LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

specifications or product defects. In each case, we are required to replace our products promptly. Product
defects and the possibility of product defects could cause significant damage to our market reputation and
reduce our product sales and market share. If we cannot successfully maintain the consistency and quality
throughout our production process, this will result in substandard quality or performance of our wafers,
including their reduced photovoltaic efficiency and higher wafer breakage. If we deliver solar wafers with
defects, or if there is a perception that our products are of substandard quality, we may incur substantially
increased costs associated with replacements of wafers, our credibility and market reputation will be harmed
and sales of our wafers may be adversely affected.
If we fail to successfully expand our sales to overseas markets, our results of operations and prospects
will be adversely affected.
For the year ended December 31, 2006 and the three months ended March 31, 2007, 24.5% and 50.0% of
our net sales were to customers outside China, respectively. We plan to continue to expand our overseas sales.
Expansion of our sales to overseas markets is an essential part of our business expansion plan. If we fail to
enhance and strengthen our revenue and customer base globally, our results of operations and long-term
business prospects will be adversely affected.
Our independent registered public accounting firm, in the course of auditing our consolidated financial
statements for the year ended December 31, 2006, noted a significant deficiency and other weaknesses in
our internal control over financial reporting; if we fail to maintain an effective system of internal control
over financial reporting, 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 affected.
Our reporting obligations as a public company will place a significant strain on our management,
operational and financial resources and systems for the foreseeable future. Prior to this offering, we have been
a private company with a short operating history and have limited accounting personnel and other resources
with which to address our internal control over financial reporting. In the course of auditing our consolidated
financial statements for the year ended December 31, 2006, our independent registered public accounting firm
noted and communicated to us a significant deficiency and other weaknesses in our internal control over
financial reporting as defined in standards established by the U.S. Public Company Accounting Oversight
Board. A ""significant deficiency'' is a control deficiency, or combination of control deficiencies, that adversely
affects a company's ability to initiate, authorize, record, process or report external financial data reliably in
accordance with generally accepted accounting principles such that there is more than a remote likelihood that
a misstatement of the company's annual or interim financial statements that is more than inconsequential will
not be prevented or detected.
The significant deficiency identified by our independent registered public accounting firm is that our
chief financial officer joined us in August 2006 and that we did not previously have any personnel who were
familiar with U.S. GAAP. We currently do not have sufficient personnel with adequate expertise to ensure
that we can produce financial statements in accordance with U.S. GAAP on a timely basis.
Following the identification of this significant deficiency and other weaknesses, we have adopted certain
steps, and we plan to implement additional steps, to address them and to improve our internal control over
financial reporting generally. However, the implementation of these measures may not fully address this
significant deficiency and other weaknesses in our internal control over financial reporting, and we cannot yet
conclude that they have been fully remedied. Our failure to correct this significant deficiency and other
weaknesses or our failure to discover and address any other control deficiencies or weaknesses could result in
inaccuracies in our financial statements and could also impair our ability to comply with applicable financial
reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial
condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and
adversely affected. See ""Management's Discussion and Analysis of Financial Condition and Results of
Operations Ì Internal Control Over Financial Reporting'' in this prospectus.
Upon completion of this offering, we will become a public company in the United States that is subject to
the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act will
require that we include a report from management on our internal control over financial reporting in our
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