Lihua is one of the first vertically integrated companies in China to develop, design, manufacture, market and distribute low cost, high quality, alternatives to pure copper magnet wire, which include copper-clad aluminum wire (CCA) and recycled scrap copper wire. Primarily because of its high electrical conductivity, pure copper magnet wire is one of the fundamental building blocks in many components in a wide variety of motorized and electrical appliances such as dishwashers, microwaves and automobiles. In most instances, Lihua’s CCA and recycled scrap copper are an excellent, lower-cost substitute for pure copper magnet wire.

Lihua sells its products directly to manufacturers in the consumer electronics, white goods, automotive, utility, telecommunications and specialty cable industries and to distributors in the wire and cable industries. Lihua’s track record and reputation for producing high quality products in large quantities has paved the way for rapid expansion of its customer base. The Company has approximately 300 customers, with no single customer accounting for more than 7% of its sales. At least in part because the copper magnet wire industry in China is large and growing, Lihua’s product sales are comprised of approximately 95% domestic sales and approximately 5% export sales.

Lihua is well positioned to continue to capture further market share in the magnet wire industry. CCA and copper magnet wire are increasingly being accepted as alternatives to pure copper wire, and we continue to expand our manufacturing capacity to address this growing demand. As a result, our sales and net income have grown substantially over the last four years. We generated sales of $15.7 million in 2006, $32.7 million in 2007, $50.0 million in 2008 and $161.5 million in 2009, representing a Compound Annual Growth Rate (CAGR) of 117.5%. We achieved net income of $4.5 million in 2006, $7.7 million in 2007, $11.7 million in 2008 and $25.6 million in 2009 (excluding non-cash charges of $8.8 million related to the change in the fair value of warrants), representing a CAGR of 78.5%. Growth in 2009 was driven by the continued strong demand in the market for pure copper alternatives, as well as the contribution of our copper recycling facility, which was launched in the first quarter, and accounted for approximately 75% of total sales. Adoption of CCA and recycled copper magnet wire as alternatives to pure copper wire will likely increase, and we expect that our sales and net income should continue to grow as a result.

We continually pursue technological innovations and improvements in our manufacturing processes. We have obtained one utility model patent in China and have three pending invention patent applications in China related to our production process. In addition, we have entered into a technology cooperation agreement with a university in China. We believe that our emphasis on technological innovations and production efficiency has contributed significantly to our leading industry position in China and will continue to do so for the foreseeable future.

Further, significant barriers to entry make it difficult for newcomers to successfully compete with our CCA and copper magnet wire businesses. For example, with respect to CCA, it is challenging to maintain high quality during the process of drawing, annealing and coating CCA, especially finer diameter wires. Our knowledge and experience in successfully generating high quality CCA give us a strong advantage over would-be competitors. With respect to copper magnet wire, our proprietary recycling technology offers us a unique ability to produce wire of a high enough quality to serve as a substitute to pure copper wire. Our experience and technology allow us to offer products that are, in most instances, superior and more cost-effective to those potential competitors can produce. Because we are already an approved vendor for many of our customers and qualifying new vendors can be time-consuming, we believe we are further advantaged vis-à-vis potential competitors.

To avoid copper commodity risk exposure, we maintain minimal raw material inventory. We confirm raw material purchase orders for scrap copper or CCA with suppliers for each sales order only when the applicable sales order has been received. On the other hand, our principal CCA and scrap copper suppliers usually dedicate portions of their inventories as reserves to meet our manufacturing requirements. Our most significant supplier of CCA provides approximately 30% of our CCA raw material needs, but we have built a large network of reliable suppliers that deliver high quality raw materials, and accordingly, are not dependent upon any one supplier for our success.

We believe that our experienced management team will continue to leverage our leading technologies and increasing capacity to manufacture, produce, market and distribute cost-effective, high quality, CCA, recycled copper magnet wire and other alternatives to pure copper wire. If, as anticipated, worldwide demand for alternatives to pure copper wire grows and we continue to innovate and improve in our processes, we will be well positioned to compete in the copper wire market on a global scale.