**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**


(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 o x No





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 January 15, 2008, based upon
      the average bid and asked price of such common stock as reported on the OTC
      Bulletin Board, was $95,722,154.66 (59,270,684 shares at $1.615 per
      share).





As
      of
      January 15, 2008, there were 118,293,015 shares of the issuer's common stock
      outstanding.





Documents
      incorporated by reference: None





Transitional
      Small Business Disclosure Format (Check one): o Yes x No








**TABLE
                  OF CONTENTS****PART
                  I**Item
                  1. Description of Business
              2Item
                  2. Description of Property
              24Item
                  3. Legal Proceedings
              25Item
                  4. Submission of Matters to a Vote of Security Holders
              25**PART
                  II**Item
                  5. Market for Common Equity and Related Stockholder
                  Matters
              26Item
                  6. Management's Discussion and Analysis or Plan of
                  Operation
              27Item
                  7. Financial Statements
              35Item
                  8. Changes in and Disagreements with Accountants on Accounting
                  and
                  Financial Disclosure
              35Item
                  8A. Controls and Procedures
              35Item
                  8B. Other Information
              35**PART
                  III**Item
                  9. Directors, Executive Officers, Promoters, Control Persons and
                  Corporate
                  Governance; Compliance with Section 16(a) of the Exchange
                  Act
              36Item
                  10. Executive Compensation
              38Item
                  11. Security Ownership of Certain Beneficial Owners and Management
                  and
                  Related Stockholder Matters
              41Item
                  12. Certain Relationships and Related Transactions, and Director
                  Independence
              42Item
                  13. Exhibits
              44Item
                  14. Principal Accountant Fees and Services
              47INDEX
                  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.





**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.


3




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.





4


**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. 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:




5


*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.


6




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.





7


**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.





8





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
            
            
            44
            
            
            8
            
            
            8Capacity
                (MW)
            
            
            90-100
            
            
            200
            
            
            200Workshop
                floor space (m2)
            
            
            1200012,000
            
            
            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 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.


9





**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 silicon wafer supply agreement with Tianjin Huan Ou provides
      us 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 silicon supply contract with Chengdu
      provides us with 800,000 silicon wafers in 2007, 1.5 million silicon wafers
      in
      2008, and 3 million silicon wafers in 2009. 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 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
      January 15, 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
            
            
            
            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




10


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 2006 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.





**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.


11





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.


12





***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.***


13





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;





14





·
            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.


15





***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.”


16





***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. 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.


17




***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.


18





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
      January 15, 2008, our directors and executive officers control approximately
      50.18% 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:


19




·
            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.


20




***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.


21





***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.





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


22





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.


23




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.




**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, Xinzhuang Town, Shanghai, People’s Republic of China
                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.





24


***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 remains 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.




**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 .


25


**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
                BidOctober
                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
      January 15, 2008, the closing sales price for shares of our common stock was
      $1.66 per share on the Over-The-Counter Bulletin Board.





**Holders**





As
      of
      January 15, 2008, we had approximately 32 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
 
 (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.  26




**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.


27





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.


28




**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:





29





**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.





30


*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.


31





*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.





Ten
      Months Ended October 31, 2007





32


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.





***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.





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
            
            
            
            
            
            —





33


(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.”





***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.


34




**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) 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 to ensure that information required to be disclosed
      by us in this transition report is accumulated and communicated to management,
      including our principal executive officers as appropriate, to allow timely
      decisions regarding required disclosure.




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.




35




**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
                yearsDiping
                Zhou
            
            39
            
            Chief
                Accounting Officer, Treasurer and Secretary
            
            August
                8, 2007
            N/AMin
                Fan
            
            42
            
            Director
            
            August
                25, 2007
            2
                yearsYunxia
                Yang
            
            50
            
            Director
            
            August
                25, 2007
            2
                yearsAdam
                Roseman
            
            29
            
            Director
            
            August
                25, 2007
            3
                yearsYajun
                Wu
            
            48
            
            Director
            
            November
                20, 2007
            3
                years





**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, Treasurer and Secretary** ,
      is also
      a Vice President and accountant for Perfectenergy Shanghai. Mr. Zhou received
      his bachelor’s degree in accounting from Shanghai Lixin University of Commerce
      in 1988. Mr. Zhou has extensive accounting experience. From 1988 through 2000,
      Mr. 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,
      Mr.
      Zhou was the audit director and financial controller in JHJ International
      Transportation Co., Ltd. From 2002 through 2005, Mr. Zhou was the manager of
      budget and financial department in Topsolar Shanghai Limited, a leading Chinese
      solar energy products manufacturer.




**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.


36





**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.





37


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, 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.





38





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


(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 his salary was paid according to Perfectenergy
                Shanghai’s performance. Mr. Li and Perfectenergy Shanghai had an oral
                understanding that if profits reached half of the target level, then
                Mr.
                Li would be paid half of his base salary. If profits reached 70%
                of the
                target level, then Mr. Li would be paid 100% of his base salary.
                Mr. Li’s
                base salary for 2006 was reduced because of the failure to achieve
                applicable profit levels.





(3)
            This
                amount differs from Ms. Zhou’s base salary described below under
                “Employment Agreements” because her salary was paid according to
                Perfectenergy Shanghai’s performance. Ms. Zhou and Perfectenergy Shanghai
                had an oral understanding that if profits reached half of the target
                level, then Ms. Zhou would be paid half of her base salary. If profits
                reached 70% of the target level, then Ms. Zhou would be paid 100%
                of her
                base salary. Ms. Zhou’s base salary for 2006 was reduced because of the
                failure to achieve applicable profit
                levels.





(4)
            Mr.
                Philip McDonald was appointed as our 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.(5)
            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.


39





**Outstanding
      Equity Awards**





**OUTSTANDING
                EQUITY AWARDS AT FISCAL YEAR-END****Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number of
                Securities Under-**
              **lying
                Un-exercised**
              **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
            
            
            
            
            
            0
            
            $
            0.70
            
            
            08/08/2017
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -Diping
                Zhou
            
            
            
            
            
            0
            
            
            785,951
            
            
            
            
            
            0
            
            $
            0.70
            
            
            08/08/2017
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -Philip
                McDonald
            
            
            
            
            
            0
            
            
            0
            
            
            
            
            
            0
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -





**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
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            $
            10,839Yunxia
                Yang
            
            
            -
            
            
            
            
            
            -
            
            $
            10,839
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            $
            10,839Adam
                Roseman
            
            $
            32,322
            
            
            
            
            
            -
            
            $
            78,937
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            
            
            
            
            -
            
            $
            111,259





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


40





(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.





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 January 15, 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
      118,293,015 shares of common stock outstanding on January 15, 2008. The
      issued and outstanding shares do not include 18,335,092 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, Treasurer 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 (6 persons)***
            
            
            59,322,331
            
            
            50.15
            %





41





*
      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 are issued and outstanding. Percentage totals may
                vary
                slightly due to rounding.




(3)
            This
                number represents the number of shares of common stock that vested
                under a
                grant of options 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.


42





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.





43





(3)
            Diping
                Zhou, our Chief Accounting Officer (Principal Financial 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)


44





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)


45





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)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.





46





(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.




**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.


47






**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 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,
              
              October
                  31,
              
              December
                  31,2007
              
              2006
              
              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,
              
              October
                  31,
              
              December
                  31,2007
              
              2006
              
              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,
              
              October
                  31,
              
              December
                  31,2007
              
              2006
              
              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,
                  
                  October 31,
                  
                  December 31,2007
                  
                  2006
                  
                  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 $188,355 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,
              
              October
                  31,
              
              December
                  31,
              
              December
                  31,2007
              
              2006
              
              2006
              
              2005(Unaudited)U.S.
                  statutory rates
              
              
              34.0
              %
              
              34.0
              %
              
              34.0
              %
              
              34.0Foreign
                  income notrecognized
                  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. The Company determined the operating
        loss
        will be fully utilized in the following years and therefore valuation allowance
        is not deemed necessary.
 
 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,
              
              October
                  31,
              
              December
                  31,2007
              
              2006
              
              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 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
  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.
 
 **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. 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:
 
 Weighted
              
              AverageWarrants
              
              Warrants
              
              AverageExercise
              
              RemainingContractualOutstanding
              
              Exercisable
              
              Price
              
              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%. 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:
 
 WeightedOptions
              
              AverageExercise
              
              AggregateOutstanding
              
              Price
              
              Intrinsic ValueBalance,
                  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
                  OptionsNumberof Options
              
              ExercisePrice
              
              AverageRemainingContractualLife
              
              Numberof Options
              
              ExercisePrice
              
              AverageRemainingContractualLife4,472,235
              
              $
              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 January 30, 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 Executive Officer)
                and
                President
            
            January
                30, 2008Wennan
                Li/s/
                Diping Zhou
            
            Chief
                Accounting Officer, Secretary and Treasurer (Principal Financial
                Officer)
            
            January
                30, 2008Diping
                Zhou/s/
                Min Fan
            
            Director
            
            January
                30, 2008Min
                Fan/s/
                Yunxia Yang
            
            Director
            
            January
                30, 2008Yunxia
                Yang/s/
                Adam Roseman
            
            Director
            
            January
                30, 2008Adam
                Roseman/s/
                Yajun Wu
            
            Director
            
            January
                30, 2008Yajun
                Wu