on the NYSE, we may face regulatory actions or other sanctions which may adversely affect our financial condition.

 

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors that became effective on September 8, 2006 and were amended on June 22, 2009. This regulation, among other things, has provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.

 

We completed the listing of our ADSs on the NYSE in January 2008 and completed our follow-on offerings in June 2008, October 2009 and September 2013. We did not seek CSRC approval in connection with our initial public offering or our follow-on offerings. However, the application of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement. Our PRC counsel at the time of listing advised us that because we completed our restructuring for the initial public offering before September 8, 2006, the effective date of the new regulation, it was not and is not necessary for us to submit the application to the CSRC for its approval, and the listing of our ADSs on the NYSE did not require CSRC approval.

 

If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for the initial public offering or the follow-on offerings, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from our initial public offering and the follow-on offerings into the PRC or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

 

If the CSRC later requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our ADSs.

 

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PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to inject capital into our PRC subsidiary, limit our subsidiary’s ability to increase its registered capital, distribute profits to us, or otherwise adversely affect us.

 

In May, 2013, SAFE issued the Notice regarding Printing and Distributing the Provisions on Foreign Exchange Administration over Direct Investment Made by Foreign Investors in China and the Supporting Documents, or Notice 21, which provides detailed disclosure requirements and examination standards for SAFE registration of foreign investors (including overseas SPVs established by PRC residents) with respect to their establishment of foreign investment enterprises or projects in China.

 

In July 2014, SAFE released the Notice on Simplifying Certain Matters Related to the Foreign Exchange Administration Over the Overseas Investment and Financing and Roundtrip Investments by Domestic Residents Via Special Purpose Vehicles, or Notice 37.

 

According to these regulations, registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purpose of investment and financing by utilizing the domestic or overseas assets or equity they legally hold. PRC residents should register their initial foreign exchange at the time when they contribute their domestic or overseas assets and interests into the SPVs. Notice 21 imposes additional SAFE registration responsibilities for such SPVs’ direct investments in China.

 

Moreover, as Notice 37 applies retroactively, PRC residents who had made capital contributions to SPVs based on their lawful domestic or overseas assets or interests but did not go through overseas investment foreign exchange registration formalities prior to the implementation of Notice 37 should provide their local SAFE branch with written explanations regarding their failure to do so, and the local SAFE branch will conduct registration retrospectively based on the principle of legality and reasonableness. For more details of Notice 37, see “Item 4. Information of the Company—B. Business Overview—Regulation.”

 

We have urged our shareholders who are PRC residents to make the necessary applications and filings as required under these regulations. To our knowledge, our principal shareholders have completed the necessary filings as required under these regulations. In addition, according to rules issued by SAFE, if a PRC resident participates in any stock incentive plan of an overseas publicly-listed company, a qualified PRC domestic agent must, among other things, file on behalf of such participant an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan. We have made filings with the local SAFE branch of Jiashan County in connection with the options we granted to our PRC employees under our 2007 share incentive plan but were told that such registration is not required for now. We will make such filing and registration in accordance with the rules issued by SAFE if required by local SAFE branch. We attempt to comply, and attempt to ensure that our shareholders who are subject to these rules comply with the relevant requirements. However, we cannot provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any applicable registrations, amend the existing registrations or comply with other requirements required by Notice 37 or other related rules. The failure or inability of our PRC resident shareholders to make any required registrations or comply with other requirements may subject such shareholders to fines and legal sanctions and may also limit our ability to contribute additional capital into or provide loans to our PRC subsidiary, limit our PRC subsidiary’s ability to pay dividends or otherwise distribute profits to us, or otherwise adversely affect us.

 

Risks Related to Our ADSs, Warrants and Shares

 

The market price for our ADSs may be volatile; the trading price of our convertible senior notes and the value of the warrants could be significantly affected by the market price of the ADSs and other factors.

 

The market price for our ADSs has been highly volatile and subject to wide fluctuations. During the period from January 29, 2008, the first day on which our ADSs were listed on the NYSE, until April 27, 2016, the market price of our ADSs ranged from $0.91 to $29.48 per ADS. The market price of our ADSs may continue to be volatile and subject to wide fluctuations in response to a wide variety of factors including the following:

 

·actual or anticipated fluctuations in our operating results;

 

·our quarterly or annual earnings, or those of other companies in our industry;

 

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·changes in financial estimates by securities research analysts or our ability to meet those estimates;

 

·changes in the economic performance or market valuations of other solar power companies;

 

·changes in investors’ and analysts’ perceptions of our industry, business or related industries;

 

·changes in accounting standards, policies, guidance, interpretations or principles;

 

·announcements by us or our competitors of new products, patent litigation, issuance of patents, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;

 

·technological breakthroughs in the solar and other renewable energy industries;

 

·reduction or elimination of government subsidies and economic incentives for the solar power industry;

 

·regulatory developments in our target markets affecting us, our customers or our competitors;

 

·potential litigation or administrative investigations;

 

·addition or departure of key personnel;

 

·fluctuations of exchange rates between the RMB and U.S. dollar or other foreign currencies;

 

·sales or anticipated sales of additional ADSs;

 

·exercise of our warrants;

 

·release of lock-up or other transfer restrictions on our outstanding ADSs or shares or sales of additional ADSs;

 

·the operating and stock price performance of other comparable companies;

 

·general market conditions, fluctuations or other developments affecting us or our industry; and

 

·general economic conditions and conditions in the credit markets.

 

You should note that the stock prices of solar power companies have experienced wide fluctuations. Such wide market fluctuations may adversely affect the market price of our ADSs. The market price of the ADSs will likely continue to fluctuate in response to the factors discussed above, many of which are beyond our control.

 

The price of the ADSs could also be affected by possible sales of the ADSs by investors who view our warrants as more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving the ADSs. This trading activity could, in turn, affect the value of our warrants.

 

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. Such fluctuations have occurred since 2008, and have impacted the trading price of our ADSs. Continued market fluctuations may materially and adversely affect the market price of our ADSs.

 

Our existing principal shareholders have substantial influence over our company, and their interests may not be aligned with the interests of our other shareholders.

 

Mr. Xianshou Li, our chairman and chief executive officer, beneficially owned 24.4% of our shares as of March 31, 2016. As such, Mr. Li has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs. For example, holders of a majority of our shares entitled to vote in a duly convened and constituted shareholders’ meeting may pass a shareholders’ resolution to issue preferred shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our existing shares. Preferred shares could thus be issued with terms that would delay or prevent a change in control or make removal of management more difficult. These actions may be taken even if they are opposed by our other shareholders and holders of our ADSs.

 

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We may need additional capital and may sell additional ADSs or other, equity-linked or debt equity securities or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations. Hedging activities may depress the trading price of our ADSs.

 

The solar industry is currently being negatively impacted by a number of factors including excess capacity, reduction of government incentives in key solar markets, higher import tariffs and the European debt crisis. These factors have contributed to declining average selling prices for our products. As of December 31, 2015, our current liabilities exceeded our current assets by $466.1 million. While we had cash and cash equivalents of $38.0 million, we also had short-term bank borrowings of $667.7 million all due within one year and the current portion of long-term bank borrowings amounted to $1.1 million, which is not expected to be renewed.

 

We require a significant amount of cash to fund our operations due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. We currently also have a significant amount of debt outstanding. We may issue additional equity, equity-linked or debt securities, or obtain a credit facility for a number of reasons, including to finance our operations and business strategy, to satisfy our obligations for the repayment of existing indebtedness, or for other reasons. Any future issuances of equity securities or equity-linked securities could further dilute the interests of our shareholders and may materially adversely affect the price of our ADSs. We cannot predict the timing or size of any future issuances or sales of equity, equity-linked or debt securities, or the effect, if any, that such issuances or sales may have on the market price of our ADSs. Market conditions could require us to accept less favorable terms for the issuance of our securities in the future. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

 

Future issuances of shares or ADSs may adversely affect the price of the ADSs.

 

Sales of our shares or ADSs in the public market and after offerings of our warrants, or the perception that these sales could occur, could cause the market price of our ADSs to decline or could make it more difficult for us to raise funds through the sale of equity in the future. Likewise, additional equity financings or other issuances of shares or ADSs by us could adversely affect the market price of the ADSs.

 

We cannot be sure that we will not need to raise additional capital in the future as a result of continuing or worsening economic conditions or otherwise. If we do need to raise additional capital, there can be no assurance that we will be able to do so on favorable terms or at all. In addition, any such financing could be significantly dilutive to existing shareholders and holders of the ADSs and result in the issuance of securities that have rights, preferences and privileges that are senior to those of the shares and ADSs.

 

A substantial number of the ADSs are reserved for the exercise of share options granted to directors and employees pursuant to our 2007 share incentive plan and for the exercise of our warrants. The conversion of some or all of our warrants will dilute the ownership interests of existing shareholders and holders of the ADSs. The issuance and sale of a substantial number of shares or ADSs, or the perception that such issuances and sales may occur, could adversely affect the market price of the shares or ADSs and impair our ability to raise capital through the sale of additional equity securities.

 

All ADSs sold in our initial public offering and the follow-on offering are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ADSs outstanding after the initial public offering and the follow-on offering are currently available for sale, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 of the Securities Act.

 

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As a holder of our ADSs, you may not have the same voting rights as the holders of our shares and may not receive voting materials in time to be able to exercise your right to vote.

 

Holders of ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying shares in accordance with the provisions of the deposit agreement. When a general meeting is convened, ADS holders may not receive sufficient notice of a shareholders’ meeting to permit such holders to withdraw their shares to allow them to cast their vote with respect to any specific matter. If requested in writing by us, the depositary will mail a notice of such a meeting to ADS holders. In addition, the depositary and its agents may not be able to send voting instructions to ADS holders or carry out ADS holders’ voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to ADS holders in a timely manner. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote. In addition, in your capacity as an ADS holder, you will not be able to call a shareholder meeting.

 

The depository for our ADSs may give us a discretionary proxy to vote our shares underlying your ADSs if you do not give voting instructions, which could adversely affect your interests.

 

Under the deposit agreement for the ADSs, if we asked for your instructions but the depositary does not receive your instructions by the cutoff date it sets, the depositary will give us a discretionary proxy to vote the shares underlying your ADSs as to all matters at the shareholders’ meeting unless:

 

·we instructed the depositary we do not wish to receive a discretionary proxy;

 

·we informed the depositary that there is substantial opposition to the particular matter; or

 

·the particular matter would have a material adverse impact on shareholders.

 

The effect of this discretionary proxy is that if you do not give voting instructions, you cannot prevent the shares underlying your ADSs from being voted, except in the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our shares are not subject to this discretionary proxy.

 

You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

 

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to ADS holders in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement for the ADSs, the depositary will not offer those rights available to ADS holders unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempt from registration under the Securities Act with respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, in the event we conduct any rights offering in the future, the depositary may not make such rights available to holders of ADSs or may dispose of such rights and make the net proceeds available to such holders. As a result, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings.

 

You may be subject to limitations on transfer of your ADSs.

 

Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books from time to time when it deems that it is expedient for the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

 

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The issuance of warrants as well as the sales of a significant number of the ADSs in the public markets, or the perception of these sales, could depress the market price of the ADSs.

 

The number of shares issuable upon exercise of warrants and the sales of a substantial number of our ADSs or other equity-related securities in the public markets could depress the market price of the ADSs, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of the ADSs or other equity-related securities would have on the market price of the ADSs.

 

In addition, we may issue additional shares or ADSs for future acquisitions. If we pay for our future acquisitions in whole or in part with additionally issued shares or ADSs, our investors’ ownership interests in our company would be diluted and this, in turn, could have a material adverse effect on the price of the ADSs.

 

Any future offerings or exercise of warrants will dilute the ownership interest of existing shareholders and holders of our ADSs.

 

In September 2013, we completed a registered direct offering of 15,000,000 ADSs, representing 30,000,000 of our shares, and warrants to purchase up to 10,500,000 additional shares, representing 35% of warrant coverage in the offering, at approximate $70 million before exercise of warrants.  The warrants are exercisable immediately and will expire four years from the date of issuance.  Any exercise of some or all of the warrants or any future offering of convertible notes or similar securities will dilute the ownership interests of existing shareholders and holders of the ADSs and may depress the price of the shares or ADSs. In addition, any sales in the public market of the ADSs issuable upon such conversion or future offerings could adversely affect prevailing market prices of the shares or ADSs.

 

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or shares.

 

Based on the market price of our ADSs, the value of our assets, and the composition of our income and assets, we do not believe we were a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, 2015. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation”) holds an ADS or share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation—Passive foreign investment company.”

 

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under British Virgin Islands law, conduct substantially all of our operations in China and most of our officers and directors reside outside the United States.

 

We are incorporated in the British Virgin Islands, and conduct substantially all of our operations in China through our wholly owned subsidiary in China. Most of our directors and officers reside outside the United States, and some or all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an original action against us or against these individuals in a British Virgin Islands or China court in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents of the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the British Virgin Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. It is uncertain whether such British Virgin Islands or PRC courts would be competent to hear original actions brought in the British Virgin Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

 

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Our corporate affairs are governed by our memorandum and articles of association and by the BVI Business Companies Act, 2004 and common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under British Virgin Islands law are to a large extent governed by the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law in England and other countries in the Commonwealth, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the British Virgin Islands has no securities laws as compared to the United States, and provides significantly less protection to investors. In addition, British Virgin Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.

 

As a result of all of the above, our public shareholders may have more difficulties in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

 

ITEM 4.INFORMATION ON THE COMPANY

 

A.History and Development of the Company

 

Our predecessor, Zhejiang Fengding Construction Material Machinery Manufacturing Co., Ltd., or Fengding Construction, was established as a limited liability company in the PRC in 2003. Following a series of share transfers, Fengding Construction was renamed ReneSola Zhejiang in June 2005 and commenced the solar power business in July 2005.

 

ReneSola Ltd was incorporated as a limited liability company in the British Virgin Islands on March 17, 2006. Our choice of the British Virgin Islands as the jurisdiction of incorporation was motivated in part by its relatively well-developed body of corporate law, various tax and other incentives, and its acceptance among internationally recognized securities exchanges as a jurisdiction of incorporation for companies seeking to list securities on such exchanges. As we are a limited liability company under the laws of the British Virgin Islands, the liability of our shareholders to our company is limited to (i) any amount unpaid on a share held by the shareholder and (ii) any liability to repay a distribution by our company that was not made in accordance with the laws of the British Virgin Islands. Our principal executive offices are located at No. 8 Baoqun Road, Yaozhuang County, Jiashan Town, Zhejiang Province, PRC. Our telephone number is+86 (573) 8477-3321. Our registered office is located at the offices of Harneys Corporate Services Limited, Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

 

As of the date of this annual report, we conduct our business through the following significant subsidiaries:

 

·ReneSola Zhejiang: our operating company established in China in August 2003, wholly owned by us and engaged in wafer manufacturing in China. ReneSola acquired all of the equity interests in ReneSola Zhejiang in April 2006 through a series of transactions that were accounted for as a reorganization;

 

·ReneSola America Inc., or ReneSola America: our wholly owned subsidiary incorporated in the State of Delaware, the United States in November 2006 to facilitate our procurement of silicon raw materials and product sales in North America;

 

·ReneSola Singapore Pte. Ltd.: our wholly owned subsidiary incorporated in Singapore in March 2007 to facilitate our polysilicon procurement and product sales outside of China;

 

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·Sichuan ReneSola: our wholly owned subsidiary established in Sichuan Province, China in August 2007 to engage in the production of polysilicon. We began building a polysilicon manufacturing facility in Meishan, Sichuan Province, in 2007 through Sichuan ReneSola;

 

·ReneSola Jiangsu: our wholly owned subsidiary located in Yixing, Jiangsu Province, China which is engaged in the production of solar cells and modules.

 

ReneSola Zhejiang acquired the 100% equity interest in ReneSola Jiangsu for a total cash consideration of RMB140.3 million, including tax paid in connection with the transfer of equity interests, in May 2009, as part of our growth strategy. ReneSola Jiangsu commenced its cell manufacturing in October 2008 and its module manufacturing in November 2005. In November 2013, ReneSola Zhejiang and ReneSola Singapore Pte. Ltd. entered into an agreement, pursuant to which ReneSola Singapore Pte. Ltd. agreed to invest RMB200 million in ReneSola Jiangsu, increasing its share capital to RMB800 million. After completion of such capital increase, ReneSola Zhejiang and ReneSola Singapore Pte. Ltd. held 75% and 25% of ReneSola Jiangsu’s equity interests, respectively. ReneSola Zhejiang and ReneSola Singapore Pte. Ltd are all wholly owned subsidiaries of ReneSola. ReneSola Jiangsu received the approval from the local commercial authority in December 2013;

 

·Zhejiang ReneSola System Integration Ltd., formerly known as Zhejiang ReneSola Photovoltaic Materials Co., Ltd.: our wholly owned subsidiary incorporated in China in April 2010 to engage in the production and sale of crucibles, steel wires and silicon carbon powder;

 

·ReneSola Deutschland GmbH: our wholly owned subsidiary incorporated in Germany in September 2011 to engage in the sales of modules, cells and wafers, as well as the operation of solar power projects;

 

·ReneSola New Energy S.A.R.L: our wholly owned subsidiary incorporated in Luxembourg in March 2012 to engage in trading and investments in solar industry, as well as holding our solar power projects;

 

·ReneSola Investment Management Ltd.: our wholly owned subsidiary incorporated in the British Virgin Islands in December 2014 to engage in investments in solar industry, as well as holding our solar power projects;

 

·ReneSola Power, Inc.: our wholly owned subsidiary incorporated in the United States in July 2015 to engage in investments in solar industry, as well as holding our solar power projects; and

 

·ReneSola UK Limited: our wholly owned subsidiary incorporated in the United Kingdom in April 2013 to engage in the sales of modules, as well as the operation of solar power projects.

 

We established additional wholly owned subsidiaries in China to engage primarily in the research, development, production, sale or installation of certain manufacturing materials, solar energy technology, solar technology consulting services, solar energy equipment, PV power generation related projects, electric power technology, power supply and equipment, technology achievement transformation and transferring related to PV power and photo thermal.

 

From time to time, we also disposed of our subsidiaries in China. For example:

 

·In 2013, we closed our wholly owned subsidiary, Gaotai Yuhui New Energy Co., Ltd., which engaged in preparation work for solar PV project development, due to our business needs. We sold all of our 91.3% equity interest in Zhejiang Ruiyi New Material Technology Co., Ltd., which engaged in the research and development of new manufacturing materials, and all of our 60% equity interests in Ningde Hengyang New Energy Development Co., Ltd., which engaged primarily in the development and sale of solar energy products and investment and management of new energy; and

 

·In 2014, we disposed of (i) our wholly owned subsidiary Zhejiang Ruixu Investment Co., Ltd., or Zhejiang Ruixu, together with two of its subsidiaries, Qinghai Yuhui and ReneSola Keping Co., Ltd., and three of its solar power plants in China; (ii) our wholly owned subsidiary Jiashan Xinlian Solar Power Co., Ltd., which engaged primarily in the investment, development and management of solar energy power stations; (iii) all of our 93.5% equity interests in ReneSola Zhejiang Carbon Fiber Material Co., Ltd., which engaged primarily in the development, production and sale of carbon fiber materials and other carbon products, (iv) our wholly-owned subsidiary ReneSola Zhejiang Energy-Saving Technology Co., Ltd., and (v) our wholly-owned subsidiary Sichuan OuRuida Science Park Co., Ltd.

 

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Since 2006, we have established other wholly owned subsidiaries outside of China, including in the United States, Singapore, Luxemburg, Germany, France, India, Australia, Japan, the United Kingdom, Croatia, South Africa, Panama, Korea and Russia to expand our businesses in international markets as part of our growth strategy with respect to the module segment. We have also established our North and South American regional headquarters in San Francisco, and our Asia-Pacific, Middle East and Africa regional sales headquarters in Singapore. Since 2014, we opened new branch offices and warehouse facilities in Thailand, Mexico, Turkey, Indonesia, Austria, Chile, Ontario in Canada, South Africa, Australia and Japan in order to continue to expand our business operations in the international markets.

 

We have made acquisitions in complementary businesses outside China. For example, ReneSola Singapore Pte. Ltd., our wholly owned subsidiary, acquired 100% of the equity interest of Nove Eco Energy Eood and MG Solar Systems Eood in Bulgaria in April 2012 as project assets. These two projects were sold to a Luxembourg-based private equity fund in March 2015. We also acquired 100% of the equity interest in Lucas Est S.R.L and Ecosfer Energy S.R.L in Romania in September 2012 as project assets. In March 2013, we acquired Lucas Est Korea Co., Ltd. and Ecosfer Energy Korea Co., Ltd., which became our wholly owned subsidiaries.

 

In July 2015, we entered into an agreement with Pristine Sun, LLC, or Pristine, a San Francisco-based solar project developer, to form a joint venture in the United States to accelerate our U.S. project development. On December 3, 2015, ReneSola filed an action in the Superior Court of California, County of San Francisco, alleging that Pristine had breached the joint venture agreement, or the Action. Pristine subsequently filed a cross-complaint alleging that we breached the joint venture agreement. On March 25, 2016, we entered into a binding settlement term sheet with Pristine and certain of its affiliates to resolve our dispute, dismiss the Action and transfer 88 MW solar energy projects under development in California, North Carolina, and Minnesota by Pristine and its affiliates to one of our wholly owned subsidiaries in the United States. Upon consummation of the transfer, we will be the 100% indirect owner of the 88 MW portfolio of solar energy projects.

 

As of December 31, 2015, our worldwide sales and distribution network was composed of 26 offices and 59 warehouses.

 

For our organization structure as of the date of this annual report, see “Item 4. Information on the Company—C. Organizational Structure.”

 

With respect to our securities, in August 2006, we placed 33,333,333 shares on the Alternative Investment Market of the London Stock Exchange, or the AIM, and raised gross proceeds of approximately $50.0 million. In November 2010, with the approval of our board of directors, our shares ceased to trade on the AIM, and our admission to trading on the AIM was cancelled.

 

In January 2008, we and certain selling shareholders completed our initial public offering of 10,000,000 ADSs listed on the NYSE. In June 2008, we completed a follow-on public offering of 10,350,000 ADSs sold by us and certain selling shareholders. In October 2009, we completed another follow-on public offering of 15,500,000 ADSs sold by us.

 

In March and April 2011, we completed an offering of $200 million aggregate principal amount of convertible senior notes due 2018. The convertible senior notes will mature on March 15, 2018. In connection with the pricing of the notes, we entered into a capped call transaction and an additional capped call transaction, which cover, subject to customary anti-dilution adjustments, the number of ADSs underlying the option notes, with an affiliate of one of the initial purchasers of the notes, or the hedge counterparty. The carrying value of our convertible senior notes was $26.1 million as of December 31, 2015. We repurchased all of the remaining outstanding convertible senior notes during the first quarter of 2016.

 

In September 2013, we completed a registered direct offering of 15,000,000 ADSs, representing 30,000,000 of our shares, and warrants to purchase up to 10,500,000 additional shares, representing 35% of warrant coverage in the offering, at approximate $70 million before exercise of warrants.  The warrants are exercisable immediately and will expire four years from the date of issuance. 

 

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In September 2015, our board of directors authorized a share repurchase program under which we may repurchase up to $20 million in aggregate value of our outstanding ADSs within 12 months ending September 2016 on the open market or in privately negotiated transactions. As of March 31, 2016, we repurchased an aggregate of 1,310,577 ADSs, representing 2,621,154 shares, on the open market for a total cash consideration of $1.5 million. 1,614,776 of such repurchased shares were canceled in November 2015, and the remaining are expected to be canceled in the second quarter of 2016.

 

Our capital expenditures were used primarily to optimize our Sichuan polysilicon factory, to maintain our cell and module manufacturing plant in Yixing, Jiangsu Province, to purchase production equipment, to acquire land-use rights for each of the plants and to build up our horizontal solar power products and solar power projects businesses. For details of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects–B. Liquidity and Capital Resources—Capital Expenditures.”

 

B.Business Overview

 

We are a leading global brand and technology provider of energy-efficient products based in China. Capitalizing on our proprietary technologies, economies of scale, low cost production capabilities, technical innovations and know-how and leveraging our in-house polysilicon, wafer and module manufacturing capabilities, we provide our customers with high quality, cost competitive solar power products and processing services. We provide high quality solar power products to a global network of suppliers and customers, which includes leading global manufacturers of solar cells and modules and distributors, installers and end users of solar modules.

 

We have significantly expanded our business scope from being primarily a solar wafer manufacturer to becoming a manufacturer of polysilicon and solar modules. Starting from early 2014, we began to expand into the global energy efficient products and services business, as well as downstream solar power projects in overseas markets. We believe our vertically integrated model and integrated manufacturing capabilities allow us to ensure the quality of our solar power products and reduce our reliance on the quality assurances of third-party suppliers. Moreover, our vertical integration allows us to gain an early understanding of trends in PV product pricing, better anticipate market conditions and take advantage of market opportunities more quickly and efficiently.

 

We have greatly expanded our manufacturing capacity since we began the production of solar wafers. We believe we possess one of the largest solar wafer manufacturing facilities in China based on production capacity as of December 31, 2015.

 

We sell solar wafers primarily to solar cell and module manufacturers globally. In 2015, a significant portion of our wafer sales were made to companies based in Asia, primarily to leading solar cell and module companies in China, South Korea, India and Singapore. The majority of our module sales in 2015 were made to distributors across the globe including distributors in Europe, the United States and the Asia-Pacific region. We have begun to refine our module sales strategy to sell directly to end users in order to enhance our pricing power and increase our profit margin. We believe that one of the most cost-effective and innovative ways to improve module efficiencies is through enhanced wafer technologies, an area where we have historical expertise. In addition, we have continued to focus on implementing various cost reduction programs and have reduced our silicon consumption rate and non-silicon wafer processing costs.

 

At the end of 2012, we started to implement our business strategy to transform our business focus from solar wafer manufacturing to module manufacturing. The shift in our business focus was completed in 2013. In July 2013, we were promoted to “Tier 1” status on the PV Module Maker Tier System published by Bloomberg New Energy Finance, or BNEF. According to BNEF, tier 1 module manufacturers are those that have provided products to three different projects, which have received non-recourse financing by three different banks in the past two years. In connection with this business transformation, we have implemented strategic initiatives including increasing the volume of our module sales and the size of our marketing team. As of December 31, 2015, our in-house module manufacturing capacity was 1.2 GW. In the past, we sourced part of our modules from overseas OEM located in various regions including Europe, South Asia and the Asia-Pacific region to allow us to provide a greater volume of solar modules without incurring additional significant capital expenditures. Since 2015, as the cost of OEM became higher than our in-house manufacturing, we have significantly reduced our current overseas OEM module capacity and plan to cease the overseas module OEM arrangements in the first half of 2016. In 2016, we plan to maintain our current in-house module manufacturing capacity. We may resume the module OEM arrangements in the future if our module business requires and subject to market conditions. We believe that our globalized structure enables us to quickly adapt to changes in demand as a result of market forces or changes in trade policies. We also believe that continued investment in establishing a global network has attracted new customers and improved industry recognition of our solar products.

 

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In 2013, 2014 and 2015, we shipped 3,218.0 MW, 2,878.2 MW and 2,748.8 MW, respectively, of solar power products.

 

Starting from early 2014, we began to expand our operations into the broader energy efficient products and services business and into downstream solar power projects. While we remain focused on our retail and residential-oriented business development, we selectively pursue high quality and low-risk solar power project opportunities, especially distributed generation projects, and have been building our new solar portfolio comprised of those projects, in the United Kingdom, North America, Japan, and other emerging markets. In 2015, we sold three utility-scale solar power projects totaling approximately 57.5 MW in the United Kingdom and three utility-scale solar power projects totaling approximately 1.8 MW in Japan. We also entered into sales agreements in connection with the sale of one utility-scale solar power projects totaling approximately 13.5 MW in the United Kingdom in 2015. For details of our project development pipeline, see “Item 4. Information on the Company¾B. Business Overview—Solar Power Project Development.”

 

Our net revenues increased from $1,519.6 million in 2013 to $1,561.5 million in 2014 and decreased to $1,282.0 million in 2015. We recorded an operating income of $29.3 million and a net loss of $5.1 million in 2015, compared to an operating income of $8.2 million and a net loss of $33.6 million in 2014, and an operating loss of $221.4 million and a net loss of $258.9 million in 2013. See “Item 5. Operating and Financial Review and Prospects¾A. Operating Results¾Overview of Financial Results¾Net Revenues” for a breakdown of our total revenues by products and by geographic markets.

 

Our Products and Services

 

We offer monocrystalline and multicrystalline wafers of various sizes and thicknesses. In wafer manufacturing, we are capable of slicing wafers with a thickness less than 180 microns on a large scale. We also offer wafer processing services to certain customers.

 

We offer monocrystalline and multicrystalline solar modules. We currently produce standard solar monocrystalline modules ranging from 75 W to 320 W and multicrystalline modules ranging from 130 W to 315 W in power output, built to general specifications for use in a wide range of residential, commercial, industrial and other solar power generation systems. We are gradually switching our focus from big-scale utility projects to small-scale projects, specifically commercial and residential rooftop projects. With our brand recognition, local warehouses and on-site technical support, we are providing retail customers with integrated solar services and solutions.

 

We develop, build and sell solar power projects. While we remain focused on our retail and residential-oriented business development, we selectively pursue high quality and low-risk solar power project opportunities, especially distributed generation projects, and have been building our new solar portfolio comprised of those projects, in the United Kingdom, North America, Japan, and other emerging markets.

 

Manufacturing

 

We manufacture solar-grade polysilicon, solar wafers, cells and modules.

 

We significantly expanded our manufacturing capacity since we began our production of solar wafers. We believe we operate one of the largest solar wafer manufacturing facilities in China based on production capacity. As of December 31, 2015, we had an annual wafer manufacturing capacity of approximately 2,400 MW, consisting of a monocrystalline wafer manufacturing capacity of approximately 200 MW and a multicrystalline wafer manufacturing capacity of approximately 2,200 MW. Our annual wafer manufacturing capacity as of December 31, 2015 increased from the 2,000 MW annual wafer manufacturing capacity as of December 31, 2014 through our technology improvement. We plan to further expand our annual wafer manufacturing capacity in 2016 through technology improvement.

 

We began selling solar modules in June 2009 after our acquisition of ReneSola Jiangsu. As of December 31, 2015, we maintained our cell and module manufacturing capacities of 240 MW and 1,200 MW, respectively, the same capacities we had as of December 31, 2013 and 2014. We currently have OEM factories and facilities located in Japan and Poland with a total annual OEM module capacity of approximately 170 MW. Since 2015, as the cost of OEM became higher than our in-house manufacturing, we have significantly reduced our current overseas OEM module capacity and plan to cease the overseas module OEM arrangements in the first half of 2016. In 2016, we plan to maintain our current in-house module manufacturing capacity.

 

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We had an annual polysilicon manufacturing capacity of 6,000 metric tons, 6,000 metric tons and 6,000 metric tons as of December 31, 2013, 2014 and 2015, respectively. We ramped up our polysilicon manufacturing facility in Meishan, Sichuan Province, in two phases. Phase I of our polysilicon facility had been in full operation since the beginning of 2011 and Phase II of the facility was completed in June 2013. In November 2012, we halted polysilicon production to upgrade our facilities and equipment, as well as integrate Phase II with Phase I. At the end of September 2013, we concluded that our efforts to sufficiently reduce the cost of polysilicon production as compared to the prevailing market price were not successful. After conducting a further internal assessment we determined that it was no longer feasible to operate the Phase I facility without incurring a loss and to recognize the impairment charge in our wafer segment accordingly. Production at the Phase I facility was permanently discontinued in October 2013. Our remaining Phase II polysilicon facility currently has an annual manufacturing capacity of 6,000 metric tons and was running at full capacity and helped to contribute positively to our cash flows in 2015.

 

While the solar sector remains highly competitive, we believe that our continuing investments in new technologies will support our longer-term goals.

 

The following table sets forth the manufacturing capacities of our facilities.

 

Manufacturing
Facilities

 

Annual
Manufacturing
Capacity as of
December 31, 
2013(1)

 

Annual
Manufacturing
Capacity as of
December 31, 
2014(2)

 

Annual
Manufacturing
Capacity as of
December 31, 
2015(3)

 

Expected
Manufacturing
Capacity as of
December 31,
2016(3)

Wafer   2,000 MW   2,000 MW   2,400 MW   2,900 MW
—Monocrystalline Wafers   200 MW   200 MW   200 MW   200 MW
—Multicrystalline Wafers   1,800 MW   1,800 MW   2,200 MW   2,700 MW
Cell   240 MW   240 MW   240 MW   240 MW
Module   1,200 MW   1,200 MW   1,200 MW   1,200 MW
Polysilicon   6,000 metric tons   6,000 metric tons   6,000 metric tons   6,000 metric tons

 

 

(1)Calculated based on the adjusted methodology effective January 1, 2013, which is based on an efficiency rate of 19.0% for monocrystalline wafers and 17.8% for multicrystalline wafers.

 

(2)Calculated based on the adjusted methodology effective January 1, 2014, which is based on an efficiency rate of 19.2% for monocrystalline wafers and 17.8% for multicrystalline wafers.

 

(3)Calculated based on the adjusted methodology effective January 1, 2015, which is based on an efficiency rate of 19.5% for monocrystalline wafers and 18.35% for multicrystalline wafers.

 

We selectively use automation to enhance the quality and consistency of our finished products and improve efficiency in our manufacturing processes. All of our current monocrystalline furnaces were purchased from Chinese and Chinese-foreign joint venture solar power equipment suppliers in order to lower our equipment procurement, transportation and installation costs. Most of our multicrystalline furnances, all of our current squaring machines and our other major equipment are sourced from overseas.

 

Prior to 2011, we purchased most of our multicrystalline furnaces from foreign equipment suppliers. In 2011, we began to collaborate with domestic equipment makers in China to develop customized multicrystalline furnaces. In 2012, we devised new methods which allowed us to increase the capacity of our existing multicrystalline furnaces. Our new multicrystalline furnaces require substantially less capital expenditure than imported furnaces and offer improved production efficiency and lower electricity consumption.

 

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Our manufacturing capacities comprise the following:

 

·polysilicon production;

 

·ingot production;

 

·wafer slicing;

 

·cell manufacturing; and

 

·module manufacturing.

 

Polysilicon Production

 

We use the modified Siemens process to produce polysilicon. Our manufacturing process is able to recover and recycle exhaust gases throughout the process in our closed-loop manufacturing system.

 

In phase I of our polysilicon manufacturing facility, we adopt TCS production and thermal hydrogenation process. In phase II of our polysilicon manufacturing facility, we use a hydrochlorination process which requires less power consumption compared to our phase I technology.

 

We integrated the two phases into one combined polysilicon manufacturing facility in October 2012. At the end of September 2013, we concluded that our efforts to sufficiently reduce the cost of polysilicon production as compared to the prevailing market price were not successful. After conducting a further internal assessment we determined that it was no longer feasible to operate the Phase I facility without incurring a loss and to recognize the impairment charge in our wafer segment accordingly. Production at the Phase I facility was permanently discontinued in October 2013. Our polysilicon facility currently has an annual polysilicon manufacturing capacity of 6,000 metric tons. After eliminating our Phase I facility, our remaining in-house polysilicon production is cost-efficient as compared to the prevailing market price of polysilicon, which we believe will help our overall profitability. In addition, we believe the discontinuation will help reduce our power consumption and depreciation and therefore help to enhance our profitability going forward. As of December 31, 2015, our remaining Phase II facility was running at full capacity and helped to contribute positively to our cash flows in 2015. While the solar sector remains highly competitive, we believe that our continuing investments in new technologies will support our longer-term goals.

 

Ingot Production/Wafer Slicing

 

To produce multicrystalline ingots, molten polysilicon is converted into block-form through a casting process in the multicrystalline furnaces. Crystallization starts by gradually cooling the crucibles in order to create multicrystalline ingot blocks. The resulting ingot blocks consist of multiple smaller crystals as opposed to the single crystal of a monocrystalline ingot. The output of a multicrystalline furnace is higher than that of a monocrystalline furnace.

 

To produce monocrystalline ingots, we place polysilicon into a quartz crucible in a furnace, where the polysilicon is melted. Then, a thin crystal seed is dipped into the molten silicon to determine the crystal orientation. The seed is rotated and then slowly extracted from the molten silicon to form a single crystal as the molten silicon and crucible cool. Once the single crystals have been grown to pre-determined specifications, they are surface-ground to produce ingots. The uniform properties of a single crystal promote the conductivity of electrons, thus yielding higher conversion efficiencies. We have developed a proprietary method for producing more ingots in one heating and cooling cycle by adding silicon raw materials during the melting process. This innovation enables us to increase our yield of ingots, reduce electricity cost and enhance the utilization rate of furnaces and consumables, such as crucibles.

 

To produce multicrystalline wafers, multicrystalline ingots are first cut into pre-determined sizes. After a testing process, the multicrystalline ingots are cropped and the usable parts of the ingots are sliced into wafers by wire saws using high-precision cutting techniques. After a cleaning and drying process, the wafers are inspected, packed and shipped.

 

To produce monocrystalline wafers, monocrystalline ingots are squared by squaring machines after being inspected. Through high-precision cutting techniques, the squared ingots are then sliced into wafers by wire saws using steel wires and silicon carbon powder. After inserting into frames, the wafers are cleaned to remove debris from the previous processes and then dried. Finally, the wafers are inspected before they are packed in boxes and shipped to customers.

 

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Cell Production

 

A solar cell is made from a silicon wafer that converts sunlight into electricity by a process known as the PV effect. Thus, the feedstock of solar cell manufacturing is solar wafers, which are used as the base substrate. The process starts with cleaning and texturing the surface of a wafer, followed by a diffusion process in which an emitter is formed. The front and back sides of the wafer are isolated using the plasma etching technique, and the oxide formed during the diffusion process is removed to form an electrical field. An anti-reflective coating is then applied to the surface of the cell using plasma enhanced chemical vapors to enhance the absorption of sunlight. The front and back sides of the cell are screen printed with metallic inks and the cell then undergoes a fire treatment in order to preserve its mechanical and electrical properties. The cell is then tested and classified in accordance with its parameters.

 

Module Production

 

Solar modules are arrays of interconnected solar cells encased in a weatherproof frame. Solar modules are assembled from interconnected multiple solar cells by taping and stringing the cells into a desired electrical configuration. The interconnected cells are laid out, laminated in a vacuum, cured by heating and then packaged in a protective light-weight aluminum frame. Solar modules are then sealed and weatherproofed to withstand high levels of ultraviolet radiation and moisture.

 

Solar Power Project Development

 

We develop, build, operate and sell solar power projects. Our solar power project development activities have expanded through organic growth starting from 2011. We began to record revenue from sales of solar power projects in 2015. We are currently operating two utility-scale solar power projects of approximately 15.4 MW in Romania, and record electricity generation revenue from these projects.

 

In 2015, we sold three utility-scale solar power projects totaling approximately 57.5 MW in the United Kingdom and three utility-scale solar power projects totaling approximately 1.8 MW in Japan. We also entered into sales agreements in connection with the sale of one utility-scale solar power projects totaling approximately 13.5 MW in the United Kingdom in 2015 and entered into a sales agreement in connection with the sale of two utility-scale solar power projects totaling approximately 9.7 MW in Bulgaria in March 2016. In the first quarter of 2016, we completed construction of and connected three additional utility-scale solar power projects totaling approximately 20 MW in the United Kingdom, which we have received letter of intent from potential purchasers.

 

Our solar power projects pipeline includes early- to mid-stage projects pipeline and late-stage projects pipeline.  Due to different processes of developing projects in various regions, our early- to mid-stage projects pipeline refers to projects that we have internally approved to commit operational or financial resources to develop, including projects that we have conducted internal studies and are bidding for, that we are developing the financing plans, or working to obtain external approval or permits for such projects, or that we have agreed on preliminary terms or entered into MOUs. Late-stage projects pipeline refers to those projects that we have the legal right to develop pursuant to definitive agreements. As of April 15, 2016, we had a late-stage solar power project pipeline with an aggregate capacity of approximately 171.5 MW in the United States, the United Kingdom and Japan. We had early- to mid-stage solar power projects pipeline in the United States, Spain, Poland, Canada, Turkey and the United Kingdom with an aggregate estimated capacity of approximately 449.5 MW. Our team of experts of the solar power projects specializes in project development, evaluations, system design, engineering, project management and coordination and organizing financing.

 

The following table sets forth the information of all of our projects and late-stage pipeline as of April 15, 2016 (excluding sold projects):

 

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Project Location   Total Capacity (MW)   Status
Romania   6.0   Operating
Romania   9.4   Operating
United States   91.25   Late-stage pipeline
United Kingdom   50.32   Late-stage pipeline
Japan   29.9   Late-stage pipeline

 

As of March 31, 2016, we also had an early- to mid-stage wind power project pipeline of approximately 20 MW in Poland.

 

Raw Materials

 

The key raw material for our wafer manufacturing is polysilicon. Currently, we use polysilicon as primary feedstock to produce solar wafers. In 2015, polysilicon accounted for approximately 34.0% of our wafer production cost. We procure our raw materials from diversified sources. In 2015, purchases from international suppliers, domestic suppliers and our subsidiary, Sichuan ReneSola, accounted for approximately 34.0%, 7.6% and 58.4%, respectively, of our total polysilicon purchases. Other raw materials include crucibles, slurry, wires, glass and ethyl vinyl acetate, or EVA, film, which we procure primarily from domestic and international suppliers. For the volatility of raw material prices, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Volatile market and industry trends, in particular, unfavorable changes in supply or demand for solar power products throughout the value chain, and continued substantial downward pressure on the prices of our products will have a negative impact on our business and results of operations.”

 

Our top five external suppliers of polysilicon, excluding those for processing services, collectively accounted for 94.2% of our total polysilicon purchases in 2015. In September 2010, we entered into a long-term supply contract for polysilicon with a Korean supplier for an initial term of five years ended December 31, 2015. In December 2015, we extended this contract for another two years ending December 31, 2017. Our top two suppliers of polysilicon, excluding those processing services, accounted for more than 86.6% of our total polysilicon purchases in 2015. We are required to purchase approximately $1,291 million of polysilicon over the next year. The price is subject to adjustment to reflect the prevailing market price at the transaction dates. We made advance payments to these suppliers under the polysilicon purchasing agreements. In 2013, 2014 and 2015, due to the worldwide oversupply of silicon raw materials, we were not required to make advance payments for other newly signed procurement agreements with suppliers. Except for the long-term supply contract extended in December 2015, we did not enter into any other long-term contracts with suppliers between 2013 and 2015. As of December 31, 2015, the outstanding advance payments in connection with our procurement agreements amounted to approximately $18.5 million.

 

We complement our existing long-term and short-term polysilicon purchase agreements with in-house manufacturing capacity provided by our polysilicon manufacturing facility in Meishan, Sichuan Province. Our polysilicon facility currently has an annual polysilicon manufacturing capacity of 6,000 metric tons.

 

Sales and Customers

 

We have established a number of long-term relationships with several key players in the solar power industry and will continue to both strengthen our existing customer relationships and cultivate new relationships. Our current customers include some of the leading global manufacturers of solar cells and solar modules. We have been expanding our customer base beyond China and, as of December 31, 2015, sold more than 76.6% of our products, in terms of sales revenue, in overseas markets (outside of China, Taiwan and Hong Kong) such as Europe, Japan, India, the United States and Australia. We have wide-spread sales channels across different continents including sales offices in Germany, the United Kingdom, the United States, Japan, India, Australia, South Africa, Panama and other countries or regions, which provide our customers with local and easily accessible support. In particular, we expanded into the United States and Japan, two fast growing markets for PV products, in mid-2012. In 2015, we further strengthened our market leadership in Europe and Japan. Our revenue derived from sales into Europe was $331.7 million for the year ended December 31, 2015. We also established subsidiaries and branch offices in Japan, and our revenue derived from sales into Japan was approximately $298.9 million for the year ended December 31, 2015. We believe that our reputation for quality and reliability and our added capabilities in solar cells and solar modules will enable us to gain market share and capture new growth opportunities in the solar power industry.

 

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We offer our customers after-sales support services such as monthly performance checks on our products. Our research and development, technical management and quality control teams work closely with our customers’ counterparties to address our customers’ requirements.

 

As of December 31, 2015, we had a one-year backlog of 201.8 MW contracts for delivery in 2016.

 

Wafer Sales

 

In 2013, we decreased our wafer shipment because we used more of our wafer output for our own module manufacturing to support our business strategy to become an integrated module provider. In 2014 and 2015, we continued to use most of the wafers produced internally.

 

We derived 86.5%, 76.9% and 89.0% of our wafer sales from customers in China (including Hong Kong) in 2013, 2014 and 2015, respectively. In 2013, our top five wafer customers accounted for approximately 52% of our wafer sales and 10.8% of our net revenues, and our largest wafer customer accounted for approximately 24.8% of our wafer sales and 5.1% of our net revenues. In 2014, our top five wafer customers accounted for approximately 53.7% of our wafer sales and 6.3% of our net revenues, and our largest wafer customer accounted for approximately 16.5% of our wafer sales and 1.9% of our net revenues. In 2015, our top five wafer customers accounted for approximately 49.5% of our wafer sales and 7.6% of our net revenues, and our largest wafer customer accounted for approximately 17.1% of our wafer sales and 2.6% of our net revenues.

 

Most of our current wafer sales, particularly our sales to major customers, are made under purchase orders based on the spot market rates. While we are still subject to certain long-term sales contracts, the pricing terms and volumes can be subject to renegotiation in situations where there is substantial market volatility. We also have some short-term sales contracts with some of our customers and long-term framework contracts, which provide for variable pricing and volume terms.

 

We entered into several long-term sales contracts with our customers. In June 2008, we entered into an agreement with a global solar power company for the supply of approximately 1.5 GW of wafers over an eight-and-a-half-year period beginning in July 2008. In June 2010, we entered into an agreement with a leading solar cell manufacturer to provide approximately 293 MW of multicrystalline wafers from July 2010 to December 2013 and approximately 141 MW of monocrystalline wafers from October 2010 to December 2013. In 2013, 2014 and 2015, due to the volatility of polysilicon prices and worldwide oversupply of solar power products, we did not enter into new long-term wafer contracts or wafer processing arrangements with customers. Our long-term wafer contracts accounted for approximately 63.8 MW of wafer shipments, or 5.9% of our total wafer shipments, in 2015.

 

Module Sales

 

Our module shipments were 1.7 GW, 2.0 GW and 1.6 GW in 2013, 2014 and 2015, respectively. In 2013, our module shipment exceeded our wafer shipment for the first time in our company’s history, due to our business strategy of transitioning from a wafer manufacturer to an integrated module manufacturer. Our module shipments continued to exceed our wafer shipments since then.

 

We sell our modules primarily to distributors and power plant developers. The type of customers we focus on depends largely on the demand in the specific markets. In 2013, our top five module customers accounted for 20.6% of our module sales and 15.1% of our total net revenues, and our largest module customer accounted for approximately 4.6% of our module sales and 3.4% of our net revenues. In 2014, our top five module customers accounted for 28.9% of our module sales and 24.2% of our net revenues, and our largest module customer accounted for approximately 9.3% of our module sales and 7.8% of our net revenues. In 2015, our top five module customers accounted for 31.6% of our module sales and 22.7% of our net revenues, and our largest module customer accounted for approximately 15.8% of our module sales and 11.3% of our net revenues.

 

We sell our modules mostly through spot orders, short-term contracts with terms of less than one year and framework agreements. The prices for most orders, contracts, and framework agreements are based on the then market prices and trends.

 

A substantial portion of our sales contracts require our customers to make a prepayment set at a certain percentage of the total contract value to secure future delivery of our products. Many of these contracts require customers to provide bank guarantees or irrevocable letters of credit to support their purchase commitment in absence of prepayment.

 

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For the geographical distribution of our products, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Overview of Financial Results—Net Revenues—Geographical Distribution.”

 

Solar Power Projects

 

We selectively pursue high quality and low-risk solar power project opportunities, especially distributed generation projects, and have been building our new solar portfolio comprised of those projects, in the United Kingdom, North America, Japan and other emerging markets.

 

We began to sell solar power projects and recognize revenue from sales of solar power projects in a new separate business segment in 2015. In 2015, we sold three utility-scale solar power projects totaling approximately 57.5 MW in the United Kingdom and three utility-scale solar power projects totaling approximately 1.8 MW in Japan. We also entered into sales agreements in connection with the sale of one utility-scale solar power projects totaling approximately 13.5 MW in the United Kingdom in 2015. Our revenues from the solar power projects segment accounted for 9.1% of our total net revenues in 2015.

 

Quality Control

 

We implement our quality control system at each stage of our manufacturing process, from raw materials procurement to production and delivery, in order to ensure consistent quality for our products. We conduct systematic inspections of incoming raw materials, ranging from silicon raw materials to various consumables, such as crucibles, steel wires and silicon carbon powder. We have formulated and adopted guidelines for recycling reclaimable silicon, ingot production and wafer slicing, and continue to o develop and improve our inspection measures and standards. Prior to packaging, we conduct a final quality check to ensure that our solar wafers and solar modules meet all our internal standards and customers’ specifications. We received ISO 9001: 2008 certification, valid until September 2018, for our quality assurance system for production, which we believe demonstrates our technological capabilities and instills customer confidence.

 

We have also received certifications for the quality of our products from institutions in different countries, including these recent certifications:

 

·Since 2013, we have been listed by the Japan Photovoltaic Expansion Center as a qualified PV product manufacturer for the Japanese market and received certification from the Japan Electrical and Environment Technology Laboratories, both of which are significant accomplishments for a foreign company entering Japan’s solar market;

 

·Since 2012, our Virtus I and Virtus II modules, which are quasi-mono and high-efficiency polycrystalline PV Modules, have been listed by TÜV Rheinland Underwriters Laboratories, Mircrogeneration Certification Scheme, California Energy Commission, China General Certification, and China Quality Certification. We received additional Sello FIDE certification in Mexico in 2014.

 

·Since 2013, our 355 newly launched LED models have obtained Conformite Europeenne certifications from TÜV SÜD, a globally recognized and leading government-designated certification body responsible for product testing and the certification of electronic products. These certifications are valid for five years.

We also obtained Conformite Europeenne certificates for three categories of our LED products across Europe and Africa, including bulbs, indoor lighting and outdoor lighting.  We currently have approximately 600 models of LED products and have obtained certifications, such as Underwriters Laboratories certificates for North America, CUL certificates for Canada, TUV-CE certificates for the EU, TUV-CB certificates for IECEE member countries, and SAA & RCM certificates for Australia, to indicate that our LED models hold and maintain local electrical safety certificates and comply with the applicable requirements. We expect to obtain additional certification for our various LED products across these regions, as well as certification for other markets, such as Japan and Mexico.

 

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·In the first half of 2013, our microinverter, Micro Replus™, which is most suitable for residential use, obtained certification in the United States, Canada, Australia, New Zealand, Germany, Denmark and the United Kingdom, Belgium, Spain, Greece, Czech, Finland, Norway, Portugal, Holland and France. The certifications include  UL1741, IEEE 1547, FCC for the United States; CSA for  Canada; AS 4777 for Australia & New Zealand; VDE 4105 for Germany; VDE 0126 for Denmark; G83 for the United Kingdom. The certification will be renewed annually. Our second-generation micro-inverter, Micro-Replus II, also received Electrical Testing Laboratories certification in the United States in 2014.

 

·In July 2013, we were upgraded to “Tier 1” status on the BNEF PV Module Maker Tier System, which was developed to differentiate the hundreds of manufacturers of solar modules in the market. A module manufacturer is qualified for the “Tier 1” status if it provides products to three different projects with non-recourse financing by three different banks in the past two years, respectively. In the same month, we were also awarded one of the highest credit ratings by China Export & Credit Insurance Corporation, or Sinosure, the largest and only state-owned insurer in China that provides credit insurance for the export of high value-added goods. We benefit from the acknowledgement from BNEF and Sinosure’s rating, as major PV project developers, engineering, procurement and construction contractors and financing credit providers rely on such BNEF report and Sinosure’s rating;

 

·In 2014, we were awarded a “TOP BRAND PV” seal in Belgium, the Netherlands, and Luxembourg by EuPD Research, the leading market intelligence company in the sustainable business sector and an independent brand management appraiser of module manufacturers in Germany, Italy, the United Kingdom, Benelux, and France; and

 

·In 2014, Solar Insurance & Finance, an international and independent insurance broker specializing in insurance for PV installations, certified our modules based on our positive audit, involving relevant technical, financial, environmental, and labor considerations; furthermore, our modules achieved top performance rankings on PV Evolution Labs’ “PV Module Reliability Scorecard” for 2014 in four testing categories: Dynamic Mechanical Load, Damp Heat, Potential Induced Degradation, and Humidity-Freeze, which are series of reliability tests conducted by PV Evolution Labs.

 

·In 2015, our PV testing laboratory in Jiangsu, China achieved Witness Testing Data Program certification from Underwriters Laboratories (UL), a globally renowned and independent safety science company.

 

·In 2015, our PV products obtained the Brazil INMETRO Certificate, which certifies that our products meet the Brazil standards and other technical requirements and allows our products to be coupled with the mandatory INMETRO mark and enter the Brazilian market. We also obtained the Mexico FIDE certificate issued by the Mexico energy conservation promotion foundation to allow us access to the Mexico market.

 

·In 2015, our PV products obtained the double glass, 3BB, 4BB Polysilicon and Multisilicon Certificates from TUV Rheinland. This certificate is based on the IEC61215 and IEC61703 standards and mainly recognized in the European market.

 

·In 2015, we also obtained Salt Mist Level 6 certificate issued by TUV Rheinland, which certifies the performance of our PV products to resist corrosion of salt fog, and the Ammonia Certificate issued by TUV Rheinland , which certifies the performance of our PV products in agricultural areas, especially livestock farms which are likely to produce high concentrations of ammonia.

 

As of December 31, 2015, we had a dedicated team of 336 employees overseeing our quality control processes that work collaboratively with our sales team to provide customer support and after-sale services. As an important part of the quality control process, we gather customer feedback for our products and address customer concerns in a timely manner.

 

Competition

 

The solar market is highly competitive and continually evolving. We expect to face increased competition, which may result in price reductions, reduced margins or loss of market share. There is increasing competition in the downstream solar business as traditional utility companies, solar manufacturers, and financial institutions enter the market. There are many local incumbent services, distribution, and logistics companies we have to successfully compete with in order to penetrate the various international target markets. As we broaden our energy-efficient product offerings, including LED products, we will encounter significant competition from both domestic and international markets. We believe that the key competitive factors in the markets for solar wafers and modules include:

 

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·product quality;

 

·price and cost competitiveness;

 

·manufacturing technologies and efficiency;

 

·power efficiency and performance;

 

·strength of supplier and customer relationships;

 

·aesthetic appearance of PV modules;

 

·economies of scale; and

 

·brand name and reputation.

 

The number of solar product manufacturers has rapidly increased due to the growth of actual and forecasted demand for solar power products and the relatively low barriers to entry. Lower demand for solar modules due to weak macroeconomic conditions and tightened credit for solar project financing combined with the increased supply of solar modules due to production capacity expansion by solar module manufacturers worldwide has caused the price of solar modules to decline beginning in the fourth quarter of 2008. Although the solar industry has seen an increase in demand for solar power products due in part to the improvement of global economic conditions since 2009, when the global economic downturn had a material impact on the demand for solar power products, the prices of solar power products have been volatile in recent years due to the unstable supply of solar power products. Even though demand has gradually increased in the last two years and the average price has increased and stabilized since the beginning of 2013, the industry may still be oversupplied throughout the solar value chain in the near future. Moreover, the solar industry is expected to continue to be highly competitive. Increased production efficiencies and improved technologies may further reduce costs of polysilicon and other silicon raw materials, which have already declined significantly over the past few years. Potential further expansion of manufacturing capacity in the future by us or by our competitors and potential new entrants into the market, given the relatively low barriers to entry, may result in continued excess capacity in the industry.

 

We may also face competition from new entrants to the solar market, including those that offer more advanced technological solutions or that have greater financial resources, such as semiconductor manufacturers, several of which have announced their intention to start production of solar cells and modules. A significant number of our competitors are developing or currently producing products based on PV technologies which may be believed to be more advanced, including amorphous silicon, string ribbon and nano technology, which may eventually offer cost advantages over the crystalline polysilicon technologies currently used by us. A widespread adoption of any of these technologies could result in a rapid decline in demand for our products and a resulting decrease in our revenues if we fail to adopt such technologies. In addition, similar to us, some of our competitors have become, or are becoming, vertically integrated in the PV industry value chain by acquiring or developing capabilities ranging from silicon ingot manufacturing to PV system sales and installation. This could further erode our competitive advantage as a vertically integrated PV product manufacturer. In addition, our competitors may also enter into the polysilicon manufacturing business, which may provide them with cost advantages. The entire PV industry also faces competition from conventional energy and non-solar renewable energy providers.

 

With respect to wafers, we compete primarily in terms of price, technology (based on conversion efficiencies), and quality. With respect to PV modules, we compete primarily in terms of price, reliability of delivery, consistency in the average wattage of our PV modules, durability, appearance and the quality of after-sale services. With respect to large integrated PV system projects, we compete primarily in terms of price, experience, and conversion efficiency. We believe our highly profitable and cost-effective products, strong brand name, well-established reputation and integrated service model make our products competitive.

  

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Our competitors include integrated polysilicon suppliers, such as GCL-Poly Energy Holdings Limited and Renewable Energy Corporation, specialized solar wafer manufacturers, such as GCL-Poly Energy Holdings Limited and Comtec Solar Systems Group Limited. Our competitors also include integrated solar module manufacturers, such as Trina Solar Limited and Yingli Green Energy Holding Company Limited. Many of our competitors have a longer operating history, stronger market position, greater resources, higher name recognition and better access to polysilicon than we do. Many of our competitors also have more established distribution networks and larger customer bases. In addition, many of our competitors are developing and are currently producing products based on alternative solar power technologies, such as thin-film technologies, that may reduce solar power products’ dependence on solar wafers.

 

The standard specifications of monocrystalline wafers used by most solar cell manufacturers are wafers of 8 inches and the standard specifications of multicrystalline wafers of 156 mm by 156 mm. Most China-based wafer manufacturers, including us, offer wafers in these two sizes. Due to the lack of sufficient market information, it is difficult for us to ascertain our competitive position vis-à-vis our competitors. For example, conversion efficiency of solar power products is not only determined by the quality of solar wafers but is also dependent on the solar cell and module manufacturing processes and technology. Therefore, solar wafer manufacturers usually assume the conversion efficiency of their solar wafers based on the conversion efficiency of solar cells and modules manufactured by their customers, for which there is a lack of publicly available information. As a result, it is difficult for us to ascertain the competitive position of our competitors’ solar wafers.

 

Environmental Matters

 

We believe we are in compliance with present environmental protection requirements in all material respects and have all material environmental permits necessary to conduct our business. Our manufacturing processes generate noise, waste water, gaseous wastes and other industrial wastes. We have installed various types of anti-pollution equipment at our premises to reduce, treat, and, where feasible, recycle the waste generated in our manufacturing processes. We outsource the treatment of some of our waste to third-party contractors. Our operations are subject to regulation and periodic monitoring by local environmental protection authorities.

 

Our polysilicon manufacturing facility in Meishan, Sichuan Province is equipped with highly advanced technology and high-end equipment to achieve a fully closed-loop system which can recycle and convert certain waste into products through TCS that can be reused in the production process.

 

Insurance

 

We maintain property insurance policies, including property all risk insurance and machinery breakdown insurance, with insurance companies covering our assets, equipment, facilities, buildings and building improvements. These insurance policies cover losses due to fire, explosion, flood and a wide range of other natural disasters. We maintain commercial general liability insurance, including product liability insurance coverage for our products manufactured in China. We maintain performance guarantee insurance with insurance companies covering half of ReneSola brand solar products. We maintain transportation insurance to cover the transportation risk for our finished products. We maintain credit sale insurance with Sinosure and Euler Hermes to protect our credit sales all over the world. We do not maintain any insurance for business interruption. We maintain key-man life insurance for our executive officers. We maintain director and officer liability insurance for our directors and executive officers. We consider our insurance coverage to be in line with other manufacturing companies of similar size in China. However, significant damage to any of our manufacturing facilities, whether as a result of fire or other causes, could have a material adverse effect on our results of operation. We paid an aggregate of approximately $6.1 million in insurance premiums in 2015.

 

Regulation

 

Renewable Energy Law and Other Government Directives

 

In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006 and as amended in December 2009. 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.

 

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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, PV 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, the NDRC promulgated two implementation directives under the Renewable Energy Law. These directives set out specific measures in setting prices for electricity generated by solar and other renewable power generation systems and in sharing additional expenses incurred. The directives further allocate the administrative and supervisory authorities among different government agencies at the national and provincial levels and stipulate the responsibilities of electricity grid companies and power generation companies with respect to the implementation of the Renewable Energy Law.

 

The PRC 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.

 

On April 16, 2009, the General Offices of the PRC Ministry of Finance and the PRC Ministry of Housing and Urban-Rural Development jointly issued the Guidelines for Declaration of Demonstration Project of Solar Photovoltaic Building Applications. These guidelines set the subsidy to be given in 2009 to qualified solar projects at no more than RMB20 per watt for projects involving the integration of solar components into buildings’ structural elements and at no more than RMB15 per watt for projects involving the installation of solar components onto building rooftops and wall surfaces. In July 2009 and in March 2011, the PRC Ministry of Finance and the PRC Ministry of Housing and Urban-Rural Development jointly issued the Implementation Plan for Demonstration Cities with Renewable Energy Building Application, the Implementation Plan for Promoting Renewable Energy Building Application in Rural Areas and the Implementation Plan for Further Promoting Renewable Energy Building Application. Pursuant to these plans, the central government will provide subsidies to certain cities and rural areas with renewable energy building applications. In July 2009 and November 2009, the PRC Ministry of Finance, the PRC Ministry of Science & Technology, and the National Energy Bureau jointly issued measures that provide for government subsidies to support the solar power industry.

 

On July 24, 2011, the NDRC issued the Notice re Improvement of On-grid Pricing Policy for Solar Photovoltaics, in which, among other things, the NDRC adopted the following nationwide unified on-grid pricing scheme for non-bidding PV projects: (i) for projects which are approved before July 1, 2011, completed before December 31, 2011 and the price of which has not been approved by the NDRC, the pre-tax on-grid price shall be RMB1.15/kwh; (ii) for projects which are approved after July 1, 2011, and for projects which are approved before July 1, 2011 but not completed as to December 31, 2011, the pre-tax on-grid price shall be RMB1/kwh, except for Tibet, the pre-tax price shall be RMB1.15/kwh. The NDRC may adjust such on-grid pricing scheme based on cost variations, technology development and other relevant factors.

 

On January 1, 2013, PRC State Council issued the 12th Five Year Plan for the Development of Energy. The plan supports the promotion and development of renewable energy, including the solar energy. The plan also encourages the development of solar PV power stations in the areas with abundant solar power resource.

 

On July 4, 2013, PRC State Council issued the Several Opinions on Promoting the Healthy Development of the Photovoltaic Industry, which further increases the installed capacity for solar electricity and puts forward various measures to develop the PV application market and adjust the industrial structure and regulate the industrial development order. In 2013, government authorities, including the NDRC, the Ministry of Industry and Information Technology, or the MIIT, the PRC National Energy Commission, the PRC Ministry of Finance and the PRC State Administration of Taxation, have issued a series of regulations to implement the Several Opinions.

 

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On August 26, 2013, the NDRC issued the Notice re Leveraging the Price to Promote the Health Development of the Photovoltaic Industry, in which, among other things, the NDRC adopted the following measures: (i) the country was divided into three solar resources districts, in which the feed-in-tariff is separately RMB0.90/kwh, RMB0.95/kwh and RMB1.00/kwh; (ii) for distribution-grid-connected projects, the electricity subsidy standard is RMB0.42/kwh; (iii) the execution period for the aforesaid policies shall last, in principle, for 20 years; (iv) the aforesaid regional feed-in-tariff policy shall apply to the PV power stations those were filed or approved after September 1, 2013 and those were filed or approved prior to September 1, 2013 but were put into operation after January 1, 2014, and the electricity subsidy standard shall apply to the distribution-grid-connected projects that are excluded from the central government investment subsidies.

 

On September 23, 2013, the PRC Ministry of Finance and the PRC State Administration of Taxation jointly issued the “Notice on the Value-added Tax Policy for PV Power Generation,” which provides 50% of the value-added tax paid by taxpayers in connection with sales of self-produced electrical products generated by solar energy will be immediately refunded to the taxpayers when the value-add tax is collected. This VAT refund will be effective from October 1, 2013 through December 31, 2015.

 

On November 26, 2013, the PRC National Energy Commission issued the “Interim Measures for the Supervision of Photovoltaic Power Generation,” which clarify that the state department in charge of energy and its local counterparts are responsible for the supervision of PV projects. The interim measures are valid for three years starting from the date of promulgation.

 

On February 8, 2014, the National Certification and Accreditation Administration and the PRC National Energy Commission jointly issued the Implementation Opinions on Strengthening the Testing and Certification of PV Products, or Implementation Opinions, which provide that only certified PV products may be connected to the public grid or receive government subsidies. The institutions that certify PV products must be approved by the Certification and Accreditation Administration. According to the Implementation Opinions, PV products that are subject to certification include PV battery parts, inverters, control devices, confluence devices, energy storage devices and independent PV systems.

 

On September 2, 2014, the PRC National Energy Commission issued the Notice on Further Implementing Relevant Policies of Distributed Photovoltaic Power Generation, requiring relevant government authorities to continue to highly value the development of distributed photovoltaic power, further improve the quality of photovoltaic power projects, and put forward various measures to develop the PV application market and regulate the industrial development in the photovoltaic industry.

 

On October 9, 2014, the PRC National Energy Commission issued the Notice on Further Optimizing Operation Management of Photovoltaic Power Stations, requiring relevant government authorities to continue to highly value the construction of photovoltaic power stations, and put forward various measures to regulate the operation of on-grid and grid-tied electricity generation projects. Also, the Notice encourages local government authorities to guide and coordinate the construction of rooftop PV power systems by building owners or specialized enterprises, coordinate the connection of the systems to the power grid, enter projects on file and perform project management duties.

 

On March 16, 2015, the PRC National Energy Commission issued the Notice on Implementation Plans of Photovoltaic Generation Construction for 2015, which provides that the newly installed capacity plan for PV power systems for the year of 2015 is 17,800 MW. Centralized and distributed PV power generation projects constructed within the plan are entitled to subsidies from national specialized fund for renewable energy development. On September 24, 2015, the PRC National Energy Commission further issued notice to increase 5,300 MW of nationwide photovoltaic generation construction scale, mainly to support new energy and green energy model cities which have superior photovoltaic power station construction conditions and have completed the existing construction plans.

 

On March 25, 2015, the MIIT issued the Standard Conditions for the Photovoltaic Manufacturing Industry (2015 Edition), or the Standard, which clarifies that the minimum capital base ratio will be 20% for new, innovative and expanded PV manufacturing projects. The Standards also stipulate that new, innovative and expanded PV manufacturing projects should stringently implement the environment impact assessment system, and that projects cannot commence their construction unless they pass the environment impact assessment examination. Also the emission of exhaust gas and wastewater must meet national and local emission standards and overall control requirements for air and water pollutants.

 

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On April 20, 2015, the PRC National Energy Commission and the State Administration of Work Safety jointly issued the Standard for Safety Production of Photovoltaic Power Enterprises, which mainly defines standardized photovoltaic power generation project, and provides for standards and requirements for photovoltaic power generation enterprises with respect to their production goals, organization and duty, safe production input, safety management system, education and training, production equipment and facilities, operation safety, hidden danger investigation and governance, monitoring of major hazard source, occupational health, emergency rescue and certain other production and operation aspects.

 

On June 1, 2015, the PRC National Energy Commission, MIIT and Certification and Accreditation Administration of the PRC jointly promulgated the Opinions on Promoting the Application of Advance Photovoltaic Technology Products and Upgrading the Photovoltaic Industry, which emphasizes that the market plays a decisive role in allocating resources and leading the industrial upgrade of photovoltaic technology. According to the different stages of the development of photovoltaic technology and products, PRC government will adopt differentiated market access standards in supporting advanced technology products to expand the market and accelerating the elimination of outmoded products. It also provides that new photovoltaic power generation project shall meet the requirements stipulated in the Standard Conditions for the Photovoltaic Manufacturing Industry (2015 Edition) promulgated by MIIT. For example, the photoelectric conversion efficiency rates of polycrystalline silicon module and single crystal silicon module shall not be less than 15.5% and 16%, respectively.

 

On December 22, 2015, the NDRC issued the Notice on Improving the Feed-in Tariff Policies for Onshore Wind Power/Photovoltaic Power Generation, which provides the benchmarking feed-in tariff of photovoltaic power generation for the year of 2016. NDRC continued to adopt the measures that divided the country into three solar resources districts, of which the feed-in tariffs are RMB0.80/kwh, RMB0.88/kwh and RMB0.98/kwh.

 

Environmental and Safety Regulations

 

We are subject to a variety of governmental regulations related to environmental protection. The major environmental regulations applicable to us include the Environmental Protection Law of 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, 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. In addition, we are also subject to laws and regulations governing work safety and occupational disease prevention.

 

We believe we are in compliance with present environmental protection requirements in all material respects and have all material environmental permits necessary to conduct our business. Our operations are subject to regulation and periodic monitoring by local environmental protection and work safety authorities.

 

In response to concerns suggesting that emissions of certain gases, commonly referred to as “greenhouse gases” (including carbon dioxide and methane) may be contributing to global climate change, China has indicated that it highly commends and supports the Copenhagen Accord, which endorses the continuation of the Kyoto Protocol. In 2009, China has decided to reduce the intensity of carbon dioxide emissions per unit of GDP by 40% to 45% by 2020, compared with the levels of 2005. This decision may require changes to the current law and policy. Any such changes in environmental laws or regulations may have adverse impact on the manufacture, sale and disposal of solar power products and their raw materials, which may in turn adversely affect us, our suppliers and our customers.

 

Restriction on Foreign Ownership

 

The principal regulation governing foreign ownership of solar power businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue issued by NDRC and the PRC Ministry of Commerce, effective as of April 10, 2015, or the Catalogue 2015, which is a replacement of the 2007 and 2011 versions of the Foreign Investment Industrial Guidance Catalogue. The Catalogue 2015 classifies the various industries into four categories: encouraged, permitted, restricted and prohibited. Foreign invested companies categorized as “encouraged” are entitled to preferential treatment by the PRC government authorities, including exemption from tariffs on equipment imported for its own use. ReneSola Zhejiang was categorized in the “encouraged” industry under the Catalogue 2015.

 

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Regulation of Foreign Currency Exchange and Dividend Distribution

 

Foreign Currency Exchange. Foreign currency exchange in China is primarily regulated by:

 

·PRC Foreign Exchange Administration Regulation (1996), as amended in 1997 and 2008, or the Foreign Exchange Administration Regulation; and

 

·The Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996).

 

Under the Foreign Exchange Administration Regulation, the Renminbi is convertible for current account items, which include, among other things, dividend payments, interest and royalties payments, and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such as direct investment, loans, investment in securities and repatriation of funds, however, is still subject to the approval of SAFE or its local branches. Under the Foreign Exchange Administration Regulation, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at the banks authorized to conduct foreign exchange transactions by complying with certain procedural requirements such as providing valid commercial documents and, in the case of capital account item transactions, only after obtaining approval from SAFE or its local branches. Capital investments directed outside of China by foreign-invested enterprises are also subject to restrictions, which include approvals by the PRC Ministry of Commerce, SAFE or its local branches and the PRC State Reform and Development Commission. Under our current structure, our income will be primarily derived from dividend payments from our operating subsidiaries in China.

 

On March 30, 2015, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Registered Capital of Foreign-invested Enterprises, or Circular 19, which allows foreign-invested enterprises generally to decide when to exchange into Renminbi their foreign exchange denominated paid-in capital, but only up to a maximum percentage specified by SAFE. The maximum percentage specified by SAFE is currently 100%, but SAFE may choose to adjust the permitted level in due time in light of international balance of payments. The use of any such Renminbi funds by foreign-invested enterprises is also subject to review and approval by SAFE or local SAFE branches or designated banks. Circular 19 further provides that any such Renminbi funds of a foreign-invested enterprise may not be used for any purpose outside of the entity’s business scope or if such use would violate the laws and regulations of the PRC. For example, such Renminbi funds may not be used for the making of Renminbi-denominated entrusted loans that are not within the enterprise’s business scope, for the repayment of inter-enterprise loans (including third party advances), or for the purpose of relending to third parties Renminbi-denominated bank loans made to the enterprise. Violations of Circular 19 could result in severe monetary penalties, including substantial fines as set forth in the PRC Foreign Exchange Administration Regulation.

 

Dividend Distribution. Pursuant to the Foreign Exchange Administration Regulation and various regulations issued by SAFE or its local branches, and other relevant PRC government authorities, the PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China.

 

The principal regulations governing the distribution of dividends paid by Sino-Foreign equity joint venture enterprises and wholly foreign owned enterprises include:

 

·PRC Sino-Foreign Equity Joint Venture Enterprise Law (1979), as amended in 1990 and 2001;

 

·Implementation Rules of the PRC Sino-Foreign Equity Joint Venture Enterprise Law (1983), as amended in 1986, 1987 and 2001;

 

·PRC Wholly Foreign Owned Enterprise Law ( 1986), as amended in 2000; and

 

·Implementation Rules of the PRC Wholly Foreign Owned Enterprise Law (1990), as amended in 2001.

 

Under these laws and regulations, Sino-foreign equity joint venture enterprises and wholly foreign owned enterprises in China may, subject to the ongoing compliance with applicable foreign exchange regulations, pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, the enterprise in China is required to set aside at least 10.0% of their after-tax profit based on PRC accounting standards each year to its statutory reserves until the accumulative amount of such reserves reach 50.0% of its registered capital. These reserves are not distributable as cash dividends. Foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to reserve fund, staff welfare, bonus funds and expansion funds, which may not be distributed to equity owners except in the event of liquidation.

 

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In May 2013, SAFE issued Notice 21, which provides detailed disclosure requirements and examination standards for SAFE registration. Foreign organizations and individuals involved in direct investment activities in China shall be registered with the SAFE branches, including the overseas SPVs established by PRC residents for the purpose of holding domestic or offshore assets or interests.

 

In July 2014, SAFE promulgated Notice 37, which replaced Notice 75 (Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies) promulgated by SAFE in October 2005.

 

Notice 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, referred to in Notice 37 as a “special purpose vehicle,” for the purpose of holding domestic or offshore assets or interests. Notice 37 further requires amendment to a PRC resident’s registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease in the capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital to its PRC subsidiary.

 

Moreover, Notice 37 applies retroactively. As a result, PRC residents who had made capital contributions to SPVs based on their lawful domestic or overseas assets or interests but did not go through overseas investment foreign exchange registration formalities prior to the implementation of Notice 37 should provide the local SAFE branch with written explanations regarding their failure to do so, and the local SAFE branch will conduct registration retrospectively based on the principle of legality and reasonableness.

 

According to these regulations, PRC residents who have established or acquired control of our company are required to register with SAFE in connection with their investments in us.

 

On December 25, 2006, the People’s Bank of China promulgated the “Measures for Administration of Individual Foreign Exchange.” On January 5, 2007, SAFE promulgated the Implementation Rules of Measures for Administration of Individual Foreign Exchange. On February 15, 2012, SAFE promulgated the Notice on Issues Related to Foreign Exchange Administration in Domestic Individuals’ Participation in Equity Incentive Plans of Companies Listed Abroad, or Notice 7. According to Notice 7, PRC citizens who are granted shares or share options by a company listed on an overseas stock market according to its employee share option plan or share incentive plan are required to register with SAFE or its local counterparts.

 

Intellectual Property Rights

 

Patent

 

The PRC has domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets. The PRC is also a signatory to the world’s major intellectual property conventions, including:

 

·Convention establishing the World Intellectual Property Organization (WIPO Convention) (June 4, 1980);

 

·Paris Convention for the Protection of Industrial Property (March 19, 1985);

 

·Patent Cooperation Treaty (January 1, 1994); and

 

·The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (November 11, 2001).

 

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Patents in the PRC are governed by the PRC Patent Law (March 12, 1984), as amended and its Implementing Regulations (January 19, 1985), as amended.

 

The PRC is a signatory to the Paris Convention for the Protection of Industrial Property, in accordance with which any person who has duly filed an application for a patent in one signatory country shall enjoy, for the purposes of filing in the other countries, a right of priority during the period fixed in the convention (12 months for inventions and utility models, and 6 months for industrial designs).

 

The PRC Patent Law covers three kinds of patents, namely, patents for inventions, utility models and designs. The Chinese patent system adopts the principle of first to file. This means that, where multiple patent applications are filed for the same invention, a patent will be granted only to the party that filed its application first. Consistent with international practice, the PRC only allows the patenting of inventions or utility models that possess the characteristics of novelty, inventiveness and practical applicability. For a design to be patentable, it should not be identical with or similar to any design which has been publicly disclosed in publications in the country or abroad before the date of filing or has been publicly used in the country before the date of filing, and should not be in conflict with any prior right of another.

 

PRC law provides that anyone wishing to exploit the patent of another must conclude a written licensing contract with the patent holder and pay the patent holder a fee. One rather broad exception to this, however, is where a party possesses the means to exploit a patent for inventions or utility models but cannot obtain a license from the patent holder on reasonable terms and in a reasonable period of time, the PRC State Intellectual Property Office is authorized to grant a compulsory license. A compulsory license can also be granted where a national emergency or any extraordinary state of affairs occurs or where the public interest so requires. The patent holder may appeal such a decision within three months from receiving notification by filing suit in the People’s Court.

 

PRC law defines patent infringement as the exploitation of a patent without the authorization of the patent holder. A patent holder who believes his patent is being infringed may file a civil suit or file a complaint with a local PRC Intellectual Property Administrative Authority, which may order the infringer to stop the infringing acts. A preliminary injunction may be issued by the People’s Court upon the patentee’s or the interested parties’ request before instituting any legal proceedings or during the proceedings. Evidence preservation and property preservation measures are also available both before and during the litigation. Damages in the case of patent infringement is calculated as either the loss suffered by the patent holder arising from the infringement or the benefit gained by the infringer from the infringement. If it is difficult to ascertain damages in this manner, damages may be determined with reference to the license fee under a contractual license.

 

Trademark

 

The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001 and 2013, with its implementation rules adopted in 2002, protects registered trademarks. The Trademark Office of SAIC handles trademark registrations and grants trademark registrations for a term of ten years, which is subject to rollover by application.

 

C.Organizational Structure

 

We currently conduct our business through the following significant subsidiaries as of the date of this annual report:

 

·ReneSola Zhejiang, which was incorporated in China in August 2003, acquired by us in April 2006 and is currently our principal operating company engaged in wafer manufacturing in China;

 

·ReneSola America, which was incorporated in the State of Delaware, the United States in November 2006 to facilitate our procurement of silicon raw materials in North America;

 

·ReneSola Singapore Pte. Ltd., which was incorporated in Singapore in March 2007 to facilitate our polysilicon procurement and product sales outside of China;

 

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·Sichuan ReneSola, which was incorporated in China in August 2007 to engage in the production of polysilicon;

 

·ReneSola Jiangsu, which was incorporated in China in November 2005 and acquired by us in May 2009 to engage in the production of solar cells and modules;

 

·Zhejiang ReneSola System Integration Ltd., which was incorporated in China in April 2010 to engage in the production and sale of crucibles, steel wires and silicon carbon powder;

 

·ReneSola Deutschland GmbH, which was incorporated in Germany in September 2011, to engage in the sales of module, cell and wafer, as well as the operation of solar power projects;

 

·ReneSola New Energy S.A.R.L, which was incorporated in Luxembourg in March 2012 to engage in trading and investments in solar industry, as well as holding our solar power projects;

 

·ReneSola Investment Management Ltd, which was incorporated in the British Virgin Islands in December 2014 to engage in investments in solar industry, as well as holding our solar power projects;

 

·ReneSola Power, Inc., which was incorporated in the United States in July 2015 to engage in investments in solar industry, as well as holding our solar power projects; and

 

·ReneSola UK Limited, which was incorporated in the United Kingdom in April 2013 to engage in the sales of modules, as well as the operation of solar power projects.

 

In addition to the significant subsidiaries above, we also have other principal subsidiaries incorporated in different jurisdictions.

 

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The following diagram illustrates our current corporate structure, including our significant subsidiaries, as of the date of this annual report:

 

 

 

The diagram above omits the names of subsidiaries that are insignificant to us individually and in the aggregate. For a complete list of our principal subsidiaries as of the date of this annual report, see Exhibit 8.1 to this annual report.

 

D.Property, Plants and Equipment

 

We conduct our research and development and manufacturing of solar wafers at our facilities in Jiashan, Zhejiang Province, where we occupied a site area of approximately 401,060 square meters as of December 31, 2015. On this site, there are manufacturing facilities and office premises occupying an area of approximately 271,184 square meters.

 

We conduct our research and development and manufacturing of polysilicon at our facilities in Meishan, Sichuan Province, where we occupied a site area of approximately 1,011,155 square meters as of December 31, 2015. We have subsequently sold one piece of land in Meishan of approximately 48,867 square meters in the first quarter of 2016.

 

Our cell and module manufacturing facilities are located at Yixing, Jiangsu Province, where we occupied a site area of approximately 179,500 square meters as of December 31, 2015.

 

Except as noted otherwise, we own the facilities completed and under construction and the right to use the relevant land for the durations described below. We also include information relating to the capacity of and major equipment at our facilities below. We believe that our existing facilities, together our facilities under construction, are adequate for our operation in 2016.

 

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   Facility  
Construction
Area 
(square
   Duration  of
Land
  Annual Manufacturing
Capacity
as of December 31,
   Expected
Annual
Manufacturing
Capacity
as of
December 31,
   Major
Products  No.   meters)   Use Right  2013   2014   2015   2016   Equipment
Monocrystalline ingots and wafers   1    42,000   January 2007 to
November 2053
(a plot of
22,000 square
meters); May
2006 to
November 2053
(a plot of
18,000 square
meters); and
October 2006
to October
2056 (a plot of
23,000 square
meters)
   200 MW    200 MW     200 MW    200 MW   Monocrystalline
furnaces, NTC
wire saws
    3    46,000   July 2007 to
July 2057
                       
Multicrystalline ingots and wafers   2    27,000   January 2007 to
December 2056
   1,800 MW    1,800 MW    1,800 MW    2,200 MW   ALD
multicrystalline
furnaces,
TOKYO ROPE
multicrystalline
furnaces,
Zhejiang
Jinggong
multicrystalline
furnaces,
HCT wire saws
and Meyer
Burger wire
saws
    4    50,000   May 2008 to
April 2058
                       
Polysilicon   5    75,000   August
2008 to
August
2058
   6,000 metric tons    6,000 metric tons    6,000 metric tons    6,000 metric tons   Deposition
reactors,
rectifying
tower and
hydrogenation
reactor
Cells   6    42,958   February
2008 to
December
2056
   240 MW    240 MW     240 MW    240 MW  

Cell printing,
testing and
sorting

equipment

Modules                1,200 MW    1,200 MW    1,200 MW    1,200 MW    

 

As of December 31, 2015, short-term borrowings of $307.6 million and long-term borrowings of $9.3 million were secured by property, plant and equipment with carrying amounts of $511.1 million, investment of $188.5 million and prepaid land use rights of $34.6 million. In addition, $318.0 million of borrowings were guaranteed by the personal assets of Mr. Xianshou Li, our chairman and chief executive officer, and his family, as of December 31, 2015, respectively.

 

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ITEM 4A.UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

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

 

A.Operating Results

 

Overview

 

We are a leading global brand and technology provider of energy-efficient products based in China. Capitalizing on our proprietary technologies, economies of scale, low cost production capabilities, technical innovations and know-how and leveraging our in-house polysilicon, wafer and module manufacturing capabilities, we provide our customers with high quality, cost competitive solar power products and processing services. We provide high quality solar power products to a global network of suppliers and customers, which includes leading global manufacturers of solar cells and modules and distributors, installers and end users of solar modules.

 

We sell solar wafers primarily to solar cell and module manufacturers globally. In 2015, a significant portion of our wafer sales were made to companies based in Asia, primarily to leading solar cell and module companies in China, South Korea, India and Singapore. The majority of our module sales in 2015 were made to distributors across the globe including distributors in Europe, the United States and the Asia-Pacific region. We have begun to refine our module sales strategy to sell directly to end users in order to enhance our pricing power and increase our profit margin. We believe that one of the most cost-effective and innovative ways to improve module efficiencies is through enhanced wafer technologies, an area where we have historical expertise. In addition, we have continued to focus on implementing various cost reduction programs and have reduced our silicon consumption rate and non-silicon wafer processing costs. We have greatly expanded our manufacturing capacity since we began the production of solar wafers. We believe we possess one of the largest solar wafer manufacturing facilities in China based on production capacity as of December 31, 2015. In 2013, 2014 and 2015, we shipped 3,218.0 MW, 2,878.2 MW and 2,748.8 MW of solar power products.

 

Starting from early 2014, we began to expand our operations into the broader energy efficient products and services business and into downstream solar power projects. While we remain focused on our retail and residential-oriented business development, we selectively pursue high quality and low-risk solar power project opportunities, especially distributed generation projects, and have been building our new solar portfolio comprised of those projects, in the United Kingdom, North America, Japan, and other emerging markets. In 2015, we sold three utility-scale solar power projects totaling approximately 57.5 MW in the United Kingdom and three utility-scale solar power projects totaling approximately 1.8 MW in Japan. We also entered into sales agreements in connection with the sale of one utility-scale solar power projects totaling approximately 13.5 MW in the United Kingdom in 2015. For details of our project development pipeline, see “Item 4. Information on the Company¾B. Business Overview—Solar Power Project Development.”

 

At the end of September 2013, we concluded that our efforts to sufficiently reduce the cost of polysilicon production as compared to the prevailing market price were not successful. After conducting a further internal assessment we determined that it was no longer feasible to operate the Phase I facility without incurring a loss and to recognize the impairment charge in our wafer segment accordingly. Production at the Phase I facility of our polysilicon manufacturing facility in Sichuan Province was permanently discontinued in October 2013. As a result, we recognized a non-cash impairment charge of $194.7 million on long-lived assets associated with our Sichuan polysilicon factory. Our remaining Phase II polysilicon facility currently has an annual polysilicon manufacturing capacity of 6,000 metric tons. After eliminating our Phase I facility, our remaining in-house polysilicon production is cost-efficient compared to the prevailing market price of polysilicon, which we believe will help our overall profitability. In addition, we believe the discontinuation will help reduce our power consumption and depreciation and therefore help to enhance our profitability going forward. Our remaining Phase II polysilicon facility was running at full capacity and helped to contribute positively to our cash flows in 2015. While the solar sector remains highly competitive and subject to political uncertainties, we believe that our international approach to our module business and continuing investments in new technologies will support our long-term goals.

 

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Our net revenues increased from $1,519.6 million in 2013 to $1,561.5 million in 2014 and decreased to $1,282.0 million in 2015. We recorded an operating income of $29.3 million and a net loss of $5.1 million in 2015, compared to an operating income of $8.2 million and a net loss of $33.6 million in 2014, and an operating loss of $221.4 million and a net loss of $258.9 million in 2013.

 

Our growth is driven by industry demand for solar power products and power, our ability to win market share from our competitors, our ability to manage our manufacturing capacity and production output, and our ability to improve operational efficiencies. Significant factors that affect the financial performance and results of operations of our solar power products are:

 

·imposition of anti-dumping and countervailing orders;

 

·industry demand and product pricing;

 

·manufacturing capabilities;

 

·advancements in process technologies;

 

·availability and prices of raw materials;

 

·government subsidies and incentives; and

 

·solar power project development.

 

Imposition of Anti-dumping and Countervailing Orders

 

Trade actions initiated in the United States and other jurisdictions, and the resulting anti-dumping and countervailing duties imposed on solar imports in those jurisdictions have caused disruption in the solar markets, resulted in additional costs to our customers and materially and adversely affected our business. The 2011 anti-dumping and countervailing duties investigation in the United States resulted in the imposition of certain tariffs on solar modules with cell components produced in China. The 2012 investigations of anti-dumping and countervailing duties in the European Union resulted in setting a price floor for Chinese-made solar products.

 

On December 31, 2013, another petition was filed with the USDOC to initiate an anti-dumping and countervailing duty investigation regarding certain Chinese solar products. On March 25, 2014, we received a letter from the USDOC in which we were named as one of the mandatory respondents related to the anti-dumping investigation. We have fully cooperated and intend to continue to cooperate. According to the World Trade Organization rules, the USDOC has to guarantee that the export quantities of the sampled companies accounted for a certain percentage of the total export sales of China. It is common practice for the USDOC to select certain companies with relatively large market share in the United States to participate in the investigation. We fully cooperated with the investigation proceedings to pursue the best outcome for us, as well as the industry. On December 16, 2014, the USDOC determined that imports of certain CSPV products were dumped in the United States from China and Taiwan and imports of certain CSPV products from China received countervailing subsidies. Following the USDOC determination, on January 21, 2015, USITC determined that imports of certain CSPV products from mainland China and Taiwan materially injured the domestic industry. As a result of the USITC’s affirmative determinations, the USDOC issued countervailing duty orders on imports of these products from mainland China and anti-dumping duty orders on imports of these products from China and Taiwan. On February 18, 2015, the USDOC amended its final affirmative countervailing duty determination to correct an error regarding the inclusion of a subsidy program that was not properly reflected on the record of the investigation. Under the amended final determination of the USDOC, we received a final dumping cash deposit rate of 78.42% and a final countervailing cash deposit rate of 38.43% for our U.S. imports. The U.S. system imposes final duties retroactively, so that the actual duty rates at which our U.S. imports will be finally assessed may differ from the announced cash deposit rates based on the completion of administrative reviews which will be conducted related to these anti-dumping and countervailing duty orders. On April 7, 2016, the USDOC initiated its first administrative review, which will assess duties for our imports into the United States covering the period July 31, 2014 through January 31, 2016. The first administrative review is anticipated to conclude by around the first half of 2017.

 

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In the interest of our customers and shareholders, we have discontinued our shipments to the United States of the products subject to the 78.42% dumping cash deposit rate and the 38.43% final countervailing cash deposit rate since March 2014. We believe that such discontinuation of shipments would not have a material adverse impact on our financial results. We have overseas capacity through our network of OEM facilities that we can use to continue shipping to the United States without any potential tariff risk. While we oppose the petition raised against certain products from China, we are well prepared and well positioned to meet this challenge and will continue to support U.S. consumers with our top quality module products that are not the subject of the trade proceedings. We expect that we can continue to leverage our global presence, and optimize our geographic distribution to our advantage.

 

For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers and disruptions in such markets and could materially and adversely affect our business, results of operations, financial conditions and prospects.”

 

Industry Demand and Product Pricing

 

Our revenue growth largely depends on market demand for solar power products. Demand for solar power products is influenced by macroeconomic factors such as government regulations and support of the solar power industry, the global economic situation, the supply and prices of other energy products, such as oil, coal and natural gas, as well as government regulations and policies on the electric utility industry.

 

Our product prices are based on a variety of factors, including polysilicon costs, supply and demand conditions globally, the quality of our products, our pricing strategy, and the terms of our customer contracts, including sales volumes, and the terms on which certain customers supply us with silicon raw materials under buy-and-sell arrangements, taking into account the strength and history of our relationship with said customer. The solar industry has seen an increase in demand for solar power products due in part to the improvement of global economic conditions since 2009, when the global economic downturn had a material impact on the demand for solar power products. Despite a recovery in demand, the prices of solar power products have been volatile in recent years due to the unstable supply of solar power products. Moreover, the solar industry is expected to continue to be highly competitive. Increased production efficiencies and improved technologies may further reduce polysilicon costs and other silicon raw materials, which have already declined significantly over the past few years. In addition, Europe’s challenging financing environment resulted in weaker demand in Europe for most of 2011 and 2012, traditionally the solar industry’s most important market. In 2013, the global oversupply situation was mitigated due to industry restructuring and integration, resulting in a recovery in the solar industry reflected by an increase in the average selling prices throughout the solar value chain, including but not limited to polysilicon, wafers, cells, and module prices. In 2014, the average selling price throughout the solar value chain continued to stabilize, with module prices decreasing during the second half of the year, mainly as a result of foreign exchanges fluctuations. In 2015, the market price of polysilicon declined from $21 per kilogram to $14 per kilogram, while the average selling price of cell started to rise in the middle of the year, the average selling price of wafer started to rise in the fourth quarter and the average selling price of modules slightly decreased. We believe the module pricing trends, together with the lowering of costs throughout most of the solar power value chain, will continue and will further improve end-user affordability and increase demand for solar-generated electricity. In order to achieve positive margins, we will need to continue to control and reduce our costs of revenues and operating costs. In addition, fluctuations in exchange rates could affect our net profit margins and could result in foreign exchange losses and operating losses. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Fluctuations in exchange rates may have a material adverse effect on your investment” and “Item 11—Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk.”

 

Wafer Manufacturing Capability Complemented by Polysilicon, Cell and Module Manufacturing Capabilities

 

We continue to execute our strategy to enhance our competitive platform built on product quality, cost-effective manufacturing capabilities, technology and brand recognition in our solar power product business supported by integrated manufacturing of in-house polysilicon and solar cells. Through reducing costs, better quality control and shortening our production cycle, we capitalize on increasing demand for our high quality products by leveraging and strengthening our core customer relationships to further drive revenue growth. We believe the economies of scale resulting from our increasing manufacturing capacity have enhanced, and will continue to enhance, our cost structure and manufacturing efficiency. We believe our vertically integrated model and integrated manufacturing capabilities allow us to ensure the quality of our solar power products and reduce our reliance on the quality assurances of third-party suppliers. Moreover, our vertical integration allows us to gain an early understanding of trends in PV product pricing, better anticipate market conditions and take advantage of market opportunities more quickly and efficiently. See “Item 4. Information on the Company—B. Business Overview” for the updates on our annual solar wafer manufacturing capacity, our annual cell and module manufacturing capacities and our polysilicon facility.

 

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Advancements in Process Technologies

 

Advancements in our process technologies are important to our financial performance as they improve production yield, reduce manufacturing costs and enhance the quality and performance of our products. We have developed proprietary technologies in our wafer manufacturing processes. For example, we are able to produce more monocrystalline ingots by adding silicon raw materials in the furnaces after each production cycle without waiting for the furnaces to cool. This innovation enables us to increase the yield of our ingots, reduce electricity costs and enhance the utilization rate of our furnaces and consumables, such as crucibles. We have also modified certain manufacturing equipment design in both ingot and wafer slicing production, developed equipment manufactured locally and developed advanced processes, which have resulted in improved production yield and higher quality of wafers. We plan to further reduce our wafer processing cost per watt in the future through, among other things, development of new equipment used to manufacture ingots, optimizing supply chain management, process improvements, improvements in polysilicon production and in house production of certain key consumables.

 

Availability and Prices of Raw Materials

 

Polysilicon is the primary raw material used to make crystalline silicon solar wafers, the market price of which may fluctuate as a result of economic conditions and the relative supply and demand for polysilicon. The market price of polysilicon increased due to the market recovery to between $17 and $20 per kilogram in the fourth quarter of 2013. In 2014, such price stabilized at around approximately $20 per kilogram. In 2015, the market price of polysilicon declined from $21 per kilogram to $14 per kilogram.

 

We are able to partially mitigate the risk of volatility in the price of polysilicon and its effect on our profit margins through our internal polysilicon production, which, however, also exposes us to the possibility of impairments. We also mitigate the risk by sourcing polysilicon from various sources, including long-term supply contracts, which are often renegotiated, short term contracts, customers under processing services and spot purchases in China and internationally. Our short-term and spot purchase contracts and orders generally reflect the prevailing market prices.

 

In addition, we secure feedstock from some of our customers and sell solar wafers or ingots to them in return. We also provide some of our customers with wafer processing services. These transactions enhance the utilization rate of our manufacturing capacity, mitigate the risk of raw material price increases and strengthen our strategic partnerships with customers.

 

Government Subsidies and Incentives

 

We believe that growth of the solar industry depends largely on the availability and scale of government subsidies and economic incentives. Today, the cost of solar power substantially exceeds the cost of electricity generated from conventional fossil fuels such as coal and natural gas. As a result, national and local governmental bodies in Germany, Spain, Italy, France, North America and Japan, among others, have provided subsidies and economic incentives in the form of feed-in tariffs, rebates, tax credits and other incentives to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy and to reduce dependence on other forms of energy. These government subsidies and economic incentives have been in the form of capital cost rebates, feed-in tariffs, tax credits, net metering and other incentives to end users, distributors, system integrators and manufacturers of solar power products. The demand for our solar power products, particularly solar modules, in our current, targeted and potential markets is affected significantly by the availability of such government subsidies and economic incentives. However, government subsidies and economic incentives could be reduced or eliminated altogether.

 

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A significant reduction in the scope or discontinuation of government subsidies and incentive programs, especially those in our target markets, could cause demand for our products and our revenue to decline, and have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Solar Power Project Development

 

In 2015, we recognized $110.7 million of net revenues from the sales of our solar power projects, representing approximately 8.6% of our total net revenues. Almost all of these revenues came from the sale of solar power projects developed by us. Our solar power project development activities have expanded over the past several years through a combination of organic growth and acquisition of project development rights. We develop our solar power projects with a view to selling them to third party purchasers. Our ability to identify and engage credit-worthy purchasers timely and to negotiate favorable purchase price and payment terms directly affects our profitability. If we are unable to identify and appropriate buyers in the short term, we may also determine to own and operate some of the projects from time to time and generate revenue by generating and selling electricity to the grid companies. We operate and maintain these projects by our own operation and maintenance team to ensure the uninterrupted generation of electricity and to prolong the usable life of solar modules and other equipment. We expect that our revenues from solar power projects and its importance to our overall business will continue to increase in the following years.

 

Solar power projects developments involve numerous risks and uncertainties. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We face uncertainties in connection with the implementation of our business strategy to transform our business focus from wafer and module manufacturing to global energy efficient products and services and downstream solar power projects.”

 

Overview of Financial Results

 

Net Revenues

 

Historically, we derived revenue primarily from sales of solar wafers. However, since 2012, our module sales have contributed the majority of our revenues. We also began to sell solar power projects and recognize revenue from sale of solar power projects in a separate business segment in 2015. Set forth below is the breakdown of our net revenues by segment in absolute amount and as a percentage of total net revenues for the periods indicated.

 

   Year Ended December 31, 
   2013   2014   2015 
   (in thousands, except percentages) 
Net revenues                              
Solar wafers(1)(2)  $366,161    24.1%  $223,489    14.3%  $225,633    17.6%
Solar modules (3)(4)(5)   1,141,964    75.1    1,329,268    85.1    940,011    73.3 
Solar power projects(6)(7)   11,510    0.8    8,740    0.6    116,387    9.1 
Total  $1,519,635    100.0%  $1,561,497    100.0%  $1,282,031    100.0%

 

 

(1)Included approximately $315.0 million, $182.5 million and $163.7 million from sales of solar wafers in the years ended December 31, 2013, 2014 and 2015, respectively.

 

(2)Included approximately $51.1 million, $41.0 million and $61.9 million from sales of other materials in the years ended December 31, 2013, 2014 and 2015, respectively.

 

(3)Included approximately $1,116.9 million, $1,309.0 million and $920.3 million from sales of solar modules in the years ended December 31, 2013, 2014 and 2015, respectively.

 

(4)Included approximately $23.9 million, $12.4 million and $8.3 million from sales of solar cells in the years ended December 31, 2013, 2014 and 2015, respectively.

 

(5)Included approximately $1.2 million, $7.8 million and $11.5 million from service revenue from tolling arrangements with respect to solar modules in the years ended December 31, 2013, 2014 and 2015, respectively.

 

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(6)Included nil, nil and approximately $110.7 million from sales of solar power projects for the years ended December 31, 2013, 2014 and 2015, respectively.

 

(7)Included approximately $11.5 million, $8.7 million and $5.6 million from sales of electricity generated by our power systems in China for the years ended December 31, 2013, 2014 and 2015, respectively.

 

Our net revenues derived from product sales are net of VAT, sales returns and exchanges. Factors affecting our net revenues derived from product sales include our unit sales volume and average selling price. We decreased wafer shipments in 2013 because we used more of our wafer manufacturing output for our own module manufacturing to support our business strategy to become an integrated module provider. In 2014 and 2015, we continued to shift our business focus towards the higher margin module business by using most of the wafers produced internally Average selling prices throughout the solar value chain, including but not limited to polysilicon, wafers, cells, and module prices, increased in 2013 because the solar market recovered gradually due to industry restructuring and integration. In 2014, the average selling prices throughout the solar value chain remained stable, however, due to foreign exchange fluctuations, module prices declined gradually in the second half of 2014. In 2015, the market price of polysilicon declined from $21 per kilogram to $14 per kilogram, while the average selling price of cell started to rise in the middle of the year, the average selling price of wafer started to rise in the fourth quarter and the average selling price of modules slightly decreased.

 

Sales of wafers to our major customers are typically made under long-term sales contracts and market spot sales. Most of our current wafer sales, particularly our sales to major wafer customers, are made under purchase orders based on the spot market rates. Long-term sales contracts typically provide for the sales volume and price of our solar wafers for each year of the contract term. Compared to spot sales contracts, we believe our sales contracts not only provide us with better visibility into future revenues, but also help us enhance relationships with our customers. However, the pricing terms are subject to renegotiation in situations where the market benchmark price for solar wafers changes more than a certain percentage from the contracted price. Our sales contracts typically require our customers to make a prepayment depending on their credit status, market demand and the term of the contracts, with the remaining price to be paid before shipment or within a short period after shipment, depending on the customer’s credit worthiness and historical relationship with us. Our ability to require prepayment from our customers primarily depends on industry demand and supply.

 

Our module shipments were 1.7 GW, 2.0 GW and 1.6 GW in 2013, 2014 and 2015, respectively. In 2013, our module shipment exceeded our wafer shipment for the first time in our company’s history, due to our business strategy of transitioning from a wafer manufacturer to an integrated module manufacturer. Our module shipments continued to exceed our wafer shipments since then. We sell our modules primarily to distributors and power plant developers. Our focus on which type of customers depends largely on the demand in the specific markets. In 2014, our top five module customers accounted for 28.9% of our module sales and 24.2% of our total net revenues, and our largest module customer accounted for approximately 9.3% of our module sales and 7.8% of our total net revenues. In 2015, our top five module customers accounted for 31.6% of our module sales and 22.7% of our net revenues, and our largest module customer accounted for approximately 15.8% of our module sales and 11.3% of our net revenues. We sell our modules through spot orders, short-term contracts with terms of less than one year and framework agreements. The prices for most orders, contracts, and framework agreements are based on the then market prices and trends.

 

We began to sell solar power projects and recognize revenue from sales of solar power projects in a separate business segment in 2015. Our revenues from the sale of solar power projects accounted for 8.6% of our total net revenues in 2015. Revenue recognition for our solar power projects are, in many cases, not linear in nature due to the timing of when all relevant revenue recognition criteria have been met. Our revenue recognition policies for the sales of solar power projects are described in “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical Accounting Policies—Revenue Recognition.”

 

Geographical Distribution

 

In 2013, 2014 and 2015, a significant portion of our wafer sales were made to companies based in Asia, primarily to leading solar cell and module companies in China, Singapore, South Korea and India.

 

A majority of our module sales in 2014 and 2015 were made to distributors located in Europe. Solar power manufacturers like us have capitalized on government and regulatory policies for the promotion of solar power in many jurisdictions. In order to continue growing our sales and to reduce our exposure to any particular market segment, we intend to broaden our geographic presence and customer base. However, Europe remained our most important market in 2015.

 

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In 2015, we sold three utility-scale solar power projects totaling approximately 57.5 MW in the United Kingdom and three utility-scale solar power projects totaling approximately 1.8 MW in Japan. We also entered into sales agreements in connection with the sale of one utility-scale solar power projects totaling approximately 13.5 MW in the United Kingdom in 2015.

 

The following table sets forth the breakdown of our net revenues by geographic market, in absolute amount and as a percentage of total net revenues, for the periods indicated.

 

   Year Ended December 31, 
   2013   2014   2015 
   (in thousands, except percentages) 
     
China  $417,469    27.5%  $227,182    14.5%  $264,803    20.7%
Other Asia Pacific Regions   337,830    22.2    554,635    35.5    535,853    41.8 
Asia Pacific Regions Total   755,299    49.7    781,818    50.1    800,656    62.5 
Europe   396,125    26.1    514,252    32.9    331,698    25.9 
America   236,935    15.6    170,718    10.9    50,176    3.9 
South Africa   18,432    1.2    13,912    0.9    17,069    1.3 
Others   112,844    7.4    80,797    5.2    82,432    6.4 
Total  $1,519,635    100.0%  $1,561,497    100.0%  $1,282,031    100.0%

 

Cost of Revenues

 

Our cost of revenues consists of costs for:

 

·polysilicon raw materials;

 

·consumables, including crucibles, steel sawing wires, slurry, glass and EVA film;

 

·direct labor costs, including salaries and benefits for our manufacturing personnel;

 

·overhead costs, including equipment maintenance and utilities such as electricity and water used in manufacturing;

 

·depreciation of manufacturing facilities and equipment;

 

·inventory write-down and contractor processing fees;

 

·development costs (including interconnection fees and permitting costs) of solar power projects;

 

·acquisition costs of solar power projects, if applicable;

 

·project management and engineering costs;

 

·EPC costs (consisting of costs of the components of solar power projects other than solar modules, such as inverters, electrical and mounting hardware, trackers, grid interconnection equipment, wiring and other devices);

 

·interest costs capitalized for solar power projects during construction period; and

 

·site-specific costs.

 

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All of our costs relating to solar power products businesses increased in 2013 as we expanded our manufacturing capacity and increased our sales volume, then decreased slightly in 2014 and continued to decrease in 2015 due to our efforts to reduce costs of manufacturing. The increase in our polysilicon feedstock costs from 2013 to 2014 was attributable to increases in the volume of raw materials purchased. In 2013, the market prices for raw materials continued to decline, while the average selling prices of our products and other inventory also declined significantly. As a result, we recorded inventory write-downs of $0.7 million in 2013 which reflected the decreased value of our feedstock, work in progress and finished goods. In 2014, the market price for raw materials and the average selling prices of our products remained stable. We recorded an inventory write-down of $0.8 million in 2014. Before 2014, we classified warranty expenses as part of cost of revenues in the income statement. From the first quarter of 2014, we changed our accounting classification of warranty expenses from cost of revenues to selling expenses in order to better reflect our global OEM business operations and align our accounting policy to industry peers. The reclassification has been adopted retrospectively and the comparative consolidated income statement amounts for the years ended December 31, 2010 to 2013 have been adjusted accordingly. In 2015, the market prices for raw materials decreased, while the average selling prices of our products also decreased. We recorded inventory write-down of $0.6 million in 2015.

 

For utility-scale solar power projects built by us, we may need to perform an energy generation performance test during the first and second year of the solar power plant’s operation. Such a test is designed to demonstrate that the actual energy generation for the first and second year meets or exceeds the modeled energy expectation, after certain adjustments and exclusions. If there is an underperformance event, determined at the end of the first and second year after substantial completion, we may incur liquidated damages as a percentage of the EPC contract price, and in one case, repurchase the project asset upon buyer's request.

 

In addition, for utility-scale solar power projects built by us, we may need to perform an energy generation performance test during the first and second year of the solar power plant’s operation. Such a test is designed to demonstrate that the actual energy generation for the first and second year meets or exceeds the modeled energy expectation, after certain adjustments and exclusions. If there is an underperformance event, determined at the end of the first and second year after substantial completion, we may incur liquidated damages as a percentage of the EPC contract price.

 

Gross Margin

 

Our gross margin is affected by changes in our net revenues and cost of revenues. Our net revenues of our solar power product businesses are determined by the average selling price of our products, as well as the volume of products that we are able to sell. Our cost of revenues of our solar power product businesses is affected by our ability to manage raw material costs and our ability to manage our manufacturing processes efficiently. Our gross margin of solar power project business is affected by the gross margin of each individual solar power project we sell, which is determined by our ability to negotiate the sales price, as well as our ability to effectively control the project acquisition and development costs. Our gross margin increased from 7.4% in 2013 to 13.4% in 2014, primarily due to an increase in the average selling price of modules, increased module shipments as well as a decrease in the cost of modules and wafers which resulted from our cost control measures. Our gross margin increased from 13.4% in 2014 to 14.7% in 2015, primarily due to a decrease in our wafer processing cost and the higher gross margin associated with our solar power project business.

 

Operating Expenses

 

Our operating expenses primarily include sales and marketing expenses, general and administrative expenses and research and development expenses.

 

Sales and Marketing Expenses

 

Sales and marketing expenses consist primarily of salaries, bonuses and pensions for our sales personnel, commission paid to our sales agents, outbound freight, warranty expenses, share-based compensation expenses and benefits, travel and other sales and marketing expenses.

 

Our sales and marketing expenses increased in 2014 from 2013, primarily because we increased our sales efforts, hired additional sales personnel, improved workmanship, and established a minimum power output warranty for our module products consistent with the industry averages, targeted new markets and initiated additional marketing programs to build our brand. We expect our sales and marketing expenses to remain stable in the immediate future. Our sales and marketing expenses decreased in 2015 from 2014, primarily due to a decrease in sales volume of our solar power products.

 

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We began selling solar modules in June 2009 after our acquisition of ReneSola Jiangsu. Module sales typically carry a warranty for minimum power output of up to 25 years following the date of sale. We also provide warranties for our solar modules against defects in materials and workmanship for a period of ten years from the date of sale. We accrued warranty expenses from solar module sales of approximately $9.8 million in 2013, $13.1 million in 2014 and $8.8 million in 2015. Our warranties were calculated based on 1.0% of the current average selling price of our solar modules.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries, bonuses and benefits for our administrative and management personnel, consulting and professional service fees and travel and related costs of our administrative and management personnel. In 2013, 2014 and 2015, we recognized share-based compensation expenses in connection with options granted to certain members of our management team. In 2014, our general and administrative expenses increased compared to 2013, primarily because of an increase in the general needs of growing our business and an increased number of international offices and warehouses used to explore international development opportunities. Our general and administrative expenses decreased in 2015 from 2014, primarily due to our effective expense control measures. We expect our general and administrative expenses to remain stable in the immediate future.

 

Research and Development Expenses

 

Research and development expenses primarily relate to equipment and raw materials used in our research and development activities, research and development personnel costs, and other costs related to the design, development, testing and enhancement of our products and processes. In 2013, 2014 and 2015, our research and development expenses were approximately $46.5 million, $52.6 million and $43.9 million, respectively.

 

We expect our research and development expenses to remain at approximately the same level in the future as we continue to expand and promote innovations in our processing technologies of manufacturing polysilicon, wafers, cells and modules, as well as ancillary products such as inverters. We plan to continue to focus on improving manufacturing efficiency and reducing our manufacturing costs by enhancing manufacturing yields, which will enable us to deliver higher efficiency products at a lower cost in each segment of our production. In wafer manufacturing, we will continue to focus on improving our Virtus wafers, including improving upon each generation of our Virtus manufacturing technology. In module manufacturing, we will extend our technical know-how in Virtus wafers into manufacturing Virtus modules by using our proprietary Virtus manufacturing technology. We are also exploring new technology in making other types of modules, including glass-glass modules to suit needs in different markets.

 

Other Operating Income and Expenses

 

We also recognized other operating income and expenses from the disposal of fixed assets and land use rights, government grants and forfeitures of advances from customers.

 

Impairment of Long-lived Assets

 

In 2013, we recognized $202.8 million in non-cash impairment charges, including $194.7 million associated with the long-lived assets of the Phase I Sichuan polysilicon factory. The impairment charge was recognized as the amount by which the carrying amount exceeds the fair value of the idled assets. We began a process of upgrading the Phase I factory and integrating the operations with those of Phase II In October 2012 and we conducted trial productions of the integrated production lines of Phase I and Phase II from July 2013 to September 2013. At the end of September 2013, we concluded that our efforts to sufficiently reduce the cost of polysilicon production as compared to the prevailing market price were not successful. After conducting a further internal assessment, we determined that it was no longer feasible to operate the Phase I facility without incurring a loss and to recognize the impairment charge in our wafer segment accordingly. Production at the Phase I facility was permanently discontinued in October 2013. The fair value of the idled assets used to determine the impairment charge was then determined with the assistance of an independent professional third party appraiser, which process was completed in November 2013.

 

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We believe that the decrease of internal supply of polysilicon with the discontinuation can be offset through purchasing from external supplies at a market price lower than the production cost achieved at the discontinued Phase I facility. We believe that we have benefited from lower power consumption and depreciation as a result of the discontinuation of the Phase I facility, which will keep our production cost at or below our target level and result in making our in-house production more cost-efficient as compared with current market prices of polysilicon. The improvement of our Sichuan polysilicon facility has helped to contribute positively to our cash flows in 2015.

 

In 2014 and 2015, we did not recognize any impairment of long-lived assets.

 

Non-operating Income and Expenses

 

Our non-operating income and expenses consist primarily of interest income, interest expenses, foreign currency exchange gains or losses, gains on repurchase of convertible bonds, gains or losses on derivatives, gain or loss on disposal of subsidiaries, and fair value change of warrant liability.

 

Our interest income represents interest on our cash balances. Our interest expenses relate primarily to our short-term borrowings from banks, less capitalized interest expenses to the extent they relate to our capital expenditures.

 

Our foreign currency exchange gain or loss results from our net exchange gains and losses on our monetary assets and liabilities denominated in foreign currencies during the relevant period. Our functional currency is the U.S. dollar. Foreign currency transactions have been translated into the functional currency at the exchange rate prevailing on the date of the transaction. Foreign currency denominated monetary assets and liabilities are translated into our functional currency at exchange rates prevailing on the balance sheet date. Our reporting currency is the U.S. dollar. Assets and liabilities have been translated into our reporting currency using exchange rates prevailing on the balance sheet date. Income statement items have been translated into our reporting currency using the weighted average exchange rate for the relevant periods. Translation adjustments have been reported as comprehensive income. In 2013, 2014 and 2015, we had foreign currency exchange loss of $0.4 million, $27.0 million and $2.1 million, respectively. The significant foreign exchange loss in 2014 was primarily due to the significant rise of the U.S. dollar against the Euro and Japanese yen during the period. The foreign exchange loss in 2015 was primarily due to the depreciation of Renminbi.

 

We recorded gains of $0.6 million, gains of $6.1 million and loss of $6.0 million on derivative instruments from foreign currency forward exchange contracts, in the years ended December 31, 2013, 2014 and 2015, respectively.

 

We recorded gains on disposal of subsidiaries of nil, $8.3 million and nil in 2013, 2014 and 2015, respectively.

 

We recorded nil, gains of $7.0 million and gains of $13.7 million in 2013, 2014 and 2015, respectively, on the repurchase of our convertible bonds due to the repurchase price discount.

 

We recorded a fair value change of warrant liability of $3.2 million, $7.5 million and $1.3 million in 2013, 2014 and 2015, respectively.

 

Taxation

 

Under the current laws of the British Virgin Islands, we are not subject to any income or capital gains tax. Additionally, dividend payments made by us are not subject to any withholding tax in the British Virgin Islands.

 

PRC enterprise income tax is calculated primarily on the basis of taxable income determined under PRC Enterprise Income Tax Law. In March 2007, the National People’s Congress of China enacted a new Enterprise Income Tax Law, which became effective on January 1, 2008. In December 2007, the State Council of China promulgated the Implementing Regulation of the new Enterprise Income Tax Law, which became effective on January 1, 2008. The Enterprise Income Tax Law imposes a unified enterprise income tax rate of 25% on all domestic enterprises and foreign-invested enterprises unless they qualify under certain limited exceptions.

 

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Under the Provisional Regulation of China on Value Added Tax and its implementing rules, all entities and individuals engaged in the sale of goods, the provision of processing, repairs and replacement services, and the importation of goods into China are generally required to pay VAT at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter is entitled to a partial or full refund of VAT that it has already paid or borne. Accordingly, we are subject to a 17% VAT with respect to our sales of solar wafers in China. Our PRC subsidiaries, ReneSola Zhejiang and ReneSola Jiangsu, are eligible to VAT refund for their export sales. ReneSola Zhejiang has been entitled to a 13% refund on VAT that it had already paid or borne with respect to the export of solar wafers since April 1, 2009. The VAT refund applicable to ReneSola Jiangsu is 17%. Imported raw materials that are used for manufacturing export products and are deposited in bonded warehouses are exempt from import VAT.

 

If it is more likely than not that some or all of the deferred tax assets will not be realized, we will provide for valuation allowances based on available evidence. As of December 31, 2015, our PRC subsidiaries had net operating losses carry forwards of $291.0 million (before deferred tax assets valuation allowance), of which $19.5 million will expire in 2016, $151.9 million will expire in 2017, $54.1 million will expire in 2018, $64.4 million will expire in 2019, and $1.1 million will expire in 2020. ReneSola America had net operating loss carry forwards of $15.0 million, which will expire from 2032 to 2035. ReneSola Deutschland GmbH had net operating loss carry forwards of $13.1 million, which can be offset in future without any time restriction.

 

We consider positive and negative evidence to determine whether some portion or all of the deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with tax attributes expiring unused and tax planning alternatives. We have considered the following possible sources of taxable income when assessing the realization of deferred tax assets:

 

·tax planning strategies;

 

·future reversals of existing taxable temporary differences; and

 

·further taxable income exclusive of reversing temporary differences and carryforwards.

 

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible for tax purposes. As a result, we have recognized a valuation allowance against tax loss carry forwards of $134.9 million, $145.3 million and $126.6 million as of December 31, 2013, 2014 and 2015, respectively.

 

The corporate income tax rate is 25% for our subsidiaries incorporated in PRC. In addition, our subsidiaries ReneSola Zhejiang, ReneSola Jiangsu and Sichuan ReneSola currently qualify as high-new technology enterprises and enjoy a reduced income tax rate of 15%. The current high-new technology enterprise status of ReneSola Zhejiang, ReneSola Jiangsu and Sichuan ReneSola was renewed in 2015 and will be valid for a term of three years until December 31, 2017.

 

For PRC entities, the qualified research and development expenses incurred by them for development of new technology, new products and new techniques could have a 50% super deduction in addition to the actual expense deductions for PRC enterprise income tax purposes. ReneSola Jiangsu and Sichuan ReneSola are eligible for such R&D super deduction.

 

In 2015, we had overseas operations in the United States, Singapore, Germany, Bulgaria, Australia, Japan, India, Luxembourg, Romania, the United Kingdom, South Africa, Croatia, Panama and Korea. The corporate income tax rates in these jurisdictions range from 10% to 40%.

 

Critical Accounting Policies

 

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

 

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An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and other disclosures included in this annual report.

 

Revenue Recognition

 

Solar Power Products

 

We sell solar power products including virgin polysilicon, monocrystalline and multicrystalline solar wafers and PV cells and modules. We also enter into agreements to process silicon materials into silicon ingots and wafers, and to process PV cells into modules for customers. We recognize revenues when persuasive evidence of an arrangement exists, the products are delivered and title and risk of loss has passed to customers, the price to the buyer is fixed and determinable, and collectability is reasonably assured. Sales agreements typically contain customary product warranties but do not contain any post-shipment obligations nor any return or credit provisions.

 

A majority of our contracts provide that products are shipped under free on board, or FOB, terms or cost, insurance and freight, or CIF, terms or delivered duty unpaid, or DDU terms. Under FOB, we fulfill our obligation when the goods have passed over the ship’s rail at the named port of shipment. The customer bears all costs and risks of loss of or damage to the goods from that point. Under CIF, we must pay the costs, insurance and freight necessary to bring the goods to the named port of destination, and bear the risk of loss of or damage to the goods during transit. Under DDU, we are responsible for making a safe delivery of goods to a named destination, paying all transportation expenses but not the duty. We bear the risks and costs associated with supplying the good to the delivery location. We recognize revenue when the title of goods and risk of loss or damage is transferred to the customers based on the terms of the sales contracts, and if other recognition criteria are met.

 

Solar Power Projects

 

We recognize revenue from the sale of project assets in accordance with ASC 360-20, Real Estate Sales. For these transactions, we have determined that the project assets, which represent the costs of constructing solar power projects, represent “integral” equipment and as such, the entire transaction is in substance the sale of real estate and subject to the revenue recognition guidance under ASC 360-20 Real Estate. Under the provisions of real estate accounting, we recognize revenue under full accrual method when all of the following requirements are met: (a) the sales are consummated; (b) the buyer’s initial and continuing investments are adequate to demonstrate its commitment to pay; (c) the receivable is not subject to any future subordination; and (d) we have transferred the usual risk and rewards of ownership to the buyer. Specifically, we consider the following factors in determining whether the sales have been consummated: (a) the parties are bound by the terms of a contract; (b) all consideration has been exchanged; (c) permanent financing for which the seller is responsible has been arranged; and (d) all conditions precedent to closing have been performed, and we do not have any substantial continuing involvement with the project.

 

For sales agreements that have energy generation performance guarantees within certain timeframe, if there is an underperformance event, we may incur liquidated damages as a percentage of the EPC contract price. The revenue recognized is reduced by the maximum amount of the payable liquidated damage, which amount is deferred until the end of the guarantee period.

 

For sales agreements that have conditional repurchase clauses if certain events occur, such as not achieving specified guaranteed performance level within a certain timeframe, we will not recognize revenue on such sales agreements until the conditional repurchase clauses are of no further force or effect and all other necessary revenue recognition criteria have been met.

 

Deferred Project Revenue

 

Deferred project revenue was $nil and $32.4 million as of December 31, 2014 and 2015, respectively, and represented customer payments received or customer billings made under the terms of solar power project related sales contracts for which all revenue recognition criteria for real estate transactions have not yet been met. The associated solar power project related costs are included as deferred project costs. We classify such amounts as current or noncurrent depending on when all revenue recognition criteria are expected to be met, consistent with the classification of the associated deferred project costs.

 

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Impairment of Long-lived Assets

 

We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable or that the useful life is shorter than originally estimated. We assess recoverability of the long-lived assets by comparing the carrying amount of the assets to the estimated future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. We recognize an impairment loss in the event the carrying amount exceeds the estimated future undiscounted cash flows attributable to such assets, measured as the difference between the carrying amount of the assets and the fair value of the impaired assets.

 

The impairment charge was recognized as the amount by which the carrying amount exceeded the fair value of the idled assets. The fair value of the idled assets was estimated based on two market based analyses, including an assessment that general machinery could be sold in the market, based on second-hand market quotations and that specialized machines and associated facilities have scrap value associated with their metal components, net of dismantling cost, freights, and relevant taxes.

 

At the end of September 2013, we concluded that we failed to achieve the cost reduction objectives of our ongoing technology improvement project, and as such we determined that it was no longer feasible to operate the Phase I facility without continuing to incur losses. We recognized the impairment charge of $202.8 million, including $194.7 million associated with the long-lived assets of the Phase I facility in our wafer segment, accordingly for the year ended December 31, 2013. Production at the Phase I facility was permanently discontinued in October 2013. There was no impairment loss of long-lived assets during the year ended December 31, 2014 and 2015.

 

Valuation of Deferred Tax Assets

 

We periodically evaluate the likelihood of the realization of deferred tax assets, and reduce the carrying amount of these deferred tax assets by a valuation allowance to the extent we believe it is more likely than not that some portion or all of the deferred tax assets will not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with operating losses in the China solar power industry, tax planning strategies implemented and other tax planning alternatives. If our operating results are less than currently projected and there is no objectively verifiable evidence to support the realization of our deferred tax asset, additional valuation allowance may be required to further reduce our deferred tax asset. Based on the results of the analysis, we determined that it was more likely than not that certain deferred tax assets would not be realized before the expiration of the carryforward period. A valuation allowance of $126.6 million was established for the year ended December 31, 2015. We still believe that it is more likely than not that the remaining $16.2 million of deferred tax assets will be realized before the carryforward period expires.

 

Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

 

Allowance for Doubtful Receivables, Advances to Suppliers and Advances for Purchases of Property, Plant and Equipment

 

We maintain allowances for doubtful receivables, advances to suppliers and advances for purchases of property, plant and equipment primarily based on the age of receivables or advances and factors surrounding the credit risk of specific customers or suppliers. We perform ongoing credit evaluations of the suppliers’ financial conditions. We generally do not require collateral or other security against such suppliers; however, we maintain a reserve for potential credit losses. If there is a deterioration of a major customer or supplier’s creditworthiness or actual defaults are higher than our historical experience, we may need to maintain additional allowances. Allowances for doubtful receivables are comprised of allowances for accounts receivable and allowances for other receivables.

 

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In order to secure a stable supply of silicon materials and construction materials, we make advance payments to suppliers for raw material supplies and advances for purchases of long-lived assets which are offset against future deliveries. Advances to suppliers for purchases expected within twelve months as of each balance sheet date are recorded as advances to suppliers in current assets and those associated with purchases expected over longer periods of time. Future balances are recorded in non-current advance to suppliers. As of December 31, 2013, 2014 and 2015, advances to suppliers in current assets were $14.2 million, $27.5 million and $18.5 million, respectively, and non-current advance to suppliers for silicon raw material supplies were $5.6 million, nil and nil, respectively. Advances for property, plant and equipment are recorded in non-current assets and were $2.2 million, $1.8 million and $0.4 million as of December 31, 2013, 2014 and 2015, respectively. We do not require collateral or other security against our advances to suppliers. We perform ongoing credit evaluations on the financial condition of our suppliers as our claims for such prepayments are unsecured, which expose us to the suppliers’ credit risk. As of December 31, 2015, $4.4 million of allowance was provided against the advances to suppliers.

 

For the years ended December 31, 2013, 2014 and 2015, we made provisions for doubtful receivables, advances to suppliers and advances for purchases of property, plant and equipment in the aggregate amount of $3.7 million, $5.7 million and $0.1 million, respectively.

 

Warranty Expenses

 

Our solar modules are typically sold with 25 year warranties against specified declines in the initial minimum power generation capacity at the time of delivery. We also provide warranties for solar modules against defects in materials and workmanship for a period of five or ten years from the date of sale. Warranty cost is accrued at the point the related module revenue is recognized. Due to our limited solar module manufacturing history, we do not have a significant history of warranty claims. Cost of warranties is estimated based on an assessment of our and competitors’ accrual history, industry-standard testing, estimates of failure rates from quality review and other assumptions that are considered to be reasonable under the circumstances. Actual warranty costs are accumulated and charged against accrued warranty liability. To the extent that actual warranty cost differs from the estimates, we will prospectively revise the accrual rate. As such estimates are subjective, we will continue to analyze our claim history and the performance of our products and compare against our competitors, industry data for warranty claims, and other assumptions, such as academic research, to determine whether our accrual is adequate. We have adopted a warranty accrual rate of 1.0% of PV module revenues, based on our assessment of industry norms which also represents our best estimate to date. Should we begin to experience warranty claims differing from our accrual rate, we would prospectively revise the warranty accrual rate. We revised downward the estimated cost to satisfy our outstanding product warranty by approximately $7.8 million for the year ended December 31, 2012, attributable primarily to a decrease in the average selling prices of solar modules, a primary input into the estimated costs of our warranty policy. From the first quarter of 2014, we reclassified warranty expenses from cost of revenues to selling expenses, to better reflect our global OEM business operations and align our accounting policy to industry peers. The reclassifications have been adopted retrospectively and the comparative consolidated income statement amounts for the years ended December 31, 2010 to 2013 have been adjusted accordingly. We adjusted downward the estimated warranty expenses by $3.2 million to reflect our outstanding product warranty for the year ended December 31, 2015, primarily due to the decrease in average selling price of our solar modules, which is a primary factor for determining the estimated warranty expenses.

 

For utility-scale solar power projects built by us, we provide performance warranty which we may need to perform an energy generation performance test during the first and second year of the solar power plant’s operation. Such a test is designed to demonstrate that the actual energy generation for the first and second year meets or exceeds the modeled energy expectation, after certain adjustments and exclusions. If there is an underperformance event, determined at the end of the first and second year after substantial completion, we may incur liquidated damages as a percentage of the EPC contract price.

 

Project Assets and Deferred Project Costs

 

In 2012, we began entering into arrangements to develop commercial solar power systems, or project assets, for sale upon their completion. Project assets consist primarily of costs relating to solar power projects in various stages of development that are capitalized prior to entering into a definitive sales agreement for the solar power project. These costs include certain acquisition costs, land costs and costs for developing and constructing a solar power system. Development costs can include legal, consulting, permitting, and other similar costs. Construction costs can include execution of field construction, installation of solar equipment, and solar modules and related equipment. Interest costs incurred on debt during the construction phase are also capitalized within project assets. We do not depreciate the project assets, when they are considered held for sale. Any revenue generated from a solar power system connected to the grid would be considered incidental revenue and accounted for as a reduction of the capitalized project costs for development. In addition, we present all expenditures related to the development and construction of project assets as a component of cash flows from operating activities.

 

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During the development phase, these project assets are accounted for in accordance with the recognition, initial measurement and subsequent measurement subtopics of ASC 970- 360, as they are considered in substance real estate.

 

While the solar power projects are in the development phase, they are generally classified as non-current assets, unless it is anticipated that construction will be completed and sale will occur within one year.

 

Project assets are classified as current assets on the consolidated balance sheets when the criteria in ASC 360-10-45-9 are met. If not met, we will reclassify them to property, plant and equipment, unless the delay in the period required to complete the sale is caused by events or circumstances beyond our control. In 2014, we reclassified two project assets in Romania to property, plant and equipment with the carrying value of $27,127,591.

 

Deferred project costs represent costs that are capitalized as project assets for arrangements that are accounted for as real estate transactions after we have entered into a definitive sales arrangement, but before the sale is completed or before all criteria to recognize the sale as revenue is met. We classify deferred project costs as noncurrent if all revenue recognition criteria are not expected within the next 12 months. As of December 31, 2015, we entered into a sale transaction for one project asset, which includes contractual provisions which may require us to repurchase the project asset under certain circumstances. The repurchase provisions expire on June 30, 2017. In connection with this transaction, we have classified the project asset as deferred project costs and the cash received in connection with the sales price as deferred revenue of $20.9 million and $25.4 million, respectively.

 

We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We consider a project commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. We consider a partially developed or partially constructed project commercially viable or recoverable if the anticipated selling price is higher than the carrying value of the related project assets. We examine a number of factors to determine if the project will be recoverable, the most notable of which include whether there are any changes in environmental, ecological, permitting, market pricing or regulatory conditions that impact the project. Such changes could cause the costs of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair the respective project assets and adjust the carrying value to the estimated recoverable amount, with the resulting impairment recorded within operations. We did not recognize any impairment losses on project assets for the years ended December 31, 2014 and 2015, respectively.

 

Segment Operations

 

In 2013 and 2014, we operated in two principal reportable business segments, namely wafer sales segment and cell and module sales segment. In 2015, we began to report revenue from sales of solar power projects and generation of electricity as a separate segment. We currently operate our business in three principal reportable business segments:

 

·wafer sales segment, which involves the manufacture and sales of monocrystalline and multicrystalline solar wafers and processing services;

 

·cell and module sales segment, which involves the manufacture and sales of solar cells and modules; and

 

·solar power projects segment, which involves sales of solar power projects, and electricity generation revenue of certain project assets we own and operate which were reported under our other business segment during previous years.

 

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The three segments are evaluated regularly by our chief executive officer to decide how to allocate resources and to assess performance. We do not allocate operating expenses by segment.

 

We began selling solar modules in June 2009 after our acquisition of ReneSola Jiangsu. ReneSola Jiangsu began its cell manufacturing in October 2008 and module manufacturing in November 2005. As of December 31, 2015, ReneSola Jiangsu had an annual cell manufacturing capacity of 240 MW and an annual module manufacturing capacity of 1,200 MW. Although sales from our wafer segment have been our dominant business since the end of 2011, we have shifted our focus to the module segment and in 2014 transformed our business so that we now primarily produce modules. In addition, starting from 2015, in line with our expansion into downstream solar power projects businesses, we began to recognize revenue from sales of solar power projects. See “—Results of Operations” for a discussion of period-to-period comparisons between the segments.

 

Results of Operations

 

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations with each item expressed as a percentage of our total net revenues, except for the percentages of gross margin which represent the gross margin of each segment or our overall gross margin, as applicable.

 

      For the Year Ended December 31,  
      2013       2014       2015  
    (in thousands, except percentages)  
Net revenues        
Solar wafers(1)(2)   $ 366,161       24.1 %   $ 223,489       14.3 %   $ 225,633       17.6 %
Solar modules(3)(4)     1,141,964       75.1       1,329,268       85.1       940,011       73.3  
Solar power projects(5)(6)     11,510       0.8       8,740       0.6       116,387       9.1  
Total     1,519,635       100.0       1,561,497       100.0       1,282,031       100.0  
Cost of revenues                                                
Solar wafers(7)     (350,905 )     (23.1 )     (201,006 )     (12.9 )     (198,584 )     (15.5 )
Solar modules(8)     (1,051,981 )     (69.2 )     (1,146,392 )     (73.4 )     (802,295 )     (62.6 )
Solar power projects     (3,644 )     (0.2 )     (4,819 )     (0.3 )     (93,278 )     (7.3 )
Total     (1,406,530 )     (92.6 )     (1,352,214 )     (86.6 )     (1,094,157 )     (85.3 )
Gross profit and gross margin                                                
Solar wafers     15,256       4.2       22,483       10.1       27,049       12.0  
Solar modules     89,983       7.9       182,876       13.8       137,716       14.7  
Solar power projects     7,866       68.3       3,924       44.9       23,109       19.9  
Total     113,105       7.4       209,283       13.4       187,874       14.7  
Operating (expenses) income:                                                
Sales and marketing(5)     (75,595 )     (4.9 )     (93,067 )     (6.0 )     (72,295 )     (5.6 )
General and administrative     (55,633 )     (3.7 )     (67,294 )     (4.3 )     (59,290 )     (4.6 )
Research and development     (46,452 )     (3.1 )     (52,575 )     (3.4 )     (43,905 )     (3.4 )
Other operating (expenses) income     45,886       3.0       11,870       0.8       16,920       1.3  
Impairment of long-lived assets     (202,757 )     (13.3 )                        
Total operating expenses     (334,551 )     (22.0 )     (201,066 )     (12.9 )     (158,570 )     (12.4 )
Income (loss) from operations     (221,446 )     (14.6 )     8,217       0.5       29,304       2.3  
Non-operating income (expenses):                                                
Interest income     8,443       0.6       5,010       0.3       2,875       0.2  
Interest expense     (52,109 )     (3.4 )     (49,016 )     (3.1 )     (43,418 )     (3.4 )
Foreign exchange (losses) gains     (368 )     (—) *     (27,009 )     (1.7 )     (2,137 )     (0.2 )
Gains (losses) on derivatives, net     634       *     6,058       0.4       (6,031 )     (0.5 )
Gains on repurchase of convertible notes                 7,048       0.4       13,693       1.1  
                                                 

  

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   For the Year Ended December 31, 
   2013   2014   2015 
   (in thousands, except percentages) 
Fair value change of warrant liability   3,203    0.2    7,455    0.5    1,313    0.1 
Gain on disposal of subsidiaries           8,253    0.5         
Total non-operating (expenses)   (40,197)   (2.7)   (42,201)   (2.7)   (33,705)   (2.6)
Loss before income tax, non-controlling interests   (261,643)   (17.2)   (33,984)   (2.2)   (4,401)   (0.3)
Income tax benefit (expense)   2,723    0.2    350    *   (674)   (0.1)
Net loss   (258,920)   (17.0)   (33,634)   (2.2)   (5,075)   (0.4)
Net loss attributable to non-controlling interests   (4)   (—)*   (4)   *        
Net income (loss) attributable to holders of ordinary shares  $(258,916)   (17.0)%  $(33,630)   (2.2)%  $(5,075)   (0.4)%

 

 

*Less than 0.1%.

 

(1)Includes $51.1 million, $41.0 million and $61.9 million from sales of other materials in the years ended December 31, 2013, 2014 and 2015, respectively.

 

(2)Includes approximately $2.9 million, $2.9 million and $0.05 million of net revenues in our solar wafer segment from products sold to related parties in 2013, 2014 and 2015, respectively. Net revenues in our solar wafer segment from products sold to related parties accounted for 0.2%, 0.2% and 0.003% of our total net revenues in 2013, 2014 and 2015, respectively.

 

(3)Includes approximately $23.9 million, $12.4 million and $8.3 million from sales of solar cells in the years ended December 31, 2013, 2014 and 2015, respectively. For the years ended December 31, 2013, 2014 and 2015, the net revenues from solar modules also included approximately $1.2 million, $7.8 million and $11.5 million, respectively, from service revenue from tolling arrangements with respect to solar modules.

 

(4)Includes approximately $0.3 million, nil and nil of net revenues in our solar module segment from products sold to related parties in 2013, 2014 and 2015, respectively. Net revenues in our solar module segment from products sold to related parties accounted for less than 0.1%, nil % and nil% of our total net revenues in 2013, 2014 and 2015, respectively.

 

(5)Includes nil, nil and $110.7 million from sales of solar power projects in the years ended December 31, 2013, 2014 and 2015, respectively. Net revenues from sales of solar power projects accounted for nil, nil and 8.6% of our total net revenues in 2013, 2014 and 2015, respectively.

 

(6)Includes $11.5 million, $8.7 million and $5.6 million from sales of electricity generated by our power systems held for use in the years ended December 31, 2013, 2014 and 2015, respectively. Net revenues from sales of electricity generated by our power systems held for use accounted for 0.7%, 0.6% and 0.4% of our total net revenues in 2013, 2014 and 2015, respectively.

 

(7)Includes approximately $3.3 million, $2.7 million and $0.05 million of cost of revenues in our solar wafer segment from products sold to related parties in 2013, 2014 and 2015, respectively. The cost of revenues of our solar wafer segment from products sold to related parties accounted for 0.2%, 0.2% and 0.003% of the total net revenues in 2013, 2014 and 2015, respectively.

 

(8)Includes approximately $0.2 million, nil and $nil of cost of revenues in our solar module segment from products sold to related parties in 2013, 2014 and 2015, respectively. The cost of revenues of our solar module segment from products sold to related parties accounted for less than 0.1%, nil% and nil% of the total net revenues in 2013, 2014 and 2015, respectively.

 

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

 

Net Revenues. Our net revenues decreased from $1,561.5 million in 2014 to $1,282.0 million in 2015 primarily due to decreases in our module shipments and average module selling price, partially offset by our revenue from sales of solar power projects in 2015.

 

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Net revenues were $225.6 million for our wafer sales segment, $940.0 million for our modules sales segment and $116.4 million for our solar power project segment in 2015, compared to $223.5 million for our wafer sales segment, $1,329.3 million for our modules sales segment and $8.8 million for the solar power project segment in 2014. The increase in net revenues for wafer segment was primarily due to an increase in wafer shipments from 846.1 MW in 2014 to 1,088.6 MW in 2015, partially offset by a decrease in average wafer selling price from $0.216 per watt in 2014 to $0.181 per watt in 2015. The decrease in net revenues for module sales was primarily due to a decrease in the average module selling price from $0.664 per watt in 2014 to $0.576 per watt in 2015, as well as a decrease in module shipments from 1,970 MW in 2014 to 1,597 MW in 2015. Such decreases were primarily due to decreased volume of sales orders and the use of some in-house manufactured modules in our solar power projects. We began to generate revenue from sales of solar power projects in 2015. and recorded net revenue of $110.7 million from the sales of our solar power projects in 2015.

 

Cost of Revenues. Our cost of revenues decreased from $1,352.2 million in 2014 to $1,094.2 million in 2015. Specifically, cost of revenues for our wafer sales segment decreased from $201.0 million in 2014 to $198.6 million in 2015, cost of revenues for our module sales segment decreased from $1,146.4 million in 2014 to $802.3 million in 2015 and cost of revenues for our solar power project segment increased from $4.8 million in 2014 to $93.3 million in 2015. The decrease in wafer segment was primarily due to the lower processing cost. The decrease in module segment was primarily due to the decreased module shipment volume and the lower processing cost. The increase in solar power project segment was primarily due to our sales of solar power projects since 2015.

 

Gross Profit. Gross profit for 2015 was $187.9 million, compared to a gross profit of $209.3 million in 2014. Gross margin for 2015 was 14.7%, compared to a gross margin of 13.4% in 2014. The increase in gross margin was primarily due to a decrease in our wafer processing cost and the higher gross margin associated with our solar power project business.

 

Gross profit from our wafer sales segment for 2015 was $27.0 million, compared to $22.5 million in 2014. Gross margin from our wafer sales segment for 2015 was 12.0%, compared to 10.1% in 2014. Gross profit from our module sales segment decreased from $182.9 million in 2014 to $137.7 million in 2015. Gross margin from our module sales segment for 2015 was 14.7%, compared to 13.8% in 2014. Gross profit from our solar power project segment was $23.1 million in 2015, compared to $3.9 million in 2014. Gross margin from our solar power project segment for 2015 was 19.9%, compared to 44.9% for 2014.

 

Sales and Marketing Expenses. Sales and marketing expenses decreased from $93.1 million in 2014 to $72.3 million in 2015, and sales and marketing expenses as a percentage of net revenues decreased from 6.0% in 2014 to 5.6% in 2015, primarily due to a decrease in shipment expenses in line with our decreased module shipments, as well as a decrease in warranty expenses.

 

General and Administrative Expenses. General and administrative expenses decreased from $67.3 million in 2014 to $59.3 million in 2015, primarily due to our effective expense control measures. Our general and administrative expenses as a percentage of net revenues slightly increased from 4.3% in 2014 to 4.6% in 2015.

 

Research and Development Expenses. Research and development expenses decreased from $52.6 million in 2014 to $43.9 million in 2015. Our research and development expenses as a percentage of net revenues remained stable at 3.4% in 2014 and 2015.

 

Other Operating Income. We had other operating income of $16.9 million for 2015, compared to an operating income $11.9 million for 2014. Our other operating income consisted primarily of gains or losses on disposal of fixed assets and land use rights, subsidies received from the government, and gain from settlement of certain payables.

 

Interest Income and Expenses. Our interest income decreased from $5.0 million in 2014 to $2.9 million in 2015. Our interest expense decreased from $49.0 million in 2014 to $43.4 million in 2015, which was mainly due to the decrease in our total outstanding convertible senior bonds. As a result, we had an interest expense, net, of $40.5 million in 2015, compared to $44.0 million in 2014.

 

Foreign Exchange Gains or Losses. Our foreign exchange loss for 2015 was $2.1 million, compared to a foreign exchange loss of $27.0 million for 2014. The foreign exchange loss in 2015 was primarily due to the depreciation of Renminbi. The foreign exchange loss in 2014 was primarily due to the depreciation of the Euro and Japanese yen against the U.S. dollar.

 

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Gains (losses) on Derivatives, Net. We recorded losses on derivatives, net, of $6.0 million for 2015, compared to a gain on derivatives, net, of $6.1 million for 2014.

 

Gain on Disposal of Subsidiaries. We did not dispose any subsidiaries during the year ended December 31, 2015. We recorded a gain on disposal of subsidiaries of $8.3 million for 2014 as a result of the disposal of ten of our subsidiaries which were primarily engaged in the operation of our domestic solar power projects in Western China.

 

Gains on Repurchase of Convertible Notes. We recorded gains on repurchase of convertible senior notes of $13.7 million for 2015, compared to gains on repurchase of convertible senior notes of $7.0 million for 2014.

 

Fair Value Change of Warrant Liability. We recognized a gain from a fair value change of warrant liability of $1.3 million for 2015 and $7.5 million for 2014.

 

Income Tax Expense (Benefit). Our income tax expense for 2015 was $0.7 million, compared to an income tax benefit of $0.4 million for 2014. The income tax expense in 2015 was mainly resulted from the generation of taxable income by some of our PRC subsidiaries.

 

Net Income (Loss) Attributable to Holders of Ordinary Shares. As a result of the foregoing, we had a net loss attributable to holders of ordinary shares of $5.1 million in 2015, compared to a net loss of $33.6 million in 2014.

 

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013

 

Net Revenues. Our net revenues increased from $1,519.6 million in 2013 to $1,561.5 million in 2014 primarily due to an increase in our module shipments and an increase in our average selling prices as a result of general market recovery.

 

Net revenues were $223.5 million for our wafer sales segment, $1,329.3 million for our modules sales segment and $8.7 million for our solar power projects segment in 2014, compared to $366.2 million for our wafer sales segment, $1,142.0 million for our modules sales segment and $11.5 million for our solar power projects segment in 2013. The net revenue for wafers decreased primarily because we used more of our self-produced wafers for our own module manufacturing. The increase in net revenue for module sales was primarily due to an increase in the average module sale price from $0.646 per watt in 2013 to $0.664 per watt in 2014, as well as an increase in module shipments from 1,729 MW in 2013 to 1,970 MW in 2014.

 

Cost of Revenues. Our cost of revenues decreased from $1,406.5 million in 2013 to $1,352.2 million in 2014. Specifically, cost of revenues for our wafer sales segment decreased from $350.9 million in 2013 to $201.0 million in 2014, cost of revenues for our module sales segment increased from $1,052.0 million in 2013 to $1,146.4 million in 2014, and cost of revenues for our solar power projects segment increased from $3.6 million in 2013 to $4.8 million in 2014. The decrease in the wafer segment was primarily due to a decreased shipment of wafers. The increase in the module segment was due to increased shipments.

 

Gross Profit (Loss). Gross profit for 2014 was $209.3 million, compared to a gross profit of $113.1 million in 2013. Gross margin for 2014 was 13.4%, compared to a gross margin of 7.4% in 2013. The increase in gross margin was primarily due to an increase in our module shipments and a general recovery of the industry.

 

Gross profit from our wafer sales segment for 2014 was $22.5 million, compared to a gross profit of $15.3 million in 2013. Gross margin from our wafer sales segment for 2014 was 10.1%, compared to 4.2% in 2013. Gross profit from our module sales segment increased from $97.8 million in 2013 to $186.8 million in 2014. Gross margin from our module sales segment for 2014 was 14.0%, compared to 8.5% in 2013.

 

Sales and Marketing Expenses. Sales and marketing expenses increased from $75.6 million in 2013 to $93.1 million in 2014 primarily due to our international business development. Sales and marketing expenses as a percentage of net revenues increased from 4.9% in 2013 to 6.0% in 2014 due to our increased efforts in exploring international development opportunities.

 

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General and Administrative Expenses. General and administrative expenses increased from $55.6 million in 2013 to $67.3 million in 2014. Our general and administrative expenses as a percentage of net revenues increased from 3.7% in 2013 to 4.3% in 2014 as a result of the increase of international offices to explore international development opportunities.

 

Research and Development Expenses. Research and development expenses increased from $46.5 million in 2013 to $52.6 million in 2014. Our research and development expenses as a percentage of net revenues increased from 3.1% in 2013 to 3.4% in 2014.

 

Other Operating Income. We had other operating income of $11.9 million for 2014, compared to an operating income of $45.9 million for 2013. Our other operating income consisted primarily of government grants.

 

Impairment of Long-lived Assets. We recognized impairment of long-lived assets of nil as of December 31, 2014, compared to $202.8 million as of December 31, 2013.

 

Interest Income and Expenses. Our interest income decreased from $8.4 million in 2013 to $5.0 million in 2014. Our interest expense decreased from $52.1 million in 2013 to $49.0 million in 2014, which was mainly due to a decrease in total debt outstanding. As a result, we had an interest expense, net, of $44.0 million in 2014, compared to $43.7 million in 2013.

 

Foreign Exchange Gains or Losses. Our foreign exchange losses for 2014 were $27.0 million, compared to a foreign exchange loss of $0.4 million for 2013. The change was primarily due to the depreciation of the euro and Japanese yen against the U.S. dollar.

 

Gains (losses) on Derivatives, Net. We recorded a gain on derivatives, net, of $6.1 million for 2014, compared to a gain on derivatives, net, of $0.6 million for 2013.

 

Gain on Disposal of Subsidiaries. We recorded a gain on disposal of subsidiaries of $8.3 million for 2014 as a result of the disposal of ten of our subsidiaries which were primarily engaged in the operation of our domestic solar power projects in Western China. We recorded nil for 2013.

 

Gains on Repurchase of Convertible Notes. We recorded gains on repurchase of convertible senior notes of $7.0 million for 2014, compared to nil for 2013.

 

Fair Value Change of Warrant Liability. We recognized a gain from a fair value change of warrant liability of $7.5 million for 2014. We recognized a gain from a fair value change of warrant liability of $3.2 million for 2013.

 

Income Tax Benefit. Our income tax benefit for 2014 was $0.4 million, compared to an income tax benefit of $2.7 million for 2013. The increase in our tax benefit was due to different tax rates of tax jurisdictions and additional valuation allowances provided in 2014.

 

Net Income (Loss) Attributable to Holders of Ordinary Shares. As a result of the foregoing, we had a net loss attributable to holders of ordinary shares of $33.6 million in 2014, compared to a net loss of $258.9 million in 2013.

 

B.Liquidity and Capital Resources

 

Liquidity and Capital Resources

 

As of December 31, 2015, although we had negative working capital and experienced a net loss for the year, which may raise substantial doubts about our ability to continue as a going concern, we believe that our cash and cash equivalents, cash flows from operating activities, including project assets and continued support from financial institutions located in the PRC, in the form of renewed and additional short-term loan facilities (including trade financing), will be sufficient to meet our working capital and capital expenditure needs that will arise in 2016 and beyond. We intend to continue to carefully execute our operating plans and manage credit and market risk. However, if our financial results or operating plans change from our current assumptions, our liquidity could be negatively impacted.

 

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The following financial conditions in 2015 have impacted and are expected to continue to impact our liquidity. For the year ended December 31, 2015, we incurred a net loss of approximately $5.1 million. As of December 31, 2015, our current liabilities exceeded our current assets by $466.1 million. Significant components of our working capital as of December 31, 2015, are as follows:

 

·Our total current assets were $637.8 million, including cash and cash equivalents of $38.0 million.

 

·We have project assets of $20.2 million of late-stage projects under development in the United States, the United Kingdom and Japan, but have not yet sold any of these assets as of the date of this annual report. Although we believe that we will be able to sell such project assets at a profit, if we are unable to sell these project assets at reasonable prices in the near term, our liquidity may be negatively impacted.

 

·The amount of our total accounts and notes receivables increased from $125.7 million as of December 31, 2014 to $161.2 million as of December 31, 2015, primarily due to the increase in our notes receivables, which mainly related to the sales we made to a domestic customer who paid us with notes in the fourth quarter of 2015. The inability to collect on the existing accounts receivable may negatively impact our liquidity.

 

·Our advances to suppliers, current portion, which are unsecured, was $18.5 million as of December 31, 2015.

 

·The balance of finished goods inventory decreased from $226.4 million as of December 31, 2014 to $121.7 million as of December 31, 2015, primarily due to our scale-back of OEM arrangements and a decrease in our module sales volume. The inability to sell the finished goods at reasonable prices may negatively impact our liquidity.

 

·Our current liabilities as of December 31, 2015 included short-term bank borrowings of $667.7 million, all of which will be due within one year, and the current portion of long-term bank borrowings amounting to $1.1 million, which are not expected to be renewed.

 

While we expect to steadily increase our solar wafer manufacturing capacity in 2016, we plan to maintain our existing polysilicon, cell and module manufacturing capacities in 2016. We do not currently plan to build new facilities, but plan to incur total capital expenditures of up to $14.0 million to maintain or enhance our existing manufacturing facilities during 2016 and 2017.

 

Cash generated from operations and short-term financing is our primary source of operating liquidity, and we believe that cash flows from operations combined with our existing cash and cash equivalents, and facilities currently available, and those expected to be renewed will be sufficient to satisfy our obligations when they become due. The following plans and actions are being taken to effectively manage our liquidity:

 

·As of the date of this annual report, we performed a review of our cash flow forecast for the following twelve months. We believe that our operating cash flow in the forecasted period will be positive. We believe the forecast is based on reasonable assumptions, including: (i) the cost to produce modules and wafers is estimated to be marginally lower for the forecasted period, as a result of continuous cost control effectiveness, and (ii) we expect the solar power project business to generate positive cash inflow in the forecasted period.

 

·While there can be no assurance that we will be able to refinance our short-term bank borrowings as they become due, historically, we have rolled over or obtained replacement borrowings from existing creditors for most of our short-term bank loans upon the maturity date of the loans. As of March 31, 2016, we successfully rolled-over $87.7 million of short-term loans which were outstanding as of December 31, 2015 and we have assumed that we will continue to be able to do so for the foreseeable future.

 

·As of March 31, 2016, we had unused lines of credit of $110.4 million, of which $73.4 million was related to trade financing. Based on our historical experience, trade facility funding requests will be approved in the normal course, provided that we submit the required supporting documentation and the amount is within the credit limit granted.

 

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·In March 2016, we received non-binding letters of commitment from four banks to support our financing in the amount of $426.0 million, of which $299.2 million was related to short term loans and $126.8 million was related to trade financing. However, the non-binding letters of commitment from banks do not have a stated term, and may be withdrawn by the banks at their discretion.

 

·In 2015, we sold three utility-scale solar power projects totaling approximately 57.5 MW in the United Kingdom and three utility-scale solar power projects totaling approximately 1.8 MW in Japan. We also entered into sales agreements in connection with the sale of one utility-scale solar power projects totaling approximately 13.5 MW in the United Kingdom in 2015, which has been recorded as deferred revenue. In the first quarter of 2016, we completed construction of and connected three additional utility-scale solar power projects totaling approximately 20 MW, in the United Kingdom, which we have received letter of intent from potential purchasers. We also entered into a sales agreement in connection with the sale of two utility-scale solar power projects in Bulgaria totaling approximately 9.7 MW. This is estimated to generate positive cash inflow in the forecasted period.

 

·In the first quarter of 2016, we repurchased all of our remaining outstanding convertible notes with a carrying value of approximately $26.1 million using cash of $25.9 million.

 

Based on the above factors, we believe that adequate sources of liquidity will exist to fund our working capital and capital expenditure requirements, and to meet our short term debt obligations, other liabilities and commitments as they become due.

 

Short-term Borrowings

 

As of December 31, 2013, 2014 and 2015, we had outstanding short-term borrowings of $673.1 million, $654.7 million and $668.8 million, respectively. These short-term borrowings will expire at various times throughout 2016. Our short-term borrowings outstanding as of December 31, 2013, 2014 and 2015 were denominated primarily in the RMB and also in the U.S. dollar, Japanese yen, Korean won and the Euro and bore a weighted average interest rate of 5.46%, 5.75% and 5.65%, respectively. As of March 31, 2016, we successfully rolled-over or obtained replacement borrowings from existing credit of $87.7 million short-term borrowings which were outstanding as of December 31, 2015. Some of our short-term borrowings are secured by our inventories, property, plant and equipment or land use rights and/or are guaranteed by our subsidiaries. We have other short-term borrowings guaranteed by Mr. Li, our chief executive officer and director, and his wife. Furthermore, according to certain loan agreements, we are obligated to maintain a certain minimum debt to asset ratio and our operating subsidiary, Sichuan ReneSola is not permitted to pay dividends in any year when any principal or interest on such loans is due. We have maintained our level of short-term bank borrowings to meet our working capital requirements for capital expenditures or other corporate uses, and we have not experienced any financial difficulty with respect to any repayment of our borrowings.

 

As of December 31, 2015, $287.3 million of our outstanding short-term borrowings were trade financings which, consistent with all of our other short-term credit facilities, were historically rolled over. The majority of our short-term borrowings are provided by some of the largest banks in China. Historically, most of these banks extended the terms of their credit facilities when requested by us before their maturity dates. We believe our ability to extend our short-term credit facilities prior to their maturity remains strong in the current credit environment.

 

Long-term Borrowings

 

From time to time, we enter into long-term borrowing arrangements with various banks in China or overseas. As of December 31, 2013, 2014 and 2015, we had outstanding long-term borrowings with remaining terms of more than one year of $69.5 million, $43.5 million and $38.8 million, respectively. The long-term loan arrangements set forth below are the arrangements that we believe are important to our operation and business.

 

Since 2009, we have obtained several loans from China Construction Bank as follows. Pursuant to a RMB800 million five-year term loan agreement entered into in January 2009 with China Construction Bank, we obtained four long-term loans in the amounts of RMB450 million in January 2009, RMB150 million in June 2009, RMB190 million in June 2009 and RMB10 million in June 2009. These loans were used to finance the construction of our polysilicon production facility in Meishan, Sichuan Province. We have repaid the loans in full based on the agreed repayment schedule as of December 31, 2015.

 

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In April 2011, we obtained a loan of RMB170 million with a term of 60 months from Bank of China. We entered into a supplement agreement with Bank of China on December 31, 2015 to extend the term of the loan to 78 months. We repaid the loan based on the agreed repayment schedule. As of December 31, 2015, the remaining balance was RMB20 million ($3.1 million), which is to be repaid in June 2016 and June 2017. The proceeds from this loan were used to finance the improvement of our production facilities.

 

In March 2013, we obtained two four-year term loans from a lender in Korea totaling Korean Won 35.7 billion. These loans are to be repaid in March 2017. The proceeds from these loans were to be used to finance our PV plant projects in Romania.

 

The weighted average interest rate for our long-term loans was approximately 6.58% in 2015. Interest rates are variable for certain portions of the long-term loans, and may be updated every three months, once a year, or according to a predetermined schedule based on the applicable benchmark interest rate set by the People’s Bank of China or EURIBOR. $38.8 million of our outstanding long-term loans are expected to mature between 2016 and 2023.

 

Some of our long-term loans are secured by collateral such as shares of or other equity interests in our subsidiaries, pledges and security interests over our assets, receivables, inventories, project sites or land use rights, property, plant and equipment or project facilities, and/or guaranteed by our subsidiaries and/or Mr. Li, our director and chief executive officer, and his wife. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”

 

Some of our long-term loan agreements contain financial covenants, including requirements to maintain certain minimum levels of net assets, net profits, debt to asset ratio, ratio of net cash flow to due interest, principle and commission and fee of loan, the ratio of earnings before interest, taxes, depreciation and amortization, to interest expense, and the ratio of drawn down loan amount to collateral market value, and restrictive covenants that limit our ability to, among other things, (1) dispose of or provide guarantees, pledges, encumbrance or mortgages on our operating assets or long term assets in any manner that will increase risk to the lenders, (2) repay shareholders loans or loans from our related parties, (3) distribute dividends to shareholders, (4) enter into other financial obligations with third parties or undertake in full or part liabilities of a third party, (5) take part in any mergers or acquisitions, (6) change the nature of our operations, (7) reduce our paid-in fixed capital, (8) utilize the loan for a purpose other than the one stated in the agreement, (9) increase our financial indebtedness, and (10) agree to the adjustment of the interest rate upon a lender’s request in response to macroeconomic changes. As of December 31, 2015, Sichuan ReneSola, ReneSola Jiangsu and ReneSola Zhejiang were in compliance with all debt covenants. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Restrictive covenants and undertakings under our bank loans may limit the manner in which we operate and an event of default under the loan may adversely affect our operations.”

 

Issuance of Securities

 

In March and April 2011, we issued $200 million aggregate principal amount of convertible senior notes due 2018. The net proceeds of the offering was approximately $192.8 million, a portion of which we used to pay the cost of the capped call transactions that we entered into with an affiliate of one of the initial purchasers, to which we refer to as the hedge counterparty, and the remainder for expansion of polysilicon production capacity. The convertible senior note holders had the right to require us to repurchase for cash all or any portion of their convertible senior notes on March 15, 2016 at a repurchase price equal to 100% of the principal amount of the convertible senior notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. The carrying value of such convertible senior notes was $26.1 million as of December 31, 2015. We repurchased all of the remaining outstanding convertible senior notes during the first quarter of 2016.

 

In September 2013, we completed a registered direct offering of 15,000,000 ADSs, representing 30,000,000 of our shares, and warrants to purchase up to 10,500,000 additional shares, representing 35% of warrant coverage in the offering, at approximate $70 million before exercise of warrants.  The net proceeds from the offering was approximately $65.9 million (excluding proceeds from the exercise of warrants) based on the public offering price of $4.67 per ADS and warrants for 35% of an ADS.  The warrants have an initial exercise price of $3.02 per share (or $6.04 per ADS). The warrants are exercisable immediately and will expire four years from the date of issuance.  We have used the net proceeds from the offering for general corporate purposes, including working capital and polysilicon plant optimization.

 

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Cash Flows and Working Capital

 

We have significant working capital commitments because many of our silicon raw materials suppliers require us to make payments immediately upon shipping and, historically, prepayments in advance of shipment. Due to the volatility of the price of polysilicon, sufficient working capital and access to financing to allow for the purchase of silicon raw materials are critical to growing our business. Our short-term borrowings increased from $654.7 million in 2014 to $668.8 million in 2015. Our advances to suppliers decreased from $27.5 million as of December 31, 2014 to $18.5 million as of December 31, 2015. Under the current market conditions, prepayment to suppliers in advance of shipment has become less common. We perform credit evaluations of the financial condition of our suppliers to which we make prepayments.

 

Our total accounts and notes receivable decreased from $236.6 million as of December 31, 2013 to $125.7 million as of December 31, 2014 and increased to $161.2 million in 2015. Our allowance for doubtful accounts increased from $4.9 million as of December 31, 2013 to $7.6 million as of December 31, 2014 and decreased to $5.2 million in 2015. The decrease in our accounts receivable balance from 2013 to 2014 was primarily the result of more effective accounts receivable management. The increase in our accounts receivable balance from 2014 to 2015 was primarily due to the increase in our notes receivables, which mainly relates to the sales we made to a domestic customer who paid us with notes in the fourth quarter of 2015. For all customers, including those to whom longer credit terms are negotiated and granted, we assess a number of factors to determine whether collection is reasonably assured, including past transaction history with the customer and their overall creditworthiness. The aging of our accounts receivable increased from 2013 to 2014, and decreased from 2014 to 2015. Our allowance for doubtful accounts increased in 2014, compared with 2013, to reflect the negative trend of longer aged receivables, which we believe was symptomatic of difficult market conditions and constrained liquidity conditions for the solar industry overall. Our allowance for doubtful accounts decreased in 2015, compared with 2014, primarily due to our strengthened collection efforts and the tightened credit policy extended to our customers. In 2014 and 2015, we recorded accounts receivable write-off of $2.4 million and $1.8 million, respectively, primarily due to confirmed unrecoverable debts. While the business environment improved in 2015, to the extent that the overall negative environment which impacted the solar industry returns, or deteriorates, this negative trend could be exacerbated and write-offs could continue to occur. In 2016, we plan to closely manage our accounts receivable balances by strengthening our collection efforts as well as managing our inventory in order to preserve cash, and effectively manage our working capital requirements.

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

   Year Ended December 31, 
   2013   2014   2015 
   (in thousands) 
Net cash provided by (used in) operating activities  $118,561   $(121,689)  $2,210 
Net cash (used in) provided investing activities   (189,602)   115,461    (40,027)
Net cash provided by financing activities   67,620    13,049    (11,158)
Effect of exchange rate changes   (3,089)   6,254    (12,827)
Net increase (decrease) in cash and cash equivalents   (6,510)   13,075    (61,802)
Cash and cash equivalents at the beginning of the year   93,283    86,773    99,848 
Cash and cash equivalents at the end of the year  $86,773   $99,848   $38,045 

 

Operating Activities

 

Net cash provided by operating activities in 2015 was $2.2 million, primarily due to (i) a decrease in inventory of $121.8 million, primarily due to our scale-back of OEM arrangements and a decrease in our module sales volume, (ii) depreciation of $90.1 million, and (iii) an increase in deferred revenue of $32.4 million, partially offset by (i) a decrease in accounts payable of $159.0 million, primarily due to effective management of accounts payable, and (ii) a decrease in advances from customers of $58.7 million, and (iii) an increase in accounts and notes receivable of $58.7 million, primarily due to the sales we made to a domestic customer who paid us with notes in the fourth quarter of 2015.

 

Net cash used in operating activities in 2014 was $121.7 million, primarily due to (i) a net loss of $33.6 million primarily due to the continuing oversupply conditions in the solar power products market, (ii) a decrease in accounts payable of $174.9 million, primarily due to effective management of accounts payable, (iii) an increase in inventory levels of $19.2 million arising from the expansion of our module business, and (iv) an increase in project asset levels of $33.9 million arising from the expansion of our power plant business, partially offset by (i) depreciation of $90.2 million and (ii) a decrease in accounts receivable of $45.6 million as we manage the accounts receivable effectively.

 

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Net cash provided by operating activities in 2013 was $118.6 million, primarily due to the increase in net revenues as a result of the gradual recovery of the industry, an increase in accounts payable as we negotiated longer payment terms from suppliers, an increase in advances from customers and increases in inventory and accounts receivable levels arising from the expansion of our module business. The increases were offset by a net loss of $258.9 million less the impact of depreciation and impairment of long-lived assets of $112.9 million and $202.8 million, respectively.

 

Investing Activities

 

Net cash used in investing activities in 2015 was $40.0 million, primarily due to (i) an increase in restricted cash of $24.5 million, and (ii) a $14.4 million cash used for purchase of property, plant and equipment in connection with our module and wafer business.

 

Net cash provided by investing activities in 2014 was $115.5 million, primarily due to (i) $134.6 million from changes of restricted cash, (ii) $18.7 million of proceeds from disposal of subsidiaries and (iii) $12.2 million of cash received from government subsidies, partially offset by $51.8 million of cash used for property, plant and equipment expenditures in connection with the expansion of our module business.

 

Net cash used in investing activities in 2013 was $189.6 million, primarily due to increases in property, plant and equipment expenditures in connection with our solar power projects in Qinghai and Xinjiang, and restricted cash, which was partially offset by the cash received from government subsidies.

 

Financing Activities

 

Net cash used in financing activities in 2015 was $11.2 million, primarily due to (i) $1,052.6 million of the repayment of bank borrowings, and (ii) $54.4 million of the repurchase of convertible senior notes, which was partially offset by $1,100.0 million of proceeds from bank borrowings.

 

Net cash provided by financing activities in 2014 was $13.0 million, primarily due to $1.1 billion of proceeds from bank borrowing, which was partially offset by (i) $1.0 billion of the repayment of bank borrowings and (ii) $9.8 million of the repurchase of convertible senior notes.

 

Net cash provided by financing activities in 2013 was $67.6 million, primarily due to proceeds from bank borrowing and the issuance of common shares, which was partially offset by the repayment of bank borrowings.

 

As of December 31, 2013, 2014, and 2015, our net current liabilities were $506.2 million, $477.3 million and $466.1 million, respectively.

 

We have taken, and are continuing to take, the following measures to manage our liquidity difficulties: (i) closely monitoring and managing our working capital, which may involve seeking extended payment terms from our suppliers, strengthening accounts receivable collection efforts, implementing more stringent inventory management procedures and considering liquidation of accounts receivable by discounting banknotes with the relevant financial institutions, as needed, to maintain sufficient cash flows from operations to meet our liquidity requirements; and (ii) obtaining additional debt facilities in order to fund working capital needs, as necessary.

 

We believe that our current cash and cash equivalents, anticipated cash flows from our operations and bank borrowings will be sufficient to meet our anticipated cash needs for the foreseeable future based on current capital expenditure and operation plans. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions by us. If this were to occur, we may seek to make additional securities offerings or borrowings.

 

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Restrictions on Cash Dividends

 

For a discussion on the ability of our subsidiaries to transfer funds to our company, and the impact this has on our ability to meet our cash obligations, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ability to make distributions and other payments to our shareholders depends to a significant extent upon the distribution of earnings and other payment made by ReneSola Zhejiang” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Under the Enterprise Income Tax Law, dividends payable by us and gains on the disposition of our shares or ADSs could be subject to PRC taxation.”

 

Capital Expenditures

 

We had capital expenditures of $126.2 million, $54.5 million and $16.8 million in 2013, 2014 and 2015, respectively. We had outstanding advances for purchases of property, plant and equipment of $2.2 million, $1.8 million and $0.4 million as of December 31, 2013, 2014 and 2015, respectively. As of December 31, 2013, 2014 and 2015, our commitments outstanding for purchases of property, plant and equipment were $16.5 million, $10.1 million and nil, respectively. Our capital expenditures were used primarily to optimize our Sichuan polysilicon facility, to maintain our cell and module manufacturing plant in Yixing, Jiangsu Province, to purchase production equipment, to acquire land-use rights for each of the plants and to build up our solar power product business and downstream solar power project business.

 

While we expect to steadily increase the solar wafer manufacturing capacity in 2016 through technique improvement, we plan to maintain our existing polysilicon, cell and module manufacturing capacities in 2016. We do not currently plan to build new facilities, but do plan to incur total capital expenditures of up to $14.0 million to maintain or enhance our existing manufacturing facilities during 2016 and 2017.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Updates, or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards, or IFRS. An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is not permitted. In August, 2015, the FASB updated this standard to ASU 2015-14, the amendments in this Update defer the effective date of Update 2014 -09, that the Update should be applied to annual reporting periods beginning after December 15, 2017 and earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are still in the process of assessing the potential financial impact the adoption will have to us.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. ASU 2015-02 modifies existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds. These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financial interest. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. We are still in the process of assessing the potential financial impact to us.

 

In April 2015, the FASB issued ASU 2015-03 as part of its simplification initiative. Under the ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The requirement to present debt issuance costs as a direct reduction of the related debt liability (rather than as an asset) is consistent with the presentation of debt discounts under U.S. GAAP. In August 2015, the FASB issued ASU 2015-15 related with the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements, under which the SEC staff stated it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We plan to adopt the new standard for the year beginning January 1, 2016, and do not expect the adoption to have a significant net impact on the financial statements.

 

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In July, 2015, the FASB issued ASU 2015-11 as part of its simplification initiative. The ASU changes the way of measurement on inventory, which currently requires an entity to measure inventory at the lower of cost or market. The amendments in this Update require an entity to measure inventory within the scope of this Update at the lower of cost and net realizable value. We plan to adopt the new standard for the year beginning January 1, 2016, and is still in the process of assessing the potential financial impact to us.

 

In November 2015, the FASB issued ASU2015-17 as part of its simplification initiative. To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We plan to adopt the new standard for the year beginning January 1, 2016, and do not expect the adoption to have a significant net impact on the financial statements.

 

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10)-Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. The guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. ASU 2016-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and certain provisions of the guidance may be early adopted. We are still evaluating the impact ASU 2016-01 will have on the consolidated financial statements and associated disclosures.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018, with early application permitted. A modified retrospective approach is required. We are still in the process of assessing the potential financial impact the adoption will have to us.

 

In March 2016, the FASB issued ASU 2016-07, which eliminates eliminate the requirement to retroactively adopt the equity method of accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. We are in the process of evaluating the impact of adoption of this guidance on the consolidated financial statements and associated disclosures.

 

In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus-agent implementation guidance and illustrations in the Board's new revenue standard (ASC 606). The amendments in this update clarify the implementation guidance on principal versus agent considerations. When another party, along with the reporting entity, is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (as a principal) or to arrange for the good or service to be provided to the customer by the other party (as an agent). The guidance is effective for interim and annual periods beginning after December 15, 2017. We are still in the process of assessing the potential financial impact the adoption will have to us.

 

C.Research and Development, Patents and Licenses, Etc.

 

Research and Development

 

We focus our research and development efforts on improving our manufacturing efficiency, the quality of our products and new product development. As of December 31, 2015, our research and development team consisted of 288 experienced researchers and engineers. In addition, some of our manufacturing employees regularly participate in our research and development programs. A part of our research and development is conducted at our solar power technology development center, which is outfitted with advanced equipment for the research of solar power. Our recent technological achievements include:

 

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·Reducing cost: We have further developed a new technology to recycle products at the polysilicon manufacturing stage in order to reduce costs. We also continued to research the use of carbon composite materials, which we believe will help lower costs and expose us to new markets.

 

·Increasing yield: Our innovations enable us to increase the yield of our ingots, reduce our electricity costs and enhance the utilization rate of our furnaces and consumables, such as graphite, carbon fiber, steel wire and slurry

 

·Increasing efficiency: We have developed a variety of proprietary methods for producing wafers, including a special chemical doping formula for wafers to produce high-efficiency, low-degradation solar cells, a new casting process for multicrystalline solar wafers to increase solar cell conversion efficiency, and a customized monocrystalline hot-zone using simulation technology to reduce oxygen content and power consumption for high efficiency and low degradation.

We have also started manufacturing our A+++ wafer, a multicrystalline wafer, since March 2014. Our A+++ wafer has a conversion efficiency rate of 17.8%, which is 0.15% higher than the A++ wafer.

We have invested in the research and development of solar cell technology. The average conversion efficiency rates of our monocrystalline and multicrystalline solar cells manufactured reached 19.2% and 17.8%, respectively, as of December 31, 2015, which is in line with the market, based on our estimates.

 

·We have begun researching small-scale storage systems and the development of our own AC-OC optimizer and low-oxygen concentration solar wafers and carbon composite materials, which we believe will help improve conversion efficiencies. We have launched our off-grid, all-in-one storage system product, which incorporates a controller, MPPT battery charger, inverter and fast power switch in one system, supporting both acid and lithium batteries. As of December 31, 2015, we developed 10 kits for energy storage systems, ranging from 500 watts to 8,000 watts, all of which were available for purchase. In 2016, we plan to focus on introducing these systems to the market.

 

·Improving manufacturing process: We have invested in the research and development of solar wafer technology. For example, our A+++ wafer, a new multicrystalline wafer, improves solar cell efficiency. We have developed our own in-house diamond steel wires, which can improve solar wafer manufacturing processes through the use of resin-plated diamond steel wires.

We have invested in the research and development of solar module technology. For example, our new Virtus A++ manufacturing technology used to create the Virtus II® products has been streamlined such that products can be manufactured with less energy input, meaning that they are both environmentally friendly and cheaper to manufacture. We have also begun optimizing the module structure since the middle of 2014 while ensuring our carrying capacity and reliability. We believe that such structural improvement will help reduce packing and transportation costs.

Our Micro Replus™ can be used specifically with our solar modules in solar systems for power conversion and can be made available as a standalone microinverter or integrated with our panel for a turnkey AC module.

 

Through our continuous technological innovation and improvements in manufacturing efficiency, we were able to reduce our silicon consumption rate to 4.75 grams per watt as of December 31, 2015. Our wafer processing cost was $0.08 per watt during the same period, compared to $0.11 per watt as of December 31, 2014 and 2013.

 

We plan to continue to devote substantial resources to research and development in order to further improve our manufacturing processes, reduce manufacturing costs, increase product performance, enhance our solar technical capabilities and expand our green energy product portfolio. We plan to focus our research and development in the following areas:

 

·Polysilicon production. We are seeking to continue to fine-tune the closed-loop modified Siemens process system at our Meishan polysilicon manufacturing facility and exceeding its current designed capacity. We aim to further reduce production costs by increasing the TCS production output, reducing the power consumption and improving the recycling conversion ratio for converting by-products into TCS.

 

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·Wafer manufacturing. We will continue to reduce the cost of manufacturing solar wafers by, among other, improving the ingot-pulling speed for manufacturing of monocrystalline wafers, optimizing our manufacturing equipment and process routine, upgrading from manual programs to semi-automatic or automatic programs, increasing the purity of the ingots we produce, slicing thinner wafers, reducing wafer breakage rates, and enhancing the processes to reduce quality control cost.

 

·Cell manufacturing. We will continue to develop technologies to manufacture high-conversion efficiency solar cells with improved performance. As of December 31, 2015, we were able to achieve conversion efficiency rates of 19.5% for monocrystalline cells and 18.35% for multicrystalline cells manufactured using our solar wafers.

 

·Module manufacturing. We will continue to improve the process of module manufacturing by shortening the lamination time to reduce time and power consumption. We will also improve the structure of the module frame to reduce the adhesive sealant on the front side of the module and reduce the time for cleaning the module. We will consider using tempered glass with anti-reflecting film on the module to increase the module efficiency. We will continue to reduce our module manufacturing costs through a reduction in material costs and improvements in our manufacturing methods, and capitalize on the business’s higher margins relative to wafer manufacturing.

 

·Inverter technology. We will continue to reduce the thickness, volume and weight of micro inverter to fit the frame of a PV module. We will also improve the efficiency of micro inverse by changing the connection method of micro inverse output terminal. We will continue to reduce the production cost by simplifying the circuit, reducing volume and weight of the inverter, and improve product efficiency by improving the device parameters, and reducing power consumption.

 

In each of the three years ended December 31, 2013, 2014 and 2015, our research and development expenses were approximately $46.5 million, $52.6 million and $43.9 million, respectively.

 

Intellectual Property

 

As of December 31, 2015, we had 235 patents and 86 pending patent applications in China and 4 pending international patent applications. These patents and patent applications relate to the technologies in our products and the technologies utilized in our manufacturing processes. We intend to continue to assess appropriate opportunities for patent protection of critical aspects of our technologies. Our patents and our pending patent applications relate to improvements in product conversion efficiencies, improvements of the recycling, sorting and purification of silicon raw materials, ingot casting and wafer slicing processes.

 

We also rely on a combination of trade secrets and employee contractual protections to establish and protect our proprietary rights. We believe that many elements of our solar power products and manufacturing processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, equipment designs, algorithms and procedures. We take security measures to protect these elements. All of our research and development personnel have entered into confidentiality agreements with us. These agreements address intellectual property protection issues and require our employees to assign to us all of the inventions, designs and technologies that they develop when utilizing our resources or when performing their employment-related duties.

 

We have obtained registration of the “ReneSola” trademark in China, the European Union, Japan, Korea, the United States, Taiwan, Singapore, Canada, Israel, Australia, Dominica, Mexico, Malaysia, Chile, New Zealand, Argentina, Turkey, South Africa and India.

 

We also filed trademark registration applications for “ReneSola” and relevant designs in Thailand, Brazil and Indonesia and filed trademark registration applications of different commodity categories for “ReneSola” in Canada, Turkey, Sri Lanka and Mexico.

 

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We have also obtained the registration of the “Replus by ReneSola” trademark in the European Union, Mexico, Australia, Japan, Taiwan and the United States. We filed trademark application for “Replus by ReneSola” in China in 2013.

 

D.Trend Information

 

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2015 to December 31, 2015 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial conditions.

 

E.Off-balance Sheet Arrangements

 

As of December 31, 2015, we provided guarantee to Zhejiang Ruixu, our previous wholly-owned subsidiary which we disposed in January 2014, with respect to its loan facilities from China Development Bank of $31.3 million for 12.5 years and $46.9 million for 12.25 years as of March 2014. We began to provide guarantee to Zhejiang Ruixu on these loan facilities prior to our disposal of Zhejiang Ruixu. We do not believe the fair value of such loan guarantee was material as of December 31, 2015.

 

Other than as disclosed above, as of December 31, 2015, we did not have any off-balance sheet arrangements that had or were reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

F.Tabular Disclosure of Contractual Obligations

 

The following table sets forth our contractual obligations as of December 31, 2015:

 

   Payments Due by Period 
Contractual Obligations  Total   Less than
1 year
   1-3 years   3-5 years   More than 5 years 
   (in thousands) 
Long-term borrowings(1)  $39,881   $1,105   $33,988   $2,551   $2,237 
Purchase obligations for raw materials(2)   45,528    20,016    25,512    ¾    ¾ 
Convertible senior notes   26,145    26,145    

¾

    

¾

    

¾

 
Total  $111,555   $47,266   $59,501   $2,551   $2,237 

 

 

(1)Included estimated interest payable under contract terms.

 

(2)Included commitments to purchase silicon raw materials under certain long-term supply agreements with overseas suppliers. Payment due by period cannot be calculated because we are committed to pay $45.5 million over the next two years. The purchase price is subject to adjustment to reflect the prevailing market price on the transaction dates and we expect that all purchases will be used in our production in the normal course of business.

 

For information relating to our long-term loans, including their maturity profiles and provisions that accelerate repayment obligations, see “—B. Liquidity and Capital Resources.”

 

Other than the contractual obligations and commercial commitments set forth above, we did not have any long-term debt obligations, operating lease obligations, purchase obligations or other long-term liabilities as of December 31, 2015.

 

G.Safe Harbor

 

We make “forward-looking statements” throughout this annual report, such as our expected manufacturing capacity in 2015 and our estimated average selling prices of our wafer products in 2015. Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “expect” or “anticipate” will occur, what “will” or “could” happen, and other similar statements), you must remember that our expectations may not be correct, even though we believe that they are reasonable. We do not guarantee that the transactions and events described in this annual report will happen as described or that they will happen at all. You should read this annual report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements made in this annual report relate only to events as of the date on which the statements are made. We undertake no obligation, beyond that required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, even though our situation will change in the future.

 

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Whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. Some of the assumptions, future results and levels of performance expressed or implied in the forward-looking statements we make inevitably will not materialize, and unanticipated events may occur which will affect our results. “Item 3. Key Information—D. Risk Factors” describes the principal contingencies and uncertainties to which we believe we are subject. You should not place undue reliance on these forward-looking statements.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.Directors and Senior Management

 

The following table sets forth information regarding our directors and executive officers as of the date of this annual report.

 

Directors and Executive Officers

Age  

Position/Title 

Xianshou Li 47 Chairman and Chief Executive Officer
Martin Bloom 64 Independent Director
Tan Wee Seng 60 Independent Director
Julia Xu 44 Independent Director
Weiguo Zhou 43 Independent Director
Yuanyuan (Maggie) Ma 41 Chief Financial Officer
Jijun Shi 54 President of the European Region
Kevin Chen 42 President of the North America Region
Shelley Xu 30 Vice President of Global Sales
Nick Li 39 Vice President of Manufacturing of China Module Division
Wei Fang 37 Vice President of Financial Management, China
Meisie Jiang 34 Vice President of Financial Management, Overseas
Xiahe Lian 45 Vice President of Administration of Human Resource

 

Directors

 

Mr. Xianshou Li is our founder and has been our chief executive officer since March 2005. Mr. Li has served as the chairman of the board since March 2016, and served as a director between March 2005 and March 2016. Prior to founding our solar power business in 2005, Mr. Li founded Yuhuan Solar Energy Source Co., Ltd., a manufacturer of solar cell and module products for both commercial and residential applications, and served as its chairman since its inception. Mr. Li also served as the general manager of Yuhuan County Solar Energy Co., Ltd., a manufacturer of mini solar panels and solar cell modules from 2002 to 2006. Prior to that, he worked as an official in the Yuhuan County Culture Bureau in Zhejiang Province from 1997 to 2000. Mr. Li received his bachelor’s degree in industrial engineering management from Zhejiang Industrial University in 1991.

 

Mr. Martin Bloom has been an independent director since July 2006 and is currently the chairman of the compensation committee and a member of the audit committee. Mr. Bloom served as the chairman of the board between September 2006 and March 2016. In addition, he has been on the board of directors of Intelligent Energy, a British fuel cell company, since June 2012, and has been the chairman of its nomination committee and a member of its audit committee and remuneration committee since 2014.  Mr. Bloom has also been a member of the board of directors of Starcom plc, an asset tracking company listed on London AIM, and the chairman of its audit committee since January 2013. Mr. Bloom has almost 40 years of experience in strategic partnering, technology commercialization and business strategy. He has built businesses in the U.S., Europe and China. In 2005, Mr. Bloom was appointed to serve as the UK chairman of the China-UK Venture Capital Joint Working Group, launched by the then-Chancellor of the United Kingdom, Gordon Brown, in February 2005, to foster collaboration between the venture capital and private equity industries in China and the United Kingdom. Mr. Bloom worked at Coopers & Lybrand (now PricewaterhouseCoopers) from 1996 to 1997 and was the project manager of a series of technology transfer schemes between the United Kingdom and Japan on behalf of the Department of Trade & Industry of the United Kingdom from 1992 to 1997. Mr. Bloom worked as a corporate strategist at Unilever between 1973 and 1981. Mr. Bloom has a bachelor’s degree with honors in economics from the University of Southampton and a master’s degree in the history of science jointly from Imperial College and University College, London.

 

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Mr. Tan Wee Seng has been an independent director since April 2009. Mr. Tan is currently the chairman of the audit committee and a member of nominating and corporate governance committee. Mr. Tan is also a non-executive director of Xtep International Holdings Limited, an independent non-executive director of Sa Sa International Holdings Limited, an independent non-executive director and the chairman of the remuneration committee of Biostime International Holdings Limited, an independent non-executive director and chairman of the remuneration committee of Sinopharm Group Company Limited and an independent non-executive director, and the chairman of the audit committee of CIFI Holdings (Group) Co. Ltd., all of which are listed on the Main Board of Hong Kong Stock Exchange, a director and the chairman of the finance & operation committee of Beijing City International School, an academic institution in Beijing. Mr. Tan has been an independent director for 7 Days Group Holdings Limited listed on the NYSE from November 2009 to July 2013 when on privatization and he was the chairman of the special committee for privatization from October 2012 to July 2013. Mr. Tan has over 30 years of experience in financial management, corporate finance, merger and acquisition, business management and strategy development. He has also held various management and senior management positions in a number of multinational corporations and China corporations. From 2003 to 2008, he was an executive director, the chief financial officer and the company secretary of Li Ning Company Limited, a company listed on the Main Board of Hong Kong Stock Exchange. From 1999 to 2002, he was the senior vice president of Reuters for China, Mongolia and North Korea regions, and the chief representative of Reuters in China. Prior to that, he served as the managing director of AFE Computer Services Limited, a Reuters subsidiary in Hong Kong mainly engaged in domestic equity and financial information services, a director of Infocast Pty Limited which was a Reuters subsidiary in Australia, and the regional finance manager of Reuters East Asia. Mr. Tan is a professional accountant and a fellow member of the Chartered Institute of Management Accountants in the United Kingdom, and the Hong Kong Institute of Directors.

 

Ms. Julia Xu has been an independent director since March 2016. Ms. Xu is currently the chairman of the nominating and corporate governance committee and a member of the audit committee and the compensation committee. Ms. Xu is the founder and currently the Managing Director of Oravida, a New Zealand-based group specializing in the branding and promotion of New Zealand’s premium food products primarily for the Chinese market. Prior to establishing Oravida in New Zealand, Ms. Xu was the chief financial officer of ReneSola from April 2010 to June 2011 and the vice president of international corporate finance and corporate communications of ReneSola from March 2009 to March 2010. Ms. Xu has extensive financial markets experience, including earlier roles at Deutsche Bank Hong Kong, Bankers Trust and Lehman Brothers. Ms. Xu obtained her bachelor’s degree in biology from Cornell University in 1995 and received her MBA from Johnson School of Management of Cornell University in 2004.

 

Mr. Weiguo Zhou has been an independent director since March 2016. Mr. Zhou is also a member of compensation committee and nominating and corporate governance committee. Mr. Weiguo Zhou is the Managing Partner of Silicon Valley Investment Management Partners, a China-based partnership specializing in investment in information technology and renewable energy area. Mr. Zhou was a Partner of Vangoo Capital Partners, a venture capital firm specializing in investment in early to pre-IPO stage China-based companies, between April 2012 and June 2013. Mr. Zhou has extensive capital markets experience in Asia and held various senior positions in major investment banks, including Executive Director at Goldman Sachs Gaohua Beijing, Vice President at Credit Suisse Beijing and Hong Kong, between August 2007 and April 2012. Prior to that, Mr. Zhou worked at Deutsche Bank's Tokyo and Hong Kong offices for more than seven years. Mr. Zhou obtained his bachelor’s degree in economics (major in accounting) from University of Tokyo in 2000.

 

Executive Officers

 

Ms. Yuanyuan (Maggie) Ma has been our chief financial officer since April 2016. Ms. Ma served as our interim chief financial officer between October 2015 and March 2016. Ms. Ma joined us in February 2011 as our director of internal control and, between October 2013 and October 2015, Ms. Ma served as our vice president of financial control. Ms. Ma has more than 17 years of experience in finance and internal control areas, including over 10 years of management experience. Prior to joining us, Ms. Ma held positions in the finance and internal control departments in OSI Group, a global leading company of food processing as Asia Pacific finance manager from 2005 to 2011 and in Dell (China) from 1998 to 2004. She holds CICPA certification and received a bachelor’s degree in international accounting from Xiamen University in 1996.

 

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Mr. Jijun Shi has been our president of the European region since January 2012. Mr. Shi has more than 25 years of managerial experience in Europe including over five years of experience in the solar industry. Prior to joining us, Mr. Shi worked in EGing Photovoltaic Europe GmbH from 2010 to 2011 and served as the China manager at PAIRAN elektronik GmbH from 2008 to 2009. From 1998 to 2008, he served as the manager in China at Hasbach Prüfanlagentechnik GmbH and had managerial roles with Krahn Chemie GmbH. From 1986 to 1991, Mr. Shi served as an assistant general manager in China International Trust and Investment Corporation. Mr. Shi received his bachelor’s degree in German from Guangzhou Foreign Language Institute in 1983, his master’s degree in German from Shanghai Tongji University in 1986 and his master’s degree from Johann Wolfgang von Goethe University in 1998.

 

Mr. Kevin Chen has been our president of the American region since February 2012. From 2010 to 2012, he was the director of project development in Trina Solar, where he led the solar power plant development business of that company in America. From 2005 to 2010, he served as a project manager of business planning and development at Southern California Edison, for which he developed their solar PV program and a variety of business opportunities employing different energy resources. From 2000 to 2005, Mr. Chen worked at GE Energy, where he delivered several large-scale projects to international utilities in electrical transmission and distribution systems, as well as completed product development for electrical systems. Mr. Chen received his bachelor’s degree from Southeast University in 1996, his master’s degree in electric power from Iowa State University in 2000 and his MBA from University of California at Los Angeles in 2009.

 

Ms. Shelley Xu has been our vice president of the Global Sales since December 2013. Ms. Xu joined us in 2005 and served as our head of silicon purchasing unit from 2005 to 2009, senior sales manager in 2010, vice director of global sourcing in 2011 and general manager of North China from 2012 to November 2013. Ms. Xu has over nine years of experience in the solar industry. In 2012, Ms. Xu successfully implemented the penetration of module sales business into domestic market, and achieved a remarkable sales record, fulfilling the obligation to smooth our strategic transition from wafer sales to the downstream market. Ms. Xu graduated from Zhejiang Business Technology Institute in 2005.

 

Mr. Nick Li has been our vice president of manufacturing of China module division since December 2013. Between September 2011 and December 2013, Mr. Li served as the general manager of our PV wafers business unit and the production director and the general manager of our PV modules business unit in China. Mr. Li has more than six years of experience in semiconductor industry and more than four years of experience in electronics industry. Prior to joining us, he served as the production manager at EEMS (Suzhou) Co., Ltd. from July 2005 to June 2010 and the production supervisor in various companies, including National Semiconductor (Suzhou) Co., Ltd. from 2004 to 2005, Solectron Corporation in Suzhou from 2002 to 2004 and Foxconn Group (Kunshan) Co., Ltd. from 1999 to 2002. Mr. Li received his bachelor’s degree from Jiangxi Agricultural University in 1999.

 

Mr. Wei Fang has been our vice president of group financial control since August 2012. Mr. Fang first joined us in July 2009 and served as the financial controller of ReneSola Zhejiang and our senior financial controller from July 2009 to July 2012. Mr. Fang has nearly a decade of experience in senior financial management and business management positions in large domestic manufacturing enterprises, and a wealth of practical management experience in the field of overall budgets, funds management, cost control, risk control and mergers and acquisitions. Prior to joining us, Mr. Fang served as a budget manager and senior finance manager from 2002 to 2005 and as a chief financial controller and operations controller from 2005 to 2009 in a subsidiary of Midea Group. Prior to joining Midea Group, Mr. Fang served as a senior cost control manager in Nanchang Dianhua, Ltd., a state-owned enterprise, from September 2000 to June 2001 and as an accountant in Jiangxi Jianglong, an accounting firm, from July 1999 to June 2000, focusing on cost accounting and auditing. Mr. Fang holds a certificate from the Chinese Institute of Certified Public Accountants. He received his bachelor’s degree in financial accounting from Jiangxi University of Finance and Economics in 1999 and a MBA degree from Shanghai Jiaotong University in 2013.

 

Ms. Meisie Jiang has been our vice president of group financial management since October 2013. Ms. Jiang joined us in March 2009 and held the positions of ReneSola’s treasury manager, senior financial manager, financial controller and senior financial controller. Ms. Jiang has over decade of financial management and business management experience as well as management experience in funds management, reporting, financial analysis, foreign exchange, insurance, transfer pricing, credit control and mergers and acquisitions. Prior to joining us, Ms. Jiang worked in Ernst and Young as a senior accountant focusing on IPO and listed company. Ms. Jiang holds a certificate from the Chinese Institute of Certified Public Accountants. Ms. Jiang received a bachelor’s degree in accounting from Nanjing Audit University in 2004 and a bachelor’s degree in law from Nanjing University in 2005.

 

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Ms. Xiahe Lian has been our vice president of administration and human resource since June 2012. As one of the founders of ReneSola Zhejiang, Ms. Lian has been responsible for administration and human resources of that company. Ms. Lian oversees our recruitment and human resource training as well as the establishment of our human resources management system and administrative system. Since 2009, Ms. Lian has also served as our director of corporate culture and created a company magazine named “Path to PV.” In addition, she has set up a charity foundation to foster community-building efforts and social awareness within our company. Ms. Lian also has 16 years of teaching experience. Ms. Lian received her bachelor’s degree from Zhejiang Normal University in 2005 and her MBA degree from Zhejiang University in 2008.

 

The address of our directors and executive officers is c/o ReneSola Ltd, No. 8 Baoqun Road, Yaozhuang, Jiashan, Zhejiang 314117, People’s Republic of China.

 

Employment Agreements

 

We have entered into employment agreements with each of our senior executive officers. We may terminate a senior executive officer’s employment for cause, at any time, without prior notice or remuneration, for certain acts of the officer, including, but not limited to, a material violation of our regulations, failure to perform agreed duties, embezzlement that causes material damage to us, or conviction of a crime. A senior executive officer may terminate his or her employment at any time by prior written notice. Each senior executive officer is entitled to certain benefits upon termination, including a severance payment equal to a specified number of months of his or her then salary if he or she resigns for certain good reasons specified by the agreement or the relevant rules or if we terminate his or her employment without cause.

 

B.Compensation of Directors and Executive Officers

 

For the fiscal year ended December 31, 2015, an aggregate of approximately $1.8 million in cash was paid to our executive officers and directors.

 

Share Incentive Plan

 

Our board of directors adopted our 2007 share incentive plan in September 2007, which was amended in January 2009, August 2010 and August 2012, to attract and retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors and consultants and promote the success of our business. We have reserved 12,500,000 shares for issuance under our 2007 share incentive plan. The following paragraphs describe the principal terms of our 2007 share incentive plan.

 

Administration. Our 2007 share incentive plan is administered by our board of directors or, after our board of directors makes the designation, by our compensation committee. In each case, our board of directors or our compensation committee will determine the provisions, terms and conditions of each option grant, including, but not limited to, the option vesting schedule, repurchase provisions, forfeiture provisions, form of payment upon settlement of the award and payment contingencies.

 

Awards. The following paragraphs briefly describe the principal features of the various awards that may be granted under our 2007 share incentive plan.

 

·Options. Options provide for the right to purchase our shares at a price and period determined by our compensation committee in one or more installments after the grant date.

 

·Restricted Shares. A restricted share award is the grant of our shares determined by our compensation committee. A restricted share is nontransferable, unless otherwise determined by our compensation committee at the time of award and may be repurchased by us upon termination of employment or service during a restricted period. Our compensation committee shall also determine in the award agreement whether the participant will be entitled to vote the restricted shares or receive dividends on such shares.

 

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·Restricted Share Units. Restricted share units represent the right to receive our shares at a specified date in the future, subject to forfeiture of such right. If the restricted share unit has not been forfeited, then on the date specified in the award agreement, we shall deliver to the holder unrestricted shares, which will be freely transferable.

 

Termination of Plan. Unless terminated earlier, our 2007 share incentive plan will expire in September 2017. Our board of directors has the authority to amend or terminate our 2007 share incentive plan subject to shareholders’ approval to the extent necessary to comply with applicable laws and regulations. However, no such action shall adversely affect in any material way any award previously granted without the prior written consent of the recipient.

 

Share Options

 

As of March 31, 2016, our board of directors granted certain of our directors, officers and employees options for 6,040,600 shares in our company, excluding options forfeited pursuant to the terms of our 2007 share incentive plan and the exercised options.

 

The following paragraphs describe the principal terms of our options.

 

Option Agreement. Options granted under our 2007 share incentive plan are evidenced by an option agreement that contains, among other things, provisions concerning exercisability and forfeiture upon termination of employment arrangement, as determined by our board.

 

Vesting Schedule. Options granted under our 2007 share incentive plan vest yearly over a five-year period following a specified grant date. The plan has 20% of the options granted vest at the first anniversary of the grant date, and for the remaining 80%, 20% shall vest at each of the second, third, fourth and fifth anniversary of the grant date, subject to the optionee continuing to be an employee on each vesting date.

 

Option Exercise. The term of options granted under our 2007 share incentive plan may not exceed the sixth anniversary of the specified grant date.

 

Termination of Options. Where the option agreement permits the exercise of the options that were vested before the recipient’s termination of service with us, or the recipient’s disability or death, the options will terminate to the extent not exercised or purchased on the last day of a specified period or the last day of the original term of the options, whichever occurs first.

 

On August 8, 2012, our board of directors approved an adjustment to the exercise price of options to purchase an aggregate amount of 5,386,600 shares, previously granted under our 2007 share incentive plan, to a new exercise price of $1.47 per ADS. In addition, on December 31, 2013, our board of directors authorized our chief executive officer to determine the option grant date and exercise price under the 2007 share incentive plan. As a result, the exercise price of certain options granted between August 8, 2012 and December 31, 2013 to purchase an aggregate amount of 950,000 shares were adjusted to $1.47 per ADS. The exercise price of our options in the amount of 2,590,000 shares to be granted on or after January 1, 2014 was set at $1.47 per ADS. Among the underlying shares of the outstanding options, 2,773,000 shares were forfeited as of March 31, 2016 due to the departure of certain officers and employees.

 

The following table summarizes, as of March 31, 2016, the outstanding options, excluding options forfeited pursuant to the terms of our 2007 share incentive plan and the options that were exercised on or prior to March 31, 2016, that we granted to our directors and officers and to other individuals as a group under our 2007 share incentive plan.

 

Name  Shares Underlying
Outstanding Options
  Exercise Price
($/Share)
   Grant Date  Expiration Date
Xianshou Li  *  $0.735   June 21, 2010  June 21, 2016
   *  $0.735   August 24, 2010  August 24, 2016
Martin Bloom  *  $0.735   August 8, 2012  August 8, 2018
Tan Wee Seng  *  $0.735   August 8, 2012  August 8, 2018
Julia Xu  *  $0.735   March 8, 2016  March 8, 2022
Weiguo Zhou  *  $0.735   March 8, 2016  March 8, 2022

 

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Name  Shares Underlying
Outstanding Options
   Exercise Price
($/Share)
   Grant Date  Expiration Date
Jijun Shi  *  $0.735   March 19, 2012  March 19, 2018
Kevin Chen  *  $0.735   June 18, 2012  June 18, 2018
Shelley Xu  *  $0.735   January 1, 2014  January 1, 2020
Nick Li  *  $0.735   September 20, 2010  September 20, 2016
   *  $0.735   January 1, 2014  January 1, 2020
Wei Fang  *  $0.735   December 21, 2009  December 21, 2017
   *  $0.735   September 17, 2012  September 17, 2018
   *  $0.735   September 30, 2014  September 30, 2018
Meisie Jiang  *  $0.735   June 23, 2009  June 23, 2017
   *  $0.735   March 15, 2010  March 15, 2018
   *  $0.735   March 21, 2011  March 21, 2017
   *  $0.735   January 1, 2014  January 1, 2020
Maggie Ma  *  $0.735   January 1, 2014  January 1, 2020
   *  $0.735   December 31, 2015  December 31, 2021
Xiahe Lian  *  $0.735   November 30, 2007  November 30, 2017
   *  $0.735   September 17, 2012  September 17, 2018
               
Directors and executive officers as a group  4,015,000           
               
               
Other individuals as a group  18,000  $0.735   June 23, 2009  June 23, 2017
   67,600  $0.735   October 9, 2007  October 9, 2017
   62,000  $0.735   December 21, 2009  December 21, 2017
   61,000  $0.735   March 15, 2010  March 15, 2018
   81,000  $0.735   June 21, 2010  June 21, 2016
   41,000  $0.735   September 20, 2010  September 20, 2016
   80,000  $0.735   August 8, 2012  August 8, 2016
   325,000  $0.735   January 1, 2014  January 1, 2020
   200,000  $0.735   June 30, 2014  June 30, 2020
   55,000  $0.735   September 30, 2014  September 30, 2020
   25,000  $0.735   December 31, 2014  December 31, 2020
   450,000  $0.735   June 30, 2015  June 30, 2021
   560,000  $0.735   December 31, 2015  December 31, 2021

 

 

*Less than 1% of the total number of our shares outstanding as of March 31, 2016.

 

Restricted Share Units

 

As of March 31, 2016, none of our restricted shares units were outstanding.

 

The following paragraphs describe the principal terms of our restricted share units.

 

Restricted Share Unit Agreement. Restricted shares units granted under our 2007 share incentive plan are evidenced by a restricted shares units agreement that contains, among other things, provisions concerning the vesting schedule and forfeiture upon termination of the employment arrangement, as determined by our board.

 

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Vesting Schedule. At the time of grant, we shall specify the date or dates on which the restricted share units shall become fully vested and non-forfeitable, and may specify such conditions to vesting as we deem appropriate.

 

Restrictions. Until the shares are issued upon settlement of the restricted share units, the recipients will not be deemed for any purpose to be, or have rights as, our shareholders by virtue of this award; and the recipients are not entitled to vote any of the shares by virtue of this award. Upon vesting, the restricted share units will no longer be subject to such restrictions or forfeiture (provided the recipients have not terminated their service.) Unless we consent in writing, the restricted share units and all right or interests therein are not transferable except by wills or the laws of descent and distribution.

 

Maturity. At the time of grant, we shall specify the maturity date applicable to each grant of restricted share units which shall be no earlier than the vesting date or dates of the award and may be determined at the election of the grantee. On the maturity date, we shall transfer to the participant one unrestricted, fully transferable share for each restricted share unit scheduled to be paid out on such date and not previously forfeited.

 

Termination. In the event of the termination of a recipient’s employment or service with us, the unvested restricted share units will be subject to forfeiture and the recipient’s right to vest in the restricted share units under the 2007 share incentive plan will terminate. If the termination of employment or service is by reason of death or disability, any restricted share units which otherwise would have vested within one year of the termination shall immediately vest. If the recipient’s termination of service with us is by reason of cause, his/her right to the restricted share units, whether or not previously vested, will terminate concurrently with the termination of service with us.

 

C.Board Practices

 

Our board of directors currently consists of five directors. A director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.

 

Committees of the Board of Directors

 

We have an audit committee, a compensation committee and a corporate governance and nominating committee under the board of directors. We have adopted a new charter for each of the three committees. Each committee’s members and functions are described below.

 

Audit Committee. Our audit committee consists of Mr. Tan Wee Seng, Ms. Julia Xu, and Mr. Martin Bloom. Mr. Tan Wee Seng is currently the chairman of the audit committee. Mr. Tan Wee Seng, Ms. Julia Xu and Mr. Martin Bloom all satisfy the independence requirements of the NYSE Listing Rules and SEC regulations. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

 

·selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

 

·reviewing with the independent auditors any audit problems or difficulties and management’s response to such audit problems or difficulties;

 

·reviewing and approving all related party transactions on an ongoing basis;

 

·discussing the annual audited financial statements with management and the independent auditors;

 

·reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

 

·annually reviewing and reassessing the adequacy of our audit committee charter;

 

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·meeting separately and periodically with management and the independent auditors; and

 

·reporting regularly to the board of directors.

 

Compensation Committee. Our compensation committee consists of Mr. Martin Bloom, Ms. Julia Xu and Mr. Weiguo Zhou. Mr. Martin Bloom is currently the chairman of the compensation committee. Mr. Martin Bloom, Ms. Julia Xu and Mr. Weiguo Zhou all satisfy the independence requirements of the NYSE Listing Rules and SEC regulations. The compensation committee discharges the responsibility of the board of reviewing and approving the compensation structure, including all forms of compensation relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

 

·reviewing and evaluating at least annually and, if necessary, revising the compensation plans, policies and programs adopted by our management;

 

·reviewing and evaluating at least annually the performance, and determining the compensation, of our chief executive officer;

 

·reviewing and approving our chief executive officer’s employment agreement and amendments thereto, and severance arrangement, if any; and

 

·reviewing all annual bonus, long-term incentive compensation, share option, employee pension and welfare benefit plans.

 

Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Ms. Julia Xu, Mr. Tan Wee Seng and Mr. Weiguo Zhou. Ms. Julia Xu is currently the chairman of the nominating and corporate governance committee. Ms. Julia Xu, Mr. Tan Wee Seng and Mr. Weiguo Zhou all satisfy the independence requirements of the NYSE Listing Rules and SEC regulations. The corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

 

·recommending to our board of directors for nomination or appointment by the board such candidates as the committee has found to be qualified to be elected or reelected to serve as a member of our board or its committees or to fill any vacancies on our board or its committees, respectively;

 

·reviewing annually the composition of our board of directors and its committees in light of the characteristics of independence, qualification, experience and availability of the board members;

 

·developing and recommending to our board of directors a set of corporate governance guidelines and principles applicable to the company; and

 

·monitoring compliance with the company’s code of business conduct and ethics, including reviewing the adequacy and effectiveness of our internal rules and procedures to ensure compliance with applicable laws and regulations.

 

Duties of Directors

 

Under British Virgin Islands law, our directors have a duty of loyalty to act honestly and in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess with such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.

 

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Terms of Directors and Officers

 

Our officers are appointed by and serve at the discretion of the board of directors. At each annual general meeting, one-third of our directors then existing, or if their number is not a multiple of three, then the number nearest to and not exceeding one-third, will be subject to re-election. In addition, as Ms. Julia Xu and Mr. Weiguo Zhou were appointed as directors of the Company by a resolution of directors passed on March 8, 2016, the current term of their appointment runs until the date of the 2016 annual general meeting at which time, their appointment will be put to the shareholders for approval. The directors to retire by rotation shall be those who are longest in office since their election, or by lot should they be of the same seniority. Mr. Martin Bloom was re-elected at 2015 annual general meeting. On the assumption that no other director wishes to retire from office at the annual general meetings, Mr. Xianshou Li will be subject to re-election at 2016 annual general meeting; Mr. Tan Wee Seng will be subject to re-election at 2017 annual general meeting; Ms. Julia Xu will be subject to re-election at 2018 annual general meeting; and Mr. Weiguo Zhou will be subject to re-election at the 2019 annual general meeting. We have not entered into any service contracts with the directors providing them with severance benefits upon termination of their terms with us.

 

D.Employees

 

We had 7,874 and 6,953 full-time employees as of December 31, 2013 and 2014, respectively. As of December 31, 2015, we had 5,438 full-time employees, including 3,862 in manufacturing, 263 in equipment maintenance, 336 in quality assurance, 42 in purchasing, 143 in research and development, 358 in sales and marketing, 369 in general and administrative and 65 in commerce and logistics. Substantially all of these employees are located in China with a small portion of employees based in Singapore, the United States and Europe. We consider our relations with our employees to be good.

 

E.Share Ownership

 

The following table sets forth information with respect to the beneficial ownership of our shares as of March 31, 2016 by:

 

·each of our directors and executive officers; and

 

·each person known to us to own beneficially more than 5.0% of our shares.

 

Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act, and includes voting or investment power with respect to the securities.

 

   Shares Beneficially Owned 
   Number  

%(1)

 
Directors and Executive Officers:          
Xianshou Li(2)   49,966,115    24.4%
Martin Bloom   *    * 
Tan Wee Seng   *    * 
Julia Xu   ¾    ¾ 
Weiguo Zhou   ¾    ¾ 
Maggie Ma   *    * 
Jijun Shi   *    * 
Kevin Chen   *    * 
Shelley Xu   *    * 
Nick Li   *    * 
Wei Fang   *    * 
Meisie Jiang   *    * 
Xiahe Lian   *    * 
All Directors and Executive Officers as a Group   51,116,115    24.8%
           
Principal Shareholders:          
Champion Era Enterprises Limited(3)   33,501,805    16.5%
Assets Train Limited(4)   13,053,614    6.4%

 

 

*Less than 1% of the total number of our shares outstanding shares as of March 31, 2016.

 

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(1)Percentage of beneficial ownership of each listed person is based on 203,343,188 shares outstanding (excluding number of shares reserved for future exercise or vest of our awards under our share incentive plan) as of March 31, 2016, as well as the shares that such person has the right to acquire by option or other agreement within 60 days after March 31, 2016.

 

(2)Consists of 33,501,805 shares held by Champion Era Enterprises Limited, or Champion, 13,053,614 shares held by Assets Train Limited, or Assets Train, 1,135,096 shares held by Dynasty Time Limited, or Dynasty, 1,250,000 shares issuable upon exercise of options held by Mr. Li, within 60 days after March 31, 2016, 775,600 shares held by Ms. Xiahe Lian, the wife of Mr. Li, and 250,000 shares issuable upon exercise of options held by Ms. Xiahe Lian within 60 days after March 31, 2016. Descriptions of Mr. Li’s relationship with Champion and Assets Train are set forth in the notes (4) and (5) below and Mr. Li’s relationship with Dynasty is set forth as follows: Dynasty beneficially holds 3,622,471 of our shares. Dynasty is a company incorporated in the British Virgin Islands and its sole shareholder is Direct Manage Holdings Limited. Direct Manage Holdings Limited is a company incorporated in the British Virgin Islands and wholly owned by the DXJ Family Trust, of which Mr. Xiangjun Dong is the settlor and to which Mr. Dong has administration, voting and management power. The trustee of the DXJ Family Trust is HSBC International Trustee Limited. Dynasty has entered into an irrevocable voting agreement with Mr. Li and Mr. Wu with respect to our shares held by Dynasty. Mr. Li holds sole voting power of 33,501,805 shares held by Champion. Mr. Li also holds shared voting power of 13,053,614 shares held by Assets Train and 1,135,096 shares held by Dynasty pursuant to an irrevocable voting agreement. Mr. Li’s business address is No. 8 Baoqun Road, Yaozhuang Industrial Park, Jiashan County, Zhejiang Province, PRC.

 

(3)Champion is a company incorporated in the British Virgin Islands and its sole shareholder is Chain Path Limited. Chain Path Limited is a company incorporated in the British Virgin Islands and wholly owned by the LXS Family Trust, of which Mr. Li is the settlor and to which Mr. Li has all administration, voting and management power. The trustee of the LXS Family Trust is HSBC International Trustee Limited. The address for Champion is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

 

(4)Assets Train is a company incorporated in the British Virgin Islands and its sole shareholder is Apex Level Limited. Apex Level Limited is a company incorporated in the British Virgin Islands and wholly owned by the LZM Family Trust, of which Mr. Zhengmin Lian is the settlor and to which Mr. Lian has administration, voting and management power. The trustee of the LZM Family Trust is HSBC International Trustee Limited. Assets Train has entered into an irrevocable voting agreement in respect to its entire holding of 13,053,614 shares with Mr. Li. The address for Assets Train is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Mr. Lian’s business address is No. 8 Baoqun Road, Yaozhuang Industrial Park, Jiashan County, Zhejiang Province, 314117, China.

 

Our ADSs are traded on the NYSE and brokers or other nominees may hold ADSs in “street name” for customers who are the beneficial owners of the ADSs. As a result, we may not be aware of each person or group of affiliated persons who beneficially own more than 5.0% of our common stock.

 

As of March 31, 2016, the number of our shares issued and outstanding was 203,831,288, among which 488,100 shares represented by 244,050 ADSs were held by the depositary for the ADSs for future exercise or vest of our awards under our 2007 share incentive plan. As of March 31, 2016, 163,743,811 of our shares were held as ADSs by the depositary for the ADSs. Other than the depositary, we had no record shareholders in the United States as of March 31, 2016.

 

None of our shareholders had different voting rights from other shareholders as of the date of this annual report. We are currently not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

 

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.Major Shareholders

 

See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

 

B.Related Party Transactions

 

As of December 31, 2013, 2014 and 2015, amounts due from related parties were approximately $0.4 million, $0.5 million and $0.1 million, respectively. The amounts due from related parties included amounts receivable from sales of goods to Zhejiang Yuhuan, amounts receivable from the sale of goods to Jinko Solar Co., Ltd., or Jinko, and its subsidiaries and amounts receivable from the sale of goods to Xinjiang Garson Co. Ltd., which ceased to be our related party after we sold ReneSola Keping in March 2014. Zhejiang Yuhuan is a company controlled by Mr. Xianshou Li, our chairman and chief executive officer. Jinko is a company co-founded by Mr. Xianshou Li’s brothers who are also serving as directors of Jinko. As of December 31, 2015, we had no balance of amounts due from Jinko and its subsidiaries.

 

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As of December 31, 2013, 2014 and 2015, amounts due to related parties were approximately $9.2 million, $7.6 million and $2.7 million, respectively. The amounts due to related parties included the loan from Champion, which is controlled by Xianshou Li, our chairman and chief executive officer, and the purchase of raw materials from Zhejiang Yaohui Photovoltaic Co. Ltd., where a director of our principal PRC subsidiary, ReneSola Zhejiang, is serving as the general manager, Jinko and its subsidiaries, and Jiashan Kaiwo Trading Co. Ltd., which is controlled by Xianshou Li.

 

In August 2014, Champion, a British Virgin Islands company controlled by Xianshou Li, our chairman and chief executive officer, agreed to provide us a loan facility in an aggregate amount of $4 million. The loan facility is effective from August 2014 to January 2015 with an interest rate of 5% per annum.  In 2014, we drew down $4 million, which was fully repaid in January 2015. The proceeds from this loan were used to support our working capital.

 

In May 2015, Champion agreed to provide us another loan facility in an aggregate amount of $3.0 million. The loan facility is effective from May 2015 to August 2015 with an interest rate of 5% per annum.  In May 2015, we drew down $3.0 million, which was fully repaid in September 2015. The proceeds from this loan were used for working capital.

 

For the years ended December 31, 2013, 2014 and 2015, our sale of goods to Jinko and its subsidiaries were $2.9 million, $2.9 million and $0.1 million, respectively, and our purchase of raw materials from Jinko and its subsidiaries were $18.3 million, $0.1 million and nil million, respectively. For the same periods, we had no outsourced inventory to Jinko and subsidiaries.

 

For the years ended as of December 31, 2013, 2014 and 2015, our purchase of raw materials from Zhejiang Yaohui Photovoltaic Co., Ltd. were $5.0 million, $5.8 million and $4.6 million, respectively. The brother of our vice president of administration of human resource and our shareholder is the director of Zhejiang Yaohui Photovoltaic Co., Ltd.

 

We have entered into certain short-term and long-term loans with domestic banks that have been guaranteed by Mr. Xianshou Li, our chairman and chief executive officer, or jointly with his wife, Ms. Xiahe Lian. As of December 31, 2015, we had an aggregate of $318.0 million of outstanding borrowings that were guaranteed, directly or indirectly, by Mr. Xianshou Li and Ms. Xiahe Lian. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Capital Resources—Short-term Borrowings” and “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Liquidity and Capital Resources—Long-term Borrowings.”

 

In April 2007, ReneSola Zhejiang leased 24 apartments from Zhejiang Yuhuan for an aggregate rent of RMB36,000 ($5,557) per month In October 2007, the parties entered into a written agreement to record the lease. In an agreement entered into in January 2009, the parties further clarified that this lease shall be a long-term agreement that will remain effective as long as none of the parties wish to terminate it. These leased apartments have been used as housing for ReneSola Zhejiang’s employees. In the first seven month of 2015, 24 apartments were leased to ReneSola Zhejiang under such lease agreement, and in the five months of 2015, 23 apartments were leased. The total rental in 2015 was RMB418,909 ($67,566).

 

In June 2008, ReneSola Zhejiang lent RMB17 million to Zhejiang Yuhuan to repay its debts owed to Desheng Energy Co., Ltd. In August 2008, we received RMB14 million from Zhejiang Yuhuan. As of December 31, 2015, we offset our outstanding loans to Zhejiang Yuhuan in RMB418,909 ($67,566) against the rents to be paid by us to Zhejiang Yuhuan.

 

Employment Agreements

 

See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management” for details regarding employment agreements with our senior executive officers.

 

Share Incentives

 

See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers” for a description of share options, restricted shares and restricted share units we have granted to our directors, officers and other individuals as a group.

 

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C.Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.FINANCIAL INFORMATION

 

A.Consolidated Statements and Other Financial Information

 

We have appended consolidated financial statements filed as part of this annual report.

 

Export Sales

 

For the information of our export sales, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Overview of Financial Results—Net Revenues—Geographical Distribution.”

 

Legal and Administrative Proceedings

 

We initiated arbitration proceedings against Linzhou Zhongsheng Steel and Linzhou Zhongsheng Semiconductor Silicon Material Co., Ltd., or Linzhou Zhongsheng Semiconductor, before China International Economic and Trade Arbitration Commission, or CIETAC, for an equity transfer dispute. We sold our 49% equity interest in Linzhou Zhongsheng Semiconductor to Linzhou Zhongsheng Steel in September 2008 at a total consideration of RMB200 million. The share transfer agreement with Linzhou Zhongsheng Steel was amended in December 2008. The amended agreement stipulates that, of the total consideration of RMB200 million, RMB40 million would be paid in cash, RMB4 million would be treated as credit for existing purchases of polysilicon and RMB156 million would be treated as prepayment, to either be used as a credit through a discount to spot market price against future delivery of polysilicon from the joint venture or be repaid in cash, at our discretion. However, Linzhou Zhongsheng Semiconductor stopped the delivery of polysilicon in early 2009 and continued to fail to fulfill its obligations. CIETAC rendered its final award in September 2011, requiring Linzhou Zhongsheng Steel to pay us the remaining equity transfer consideration in the amount of RMB137.3 million. We have applied to the relevant court in China for enforcement of the arbitral award. However, based on a preliminary assessment of the results of the ongoing enforcement actions by the Chinese court authorities, we may not be able to recover all or substantially all, if any, of the amount due from Linzhou Zhongsheng Steel.

 

As of the date of this annual report, there were several pending disputes with some of our raw material suppliers, including Nature Power Co., Ltd., Nihon B.S.B and Silfine Co., Ltd., over prepayments for silicon raw materials. We have initiated arbitration proceedings against Silfine Co., Ltd. before the Hong Kong International Arbitration Center. In May 2012, an arbitral award was granted in favor of us and ordered Silfine Co., Ltd. to return the prepayments to us. As of the date of this annual report, we have not received the prepayments from Silfine Co., Ltd. pursuant to the arbitral award.

 

In addition, we are involved in several other legal proceedings. In June 2011, CEP Ltd., or CEP, one of our module customers, sued us in the High Court in Hong Kong for damages of €917,280 for breach of a sales contract. We denied CEP’s assertion and claimed that the termination of the sales contract was due to CEP’s material breach of the sales contract by failure to provide a letter of credit in accordance with the sales contract. A pre-trial in October 2013 and a five-day trial in December 2013 were held. On April 4, 2014, the High Court of Hong Kong handed down judgment and dismissed CEP’s case. On February 11, 2015, a hearing was held before the Court of Appeal upon CEP’s appeal application. A judgment was made on March 12, 2015 following a hearing, and the court ordered CEP’s appeal to be dismissed.

 

In July 2015, we entered into an agreement with Pristine, a San Francisco-based solar project developer, to form a joint venture in the United States to accelerate our U.S. project development. On December 3, 2015, ReneSola filed an Action in the Superior Court of California, County of San Francisco, alleging that Pristine had breached the joint venture agreement. Pristine subsequently filed a cross-complaint alleging that we breached the joint venture agreement. On March 25, 2016, we entered into a binding settlement term sheet with Pristine and certain of its affiliates to resolve our dispute, dismiss the Action and transfer 88 MW solar energy projects under development in California, North Carolina, and Minnesota by Pristine and its affiliates to one of our wholly owned subsidiaries in the United States. Upon consummation of the transfer, we will be the 100% indirect owner of the 88 MW portfolio of solar energy projects.

 

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In May 2014, we filed a case with the First Intermediate Court of Beijing against Tongxiangshenhong, a manufacturer of lighting equipment in China, with respect to its misappropriation of “YUHUIYANGGUANG” as trademarks over certain of its lighting equipment products. The court decided in August 2015 and partly rejected the registration of “YUHUIYANGGUANG” on solar water heater, solar collector and solar heat collector by Tongxiangshenhong, while granting it the registration on street lamp, a lamp cover, a lighting device with luminous tube, lighting apparatus and device and automobile lamp. We appealed this case to the Superior Court of Beijing, which upheld the lower court’s decision in December 2015.

 

Except as described above, we are not involved in any litigation or other legal proceedings that would have a material adverse impact on our business or operations. We may from time to time be subject to various judicial or administrative proceedings arising in the ordinary course of our business. While we do not expect the proceedings described above to have a material adverse effect on our financial position, results of operations or cash flows, the outcome of any proceedings is not determinable with certainty and negative outcomes may have a material adverse effect on us.

 

Dividend Policy

 

We have no present plan to declare and pay any dividends on our shares or ADSs in the near future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

 

We are a limited liability holding company incorporated in the British Virgin Islands. We rely on dividends from ReneSola Zhejiang, our subsidiary in China, and any newly formed subsidiaries to fund the payment of dividends, if any, to our shareholders. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our subsidiary in China is required to set aside a certain amount of its retained profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Furthermore, when ReneSola Zhejiang or any newly formed subsidiary incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. For example, according to certain short-term loan agreements between ReneSola Zhejiang and its banks, ReneSola Zhejiang is not permitted to pay dividends for any given year if it has no after-tax profit or if it has any principal or interest due in that year which has not been paid. In addition, pursuant to the PRC Enterprise Income Tax Law and its Implementing Regulation, which became effective on January 1, 2008, a 10% withholding tax applies to dividends distributed to foreign investors out of the profits generated after January 1, 2008 unless any such non-Chinese enterprise’s tax residency jurisdiction has a tax treaty with China that provides for a different withholding arrangement. The British Virgin Islands, where our company was incorporated, does not have such a treaty with China. Thus, we expect that a 10% withholding tax will apply to dividends paid to us by our PRC subsidiaries if we are classified as a non-resident enterprise. We do not currently intend to declare dividends for the foreseeable future.

 

Subject to the approval of our shareholders, our board of directors has complete discretion over distribution of dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

 

B.Significant Changes

 

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

 

ITEM 9.THE OFFER AND LISTING

 

A.Offer and Listing Details

 

Our ADSs, each representing two of our shares, have been listed on the NYSE since January 29, 2008. Our ADSs trade under the symbol “SOL.” For the period from January 29, 2008 to April 27, 2016, the trading price of our ADSs on the NYSE ranged from $0.91 to $29.48 per ADS. The following table provides the high and low market prices for our ADSs on the NYSE.

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   Trading Price 
   High   Low 
   $   $ 
Quarterly Highs and Lows          
First quarter of 2014   4.46    3.04 
Second quarter of 2014   3.59    2.18 
Third quarter of 2014   3.62    2.29 
Fourth quarter of 2014   3.10    1.21 
First quarter of 2015   1.65    1.20 
Second quarter of 2015   1.97    1.25 
Third quarter of 2015   1.49    0.91 
Fourth quarter of 2015   1.95    0.98 
First quarter of 2016   1.85    1.18 
           
Annual and Monthly Highs and Lows          
2011   13.25    1.45 
2012   3.38    1.08 
2013   6.00    1.25 
2014   4.46    1.21 
2015   1.97    0.91 
October   1.48    0.98 
November   1.47    1.22 
December   1.95    1.26 
2016          
January   1.85    1.31 
February   1.57    1.18 
March   1.54    1.33 
April (through April 27)   1.46    1.33 
           

 

B.Plan of Distribution

 

Not applicable.

 

C.Markets

 

Our ADSs, each representing two of our shares, have been listed on the NYSE since January 29, 2008 under the symbol “SOL.” In August 2006, our shares were admitted for trading on the AIM. In November 2010, with the approval of our board of directors, our shares ceased to trade on AIM and our admission to trading on the AIM was cancelled.

 

D.Selling Shareholders

 

Not applicable.

 

E.Dilution

 

Not applicable.

 

F.Expenses of the Issue

 

Not applicable.

 

ITEM 10.ADDITIONAL INFORMATION

 

A.Share Capital

 

Not applicable.

 

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B.Memorandum and Articles of Association

 

We incorporate by reference into this annual report our amended and restated memorandum and articles of association filed as Exhibit 3.1 to our pre-effective amendment No. 2 to Form F-3 registration statement filed with the SEC on September 6, 2013 (File Number 333-189650).

 

We are a British Virgin Islands company and our affairs are governed by our memorandum and articles of association and the British Virgin Islands Business Companies Act of 2004 (as amended), which is referred to as the Companies Law below.

 

The following are summaries of material provisions of our memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our shares.

 

Registered Office and Objects

 

Our registered office in the British Virgin Islands is located at the offices of Harneys Corporate Services Limited, Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands.

 

According to Clause 5 of our memorandum of association, subject to the Companies Act and any other British Virgin Islands legislation, our company has full capacity to carry on or undertake any business or activity, do any act or enter into any transaction, and there are no limitations on the business that our Company may carry on.

 

Board of Directors

 

See “Item 6. Directors, Senior Management and Employees.”

 

Shares

 

General. All of our outstanding shares are fully paid and non-assessable. Certificates representing the shares are issued in registered form. Our shareholders who are non-residents of the British Virgin Islands may freely hold and vote their shares.

 

Dividends. By a resolution of directors, we may declare and pay dividends in money, shares, or other property. Our directors may from time to time pay to the shareholders such interim dividends as appear to the directors to be justified by the profits of our company. No dividends shall be declared and paid unless the directors determine that immediately after the payment of the dividend the value of our assets will exceed our liabilities and we will be able to satisfy our liabilities as they fall due. The holders of our shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law.

 

Unissued Shares. Our unissued shares shall be at the disposal of the directors who may without prejudice to any rights previously conferred on the holders of any existing shares or class or series of shares offer, allot, grant options over or otherwise dispose of shares or other securities to such persons, at such times and upon such terms and conditions as we may by resolution of the directors determine. Before issuing shares for a consideration other than money, the directors shall pass a resolution stating the amount to be credited for the issue of the shares, their determination of the reasonable present cash value of the non-money consideration for the issue, and that, in their opinion, the present cash value of the non-money consideration for the issue is not less than the amount to be credited for the issue of the shares.

 

Voting Rights. Each share is entitled to one vote on all matters upon which the shares are entitled to vote. We are required by our memorandum and articles of association to hold an annual general meeting each year. Additionally, our directors may convene meetings of our shareholders at such times and in such manner and places within or outside the British Virgin Islands as the directors consider necessary or desirable. Upon the written request of shareholders holding 10% or more of the outstanding voting rights attaching to our shares the directors shall convene a meeting of shareholders. The director shall give not less than 14 days’ notice of a meeting of shareholders to those persons whose names at the close of business on a day to be determined by the directors appear as shareholders in our share register and are entitled to vote at the meeting.

 

A meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50% of the votes of the shares entitled to vote on shareholder resolutions to be considered at the meeting. If a quorum is present, notwithstanding the fact that such quorum may be represented by only one person, then such person or persons may resolve any matter and a certificate signed by such person and accompanied, where such person be a proxy, by a copy of the proxy form shall constitute a valid resolution of shareholders.

 

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If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares of each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. The chairman, may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.

 

An action that may be taken by the shareholders at a meeting may also be taken by a resolution of shareholders consented to in writing without the need for any notice, but if any resolution of shareholders is adopted otherwise than by the unanimous written consent of all shareholders, a copy of such resolution shall forthwith be sent to all shareholders not consenting to such resolution.

 

Mandatory Tender Offer. Except with the consent of our board of directors, when (a) any person acquires, whether or not by a series of transactions over a period of time, our shares which (taken together with shares held or acquired by persons acting in concert with that person) carry 30% or more of the voting rights of our company; or (b) any person who together with persons acting in concert with him, holds not less than 30% but not more than 50% of our voting rights and acquires additional shares resulting in an increase in the percentage of the voting rights held by that person or any person acting in concert with him, such person is required to extend an offer to holders of all the issued shares in our company pursuant to our memorandum and articles of association. References to any person above include persons acting in concert with such person.

 

Transfer of Shares. Certificated shares in our company may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, but in the absence of such written evidence of transfer the directors may accept such evidence of a transfer of shares as they consider appropriate. We may also issue shares in uncertificated form. We shall not be required to treat a transferee of a registered share in our Company as a member until the transferee’s name has been entered in the share register.

 

The register of members may be closed at such times and for such periods as the board of directors may from time to time determine, not exceeding in whole thirty days in each year, upon notice being given by advertisement in a leading daily newspaper and in such other newspaper (if any) as may be required by the law of British Virgin Islands and the practice of the NYSE.

 

The board of directors may decline to register a transfer of any share to a person known to be a minor, bankrupt or person who is mentally disordered or a patient for the purpose of any statute relating to mental health. The board of directors may also decline to register any transfer unless:

 

(a)       any written instrument of transfer, duly stamped (if so required), is lodged with us at the registered office or such other place as the board of directors may appoint accompanied by the certificate for the shares to which it relates (except in the case of a transfer by a recognized person or a holder of such shares in respect of whom we are not required by law to deliver a certificate and to whom a certificate has not been issued in respect of such shares);

 

(b)       there is provided such evidence as the board of directors may reasonably require to show the right of the transferor to make the transfer and, if the instrument of transfer is executed by some other person;

 

(c)       on his behalf, the authority of that person to do so; any instrument of transfer is in respect of only one class or series of share; and

 

(d)       in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four.

 

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Liquidation. In the case of the distribution of assets by a voluntary liquidator on a winding-up of our company, subject to payment of, or to discharge of, all claims, debts, liabilities and obligations of our company any surplus assets shall then be distributed amongst the shareholders according to their rights and interests in our company according to our memorandum and articles of association. If the assets available for distribution to members shall be insufficient to pay the whole of the paid up capital, such assets shall be shared on a pro rata basis amongst members entitled to them by reference to the number of fully paid up shares held by such members respectively at the commencement of the winding up.

 

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid at the specified time are subject to forfeiture.

 

Redemption of Shares. The Companies Law provides that subject to the memorandum and articles of association of a company, shareholders holding 90% or more of all the voting shares in a company, may instruct the directors to redeem the shares of the remaining shareholders. The directors shall be required to redeem the shares of the minority shareholders, whether or not the shares are by their terms redeemable. The directors must notify the minority shareholders in writing of the redemption price to be paid for the shares and the manner in which the redemption is to be effected. In the event that a minority shareholder objects to the redemption price to be paid and the parties are unable to agree to the redemption amount payable, the Companies Law sets out a mechanism whereby the shareholder and the company may each appoint an appraiser, who will together appoint a third appraiser and all three appraisers will have the power to determine the fair value of the shares to be compulsorily redeemed. Pursuant to