**UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-KSB/A**
 (Mark
        One)
 
 o ANNUAL
        REPORT
        UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For
        the
        fiscal year ended: _____
  x  TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
  For
        the
        transition period from **January
        1, 2007** to **October
        31, 2007**
 
 Commission
        file number: **000-51704**
  **PERFECTENERGY
        INTERNATIONAL LIMITED**
 (Name
        of
        small business issuer in its charter)
 
 **Nevada**
              **98-0548438**(State
                  or other jurisdiction of incorporation or organization)
              (IRS
                  Employer Identification No.)
 
 **No.
        479 You Dong Road,**
 **Xinzhuang
        Town, Shanghai 201100**
 **People’s
        Republic of China**
 (Address
        of principle executive offices)
 
 **(8621)
        5488-8436**
 (Issuer's
        telephone number)
 
 Securities
        registered under Section 12(b) of the Exchange Act: **None**
 Securities
        registered under Section 12(g) of the Exchange Act: **Shares
        of Common Stock, $0.001 par value**
 
 Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act.  o
 
 Check
        whether the registrant (1) has filed all reports required to be filed by
        Section
        13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirement for the past 90 days. x Yes o No
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of registrant’s knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or any
        amendment to this Form 10-KSB. x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). o Yes xNo
 
 State
        issuer’s revenue for its most recent fiscal year: $8,565,494.
 
 State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the price at which the common equity
        was
        sold, or the average bid and asked price of such common equity, as of a
        specified date within the past 60 days: The aggregate market value of the
        issuer’s common stock held by non-affiliates, as of February 15 , 2008, based
        upon the average bid and asked price of such common stock as reported on
        the OTC
        Bulletin Board, was $ 74,337,712 ( 58,998,184 shares at $1. 26 per
        share).
 
 As
        of
        February 13, 2008, there were 118,320,515 shares of the issuer's common stock
        outstanding.
 
 Documents
        incorporated by reference: None
 
 Transitional
        Small Business Disclosure Format (Check one): o Yes  x No
 
 
  EXPLANATORY
        NOTE
 
 This
        Amendment No. 3 to our Annual Report on Form 10-KSB for the fiscal year
        ended October 31, 2007 is filed to (i) amend our disclosures regarding the
        Investment Agreement under the sub-section titled “Material Impact of Known
        Events on Liquidity” in our “Management's Discussion and Analysis or Plan of
        Operation” section; and (ii) amend our disclosure in Item 8A.
 
 These
        changes were made, and this Form 10-KSB/A was filed subsequent to
        our Amendment No. 5 to the Registration Statement on Form S-1
        (333-145915), in response to a letter from the Commission dated February
        29,
        2008. Except as required to reflect the changes noted above, this Form 10-KSB/A
        does not attempt to modify or update any other disclosures set forth in
        Amendment No. 2 to our Annual Report on Form 10-KSB. Additionally, this
        Form 10-KSB/A does not purport to provide a general update or discussion
        of any
        other developments of the Company subsequent to the original filing. The
        filing
        of this Form 10-KSB/A shall not be deemed an admission that the original
        filing,
        when made, included any untrue statement of material fact or omitted to state
        a
        material fact necessary to make a statement not misleading.
 
 
  **TABLE
                  OF CONTENTS****PART
                  I**Item
                  1. Description of Business
              2Item
                  2. Description of Property
              26Item
                  3. Legal Proceedings
              27Item
                  4. Submission of Matters to a Vote of Security Holders
              27**PART
                  II**Item
                  5. Market for Common Equity and Related Stockholder
                  Matters
              28Item
                  6. Management's Discussion and Analysis or Plan of
                  Operation
              30Item
                  7. Financial Statements
              40Item
                  8. Changes in and Disagreements with Accountants on Accounting
                  and
                  Financial Disclosure
              40Item
                  8A. Controls and Procedures
              40Item
                  8B. Other Information
              40**PART
                  III**Item
                  9. Directors, Executive Officers, Promoters, Control Persons and
                  Corporate
                  Governance; Compliance with Section 16(a) of the Exchange
                  Act
              41Item
                  10. Executive Compensation
              43Item
                  11. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Stockholder Matters
              47Item
                  12. Certain Relationships and Related Transactions, and Director
                  Independence
              48Item
                  13. Exhibits
              50Item
                  14. Principal Accountant Fees and Services
              53INDEX
                  TO FINANCIAL STATEMENTS
              F-1
  
  **CAUTIONARY
        STATEMENT REGARDING FORWARD-LOOKING INFORMATION**
 
 This
        transition report on Form 10-KSB contains forward-looking statements. Such
        forward-looking statements include statements regarding, among other things,
        (a)
        our projected sales and profitability, (b) our growth strategies, (c)
        anticipated trends in our industry, (d) our future financing plans, and (e)
        our
        anticipated needs for working capital. Forward-looking statements, which
        involve
        assumptions and describe our future plans, strategies, and expectations,
        are
        generally identifiable by use of the words "may," "will," "should," "expect,"
        "anticipate," "estimate," "believe," "intend," or "project" or the negative
        of
        these words or other variations on these words or comparable terminology.
        This
        information may involve known and unknown risks, uncertainties, and other
        factors that may cause our actual results, performance, or achievements to
        be
        materially different from the future results, performance, or achievements
        expressed or implied by any forward-looking statements. These statements
        may be
        found under "Management's Discussion and Analysis of Financial Condition
        and
        Results of Operations," and "Description of Business," as well as in this
        transition report generally. Actual events or results may differ materially
        from
        those discussed in forward-looking statements as a result of various factors,
        including, without limitation, the risks outlined under "Risk Factors" and
        matters described in this transition report generally. This transition report
        may contain market data related to our business, which may have been included
        in
        articles published by independent industry sources. Although we believe these
        sources are reliable, we have not independently verified this market data.
        This
        market data includes projections that are based on a number of assumptions.
        If
        any one or more of these assumptions turns out to be incorrect, actual results
        may differ materially from the projections based on these assumptions. In
        light
        of these risks and uncertainties, there can be no assurance that the
        forward-looking statements contained in this transition report will in fact
        occur. In addition to the information expressly required to be included in
        this
        transition report, we will provide such further material information, if
        any, as
        may be necessary to make the required statements, in light of the circumstances
        under which they are made, not misleading.
  Each
        forward-looking statement should be read in context with, and with an
        understanding of, the various other disclosures concerning our company and
        our
        business made elsewhere in this transition report as well as other public
        reports, which may be filed with the United States Securities and Exchange
        Commission. You should not place undue reliance on any forward-looking statement
        as a prediction of actual results or developments. We are not obligated to
        update or revise any forward-looking statement contained in this transition
        report to reflect new events or circumstances, unless and to the extent required
        by applicable law. Neither the Private Securities Litigation Reform Act of
        1995
        nor Section 27A of the Securities Act of 1933 provides any protection for
        statements made in this transition report.
 
 When
        used
        in this transition report, the terms the "Company," "Perfectenergy Nevada,"
        "we," "us," "our," and similar terms refer to Perfectenergy International
        Limited, a Nevada corporation, and our subsidiaries.
 
 
  **PART
        I**
 
 **ITEM
        1. DESCRIPTION OF BUSINESS**
 
 We
        were
        originally incorporated on February 25, 2005 in the State of Nevada under
        our
        former name “Crestview Development Corporation” with a principal business
        objective to engage in the acquisition and exploration of mineral properties
        with a view to exploiting any mineral deposits discovered that demonstrate
        economic feasibility. However, as a result of our failure to generate revenues,
        the anticipated costs of further exploration activities, lengthy delays in
        our
        ability to generate revenues and the conclusions contained in the geological
        report for our mining claims at the Captain Black Property, our management
        decided that it was not be in our best interests to pursue the mining business.
        In an effort to substantiate stockholder value, we sought to identify, evaluate
        and investigate various companies and compatible or alternative business
        opportunities with the intent that, if such investigation warrants, a
        recapitalization transaction be negotiated and completed pursuant to which
        we
        would acquire a target company with an operating business with the intent
        of
        continuing the acquired company’s business as a publicly held
        entity.
 
 On
        March
        29, 2007, we entered into a share exchange agreement (the “Exchange Agreement”)
        with Perfectenergy International Limited, a private British Virgin Islands
        corporation (“Perfectenergy BVI”), and the stockholders of Perfectenergy BVI.
        Pursuant to the terms of the Exchange Agreement, we agreed to acquire all
        of the
        issued and outstanding shares of Perfectenergy BVI’s common stock in exchange
        for our issuance of 57,190,261 shares of our common stock to the stockholders
        of
        Perfectenergy BVI (“Perfectenergy BVI Stockholders”) (hereinafter this share
        exchange transaction is described as the “Exchange”).
  Effective
        April 16, 2007, we changed our name from “Crestview Development Corporation” to
“Perfectenergy International Limited” (the “Name Change”) in connection with the
        anticipated Exchange transaction. Also effective April 16, 2007, we effected
        a
        7.54 for 1 forward stock split of our authorized and of our issued and
        outstanding common stock. As a result, our authorized capital increased from
        50,000,000 shares of common stock with a par value of $0.001 to 377,000,000
        shares of common stock with a par value of $0.001. Our issued and outstanding
        share capital also increased from 9,245,000 shares of common stock to 69,707,300
        shares of common stock.
 
 On
        August
        8, 2007, we entered into an Amended and Restated Share Exchange Agreement
        (“Amended Agreement”) with Perfectenergy BVI, the Perfectenergy BVI
        Stockholders, and Crown Capital Partners, S.A. This Amended Agreement had
        the
        effect of terminating the Exchange Agreement entered into by the same parties
        on
        March 29, 2007. Pursuant to the terms of the Amended Agreement, we agreed
        to
        acquire all of the issued and outstanding shares of Perfectenergy BVI’s common
        stock in exchange for our issuance of 60,000,000 shares of our common stock
        to
        the Perfectenergy BVI Stockholders on the basis of 57,197.33079 common shares
        in
        the capital of Perfectenergy Nevada for every one share of Perfectenergy
        BVI.
        The terms of the Amended Agreement included the following closing
        conditions:
 
 1.
              Perfectenergy
                  Nevada agreeing to complete a private placement financing with
                  a minimum
                  of $12 million being subscribed for and funded into escrow by the
                  Investors for the purchase of Units at a price of $0.70 per Unit,
                  with
                  each Unit consisting of one share of our common stock and one-half
                  (1/2)
                  of one common share purchase warrant, with each whole warrant entitling
                  the holder to purchase one additional share of our common stock
                  at an
                  exercise price of $0.95 per common share for a period of thirty
                  (30)
                  months. The closing of this private placement financing (hereinafter
                  the
                  “Financing”) was to be completed concurrent with or before the closing of
                  the Amended Agreement;
 
 2.
              Perfectenergy
                  BVI having no more than 1,049 common shares issued and outstanding
                  on the
                  closing date of the Amended
                  Agreement;
 
 3.
              Perfectenergy
                  Nevada’s board of directors having adopted resolutions appointing Wennan
                  Li, Min Fan, Yunxia Yang, and Adam Roseman to our board of
                  directors;
 
 4.
              Perfectenergy
                  Nevada’s board of directors having adopted resolutions appointing Wennan
                  Li, Hongbo Li and Diping Zhou as new executive officers, effective
                  on the
                  Closing Date;
 
 5.
              The
                  cancellation of 37,700,000 common shares held by former sole director
                  and
                  officer Philip McDonald concurrent with the closing of the share
                  exchange
                  transaction;
 
 6.
              Perfectenergy
                  Nevada and Perfectenergy BVI having received duly executed copies
                  of all
                  third-party consents and approvals necessary to consummate the
                  share
                  exchange contemplated by the Amended
                  Agreement;
  2
  7.
              No
                  material adverse change will have occurred with the business or
                  assets of
                  Perfectenergy Nevada or Perfectenergy BVI as of the closing date
                  of the
                  Amended Agreement;
  8.
              No
                  suit, action or proceeding will have been pending or threatened
                  which
                  would (i) prevent the consummation of any of the transactions contemplated
                  by the amended share exchange agreement, or (ii) cause the transaction
                  to
                  be rescinded following the consummation;
                  and
 
 9.
              The
                  resignation of Philip McDonald as executive officer of the Perfectenergy
                  Nevada concurrent with the closing of the share exchange transaction,
                  and
                  Mr. McDonald’s resignation following the completion of the 10-day period
                  following the mailing of the Schedule 14f-1 Information Statements
                  to our
                  stockholder’s regarding the change in the majority of the members of our
                  board of directors in compliance with Section 14(f) of the Securities
                  Act
                  of 1933, as amended, and Rule 14(f)-1
                  thereunder
  The
        closing of the transactions contemplated by the Amended Agreement, and the
        closing of the related $18.4 million private placement financing, occurred
        on
        August 8, 2007 (the “Closing Date” or the “Closing”). Following the Closing
        Date, Perfectenergy BVI became our wholly owned subsidiary and our new operating
        business.
 
 Perfectenergy
        BVI was incorporated under the laws of the British Virgin Islands as an
        International Business Company on April 1, 2005. Perfectenergy BVI’s
        wholly-owned operating subsidiary, Perfectenergy (Shanghai) Limited, was
        organized under the laws of the People’s Republic of China on July 8, 2005
        (“Perfectenergy Shanghai”). Perfectenergy BVI, through Perfectenergy Shanghai,
        is principally engaged in the research, development, manufacturing, and sale
        of
        solar cells, solar modules, and photovoltaic (“PV”) systems. Its principal
        offices are located at No. 479 You Dong Road, Xinzhuang Town, Shanghai 201100,
        People’s Republic of China.
 
 In
        May
        2005, Perfectenergy BVI issued 849 shares of common stock at $1.00 par value
        for
        $360,000 and 151 shares of common stock at $1.00 par value for In-process
        technology valued at $64,028 to the Perfectenergy BVI’s stockholders
        (“Perfectenergy BVI Stockholders”). In June 2006, the Perfectenergy BVI
        Stockholders entered into a Stockholders’ Agreement in which they agreed to
        increase Perfectenergy BVI’s capital from $360,000 to $1,232,687 (RMB
        10,000,000) and the 1,000 shares of common stock remained unchanged. During
        2006, Perfectenergy BVI received $187,050 additional paid-in capital. On
        July
        20, 2007, the Perfectenergy BVI Stockholders agreed that the outstanding
        capital
        contribution of $658,637 was no longer required to be contributed into the
        Company as Perfectenergy BVI intended to raise capital through the
        recapitalization with Perfectenergy Nevada and to raise capital through issuance
        of common stock.
 
 Perfectenergy
        Shanghai, was established in Minhang District, Shanghai City, China on July
        8,
        2005 with a registered capital of $310,000 (RMB 2,500,000) and is a wholly
        owned
        subsidiary of Perfectenergy BVI. On November 28, 2005, pursuant to a change
        in
        its bylaws, the registered capital of Perfectenergy Shanghai was increased
        from
        $310,000 (RMB2,500,000) to $1,231,851 (RMB 10,000,000). On December 21, 2005,
        the Minhang District local government in the City of Shanghai approved the
        transaction and Perfectenergy Shanghai obtained a new certificate of approval
        on
        January 19, 2006 and a new business license on October 20, 2006 with a business
        terms of 30 years starting on July 8, 2005. In accordance with the certificate
        of approval, the increase of $922,687 (RMB 7,500,000) registered capital
        is
        required to be made within one (1) year from the date of issuance of its
        new
        business license. During 2006, Perfectenergy BVI contributed $264,050
        (RMB2,122,699) additional registered capital and, in August 2007, Perfectenergy
        BVI contributed the remaining capital contribution receivable of $658,637
        (RMB5,311,586) into Perfectenergy Shanghai.
 
 We
        currently have a solar module lamination line and a solar cell production
        line
        with annual manufacturing capacity of approximately 25 megawatts (“MW”) and 15
        MW, respectively. We operate as an export-oriented enterprise, and we are
        focused on further expanding our production capacity as well as the market
        for
        our solar power products in mainland China, Europe, and the United
        States.
 
 We
        conduct sales in Europe through Perfectenergy GmbH, a German corporation,
        which
        was formed by Xiaochun Haas under an agreement with Perfectenergy BVI dated
        September 20, 2007 (“GmbH Agreement”). The GmbH Agreement supplemented an oral
        understanding between the parties dated August 26, 2007, on which day the
        parties agreed that Ms. Haas would form Perfectenergy GmbH in Germany as
        a
        private company and would become the sole shareholder and Chief Executive
        Officer of Perfectenergy GmbH with all expenses relating to the formation
        paid
        by the Company. Pursuant to the GmbH Agreement, Ms. Haas is to transfer her
        ownership in Perfectenergy GmbH to Perfectenergy BVI as soon as practicable.
        The
        parties are currently in the process of finalizing the transfer of equity
        securities to Perfectenergy BVI, which is expected to be completed in March
        2008.
 
 Perfectenergy
        GmbH was formed in Germany on November 9, 2007 and currently has 3 employees.
        The principal function of Perfectenergy GmbH is marketing, installation,
        and
        other after-sales services for our PV products. Our expansion into the European
        market is significant to our current and future strategic growth in Europe
        because we have previously generated significant revenues from
        European customers and we hope to continue significantly
        increasing our sales in, and revenue generated by, the European market, in
        part, through the formation of Perfectenergy GmbH.
  3
  Perfectenergy
        GmbH’s office is located at Tannenweg 8, 53757 Sankt Augustin, Germany, and
        their telephone number is (49) 2241-9320-935.
  **Market
        and Industry Overview**
 
 The
        solar
        power market has experience rapid growth in the past several years. According
        to
        Solarbuzz LLC (“Solarbuzz”), an independent solar energy research firm, the
        global solar power market, as measured by annual solar power system installed
        capacities, increased from 427 MW in 2002 to 1,744 MW in 2006, representing
        a
        compound annual growth rate, or CAGR, of 42%. Under the lowest of three
        different projections, Solarbuzz expects annual solar power system installed
        capacities to further increase to 4,177 MW in 2011. Solar power industry
        revenue
        is expected to increase from $10.6 billion in 2006 to $18.6 billion in 2011,
        representing a CAGR of 12%. Currently, the majority of installed solar systems
        employ crystalline silicon technology. Most solar cell manufacturers apply
        crystalline silicon technology to manufacture P-type solar cells, while only
        a
        few manufacturers produce, on a commercial scale, N-type solar cells, which
        generally have higher conversion efficiencies than P-type solar cells. The
        solar
        cell production industry is currently dominated by a small number of
        manufacturers. According to Solarbuzz, the top 10 solar cell manufacturers
        together accounted for 75% of the solar cell production worldwide in
        2006.
 
 4
  According
        to Solarbuzz, the global solar power industry as measured by MW of solar
        power
        system annually installed capacities is estimated to grow from just under
        2,000
        in 2006 to over 4,000 in 2011.
  We
        also believe the solar power market will continue to experience growth as
        a
        result of the growing adoption of government incentives for solar energy
        sources, rising energy demand and limited fossil energy sources, and the
        growing
        awareness of the advantages of solar energy, all of which are discussed
        below:
 
 ***Growing
        Adoption of Government Incentives for Solar and Other Renewable Energy
        Sources***
 
 In
        response to the increasing environmental concerns worldwide, many governments
        have promulgated regulations and implemented policies to limit the release
        of
        hazardous and “greenhouse” gases, such as carbon dioxide, and to encourage the
        use of renewable energy sources. Due to the fact that most renewable energy
        sources are currently less cost competitive than traditional energy sources,
        a
        growing number of countries have created incentive programs for the solar
        sector, including:
 
 ·
              direct
                  subsidies to end users to counter costs of equipment and
                  installation;
 
 ·
              net
                  metering laws enabling on-grid end users to sell electricity back
                  to the
                  grid at retail prices;
 
 ·
              government
                  standards mandating minimum consumption levels of renewable energy
                  sources; and
 
 ·
              low
                  interest loans and tax incentives to finance solar power
                  systems.
 
 Due
        to government support in the past decade, solar energy has become an attractive
        alternative to traditional energy sources. Set forth below are brief
        descriptions of the incentive programs adopted by the following selected
        countries:
  **China.** China’s
        government has been introducing various laws, regulations and initiatives
        to
        support renewable energy, including solar energy, over the last few years. In
        2000, the Chinese government initiated the Brightness Program, a rural
        electrification program, to provide electricity to rural areas in China.
        Under
        the initial phase of the Brightness Program relating to township
        electrification, an estimated 20 MW of PV or PV/ wind systems were
        installed from 2002-2004, impacting 1,000 municipalities. According to
        Solarbuzz, a second phase of the Brightness Program relating to village
        electrification contemplates installing village PV systems and solar home
        systems with a total capacity of over 250 MW from 2005-2010.
  In
        February 2005, China enacted the Renewable Energy Law, which became effective
        in
        January 2006. The Renewable Energy Law provides certain financial incentives
        for
        the development of renewable energy projects. Various local authorities have
        also introduced initiatives to encourage the adoption of renewable energy,
        including solar energy. In addition, solar power will be used at various
        sports
        venues of Beijing 2008 Olympic Games. We expect that the increase in solar
        energy consumption in local municipalities will encourage further growth
        of the
        solar energy industry in China.
  The
        Chinese government granted us an income tax exemption for the years ended
        December 31, 2006 and 2005, and we are entitled to receive a 50% deduction
        of
        our regular income tax rate of 33% from January 2007 to December 31, 2009.
        The
        Chinese government also granted us a refund on value added taxes (“VAT”), which
        are imposed on exported goods in the rate of 17%. Enterprises or individuals
        who
        sell products, engage in repair and maintenance, or import and export goods
        in
        China are subject to VAT in accordance with Chinese laws. The standard VAT
        is
        17% of the gross sales price. To the best of our knowledge, we are not eligible
        to receive similar subsidies or incentive from any other
        government.
 
 5
  **Germany.** Under
        Germany’s Renewable Energy Sources Act, the country aims to increase the share
        of electricity from renewable energy to 12.5% by 2010 and 20% by 2020. In
        particular, the Renewable Energy Sources Act requires electricity transmission
        grid operators to connect various renewable energy sources to their electricity
        transmission grids and to purchase all electricity generated by such sources
        at
        guaranteed feed-in tariffs. Additional regulatory support measures include
        investment cost subsidies, low-interest loans and tax relief to end users
        of
        renewable energy.
 
 ****  **Italy.** Before
        2005, the Italian PV market benefited primarily from regional support for
        PV
        installations with grants of up to 65% of investment, in the absence of national
        incentive funds. In 2005, Italy passed a new law that sets fixed feed-in
        tariffs
        for electricity produced from renewable energy sources. The incentives are
        available to individuals, companies and public bodies. In January 2006, the
        Italian government approved various measures relating to PV feed-in tariffs,
        including increasing the PV feed-in tariff cap to 500 MW by
        2015.
 
 **Japan.** The
        Japanese government has implemented a series of incentive programs, including
        the "PV 2030" roadmap, which outlines government policies to support solar
        power
        electricity. Japan also provides government subsidies for research and
        development. According to Solarbuzz, due to those incentive programs, there
        are
        over 200,000 PV installations on residential housing in Japan.
 
 **Spain.** The
        incentive regime in Spain includes a national net metering program and favorable
        interest loans. The actual feed-in tariff for solar energy in Spain is fully
        guaranteed for 25 years and guaranteed at 80% subsequently. The target
        for cumulative installed generation capacity from PV in 2010 was recently
        raised
        by the Spanish government to 400 MW.
 
 **United
        States.** At the
        federal level, several recent developments are favorable to the PV industry
        in
        general. The United States Congress approved the Energy Policy Act of 2005,
        which provides a 30% investment tax credit for PV installations.  The
        federal tax credits will expire this year, but the U.S. House of Representatives
        is currently discussing a renewal of this policy.  In addition, the
        President of the United States announced the Advanced Energy Initiative in
        January 2006, which sets the goal of replacing more than 75% of oil imports
        from
        the Middle East by 2025 through using alternative energy. Furthermore, the
        President of the United States proposed $148 million in funds to support
        the solar energy research and development program in the United States
        government’s 2007 budget. In addition, a number of states, including California
        and New Jersey, have committed substantial resources to developing and
        implementing renewable energy programs. For example, in January 2006, the
        California Public Utilities Commission passed the California Solar Initiative
        with the goal of installing 3 GW PV systems by 2017. Under the California
        Solar
        Initiative, an investment of $3.2 billion will be made from 2006 to 2017
        for the
        installation of 1 million PV plants with the total output of more than 3,000MW.
        Investors in these PV plants will get refund from the state and federal
        governments of approximately 75% of their total investment. In addition,
        the
        investors are to receive a guaranteed profit of 12% on average for the
        electricity produced by their PV plants with certificates of green power.
        In
        April 2006, the New Jersey Board of Public Utilities voted to approve new
        regulations which expand the State’s Renewable Portfolio Standard by extending
        the existing goals out to 2020 and increasing the required amount of renewable
        energy and solar energy. Under the newly adopted regulations, 20% of New
        Jersey’s electricity must come from renewable sources by 2020. The New Jersey
        regulations also include a 2% solar set aside, which is forecast to require
        1,500 MW of electricity to be generated through solar power, the largest
        solar commitment relative to population and electricity consumption in the
        United States.
 
 ***Rising
        Energy Demand and Limited Fossil Energy Sources with Increasing
        Prices***
 
 In
        recent
        years, global economic development has resulted in surging energy demand
        and
        rising energy prices. Electric power demand is expected to increase from
        16.1
        trillion kilowatt hours in 2002 to 31.7 trillion kilowatt hours by 2030
        globally. Meanwhile, the generation of electric power is capacity constrained
        and dependent upon fossil fuel feedstock. The situation is compounded by
        the
        finite supply of traditional energy sources, such as natural gas, coal, and
        petroleum. In addition, petroleum prices have risen dramatically because
        of war,
        political instability, labor unrest, and the threat of terrorism in
        oil-producing regions. Further, for national security reasons many governments
        seek to further develop domestic sources of energy. Thus, future energy demand
        is increasingly expected to be met by renewable energy sources, such as solar
        energy.
 
 ***Growing
        Awareness of the Advantages of Solar Power***  ****
 
 Solar
        power offers a variety of advantages over other sources of power, including
        an
        absence of the need for fuel, environmental cleanliness, location based energy
        production, greater efficiency during peak demand periods, high reliability
        and
        modularity. These advantages include:
  6
  *No
        fossil fuel requirement*  **.** Solar
        power relies solely on sunlight rather than traditional fossil fuels that
        have
        historically experienced supply constraints, volatile pricing and delivery
        risk.
 
 *Clean
        energy production*  **.** Unlike
        traditional fossil fuel energy sources and many other renewable energy sources,
        solar power systems generate electricity with no emissions or noise
        impact.
 
 *Location-based
        energy production.* Solar
        power is a distributed energy source, meaning that the electricity can be
        generated at the site of consumption. This provides a significant advantage
        to
        the end user who is therefore not reliant upon the traditional electricity
        infrastructure for delivery of electricity to the site of use.
 
 *Energy
        generated to match peak usage times.* Peak
        energy usage and high electricity costs typically occur mid-day, which also
        generally corresponds to peak sunlight hours and solar power electricity
        generation.
 
 *Reliable
        Source of Electricity.* Solar
        power systems generally do not contain moving parts, nor do they require
        significant ongoing maintenance. As a result, we believe solar power systems
        are
        one of the most reliable forms of electricity generation.
 
 *Modular.* Solar
        power systems are made from interconnecting and laminating solar cells into
        solar modules. Given this method of construction, solar power products can
        be
        deployed in many different sizes and configurations to meet specific customer
        needs.
 
 ***Challenges
        Facing the Solar Power Industry***
 
 Although
        solar power has several advantages and is an attractive alternative to
        traditional energy sources, there remain certain key challenges that the
        solar
        power industry must overcome to accomplish broad commercialization of its
        products, including:
 
 *Possible
        Reduction or Elimination of Government Subsidies and
        Incentives.* The
        current growth of the solar power industry substantially relies on the
        availability and size of government subsidies and economic incentives, such
        as
        capital cost rebates, reduced tariffs, tax credits, net metering and other
        incentives. Governments may eventually decide to reduce or eliminate these
        subsidies and economic incentives. It remains a challenge for the solar power
        industry to reach sufficient scale to be cost-effective in a non-subsidized
        marketplace.
 
 *High
        Cost of Solar Power.* Generally,
        the per kilowatt-hour cost of generating solar electricity, including the
        upfront capital costs, is greater than retail electricity rates. While
        government policy mechanisms and heightened consumer awareness are driving
        solar
        power adoption, the cost of solar power products remains an impediment to
        growth. To address this issue, manufacturers must improve the cost efficiency
        of
        solar power systems through innovation and continuous improvement of production
        techniques. For example, improving conversion efficiencies of solar cells
        will
        reduce raw material requirements and lower costs required to manufacture
        a solar
        power system with a given output. Higher conversion efficiencies also decrease
        the size of the solar power system, and thereby lower the system installation
        costs.
 
 *Shortages
        of Raw Materials.* According
        to Solarbuzz, crystalline silicon technology represented 92% of the solar
        cell
        market in 2006. Polysilicon is the main raw material used in manufacturing
        our
        solar cells. Currently, there is an industry-wide shortage of polysilicon,
        which
        is expected to last in the near future. As a result of this raw material
        shortage, we believe the growth of the solar industry will be hindered in
        the
        near term. An industry-wide shortage of polysilicon will or will reasonably
        likely have a material impact on our liquidity because suppliers will likely
        require more advance payments for the poly-silicon that they supply to us
        as our
        production expands. Further, a shortage may also have a material effect on
        our
        results of operations because a shortage will likely cause the price of
        poly-silicon to rise. Such increase will likely cause an increase in the
        cost of
        producing our products especially if we need to obtain more poly-silicon
        in the
        market to produce our products as our production expands in the future. In
        addition, we believe effective supply chain management is critical to ensure
        continued growth for the industry.
 
 **Our
        Operations**
 
 We
        currently have a solar module lamination line and a solar cell production
        line
        with annual manufacturing capacities of approximately 25 megawatts (“MW”) and 15
        MW, respectively. We believe that our manufacturing processes allow us to
        produce PV solar products at a much lower cost than traditional solar cell
        manufacturing for the same levels of production due to our lower capital
        cost. Our production line requires less capital investment than
        traditional solar cell production lines for the same levels of production
        due to
        the proprietary nature and in-house manufacturing of our capital equipment,
        while the competition must import costly capital equipment from Germany and
        Japan.
 
 7
  After
        manufacturing, our products are put through a rigid quality assurance
        process.  We have also established a quality control system. All of the
        products are strictly in accordance with international standards (IEC61215,
        TUV
        Safe Class II, UL1703), in order to maintain our competitiveness in
        international markets.
  Our
        manufacturing and research facility is located in Shanghai, China. Currently,
        we
        have a 15MW solar cell production line and a 25 MW solar panel lamination
        line.
        In our facility’s solar cell and solar panel lamination production lines, we are
        able to produce different kinds of cells, for example, 6-inch cells and 8-inch
        cells, mono-crystalline cells and multi-crystalline cells, as well as different
        types and sizes of solar modules.
 
 We
        have
        also established a sales and marketing force of four people, led by Mr. Wennan
        Li, our Chief Executive Officer. Our targeted customers, besides our existing
        clients, are mainly system integrators and distributors in Europe, the U.S.
        and
        China.
 
 **Products
        and Services**
 
 ***PV
        Cells***
 
 We
        currently design, manufacture and market crystalline solar cells (approximately
        6 inch squares composed of silicon and glass) sold as crystalline solar modules
        (metal grid structures housing 72 cells).
 
 A
        PV cell
        is a silicon semiconductor device that converts sunlight into electricity
        by a
        process known as the photovoltaic effect. The following table sets forth
        the
        specifications for samples of two types of PV cells we currently
        produce:
 **PV
                    Cell Type**
                
                **Dimensions**
                  **(mm×mm)**
                
                **Conversion**
                  **Efficiency (%)**
                
                **Thickness**
                  **(microns)**Monocrystalline
                    silicon cell
                
                
                125x125
                
                
                16.50
                    - 16.80
                %
                
                200-230Multicrystalline
                    & Monocrystalline silicon cell
                
                
                156x156
                
                
                16.50
                    - 16.80
                %
                
                200-230
 
 The
        key
        technical efficiency measurement of PV cells is the conversion efficiency
        rate.
        In general, the higher the conversion efficiency rate, the lower the production
        cost of PV modules per watt because more power can be incorporated into a
        given
        size package. The average conversion efficiency rate of our monocrystalline
        PV
        cells reached 16.8% in June 2007, representing an increase from 15% in December
        2005 when we began producing PV cells. We currently produce a variety of
        PV
        cells ranging from 200 microns to 230 ****** microns
        in thickness. In order to further lower our production costs, we intend to
        focus
        on producing PV cells with decreasing thickness levels.
 
 ***PV
        Modules***  ****
 
 A
        PV
        module is an assembly of PV cells that have been electrically interconnected
        and
        laminated in a durable and weatherproof package. Our solar cells are often
        sold
        as components of assembled modules. We are also developing PV modules with
        higher power to meet the rising expansion of on-grid configurations. The
        majority of the PV modules we currently offer to our customers range in power
        between 10W and 180W. We also perform limited original equipment manufacturing
        (“OEM”) work for other solar cell producers, such as selling standalone solar
        modules. We sell approximately 90% of our PV modules under our “Perfectenergy”
brand, and approximately 10% of our PV modules under the brand names of our
        customers.
 
 We
        believe our PV cells and modules are highly competitive with other products
        in
        the solar energy market in terms of efficiency and quality. We expect to
        continue improving the conversion efficiency and power, and reducing the
        thickness, of our solar products as we continue to devote significant financial
        and human resources in our various research and development
        programs.
 
 8
  **Research
        and Development**
 
 We
        place
        great emphasis on product research and development (“R&D”). We are currently
        engaged in R&D to create and develop new solar energy products, while
        improving upon our current solar cells and solar panels. We are also currently
        developing other types of mono-crystalline and poly-crystalline solar cell
        products, as well as our own PV or solar energy systems. We believe that
        our
        research and development team has mastered the design and manufacturing of
        silicon solar cells, mono-crystalline or multi-crystalline, and several
        different types of solar panels. We are also capable of designing key
        manufacturing equipment and machines in-house for use in manufacturing our
        products.
  Internally,
        we have created a number of processes and techniques for wafers' surface
        treatment, fire and passivation, and the coating, resulting in better product
        performance, higher production efficiency, and significant cost reduction.
        We
        have also formed a long-term strategic alliance with Shanghai Solar Engineering
        & Technology Centre Co., Ltd., which is sponsored by the Shanghai local
        government. Working closely together, we believe that we have developed some
        unique technologies, such as textiles, junction passivation, multi-layer
        coating
        technologies, and we have also managed to maintain our average conversion
        efficiency consistently over 16.5%. In addition, we are working with them
        to
        continuously enhance conversion efficiency of our PV cells. We are also jointly
        developing new higher-efficiency solar cells, including Flow-Zone (“FZ”) silicon
        solar cells. We believe the conversion rate for our PV cells will increase
        to
        over 17% in 2008. Further, we have entered into partnership agreements with
        Shanghai Solar Power Technology Research Center to jointly develop high
        productivity, low-investment zone-smelting silicon cells, and also double-sided
        silicon solar cells, of which conversion efficiency is expected to be more
        than
        21%. We have also filed application for two patents in this area and are
        currently preparing two additional patent applications as well.
 
 **Growth
        Strategies and Marketing**
 
 ***Growth
        Strategies***
 
 During
        the ten months ended October 31, 2007, approximately 95.1% of our revenue
        came
        from the sale of stand-alone PV cells, all into the Chinese market. The
        remaining 4.9% of our revenue was generated from the sale of assembled PV
        modules, with 97.9% of PV module revenue from sales to foreign markets, mostly
        in Europe. Our three-pronged growth strategy to further expand our sales is
        as follows:
 
 1.
              **To
                  continue to enlarge our market share in Europe**.
                  Today, the European PV market represents over 65% of the world’s total
                  installation. Europe’s global leadership has been spearheaded by Germany
                  and followed by Spain, the two countries, where most of our export
                  goes
                  today, having already established a significant market presence.
                  We
                  experienced a significant drop in our European revenue for the
                  ten month
                  period ending October 31, 2007 which were attributable to costs
                  and
                  effects of our relocation to a new production facility and also
                  a delay in
                  our obtaining TUV certifications for our products. Because of the
                  delay in
                  obtaining our TUV certifications, we had to shift to sales of solar
                  cells
                  instead of our solar modules and we had decreased sales while it
                  was in
                  the process of establishing business relationships with new customers.
                  Further, during the relocation, the installation and debugging
                  required
                  for the mechanical equipment used in our production lines were
                  beyond what
                  was expected and the delays that resulted had a serious impact
                  on the
                  output of our products and our international sales during the first
                  ten
                  months of 2007. However, we believe that because our new production
                  facility is now fully operational and because we have now obtained
                  our TUV
                  certifications, we believe that our sales in Europe will be significantly
                  enhanced going forward. We aim to continue our strong growth momentum
                  in
                  Europe, with the objective of significantly increasing our exports
                  to
                  Europe over the next two years. Although our overall market share
                  in
                  Europe is very small, we have recently obtained TUV certification
                  for our
                  products in Europe. TUV certification involves rigorous testing
                  of the
                  applications for which our products are designed.  It includes
                  verification that the products satisfy strict European regulations
                  for the
                  industry in which the product was designed for and ensures the
                  product
                  specifications are stated correctly.  Certification requires very
                  comprehensive product testing and periodic retesting of the product
                  is
                  required to maintain TUV certifications. We believe that maintaining
                  these
                  certifications will significantly enhanced the sales of our products
                  in
                  Europe. We emphasize product research and development and we are
                  currently
                  developing other types of mono-crystalline and poly-crystalline
                  solar cell
                  products, as well as our own PV or solar energy systems to improve
                  the
                  efficiency of our solar cells and increase the variety of our cell
                  type.
                  We also plan to increase our capacity and production lines next
                  year. All
                  of above will significantly enhance our sales in
                  Europe.
  2.
              **To
                  enter the U.S. market**.
                  Although the PV market in the United States currently accounts
                  for only
                  approximately 15% of the global share, it has been growing very
                  rapidly in
                  recent years. For example, total installations in the United States
                  are
                  expected to double in 2007, and installations in the United States
                  are
                  projected to increase to about 23% of the global market in 2011.
                  Our plan
                  is to achieve exports to $10 million in
                  2008.
  9
  3.
              **To
                  aggressively increase our PV panels’ domestic market share inside
                  China**.
                  China’s PV market is still small but we expect it will grow rapidly in
                  the
                  next decades, given the increasing support for solar energy initiatives
                  from the Chinese government. It is projected that the Chinese solar
                  energy
                  products market will grow from only 25MW in 2005, to 500MW in 2010,
                  and
                  then to 30,000MW in 2020. We plan to increase our sales in China
                  to 40% of
                  our total panel sales in the next two
                  years.
 
 In
        striving to meet our growth objectives above, we are taking the following
        measures:
 
 **Obtaining
        international certifications for our products** . We
        initiated the IEC and TUV certification processes for our products in April
        2006. The TUV certification means that our production process has been qualified
        for IEC 61215 and Safety Class II test standards and production quality
        inspections are performed periodically. IEC 61215 is a test standard for
        the
        durability and reliability of crystalline silicon modules and Safety
        Class II is a test standard for the electrical shock insulation
        capabilities of PV modules. We received our official IEC61215 and Safety
        Class
        II certifications from TUV in August 2007. We believe that maintaining these
        certifications will significantly enhanced our sales in Europe. Further,
        we also
        began our application process for certification by Underwriter’s Laboratories
        Inc. (“UL”) for our solar energy products in the United States in May 2007. UL
        certification means that our products comply with the appropriate safety
        requirements, many of which are developed by UL, for solar energy products.
        The
        UL certification process is expected to be completed in April 2008, and its
        completion will further enhance sales of our products in the U.S. PV
        markets.
 
 **Improving
        the efficiency of our solar cells and increasing the variety of our cell
        types** . We
        continue to conduct R&D and implement technology to improve the efficiency
        of our solar cells and we also plan to increase the variety of solar cells
        that
        we will produce. Our plans are as follows:
 
 2008
              
              2009Average
                  conversion efficiency
              
              
              17
              %
              
              17.5
              %Cell’s
                  size(mm)
              
              
              125&156
              
              
              125&156Cell
                  type
              
              
              Other high efficiency cells
  **Expansion
        of our production capacity** . We
        currently have workshop floor space of 6,200 square meters (m 2 ) with a
        capacity of 15 MW. We plan to increase our capacity and production lines
        in the
        next years as follows:
 
 2008
              
              2009
              
              2010Cell
                  Production Line
              
              
              4
              
              
              8
              
              
              8Capacity
                  (MW)
              
              
              90-100
              
              
              200
              
              
              200Workshop
                  floor space (m2)
              
              
              12,000
              
              
              17000
              
              
              17000
 
 2008
              
              2009
              
              2010Lamination
                  Line
              
              
              6
              
              
              10
              
              
              10Capacity
                  (MW)
              
              
              100
              
              
              250
              
              
              250Workshop
                  floor space (m2)
              
              
              12,000
              
              
              17000
              
              
              17000
 
 Our
        anticipated expenditure for the expansion of our work floor space is
        approximately $4,000,000. Our anticipated expenditure for the additional
        cell
        production lines over next 2-3 years is approximately $32,000,000. We also
        anticipate spending approximately $3,000,000 over the next 2-3 years to expand
        our lamination lines. The source of funds for these expansion projects ,
        which
        includes expansion of our current facility and construction of new facilities,
        will be mainly from equity capital.
  ***Marketing
        and Distribution***
 
 We
        market
        and sell our solar power products worldwide through our direct sales force,
        which is based in our facilities in Shanghai. Our marketing programs include
        industrial conferences, trade fairs, sales training, and advertising. Our
        sales
        and marketing groups work closely with our research and development and
        manufacturing groups to coordinate our product development activities, product
        launches and ongoing demand and supply planning. We sell our products to
        a
        number of systems integrators and distributors, primarily located in Germany,
        Spain and Italy, who purchase its solar modules, purchase software and hardware
        from other vendors and integrate and install the end-product for customers.
        Many
        of our customers, in turn, sell turnkey solar systems to end-users that include
        individual owners of agricultural buildings, owners of commercial warehouses,
        offices and industrial buildings, public agencies and municipal government
        authorities that own buildings suitable for solar system deployment, owners
        of
        land designated as former agricultural land, waste land or conversion land,
        such
        as former military bases or industrial areas, and financial investors that
        desire to own large scale solar projects. We are also planning on increasing
        our
        vertical integration through internal development and outside acquisitions.
        This
        vertical integration will allow us to protect and acquire key margin components
        of our overall supply chain. The acquisitions of one or more systems integrators
        will allow us to own the end-market customer and develop a brand recognized
        for
        its low-cost solutions and consistently high quality products by controlling
        the
        installation, repair and maintenance of its products.
 
 10
  **Our
        Suppliers**
  Silicon
        is essential for manufacturing our products and, as noted above, silicon
        manufacturers are not currently able to keep up with demand. ****** We have
        three (3) year silicon supply agreements with both Tianjin Huan Ou Semiconductor
        Material Technology Co., Ltd. (“Tianjin Huan Ou”) and Chengdu Jiayang Silicon
        Technology, Inc., Ltd. (“Chengdu”), which were executed in 2006 and are in place
        through 2009. Our purchase obligations under the long-term  silicon wafer
        supply agreement with Tianjin Huan Ou are 2.5 million silicon wafers in
        2007, 5 million silicon wafers in 2008, and 10 million silicon wafers in
        2009.
        Tianjin has long-term contracts to get the silicon material produced by
        Renewable Energy Corporation (REC) for up to 150 tons of silicon in 2007,
        up to
        300 tons of silicon in 2008 and up to 500 tons of silicon in 2009, all at
        market
        prices. Our purchase obligations under the long-term silicon supply contract
        with Chengdu are with 800,000 silicon wafers in 2007, 1.5 million silicon
        wafers in 2008, and 3 million silicon wafers in 2009. The Company has an
        oral
        understanding with both Tianjin Huan Ou and Chengdu that if there is a shortage
        of silicon, then each of the suppliers will reduce our minimum purchase
        obligations under the respective agreement.
 
 In
        order
        to further mitigate the risk that we will be unable to obtain sufficient
        supplies of silicon, we entered into a multi-party alliance with Shanghai
        Shenzhou New Energy Development Co., Ltd., Tianjin Huan Ou, and Shanghai
        Solar
        Energy Engineering Technology Research Co., Ltd. A member of our alliance,
        Tianjin Huan Ou Semiconductor Material Technology Co., Ltd., has had a
        long-time cooperation relationship with REC Silicon, which is one of the
        top
        silicon manufacturers in the United States, and we believe that this alliance
        will help us obtain a sufficient supply of silicon at a reasonable price
        for the
        coming years and when we expand our production capacity. However, we cannot
        guarantee that we will be able to obtain sufficient amounts of silicon through
        this alliance, or through our current suppliers that will be required
        to meet our manufacturing needs. If we are unable to obtain sufficient
        quantities of silicon through the alliance and we had to purchase silicon
        in the
        open market, it could have an adverse affect on our results of
        operations.
  Other
        materials needed to produce cells and modules, such as chemicals, special-made
        glasses, etc. are relatively easy to purchase from multiple vendors and we
        intend to work with two to three vendors to ensure the best pricing and quality
        of these supplies.
  **Employees**
  As
        of
        February 13, 2008, we had approximately 200 employees, of which all were
        full-time employees. None of these employees are represented by any collective
        bargaining agreements. Neither we nor any of our subsidiaries have experienced
        a
        work stoppage. Management believes that our relations with our employees
        are
        good.
 
 **Intellectual
        Properties and Licenses**
 
 The
        following table describes the intellectual property owned by the Company: ******
 
 **Type**
              
              **Name**
              
              **Issued
                  by**
              
              **Duration**
              
              **Description**Trademark
              
              logo of Perfectenergy
              
              Trademark
                  Bureau of the People’s Republic of China
              
              Ten
                  years (and renewable within six months prior to the end of each
                  ten-year
                  term for additional ten-year periods)
              
              Logo,
                  brand name used in our productsPatent
              
              Solar
                  cell fire furnace equipment
              
              Intellectual
                  Property Bureau of the People’s Republic of China
              
              May
                  25, 2006 to May 25, 2016 (10 years)
              
              To
                  increase cell efficiency with proper cell production
                  techniquePatent
              
              Solar
                  wafer drying equipment
              
              Intellectual
                  Property Bureau of the People’s Republic of China
              
              May
                  17, 2006 to May 17, 2016 (10 years)
              
              To
                  dry wafers more effectively, thus improving quality and increasing
                  yield
 
 11
  We
        started the IEC and TUV certification processes for our products in April
        2006.
        We completed the testing process, and we recently received the official
        certificates for our IEC61215 and Safety Class II certifications from TUV
        in
        August 2007. Moreover, we have also applied for UL certification in the United
        States. We expect this certification process to be completed in April 2008,
        and
        we believe that successfully obtaining such certification will pave the way
        for
        a more rapid and expansive entry into the U.S. solar energy market.
 
 **Current
        Customers**
 
 We
        sell
        our products to a number of systems integrators and distributors, mostly
        located
        in Europe and China, who purchase solar cells and solar modules from us,
        software and hardware from other vendors, and then integrate and install
        the
        end-product for their customers. These systems integrators sell turnkey solar
        systems to end-users that include:
 
 ·
              Individual
                  owners of agricultural buildings
  ·
              Owners
                  of commercial warehouses, offices and industrial
                  buildings,
 
 ·
              Public
                  agencies and municipal government
                  authorities
 
 ·
              Owners
                  of land designated as former agricultural land, waste land or conversion
                  land, such as former military bases or industrial
                  areas
 
 ·
              Financial
                  investors interested in owning large scale solar
                  projects.
 
 We
        have
        also established a client base covering Europe, China, and the United States.
        Our top three (3) customers by value, who accounted for 71.8% of our revenue
        as
        of October 31, 2007, are as follows:
 
 ·
              Shanghai
                  Solar Science & Technology Co., Ltd. was our largest customer in
                  fiscal 2007. Sales to this customer accounted for 41.6% of our
                  2007
                  revenue.
  ·
              Zhejiang
                  Sun Valley Energy Application Technology Co., Ltd. was our second
                  largest
                  customer. Sales to this customer accounted for 20.4% of our 2007
                  revenue.
 
 ·
              Shanghai
                  Zhiqin Silicon Technology Co., Ltd. was our third largest customer.
                  Sales
                  to this customer accounted for 9.8% of our 2007
                  revenue.
  Management
        expects that the proportion of revenue accounted for by these customers will
        decrease as its new markets develop in the United States, China, and
        Europe.
 
 On
        October 11, 2007, Isofoton placed orders under four separate contracts from
        Perfectenergy Shanghai, the wholly owned subsidiary of our wholly owned
        subsidiary, Perfectenergy BVI. Under one agreement, Perfectenergy Shanghai
        will
        produce for Isofoton, and Isofoton will purchase, an aggregate 8,500 units
        modules of 156x156mm mono cells for an aggregate purchase price of $1,049,750,
        to be delivered in three installments as follows: 5,000 on October 30, 2007,
        1,000 on November 7, 2007, and 2,500 on November 18, 2007. Under another
        agreement, Perfectenergy Shanghai will produce for Isofoton, and Isofoton
        will
        purchase, an aggregate 8,000 units of solar modules made of 125x125mm cells
        for
        an aggregate purchase price of $4,760,000, to be delivered in four equal
        installments on November 15, 2007, November 28, 2007, December 15, 2007,
        and
        December 28, 2007. Under another agreement, Perfectenergy Shanghai will produce
        for Isofoton, and Isofoton will purchase, an aggregate 20,160 units of modules
        made of 125x125mm multi-crystal cells for an aggregate purchase price of
        $2,227,680, to be delivered in equal installments every month from January
        2007
        to December 2008. Under another agreement, Perfectenergy Shanghai will produce
        for Isofoton, and Isofoton will purchase, an aggregate 8,800 units of modules
        made of 156x156mm monocrystalline cells for an aggregate purchase price of
        $1,220,560, to be delivered as follows: 5,000 on November 13, 2007 and 3,800
        on
        November 27, 2007. Each of the four agreements provide that the design and
        raw
        materials for the finished products are to be supplied by Isofoton, and
        Perfectenergy Shanghai is to process, laminate, and package the cells into
        finished products. The purchases under each of the four agreements provide
        a
        five-year warranty from Perfectenergy Shanghai.
 
 On
        December 20, 2007, Sky Solar (Hong Kong) International Co., Ltd. placed an
        order
        for an aggregate 4,000,000W of solar cells and modules from Perfectenergy
        Shanghai, the wholly owned subsidiary of our wholly owned subsidiary,
        Perfectenergy BVI. The sales contract requires five shipments to Valencia,
        Spain
        between January 2008 and May 2008. The sales contract is valued at 10,640,000€
(approximately $15.6 million).
  12
  **Competition**
 
 The
        global solar power market is highly competitive and has been rapidly evolving.
        Various government incentive and subsidy programs implemented in Europe,
        the
        United States, China, Japan and other countries in recent years have further
        induced competition in solar energy product marketplace. In particular, a
        large
        number of manufacturers have entered the solar market.
 
 Compared
        with the larger PV giants such as Sharp, Q-Cell, Suntech, PV-Tech and Shanghai
        Solar Energy S&T Co. Ltd (“SSEC”), our Company is relatively new.
        Nevertheless, we believe that we can effectively compete with these
        companies. We have both an outstanding management team and a strong research
        and
        development team consisting of experienced, high-caliber, and devoted
        professionals. Our main overseas competitors are, among others, BP Solar,
        Kyocera Corporation, Mitsubishi Electric Corporation, Motech Industries Inc.,
        Sharp Corporation, Q-Cells AG, Sanyo Electric Co., Ltd. and Sunpower
        Corporation. Our primary competitors in China include Suntech Power Holding’s
        Co., Ltd., Baoding Tianwei Yingli New Energy Resources Co., Ltd. and Nanjing
        PV-Tech Co., Ltd. We compete primarily on the basis of the power efficiency,
        quality, performance and appearance of our products, price, strength of supply
        chain and distribution network, after-sales service and brand image. Many
        of our
        competitors have longer operating histories and significantly greater financial
        or technological resources than we do and enjoy greater brand recognition.
        Some
        of our competitors are vertically integrated and design and produce upstream
        silicon wafers, mid-stream PV cells and modules and downstream solar application
        systems, which provide them with greater synergies to achieve lower production
        costs. During periods when there is a shortage of silicon and silicon wafers,
        we
        compete intensely with our competitors in obtaining adequate supplies of
        silicon
        wafers. We expect the current silicon shortage will continue
        through 2008.
 
 13
  Moreover,
        many of our competitors are developing next-generation products based on
        new PV
        technologies, including amorphous silicon, transparent conductive oxide thin
        film, carbon material and nano-crystalline technologies, which, if successful,
        will compete with the crystalline silicon technology we currently use in
        our
        manufacturing processes. We are also seeking to develop new technologies
        and
        products through our research collaborations. However, if we fail to develop
        new
        technologies and products in a timely manner, we may lose our competitive
        advantage.
 
 We,
        like
        other solar energy companies, also face competition from traditional non-solar
        energy industries, such as the petroleum and coal industries. The production
        cost per watt of solar energy is significantly higher than other types of
        energy. As a result, we cannot assure you that solar energy will be able
        to
        compete with other energy industries, especially if there is a reduction
        or
        termination of government incentives and other forms of support.
 
 **Environmental
        Matters**
 
 Our
        manufacturing processes generate noise, wastewater, gaseous wastes and other
        industrial wastes. We have installed various types of anti-pollution equipment
        in our facilities to reduce, treat, and where feasible, recycle the wastes
        generated in our manufacturing process. We outsource the treatment of some
        of
        our wastewater and other liquid wastes to third-party contractors. Our
        operations are subject to regulation and periodic monitoring by local
        environmental protection authorities in Shanghai. We are planning to apply
        for
        ISO 14001 certification for our manufacturing facilities in Shanghai in
        2008. ISO 14001 prescribes standards for management of organizations to
        achieve an effective environmental management system.
  **Principal
        Executive Offices**
 
 Our
        principal executive office is located at No. 479 You Dong Road, Xinzhuang
        Town,
        Shanghai 201100, People’s Republic of China, and our telephone number is (8621)
        5488-8436.
  **RISK
        FACTORS**
 
 *You
        should carefully consider the risks described below together with all of
        the
        other information included in this*  *transition*  *report
        before making an investment decision with regard to our securities. The
        statements contained in or incorporated into this report that are not historic
        facts are forward-looking statements that are subject to risks and uncertainties
        that could cause actual results to differ materially from those set forth
        in or
        implied by forward-looking statements. If any of the following risks actually
        occurs, our business, financial condition, or results of operations could
        be
        harmed.*
 
 **Risks
        Related to Our Company and Our Industry**
 
 ***Our
        limited operating history may not serve as an adequate basis to judge our
        future
        prospects and results of operations.***  ****
 
 We
        have a
        limited operating history. We completed our first PV cell manufacturing line
        in
        October 2005, and our first PV lamination line was completed in December
        2005.
        We began commercial shipment of our PV cells and modules in December 2005
        as
        well.  Our limited operating history and the unpredictability of our
        industry make it difficult for investors to evaluate our business and future
        operating results. An investor in our securities must consider the risks,
        uncertainties and difficulties frequently encountered by recent companies
        in new
        and rapidly evolving markets. The risks and difficulties we face include
        challenges in accurate financial planning as a result of limited historical
        data
        and the uncertainties resulting from having had a relatively limited time
        period
        in which to implement and evaluate our business strategies as compared to
        older
        companies with longer operating histories.
 
 14
  ***In
        August 2007, we raised $18,400,000 in a private offering of our common stock
        and
        warrants that we plan to use for our operations. However, we may not be able
        to
        manage the expansion of our operations effectively, which may have an adverse
        effect on our business and results of operations.***
 
 We
        raised
        $18,400,000 through a private offering of our common stock and warrants at
        the
        closing of our Financing on August 8, 2007. We plan to use funds raised in
        the
        Financing for our operations and continued expansion of our business to address
        the growth in demand for solar power products and services, as well as to
        capture new market opportunities. Our expansion plans include but are not
        limited to the construction of additional production lines, the hiring of
        additional management and personnel and the purchase of assets from other
        companies. However, we cannot assure you that our current and planned
        operations, personnel, systems, internal procedures and controls will be
        adequate to support this growth. If we are unable to manage our growth
        effectively, we may not be able to take advantage of market opportunities,
        execute our business strategies or respond to competitive pressures, any
        of
        which could have an adverse affect on our business and results of
        operations.
 
 ***The
        reduction or elimination of government subsidies and economic incentives
        for
        on-grid solar energy applications could cause a reduction in demand for our
        products and lead to decreases in our revenues.***  ****
  We
        believe that the growth in many of the markets for our products, including
        our
        current largest markets, Germany and Spain, depends in part on the availability
        and amounts of government subsidies and economic incentives. At present,
        the
        cost of solar energy substantially exceeds the retail price of electricity
        in
        most markets in the world. As a result, federal, state and local governmental
        bodies in many countries, most notably Germany, Spain and the United States,
        have provided subsidies in the form of cost reductions, tax write-offs and
        other
        incentives to end users, distributors, systems integrators and manufacturers
        of
        solar power products. Reduction or elimination of these government subsidies
        and
        economic incentives because of policy changes, fiscal tightening or other
        reasons may result in the diminished competitiveness of solar energy, and
        materially and adversely affect the growth of these markets and our revenues.
        Electric utility companies that have significant political lobbying powers
        may
        push for a change in the relevant legislation in their markets. The reduction
        or
        elimination of government subsidies and economic incentives for on-grid solar
        energy applications, especially those in our target markets, could cause
        our
        revenues to decline and materially and adversely affect our business, financial
        condition and results of operations.
 
 ***If
        solar power technology is not suitable for widespread adoption, or sufficient
        demand for products does not develop or takes longer to develop than we
        anticipated, our sales may not continue to increase or may even decline,
        and we
        may be unable to sustain profitability.***
 
 The
        solar
        power market is at a relatively early stage of development and the extent
        to
        which our solar power products will be widely adopted is uncertain. Historical
        and current market data in the solar power industry are not as readily available
        as those in other more established energy industries where trends can be
        assessed more reliably from data gathered over a longer period of time. If
        solar
        power technology proves unsuitable for widespread adoption or if demand for
        our
        products fails to develop sufficiently, we may not be able to grow our business
        or generate sufficient revenues to sustain our profitability. In addition,
        demand for solar power products in our targeted markets, including China
        and the
        United States, may not develop or may develop to a lesser extent than we
        anticipate. Many factors may affect the viability of widespread adoption
        of
        solar technology and demand for solar products, including:
 
 ·
              performance
                  and reliability of solar power products compared to conventional
                  and other
                  non-solar energy sources and products;·
              cost-effectiveness
                  of solar power products compared to conventional and other non-solar
                  energy sources and products;·
              availability
                  of government subsidies and incentives to support the development
                  of the
                  solar power industry;·
              fluctuations
                  in economic and market conditions that affect the viability of
                  conventional and non-solar alternative energy sources, such as
                  increases
                  or decreases in the prices of oil and other fossil
                  fuels;·
              capital
                  expenditures by end users of solar power products, which tend to
                  decrease
                  when economy slows down;·
              success
                  of other alternative energy generation technologies, such as fuel
                  cells,
                  wind power and biomass; and·
              deregulation
                  of the electric power industry and broader energy
                  industry.
 
 The
        failure of the market for solar energy products to develop or the development
        of
        the solar energy product market to a lesser extent than we anticipate would
        have
        a material adverse effect on our business.
 
 ***Because
        we face intense competition from other companies producing solar energy and
        other renewable energy products 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.***
 
 15
  The
        market for solar energy products is intensely competitive and rapidly evolving.
        Many of our competitors have established more prominent market positions,
        and if
        we fail to attract and retain customers and establish successful distribution
        networks in our target markets for our products, we will be unable to increase
        our sales. Our competitors include solar power divisions of large conglomerates
        such as BP Solar, Kyocera, Royal Dutch Shell, Sharp Corporation and Sanyo,
        as
        well as specialized cell and module manufacturers such as Q-Cells AG and
        Solarfun Power Holdings Co., Ltd., as well as integrated manufacturers of
        PV
        products such as SolarWorld AG. Some of our competitors, such as Renewable
        Energy Corporation ASA, have also become vertically integrated, from upstream
        silicon wafer manufacturing to solar system integration. We expect to compete
        with future entrants to the solar energy product market that offer new
        technological solutions. We may also face competition from semiconductor
        manufacturers, a few of which have already announced their intention to start
        production of PV cells. Many of our competitors are developing or currently
        producing products based on new solar energy technologies, including amorphous
        silicon, ribbon, sheet and nano technologies, which they believe will ultimately
        cost the same as or less than crystalline silicon technologies similar we
        use.
        In addition, the entire solar energy industry also faces competition from
        conventional and non-solar renewable energy technologies. Due to the relatively
        high manufacturing costs compared to most other energy sources, solar energy
        is
        generally not as competitive with other energy sources without government
        incentive and subsidy programs.
  Many
        of
        our existing and potential competitors have substantially greater financial,
        technical, manufacturing and other resources than we do. Our competitors’
greater size in some cases provides them with a competitive advantage with
        respect to manufacturing costs because of their economies of scale and their
        ability to purchase raw materials at lower prices. For example, those of
        our
        competitors that also manufacture semiconductors may source both semiconductor
        grade silicon wafers and solar grade silicon wafers from the same supplier.
        As a
        result, those competitors may have stronger bargaining power with the supplier
        and have an advantage over us in negotiating favorable pricing, as well as
        securing silicon wafer supplies at times of shortages. Many of our competitors
        also have greater brand name recognition, more established distribution networks
        and larger customer bases. In addition, many of our competitors have
        well-established relationships with our current and potential distributors
        and
        have extensive knowledge of our target markets. As a result, they may be
        able to
        devote greater resources to the research, development, promotion and sale
        of
        their products or respond more quickly to evolving industry standards and
        changes in market conditions than we can. Our failure to adapt to changing
        market conditions and to compete successfully with existing or new competitors
        may materially and adversely affect our financial condition and results of
        operations.
 
 ***Our
        failure to further refine our technology and develop and introduce new solar
        energy products could render our products uncompetitive or obsolete, and
        reduce
        our sales and market share.***  ****
 
 The
        solar
        energy industry is characterized by rapid increases in the diversity and
        complexity of technologies, products and services. We will need to invest
        significant financial resources in research and development to keep pace
        with
        technological advances in the solar energy industry, evolving industry standards
        and changing customer requirements. However, research and development activities
        are inherently uncertain, and we might encounter practical difficulties in
        commercializing our research results. Our significant expenditures on research
        and development may not reap corresponding benefits. A variety of competing
        solar energy technologies that other companies may develop could prove to
        be
        more cost-effective and have better performance than our solar energy products.
        Therefore, our development efforts may be rendered obsolete by the technological
        advances of others. Breakthroughs in solar energy technologies that do not
        use
        crystalline silicon could mean that companies such as us that rely entirely
        on
        crystalline silicon would encounter a sudden, sharp drop in sales. Our failure
        to further refine our technology and develop and introduce new solar energy
        products could render our products uncompetitive or obsolete, and result
        in a
        decline in our market share.
 
 ***Our
        future success substantially depends on our ability to significantly increase
        both our manufacturing capacity and output. Our ability to achieve our expansion
        goals is subject to a number of risks and
        uncertainties.***  ****
 
 Our
        future success depends on our ability to significantly increase both our
        manufacturing capacity and output. If we are unable to do so, we may be unable
        to expand our business, decrease our costs per watt, maintain our competitive
        position and improve our profitability. Our ability to establish additional
        manufacturing capacity and increase output is subject to significant risks
        and
        uncertainties, including:
  ·
              the
                  need to raise significant additional funds to purchase and prepay
                  for raw
                  materials or to build additional manufacturing facilities, which
                  we may be
                  unable to obtain on reasonable terms or at
                  all;
 
 16
  ·
              delays
                  and cost overruns as a result of a number of factors, many of which
                  may be
                  beyond our control, such as increases in raw materials prices and
                  problems
                  with equipment vendors;
 
 ·
              delays
                  or denial of required approvals by relevant government
                  authorities;
 
 ·
              diversion
                  of significant management attention and other resources;
                  and
 
 ·
              failure
                  to execute our expansion plan
                  effectively.
 
 If
        we are
        unable to establish or successfully operate additional manufacturing capacity
        or
        to increase manufacturing output, or if we encounter any of the risks described
        above, we may be unable to expand our business as planned. Moreover, we cannot
        assure you that if we do expand our manufacturing capacity and output we
        will be
        able to generate sufficient customer demand for our PV products to support
        our
        increased production levels.
  ***Our
        inability to obtain sufficient quantities of silicon and silicon wafers would
        adversely affect our business and results of operations and limit our ability
        to
        further expand.***
 
 Silicon
        wafers are the essential raw materials for making our solar power products.
        To
        maintain competitive manufacturing operations, we will depend on our suppliers’
timely delivery of quality silicon wafers in sufficient quantities and at
        acceptable prices. Silicon wafer suppliers, in turn, depend on silicon
        manufacturers to supply silicon required for the production of silicon wafers.
        We have formed a strategic multi-party alliance with both upstream and
        downstream partners in an effort to obtain a reliable supply of silicon.
        However, significant growth of the solar power industry has resulted in a
        significant increase in demand for silicon and silicon wafers, and some
        producers have, from time to time, experienced late delivery and supply
        shortages. In particular, some suppliers of silicon also supply to silicon
        wafer
        manufacturers for the semiconductor industry, which typically have greater
        buying power and market influence than manufacturers for the solar power
        industry. As a result, increases in the demand for silicon from the
        semiconductor industry may, in the future, result in late deliveries or supply
        shortages with respect to the specialized silicon that silicon wafer suppliers
        need as raw materials. Our business has not been impacted so far by a supplier’s
        late delivery or any supply shortages of silicon. However, any shortage of
        silicon or our inability to get silicon when we need it could result in a
        reduction of manufacturing output, delayed or missed shipments, damaged customer
        relationships and decreased revenues any of which may adversely affect our
        business, our results of operations and our future expansion plans.
 
 ***Our
        gross margins may be materially and adversely affected as a result of entering
        into fixed price, prepaid arrangements with our
        suppliers.***  ****
 
 We
        plan
        to secure our supply of silicon wafers increasingly through long-term contracts
        with suppliers. We currently have two three-year silicon wafer supply contracts
        with Tianjin Huan Ou Semiconductor Material Technology Co., Ltd. and Chengdu
        Jiayang Silicon Technology, Inc., Ltd., under which these suppliers agreed
        to
        provide us with specified quantities of silicon wafers at agreed prices from
        2007 through 2009. In order to further reduce the risk that we will be unable
        to
        obtain sufficient supplies of silicon, we entered into a multi-party alliance
        with Shanghai Shenzhou New Energy Development Co., Ltd., Tianjin Huan Ou
        Semiconductor Material Technology Co., Ltd., Shanghai Solar Energy Engineering
        Technology Research Co., Ltd. A member of our alliance, Tianjin Huan Ou
        Semiconductor Material Technology Co., Ltd., has had long-time cooperation
        relationship with REC Silicon, which is one of the top silicon manufacturers
        in
        the United States, and we believe that this alliance will help us obtain
        a
        sufficient supply of silicon at a reasonable price for the coming years and
        when
        we expand our production capacity. If the prices of silicon or silicon wafers
        were to decrease in the future and we were locked into fixed price, prepaid
        arrangements, we may not be able to adjust our materials costs and thus,
        our
        gross margins will be negatively affected. Additionally, if demand for our
        solar
        power products decreases, we may incur costs associated with carrying excess
        materials, which may have a material adverse effect on our operating expenses.
        To the extent we are not able to pass these costs and expenses to our customers,
        our business, results of operations and financial condition may be materially
        and adversely affected. Moreover, since some of our supply contracts may
        require
        pre-payment of a substantial portion of the contract price, we may not be
        able
        to recover such pre-payments and would suffer losses should such suppliers
        fail
        to fulfill their delivery obligations under the contracts.
 
 ***Our
        dependence on a limited number of third-party suppliers for key raw materials
        and customized manufacturing equipment could prevent us from timely delivering
        our products to our customers in the required quantities, which could result
        in
        order cancellations and decreased revenues.***  ****
 
 We
        purchase raw materials from a limited number of third-party suppliers. Our
        suppliers of silicon include Tianjin Huan Ou Semiconductor Material Technology
        Co., Ltd. and Chengdu Jiayang Silicon Technology Inc. Ltd. If we fail to
        develop
        or maintain our relationships with these or our other suppliers, we may be
        unable to manufacture our products or our products may be available at a
        higher
        cost or after a long delay, and we could be prevented from delivering our
        products to our customers in the required quantities and at prices that are
        profitable. Problems of this kind could cause us to experience order
        cancellations and loss of market share. The failure of a supplier to supply
        materials and components that meet our quality, quantity and cost requirements
        in a timely manner could impair our ability to manufacture our products or
        increase our costs, particularly if we are unable to obtain these materials
        and
        components from alternative sources on a timely basis or on commercially
        reasonable terms. In addition, certain of our manufacturing equipment has
        been
        designed and made specifically for us. As a result, such equipment is not
        readily available from multiple vendors and would be difficult to repair
        or
        replace. Any significant damage to, or break down of, our customized
        manufacturing equipment could cause material interruptions to our operations
        and
        consequentially, could have a material adverse effect on our business and
        results of operations.
 
 17
  ***Our
        dependence on a limited number of customers may cause significant fluctuations
        or declines in our revenues.***
 
 We
        currently sell a substantial portion of our solar energy products to a limited
        number of customers, including distributors, engineering design firms, system
        integrators, other value-added resellers, as well as integrated manufacturers
        of
        solar power modules and products. In the ten months ended October 31, 2007,
        our
        top two customers accounted for approximately 62.0% of our total net revenues
        and sales to our largest customer accounted for approximately 41.6% of our
        total
        net revenues. Sales to our other customers are typically made through
        non-exclusive, short-term arrangements. We anticipate that our dependence
        on a
        limited number of customers will continue for the foreseeable future.
        Consequently, any one of the following events may cause material fluctuations
        or
        declines in our revenues and have a material adverse effect on our results
        of
        operations:
  ·
              reduction,
                  delay or cancellation of orders from one or more of our significant
                  customers;·
              selection
                  by one or more of our significant distributor customers of products
                  competitive with ours;·
              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
        face risks associated with the marketing, distribution and sale of our PV
        products internationally, and if we are unable to effectively manage these
        risks, they could impair our ability to expand our business
        abroad.***
 
 In
        the
        ten months ended October 31, 2007, we sold 4.8% of our products to customers
        outside of China. The marketing, international distribution and sale of our
        PV
        products expose us to a number of risks, including:
  ·
              fluctuations
                  in currency exchange rates; difficulty in engaging and retaining
                  distributors who are knowledgeable about and, can function effectively
                  in,
                  overseas markets;·
              increased
                  costs associated with maintaining marketing efforts in various
                  countries;·
              difficulty
                  and cost relating to compliance with the different commercial and
                  legal
                  requirements of the overseas markets in which we offer our
                  products;·
              inability
                  to obtain, maintain or enforce intellectual property
                  rights; and·
              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.
  ***Our
        business depends substantially on the continuing efforts of our executive
        officers and our ability to maintain a skilled labor force, 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, especially Mr. Wennan Li, our chief executive officer and the chairman
        of our board of directors. We do not maintain key man life insurance on any
        of
        our executive officers. If one or more of our executive officers are unable
        or
        unwilling to continue in their present positions, we may not be able to replace
        them readily, if at all. Therefore, our business may be severely disrupted,
        and
        we may incur additional expenses to recruit and retain new officers. In
        addition, if any of our executives joins a competitor or forms a competing
        company, we may lose some of our customers. Each of our executive officers
        has
        entered into an employment agreement with our subsidiary, which contains
        confidentiality and non-competition provisions. However, if any disputes
        arise
        between our executive officers and us, we cannot assure you, in light of
        uncertainties associated with the Chinese legal system, the extent to which
        any
        of these agreements could be enforced in China, where some of our executive
        officers reside and hold some of their assets. See “Risks Related to Doing
        Business in China— Uncertainties with respect to the Chinese legal system could
        have a material adverse effect on us.”
 
 18
  ***If
        we are unable to attract, train and retain technical personnel, our business
        may
        be materially and adversely affected.***  ****
 
 Our
        future success depends, to a significant extent, on our ability to attract,
        train and retain technical personnel. Recruiting and retaining capable
        personnel, particularly those with expertise in the solar power industry,
        are
        vital to our success. There is substantial competition for qualified technical
        personnel, and there can be no assurance that we will be able to attract
        or
        retain our technical personnel. Prior to his resignation on January 1, 2008,
        we
        depended on Hongbo Li, our former Chief Technology Officer, to recruit and
        train
        such capable personnel. Hongbo Li’s efforts are continued by our Chief Executive
        Officer, Wennan Li, but if we are unable to attract and retain qualified
        employees, our business may be materially and adversely affected.
  ***Our
        failure to protect our intellectual property rights may undermine our
        competitive position, and litigation to protect our intellectual property
        rights
        or defend against third-party allegations of infringement may be
        costly.***  ****
 
 We
        rely
        primarily on patent, trademark, trade secret, copyright law 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. For example, we have two
        (2)
        issued patents and we also have two (2) pending patent applications in China.
        We
        cannot assure you that our patent applications will be issued with claims
        sufficiently broad for our business. As a result, third parties may infringe
        or
        misappropriate our proprietary technologies or other intellectual property
        rights, which could have a material adverse effect on our business, financial
        condition or operating results. In addition, policing unauthorized use of
        proprietary technology can be difficult and expensive. Litigation may be
        necessary to enforce our intellectual property rights, protect our trade
        secrets
        or determine the validity and scope of the proprietary rights of others.
        We
        cannot assure you that the outcome of such potential litigation will be in
        our
        favor. Such litigation may be costly and may divert management attention
        as well
        as expend our other resources away from our business. An adverse determination
        in any such litigation will impair our intellectual property rights and may
        harm
        our business, prospects and reputation. In addition, we have no insurance
        coverage against litigation costs and would have to bear all costs arising
        from
        such litigation to the extent we are unable to recover them from other parties.
        The occurrence of any of the foregoing could have a material adverse effect
        on
        our business, results of operations and financial condition.
 
 Implementation
        of China’s intellectual property-related laws has historically been lacking,
        primarily because of ambiguities in China’s laws and difficulties in
        enforcement. Accordingly, intellectual property rights and confidentiality
        protections in China may not be as effective as in the United States or other
        countries.
 
 ***We
        may be exposed to infringement or misappropriation claims by third parties,
        which, if determined adversely to us, could cause us to pay significant damage
        awards.***  ****
 
 Our
        success also 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. The defense and prosecution 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 to which we may become
        a
        party could subject us to significant liability to third parties, require
        us to
        seek licenses from third parties, to pay ongoing royalties, or to redesign
        our
        products or subject us to injunctions prohibiting the manufacture and sale
        of
        our products or the use of our technologies. 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.
 
 ***Although
        we sell a substantial portion of our products outside of China, we currently
        only hold patents issued in China. Our business, results of operations and
        financial condition would be materially and adversely affected if our sales
        outside China were to be restricted by intellectual property claims by third
        parties.***
 
 As
        of
        October 31, 2007, we had a total of two (2) issued patents and two (2) pending
        patent applications in China. We do not have, and have not applied for, any
        patent for our proprietary technologies outside China although we have sold,
        and
        expect to continue to sell, a substantial portion of our products outside
        China.
        Since the protection afforded by our patents is effective only in China,
        others
        may independently develop substantially equivalent technologies, or otherwise
        gain access to our proprietary technologies, and obtain patents for such
        intellectual properties in other jurisdictions, including the countries to
        which
        we sell our products. If any third parties are successful in obtaining patents
        for technologies that are substantially equivalent or the same as the
        technologies we use in our products in any of our markets before we do and
        enforce their intellectual property rights against us, our ability to sell
        products containing the allegedly infringing intellectual property in those
        markets will be materially and adversely affected. If we are required to
        stop
        selling such allegedly infringing products, seek license and pay royalties
        for
        the relevant intellectual properties, or redesign such products with
        non-infringing technologies, our business, results of operations and financial
        condition may be materially and adversely affected.
 
 19


***Problems
      with product quality or product performance may cause us to incur warranty
      expenses and may damage our market reputation and prevent us from achieving
      increased sales and market share.***





Our
      products may contain defects that are not detected until after they are shipped
      or are installed because we cannot test for all possible scenarios. Our PV
      modules are typically sold with a two-year limited product warranty for defects
      in materials and workmanship, and a 5-, 10- and 20-year warranty against
      declines of initial power generation capacity by more than 10%, 10% and 15%,
      respectively. As a result, we bear the risk of extensive warranty claims long
      after we sell our products and recognize revenues. We estimate and record a
      warranty obligation in cost of revenue at the time revenue is recognized. As
      we
      began selling PV modules only since September 2005, none of our PV modules
      has
      been in use for more than five years. Due to the short usage history of our
      products, we cannot assure you that our assumptions regarding the durability
      and
      reliability of our products are reasonable. Our warranty provisions may be
      inadequate, and we may have to incur substantial expense to repair or replace
      defective products in the future. 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.





***The
      lack or inaccessibility of government and private sector financing for off-grid
      solar energy applications could cause our sales to
      decline.***  ****





Our
      products are used for off-grid solar energy applications in developed and
      developing countries. In some developing countries, government agencies and
      the
      private sector have, from time to time, provided subsidies or financing on
      preferred terms for rural electrification programs. We believe that the
      availability of financing could have a significant effect on the level of sales
      of off-grid solar energy applications, particularly in developing countries
      where users may not have sufficient resources or credit to otherwise acquire
      PV
      systems. If existing financing programs for off-grid solar energy applications
      are eliminated or if financing is inaccessible, the growth of the market for
      off-grid solar energy applications may be materially and adversely affected,
      which could cause our sales to decline. In addition, a rise in interest rates
      could render existing financings more expensive and be an obstacle for potential
      financings that would otherwise spur the growth of the PV industry.





***Changes
      to existing regulations over the utility sector and the PV industry may present
      technical, regulatory and economic barriers to the purchase and use of PV
      products, which may significantly reduce demand for our
      products.***  ****





The
      market for power generation products is heavily influenced by government
      regulations and policies concerning the electric utility industry, as well
      as
      the internal policies of electric utilities companies. These regulations and
      policies often relate to electricity pricing and technical interconnection
      of
      end user-owned power generation. In a number of countries, these regulations
      and
      policies are being modified and may continue to be modified. End users’
purchases of alternative energy sources, including PV products, could be
      deterred by these regulations and policies, which could result in a significant
      reduction in the potential demand for our PV products. For example, utility
      companies commonly charge fees to larger, industrial customers for disconnecting
      from the electricity transmission grid or for having the capacity to use power
      from the electricity transmission grid for back-up purposes. These fees could
      increase end users’ costs of using our PV products and make our PV products less
      desirable, thereby having an adverse effect on our business, prospects, results
      of operations and financial condition.




We
      anticipate that our PV products and their installation will be subject to
      oversight and regulation in accordance with national and local ordinances
      relating to building codes, safety, environmental protection, utility
      interconnection and metering and related matters in various countries. It is
      also burdensome to track the requirements of individual localities and design
      equipment to comply with the varying standards. Any new government regulations
      or utility policies pertaining to our PV products may result in significant
      additional expenses to us, our distributors and end users and, as a result,
      could cause a significant reduction in demand for our PV products.





***Fluctuations
      in exchange rates could adversely affect our business.***  ****





A
      portion
      of our sales is currently denominated in U.S. dollars, with the remainder
      in Renminbi and Euros, while a substantial portion of our costs and expenses
      is
      denominated in U.S. dollars and Renminbi, with the remainder in Euros.
      Therefore, fluctuations in currency exchange rates could have a material adverse
      effect on our financial condition and results of operations. Fluctuations in
      exchange rates, particularly among the U.S. dollar, Renminbi and Euro,
      affect our gross and net profit margins and could result in foreign exchange
      and
      operating losses.




We
      had
      net foreign currency translation adjustment gains of $192,466 and $48,065 as
      of
      October 31, 2007, and October 31, 2006, respectively. We cannot predict the
      impact of future exchange rate fluctuations on our results of operations and
      may
      incur net foreign currency losses in the future. We plan to reduce the effect
      of
      such exposure through hedging arrangements, such as entering into forward
      exchange contracts and foreign currency option contracts, but we cannot assure
      you that such hedging activities will be effective in managing our foreign
      exchange risk exposure.


20




Our
      financial statements are expressed in U.S. dollars but our functional
      currency is Renminbi. The value of your investment in our stock will be affected
      by the foreign exchange rate between U.S. dollars and Renminbi. To the
      extent we hold assets denominated in U.S. dollars any appreciation of the
      Renminbi against the U.S. dollar could result in a change to our income
      statement. On the other hand, a decline in the value of Renminbi against the
      U.S. dollar could reduce the U.S. dollar equivalent amounts of our
      financial results, the value of your investment in our company and the dividends
      we may pay in the future, if any, all of which may have a material adverse
      effect on the prices of our stock.





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





As
      our
      manufacturing processes generate noise, wastewater, gaseous and other industrial
      wastes, we are required to comply with all national and local regulations
      regarding protection of the environment. We are in compliance with present
      environmental protection requirements and have all necessary environmental
      permits to conduct our business. However, if more stringent regulations are
      adopted in the future, the costs of compliance with these new regulations could
      be substantial. We believe that we have all necessary permits to conduct our
      business as it is presently conducted. If we fail to comply with present or
      future environmental regulations, however, 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 wastes in our research
      and
      development and manufacturing activities. Any failure by us to control the
      use
      of, or to restrict adequately the discharge of, hazardous substances could
      subject us to potentially significant monetary damages and fines or suspensions
      in our business operations.




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





As
      with
      other PV product manufacturers, we are exposed to risks associated with product
      liability claims in the event that the use of the PV products we sell
      results in injury or death. Since our products are electricity producing
      devices, it is possible that users could be injured or killed by our products,
      whether by product malfunctions, defects, improper installation or other causes.
      We only commenced commercial shipment of our products in December 2005 and,
      due
      to limited historical experience, we are unable to predict whether product
      liability claims will be brought against us in the future or the effect of
      any
      resulting adverse publicity on our business. Moreover, we do not have any
      product liability insurance and may not have adequate resources to satisfy
      a
      judgment in the event of a successful claim against us. The successful assertion
      of product liability claims against us could result in potentially significant
      monetary damages and require us to make significant payments. In addition,
      because the insurance industry in China is still in its early stages of
      development, business interruption insurance available in China offers limited
      coverage compared to that offered in many other countries. We do not have any
      business interruption insurance. Any business disruption or natural disaster
      could result in substantial costs and diversion of resources.





***Our
      officers and directors own a substantial portion of our outstanding common
      stock, which will enable them to influence many significant corporate actions
      and in certain circumstances may prevent a change in control that would
      otherwise be beneficial to our stockholders.***





As
      of
      February 13, 2008, our directors and executive officers control approximately
      50.14% of our outstanding shares of stock entitled to vote. These stockholders,
      acting together, could have a substantial impact on matters requiring the vote
      of the stockholders, including the election of our directors and most of our
      corporate actions. This control could delay, defer or prevent others from
      initiating a potential merger, takeover or other change in our control, even
      if
      these actions would benefit our stockholders and us. This control could
      adversely affect the voting and other rights of our other stockholders and
      could
      depress the market price of our common stock.





**Risks
      Related to Doing Business in China**





***Adverse
      changes in political and economic policies of the Chinese 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.***  ****





All
      of
      our business operations are conducted in China and some of our sales are made
      in
      China. Accordingly, our business, financial condition, results of operations
      and
      prospects are affected significantly by economic, political and legal
      developments in China. The Chinese economy differs from the economies of most
      developed countries in many respects, including:




21




·
            the
                amount of government involvement;·
            the
                level of development;·
            the
                growth rate;·
            the
                control of foreign exchange; and·
            the
                allocation of resources.




While
      the
      Chinese economy has grown significantly in the past 20 years, the growth
      has been uneven, both geographically and among various sectors of the economy.
      The Chinese government has implemented various measures to encourage
      economic growth and guide the allocation of resources. Some of these measures
      benefit the overall Chinese economy, but may also have a negative effect on
      us.
      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.





The
      Chinese economy has been transitioning from a planned economy to a more
      market-oriented economy. Although in recent years the Chinese government
      has implemented measures emphasizing the utilization of market forces for
      economic reform, the reduction of state ownership of productive assets and
      the
      establishment of sound corporate governance in business enterprises, a
      substantial portion of the productive assets in China is still owned by the
      Chinese government. The continued control of these assets and other aspects
      of
      the national economy by the Chinese government could materially and
      adversely affect our business. The Chinese government also exercises
      significant control over Chinese 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. Efforts by the Chinese government to slow the pace
      of growth of the Chinese economy could result in decreased capital expenditure
      by solar energy users, which in turn could reduce demand for our
      products.





Any
      adverse change in the economic conditions or government policies in China could
      have a material adverse effect on the overall economic growth and the level
      of
      renewable energy investments and expenditures in China, which in turn could
      lead
      to a reduction in demand for our products and consequently have a material
      adverse effect on our businesses.





***Uncertainties
      with respect to the Chinese legal system could have a material adverse effect
      on
      us.***  ****





We
      conduct substantially all of our business through our subsidiary, Perfectenergy
      BVI and its subsidiary, Perfectenergy Shanghai, which is established in China.
      Perfectenergy Shanghai is generally subject to laws and regulations applicable
      to foreign investment in China and, in particular, laws applicable to wholly
      foreign-owned enterprises. China’s legal system is based on written
      statutes. Prior court decisions may be cited for reference but have limited
      precedential value. Since 1979, Chinese legislation and regulations have
      significantly enhanced the protections afforded to various forms of foreign
      investments in China. However, since these laws and regulations are relatively
      new and China’s 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.





***You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in China based on United States
      or other foreign laws against us or our management.***





We
      conduct a substantial portion of our operations in China and the majority of
      our
      assets are located in China. In addition, all of our executive officers and
      most of our directors reside within China. As a result, it may not be
      possible to effect service of process within the United States or in China
      against us or upon our executive officers or directors, including with respect
      to matters arising under U.S. federal securities laws or applicable state
      securities laws. Moreover, there is uncertainty that the courts of China would
      enforce judgments of U.S. courts against us or our directors and officers based
      on the civil liability provisions of the securities laws of the United States
      or
      any state, or entertain an original action brought in China based upon the
      securities laws of the United States or any state.





***We
      rely on dividends paid by our subsidiaries for our cash
      needs.***  ****





We
      conduct substantially all of our operations through our subsidiary,
      Perfectenergy BVI, and its subsidiary, Perfectenergy Shanghai, which is a
      limited liability company established in China. We rely on dividends paid by
      Perfectenergy Shanghai for our cash needs, including the funds necessary to
      pay
      dividends and other cash distributions to our stockholders, to service any
      debt
      we may incur, including the loans made to Perfectenergy BVI described under
      “Related Transactions,” and to pay our operating expenses. The payment of
      dividends by entities organized in China is subject to limitations. Regulations
      in China currently permit payment of dividends only out of accumulated profits
      as determined in accordance with accounting standards and regulations in China.
      Perfectenergy Shanghai is also required to set aside at least 10.0% of its
      after-tax profit based on China’s accounting standards each year to its general
      reserves until the accumulative amount of such reserves reach 50.0% of its
      registered capital. These reserves are not distributable as cash dividends.
      Perfectenergy Shanghai is also required to allocate a portion of its after-tax
      profits to its staff welfare and bonus funds, which may not be distributed
      to
      equity owners except in the event of liquidation. In addition, if Perfectenergy
      Shanghai incurs debt on its own behalf in the future, the instruments governing
      the debt may restrict its ability to pay dividends or make other distributions
      to us.




22





***Fluctuation
      in the value of the Renminbi may have a material adverse effect on your
      investment.***  ****





The
      change in value of the Renminbi against the U.S. dollar, Euro and other
      currencies is affected by, among other things, changes in China’s political and
      economic conditions. On July 21, 2005, the Chinese government changed its
      decade-old policy of pegging the value of the Renminbi to the U.S. dollar.
      Under the new policy, the Renminbi is permitted to fluctuate within a narrow
      and
      managed band against a basket of certain foreign currencies. This change in
      policy has resulted in approximately 2.1% appreciation of Renminbi against
      U.S. dollar. While the international reaction to the Renminbi revaluation
      has generally been positive, there remains significant international pressure
      on
      the Chinese government to adopt an even more flexible currency policy, which
      could result in a further and more significant appreciation of the Renminbi
      against the U.S. dollar. As a portion of our costs and expenses is
      denominated in Renminbi, the revaluation in July 2005 and potential future
      revaluation has and could further increase our costs. In addition, as we rely
      entirely on dividends paid to us by our operating subsidiaries, any significant
      revaluation of the Renminbi may have a material adverse effect on our revenues
      and financial condition, and the value of, and any of our dividends payable
      on
      our ordinary shares in foreign currency terms. 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 ordinary 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.




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





Certain
      portions 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 ordinary
      shares. Under China’s existing foreign exchange regulations, our Chinese
      subsidiary, Perfectenergy Shanghai, is able to pay dividends in foreign
      currencies, without prior approval from the State Administration of Foreign
      Exchange, or SAFE, by complying with certain procedural requirements. However,
      we cannot assure you that the Chinese government will not take further measures
      in the future to restrict access to foreign currencies for current account
      transactions.





Foreign
      exchange transactions by Perfectenergy Shanghai under the capital account
      continue to be subject to significant foreign exchange controls and require
      the
      approval of China’s governmental authorities, including the SAFE. In particular,
      if Perfectenergy Shanghai borrows foreign currency loans from us or other
      foreign lenders, these loans must be registered with the SAFE, and if we finance
      Perfectenergy Shanghai by means of additional capital contributions, these
      capital contributions must be approved by certain government authorities
      including the Ministry of Commerce or its local counterparts. These limitations
      could affect the ability of Perfectenergy Shanghai to obtain foreign exchange
      through debt or equity financing.





***Our
      business benefits from certain Chinese government incentives. Expiration of,
      or
      changes to, these incentives could have a material adverse effect on our
      operating results.***  ****





The
      Chinese government has provided various incentives to high-technology companies,
      including Perfectenergy Shanghai, our operating subsidiary, in order to
      encourage development of the high-technology industry. Such incentives include
      reduced tax rates and other measures. For example, Perfectenergy Shanghai,
      which
      is registered and operating in a high-tech zone in Shanghai, has been qualified
      as a “high or new technology enterprise.” As a result, we are entitled to a
      preferential enterprise income tax rate of 15.0% so long as it continues to
      operate in the high-tech zone and maintains its “high or new technology
      enterprise” status. We were entitled to a two-year exemption from the enterprise
      income tax for our first two profitable years of operation, which were 2005
      and
      2006. We thereafter are entitled to a 50% deduction of the income tax rate
      of
      33%, which is a rate of 18% from January 2007 to December 31, 2009. As these
      tax
      benefits expire, our effective tax rate may increase significantly. Beginning
      January 1, 2008, a new Enterprise Income Tax (“EIT”) law will replace the
      existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”). The key changes are: (a) the new standard EIT rate of 25% will replace
      the 33% rate currently applicable to both DES and FIEs, except for High Tech
      companies, who pay a reduced rate of 15%; and (b) companies established before
      March 16, 2007 will continue to enjoy tax holiday treatment approved by local
      government for a grace period of the next 5 years or until the tax holiday
      term
      is completed, whichever is sooner. These companies will pay the standard tax
      rate as defined in point “a” above during the grace period. Since Perfectenergy
      Shanghai was established before March 16, 2007, we are qualified to continue
      enjoying the reduced tax rate as described above. Since the detailed guidelines
      for this new tax law have not been published yet, we cannot determine what
      the
      new tax rate (15% or 25%) will be applicable to us and our subsidiaries after
      the end of each respective tax holiday term. Any increase of in our enterprise
      income tax rate in the future could have a material adverse effect on our
      financial condition and results of operations.


23





***We
      face risks related to health epidemics and other
      outbreaks.***





Our
      business could be adversely affected by the effects of avian flu, SARS or
      another epidemic or outbreak. China reported a number of cases of SARS in April
      2004. In 2005, there were reports on the occurrences of avian flu in various
      parts of China, including a few confirmed human cases. Any prolonged recurrence
      of avian flu, SARS or other adverse public health developments in China may
      have
      a material adverse effect on our business operations. These could include our
      ability to travel or ship our products outside of China, as well as temporary
      closure of our manufacturing facilities. Such closures or travel or shipment
      restrictions would severely disrupt our business operations and adversely affect
      our results of operations. We have not adopted any written preventive measures
      or contingency plans to combat any future outbreak of avian flu, SARS or any
      other epidemic.




**Risks
      Relating to Ownership of Our Securities**





***The
      OTC Bulletin Board is a quotation system, not an issuer listing service, market
      or exchange. Therefore, buying and selling stock on the OTC Bulletin Board
      is
      not as efficient as buying and selling stock through an exchange. As a result,
      it may be difficult for you to sell your common stock or you may not be able
      to
      sell your common stock for an optimum trading price.***





The
      OTC Bulletin Board is a regulated quotation service that displays real-time
      quotes, last sale prices and volume limitations in over-the-counter
      securities.




Because
      trades and quotations on the OTC Bulletin Board involve a manual process, the
      market information for such securities cannot be guaranteed. In addition, quote
      information, or even firm quotes, may not be available. The manual execution
      process may delay order processing and intervening price fluctuations may result
      in the failure of a limit order to execute or the execution of a market order
      at
      a significantly different price. Execution of trades, execution reporting and
      the delivery of legal trade confirmations may be delayed significantly.
      Consequently, one may not be able to sell shares of our common stock at the
      optimum trading prices.





When
      fewer shares of a security are being traded on the OTC Bulletin Board,
      volatility of prices may increase and price movement may outpace the ability
      to
      deliver accurate quote information. Lower trading volumes in a security may
      result in a lower likelihood of an individual’s orders being executed, and
      current prices may differ significantly from the price one was quoted by the
      OTC
      Bulletin Board at the time of the order entry.





Orders
      for OTC Bulletin Board securities may be canceled or edited like orders for
      other securities. All requests to change or cancel an order must be submitted
      to, received and processed by the OTC Bulletin Board. Due to the manual order
      processing involved in handling OTC Bulletin Board trades, order processing
      and
      reporting may be delayed, and an individual may not be able to cancel or edit
      his order. Consequently, one may not able to sell shares of common stock at
      the
      optimum trading prices.





The
      dealer’s spread (the difference between the bid and ask prices) may be large and
      may result in substantial losses to the seller of securities on the OTC Bulletin
      Board if the common stock or other security must be sold immediately. Further,
      purchasers of securities may incur an immediate “paper” loss due to the price
      spread. Moreover, dealers trading on the OTC Bulletin Board may not have a
      bid
      price for securities bought and sold through the OTC Bulletin Board. Due to
      the
      foregoing, demand for securities that are traded through the OTC Bulletin Board
      may be decreased or eliminated.




24





***We
      are subject to the penny stock rules and these rules may adversely affect
      trading in our common stock.***




Our
      common stock is a “low-priced” security under rules promulgated under the
      Securities Exchange Act of 1934. In accordance with these rules, broker-dealers
      participating in transactions in low-priced securities must first deliver a
      risk
      disclosure document which describes the risks associated with such stocks,
      the
      broker-dealer’s duties in selling the stock, the customer’s rights and remedies
      and certain market and other information. Furthermore, the broker-dealer must
      make a suitability determination approving the customer for low-priced stock
      transactions based on the customer’s financial situation, investment experience
      and objectives. Broker-dealers must also disclose these restrictions in writing
      to the customer, obtain specific written consent from the customer, and provide
      monthly account statements to the customer. The effect of these restrictions
      probably decreases the willingness of broker-dealers to make a market in our
      common stock, decreases liquidity of our common stock and increases transaction
      costs for sales and purchases of our common stock as compared to other
      securities.




***Our
      stock price may be volatile, which may result in losses to our
      stockholders.***




The
      stock
      markets have experienced significant price and trading volume fluctuations,
      and
      the market prices of companies quoted on the Over-The-Counter Bulletin Board,
      the stock market in which shares of our common stock will be quoted, generally
      have been very volatile and have experienced sharp share price and trading
      volume changes. The trading price of our common stock is likely to be volatile
      and could fluctuate widely in response to many of the following factors, some
      of
      which are beyond our control:





·
            variations
                in our operating results;·
            announcements
                of technological innovations, new services or product lines by us
                or our
                competitors;·
            changes
                in expectations of our future financial performance, including financial
                estimates by securities analysts and investors;·
            changes
                in operating and stock price performance of other companies in our
                industry;·
            additions
                or departures of key personnel; and·
            future
                sales of our common stock.




Domestic
      and international stock markets often experience significant price and volume
      fluctuations. These fluctuations, as well as general economic and political
      conditions unrelated to our performance, may adversely affect the price of
      our
      common stock. In particular, following initial public offerings, the market
      prices for stocks of companies often reach levels that bear no established
      relationship to the operating performance of these companies. These market
      prices are generally not sustainable and could vary widely. In the past,
      following periods of volatility in the market price of a public company’s
      securities, securities class action litigation has often been initiated. ****




***We
      will incur increased costs and compliance risks as a result of becoming a public
      company.***





As
      a
      public company, we will incur significant legal, accounting and other expenses
      that Perfectenergy BVI did not incur as a private company prior to
      the Financing and Exchange. We will incur costs associated with our public
      company reporting requirements. We also anticipate that we will incur costs
      associated with recently adopted corporate governance requirements, including
      certain requirements under the Sarbanes-Oxley Act of 2002, as well as new rules
      implemented by the SEC and the Financial Industry Regulatory Authority
      ("FINRA"). We expect these rules and regulations, in particular Section 404
      of
      the Sarbanes-Oxley Act of 2002, to significantly increase our legal and
      financial compliance costs and to make some activities more time-consuming
      and
      costly. Like many smaller public companies, we face a significant impact from
      required compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section
      404 requires management of public companies to evaluate the effectiveness of
      internal control over financial reporting and the independent auditors to attest
      to the effectiveness of such internal controls and the evaluation performed
      by
      management. The SEC has adopted rules implementing Section 404 for public
      companies as well as disclosure requirements. The Public Company Accounting
      Oversight Board, or PCAOB, has adopted documentation and attestation standards
      that the independent auditors must follow in conducting its attestation under
      Section 404. We are currently preparing for compliance with Section 404;
      however, there can be no assurance that we will be able to effectively meet
      all
      of the requirements of Section 404 as currently known to us in the currently
      mandated timeframe. Any failure to implement effectively new or improved
      internal controls, or to resolve difficulties encountered in their
      implementation, could harm our operating results, cause us to fail to meet
      reporting obligations or result in management being required to give a qualified
      assessment of our internal controls over financial reporting or our independent
      auditors providing an adverse opinion regarding management’s assessment. Any
      such result could cause investors to lose confidence in our reported financial
      information, which could have a material adverse effect on our stock
      price.




25




We
      are
      currently evaluating and monitoring developments with respect to these new
      rules, and we cannot predict or estimate the amount of additional costs we
      may
      incur or the timing of such costs.





***If
      we fail to maintain the adequacy of our internal controls, our ability to
      provide accurate financial statements and comply with the requirements of the
      Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
      to decrease substantially.***





Since,
      prior to the share exchange and the private placement financing,
      Perfectenergy BVI operated as a private company without public reporting
      obligations, Perfectenergy BVI has committed limited personnel and resources
      to
      the development of the external reporting and compliance obligations that would
      be required of a public company. Recently, we have taken measures to address
      and
      improve our financial reporting and compliance capabilities and we are in the
      process of instituting changes to satisfy our obligations in connection with
      joining a public company, when and as such requirements become applicable to
      us.
      Prior to taking these measures, we did not believe we had the resources and
      capabilities to do so. We plan to obtain additional financial and accounting
      resources to support and enhance our ability to meet the requirements of being
      a
      public company. We will need to continue to improve our financial and managerial
      controls, reporting systems and procedures, and documentation thereof. If our
      financial and managerial controls, reporting systems or procedures fail, we
      may
      not be able to provide accurate financial statements on a timely basis or comply
      with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our
      internal controls or our ability to provide accurate financial statements could
      cause the trading price of our common stock to decrease
      substantially.





***We
      do not anticipate paying any cash dividends.***





We
      presently do not anticipate that we will pay any dividends on any of our capital
      stock in the foreseeable future. The payment of dividends, if any, would be
      contingent upon our revenues and earnings, if any, capital requirements, and
      general financial condition. The payment of any dividends is within the
      discretion of our Board of Directors. We presently intend to retain all
      earnings, if any, to implement our business plan; accordingly, we do not
      anticipate the declaration of any dividends in the foreseeable
      future.





***We
      may engage in future issuances of our equity securities to fund our operations,
      including our planned expansions, diluting the percentage ownership of our
      shareholders.***





We
      may
      need to raise additional money through public or private sales of our equity
      securities in order to fund our current and future operations. We currently
      have
      plans to construct a new solar cell production facility on certain land in
      Shanghai under an Investment Agreement we entered into in October 2007 with
      Shanghai Zizhu Science Park Development Co., Ltd. Part of this construction
      will
      be funded by additional financing. To the extent that money is raised through
      the sale of our securities to fund our new construction on the Shanghai land
      or
      to fund our operations in other ways, the issuance of those securities could
      result in dilution to our existing shareholders.





**ITEM
      2. DESCRIPTION OF PROPERTY**




***Shanghai
      Offices and Facilities***





Our
      main
      office and our manufacturing facilities are located in Shanghai, People’s
      Republic of China. The table below provides a general description of our
      facilities:




**Location**
            
            **Principal
                Activities**
            
            **Area
                (sq. meters)**
            
            **Lease
                Expiration Date**No.
                479 You Dong Road, XinzhuangTown,
                Shanghai, People’s Republic ofChina
                201100
            
            Main
                Office and
              Manufacturing
                facility
            
            6,200
            
            June
                2011




We
      lease
      our main office and factory premises under a property lease agreements that
      expires in June 2011, with an option to renew the lease. Minimum future
      commitments under the lease agreements payable as of October 31, 2007 are as
      follows:





**Year
                Ended October 31**
            
            **Amount**2008
            
            
            168,7832009
            
            
            172,2992010
            
            
            177,2222011
            
            
            103,379Thereafter
            
            
            —





Rental
      expense was $145,315 and $73,215 during the ten months ended October 31, 2007
      and 2006, respectively. We believe that our existing facilities are well
      maintained and in good operating condition.




26





***Captain
      Black Property***





Although
      we continue to own the “Captain Black Property,” which consists of a 100%
      interest in one mineral claim, comprising 22 claim units, known as the Captain
      Black property located in the Omenica Mining District, British Columbia
      approximately 72 km southwest of Houston, British Columbia, we have completely
      ceased all mining operations. This mineral claim was in good standing until
      January 13, 2008. We acquired the Captain Black property pursuant to a mineral
      purchase and sale agreement, dated October 27, 2005, with Kleinebar Resources
      Ltd. in consideration for the payment of $5,000 to Kleinebar Resources and
      an
      additional $10,000 in exploration and development costs on the Captain Black
      property that we were required to pay by July 30, 2006. On April 27, 2006,
      we
      completed our acquisition of this mineral claim by paying the sum of $10,000
      to
      Kleinebar Resources, who conducted and completed the initial phases of the
      exploration program on the property. However, as disclosed in our previously
      filed quarterly reports, as result of our failure to generate revenues from
      this
      mineral claim, the anticipated costs of further exploration activities, lengthy
      delays in our ability to generate revenues and the conclusions contained in
      the
      geological report for the Captain Black Property, our management decided that
      it
      was not in our best interests to pursue the mining business, and thus we
      abandoned all mining operations on this mineral claim and sought other business
      opportunities to substantiate stockholder value, resulting in the Exchange
      described under Item 1 above.





***Additional Shanghai
      Facility***





In
      October 2007, we entered into an Investment Agreement with Shanghai Zizhu
      Science Park Development Co., Ltd. (“Science Park”), under which we plan to
      construct a new solar cell production facility on certain land in the Shanghai
      Zizhu Science-Based Industrial District of Shanghai, China, which will allow
      us
      to expand our lamination lines and our cell production lines to 200MW of total
      new production capacity. Construction is expected to begin in June 2008 and
      be
      completed in May 2009. Under the Investment Agreement, we will form a new
      company under PRC laws as a wholly-owned subsidiary of Perfectenergy BVI,
      and Science Park is to assist the new company in obtaining land use rights
      to the land from Science Park.





**ITEM
      3. LEGAL PROCEEDINGS**




We
      know
      of no material, existing or pending legal proceedings against us, nor are we
      involved as a plaintiff in any material proceeding or pending litigation. There
      are no proceedings in which any of our directors, officers or affiliates, or
      any
      registered or beneficial stockholder, is an adverse party or has a material
      interest adverse to our company.





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




We
      have
      not submitted any matters to a vote of security holders during the quarter
      immediately preceding the period covered by this transition report on Form
      10-KSB .




27




**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
      MATTERS**





**Market
      Information**





Our
      common stock is traded on the Over-The-Counter Bulletin Board ("OTCBB") under
      the symbol "PFEN". The following table sets forth, for the periods indicated,
      the reported high and low closing bid quotations for our common stock as
      reported on the OTCBB since our inception. The bid prices reflect inter-dealer
      quotations, do not include retail markups, markdowns or commissions and do
      not
      necessarily reflect actual transactions.





**Common
      Stock**





Quarter
                Ended
            
            High
                Bid
            
            Low
                BidJanuary
                31, 2008
            
            $
            2.00
            
            $
            1.15October
                31, 2007
            
            $
            1.60
            
            $
            1.15July
                31, 2007
            
            $
            1.55
            
            $
            1.25April
                30, 2007
            
            $
            1.25
            
            $
            0.00January
                31, 2007
            
            $
            0.05
            
            $
            0.00October
                31, 2006*
            
            $
            0.00
            
            $
            0.00July
                31, 2006*
            
            $
            0.00
            
            $
            0.00April
                30, 2006*
            
            $
            0.00
            
            $
            0.00January
                31, 2006*
            
            $
            0.00
            
            $
            0.00





*
      Our
      stock had no active trading market during the fiscal year ended October 31,
      2006.




As
      of
      February 13 , 2008, the closing sales price for shares of our common stock
      was
      $1.32 per share on the Over-The-Counter Bulletin Board.





**Holders**





As
      of
      February 13 , 2008, we have approximately 33 stockholders of record of our
      issued and outstanding common stock based upon the shareholders’ listing
      provided by our transfer agent. Our transfer agent is Holladay Stock Transfer,
      Inc. located at 2939 North 67th Place, Suite C, Scottsdale, Arizona 85251,
      and
      its telephone number is (480) 481-3940.




**Dividend
      Policy**




We
      do not
      currently intend to pay any cash dividends in the foreseeable future on our
      Common Stock and, instead, intend to retain earnings, if any, for future
      operation and expansion. Any decision to declare and pay dividends in the future
      will be made at the discretion of our board of directors and will depend on,
      among other things, our results of operations, cash requirements, financial
      condition, contractual restrictions and other factors that our board of
      directors may deem relevant.





**Securities
      Authorized for Issuance under Equity Compensation Plans or Individual
      Compensation Arrangements**





The
      following table sets forth, as of October 31, 2007, certain information related
      to the Company’s compensation plans under which shares of our common stock are
      authorized for issuance.





Plan
                Category
            
            Number of Securities
              to be Issued upon
              Exercise of
              Outstanding Options
              Warrants and Rights
              column
                (a)
            
            Weighted-Average Exercise
              Price of Outstanding
              Options, Warrants and
              Rights
            
            Number of Securities
              Remaining Available
              For Future Issuance
              Under Equity
              Compensation Plans
              (Excluding Securities
              Reflected in column
              (a))Equity
                compensation plans approved by security holders
            
            
            -
            
            
            -
            
            
            -Equity
                compensation plans not approved by security holders
            
            
            4,472,235
            (1)
            $
            0.70
            
            
            1,527,765
            (2)Total
            
            
            4,472,235
            
            $
            0.70
            
            
            1,527,765




28




(1)
            Includes
                outstanding options granted pursuant to the Company’s 2007 Stock Incentive
                Plan.(2)
            Includes
                shares remaining available for future issuance under the Company’s 2007
                Stock Incentive Plan.




On
      September 5, 2007, our board of directors approved the 2007 Stock Incentive
      Plan
      (the “Plan”). All of our employees, officers, and directors, and those of our
      consultants and advisors who (i) are natural persons and (ii) provide bona
      fide
      services to the Company not connected to a capital raising transaction or the
      promotion or creation of a market for our securities are eligible to be granted
      options or restricted stock awards (each, an “Award”) under the Plan. The Plan
      is administered by our board, and the board establishes certain terms of option
      awards, including the exercise price and duration, in the applicable option
      agreement. Awards may be made under the Plan for up to 6,000,000 shares of
      our
      common stock, and the maximum number of shares of common stock with respect
      to
      which Awards may be granted to any participant under the Plan is 2,000,000
      shares of common stock. The Plan allows for adjustments for changes in common
      stock and certain other events, including, but not limited to, any stock split,
      reverse stock split, stock dividend, recapitalization, combination of shares,
      reclassification of shares, spin-off, any distribution to holders of common
      stock other than a normal cash dividend, and liquidation or
      dissolution.


29





**Recent
      Sales of Unregistered Securities**




This
      information has been previously included in a current report on Form 8-K, and,
      therefore, need not be furnished pursuant to SEC rules regarding Form 10-KSB.
      Reference is made to Item 3.02 of our Current Report on Form 8-K filed on
      August 13, 2007, which is hereby incorporated by reference, for a description
      of
      our recent sales of unregistered securities during the period covered by this
      transition report on Form 10-KSB.




**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS**





*The
      following discussion and analysis of the results of operations and financial
      condition of Perfectenergy International Limited for the ten months ended
      October 31, 2007 and 2006 and the fiscal years ended December 31, 2006 and
      2005
      should be read in conjunction with the Selected Consolidated Financial Data,
      Perfectenergy International Limited’s financial statements and the notes to
      those financial statements that are included elsewhere in this prospectus.
      Our
      discussion includes forward-looking statements based upon current expectations
      that involve risks and uncertainties, such as our plans, objectives,
      expectations and intentions. Actual results and the timing of events could
      differ materially from those anticipated in these forward-looking statements
      as
      a result of a number of factors, including those set forth under the Risk
      Factors, Cautionary Notice Regarding Forward-Looking Statements and Description
      of Business sections in this prospectus. We use words such as “anticipate,”
“estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,”
“intend,” “may,” “will,” “should,” “could,” and similar expressions to identify
      forward-looking statements.*





**OVERVIEW**





Perfectenergy
      Nevada was originally incorporated on February 25, 2005 in the State of Nevada
      under its former name “Crestview Development Corporation.” As a result of the
      share exchange transaction that was completed on August 8, 2007 and described
      more fully above in this prospectus in the section titled “Description of
      Business,” Perfectenergy BVI, a British Virgin Islands company engaged in the
      research, development, manufacturing and sale of solar cells, solar modules
      and
      photovoltaic (“PV”) systems, became our wholly owned subsidiary and our new
      operating business. Perfectenergy BVI was incorporated under the laws of the
      British Virgin Islands on April 1, 2005 and conducts its business operations
      through its wholly owned subsidiary Perfectenergy Shanghai, which was
      incorporated under the laws of the People’s Republic of China on July 8,
      2005.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





Our
      management's discussion and analysis of our financial condition and results
      of
      operations are based on our consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States. The preparation of these financial statements requires us to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at the
      date
      of the financial statements as well as the reported net sales and expenses
      during the reporting periods. On an ongoing basis, we evaluate our estimates
      and
      assumptions. We base our estimates on historical experience and on various
      other
      factors that we believe are reasonable under the circumstances, the results
      of
      which form the basis for making judgments about the carrying value of assets
      and
      liabilities that are not readily apparent from other sources. Actual results
      may
      differ from these estimates under different assumptions or
      conditions.





While
      our
      significant accounting policies are more fully described in Note 2 to our
      consolidated financial statements under the section below titled “Financial
      Statements”, we believe that the following accounting policies are the most
      critical to aid you in fully understanding and evaluating this management
      discussion and analysis:





**Inventories**





Inventories
      are stated at the lower of cost or market, using a weighted average cost method.
      We regularly review inventory quantities on hand and record any inventory
      believed to be impaired down to its net realizable value. If actual demand
      or
      market conditions are less favorable than projected demand, additional inventory
      write-downs may be required that could adversely impact financial results for
      the period in which the additional excess or obsolete inventory is
      identified.




30




Inventories
      constitute a majority of our current assets as reflected in our balance sheets
      as of December 31, 2006 and October 31, 2007. The manner in which we estimate
      the value of our inventories is a significant component in determining the
      carrying value of our inventories.





We
      estimate the amount of the excess inventories by comparing inventory on hand
      with the estimated sales that can be sold within our operating cycle. To
      estimate the amount of obsolete inventories, we analyze movement of our
      products, monitor competing technology and evaluate acceptance of our products
      in the marketplace. Based on this information, we estimate inventories that
      cannot be sold at all or can only be sold at deeply discounted
      prices.





We
      determine the market value of our inventory by assessing current
      market prices as of the reporting date. Based on the current market situation
      and research conducted by professional market analysts, management expects
      the
      shortage of silicon to continue in the near future, and the price of solar
      cells
      and modules to rise in the first half of 2008 and remain steady in the second
      half of 2008. Management also expects the price of other materials for module
      production to rise in 2008. If the market value is higher than our purchase
      price, we report the amount of the inventories at the original purchase price,
      and if the market value is lower than our purchase price, then we write-off
      the
      difference between our purchase price and the market value to the net realizable
      value.





**Revenue
      Recognition**





We
      derive
      revenue principally from sales of solar cells and modules. Revenue from product
      sales is generally recognized, net of estimated product return costs, when
      goods
      are shipped, title and risk of ownership have passed, the price to the buyer
      is
      fixed, and recoverability is reasonably assured. In general, however, we do
      not
      accept product returns. Please see Note 2 to our financial statements for the
      transition period from January 1, 2007 to October 31, 2007, under the caption
      “Revenue Recognition.” Sales revenue represents the invoiced value of goods, net
      of value-added tax (VAT).




**Allowance
      for Doubtful Accounts**




We
      closely monitor the collection of our accounts receivable and record a general
      allowance for doubtful accounts against aged accounts and a specific reserve
      for
      identified amounts that we believe are not recoverable. We sell primarily to
      large, well-established customers, and we have not experienced significant
      accounts receivable loss in the past. If there is an adverse change in the
      financial condition of our customers, or if actual defaults are higher than
      provided for, an addition to the allowance may be necessary.





**Warranty**





Our
      products are subject to rigorous regulation and quality controls. **** Although
      we have established extensive product quality programs and processes, including
      monitoring and evaluating the quality of our component suppliers, we record
      a
      warranty obligation related to anticipated products failure rates and product
      recalls. We generally warrant our product for a period of five years from the
      date of shipment, but we do also have 10-year and 20-year warranties. As we
      have
      not experienced significant warranty claims to date, we accrue the estimated
      costs of such warranties based on our assessment of competitor’s accrual history
      while incorporating some estimates of failure rates through our quality review
      staff. Actual warranty costs are accumulated and charged against accrued
      warranty liability. If we experience unforeseen technical problems with our
      products in future periods to meet our product warranty requirements, revisions
      to our estimated cost of warranty may be required, and our gross margins will
      be
      negatively impacted.





**Research
      and Development**





Research
      and development expense include salaries, consult fees, supplies and materials,
      as well as costs related to other overhead such as facilities, utilities and
      other departmental expenses. The costs we incur with respect to internally
      developed technology and engineering services are included in research and
      development expense as incurred as they do not directly related to any
      particular licensee, licensee agreement or licenses fee.





**Deferred
      Tax Assets**





Deferred
      tax assets and liabilities are measured using enacted tax rates expected to
      apply to taxable income in the years in which those temporary differences are
      expected to be recovered or settled. The effect on deferred tax assets and
      liabilities of a change in tax rates is recognized in income (loss) in the
      period that includes the enactment date. A valuation allowance is established
      when necessary to reduce deferred tax assets to amounts expected to be realized.
      We do not expect a valuation allowance to be made against deferred tax
      assets for the ten months ended October 31, 2007, please see Note 9 -
      Income taxes to our financial statements for the ten months ended October 31,
      2007.




31





**Derivative
      Instruments**




In
      connection with the sale of debt or equity instruments, we may sell warrants
      to
      purchase our common stock. In certain circumstances, these warrants may be
      classified as derivative liabilities, rather than as equity. Additionally,
      the
      debt or equity instruments may contain embedded derivative instruments, such
      as
      conversion options, which in certain circumstances may be required to be
      bifurcated from the associated host instrument and accounted for separately
      as a
      derivative instrument liability.




The
      identification of, and accounting for, derivative instruments is complex. Our
      derivative instrument liabilities are re-valued at the end of each reporting
      period, with changes in the fair value of the derivative liability recorded
      as
      charges or credits to income, in the period in which the changes occur. For
      warrants and bifurcated conversion options that are accounted for as derivative
      instrument liabilities, we determine the fair value of these instruments using
      the Cox-Ross-Rubinstein binomial option pricing model. That model requires
      assumptions related to the remaining term of the instruments and risk-free
      rates
      of return, our current common stock price and expected dividend yield, and
      the
      expected volatility of our common stock price over the life of the instruments.
      The value of the warrants and options were based on our common stock price
      on
      the date the warrants and options were issued or granted. The identification
      of,
      and accounting for, derivative instruments and the assumptions used to value
      them can significantly affect our financial statements.




32




**Recent
      Accounting Pronouncements**




In
      February 2006, the FASB issued SFAS No.155, “Accounting for Certain Hybrid
      Financial Instructs” (“FAS 155”) which amends SFAS No.133,”Accounting for
      Derivative Instruments and Hedging Assets and Extinguishments of Liabilities”
FAS 155 provides guidance to simplify the accounting for certain hybrid
      instruments by permitting fair value remeasurement for any hybrid financial
      instrument that contains an embedded derivative, as well as, clarifies that
      beneficial interests in securitized financial assets are subject to FAS 133.
      In
      addition, FAS155 eliminates a restriction on the passive derivative instruments
      that a qualifying special purpose entity may hold under FAS140. FAS155 is
      effective for all financial instruments acquired, issued or subject to a new
      basis occurring after the beginning of an entity’s fiscal year that begins after
      September 15, 2006. The adoption of SFA No.155 did not have a material effect
      on
      the Company’s financial position or results of operations.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
      benefit only if it is “more likely than not” that the tax position would be
      sustained in a tax examination, with a tax examination being presumed to occur.
      The amount recognized is the largest amount of tax benefit that is greater
      than
      50% likely of being realized on examination. For tax positions not meeting
      the
“more likely than not” test, no tax benefit is recorded. The adoption had no
      affect on the Company’s financial statements.





In
      September 2006, the FASB issued SFAS No.157, “Fair Value Measurements,” which
      addresses the measurement of fair value by companies when they are required
      to
      use a fair value measure for recognition or disclosure purposes under throughout
      GAAP which is intended to make the measurement of fair value more consistent
      and
      comparable and improve disclosures about those measures. SFAS No. 157 will
      be
      effective for an entity’s financial statements issued for fiscal years beginning
      after November 15, 2007.





In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities—Including an amendment of FASB Statement No.
      115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that   are not currently
      required to be measured at fair value. The objective of SFAS 159 is to provide
      opportunities to mitigate volatility in reported earnings caused by  
measuring related assets and liabilities differently without having to apply
      hedge accounting provisions. SFAS 159 also establishes presentation and
      disclosure   requirements designed to facilitate comparisons between
      companies that choose different measurement attributes for similar types of
      assets and liabilities. SFAS   159 will be effective in the first quarter
      of fiscal 2009. The Company is evaluating the impact that this statement will
      have on its consolidated financial   statements.





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that used or rendered
      for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed.
      Management is currently evaluating the effect of this pronouncement on financial
      statements.




**RESULTS
      OF OPERATIONS**




**Comparison
      of Years Ended December 31, 2006 and December 31,
      2005**




The
      following table sets forth the results of our operations for the periods
      indicated as a percentage of revenues:




33




**Year Ended**
                **December 31,**
                **2006**
              
              **% of**
                **Revenues**
              
              **For Period**
                **from April 1,**
                **2005**
                **(inception) to**
                **December 31,**
                **2005**
              
              **% of**
                **Revenues**REVENUES
              
              $
              10,598,286
              
              
              100.00
              %
              $
              5,802,122
              
              
              100.00
              %COST
                  OF REVENUES
              
              
              9,206,123
              
              
              86.86
              %
              
              5,137,107
              
              
              88.54
              %GROSS
                  PROFIT
              
              
              1,392,163
              
              
              13.14
              %
              
              665,015
              
              
              11.46
              %SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              800,098
              
              
              7.55
              %
              
              193,904
              
              
              3.34
              %RESEARCH
                  AND DEVELOPMENT
              
              
              19,629
              
              
              0.19
              %
              
              111,725
              
              
              1.93
              %INCOME
                  FROM OPERATIONS
              
              
              572,436
              
              
              5.4
              %
              
              359,386
              
              
              6.19
              %OTHER
                  EXPENSES
              
              
              53,232
              
              
              0.5
              %
              
              5,550
              
              
              0.10
              %INCOME
                  BEFORE PROVISION FOR INCOME TAXES
              
              
              519,204
              
              
              4.90
              %
              
              353,836
              
              
              6.09
              %PROVISION
                  FOR INCOME TAXESNET
                  INCOME (LOSS)
              
              
              519,204
              
              
              4.90
              %
              
              353,836
              
              
              6.09
              %OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation adjustment
              
              
              43,722
              
              
              0.41
              %
              
              13,340
              
              
              0.23
              %COMPREHENSIVE
                  INCOME
              
              
              562,926
              
              
              5.31
              %
              
              367,176
              
              
              6.32
              %





*REVENUES.* Our
      revenues include revenues from sales of solar cells, and solar modules. During
      the year ended December 31, 2006, we had revenues of $10,598,286 as compared
      to
      revenues of $5,802,122 for the period from April 1, 2005 (inception) until
      December 31, 2005, an increase of approximately 82.66%. This increase is
      attributable to the increased sales of solar cells and solar modules and having
      an entire year of operation rather than a nine month period. We believe that
      our
      sales will continue to grow because we are strengthening our sales force and
      improving the quality of our products.





*COST
      OF REVENUES.* Cost of
      revenues for 2006 increased $4,069,016 or 79.21%, from $5,137,107 for the period
      from April 1, 2005 (inception) until December 31, 2005 to $9,206,123 for the
      year ended December 31, 2006. The increase in our cost of revenues was
      proportional to the corresponding 82.66% increase in our revenues for 2006
      as
      compared to our revenues for 2005.





*GROSS
      PROFIT.* Gross
      profit was $665,015 for the period from April 1, 2005 (inception) until December
      31, 2005 as compared to $1,392,163 for the year ended December 31, 2006,
      representing gross margins of approximately 11.46% and 13.14%, respectively.
      The
      increase in our gross profits was mainly due to the Company having a whole
      year
      of operations in 2006 and an increase in production efficiency. In addition,
      sales in 2005 were mainly for buy and sell activities that have a lower gross
      profit percentage whereas sales in 2006 mainly consisted of sales of processed
      inventory.





*SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES.* Selling,
      general and administrative expenses totaled $800,098 for the year ended December
      31, 2006, as compared to $193,904 for the period from April 1, 2005 (inception)
      until December 31, 2005, an increase of approximately 312.63%. This increase
      is
      primarily attributable to increased wages, increased depreciation, increased
      selling and distribution expenses, and the costs to relocate to the new
      production facilities.





*RESEACH
      AND DEVELOPMENT COSTS.* Research
      and development costs, which included development expenses such as salaries,
      consultant fees, cost of supplies and materials for samples, as well as costs
      related to other overhead such as facilities, utilities, and other departmental
      expenses, totaled $19,629 for the year ended December 31, 2006, as compared
      to
      $111,725 for the period from April 1, 2005 (inception) until December 31, 2005,
      a decrease of approximately 82.4%. The decrease was mainly because more R&D
      activities were performed in 2005 when we first began operations as compared
      to
      2006. In addition, in 2006, the Company had 2 pending patents under the
      registration process and the Company has not continued performing more R&D
      activities until the patents for these products are approved.




34




*OTHER
      EXPENSES (INCOME)* . Our
      other expenses consisted of financial expenses and interst income. We had other
      expenses of $53,232 for the year ended December 31, 2006 as compared to $5,550
      for the period from April 1, 2005 (inception) until December 31, 2005, an
      increase of approximately 859.14%. The increase in other expenses mainly due
      to
      the interest expense paid for the loans from stockholders and officers during
      the year of 2006.





*NET
      INCOME.* Our net
      income for the year ended December 31, 2006 was $519,204 as compared to $353,836
      for the period from April 1, 2005 (inception) until December 31, 2005. The
      increase in net income is attributable to increased sales volume and lower
      average costs. Our management believes that net income will continue to increase
      because we plan to continue improving our current products, begin introducing
      new products, and we believe that we will be expanding our sales into additional
      solar energy product markets in Asia, Europe and the United States. We are
      also
      making efforts to decrease our costs.





**Comparison
      of Ten Month Periods Ended October 31, 2007 and October 31,
      2006**





The
      following table sets forth the results of our operations for the periods
      indicated as a percentage of net sales:





Ten months ended Oct 312007
            
            % of
              Revenues
            
            (unaudited)
              2006
            
            % of
              RevenuesREVENUES
            
            $
            8,565,494
            
            
            100.00
            %
            $
            9,028,484
            
            
            100.00
            %COST
                OF REVENUES
            
            
            8,370,686
            
            
            97.73
            %
            
            7,766,309
            
            
            86.02
            %GROSS
                PROFIT
            
            
            194,808
            
            
            2.27
            %
            
            1,262,175
            
            
            13.98
            %SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            1,467,800
            
            
            17.14
            %
            
            525,786
            
            
            5.82
            %INCOME
                (LOSS) FROM OPERATIONS
            
            
            (1,272,992
            )
            
            -14.87
            %
            
            736,389
            
            
            8.16
            %OTHER
                EXPENSES (INCOME), NET
            
            
            296,743
            
            
            3.46
            %
            
            42,893
            
            
            0.48
            %INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            (1,569,735
            )
            
            -18.33
            %
            
            693,496
            
            
            7.68
            %PROVISIONS
                FOR INCOME TAXES
            
            
            73,985
            
            
            0.86
            
            
            —
            
            
            —NET
                INCOME (LOSS)
            
            
            (1,495,750
            )
            
            -17.47
            %
            
            693,496
            
            
            7.68
            %OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation adjustment
            
            
            135,404
            
            
            1.58
            %
            
            34,725
            
            
            0.38
            %COMPREHENSIVE
                INCOME
            
            
            (1,360,346
            )
            
            -15.89
            %
            
            728,221
            
            
            8.06
            %





***Comparison
      of Ten Months Ended October 31, 2007 and 2006***





*REVENUES* . During
      the ten months ended October 31, 2007, we had revenues of $8,565,494 as compared
      to revenues of $9,028,484 during the ten months ended October 31, 2006, a
      decrease of approximately 5.1%. This decrease is attributable to decreased
      production because we moved to our new production facilities during this period,
      and during the relocation, the installation and debugging required for the
      mechanical equipment used in our production lines were beyond what was expected
      and the delays that resulted had a serious impact on the output of our products.
      Further, we had decreased shipments of our solar modules because we had not
      received TUV certifications before September 1, 2007, and because of this delay,
      the Company had to shift to sales of solar cells instead and the Company’s sales
      decreased while it was in the process of establishing business relationships
      with new customers.




35




*COST
      OF REVENUES.* Cost of
      revenues for the ten months ended October 31, 2007 were $8,370,686 as compared
      to $7,766,309 for the ten months ended October 31, 2006, a increase of
      approximately 7.8%. The increase in revenue costs was proportional to the
      increase in our raw material costs of sales during the ten months ended October
      31, 2007 as compared to the same period in 2006.





*GROSS
      PROFIT.* Our
      gross profit for the ten months ended October 31, 2007 was $194,808 as compared
      to a gross profit of $1,262,175 for the ten months ended October 31, 2006,
      representing gross margins of approximately 2.27% and 13.98%, respectively.
      The
      decrease in gross profits is attributable to an increase in fixed costs caused
      by our relocation to our new production facility, which is approximately six
      times larger than our old facility. Further, during the ten months ended October
      31, 2007, our production had not returned to our desired production levels
      and
      our sales volumes were not at normal levels. During that period, we also
      improved the structure design of our products, and this caused the unit costs
      of
      our products to rise. Another reason was the increase in raw
      materials’ prices.




*SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES.* Selling,
      general and administrative expenses totaled $1,467,800 for the ten months ended
      October 31, 2007 as compared to $525,786 for the ten months ended October 31,
      2006, an increase of approximately 179.15%. This increase was caused by costs
      related to our relocation to our new plant and our plant expansion, such as
      rental, utilities, and salary expenses. The main reason for the increase
      was because of our financing, which we completed in August 2007.
      During this financing, we incurred substantial consultant fees,
      auditing fees and counsel fees.





*OTHER
      EXPENSES (INCOME)* . Other
      expenses for the ten months ended October 31, 2007 consisted of financial
      expenses, interest income and change in fair value of derivative instruments.
      We
      had other expenses of $296,743 for the ten months ended October 31, 2007 as
      compared to other expenses of $42,893 for the same period ended October 31,
      2006, an increase of approximately 591.8%, which was due to the increase in
      fair
      market value of our outstanding warrants.





*NET
      INCOME (LOSS)*  ***.*** We had a
      net loss of $1,495,750 for the ten months ended October 31, 2007 as compared
      to
      net income of $693,496 for the ten months ended October 31, 2006. The decrease
      in net income was primarily due to the decrease in our sales volume and our
      gross profits could not cover our fixed costs. However, our management believes
      that this decrease is not a trend and our Company’s net income will increase in
      future periods because we have multiple executed sales contracts for our
      products and we expect to sign several other sales contracts
      shortly.





**LIQUIDITY
      AND CAPITAL RESOURCES**





***Cash
      Flows***





Twelve
      Months ended December 31, 2006





Net
      cash
      flow provided by operating activities was $550,745 in fiscal 2005 and while
      net
      cash flow used in operating activities was $383,297 in fiscal 2006. The
      decrease of net cash flow provided by operating activities in fiscal 2006 was
      mainly due to the increased purchase of solar cells and other key inventory
      materials.





Net
      cash
      flow used in investing activities was $263,136 for fiscal 2005 and $1,351,813
      in
      fiscal 2006. Uses of cash flow for investing activities included equipment
      purchases, costs associated with construction in progress and the
      prepayments on equity investments. The increase of net cash flow used in
      investing activities in fiscal 2006 was mainly due to the purchase
      of additional equipment and machinery and prepayment for the acquisition of
      investments.





Net
      cash
      flow provided by financing activities was $360,000 in fiscal 2005 and $1,145,149
      in fiscal 2006. The increase in net cash flow was mainly due to $983,213 in
      borrowings from stockholders and officers, and $187,050 received as additional
      paid-in capital during fiscal 2006.




36


Ten
      Months Ended October 31,
      2007




Net
      cash
      flow used in operating activities was $3,712,894 for the ten months
      ended October 31, 2007 and while net cash flow used in operating activities
      was
      $477,479 for the ten months ended October 31, 2006. The increase of net cash
      flow used in operating activities for the ten months ended October 31,
      2007 was mainly due to an increase in inventory and prepayments.





Net
      cash
      flow used in investing activities was $1,864,517 and $1,298,918 for the ten
      months ended October 31, 2007 and 2006, respectively. Uses of cash flow for
      investing activities related to the capital expenditures for the acquisition
      of
      plant and equipment and cash paid for the acquisition of
      investments.





Net
      cash
      flow provided by financing activities was $15,152,465 for the ten months ended
      October 31, 2007. Compared with the net cash flow provided by financing
      activities of $1,166,975 for the ten months ended October 31, 2006, the increase
      of net cash flow was mainly due to the issuance of common stock to new investors
      ten months ended October 31, 2007 as compared to $0 in such cash proceeds
      received during the same period in 2006.




***Material
      Impact of Known Events on Liquidity***


In
        October 2007, we entered into an Investment Agreement with Shanghai Zizhu
        Science Park Development Co., Ltd., under which we plan to construct a new
        solar
        cell production facility on certain land in the Shanghai Zizhu Science-Based
        Industrial District of Shanghai, China, which will allow us to expand our
        lamination lines and our cell production lines to 200MW of total new production
        capacity. Construction is expected to begin in June 2008 and be completed
        in May
        2009. Under the Investment Agreement, we will form a new company under PRC
        laws
        as a wholly-owned subsidiary of Perfectenergy BVI, which new company will
        be
        capitalized with approximately $29.8 million, of which $20 million will be
        funded by Perfectenergy BVI as registered capital and the remainder of which
        will be funded by loans or other means. Science Park is to assist the new
        company in obtaining land use rights to the land from Science Park, for which
        the new company will pay Science Park approximately $2.5 million, a price
        that
        has been pre-negotiated but must be approved by the municipal government
        prior
        to entering into a final agreement. In
        addition to the land use right purchase, we are also obligated to spend,
        at a
        minimum, approximately $11.4 million under the investment agreement on our
        Science Park facility, which amount we plan to use for the construction of
        a
        manufacturing plant and additional cell production and lamination lines over
        the
        next two years. Our anticipated expenditures to construct the cell production
        and lamination lines at Science Park under the investment agreement are included
        in the amounts we anticipate spending to expand our overall cell production
        and
        lamination lines as discussed on page 10 under the “Expansion of our production
        capacity” under our “Description of Business.”


We
      expect
      to fund this expansion with our existing working capital and additional private
      financing. These planned expenditures will not materially impact our short-term
      liquidity, but they are reasonably likely to have a material impact on our
      long-term liquidity if we fail to raise more equity capital.




***Capital
      Resources***





We
      have
      financed our operations primarily through cash flows from operations and also
      through proceeds of issuance of common stock. In August 2007, we also received
      net proceeds of $15.99 million from our private placement financing transaction
      that is described above in this prospectus under the section titled "Description
      of Business." Thus we believe that our current cash and cash equivalents,
      anticipated cash flow from operations and net proceeds from the private
      placement financing will be sufficient to meet our anticipated cash needs,
      including our cash needs for working capital and capital expenditures for at
      least the next 8 months. The proceeds from the private placement financing
      will
      be used for general working capital purposes, including funding the purchase
      of
      additional equipment for the solar energy product production lines, advertising
      and marketing expenses, for research and development expenses and for the
      purchase of silicon that we will need for the planned our operations.
      However, we cannot provide any assurances that the proceeds raised in the
      financing will be sufficient for the planned expansion of our operations.
      Further, we may require additional cash due to changes in business conditions
      or
      other future developments, including any investments or acquisitions we may
      decide to pursue. To the extent it becomes necessary to raise additional cash
      in
      the future, we may seek to raise it through the sale of debt or equity
      securities, funding from joint-venture or strategic partners, debt financing
      or
      loans, issuance of common stock or a combination of the foregoing. We currently
      do not have any binding commitments for, or readily available sources of,
      additional financing. We cannot provide any assurances that we will be able
      to
      secure the additional cash or working capital we may require to continue our
      operations, either now or in the future.





**CONTRACTUAL
      OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS**





***Contractual
      Obligations***





We
      have
      certain fixed contractual obligations and commitments that include future
      estimated payments. Changes in our business needs, cancellation provisions,
      changing interest rates, and other factors may result in actual payments
      differing from the estimates. We cannot provide certainty regarding the timing
      and amounts of payments. We have presented below a summary of the most
      significant assumptions used in our determination of amounts presented in the
      tables, in order to assist in the review of this information within the context
      of our consolidated financial position, results of operations, and cash
      flows.




37





The
      following tables summarize our contractual obligations as of October 31, 2007,
      and the effect these obligations are expected to have on our liquidity and
      cash
      flows in future periods.





**Payments Due by Period****Total**
            
            **Less than****1 year**
            
            **1-3 Years**
            
            **3-5 Years**
            
            **5 Years +****In
                Thousands**Contractual
                Obligations :Bank
                Indebtedness
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            
            
            
            $
            —Other
                Indebtedness
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            
            
            
            $
            —Capital
                Lease Obligations
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            
            
            
            $
            —Operating
                Leases (1)
            
            $
            622
            
            $
            169
            
            $
            350
            
            $
            103
            
            
            
            
            $
            —Purchase
                Obligations (2)
            
            $
            122,541
            
            $
            34,039
            
            $
            88,502
            
            $
            0
            
            
            
            
            $
            —Total
                Contractual Obligations:
            
            $
            123,163
            
            $
            34,208
            
            $
            88,852
            
            $
            103
            
            
            
            
            
            —




38




(1)
      Operating lease amounts include the lease for the Company’s main office and
      manufacturing facility. All leases are on a fixed repayment basis. None of
      the
      leases includes contingent rentals.





(2)
      Purchase obligations consist of the two (2) silicon wafers supply purchase
      contracts that we have with Tianjin Huan Ou and Chengdu that are described
      above
      under the section titled “Our Suppliers.” The Company has an oral understanding
      with each of these suppliers that if there is a shortage of silicon, then our
      suppliers will reduce our minimum purchase obligations as described above under
      the section titled “Our Suppliers.”




***Off-balance
      Sheet Arrangements***





We
      have
      not entered into any other financial guarantees or other commitments to
      guarantee the payment obligations of any third parties. We have not entered
      into
      any derivative contracts that are indexed to our shares and classified as
      stockholder’s equity or that are not reflected in our consolidated financial
      statements. Furthermore, we do not have any retained or contingent interest
      in
      assets transferred to an unconsolidated entity that serves as credit, liquidity
      or market risk support to such entity. We do not have any variable interest
      in
      any unconsolidated entity that provides financing, liquidity, market risk or
      credit support to us or engages in leasing, hedging or research and development
      services with us.




**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Perfectenergy
      Nevada does not use derivative financial instruments in its investment portfolio
      and has no foreign exchange contracts. Our financial instruments consist of
      cash
      and cash equivalents, trade accounts receivable, accounts payable and long-term
      obligations. We consider investments in highly liquid instruments purchased
      with
      a remaining maturity of 90 days or less at the date of purchase to be cash
      equivalents. However, in order to manage the foreign exchange risks,
      Perfectenergy Nevada may engage in hedging activities to manage our financial
      exposure related to currency exchange fluctuation. In these hedging activities,
      we might use fixed-price, forward, futures, financial swaps and option contracts
      traded in the over-the-counter markets or on exchanges, as well as long-term
      structured transactions when feasible.





*Interest
      Rates* . Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      short-term investments and short-term obligations; thus, fluctuations in
      interest rates would not have a material impact on the fair value of these
      securities. At October 31, 2007, we had approximately $9,701,545 in cash and
      cash equivalents. A hypothetical 5% increase or decrease in interest rates
      would
      not have a material impact on our earnings or loss, or the fair market value
      or
      cash flows of these instruments.





*Foreign
      Exchange Rates* . A
      substantial portion of our sales is denominated in Euros, Renminbi (“RMB”) or
      other currencies. As a result, changes in the relative values of U.S. Dollars,
      Euros, RMB and other currencies affect our reported levels of revenues and
      profitability as the results are translated into U.S. Dollars for reporting
      purposes. In particular, fluctuations in currency exchange rates could have
      a
      significant impact on our financial stability due to a mismatch among various
      foreign currency-denominated sales and costs. Fluctuations in exchange rates,
      particularly among the U.S. dollar, RMB and Euro, affect our gross and net
      profit margins and could result in foreign exchange and operating
      losses.





Our
      exposure to foreign exchange risk primarily relates to currency gains or losses
      resulting from timing differences between signing of sales contracts and
      settling of these contracts. Furthermore, we translate monetary assets and
      liabilities denominated in other currencies into RMB, the functional currency
      of
      our operating business. Our results of operations and cash flow are translated
      at average exchange rates during the period, and assets and liabilities are
      translated at the unified exchange rate as quoted by the People’s Bank of China
      at the end of the period. Translation adjustments resulting from this process
      are included in accumulated other comprehensive income in our statement of
      stockholders’ equity. We recorded net foreign currency gains of $135,404 and
      $34,725 in ten months ended October 31 2007 and 2006, respectively. We have
      not
      used any forward contracts, currency options or borrowings to hedge our exposure
      to foreign currency exchange risk. We cannot predict the impact of future
      exchange rate fluctuations on our results of operations and may incur net
      foreign currency losses in the future. As our sales denominated in foreign
      currencies, such as RMB and Euros, continue to grow, we will consider using
      arrangements to hedge our exposure to foreign currency exchange
      risk.





Our
      financial statements are expressed in U.S. dollars but the functional currency
      of our operating subsidiary is RMB. The value of your investment in our stock
      will be affected by the foreign exchange rate between U.S. dollars and RMB.
      To
      the extent we hold assets denominated in U.S. dollars, any appreciation of
      the
      RMB against the U.S. dollar could result in a change to our statement of
      operations and a reduction in the value of our U.S. dollar denominated assets.
      On the other hand, a decline in the value of RMB against the U.S. dollar could
      reduce the U.S. dollar equivalent amounts of our financial results, the value
      of
      your investment in our company and the dividends we may pay in the future,
      if
      any, all of which may have a material adverse effect on the price of our
      stock.




39





**ITEM
      7. FINANCIAL STATEMENTS**




See
      "Index to Financial Statements" beginning on page F-1 below for our financial
      statements included in this transition report on Form 10-KSB.





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




There
      have been no changes in or disagreements with our independent auditors, Moore
      Stephens Wurth Frazer and Torbet.





**ITEM
      8A. CONTROLS AND PROCEDURES**




Our
      Chief
      Executive Officer and Chief Financial Officer (collectively, the "Certifying
      Officers") are responsible for establishing and maintaining disclosure controls
      and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
      Exchange Act of 1934, as amended (the "Act")) for us. Based upon such officers'
      evaluation of these controls and procedures as of a date as of the end of the
      period covered by this transition report, and subject to the limitations noted
      hereinafter, the Certifying Officers have concluded that our disclosure controls
      and procedures are effective.




The
      Certifying Officers' evaluation has also concluded that there have been no
      occurrences during the last three months of the period covered by this
      transition report that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting (as defined
      in
      Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
      1934).




Our
      management, including each of the Certifying Officers, does not expect that
      our
      disclosure controls or our internal controls will prevent all error and fraud.
      A
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. In addition, the design of a control system must reflect the fact
      that
      there are resource constraints, and the benefits of controls must be considered
      relative to their costs. Because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, within a company have been
      detected. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people or by management
      override of the control. The design of any systems of controls also is based
      in
      part upon certain assumptions about the likelihood of future events, and there
      can be no assurance that any design will succeed in achieving its stated goals
      under all potential future conditions. Over time, control may become inadequate
      because of changes in conditions, or the degree of compliance with the policies
      or procedures may deteriorate. Because of these inherent limitations in a
      cost-effective control system, misstatements due to error or fraud may occur
      and
      not be detected.




**ITEM
      8B. OTHER INFORMATION**




None.




40




**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**





**Current
      Management**




The
      following table identifies our current executive officers and directors, their
      respective offices and positions, and their respective dates of election or
      appointment:




**Name**
            **Age**
            **Positions
                Held:**
            **Effective
                Date of**
              **Appointment**
            **Director’s
                Term of**
              **Office**Wennan
                Li
            40
            Chief
                Executive Officer, President, and Chairman of the Board of
                Directors
            August
                8, 2007
            2
                years *Diping
                Zhou
            39
            Chief
                Accounting Officer and Treasurer
            August
                8, 2007
            N/AXiaolin
                Zhuang
            36
            Chief
                Financial Officer and Secretary
            February
                1, 2008
            N/AMin
                Fan
            42
            Director
            August
                25, 2007
            2
                years *Yunxia
                Yang
            50
            Director
            August
                25, 2007
            2
                years *Adam
                Roseman
            29
            Director
            August
                25, 2007
            3
                years *Yajun
                Wu
            48
            Director
            November
                20, 2007
            3
                years *





*
      Perfectenergy Nevada intends to hold annual meetings of stockholders during
      the
      summer season starting in 2008, at which meetings our directors will be up
      for
      re-election.





**Wennan
      Li,**  **Chief
      Executive Officer, President and Director** , has
      extensive experience with technological development, production management
      and
      international marketing in PV industry. Mr. Li is founder, director and current
      general manager of Perfectenergy Shanghai, our operating subsidiary. From
      November 2002 to August 2005, Mr. Li was the Vice President of Topsolar Shanghai
      Limited, of the leading PV companies in China. He has also served as a PV
      industry expert advising the Shanghai government regarding the PV Industry.
      Mr.
      Li received a Master’s degree in 1991 from the Management School of Shanghai
      Jiaotong University and received his Bachelor’s degree in 1988 from Xi’an
      Jiaotong University in Electrical Automation.




**Diping
      Zhou, Chief Accounting Officer and Treasurer** , is
      also a Vice President and accountant for Perfectenergy Shanghai. Ms. Zhou was
      previously our Secretary until her resignation as Secretary effective February
      1, 2008. Ms. Zhou received her bachelor’s degree in accounting from Shanghai
      Lixin University of Commerce in 1988. Ms. Zhou has extensive accounting
      experience. From 1988 through 2000, Ms. Zhou held the positions of accountant,
      financial manager, controller of budget and financial department of Shanghai
      Fenghuang Stock Co., Ltd., a Chinese public company listed on the Shanghai
      Stock
      Market. From 2000 through 2002, Ms. Zhou was the audit director and financial
      controller in JHJ International Transportation Co., Ltd. From 2002 through
      2005,
      Ms. Zhou was the manager of budget and financial department in Topsolar Shanghai
      Limited, a leading Chinese solar energy products manufacturer.




**Xiaolin
      Zhuang, Chief Financial Officer and Secretary,** served
      as the China Financial Controller of Synthesis Energy Systems, Inc. prior to
      joining the Company. From November 2003 to May 2007, Mr. Zhuang served as the
      Finance Manager and Group Internal Auditor Head for Jebsen & Co. (China)
      Ltd. & Jebsen & Co. Ltd. Since September 1995, Mr. Zhuang has served as
      a member of the China Institute of Certified Public Accountants (CICPA). Mr.
      Zhuang earned his bachelor’s degree in economics in 1994 from the Shanghai
      University of Finance and Economics.




**Min
      Fan, Director** , is one
      of the co-founders of Ctrip.com International Ltd. (Nasdaq: CTRP) and has served
      as CTRP’s Chief Executive Officer since January 2006 and as a director since
      October 2006. CTRP is a Chinese-based travel services business with a $1.7
      billion market capitalization. Mr. Fan is also a founding stockholder of Home
      Inns & Hotels Management, Inc. (Nasdaq: HMIN), an economy hotel developer,
      operator and franchisor with a $500 million market capitalization. Mr. Fan
      has served as CTRP’S Chief Operating Officer from November 2004 to January 2006.
      Prior to that, he served as CTRP’s Executive Vice President from 2000 to
      November 2004. From 1997 to 2000, Mr. Fan was the Chief Executive Officer
      of Shanghai Travel Service Company, a leading domestic travel agency in China.
      From 1990 to 1997, he served as the Deputy General Manager and in a number
      of
      other senior positions at Shanghai New Asia Hotel Management Company, which
      was
      one of the leading hotel management companies in China. Mr. Fan obtained
      his Master’s and Bachelor’s degrees from Shanghai Jiao Tong University. He also
      studied at the Lausanne Hotel Management School of Switzerland in
      1995.





**Yunxia
      Yang, Director** , is
      currently a Professor at the East China University of Science & Technology
      and is one China’s leading solar energy researchers with extensive experience in
      solar products development. Ms. Yang received both her bachelor’s degree in 1982
      and her master’s degree in 1987 in the study of Application (Macromolecule)
      Materials from East China University of Science & Technology. From 1982 to
      1984, Ms. Yang was an engineer at Shanghai Architecture Science & Technology
      Institute. From 1987 to the present, Ms. Yang has been a professor in the School
      of Materials Science and Engineering at the East China University of Science
      & Technology.





**Adam
      Roseman, Director** , has
      extensive experience in both finance and management. Previously, Mr. Roseman
      served as an investment banker in various sectors at Lehman Brothers, Piper
      Jaffray and Goldman Sachs. Currently, Mr. Roseman is a Director of Safe
      Renewables Corporation and Xyience, Inc, and he is also the Chairman and a
      director of Pure Biofuels Corp., a publicly trading, OTC Bulletin Board company.
      In addition, he is the Founder and Chief Executive Officer of ARC Investment
      Partners.


41


**Yajun
      Wu, Director,** has
      served on our board of directors since November 2007. Concurrent to his
      directorship with the Company, Mr. Wu serves as the Executive Vice President
      and
      Deputy Chief Financial Officer of Alcatel Shanghai Bell Co., Ltd. in Shanghai,
      a
      position which he has held since February 2003. From July 2002 to February
      2003,
      Mr. Wu served Alcatel Shanghai Bell Co., Ltd. as the Director of Credit
      Management. From March 1999 to July 2002, Mr. Wu served as Vice President and
      Deputy Chief Financial Officer of Shanghai Bell Alcatel Mobile Communication
      System Co., Ltd.





To
      the
      best of our knowledge, none of the officers or directors appointed following
      the
      Closing, including any of their affiliates, currently beneficially own any
      equity securities or rights to acquire any securities of Perfectenergy Nevada,
      and no such persons have been involved in any transaction with Perfectenergy
      Nevada or any of its directors, executive officers or affiliates that is
      required to be disclosed pursuant to the rules and regulations of the SEC,
      other
      than with respect to the transactions that have been described
      herein.




**Family
      Relationships**




There
      are
      no family relationships between or among any of the current directors, executive
      officers or persons nominated or charged by the Company to become directors
      or
      executive officers.




**Involvement
      in Certain Legal Proceedings**





None
      of
      our directors or executive officers has, during the past five
      years:





·
            been
                convicted in a criminal proceeding or been subject to a pending criminal
                proceeding (excluding traffic violations and other minor
                offences);





·
            had
                any bankruptcy petition filed by or against any business of which
                he was a
                general partner or executive officer, either at the time of the bankruptcy
                or within two years prior to that
                time;





·
            been
                subject to any order, judgment, or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining, barring, suspending or otherwise limiting
                his
                involvement in any type of business, securities, futures, commodities
                or
                banking activities; or





·
            been
                found by a court of competent jurisdiction (in a civil action), the
                Securities and Exchange Commission or the Commodity Futures Trading
                Commission to have violated a federal or state securities or commodities
                law, and the judgment has not been reversed, suspended, or
                vacated.





**Director
      Independence**




Our
      board of directors has determined that it currently has
      4 members who qualify as "independent" as the term is used in Item 407
      of Regulation S-B as promulgated by the SEC and in the listing standards of
      The
      Nasdaq Stock Market, Inc. - Marketplace Rule 4200. The independent
      directors are Adam Roseman, Min Fan, Yunxia Yang, and Yajun Wu.





**Board
      of Directors, Board Meetings and Committees**





Prior
      to
      the Closing of the share exchange transaction, Mr. Philip McDonald served as
      our
      sole director. Concurrent with and effective on the Closing Date, Mr. Wennan
      Li
      became a member of our board of directors. In addition, following our compliance
      with the provisions of Section 14(f) of the Securities Act of 1933, as amended,
      and Rule 14(f)-1 thereunder, the appointments of Mr. Min Fan, Ms. Yunxia Yang,
      and Mr. Adam Roseman as members of the board of directors also become effective.
      Mr. Yajun Wu was appointed to the board in November 2007. In his capacity as
      Chairman of the board of directors, Mr. Wennan Li is responsible for meeting
      with the Chief Executive Officer to review financial and operating results,
      agendas and minutes of board meetings, and presiding at the meetings of the
      committees of the board of directors, when such committees are
      formed.





Our
      board
      of directors held no formal meetings during the most recently completed fiscal
      year. All proceedings of the board of directors were conducted by resolutions
      consented to in writing by all the directors and filed with the minutes of
      the
      proceedings of the directors. Such resolutions consented to in writing by the
      directors entitled to vote on that resolution at a meeting of the directors
      are,
      according to the corporate laws of the State of Nevada and our bylaws, as valid
      and effective as if they had been passed at a meeting of the directors duly
      called and held.


42





We
      are
      not a "listed company" under SEC rules and are not currently required to have
      an
      audit, compensation, or nominating committee, but our board has future plans
      to
      form these committees and approve their charters. When the audit committee
      is
      formed, our board also expects to determine if it has a member that qualifies
      as
      an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of
      Regulation S-B under the Securities Exchange Act of 1934, as
      amended.





We
      do not
      have any defined policy or procedure requirements for stockholders to submit
      recommendations or nominations for directors. Our board of directors believes
      that, given the early stages of our development, a specific nominating policy
      would be premature and of little assistance until our business operations
      develop to a more advanced level. We do not currently have any specific or
      minimum criteria for the election of nominees to our board of directors and
      we
      do not have any specific process or procedure for evaluating such nominees.
      Our
      board of directors assesses all candidates, whether submitted by management
      or
      stockholders, and makes recommendations for election or
      appointment.





A
      stockholder who wishes to communicate with our board of directors may do so
      by
      directing a written request to our Company addressed to our Chief Executive
      Officer. We intend to hold annual meetings of stockholders during the summer
      season starting in 2008,  at which meetings our directors will be up for
      re-election. We currently do not have a policy regarding the attendance of
      board
      members at the annual meeting of stockholders.




**Code
      of Ethics**




Our
      company has not adopted a code of ethics, but we plan to adopt a code of ethics
      shortly.




**Compliance
      with Section 16(a) of the Securities Exchange Act of 1934**





Section
      16(a) of the Securities Exchange Act of 1934 *,* as
      amended, requires our executive officers and directors, and persons who
      beneficially own more than 10% of a registered class of our equity securities
      to
      file with the Securities and Exchange Commission initial statements of
      beneficial ownership, reports of changes in ownership, and annual reports
      concerning their ownership of our common shares and other equity securities,
      on
      Forms 3, 4, and 5 respectively. Executive officers, directors and greater than
      10% stockholders are required by the Securities and Exchange Commission
      regulations to furnish us with copies of all Section 16(a) reports they file.
      Based on our review of the copies of such forms received by us, and to the
      best
      of our knowledge, all executive officers, directors, and greater than 10%
      stockholders filed the required reports during the fiscal year ended October
      31,
      2007 in a timely manner.





**ITEM
      10. EXECUTIVE COMPENSATION**




The
      following summary compensation table indicates the cash and non-cash
      compensation earned during the fiscal years ended October 31, 2007 and
      October 31, 2006 by our Chief Executive Officer, Chief Accounting Officer,
      and
      each of our other four highest paid executives, if any, of Perfectenergy Nevada
      (including our predecessor, Perfectenergy BVI) whose total compensation exceeded
      $100,000 during such fiscal year ends.


43




**SUMMARY
                COMPENSATION TABLE**




**Name and** **principal** **position**
            
            **Year**
            
            **Salary ($)**
            
            **Bonus**
              **($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($) (9)**
            
            **Non-**
              **Equity**
              **Incentive**
              **Plan**
              **Compen****sation**
              **($)**
            
            **Nonquali****fied**
              **Deferred**
              **Compen****sation**
              **Earnings**
              **($)**
            
            **All**
              **Other**
              **Compensation**
              **($)**
            
            **Total** **($)**Wennan
                Li, Chief
            
            
            2007
            
            $
            48,552
            (2)
            $
            0
            
            
            —
            
            $
            130,160
            (3)
            
            —
            
            
            —
            
            
            —
            
            $
            178,712Executive
                Officer
            
            
            2006
            
            
            54,415
            (4)
            
            5,195
            (4)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            59,610and
                President (1)Diping
                Zhou, Chief
            
            
            2007
            
            
            27,500
            (5)
            
            0
            
            
            —
            
            
            62,795
            (6)
            
            
            
            
            
            
            
            
            
            
            90,295Accounting
                Officer,
            
            
            2006
            
            
            21,429
            (7)
            
            3,896
            (7)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            25,325Treasurer
                and   Secretary (1)Philip
                McDonald,
            
            
            2007
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            0former
                CEO,
            
            
            2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            0President,
                Chairman,   Secretary and   Treasurer
                (8)







(1)
            Salary
                and other annual compensation paid to Mr. Wennan Li and Ms. Diping
                Zhou
                are expressed in U.S. Dollars based on the interbank exchange rate
                of
                RMB7.27 for each 1.00 U.S. Dollar, on January 3,
                2008.




(2)
            This
                amount differs from Mr. Li’s base salary described below under “Employment
                Agreements” because Mr. Li had an oral agreement with Perfectenergy
                Shanghai after Perfectenergy Shanghai suffered first quarter losses,
                under
                which Mr. Li agreed to be paid 75% of his base salary. This agreement
                only
                covered his 2007 salary through August 2007, and Mr. Li was paid
                100% of
                his base salary starting in September
                2007.





(3)
            On
                August 8, 2007, Mr. Li was granted options to purchase an aggregate
                1,629,094 shares of our common stock at $0.70 per share, vesting
                at 33.33%
                per year. Mr. Li’s options expire on August 8, 2017. The Company used the
                Cox-Ross-Rubinstein binomial model to value the options at the time
                they
                were issued, based on volatility of 70%, dividend yield of 0%, the
                stated
                exercise prices and expiration dates of the instruments and using
                an
                average risk-free rate of 4.5%. Because the Company does not have
                a
                history of employee stock options, the estimated life is based on
                one half
                of the sum of the vesting period and the contractual life of 10 years
                of
                the option. This is the same as assuming that the options are exercised
                at
                the mid-point between the vesting date and expiration
                date.





(4)
            Mr.
                Li and Perfectenergy Shanghai had an oral understanding in place
                from the
                beginning of Mr. Li’s employment, which understanding was not in effect in
                2007, that if profits reached half of the target level of $600,000,
                then
                Mr. Li would be paid half of his base salary; if profits reached
                70% of
                the target level of $600,000, then Mr. Li would be paid 100% of his
                base
                salary. Perfectenergy Shanghai, however, met the applicable target
                profit
                level. Nonetheless, Mr. Li’s base salary for 2006 was reduced pursuant to
                an oral agreement between Mr. Li and Perfectenergy Shanghai, under
                which
                Mr. Li agreed to reduce his total salary to 80% of the amount owed
                to him
                under his employment agreement due to a loss that Perfectenergy Shanghai
                incurred by moving their factory in 2006.(5)
            This
                amount differs from Ms. Zhou’s base salary described below under
                “Employment Agreements” because Ms. Zhou had an oral agreement with
                Perfectenergy Shanghai after Perfectenergy Shanghai suffered first
                quarter
                losses, under which Ms. Zhou agreed to be paid 80% of her base salary.
                This agreement only covered her 2007 salary through August 2007,
                and Ms.
                Zhou was paid 100% of her base salary starting in September
                2007.(6)
            On
                August 8, 2007, Ms. Zhou was granted options to purchase an aggregate
                785,951 shares of our common stock at $0.70 per share, vesting at
                33.33%
                per year. Ms. Zhou’s options expire on August 8, 2017. The Company used
                the Cox-Ross-Rubinstein binomial model to value the options at the
                time
                they were issued, based on volatility of 70%, dividend yield of 0%,
                the
                stated exercise prices and expiration dates of the instruments and
                using
                an average risk-free rate of 4.5%. Because the Company does not have
                a
                history of employee stock options, the estimated life is based on
                one half
                of the sum of the vesting period and the contractual life of 10 years
                of
                the option. This is the same as assuming that the options are exercised
                at
                the mid-point between the vesting date and expiration
                date.(7)
            Ms.
                Zhou and Perfectenergy Shanghai had an oral understanding in place
                from
                the beginning of Ms. Zhou’s employment, which understanding was not in
                effect in 2007, that if profits reached half of the target level
                of
                $600,000, then Ms. Zhou would be paid half of her base salary; if
                profits
                reached 70% of the target level of $600,000, then Ms. Zhou would
                be paid
                100% of her base salary. Perfectenergy Shanghai, however, met the
                applicable target profit level. Nonetheless, Ms. Zhou’s base salary for
                2006 was reduced pursuant to an oral agreement between Ms. Zhou and
                Perfectenergy Shanghai, under which Ms. Zhou agreed to reduce her
                total
                salary to 90% of the amount owed to her under her employment agreement
                due
                to a loss that Perfectenergy Shanghai incurred by moving their factory
                in
                2006.(8)
            Mr.
                Philip McDonald was appointed as Perfectenergy Nevada’s President, Chief
                Executive Officer, Chief Financial Officer, Secretary and Treasurer
                on
                February 25, 2005, and he resigned from all of these executive officer
                positions in connection with the closing of the share exchange transaction
                effective on August 8, 2007.




44




(9)
            Reflects
                dollar amount expensed by the Company during applicable fiscal year
                for
                financial statement reporting purposes pursuant to FAS 123R. FAS
                123R
                requires the Company to determine the overall value of the options
                as of
                the date of grant based upon the Black-Scholes method of valuation,
                and to
                then expense that value over the service period over which the options
                become exercisable (vested). As a general rule, for time in service
                based
                options, the Company will immediately expense any option or portion
                thereof which is vested upon grant, while expensing the balance on
                a pro
                rata basis over the remaining vesting term of the
                option.





**Employment
      Agreements**





Our
      board
      of directors currently determines the amount of salary paid to our
      executives.





The
      following are summaries of Perfectenergy Shanghai’s employment agreements with
      our executive officers. We currently have no employment agreements with any
      of
      our executive officers, but we plan to assume the agreements described below
      following the closing of the share exchange transaction:





Perfectenergy
      Shanghai entered into an Employment Agreement (“Agreement”) with Mr. Wennan Li
      on September 1, 2005. Effective September 1, 2005, Mr. Li was appointed the
      General Manager of Perfectenergy Shanghai. Mr. Li’s total yearly salary is
      RMB600,000 or approximately US$81,306 per year, consisting of RMB420,000
      (approximately US$56,914) as a base salary and RMB180,000 (approximately
      US$24,392) as incentive compensation. The term of the agreement is for three
      years.





Perfectenergy
      Shanghai entered into an Employment Agreement (“Agreement”) with Ms. Diping Zhou
      on September 1, 2005. Effective September 1, 2005, Ms. Zhou was appointed the
      Vice President of Perfectenergy Shanghai. Ms. Zhou’s total yearly salary is
      RMB300,000 or approximately US$40,653 per year, consisting of RMB240,000
      (approximately US$32,523) as a base salary and RMB60,000 (approximately
      US$8,131) as incentive compensation. The term of the Agreement is for three
      years.





In
      each
      of the above-described Employment Agreements, Perfectenergy Shanghai has the
      right to adjust the officer’s compensation and also to demote or promote them
      based on their job performance. In the event Perfectenergy Shanghai decides
      to
      decrease the officer’s compensation, Perfectenergy Shanghai must notify them in
      advance of the decrease and they shall have the right to accept such decrease
      in
      compensation or to terminate this agreement without any liabilities.
      Perfectenergy Shanghai also agreed to pay for Mr. Li’s required social security
      payments in accordance with governmental mandates. Because each officer is
      considered a highly qualified professional, Perfectenergy Shanghai agreed to
      seek the appropriate provincial agency for approval of each officer’s employment
      with Perfectenergy Shanghai. During the term of the Agreement and any term
      pursuant to an amendment of the Agreement, each officer agreed to maintain
      confidential all confidential information including trade secrets, technological
      and financial information of Party A and its related companies, including but
      not limited to business plans, contracts, designs, processes, product
      specifications, manufacturing methods and techniques, management know-how,
      customer list, inventory information, sales strategies, and bids (“Confidential
      Information”), and he agreed that he would not disclose, use or permit the use
      by others of the Confidential Information to the detriment of Perfectenergy
      Shanghai. After the term of this Agreement, each officer also agreed to continue
      to maintain confidential all Confidential Information for a period of five
      years, and thereafter for all Confidential Information that continues to have
      commercial value, unless Perfectenergy Shanghai and the officer agree separately
      and otherwise. The parties also agreed that during the Agreement’s term,
      Perfectenergy Shanghai shall have the right to terminate the Agreements upon
      the
      occurrence of any event as set forth in the Agreement permitting such
      termination, but in any event, Perfectenergy Shanghai shall have the right
      to
      terminate this agreement at any time without cause, provided that Perfectenergy
      Shanghai assumes all responsibility from such termination pursuant to the terms
      of the Agreement.


45


**Outstanding
      Equity Awards**





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**





**Option
                Awards**
            
            **Stock Awards****Name**
            
            **Number of**
              **Securities**
              **Under****lying**
              **Unexercised**
              **Options****(#)**
              **Ex****ercisable**
            
            **Number of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options****(#)**
              **Un****exercisable**
            
            **Equity**
              **Incentive**
              **Plan**
              **Awards:**
              **Number of**
              **Securities**
              **Under****lying**
              **Un****exercised**
              **Unearned**
              **Options** **(#)**
            
            **Option**
              **Exercise**
              **Price ($)**
            
            **Option**
              **Expiration**
              **Date**
            
            **Number** **of**
              **Shares**
              **or Units**
              **of Stock**
              **That** **Have**
              **Not**
              **Vested** **(#)**
            
            **Market**
              **Value of**
              **Shares or**
              **Units of**
              **Stock****That**
              **Have****Not**
              **Vested ($)**
            
            **Equity**
              **Incentive**
              **Plan**
              **Awards:**
              **Number of**
              **Unearned**
              **Shares,****Units**
              **or****Other**
              **Rights****That**
              **Have****Not**
              **Vested (#)**
            
            **Equity**
              **Incentive**
              **Plan****Awards:**
              **Market or**
              **Payout****Value**
              **of****Unearned**
              **Shares,****Units**
              **or****Other**
              **Rights****That**
              **Have****Not**
              **Vested (#)**Wennan
                Li
            
            
            0
            
            
            1,629,094
            (1)
            
            0
            
            $
            0.70
            
            
            08/08/2017
            
            
            -
            
            
            -
            
            
            -
            
            
            -Diping
                Zhou
            
            
            0
            
            
            785,951
            (2)
            
            0
            
            $
            0.70
            
            
            08/08/2017
            
            
            -
            
            
            -
            
            
            -
            
            
            -Philip
                McDonald
            
            
            0
            
            
            0
            
            
            0
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -




(1)
            33.33%
                of Mr. Li’s options will vest on each of the following dates: August 8,
                2008, August 8, 2009, and August 8,
                2010.




(2)
            33.33%
                of Ms. Zhou’s options will vest on each of the following dates: August 8,
                2008, August 8, 2009, and August 8,
                2010.





**Director
      Compensation**





The
      following table provides compensation information for our directors during
      the
      fiscal year ended October 31, 2007:




**DIRECTOR
                COMPENSATION**




**Name**
            
            **Fees**
              **Earned or**
              **Paid in**
              **Cash ($)**
            
            **Stock**
              **Awards ($)**
            
            **Option**
              **Awards ($)****(2)**
            
            **Non-Equity**
              **Incentive Plan**
              **Compensation****($)**
            
            **Non-Qualified**
              **Deferred**
              **Compensation**
              **Earnings ($)**
            
            **All Other**
              **Compensation****($)**
            
            **Total ($)**Wennan
                Li (1)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Min
                Fan
            
            
            -
            
            
            -
            
            $
            10,839(3
            )
            
            -
            
            
            -
            
            
            -
            
            $
            10,839Yunxia
                Yang
            
            
            -
            
            
            -
            
            $
            10,839(4
            )
            
            -
            
            
            -
            
            
            -
            
            $
            10,839Adam
                Roseman
            
            $
            32,322
            
            
            -
            
            $
            78,937(5
            )
            
            -
            
            
            -
            
            
            -
            
            $
            111,259





(1)
            Mr.
                Li’s compensation as a director is reflected in the table titled “Summary
                Compensation Table” above.


46





(2)
            Reflects
                dollar amount expensed by the Company during applicable fiscal year
                for
                financial statement reporting purposes pursuant to FAS 123R. FAS
                123R
                requires the Company to determine the overall value of the options
                as of
                the date of grant based upon the Black-Scholes method of valuation,
                and to
                then expense that value over the service period over which the options
                become exercisable (vested). As a general rule, for time in service
                based
                options, the company will immediately expense any option or portion
                thereof which is vested upon grant, while expensing the balance on
                a pro
                rata basis over the remaining vesting term of the
                option.





(3)
            Mr.
                Fan had options to purchase an aggregate 200,000 shares of our common
                stock outstanding as of October 31, 2007. The Company used the
                Cox-Ross-Rubinstein binomial model to value the options at the time
                they
                were issued, based on volatility of 70%, dividend yield of 0%, the
                stated
                exercise prices and expiration dates of the instruments and using
                an
                average risk-free rate of 4.5%. Because the Company does not have
                a
                history of employee stock options, the estimated life is based on
                one half
                of the sum of the vesting period and the contractual life of 10 years
                of
                the option. This is the same as assuming that the options are exercised
                at
                the mid-point between the vesting date and expiration
                date.




(4)
            Ms.
                Yang had options to purchase an aggregate 200,000 shares of our common
                stock outstanding as of October 31, 2007. The Company used the
                Cox-Ross-Rubinstein binomial model to value the options at the time
                they
                were issued, based on volatility of 70%, dividend yield of 0%, the
                stated
                exercise prices and expiration dates of the instruments and using
                an
                average risk-free rate of 4.5%. Because the Company does not have
                a
                history of employee stock options, the estimated life is based on
                one half
                of the sum of the vesting period and the contractual life of 10 years
                of
                the option. This is the same as assuming that the options are exercised
                at
                the mid-point between the vesting date and expiration
                date.




(5)
            Mr.
                Roseman had options to purchase an aggregate 1,000,000 shares of
                our
                common stock outstanding as of October 31, 2007. The Company used
                the
                Cox-Ross-Rubinstein binomial model to value the options at the time
                they
                were issued, based on volatility of 70%, dividend yield of 0%, the
                stated
                exercise prices and expiration dates of the instruments and using
                an
                average risk-free rate of 4.5%. Because the Company does not have
                a
                history of employee stock options, the estimated life is based on
                one half
                of the sum of the vesting period and the contractual life of 10 years
                of
                the option. This is the same as assuming that the options are exercised
                at
                the mid-point between the vesting date and expiration
                date.




Other
      than as described below, we do not have any agreements for compensating our
      directors for their service in their capacity as directors, although such
      directors are expected, in the future, to receive stock options to purchase
      shares of common stock as awarded by our board of directors:





On
      August
      8, 2007, we entered into a two-year agreement with proposed director Adam
      Roseman for his services as a director of our Company upon our compliance with
      the provisions of Section 14(f) of the Securities Act of 1933, as amended,
      and
      Rule 14(f)-1 thereunder. Such agreement was revised on November 19, 2007 and
      again on December 20, 2007. Pursuant to the latest amended agreement, Mr.
      Roseman’s term is three years, and he will receive $5,000 per month as
      compensation for his services. In addition, Mr. Roseman received options to
      purchase 1,000,000 shares of our common stock at $0.70 per share, of which
      30%
      vested on the grant date and 70% vests on a monthly basis over a period of
      two
      years from the grant date. Mr. Roseman will also be entitled to certain travel
      and administrative expenses in connection with his services as a director of
      our
      Company and will be provided liability insurance.




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS**




**Security
      Ownership of Certain Beneficial Owners and Management**




The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of February 13, 2008 for each of the following persons, after
      giving effect to the transaction under the Exchange Agreement:




•
         each of our directors and officers;




•
         all directors and officers as a group; and




•
         each person who is known by us to own beneficially five percent or
      more of our common stock.




Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission. Unless otherwise indicated in the table, the persons and
      entities named in the table have sole voting and sole investment power with
      respect to the shares set forth opposite the shareholder’s name. Unless
      otherwise indicated, the address of each beneficial owner listed below is No.
      479 You Dong Road, Xinzhuang Town, Shanghai 201100, People’s Republic of China.
      The percentage of class beneficially owned set forth below is based on
      118,320,515 shares of common stock outstanding on February 13, 2008. The issued
      and outstanding shares do not include 18,807,592 shares of our common stock
      issuable upon the exercise of our outstanding warrants and options.


**Name
                of Beneficial Owner and Address**
            
            **Number of**
              **Shares of**
              **Common Stock
                Beneficially**
              **Owned
                (1)**
            
            **Percent of Shares**
              **of Common Stock
                Beneficially Owned (1)(2)*****Executive
                Officers and/or Directors:***Wennan
                Li, CEO, President and Director
            
            
            25,615,691
            
            
            21.65
            %Min
                Fan, Director
            
            
            16,703,320
            
            
            14.12
            %Yunxia
                Yang, Director
            
            
            16,703,320
            
            
            14.12
            %Diping
                Zhou, Chief Accounting Officer and Treasurer
            
            
            0
            
            
            *Xiaolin
                Zhuang, Chief Financial Officer and Secretary
            
            
            0
            
            
            *Adam
                Roseman, Director (3)
            
            
            300,000
            
            
            0.25
            %Yajun
                Wu, Director
            
            
            0
            
            
            ****Other
                5% Beneficial Owners:***Olivier
                Couriol (4)
            
            
            11,067,000
            
            
            9.07
            %***All
                Executive Officers and Directors******as
                a Group (7 persons)***
            
            
            59,322,331
            
            
            50.14
            %


47





*
      Less
      than 1%




(1)
            Under
                Rule 13d-3, a beneficial owner of a security includes any person
                who,
                directly or indirectly, through any contract, arrangement, understanding,
                relationship, or otherwise has or shares: (i) voting power, which
                includes
                the power to vote, or to direct the voting of shares; and (ii) investment
                power, which includes the power to dispose or direct the disposition
                of
                shares. Certain shares may be deemed to be beneficially owned by
                more than
                one person (if, for example, persons share the power to vote or the
                power
                to dispose of the shares). In addition, shares are deemed to be
                beneficially owned by a person if the person has the right to acquire
                the
                shares (for example, upon exercise of an option) within 60 days of
                the
                date as of which the information is provided. In computing the percentage
                ownership of any person, the amount of shares outstanding is deemed
                to
                include the amount of shares beneficially owned by such person (and
                only
                such person) by reason of these acquisition rights. As a result,
                the
                percentage of outstanding shares of any person as shown in this table
                does
                not necessarily reflect the person's actual ownership or voting power
                with
                respect to the number of shares of common stock actually
                outstanding.





(2)
            Pursuant
                to the terms of the Amended and Restated Share Exchange Agreement
                dated
                August 8, 2007, we issued 60,000,000 common shares to the stockholders
                of
                Perfectenergy BVI equal to approximately 50.72% of our issued and
                outstanding common shares as of the closing date of the share exchange
                transaction. The number of common shares we issued also included
                those
                shares issued in connection with the closing of our August 2007 private
                placement financing whereby we issued 26,285,715 Units at an issue
                price
                of $0.70 per Unit to the Investors. Immediately after the closing
                of the
                share exchange transaction, after giving effect to the cancellation
                of
                37,700,000 common shares by Mr. Philip McDonald pursuant to the terms
                of
                the Amended and Restated Share Exchange Agreement, and after our
                issuance
                26,285,715 common shares in connection with the closing of the private
                placement financing, there are approximately 118,293,015 shares of
                our
                common stock that were issued and outstanding. As of February 13,
                2008,
                there are 118,320,515 shares of our common stock that are issued
                and
                outstanding. Percentage totals may vary slightly due to
                rounding.




(3)
            272,500
                of these shares represent the number of shares of common stock that
                Mr.
                Roseman has the right to acquire upon exercise of an option granted
                on
                August 8, 2007. Adam Roseman’s address is 9440 Little Santa Monica Blvd.,
                Suite 401, Beverly Hills, CA 90210.





(4)
            Olivier
                Couriol, as the Director and natural control person of each of RIG
                III
                Fund, Sequoia Aggressive Growth Fund and Sequoia Diversified Growth
                Fund,
                may be deemed beneficially to own the securities held by such entities.
                These include: (i) 4,500,000 shares held by RIG III Fund; (ii) 2,250,000
                shares issuable upon exercise of warrants held by RIG III Fund; (iii)
                1,000,000 shares held by Sequoia Aggressive Growth Fund; (iv) 500,000
                shares issuable upon exercise of warrants held by Sequoia Aggressive
                Growth Fund; (v) 1,878,000 shares held by Sequoia Diversified Growth
                Fund;
                and (vi) 939,000 shares issuable upon exercise of warrants held by
                Sequoia
                Diversified Growth Fund. Olivier Couriol’s address is c/o Semper Geshon
                S.A., 40A, Route de Malagnov, Geneva, Switzerland
                1208.




**Securities
      Authorized for Issuance under Equity Compensation Plans or Individual
      Compensation Arrangements**





Please
      see the section titled “Securities Authorized for Issuance under Equity
      Compensation Plans or Individual Compensation Agreements” under Item 5
      above.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE**





Other
      than the transactions under the share exchange transaction more fully described
      above under the section titled “Description of Business” and the related party
      transactions described below (including those of Perfectenergy BVI) during
      our
      last fiscal year, we have not been a party to any transaction, proposed
      transaction, or series of transactions in which the amount involved exceeds
      the
      lesser of $120,000 or one percent of our average total assets for the last
      three
      fiscal years, and in which, to our knowledge, any of our directors, officers,
      five percent beneficial security holder, or any member of the immediate family
      of the foregoing persons has had or will have a direct or indirect material
      interest:





Mr.
      Philip McDonald was our Chief Executive Officer, Chief Financial Officer,
      Secretary, Treasurer and sole director prior to closing of the share exchange
      transaction. Mr. McDonald also owned 37,700,000 (post 7.54 to 1 reverse stock
      split) or approximately 54.08% of our outstanding common stock shares
      immediately prior to the share exchange transaction. Mr. McDonald agreed to
      cancel all of these shares in connection with the share exchange transaction
      pursuant to the Amended and Restated Share Exchange Agreement described above
      and also pursuant to an agreement between Mr.McDonald and us, in which Mr.
      McDonald agreed to cancel his shares for a payment of $35,000. Such shares
      were
      cancelled immediately following the closing of the share exchange transaction
      on
      August 8, 2007.


48




On
      April
      26, 2005, we completed an offering of 5,000,000 shares (pre 7.54 to 1 forward
      stock split) of our common stock at a price of $0.001 per share to our
      president, Mr. Phillip McDonald. The total amount received from this offering
      was $5,000. These shares were issued pursuant to Regulation S of the Securities
      Act. Pursuant to the terms of the Amended and Restatement Share Exchange
      Agreement described above and which closed on August 8, 2007 and an agreement
      between Perfectenergy Nevada and Mr. McDonald dated August 8, 2007, Mr. McDonald
      agreed to cancel these shares in connection with the share exchange transaction
      in exchange for a payment of $35,000. These shares were cancelled as part of
      the
      closing of the share exchange transaction in August 2007.





**Related
      Transactions of Perfectenergy BVI**





The
      related transactions of our predecessor’s officers, directors and/or 5%
      Perfectenergy BVI stockholders are as follows:




Perfectenergy
      BVI borrowed monies from the Perfectenergy BVI’s stockholders, officers, or
      their immediate family for operating cash flows. Perfectenergy BVI had a total
      of $0 and $823,044 other payables due to related parties as of October 31,
      2007
      and December 31, 2006, respectively, and consisted of the
      following:




October
                31,
              2007
            
            December
                31,
              2006Zhang,
                Fengying - stockholder's spouse (1)
            
            $
            0
            
            $
            534,081Li,
                Wennan - stockholder and officer (2)
            
            
            0
            
            
            271,835Zhou,
                Diping - officer (3)
            
            
            0
            
            
            17,128$
            0
            
            $
            823,044


___________________________





(1)
            Fengying
                Zhang is the spouse of Min Fan, a stockholder of the Company. Ms.
                Zhang
                made the following unsecured loans to Perfectenergy
                BVI:





(a)
            On
                September 5, 2006, Ms. Zhang loaned Perfectenergy BVI RMB2,000,000
                (US$270,000) at an interest rate of 7.2% per annum, which was due on
                March 4, 2007. On March 4, 2007, Perfectenergy BVI extended the due
                date
                of this loan to July 4, 2007 and changed the interest rate on this
                loan to
                5% per annum. As of December 31, 2006, Perfectenergy BVI paid RMB77,944.44
                (US$10,392.60) in interest on this loan. Perfectenergy BVI repaid
                this
                loan in full on September 26, 2007.(b)
            Ms.
                Zhang loaned Perfectenergy BVI another RMB2,000,000 (US$270,000)
                at an
                interest rate of 7.2% per annum, which was due on February 17, 2007.
                On
                February 18, 2007, Perfectenergy BVI extended the due date of this
                loan to
                June 17, 2007 and changed the interest rate on this loan to 5% per
                annum.
                As of December 31, 2006, Perfectenergy BVI paid RMB78,500
                (US$10,466.66) in interest on this loan. Perfectenergy BVI repaid
                this loan in full on September 28,
                2007.





(2)
            Wennan
                Li, our Chief Executive Officer and Director, made the following
                unsecured
                loans to Perfectenergy BVI:





(a)
            On
                March 15, 2006, Mr. Li loaned Perfectenergy BVI RMB300,000
                (US$40,500) at an interest rate of 7.2% per annum, which was due on
                March 15, 2007. As of December 31, 2006, Perfectenergy BVI paid
                approximately RMB5,963.59 (US$495.14) in interest on this loan.
                Perfectenergy BVI repaid this loan in full on March 16,
                2007.(b)
            On
                March 16, 2006, Mr. Li loaned Perfectenergy BVI RMB1,000,000
                (US$135,000) at an interest rate of 7.2% per annum, which was due on
                March 16, 2007. As of December 31, 2006, Perfectenergy BVI paid
                approximately RMB15,750 (US$2,100) in interest on this loan.
                Perfectenergy BVI repaid this loan in full on March 16,
                2007.(c)
            On
                March 30, 2006, Mr. Li loaned Perfectenergy BVI RMB200,000
                (US$27,000) at an interest rate of 7.2% per annum, which was due on
                March 30, 2007. As of December 31, 2006, Perfectenergy BVI paid RMB2,550
                (US$340) in interest on this loan. Perfectenergy BVI repaid this loan
                in full on March 30, 2007.(d)
            On
                September 5, 2006, Mr. Li loaned Perfectenergy BVI RMB2,000,000
                (US$270,000) at an interest rate of 7.2% per annum, which was due on
                March 4, 2007. On March 4, 2007, Perfectenergy BVI extended this
                loan to
                July 4, 2007 and changed the interest rate to 5% per annum. As of
                December
                31, 2006, Perfectenergy BVI paid approximately RMB79,630,33
                (US$10,617.37) in interest on this loan. Perfectenergy BVI repaid
                this loan in full on September 21,
                2007.


49





(3)
            Diping
                Zhou, our Chief Accounting Officer, made the following unsecured
                loans to
                Perfectenergy BVI:





(a)
            Ms.
                Zhou loaned Perfectenergy BVI RMB200,000 (US$27,000) at an interest
                rate of 7.2% per annum, which was due on February 24, 2007. As of
                December
                31, 2006, Perfectenergy BVI paid RMB3,600 (US$480) in interest on
                this loan. Perfectenergy BVI repaid this loan in full on May 11,
                2006.(b)
            On
                August 26, 2006, Ms. Zhou loaned Perfectenergy BVI RMB705,000
                (US$95,000) at 0% interest, which was due on January 31, 2007. As of
                October 31, 2007, Perfectenergy BVI paid RMB0 (US$0) in interest
                on this
                loan. Perfectenergy BVI repaid this loan in full on January 25,
                2007.




**Director
      Independence**




For
      our
      description of director independence, see “Director Independence” under the
      section entitled “Directors, Executive Officers, Promoters, Control Persons and
      Corporate Governance; Compliance with Section 16(a) of the Exchange Act”
above.





**ITEM
      13. EXHIBITS**




**Exhibit
                Number**
            
            **Description**2.1
            
            Share
                Exchange Agreement dated March 29, 2007, among our company, Perfectenergy
                International Limited and the selling the stockholders of Perfectenergy
                International Limited as set out in the share exchange agreement
                (1)2.2
            
            Amended
                and Restated Share Exchange Agreement dated August 8, 2007, among
                our
                company, Perfectenergy International Limited, Crown Capital Partners,
                S.A. and the selling the stockholders of Perfectenergy International
                Limited as set out in the amended and restated share exchange agreement
                (4)3.1
            
            Articles
                of Incorporation (2)3.2
            
            Bylaws (2)3.3
            
            Articles
                of Merger filed with the Secretary of State of Nevada on April 10,
                2007
                (3)3.4
            
            Certificate
                of Change filed with the Secretary of State of Nevada on April 10,
                2007
                and effective on April 16, 2007 (3)10.1
            
            Loan
                Agreement dated April 25, 2006, among Perfectenergy Shanghai Limited,
                Shanghai Phoenix Technology Entrepreneurial Investment Inc., Ltd.
                and the
                Bank of Communication Limited Shanghai Yangpu Branch (English translation)
                (4)10.2
            
            Loan
                Extension Agreement dated February 18, 2007, among Fengying Zhhang
                and
                Perfectenergy Shanghai Limited (English translation)
                (4)10.3
            
            Loan
                Extension Agreement dated March 4, 2007, among Fengying Zhhang and
                Perfectenergy Shanghai Limited (English translation)
                (4)10.4
            
            Loan
                Extension Agreement dated March 4, 2007, among Wennan Li and Perfectenergy
                Shanghai Limited (English translation) (4)10.5
            
            Joint
                Partnership Agreement for Developing a Double-Sided Silicon Solar
                Cell,
                among Perfectenergy Shanghai Limited and Shanghai Solar Power Technology
                Research Center (4)


50





10.6
            
            Joint
                Partnership Agreement for High Productivity Zone-Melting Silicon
                for Solar
                Cell, among Perfectenergy Shanghai Limited and Shanghai Solar Power
                Technology Research Center (English translation) (4)10.7
            
            Long
                Term Supply Contract, among Perfectenergy Shanghai Limited and Chengdu
                Jiayang Silicon Technology Inc., Ltd. (English translation)
                (4)10.8
            
            Long
                Term Supply Contract, among Perfectenergy Shanghai Limited and Tianjin
                Huan-ou Semiconductor Technology Inc., Ltd. (English translation)
                (4)10.9
            
            Supply
                Contract, among  Perfectenergy Shanghai Limited and  Shanghai
                Solar Power Technology Research Center (English translation)
                (4)10.10
            
            Loan
                Agreement, among Diping Zhou and Perfectenergy Shanghai Limited (English
                translation) (4)10.11
            
            Form
                of Securities Purchase Agreement (4)10.12
            
            Form
                of Registration Rights Agreement (4)10.13
            
            Form
                of Warrant (4)10.14
            
            Placement
                Agent Agreement, among Knight Capital Markets LLC, Canaccord Adams
                Inc.
                and Canaccord Adams Ltd., and Perfectenergy International Limited,
                dated
                May 23, 2007, and subsequent amendments (4)10.15
            
            Letter
                Agreement Re: Indemnification between Knight Capital Markets LLC
                and
                Perfectenergy International Ltd. dated May 23, 2007 (4)10.16
            
            Premises
                Lease Agreement (English translation) (5)10.17
            
            Letter
                of Agreement from Company to Adam Roseman, dated August 8, 2007
                (5)10.18
            
            Loan
                Agreement dated August 26, 2006, among Diping Zhou and Perfectenergy
                Shanghai Limited (English translation) (5)10.19
            
            Loan
                Agreement, among Fengying Zhang and Perfectenergy Shanghai Limited
                (English translation) (5)10.20
            
            Loan
                Agreement dated September 5, 2006, among Fengying Zhang and Perfectenergy
                Shanghai Limited (English translation) (5)10.21
            
            Loan
                Agreement dated March 15, 2006, among Wennan Li and Perfectenergy
                Shanghai
                Limited (English translation) (5)10.22
            
            Loan
                Agreement dated March 16, 2006, among Wennan Li and Perfectenergy
                Shanghai
                Limited (English translation) (5)10.23
            
            Loan
                Agreement dated March 30, 2006, among Wennan Li and Perfectenergy
                Shanghai
                Limited (English translation) (5)10.24
            
            Loan
                Agreement dated September 5, 2006, among Wennan Li and Perfectenergy
                Shanghai Limited (English translation) (5)10.25
            
            Employment
                Agreement between Diping Zhou and Perfectenergy Shanghai limited
                (English
                translation) (5)


51


10.26
              
              Employment
                  Agreement between Hongbo Li and Perfectenergy Shanghai limited
                  (English
                  translation) (5)10.27
              
              Employment
                  Agreement between Wennan Li and Perfectenergy Shanghai limited
                  (English
                  translation) (5)10.28
              
              Strategic
                  Alliances Cooperation Agreement dated December 12, 2006 between
                  Shanghai
                  Shenzhou New Energy Development Co., Ltd., Tianjin Huan-Ou Semi-conduct
                  Material Technology Co., Ltd, Perfectenergy (Shanghai) Co., Ltd,
                  and
                  Shanghai Solar Energy Engineering Technology Research Co., Ltd
                  (5)10.29
              
              Letter
                  of Agreement from Company to Adam Roseman, dated November 19, 2007
                  (6)10.30
              
              Letter
                  of Agreement from Company to Adam Roseman, dated December 20, 2007
                  (6)10.31
              
              Purchasing
                  Contract between Perfectenergy (Shanghai) Co., Ltd. and Zhejiang
                  Sun
                  Valley Energy Application Technology Co., Ltd. (6)10.32
              
              Sales
                  Agreement between Perfectenergy (Shanghai) Co., Ltd. and Zhejiang
                  Sun
                  Valley Energy Application Technology Co., Ltd (English translation)
                  (6)10.33
              
              Three
                  Party Strategic Cooperation Agreement dated June 6, 2007 between
                  Tianjin
                  Huanou Semiconductor Material Technology Co., Ltd., Perfectenergy
                  (Shanghai) Co., Ltd., and Shanghai Solar Science & Technology Co.,
                  Ltd. (English translation) (6)10.34
              
              Purchase
                  Agreement between Perfectenergy (Shanghai) Co., Ltd. and Shanghai
                  Solar
                  Science & Technology Co., Ltd. (English translation)
                  (6)10.35
              
              Product
                  Supply Agreement between Perfectenergy (Shanghai) Co., Ltd. and
                  Shanghai
                  Zhiqin Silicon Electronic Technology Co., Ltd. (English translation)
                  (6)10.36
              
              Product
                  Supply Agreement between Perfectenergy (Shanghai) Co., Ltd. and
                  Shanghai
                  Zhiqin Silicon Electronic Technology Co., Ltd. (English translation)
                  (6)10.37
              
              Loan
                  Agreement dated November 28, 2007 between Perfectenergy International
                  Ltd.
                  (BVI) and Perfectenergy GmbH (6)10.38
              
              2007
                  Stock Incentive Plan (6)10.39
              
              Agreement
                  dated September 20, 2007 between Perfectenergy International Ltd.
                  (BVI)
                  and Xiaochun Haas (7)10.40
              
              Investment
                  Agreement dated October 2007 between Shanghai Zizhu Science Park
                  Development Co., Ltd. and Perfectenergy International Limited (English
                  translation) (8)10.41
              
              Sales
                  Contract dated December 20, 2007 between Sky Solar (Hong Kong)
                  International Co., Ltd., Shanghai Forever Imp. & Exp. Co. Ltd., and
                  Perfectenergy (Shanghai) Co., Ltd. (7)10.42
              
              Contract
                  between Isofoton and Perfectenergy (Shanghai) Co., Ltd. dated October
                  11,
                  2007 (8)10.43
              
              Contract
                  between Isofoton and Perfectenergy (Shanghai) Co., Ltd. dated October
                  11,
                  2007 (8)10.44
              
              Contract
                  between Isofoton and Perfectenergy (Shanghai) Co., Ltd. dated October
                  11,
                  2007 (8)10.45
              
              Foreign
                  Trade Agreement between Isofoton and Perfectenergy (Shanghai) Co.,
                  Ltd.
                  dated October 11, 2007 (English translation) (8)21.1
              
              List
                  of Subsidiaries (4)31.1
              
              Section
                  302 Certificate of Chief Executive Officer *31.2
              
              Section
                  302 Certificate of Chief Financial Officer *32.1
              
              Section
                  906 Certificate of Chief Executive Officer *32.2
              
              Section
                  906 Certificate of Chief Financial Officer
                  *





*
      Filed
      herewith.





(1)
            Filed
                on April 5, 2007 as an exhibit to our Current Report on Form 8-K,
                and
                incorporated herein by reference.





(2)
            Filed
                on December 8, 2005 as an exhibit to the Company’s Registration Statement
                on Form SB-2 and incorporated herein by
                reference.


52





(3)
            Filed
                on April 19, 2007 as an exhibit to the Company’s Current Report on Form
                8-K and incorporated herein by
                reference.




(4)
            Filed
                on August 13, 2007 as an exhibit to the Company’s Current Report on Form
                8-K and incorporated herein by
                reference.




(5)
            Filed
                on November 23, 2007 as an exhibit to the Company’s Amendment No. 1 to
                Registration Statement on Form SB-2 and incorporated herein by
                reference.





(6)
            Filed
                on January 22, 2008 as an exhibit to the Company’s Amendment No. 2 to
                Registration Statement on Form SB-2 and incorporated herein by
                reference.(7)
            Filed
                on February 19, 2008 as an exhibit to the Company’s Registration Statement
                on Form S-1 (Amendment No. 3 to Registration Statement on Form SB-2)
                and
                incorporated herein by reference.





(8)
            Filed
                on February 28, 2008 as an exhibit to the Company’s Amendment No. 4 to
                Registration Statement on Form S-1 and incorporated herein by
                reference.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




Moore
      Stephens Wurth Frazer and Torbet served as our independent registered public
      accounting firm for fiscal year 2007. The following table shows the fees that
      were billed for the audit and other services provided by this firm for the
      2007
      fiscal year:





**Fiscal
                2007**Audit
                Fees (1)
            $110,000Audit-Related
                Fees (2)
            -Tax
                Fees (3)
            -All
                Other Fees (4)
            -Total
            $110,000





(1)
            **Audit
                Fees**—
                This
                category includes the audit of our annual financial statements, review
                of
                financial statements included in our Form 10-QSB Quarterly Reports
                and
                services that are normally provided by the independent auditors in
                connection with engagements for those fiscal years. This category
                also
                includes advice on audit and accounting matters that arose during,
                or as a
                result of, the audit or the review of interim financial
                statements.





(2)
            **Audit-Related
                Fees**—
                This category consists of assurance and related services by the
                independent auditors that are reasonably related to the performance
                of the
                audit or review of our financial statements and are not reported
                above
                under "Audit Fees." The services for the fees disclosed under this
                category include consultation regarding our correspondence with the
                SEC
                and other accounting consulting.





(3)
            **Tax
                Fees**—
                This category consists of professional services rendered by our
                independent auditors for tax compliance and tax advice. The services
                for
                the fees disclosed under this category include tax return preparation
                and
                technical tax advice.





(4)
            **All
                Other Fees**—
                This category consists of fees for other miscellaneous
                items.




**Pre-Approval
      Policies and Procedures** —
      Prior to engaging its accountants to perform particular services, our board
      of
      directors obtains an estimate for the service to be performed. All of the
      services described above were approved by the board of directors in accordance
      with its procedure.




Jewett,
      Schwartz & Associates served as our independent registered public accounting
      firm for fiscal year 2006 and a portion of our fiscal year 2007. The following
      table shows the fees that were billed for the audit and other services provided
      by this firm for the 2007 and 2006 fiscal year:





**Fiscal
                2007**
            **Fiscal
                2006**Audit
                Fees (1)
            $8,750
            $7,500Audit-Related
                Fees (2)
            $0
            $0Tax
                Fees (3)
            $0
            $0All
                Other Fees (4)
            $0
            $0Total
            $8,750
            $7,500







(1)
            **Audit
                Fees**—
                This category includes the audit of our annual financial statements,
                review of financial statements included in our Form 10-QSB Quarterly
                Reports and services that are normally provided by the independent
                auditors in connection with engagements for those fiscal years. This
                category also includes advice on audit and accounting matters that
                arose
                during, or as a result of, the audit or the review of interim financial
                statements.





(2)
            **Audit-Related
                Fees**—
                This category consists of assurance and related services by the
                independent auditors that are reasonably related to the performance
                of the
                audit or review of our financial statements and are not reported
                above
                under "Audit Fees." The services for the fees disclosed under this
                category include consultation regarding our correspondence with the
                SEC
                and other accounting consulting.





(3)
            **Tax
                Fees**—
                This category consists of professional services rendered by our
                independent auditors for tax compliance and tax advice. The services
                for
                the fees disclosed under this category include tax return preparation
                and
                technical tax advice.





(4)
            **All
                Other Fees**—
                This category consists of fees for other miscellaneous
                items.


53




**INDEX
        TO FINANCIAL STATEMENTS**
  **Perfectenergy
        International Limited**
 Consolidated
        Financial Statements
 
 October
        31, 2007, December 31, 2006 and 2005
 (Stated
        in US dollars)
 
  PERFECTENERGY
        INTERNATIONAL LIMITED
 CONSOLIDATED
        FINANCIAL STATEMENTS
 
 October
        31, 2007, December 31, 2006 and 2005
 
 Index
        to
        Consolidated Financial Statements
  **Pages**Report
                  of Independent Registered Public Accounting Firm
              
              
              F-2Consolidated
                  Balance Sheets
              
              
              F-3Consolidated
                  Statements of Operations and Other Comprehensive Income
                  (Loss)
              
              
              F-4Consolidated
                  Statements of Shareholders’ Equity
              
              
              F-5Consolidated
                  Statements of Cash Flows
              
              
              F-6Notes
                  to Consolidated Financial Statements
              
              
              F-7
  F-1
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
        the
        Board of Directors and Stockholders of
 Perfectenergy
        International Ltd. and subsidiaries
  We
        have
        audited the accompanying consolidated balance sheets of Perfectenergy
        International Ltd. and subsidiaries as of October 31, 2007 and December 31,
        2006
        and the related consolidated statements of operations and other comprehensive
        income (loss), shareholders’ equity, and cash flows for the ten months ended
        October 31, 2007, the year ended December 31, 2006 and from April 1, 2005
        (inception) to December 31, 2005. Perfectenergy International Ltd’s management
        is responsible for these financial statements. Our responsibility is to express
        an opinion on these financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit included consideration of internal control
        over
        financial reporting as a basis for designing audit procedures that are
        appropriate in the circumstances, but not for the purpose of expressing an
        opinion on the effectiveness of the company’s internal control over financial
        reporting. Accordingly, we express no such opinion. An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Perfectenergy International
        Ltd.
        and subsidiaries as of October 31, 2007 and December 31, 2006, and the results
        of its operations and its cash flows for the ten months ended October 31,
        2007,
        the year ended December 31, 2006 and from April 1, 2005 (inception) to December
        31, 2005, in conformity with accounting principles generally accepted in
        the
        United States of America.
  /s/
        Moore
        Stephens Wurth Frazer and Torbet, LLP
 
 Walnut,
        California
 January
        21, 2008
  F-2
 
 PERFECTENERGY
        INTERNATIONAL LTD. AND SUBSIDIARIES
 
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        OCTOBER 31, 2007 AND 2006 AND DECEMBER 31, 2006
 
 October 31,
              
              December 31,2007
              
              2006
              
              2006Audited
              
              Unaudited
              
              AuditedASSETSCURRENT
                  ASSETS:Cash
              
              $
              9,701,545
              
              $
              66,870
              
              $
              89,209Accounts
                  receivable
              
              
              13,834
              
              
              692,639
              
              
              514,935Other
                  receivables
              
              
              14,901
              
              
              193,567
              
              
              21,565Inventories
              
              
              4,106,808
              
              
              1,998,935
              
              
              1,590,424Prepayments
              
              
              1,375,401
              
              
              216,638
              
              
              225,202Deferred
                  expenses
              
              
              348,993
              
              
              -
              
              
              -Deferred
                  tax assets
              
              
              15,145
              
              
              -
              
              
              -Total
                  current assets
              
              
              15,576,627
              
              
              3,168,649
              
              
              2,441,335EQUIPMENT
                  AND LEASEHOLD IMPROVEMENTS, net
              
              
              1,866,527
              
              
              1,155,880
              
              
              1,314,197OTHER
                  ASSETS:Advance
                  on equipment purchase
              
              
              1,169,616
              
              
              148,269
              
              
              13,846Deferred
                  tax assets - non-current
              
              
              60,580
              
              
              -
              
              
              -Total
                  other assets
              
              
              1,230,196
              
              
              148,269
              
              
              13,846Total
                  assets
              
              $
              18,673,350
              
              $
              4,472,798
              
              $
              3,769,378LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              238,209
              
              $
              1,126,982
              
              $
              985,838Accrued
                  liabilities
              
              
              55,403
              
              
              26,370
              
              
              24,051Customer
                  deposit
              
              
              1,348,574
              
              
              465,821
              
              
              271,906Other
                  payables
              
              
              270,868
              
              
              85,638
              
              
              82,082Other
                  payables - shareholders and officers
              
              
              -
              
              
              1,021,324
              
              
              823,044Taxes
                  payable
              
              
              3,772
              
              
              36,107
              
              
              36,426Dividends
                  payable
              
              
              -
              
              
              27,000
              
              
              27,000Total
                  current liabilities
              
              
              1,916,826
              
              
              2,789,242
              
              
              2,250,347FAIR
                  VALUE OF DERIVATIVE INSTRUMENTS
              
              
              12,466,686
              
              
              -
              
              
              -COMMITMENTS
                  AND CONTINGENCIES
              
              
              -
              
              
              -
              
              
              -SHAREHOLDERS'
                  EQUITY:Common
                  stock, $.001 par value, 377,000,000 shares authorized 118,293,015
                  shares
                  issued and outstanding as of October 31, 2007 and 89,204,631 shares
                  issued
                  and outstanding as of October 31, 2006 and December 31, 2006,
                  respectively
              
              
              118,293
              
              
              89,204
              
              
              89,204Additional
                  paid-in capital
              
              
              4,628,789
              
              
              1,211,592
              
              
              1,212,362Capital
                  contribution receivable
              
              
              -
              
              
              (685,637
              )
              
              (685,637
              )Statutory
                  reserves
              
              
              110,068
              
              
              58,957
              
              
              110,068Retained
                  earnings (deficits)
              
              
              (759,778
              )
              
              961,375
              
              
              735,972Accumulated
                  other comprehensive income
              
              
              192,466
              
              
              48,065
              
              
              57,062Total
                  shareholders' equity
              
              
              4,289,838
              
              
              1,683,556
              
              
              1,519,031Total
                  liabilities and shareholders' equity
              
              $
              18,673,350
              
              $
              4,472,798
              
              $
              3,769,378
 
 *See
        report of independent registered public accounting firm.*
 *The
        accompanying notes are an integral part of this statement.*
  F-3
 
 PERFECTENERGY
        INTERNATIONAL LTD. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
 FOR
        TEN
        MONTHS ENDED OCTOBER 31, 2007 AND 2006
 AND
        FOR
        YEAR ENDED DECEMBER 31, 2006 AND PERIOD FROM APRIL 1, 2005 (INCEPTION) TO
 DECEMBER
        31, 2005
 For The PeriodFrom April 1, 2005Year Ended
                
                (Inception) toTen Months Ended October 31,
                
                December 31,
                
                December 31,2007
                
                2006
                
                2006
                
                2005Audited
                
                Unaudited
                
                Audited
                
                AuditedREVENUES
                
                $
                8,565,494
                
                $
                9,028,484
                
                $
                10,598,286
                
                $
                5,802,122COST
                    OF REVENUES
                
                
                8,370,686
                
                
                7,766,309
                
                
                9,206,123
                
                
                5,137,107GROSS
                    PROFIT
                
                
                194,808
                
                
                1,262,175
                
                
                1,392,163
                
                
                665,015OPERATING
                    EXPENSESSelling,
                    general and administrative
                
                
                1,375,497
                
                
                495,293
                
                
                800,098
                
                
                193,904Research
                    and development
                
                
                92,303
                
                
                30,493
                
                
                19,629
                
                
                111,725Total
                    operating expenses
                
                
                1,467,800
                
                
                525,786
                
                
                819,727
                
                
                305,629INCOME
                    FROM OPERATIONS
                
                
                (1,272,992
                )
                
                736,389
                
                
                572,436
                
                
                359,386OTHER
                    INCOME (EXPENSE)Interest
                    expenses and other charges
                
                
                (59,741
                )
                
                (45,090
                )
                
                (55,877
                )
                
                (7,431
                )Interest
                    income
                
                
                3,084
                
                
                2,197
                
                
                2,645
                
                
                1,881Change
                    in fair value of derivative instruments
                
                
                (240,086
                )
                
                -
                
                
                -
                
                
                -Total
                    other income (expense), net
                
                
                (296,743
                )
                
                (42,893
                )
                
                (53,232
                )
                
                (5,550
                )INCOME
                    (LOSS) BEFORE PROVISION FOR INCOME TAXES
                
                
                (1,569,735
                )
                
                693,496
                
                
                519,204
                
                
                353,836PROVISION
                    (CREDIT) FOR INCOME TAXESCurrent
                
                
                -
                
                
                -
                
                
                -
                
                
                -Deferred
                
                
                (73,985
                )
                
                -
                
                
                -
                
                
                -Total
                    provision (credit) for income taxes
                
                
                (73,985
                )
                
                -
                
                
                -
                
                
                -NET
                    INCOME (LOSS)
                
                
                (1,495,750
                )
                
                693,496
                
                
                519,204
                
                
                353,836OTHER
                    COMPREHENSIVE INCOME:Foreign
                    currency translation adjustments
                
                
                135,404
                
                
                34,725
                
                
                43,722
                
                
                13,340COMPREHENSIVE
                    INCOME (LOSS)
                
                $
                (1,360,346
                )
                $
                728,221
                
                $
                562,926
                
                $
                367,176Basic
                    and diluted weighted average number of shares
                
                
                97,349,379
                
                
                89,204,631
                
                
                89,204,631
                
                
                89,204,631Earning
                    (loss) per share
                
                $
                (0.02
                )
                $
                0.01
                
                $
                0.01
                
                $
                0.00
  *See
        report of independent registered public accounting firm.*
 *The
        accompanying notes are an integral part of this statement.*
  F-4
 
 PERFECTENERGY
        INTERNATIONAL LTD. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY
  AccumulatedAdditional
                
                Capital
                
                Retained earnings (deficits)
                
                otherCommon stock
                
                paid-in
                
                contribution
                
                Statutory
                
                
                
                comprehensiveShares
                
                Par value
                
                capital
                
                receivable
                
                reserves
                
                Unrestricted
                
                income
                
                TotalsBALANCE, April
                    1, 2005 (inception)
                
                
                32,007,300
                
                $
                32,007
                
                $
                (32,007
                )
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Issuance
                    of common stock for cash
                
                
                48,560,534
                
                
                48,560
                
                
                311,440
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                360,000Issuance
                    of common stock for in-process technology
                
                
                8,636,797
                
                
                8,637
                
                
                55,391
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                64,028Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                353,836
                
                
                
                
                
                353,836Adjustment
                    to statutory reserves
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                50,925
                
                
                (50,925
                )
                
                
                
                
                -Options
                    issued to employees
                
                
                
                
                
                
                
                
                359
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                359Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,340
                
                
                13,340BALANCE,
                    December 31, 2005
                
                
                89,204,631
                
                
                89,204
                
                
                335,183
                
                
                -
                
                
                50,925
                
                
                302,911
                
                
                13,340
                
                
                791,563Dividends
                    declared
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (27,000
                )
                
                
                
                
                (27,000
                )Contributed
                    capital
                
                
                
                
                
                
                
                
                872,687
                
                
                (685,637
                )
                
                
                
                
                
                
                
                
                
                
                187,050Net
                    income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                519,204
                
                
                
                
                
                519,204Adjustment
                    to statutory reserves
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                59,143
                
                
                (59,143
                )
                
                
                
                
                -Options
                    issued to employees
                
                
                
                
                
                
                
                
                4,492
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,492Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                43,722
                
                
                43,722BALANCE,
                    December 31, 2006
                
                
                89,204,631
                
                $
                89,204
                
                $
                1,212,362
                
                $
                (685,637
                )
                $
                110,068
                
                $
                735,972
                
                $
                57,062
                
                $
                1,519,031Issuance
                    of common stock for cash
                
                
                26,285,715
                
                
                26,286
                
                
                3,980,085
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,006,371Issuance
                    of common stock for services
                
                
                2,802,669
                
                
                2,803
                
                
                (242,803
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                (240,000
                )Reversal
                    of capital contribution receivable
                
                
                
                
                
                
                
                
                (658,637
                )
                
                658,637
                
                
                
                
                
                
                
                
                
                
                
                -Capital
                    contribution receivables
                
                
                
                
                
                
                
                
                
                
                
                27,000
                
                
                
                
                
                
                
                
                
                
                
                27,000Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,495,750
                )
                
                
                
                
                (1,495,750
                )Options
                    issued to employees and directors
                
                
                
                
                
                
                
                
                337,782
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                337,782Foreign
                    currency translation adjustments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                135,404
                
                
                135,404BALANCE,
                    October 31, 2007
                
                
                118,293,015
                
                $
                118,293
                
                $
                4,628,789
                
                $
                -
                
                $
                110,068
                
                $
                (759,778
                )
                $
                192,466
                
                $
                4,289,838
  *See
        report of independent registered public accounting firm.*
 *The
        accompanying notes are an integral part of this statement.*
  F-5
 
 PERFECTENERGY
        INTERNATIONAL LTD. AND SUBSIDIARIES
 
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 FOR
        TEN
        MONTHS ENDED OCTOBER 31, 2007 AND 2006 AND
 FOR
        YEAR
        ENDED DECEMBER 31, 2006 AND PERIOD FROM APRIL 1, 2005 (INCEPTION) TO
 DECEMBER
        31, 2005
 For The PeriodFrom April 1, 2005Year Ended
                
                (Inception) toTen Months Ended October 31,
                
                December 31,
                
                December 31,2007
                
                2006
                
                2006
                
                2005Audited
                
                Unaudited
                
                Audited
                
                AuditedCASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    Income (loss)
                
                $
                (1,495,750
                )
                $
                693,496
                
                $
                519,204
                
                $
                353,836Adjustments
                    to reconcile net income (loss) to cash (used in) provided by
                    operating
                    activities:Depreciation
                
                
                144,644
                
                
                75,922
                
                
                98,214
                
                
                1,759Write-offs
                    of inventories
                
                
                40,685
                
                
                -
                
                
                20,366
                
                
                -(Gain)
                    loss from disposal of equipment
                
                
                (131
                )
                
                -
                
                
                32,987
                
                
                -Research
                    and development expenses
                
                
                -
                
                
                -
                
                
                -
                
                
                64,028Compensation
                    expense for options issued to employees
                
                
                337,782
                
                
                3,722
                
                
                4,492
                
                
                359Change
                    in fair value of derivative instruments
                
                
                240,866
                
                
                -
                
                
                -
                
                
                -Changes
                    in assets and liabilities:Accounts
                    receivable
                
                
                512,344
                
                
                (682,012
                )
                
                (504,371
                )
                
                -Other
                    receivables
                
                
                7,464
                
                
                (183,049
                )
                
                (13,549
                )
                
                (7,372
                )Inventories
                
                
                (2,428,930
                )
                
                (1,519,057
                )
                
                (1,127,446
                )
                
                (438,693
                )Prepayments
                
                
                (1,099,668
                )
                
                534,871
                
                
                322,923
                
                
                (529,006
                )Deferred
                    expenses
                
                
                (340,971
                )
                
                -
                
                
                -
                
                
                -Deferred
                    tax assets
                
                
                (73,984
                )
                
                -
                
                
                -
                
                
                -Accounts
                    payable
                
                
                (774,020
                )
                
                634,113
                
                
                488,439
                
                
                464,444Accrued
                    liabilities
                
                
                29,568
                
                
                24,405
                
                
                21,992
                
                
                1,524Customer
                    deposits
                
                
                1,039,902
                
                
                (138,266
                )
                
                (332,616
                )
                
                582,965Other
                    payables
                
                
                180,819
                
                
                52,394
                
                
                40,398
                
                
                31,183Other
                    payables - related parties
                
                
                -
                
                
                25,731
                
                
                36,415
                
                
                -Taxes
                    payable
                
                
                (33,514
                )
                
                251
                
                
                9,255
                
                
                25,718Net
                    cash (used in) provided by operating activities
                
                
                (3,712,894
                )
                
                (477,479
                )
                
                (383,297
                )
                
                550,745CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchases
                    of equipment
                
                
                (374,046
                )
                
                (128,825
                )
                
                (215,543
                )
                
                (202,095
                )Additions
                    to construction in progress
                
                
                (347,739
                )
                
                (817,601
                )
                
                (934,353
                )
                
                (61,041
                )Prepayments
                    on equity investments
                
                
                -
                
                
                (206,498
                )
                
                (188,355
                )
                
                -Prepayments
                    on equipment purchases
                
                
                (1,142,732
                )
                
                (145,994
                )
                
                (13,562
                )
                
                -Net
                    cash used in investing activities
                
                
                (1,864,517
                )
                
                (1,298,918
                )
                
                (1,351,813
                )
                
                (263,136
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from issuance of common stock
                
                
                15,992,971
                
                
                -
                
                
                -
                
                
                360,000Proceeds
                    from additional paid-in capital
                
                
                -
                
                
                187,050
                
                
                187,050
                
                
                -Borrowings
                    on short term loan
                
                
                -
                
                
                612,912
                
                
                627,850
                
                
                -Payments
                    on short term loan
                
                
                -
                
                
                (612,912
                )
                
                (627,850
                )
                
                -Borrowings
                    from shareholders and officers
                
                
                -
                
                
                979,925
                
                
                983,213
                
                
                -Payments
                    on shareholders and officers loan
                
                
                (840,506
                )
                
                -
                
                
                (25,114
                )
                
                -Net
                    cash provided by financing activities
                
                
                15,152,465
                
                
                1,166,975
                
                
                1,145,149
                
                
                360,000EFFECT
                    OF EXCHANGE RATE CHANGES ON CASH
                
                
                37,282
                
                
                17,243
                
                
                20,121
                
                
                11,440INCREASE
                    (DECREASE) IN CASH
                
                
                9,612,336
                
                
                (592,179
                )
                
                (569,840
                )
                
                659,049CASH,
                    beginning of period
                
                
                89,209
                
                
                659,049
                
                
                659,049
                
                
                -CASH,
                    end of period
                
                $
                9,701,545
                
                $
                66,870
                
                $
                89,209
                
                $
                659,049Supplemental
                    disclosures:Interest
                    paid
                
                $
                68,874
                
                $
                18,195
                
                $
                18,257
                
                $
                -Income
                    taxes paid
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Non-cash
                    investing and financing activity:In-process
                    technology contributed as paid-in capital
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                64,028Prepayments
                    offset against shareholders and officers loan
                
                $
                -
                
                $
                -
                
                $
                188,355
                
                $
                -
 
 *See
        report of independent registered public accounting firm.*
 *The
        accompanying notes are an integral part of this statement.*
  F-6


PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES




NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





**Note
      1 – Background**





Perfectenergy
      International Ltd. (the “Company” or “Perfectenergy Nevada”) was incorporated in
      the State of Nevada on February 25, 2005 under the name of Crestview Development
      Corporation. On April 16, 2007, the Company changed its name to Perfectenergy
      International Ltd. The Company, through its subsidiaries, is engaged in the
      research, development, manufacturing and sale of solar cell, solar module and
      photovoltaic systems.





On
      March
      29, 2007, Perfectenergy Nevada, Perfectenergy International Limited
      (“Perfectenergy BVI”) and the Perfectenergy BVI shareholders entered into a
      Share Exchange Agreement (“Exchange Agreement”), whereby Perfectenergy Nevada
      agreed to purchase all of the issued and outstanding shares of Perfectenergy
      BVI’s common stock in exchange for the issuance of 57,190,261 shares of our
      common stock to the Perfectenergy BVI shareholders. This transaction was never
      completed as set forth in the Exchange Agreement because the parties entered
      into the Amended and Restated Share Exchange Agreement on August 8, 2007 as
      described further below.





On
      April
      16, 2007, the Company effected a 7.54 for 1 forward stock split of our
      authorized and of our issued and outstanding common stock. As a result, our
      authorized capital has increased from 50,000,000 shares of common stock with
      a
      par value of $0.001 to 377,000,000 shares of common stock with a par value
      of
      $0.001. Thus, our issued and outstanding share capital increased from 9,245,000
      shares of common stock to 69,707,300 shares of common stock. In addition, the
      Company canceled 37,700,000 common shares that the Company’s former sole
      director and officer Philip McDonald agreed to cancel immediately prior to
      the
      closing under the Amended and Restated Share Exchange Agreement as described
      below.





On
      August
      8, 2007, the Company entered into an Amended and Restated Share Exchange
      Agreement (“Amended Agreement”) with Perfectenergy International Limited
      (“Perfectenergy BVI”), the Perfectenergy BVI Shareholders and Crown Capital
      Partners, S.A. Pursuant to the terms of the Amended Agreement, the Company
      agreed to acquire all of the issued and outstanding shares of Perfectenergy
      BVI’s common stock in exchange for issuance of 60,000,000 shares of our common
      stock to the Perfectenergy BVI Shareholders on the basis of 57,197.33079 common
      shares in the capital of Perfectenergy Nevada for every one share of
      Perfectenergy BVI. For accounting purposes, the acquisition of Perfectenergy
      BVI
      has been treated as a recapitalization of Perfectenergy BVI with Perfectenergy
      BVI as the acquirer. Thus, the historical financial statements of Perfectenergy
      BVI were recapitalized with the historical equity shares of the Company.
      Immediately after the closing of the Amended Agreement, the Company had
      89,204,631 shares of common stock issued and outstanding, including the
      32,007,300 shares of common stock owned by the pre-exchange stockholders of
      Perfectenergy Nevada.




*See
      report of independent registered public accounting firm.*





F-7





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Perfectenergy
      BVI was incorporated in the British Virgin Islands as an International Business
      Company on April 1, 2005. In May 2005, Perfectenergy BVI issued 849 shares
      of
      common stock for $360,000 and 151 shares of common stock for in-process
      technology valued at $64,028. In June 2006, pursuant to the shareholders
      agreement, its shareholders agreed to increase the capital from $360,000 to
      $1,232,687 (RMB 10,000,000) and the 1,000 shares of common stock remains
      unchanged. During 2006, Perfectenergy BVI received $187,050 additional paid-in
      capital. On July 20, 2007, the Perfectenergy BVI shareholders agreed that the
      outstanding capital contribution of $658,637 was no longer required to be
      contributed into the Company as Perfectenergy BVI intended to raise capital
      through the recapitalization with Perfectenergy Nevada and to raise capital
      through issuance of common stock.





Perfectenergy
      Shanghai Limited (hereinafter known as “Perfectenergy Shanghai”) was established
      in Minhang District, Shanghai City, People’s Republic of China (“PRC”) on July
      8, 2005 with a registered capital of $310,000 (RMB 2,500,000) and Perfectenergy
      BVI is the 100% shareholder.





On
      November 28, 2005, pursuant to a change in bylaws, the registered capital of
      Perfectenergy Shanghai was increased from $310,000 (RMB 2,500,000) to $1,232,687
      (RMB 10,000,000). On December 21, 2005, the Minhang District local government
      in
      the City of Shanghai approved the transaction and Perfectenergy Shanghai
      obtained a new certificate of approval on January 19, 2006 and a new business
      license on October 20, 2006 with a business terms of 30 years starting on July
      8, 2005. In accordance with the certificate of approval, the increase of
      $922,687 (RMB 7,500,000) registered capital is required to be made within 1
      year
      from the date of issuance of the new business license. During 2006,
      Perfectenergy BVI contributed $264,050 (RMB 2,122,699) additional registered
      capital and capital contribution receivable due from Perfectenergy BVI is
      $658,637 (RMB 5,311,586) as of December 31, 2006. In August 2007, Perfectenergy
      BVI contributed the remaining capital contribution receivable of $658,637 (RMB
      5,311,586) into Perfectenergy Shanghai.





On
      August
      28, 2007, pursuant to a change in bylaws, the registered capital of
      Perfectenergy Shanghai was increased from $1,232,687 (RMB 10,000,000) to
      $9,210,635 (RMB 70,000,000). On August 29, 2007, the Minhang District local
      government in the City of Shanghai approved the transaction and Perfectenergy
      Shanghai obtained a new certificate of approval and a new business license
      with
      a business terms of 30 years starting on July 8, 2005. In September 2007,
      Perfectenergy BVI contributed $7,977,948 (RMB 60,000,000) into Perfectenergy
      Shanghai and met the registered capital requirement by the Minhang District
      local government.





**Note
      2 – Summary of significant accounting policies**





The
      reporting entity





The
      consolidated financial statements of Perfectenergy International Ltd.
      and subsidiaries reflect the activities of the parent and its wholly owned
      subsidiaries, Perfectenergy BVI and Perfectenergy Shanghai.




*See
      report of independent registered public accounting firm.*





F-8





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Basis
      of presentation





The
      purchase of Perfectenergy BVI has been accounted for as a recapitalization.
      The
      assets and liabilities were transferred at historical cost. The consolidated
      financial statements have been presented as if the recapitalization occurred
      on
      August 8, 2007.





The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      All material intercompany transactions and balances have been eliminated in
      the
      consolidation.





Change
      of year end





Prior
      to
      the acquisition, the Company's subsidiaries, Perfectenergy BVI and Perfectenergy
      Shanghai reporting year end was December 31. However, Perfectenergy Nevada's
      reporting year end is October 31. In order to be consistent with Perfectenergy
      Nevada reporting year end, the Company's Board of Directors approved to change
      all of their subsidiaries' fiscal year end from December 31 to October
      31.





The
      consolidated financial statements consist of a ten month transition period
      ended
      October 31, 2007 and 2006 (unaudited), and the calendar year ended December
      31,
      2006 and from April 1, 2005 (inception) to December 31, 2005.





Revenue
      recognition





The
      Company recognizes revenues when the goods are delivered and title has passed.
      Sales revenue represents the invoiced value of goods, net of a value-added
      tax
      (VAT). All of the Company’s products that are sold in the PRC are subject to a
      Chinese value-added tax at a rate of 17% of the gross sales price or at a rate
      approved by the Chinese local government. This VAT may be offset by VAT paid
      by
      the Company on raw materials and other materials included in the cost of
      producing their finished product and certain freight expenses. In general,
      the
      Company does not accept product returns; only under special situations, when
      both the Company and customers agree, is a product exchange allowed.
      Historically, the Company has not experienced any product returns. Accordingly,
      product returns have no material impact on the Company’s financial
      statements.





Shipping
      and handling





Costs
      related to shipping and handling of the raw material purchased is included
      in
      cost of revenues.





Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the combined
      financial statements and accompanying notes. For example, management estimates
      potential losses on outstanding receivables and the fair value of options.
      Management believes that the estimates utilized in preparing its financial
      statements are reasonable and prudent. Actual results could differ from these
      estimates.




*See
      report of independent registered public accounting firm.*





F-9





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Financial
      instruments





Statement
      of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
      Value of Financial Instruments” requires disclosure of the fair value of
      financial instruments held by the Company. SFAS 107 defines the fair value
      of
      financial instruments as the amount at which the instrument could be exchanged
      in a current transaction between willing parties. The Company considers the
      carrying amount of cash, accounts receivable, other receivables, accounts
      payable, accrued liabilities and other payables to approximate their fair values
      because of the short period of time between the origination of such instruments
      and their expected realization and their current market rate of
      interest.





Foreign
      currency translation





The
      reporting currency of the Company is the US dollar. The Company uses their
      local
      currency, Renminbi (RMB), as their functional currency. Results of operations
      are translated at average exchange rates during the period, and assets and
      liabilities are translated at the unified exchange rate as quoted by the
      People’s Bank of China at the end of the period. Translation adjustments
      resulting from this process are included in accumulated other comprehensive
      income in the statement of shareholders’ equity. Cash flows are also translated
      at average translation rates for the period, therefore, amounts reported on
      the
      statement of cash flows will not necessarily agree with changes in the
      corresponding balances on the balance sheet.





Translation
      adjustments amounted to $192,466, $48,065 (unaudited), and $57,062 as of October
      31, 2007 and 2006, and December 31, 2006, respectively. Assets and liability
      accounts at October 31, 2007 were translated at 7.46 RMB to $1.00 USD as
      compared to 7.87 RMB and 7.80 RMB at October 31, 2006 and December 31, 2006.
      Equity accounts were stated at their historical rate. The average translation
      rates applied to income statement accounts for the ten months ended October
      31,
      2007 and 2006, and the year ended December 31, 2006 and for the period from
      April 1, 2005 (inception) to December 31, 2005 were 7.64 RMB, 7.99 RMB, 7.96
      RMB
      and 8.18 RMB, respectively.





Transaction
      gains and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the functional currency are included in
      the
      results of operations as incurred. Historically, the Company has not entered
      any
      currency trading or hedging transactions, although there is no assurance that
      the Company will not enter into such transactions in the future.





Political
      and economic risk





The
      Company's operations are carried out in the PRC. Accordingly, the Company's
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environments in the PRC, and by the general state
      of the PRC's economy.




*See
      report of independent registered public accounting firm.*





F-10





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





The
      Company's operations in the PRC are subject to specific considerations and
      significant risks not typically associated with companies in the North America
      and Western Europe. These include risks associated with, among others, the
      political, economic and legal environments and foreign currency exchange. The
      Company's results may be adversely affected by changes in governmental policies
      with respect to laws and regulations, anti-inflationary measures, currency
      conversion and remittance abroad, and rates and methods of taxation, among
      other
      things.





Cash
      and concentration of risk





Cash
      includes cash on hand and demand deposits in accounts maintained with state
      owned banks within the People’s Republic of China, Hong Kong and United States.
      Certain financial instruments, which subject the Company to concentration of
      credit risk, consist of cash. The Company maintains cash balances at financial
      institutions which, from time to time, may exceed Federal Deposit Insurance
      Corporation insured limits for the banks located in the United States. Balances
      at financial institution or state owned banks within PRC and Hong Kong are
      not
      covered by insurance. Total cash in banks of which no deposits are covered
      by
      insurance at October 31, 2007 and 2006, and December 31, 2006, amounted to
      $9,659,158, $66,870 (unaudited), and $85,394, respectively The Company has
      not
      experienced any losses in such accounts and believes it is not exposed to any
      risks on its cash in bank accounts.





Inventories





Inventories
      are stated at the lower of cost or market, using a weighted average cost method.
      The Company reviews its inventory periodically for possible obsolete goods
      or to
      determine if any reserves are necessary for potential obsolescence. The Company
      recorded write-offs of inventory totaling $40,685 and $0 (unaudited) for the
      ten
      months ended October 31, 2007 and 2006 and $20,366 for the year ended December
      31, 2006, respectively. As of October 31, 2007 and 2006, and December 31, 2006,
      the Company determined that no reserves are necessary.





Deferred
      expenses





Deferred
      expenses are value added taxes (VAT) paid on the purchases of semi-finished
      products or raw materials used in the production of the Company’s finished
      products, and payment of freight expenses can be used to offset the VAT due
      on
      sales of the finished product.





Equipment
      and leasehold improvements





Equipment
      and leasehold improvements are stated at cost less accumulated depreciation.
      Depreciation is computed using the straight-line method over the estimated
      useful lives of the assets with 10% residual value.




*See
      report of independent registered public accounting firm.*





F-11





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Estimated
      useful lives of the assets are as follows:





Useful LifeLeasehold
                improvements
            
            
            5
                yearsTransportation
                equipment
            
            
            5
                yearsMachinery
            
            
            5
                yearsOffice
                equipment
            
            
            5
                years




Construction
      in progress represents the costs incurred in connection with the assembly and
      installation of machinery and equipment. No depreciation is provided for
      construction in progress until such time as construction is completed and the
      asset is placed into service.





The
      cost
      and related accumulated depreciation of assets sold or otherwise retired are
      eliminated from the accounts and any gain or loss is included in the statement
      of operations. Maintenance, repairs and minor renewals are charged directly
      to
      expenses as incurred. Major additions and betterment to buildings and equipment
      are capitalized.





Long-term
      assets of the Company are reviewed annually or more often if circumstances
      dictate, to determine whether their carrying value has become impaired. The
      Company considers assets to be impaired if the carrying value exceeds the future
      projected cash flows from related operations. The Company evaluates the periods
      of depreciation and amortization to determine whether subsequent events and
      circumstances warrant revised estimates of useful lives. As of October 31,
      2007,
      the Company expects these assets to be fully recoverable.





Customer
      deposits





Customer
      deposits are prepayments from our customers. A majority of our sales to domestic
      customers require customers to prepay before delivery is made. Such prepayments
      are recorded in our financial statements as customer deposits until delivery
      has
      occurred.





Research
      and development





Research
      and development expenses are expensed as incurred. Research and development
      expenses include salaries, consultant fees, supplies and materials, as well
      as
      costs related to other overhead such as facilities, utilities and other
      departmental expenses. The costs we incur with respect to internally developed
      technology and engineering services are included in research and development
      expenses.





Warranty





The
      Company maintains a provision for potential warranty costs on shipped products
      for five years, ten years, and twenty years from the date of shipment. This
      provision represents management’s assessment of our competitor’s history of
      warranty costs while incorporating estimates by our quality review staff of
      our
      potential product failure rates. The Company records a warranty obligation
      in
      cost of revenues at the time of shipment at the rate of 0.1%. The balance of
      the
      warranty provision was insignificant for all periods presented. Actual warranty
      costs are accumulated and charged against accrued warranty liability. Our
      products have been in use for only a relatively short period, and thus we cannot
      assure that our assumptions regarding the durability and reliability of our
      products are reasonable.




*See
      report of independent registered public accounting firm.*





F-12





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Advertising





Advertising
      and promotion expenses are expensed as incurred. Advertising expense amounted
      to
      $3,440 and $18,737 (unaudited) for the ten months ended October 31, 2007 and
      2006, respectively. Advertising expense amounted to $20,106 and $15,490 for the
      year ended December 31, 2006 and for the period from April 1, 2005 (inception)
      to December 31, 2005, respectively.





Income
      taxes





The
      Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
      for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred
      income tax liabilities and assets for the expected future tax consequences
      of
      temporary differences between income tax basis and financial reporting basis
      of
      assets and liabilities. Provision for income taxes consist of taxes currently
      due plus deferred taxes. Deferred tax assets amounted to $75,725 ($15,145
      current and $60,580 non-current) as of October 31, 2007 due to operating loss
      of
      Perfectenergy Shanghai.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
      benefit only if it is “more likely than not” that the tax position would be
      sustained in a tax examination, with a tax examination being presumed to occur.
      The amount recognized is the largest amount of tax benefit that is greater
      than
      50% likely of being realized on examination. For tax positions not meeting
      the
“more likely than not” test, no tax benefit is recorded. FIN 48 also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosures, and transition. The adoption had no affect on
      the
      Company’s financial statements.





The
      Company’s operations are subject to income and transaction taxes in the United
      States and in the PRC jurisdictions. Significant estimates and judgments are
      required in determining the Company’s worldwide provision for income taxes. Some
      of these estimates are based on interpretations of existing tax laws or
      regulations. The ultimate amount of tax liability may be uncertain as a
      result.





The
      Company does not anticipate any events which could cause change to these
      uncertainties.





The
      Company is subject to taxation in the U.S. and in the PRC jurisdictions. There
      are no ongoing examinations by taxing authorities at this time. The years 2005
      to 2007 remain subject to examination by the United States tax authorities.
      The
      years 2006 to 2007 remain subject to examination by the PRC tax
      authorities.




*See
      report of independent registered public accounting firm.*





F-13




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet
      date.





Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit. In principle, deferred
      tax liabilities are recognized for all taxable temporary differences, and
      deferred tax assets are recognized to the extent that it is probably that
      taxable profit will be available against which deductible temporary differences
      can be utilized.





Deferred
      tax is calculated using tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when it is related to items credited
      or
      charged directly to equity, in which case the deferred tax is also dealt with
      in
      equity. Deferred tax assets and liabilities are offset when they relate to
      income taxes levied by the same taxation authority and the Company intends
      to
      settle its current tax assets and liabilities on a net basis.





Value
      Added Tax





Enterprises
      or individuals who sell products, engage in repair and maintenance or import
      and
      export goods in the PRC are subject to a value added tax (VAT) in accordance
      with Chinese laws. The value added tax standard rate is 17% of the gross sales
      price. A credit is available whereby VAT paid on the purchases of semi-finished
      products or raw materials used in the production of the Company’s finished
      products, and payment of freight expenses can be used to offset the VAT due
      on
      sales of the finished product.





VAT
      on
      sales and VAT on purchases amounted to $1,456,134,and,$1,766,703 for the ten
      months ended October 31, 2007, and VAT on sales and VAT on purchase amount
      to
      $1,534,842 (unaudited) and $1,514,722 (unaudited) for the ten months ended
      October 31, 2006, VAT on sales and VAT on purchase amounted to $1,741,114 and
      $1,697,319 for the year ended December 31, 2006, and VAT on sales and VAT on
      purchase amounted to $971,462 and $946,317 for the period from April 1, 2005
      (inception) to December 31, 2005, respectively. Sales and purchases are recorded
      net of VAT collected and paid as the Company acts as an agent for the
      government. VAT taxes are not impacted by the income tax holiday.




Earnings
      per share





The
      Company has adopted SFAS No. 128, "Earnings per Share". SFAS No. 128 requires
      the presentation of earnings per share (“EPS”) as Basic EPS and Diluted EPS.
      Basic EPS excludes dilution and is computed by dividing net income (loss)
      attributable to common stockholders by the weighted average number of common
      shares outstanding for the period. The Company has a net loss for the period
      ended October 31, 2007 and none of the 16,211,590 potentially dilutive
      securities were included in the calculation of diluted earnings per share since
      their effect would be anti-dilutive. For the period ended October 31, 2006,
      December 31, 2006 and 2005, there is no dilutive securities. Therefore there
      are
      no differences between Basic and Diluted EPS for the periods ended October
      31,
      2007 and 2006, and December 31, 2006 and 2005.




*See
      report of independent registered public accounting firm.*





F-14




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Stock
      based compensation





The
      Company has adopted Statement of Financial Accounting Standards No. 123R
“Accounting for Stock-Based Compensation” (“SFAS 123R”), which defines a
      fair-value-based method of accounting for stock based employee compensation
      and
      transactions in which an entity issues its equity instruments to acquire goods
      and services from non-employees. Stock compensation for stock granted to
      non-employees has been determined in accordance with SFAS 123R and the Emerging
      Issues Task Force consensus Issue No. 96-18, "Accounting for Equity Instruments
      that are issued to Other than Employees for Acquiring, or in Conjunction with
      Selling Goods or Services" ("EITF 96-18"), as the fair value of the
      consideration received or the fair value of equity instruments issued, whichever
      is more reliably measured.





Derivative
      financial instruments





The
      Company accounts for its warrants in accordance with FAS No.133, “Accounting for
      Derivatives Instruments and Hedging Activity,” and EITF 00-19 which requires the
      warrants to be carried on the balance sheet at fair value, estimated using
      the
      Black-Scholes option model and to mark to market at each reporting period.
      The
      warrants are reported as liability on the balance sheet when issued and any
      changes in the fair value is reported in the income statement.





Recently
      issued accounting pronouncements





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      addresses the measurement of fair value by companies when they are required
      to
      use a fair value measure for recognition or disclosure purposes under GAAP.
      SFAS
      No. 157 provides a common definition of fair value to be used throughout GAAP
      which is intended to make the measurement of fair value more consistent and
      comparable and improve disclosures about those measures. SFAS No. 157 will
      be
      effective for an entity's financial statements issued for fiscal years beginning
      after November 15, 2007. The Company is currently evaluating the effect SFAS
      No.
      157 will have on its consolidated financial position, liquidity, or results
      of
      operations.





In
      June
      2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
      Nonrefundable Advance Payments for Goods or Services Received for use in Future
      Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
      nonrefundable advance payments for goods or services that are used or rendered
      for research and development activities should be expensed when the advance
      payment is made or when the research and development activity has been
      performed. FSP EITF 07-3 will be effective for an entity’s financial statements
      issued for fiscal years beginning after than December 15, 2007. Management
      is
      currently evaluating the effect of this pronouncement on the Company's financial
      statements.




*See
      report of independent registered public accounting firm.*





F-15




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





In
      December 2007, the Securities and Exchange Commission (“ *SEC* ”)
      issued
      Staff Accounting Bulletin No. 110 (“ *SAB
      110* ”).
      SAB
      110 amends and replaces Question 6 of Section D.2 of Topic 14, *Share-Based
      Payment* of the
      Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14
      expresses the views of the staff regarding the use of the “simplified” method in
      developing an estimate of expected term of “plain vanilla” share options and
      allows usage of the “simplified” method for share option grants prior to
      December 31, 2007. SAB 110 allows public companies which do not have
      historically sufficient experience to provide a reasonable estimate to continue
      use of the “simplified” method for estimating the expected term of “plain
      vanilla” share option grants after December 31, 2007. We currently use the
“simplified” method to estimate the expected term for share option grants as we
      do not have enough historical experience to provide a reasonable estimate.
      We
      will continue to use the “simplified” method until we have enough historical
      experience to provide a reasonable estimate of expected term in accordance
      with
      SAB 110. SAB 110 is effective for the Company on January 1, 2008.





Reclassifications





Certain
      prior periods amounts have been reclassified to conform to the current period
      presentation. These reclassifications have no effect on net income or cash
      flows.





**Note
      3 – Accounts receivable**





The
      Company conducts its business operations in the People’s Republic of China.
      Management believes that the trade accounts are fully collectible. Management
      reviews its accounts receivable on a regular basis to determine if the bad
      debt
      allowance is adequate and adjusts the allowance when necessary. At October
      31,
      2007, there was no allowance for doubtful accounts as all account balances
      were
      considered collectible.





Accounts
      receivable consists of the following at:





October 31,
              2007
            
            October 31,
              2006
            
            December 31,
              2006(Unaudited)Accounts
                receivable
            
            $
            13,834
            
            $
            692,639
            
            $
            514,935Less:
                allowance for doubtful accounts
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            13,834
            
            $
            692,639
            
            $
            514,935




**Note
      4 – Inventories**





Inventories
      consisted of the following at:




October 31,
              2007
            
            October 31,
              2006
            
            December 31,
              2006(Unaudited)Raw
                materials
            
            $
            1,900,208
            
            $
            801,433
            
            $
            277,308Finished
                goods
            
            
            1,854,882
            
            
            1,072,407
            
            
            1,214,552Work
                in progress
            
            
            310,192
            
            
            103,636
            
            
            74,416Consumables
            
            
            41,526
            
            
            21,459
            
            
            24,148Totals
            
            $
            4,106,808
            
            $
            1,998,935
            
            $
            1,590,424




*See
      report of independent registered public accounting firm.*





F-16




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Raw
      materials consist primarily of materials used in production. The costs of
      finished goods include direct costs of raw materials as well as direct labor
      used in production. Indirect production costs such as utilities and indirect
      labor related to production such as assembling, shipping and handling costs
      are
      also included in the cost of inventory.





**Note
      5 – Prepayments**





Prepayments
      are monies deposited or advanced to outside vendors on future inventory
      purchases. Some of the Company’s vendors require a certain amount of money to be
      deposited with them as a guarantee that the Company will receive their purchase
      on a timely basis and lower than market price. This amount is refundable and
      bears no interest. The total outstanding prepayments for inventory purchases
      was
      $1,375,401, $216,638 (unaudited) and $225,202 as of October 31, 2007 and 2006
      and December 31, 2006, respectively.




**Note
      6 – Equipment and leasehold improvements**





Equipment
      and leasehold improvements consist of the following at:





October 31,
              2007
            
            October 31,
              2006
            
            December 31,
              2006(Unaudited)Leasehold
                improvements
            
            $
            76,648
            
            $
            18,556
            
            $
            18,717Transportation
                equipment
            
            
            208,570
            
            
            22,217
            
            
            22,409Machinery
            
            
            843,939
            
            
            758,404
            
            
            755,846Office
                equipment
            
            
            66,646
            
            
            40,502
            
            
            49,596Construction
                in progress
            
            
            913,267
            
            
            393,908
            
            
            565,528Totals
            
            
            2,109,070
            
            
            1,233,587
            
            
            1,412,096Less
                accumulated depreciation
            
            
            242,543
            
            
            77,707
            
            
            97,899Totals
            
            $
            1,866,527
            
            $
            1,155,880
            
            $
            1,314,197





Depreciation
      expense for the ten months ended October 31, 2007 and 2006 amounted to $144,644
      and $75,922 (unaudited), respectively. Depreciation expense for the year ended
      December 31, 2006 and from April 1, 2005 (inception) to December 31, 2005
      amounted to 98,214 and $1,759, respectively.




*See
      report of independent registered public accounting firm.*





F-17





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007




**Note
      7 – Advance on equipment purchase**





Advances
      on equipment purchases represent partial payments for deposits on equipment
      purchases and amounted to $1,169,616, $148,269 (unaudited) and $13,846 as of
      October 31, 2007 and 2006, and December 31, 2006, respectively.




**Note
      8 – Other payables – shareholders and officers**





Other
      payables represent amounts due to the Company’s shareholders, officers, or their
      immediate family members, which are normally due within one year. The Company
      borrowed monies from these individuals for operating cash flow requirements.
      The
      other payables due to related parties consisted of the following:





October 31,
              2007
            
            October 31,
              2006
            
            December 31,
              2006(Unaudited)Zhang,
                Feng Ying - shareholder's spouse, due various dates on September
                17, 2007
                and October 4, 2007, interest rate of 5.0% per annum,
                unsecured
            
            $
            -
            
            $
            523,906
            
            $
            534,081Li,
                Wen Nan - shareholder and officer, due October 4, 2007, interest
                rate of
                5.0% per annum, unsecured
            
            
            -
            
            
            455,233
            
            
            271,835Zhou,
                Di Ping - officer, no fixed term of repayment, non interest bearing,
                unsecured
            
            
            -
            
            
            42,095
            
            
            17,128Total
            
            $
            -
            
            $
            1,021,234
            
            $
            823,044





The
      interest expense amounted to $30,907 and $25,730 (unaudited) for the ten months
      ended October 31, 2007 and 2006, respectively. The interest expense amounted
      to
      $36,415 and $0 for the year ended December 31, 2006 and for the period from
      April 1 (inception) through December 31, 2005, respectively.





During
      2006, we paid $207,191 (or RMB 1,650,000) as prepaid amount for a possible
      investment into Chengdu Jiayang Silicon Technology Inc., Ltd., (“Chengdu
      Jiayang”), an unrelated vendor in which we held no ownership interest during
      that period. In connection with this investment, our Chief Executive Officer,
      Wennan Li, entered into a loan agreement to borrow $188,355 from a shareholder
      of Chengdu Jiayang, and the Company entered into a loan agreement with Mr.
      Li to
      borrow the $188,355 from Mr. Li. The investment was cancelled, and as a result
      the Company was to be refunded its $207,191 investment payment and from this
      amount the Company was to pay Mr. Li the $188,355 (or RMB 1,500,000) owed to
      him, and Mr. Li was to pay the $188,355 he owed to the Chengdu Jiayang
      shareholder. To simplify this transaction, we reached an agreement with all
      relevant parties where we received $18,836 as a cash refund and offset the
      remaining amount owed to us as a refund on our initial prepaid investment
      amount, against the $188,355 balance which we owed to Mr. Li, and the amount
      Mr.
      Li owed to the Chengdu Jiayang shareholder. In the cash flow presentation,
      we
      netted the effect of the prepayment of $207,191 and refund of $18,836 and
      represented that net amount under an investment activity as the original nature
      of the transaction was related to investing activities. The $188,335 loan
      proceeds from Mr. Li was included as “Borrowings from Shareholders and Officers”
under “Cash Flows from Financing Activities.” The $188,355 paid directly from
      the shareholder of the Chengdu Jiayang to Mr. Li was treated as non-cash
      transaction as no actual cash transaction took place with the refund of $188,355
      and the repayment of the shareholder loan of $188,355.




*See
      report of independent registered public accounting firm.*





F-18




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





**Note
      9 – Income taxes**





Under
      the
      Income Tax Laws of PRC, Chinese companies are generally subject to an income
      tax
      at an effective rate of 33% (30% state income taxes plus 3% local income taxes)
      on income reported in the statutory financial statements after appropriate
      tax
      adjustments, unless the enterprise is located in a specially designated region
      where it allows enterprises a three-year income tax exemption and a 50% income
      tax reduction for the following three years or the enterprise is a manufacturing
      related joint venture with a foreign enterprise or a wholly owned subsidiary
      of
      a foreign enterprise, where it allows enterprises a two-year income tax
      exemption and a 50% income tax reduction for the following three
      years.





The
      Company’s subsidiary, Perfectenergy Shanghai was established on July 8, 2005 as
      a wholly owned subsidiary of the Company, a foreign enterprise. Therefore,
      the
      Company was granted income tax exempt for the years ended December 31, 2006,
      and
      2005 and is entitled to a 50% deduction of the income tax rate of 33% which
      is a
      rate of 18% from January 2007 to December 31, 2009.





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
      existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”).




The
      key
      changes are:





a.
            The
                new standard EIT rate of 25% will replace the 33% rate currently
                applicable to both DES and FIEs, except for High Tech companies who
                pays a
                reduced rate of 15%;





b.
            Companies
                established before March 16, 2007 will continue to enjoy tax holiday
                treatment approved by local government for a grace period of the
                next 5
                years or until the tax holiday term is completed, whichever is
                sooner.





The
      Company’s subsidiary, Perfectenergy Shanghai, was established before March 16,
      2007 and therefore is qualified to continue enjoying the reduced tax rate as
      described above. Since the detailed guidelines of the new tax law are not
      publicized yet, the Company has not determined what the new tax rate (15%
      or 25%) will be applicable to Perfectenergy Shanghai after the end of their
      respective tax holiday terms.





The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the periods ended:




*See
      report of independent registered public accounting firm.*




F-19




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007




October
                31,
              2007
            
            October
                31,
              2006
            
            December
                31,
              2006
            
            December
                31,
              2005(Unaudited)U.S.
                statutory rates
            
            
            34.0
            %
            
            34.0
            %
            
            34.0
            %
            
            34.0Foreign
                income not recognized in U.S.
            
            
            (34.0
            )
            
            (34.0
            )
            
            (34.0
            )
            
            (34.0
            )China
                income taxes
            
            
            33.0
            
            
            33.0
            
            
            33.0
            
            
            33.0China
                income tax exemption
            
            
            (15.0
            )
            
            (33.0
            )
            
            (33.0
            )
            
            (33.0
            )Effective
                income tax rates
            
            
            18.0
            %
            
            -
            %
            
            -
            %
            
            -





Since
      Perfectenergy Shanghai had operating loss for the period ended October 31,
      2007,
      the loss can be carrying forward to offset income for the following five years.
      The Company recorded deferred tax asset of $75,725 ($15,145 current and $60,580
      non-current) as of October 31, 2007. Based on foregoing information, the Company
      believes that a valuation allowance is not deemed necessary for the
      deferred assets for the following reasons: (i) there will be sufficient
      operating income generated in future years based on the fact that our
      subsidiary, Perfectenergy Shanghai, is expected to generate profits based
      on sales orders we have received for future periods, and (ii) current operating
      loss for Perfectenergy Shanghai can be carried forward for five years to offset
      future operating income under PRC tax regulations.





Perfectenergy
      Nevada was incorporated in the United States and has incurred net operating
      losses of $289,166 for income tax purposes for the ten months ended October
      31,
      2007. The net operating loss carries forwards for United States income taxes,
      which may be available to reduce future years’ taxable income. These carry
      forwards will expire, if not utilize, through 2027. Management believes that
      the
      realization of the benefits from these losses appears uncertain due to the
      Company’s limited operating history and continuing losses for United States
      income tax purposes. Accordingly, the Company has provided a 100% valuation
      allowance on the deferred tax asset benefit to reduce the asset to zero.
      Management will review this valuation allowance periodically and make
      adjustments as warranted.





Taxes
      payable





Taxes
      payable consisted of the following:





October
                31,
              2007
            
            October
                31,
              2006
            
            December
                31,
              2006(Unaudited)Value-added
                taxes payable
            
            $
            -
            
            $
            34,394
            
            $
            34,778Employee
                income tax withheld
            
            
            3,772
            
            
            1,713
            
            
            1,648Total
            
            $
            3,772
            
            $
            36,107
            
            $
            36,426





**Note
      10 – Major customers and suppliers**





For
      the
      ten months ended October 31, 2007 and 2006, five customers accounted for
      approximately 95% and 96% (unaudited) of the Company's sales, these customers
      accounted for approximately 22% and 94% (unaudited) of the Company’s accounts
      receivable as of October 31, 2007 and 2006, respectively.




*See
      report of independent registered public accounting firm.*





F-20





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





For
      the
      year ended December 31, 2006, four customers accounted for approximately 86%,
      of
      the Company's sales, these customers accounted for approximately 93% of the
      Company’s accounts receivable as of December 31, 2006.





For
      the
      year ended December 31, 2005, five customers accounted for approximately 99%,
      of
      the Company's sales.





For
      the
      ten months ended October 31, 2007 and 2006, the Company purchased approximately
      93% and 72% (unaudited) of their raw materials from three major suppliers.
      These
      suppliers represented 1% and 37% (unaudited) of the Company’s total accounts
      payable as of October 31, 2007 and 2006, respectively.





For
      the
      year ended December 31, 2006, the Company purchased approximately 62% of their
      raw materials from three major suppliers. These suppliers represented 37% of
      the
      Company’s total accounts payable as of December 31, 2006.





For
      the
      year ended December 31, 2005, the Company purchased approximately 90% of their
      raw materials from three major suppliers.





**Note
      11– Retirement benefit plans**





Regulations
      in the People’s Republic of China required the Company to contribute to a
      defined contribution retirement plan for all permanent employees. All permanent
      employees are entitled to an annual pension equal to their basic salaries at
      retirement. The PRC government is responsible for the benefit liability to
      these
      retired employees. The Company is required to make contributions to the state
      retirement plan at 22% of the monthly basic salaries of the current employees.
      For the ten months ended October 31, 2007 and 2006, the Company made pension
      contributions in the amount of $40,917, and $27,957 (unaudited), respectively.
      For the year ended December 31, 2006 and the period from April 1, 2005
      (inception) through December 31, 2005 , the Company made pension contributions
      in the amount of $30,990 and $4,685, respectively.





**Note
      12 – Statutory reserves**





The
      laws
      and regulations of the People’s Republic of China require that before an
      enterprise distributes profits to its partners, it must first satisfy all tax
      liabilities, provide for losses in previous years, and make allocations, in
      proportions determined at the discretion of the board of directors, after the
      statutory reserve. The statutory reserves include surplus reserve fund, common
      welfare fund, and the enterprise fund. These statutory reserves represent
      restricted retained earnings.





Surplus
      reserve fund





The
      Company’s subsidiary, Perfectenergy Shanghai is required to transfer 10% of its
      net income, as determined in accordance with the PRC accounting rules and
      regulations, to a statutory surplus reserve fund until such reserve balance
      reaches 50% of the Company’s registered capital.




*See
      report of independent registered public accounting firm.*





F-21




PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





The
      transfer to this reserve must be made before Perfectenergy Shanghai can
      distribute of any dividend to shareholders. For the ten months ended October
      31,
      2007, the Company did not contribute to the surplus reserve fund. For the year
      ended December 31, 2006 and the period from April 1, 2005 (inception) through
      December 31, 2005, the Company transferred $59,143 and $33,950, respectively,,
      representing 10% of the year’s net income determined in accordance with PRC
      accounting rules and regulations, to this reserve. The surplus reserve fund
      is
      non-distributable other than during liquidation and can be used to fund previous
      years’ losses, if any, and may be utilized for business expansion or converted
      into share capital by issuing new shares to existing shareholders in proportion
      to their shareholding or by increasing the par value of the shares currently
      held by them, provided that the remaining reserve balance after such issue
      is
      not less than 25% of the registered capital.





Common
      welfare fund





Through
      2005, the Company was required to transfer 5% to 10% of its net income, as
      determined in accordance with the PRC accounting rules and regulations, to
      the
      statutory common welfare fund. The Company did not contribute to the common
      welfare fund for the ten months ended October 31, 2007. For the year ended
      December 31, 2006 and the period from April 1, 2005 (inception) through December
      31, 2005, the Company transferred $0 and $16,975 respectively, representing
      5%
      of the year’s net income determined in accordance with PRC accounting rules and
      regulations, to this reserve. Starting on January 1, 2006, the PRC accounting
      rules and regulations no longer required the company to transfer 5% to 10%
      of
      its net income to the statutory common welfare fund. The balance in the common
      welfare fund at December 31, 2005 was transferred to surplus reserve
      fund.





Enterprise
      fund





The
      enterprise fund may be used to acquire plant and equipment or to increase the
      working capital to expend on production and operation of the business. No
      minimum contribution is required and the company did not make any contribution
      to this fund for the ten months ended October 31, 2007, the year ended December
      31, 2006 and the period from April 1, 2005 (inception) through December 31,
      2005.




**Note
      13 –**  **Commitments**





Operating
      lease commitments





The
      Company’s office lease is under a five year term expiring in May 31, 2011. At
      October 31, 2007, total future minimum lease payments under an operating lease
      were as follows:





Year
                ended Oct 31,
            
            Amount2008
            
            
            168,7832009
            
            
            172,2992010
            
            
            177,2222011
            
            
            103,379Thereafter
            
            
            -




*See
      report of independent registered public accounting firm.*





F-22





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Total
      rent expense for the ten months ended October 31, 2007 and 2006 amounted to
      $145,315 and $73,215 (unaudited), respectively. Total rent expense for the
      year
      ended December 31, 2006 and the period from April 1, 2005 (inception) through
      December 31, 2005 amounted to $99,266 and $39,525, respectively.




Long
      term silicon supply agreements





To
      assure
      a long-term supply, the Company entered into two three-year silicon supply
      agreements with two major suppliers , Tianjin Huan Ou Semiconductor Material
      Technology Co., Ltd. (“Tianjin Huan Ou”) and Chengdu Jiayang Silicon Technology,
      Inc., Ltd. (“Chengdu”), in December 2006 covering the period from January 1,
      2007 to December 31, 2009. At October 31, 2007, total future minimum purchase
      obligations under those two agreements were as follows,




Year
                Ending October 31,
            
            Amount2008
            
            $
            34,039,2002009
            
            $
            74,886,2402010
            
            $
            13,615,560





Our
      purchase obligations under the long-term silicon wafer supply agreement with
      Tianjin Huan Ou are 2.5 million silicon wafers in 2007, 5 million silicon wafers
      in 2008, and 10 million silicon wafers in 2009. Our purchase obligations under
      the long-term silicon supply contract with Chengdu are 800,000 silicon wafers
      in
      2007, 1.5 million silicon wafers in 2008, and 3 million silicon wafers in
      2009.  The Company has an oral understanding with its suppliers that if
      there is a shortage of silicon, then our suppliers will reduce our minimum
      purchase obligations under the respective agreement .




**Note
      14 –**  **Shareholder’s
      equity**





In
      May
      2005, Perfectenergy BVI issued 849 shares of common stock (later converted
      into
      48,560,534 Perfectenergy Nevada’s shares) at $1.00 par value for $360,000 and
      151 shares of common stock (later converted into 8,636,797 Perfectenergy
      Nevada’s shares) at $1.00 par value for In-process technology valued at
      $64,028.





In
      June
      2006, pursuant to the Perfectenergy BVI’s shareholders agreement, Perfectenergy
      BVI’s shareholders (“Original Shareholders”) agreed to increase the capital from
      $360,000 to $1,232,687 (RMB 10,000,000) and the 1,000 Perfectenergy BVI’s shares
      (or 57,197,331 Perfectenergy Nevada’s shares) of common stock remains unchanged.
      In July, the Original Shareholders cancelled the increase of capital requirement
      and the remaining $658,637 is no longer required to be contributed by the
      Original Shareholders.





On
      August
      8, 2007, the Company sold an aggregate total of 26,285,715 units at $.70 per
      Unit (or an aggregate purchase price of $18,400,000) and for total net proceeds
      of $15,992,971. Each unit consisted of one common share and one-half purchase
      warrant (“Investor Warrants”), with each whole warrant entitling the holder to
      purchase an additional common share at an exercise price of $0.95 for a period
      of 30 months. In connection with the offering, the Company paid a placement
      fee
      of 7% totaling $1,288,000 and an advisory fee of 1% of the gross proceeds
      totaling $184,000 in cash.




*See
      report of independent registered public accounting firm.*





F-23





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Concurrent
      with the private placement, the Company issued 1,840,000 and 920,000 warrants
      to
      the placement and advisory agents (collectively, as “Placement and Advisory
      Warrants”) with exercise price of $0.70 and $0.95, respectively. These warrants
      have a 3-year term.





In
      connection with the recapitalization on August 8, 2007, the Company entered
      into
      a consulting agreement (the “Fee Agreement”) with Transworld Capital Group Inc.,
      a Hong Kong limited liability company (referred to as the “Consultant”). Based
      on this Fee Agreement, the Company had to pay consulting fees totaling $240,000
      in cash upon closing the Amended Agreement (see Note 1) . In addition, the
      Perfectenergy BVI issued 49 Perfectenergy BVI shares immediately after the
      closing of the Amended Agreement. These 49 Perfectenergy BVI shares were part
      of
      the shares exchanged for 2,802,669 shares of Perfectenergy Nevada‘s common
      shares. The $240,000 was recorded as a reduction of capital as the consulting
      services were provided in connection to the private placement.





Warrants





In
      order
      for the warrants to be accounted for as equity, the warrants must comply with
      FAS 133 and EITF 00-19. Pursuant to EITF 00-19, “Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settle in, a Company’s Own
      Stock,” the warrants contain a provision permitting the holder to redeem the
      warrants for cash, based on a Black-Scholes valuation, in the event of a change
      in control and the change in control is deemed not to be within the Company’s
      control, which failed the test in paragraph 27 of EITF 00-19. The failure of
      this test therefore resulted in classification of the warrants as derivative
      instrument liabilities, rather than as equity instruments. The Company allocated
      the proceeds received between the common stock and warrants first to warrants
      based on the fair value on the date the proceeds were received with the balance
      to common stock. The value of the warrants was determined using the
      Cox-Ross-Rubinstein binomial model using the following assumptions: volatility
      70%; risk free interest rate 3.94%; dividend yield of 0% and expected term
      of
      2.5 years of the Investor Warrants and 3 years of the Placement and Advisory
      Warrants. The volatility of the Company’s common stock was estimated by
      management based on the historical volatility of our common stock, the risk
      free
      interest rate was based on Treasury Constant Maturity Rates published by the
      U.S. Federal Reserve for periods applicable to the expected life of the
      warrants, the expected dividend yield was based on the Company’s current and
      expected dividend policy and the expected term is equal to the contractual
      life
      of the warrants. The value of the warrants was based on the Company’s common
      stock price of $1.35 on the date the warrants were issued.  Net proceeds
      were allocated as the follows:





Warrants
            
            $
            12,226,600Common
                stock
            
            
            3,766,371Total
                net proceeds
            
            $
            15,992,971





Subsequent
      to the initial recording, the change in the fair value of the warrants,
      determined under the Cox-Ross-Rubinstein binomial model, at each reporting
      date
      will result in either an increase or decrease the amount recorded as liability,
      based on the fluctuations with the Company’s stock price with a corresponding
      adjustment to other income (or expense). At October 31, 2007, a loss of $240,086
      was recognized in the accompanying income statement based on the increase in
      fair value since issuance. At October 31, 2007, the fair value of the derivative
      instrument totaled $12,466,686.




*See
      report of independent registered public accounting firm.*





F-24





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





As
      of
      October 31, 2007, the Company has warrants as following:





Warrants
              Outstanding
            
            Warrants
              Exercisable
            
            Weighted
              Average
              Exercise
              Price
            
            Average
              Remaining
              Contractual
              LifeBalance,
                December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            15,902,857
            
            
            15,902,857
            
            $
            0.92
            
            $
            2.59Forfeited
            
            
            -
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                October 31, 2007
            
            
            15,902,857
            
            
            15,902,857
            
            $
            0.92
            
            $
            2.35





**Note
      15– Options issued to employees**





Perfectenergy
      BVI stock options





On
      November 30, 2005, March 15, 2006, October 31, 2006 and March 21, 2007,
      Perfectenergy BVI issued total of 50 options to employees of Perfectenergy
      BVI.
      Originally, approximately 30% of the options were to vest after one year, 60%
      after two years and 10% after three years. On March 21, 2007, Perfectenergy
      BVI
      modified the options so that all unvested amounts became fully vested on that
      date.





Perfectenergy
      BVI used the Cox-Ross-Rubinstein binomial model to value the options at the
      time
      they were issued, based on the stated exercise prices and expiration dates
      of
      the instruments and using a risk-free rate of 4.50%. Because Perfectenergy
      BVI
      does not have a history of employee stock options, the estimated life is based
      on one half of the sum of the vesting period and the contractual life of the
      option. This is the same as assuming that the options are exercised at the
      mid-point between the vesting date and expiration date.





Perfectenergy
      BVI’s stock was not traded when the options were granted. Therefore,
      Perfectenergy BVI had to estimate the market value of its shares. There was
      no
      significant change in the business between December 2005 and March 21, 2007,
      therefore, Perfectenergy BVI used an August 2006 transaction of $468, per share
      as the market price. At that market price, the 50 employee options had a fair
      value of approximately $9,445 and they are being amortized over the vesting
      period. The fair value of the options on the date of grant was equal to their
      fair value on March 21, 2007.





On
      July
      27, 2007, before closing the Amended Agreement (see Note 1), Perfectenergy
      BVI
      entered Termination Agreements for Options with employees who were granted
      stock
      options previously and cancelled all outstanding stock options. There was no
      effect on the financial statements when the options were cancelled.




*See
      report of independent registered public accounting firm.*





F-25





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Perfectenergy
      Nevada stock options





On
      September 5, 2007, the Company adopted “Perfectenergy International Limited 2007
      Stock Incentive Plan” (the “Stock Incentive Plan”). The Company set aside and
      reserved 6,000,000 shares of the Company’s common stock for grant and issuance
      pursuant to the Stock Incentive Plan. Under the Stock incentive Plan, the
      Company issued 4,472,235 options to the employees and the directors of the
      Company. 300,000 of the options vested immediately, with the 4,015,045 options
      vesting evenly on an annual basis over the following three years from August
      8,
      2007 and with the 157,190 options vesting evenly on a monthly basis over the
      following thirty-six months from August 8, 2007. The Company used the
      Cox-Ross-Rubinstein binomial model to value the options at the time they were
      issued, based on volatility of 70%, dividend yield of 0%, the stated exercise
      prices and expiration dates of the instruments and using an average risk-free
      rate of 4.5%. The volatility of the Company’s common stock was estimated by
      management based on the historical volatility of the Company’s common stock, the
      risk free interest rate was based on Treasury Constant Maturity Rates published
      by the U.S. Federal Reserve for periods applicable to the estimated life of
      the
      options, and the expected dividend yield was based on our current and expected
      dividend policy. The value of the options was based on the Company’s common
      stock price on the date the options were granted. Because the Company does
      not
      have a history of employee stock options, the estimated life is based on one
      half of the sum of the vesting period and the contractual life of 10 years
      of
      the option. This is the same as assuming that the options are exercised at
      the
      mid-point between the vesting date and expiration date.





As
      of
      October 31, 2007, the Company has options as following:




Options
              Outstanding
            
            Weighted
              Average
              Exercise
              Price
            
            Aggregate
              IntrinsicValueBalance,
                December 31, 2005
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2006
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            4,472,235
            
            $
            0.70
            
            
            2,906,953Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Balance,
                October 31, 2007
            
            
            4,472,235
            
            $
            0.70
            
            
            3,130,565





Following
      is a summary of the status of options outstanding at October 31,
      2007:




Outstanding Options
            
            Exercisable OptionsNumber
              of Options
            
            Exercise
              Price
            
            Average
              Remaining
              Contractual
              Life
            
            Number
              of Options
            
            Exercise
              Price
            
            Average
              Remaining
              Contractual
              Life4,472,235
            
            $
            0.70
            
            
            9.74
            
            
            313,099
            
            $
            0.70
            
            
            9.74




*See
      report of independent registered public accounting firm.*





F-26





PERFECTENERGY
      INTERNATIONAL LTD. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


October
      31, 2007





Compensation
      expense recognized for the ten months ended October 31, 2007 and 2006 was
      $337,782 and $3,722 (unaudited), respectively. Compensation expense recognized
      for the year ended December 31, 2006 and for the period from April 1, 2005
      (inception) to December 31, 2005 was $4,492 and $359, respectively.




**Note
      16- Revenue by geographic area**





Revenues
      are attributed to geographic area based on the country where the final
      designation of the Company’s products is being shipped. The following table
      summarized financial information for the periods ended October 31, 2007 and
      2006, and December 31, 2006 and 2005 concerning the Company’s revenues based on
      geographic area:





Ten months ended October 31,
            
            For the year ended,Revenue
            
            2007
            
            2006
            
            2006
            
            2005(Unaudited)China
            
            $
            8,147,848
            
            $
            3,393,766
            
            $
            3,982,231
            
            $
            5,802,122Germany
            
            
            54,118
            
            
            4,515,210
            
            
            5,496,547Spain
            
            
            363,528
            
            
            1,119,508
            
            
            1,119,508Total
            
            $
            8,565,494
            
            $
            9,028,484
            
            $
            10,598,286
            
            $
            5,802,122





**Note
      17 – Subsequent events**





On
      September 20, 2007, Perfectenergy BVI entered into an agreement with an
      individual residing in Germany in which she would form Perfectenergy GmbH,
      a
      German corporation. After formation, she would transfer all equity securities
      of
      Perfectenergy GmbH to Perfectenergy BVI in exchange for the Company providing
      her with all expenses necessary to form Perfectenergy GmbH.  Perfectenergy
      GmbH was formed on November 9, 2007, and the parties are in the process of
      finalizing the transfer of equity securities to Perfectenergy
      BVI.





On
      November 28, 2007, the Company’s subsidiary, Perfectenergy BVI, entered into a
      loan agreement with Perfectenergy GmbH.  Pursuant to the loan agreement,
      Perfectenergy BVI shall loan Perfectenergy GmbH up to $1,105,000 with 0%
      interest.




*See
      report of independent registered public accounting firm.*





F-27





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized on March
      4, 2008.





**PERFECTENERGY
                INTERNATIONAL LIMITED**/s/
                Wennan LiWennan Li, Chief Executive Officer and President




In
      accordance with the Securities Exchange of 1934, this report has been signed
      below by the following persons on behalf of the registrant and in the capacities
      and on the dates indicated.





**NAME**
            
            **TITLE**
            
            **DATE**/s/
                Wennan Li
            
            Chairman
                of the Board, Chief Executive Officer (Principal
            
            March
                  4, 2008Wennan
                Li
            
            Executive
                  Officer) and President/s/
                Diping Zhou
            
            Chief
                Accounting Officer and Treasurer
            
            March
                  4, 2008Diping
                Zhou/s/
                Xiaolin Zhuang
            
            Chief
                Financial Officer and Secretary (Principal Financial &
            
            March
                  4, 2008Xiaolin
                Zhuang
            
            Accounting
                  Officer)/s/
                Min Fan
            
            Director
            
            March
                  4, 2008Min
                Fan/s/
                Yunxia Yang
            
            Director
            
            March
                  4, 2008Yunxia
                Yang/s/
                Adam Roseman
            
            Director
            
            March
                  4, 2008Adam
                Roseman/s/
                Yajun Wu
            
            Director
            
            March
                  4, 2008Yajun
                Wu