**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended March 31, 2008****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES****EXCHANGE
                ACT OF 1934****For
                the transition period from****________________****to
                _________________**





**Commission
      File Number** **333-120926**




**SOLAR
      ENERTECH CORP.**


(Exact
      name of registrant as specified in its charter)





**Nevada**
            
            **98-0434357**State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization
            
            Identification
                No.)





**1600
      Adams Drive**


**Menlo
      Park, CA 94025**


(Address
      of principal executive offices) (Zip Code)





Registrant’s
      telephone number, including area code **(650) 688-5800**





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





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





Large
                accelerated filer
            o
            
            Accelerated
                FileroNon-accelerated
                filer
            o
            
            Smaller
                reporting companyx





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x





Number
      of
      shares outstanding of registrant’s class of common stock as of May 5,
      2008: **** **110,539,867**









**Table
        of Contents**





**SOLAR
      ENERTECH CORP**





**FORM
      10-Q**





**I** **NDEX**


**PAGE****Part
                  I. Financial Information**Item
                  1.
              Financial
                  StatementsUnaudited
                  Condensed Consolidated Balance Sheets - March 31, 2008 and September
                  30,
                  2007
              
              3Unaudited
                  Condensed Consolidated Statements of Operations – Three and Six Months
                  Ended March 31, 2008 and March 31,2007
              
              4Unaudited
                  Condensed Consolidated Statements of Cash Flows – Six Months Ended March
                  31, 2008 and March 31, 2007
              
              5Notes
                  to Unaudited Condensed Consolidated Financial Statements
              
              6Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              19Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market Risks
              
              25Item
                  4.
              Controls
                  and Procedures
              
              25Item
                  4T.
              Controls
                  and Procedures
              
              25**Part
                  II. Other Information**Item
                  1.
              Legal
                  Proceedings
              
              26Item 1A.
              Risk
                  Factors
              
              26Item
                  2.
              Unregistered
                  Sale of Equity Securities and Use of Proceeds
              
              26Item
                  3.
              Defaults
                  upon Senior Securities
              
              26Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              
              26Item
                  5.
              Other
                  Information
              
              26Item
                  6.
              Exhibits
              
              26Signatures
              
              27




2




**PART
      I**


**ITEM
      1. FINANCIAL STATEMENTS**




**Solar
      EnerTech Corp.**


**Condensed
      Consolidated Balance Sheets**


**(Unaudited)**





**March 31, 2008**
            
            **September 30, 2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            12,571,000
            
            $
            3,908,000Accounts
                receivable
            
            
            3,011,000
            
            
            913,000Advance
                payments and other
            
            
            8,061,000
            
            
            6,500,000Inventories
            
            
            6,655,000
            
            
            5,708,000Tax
                and other receivable
            
            
            1,778,000
            
            
            590,000Total
                current assets
            
            
            32,076,000
            
            
            17,619,000Fixed
                assets, net of accumulated depreciation
            
            
            5,567,000
            
            
            3,215,000Deferred
                financing costs, net of accumulated amortization
            
            
            2,089,000
            
            
            2,540,000Deposits
            
            
            1,235,000
            
            
            1,741,000Total
                assets
            
            $
            40,967,000
            
            $
            25,115,000**LIABILITIES
                AND STOCKHOLDER'S EQUITY (DEFICIT)**Current
                liabilities:Accounts
                payable
            
            $
            2,329,000
            
            $
            2,891,000Customer
                advance payment
            
            
            2,497,000
            
            
            1,603,000Accrued
                interest expense
            
            
            -
            
            
            615,000Accrued
                expenses
            
            
            402,000
            
            
            507,000Accounts
                payable and accrued liabilities, related parties
            
            
            3,969,000
            
            
            3,969,000Demand
                note payable to a related party
            
            
            -
            
            
            450,000Demand
                notes payable
            
            
            -
            
            
            700,000Derivative
                liabilities
            
            
            2,900,000
            
            
            16,800,000Warrant
                liabilities
            
            
            6,467,000
            
            
            17,390,000Total
                current liabilities
            
            
            18,564,000
            
            
            44,925,000Convertible
                notes, net of discount
            
            
            28,000
            
            
            7,000Total
                liabilities
            
            
            18,592,000
            
            
            44,932,000Commitments
                and contingencies (Note 11)**STOCKHOLDER'S
                EQUITY (DEFICIT):**Common
                      stock - 200,000,000 shares authorized at $0.001 par value 109,067,216
                      and
                      78,827,012 shares issued and outstanding at March 31, 2008
                      and September 30, 2007,
                      respectively
            
            
            109,000
            
            
            79,000Additional
                paid in capital
            
            
            68,171,000
            
            
            39,192,000Other
                comprehensive income
            
            
            1,877,000
            
            
            592,000Accumulated
                deficit
            
            
            (47,782,000
            )
            
            (59,680,000
            )Total
                stockholders' equity (deficit)
            
            
            22,375,000
            
            
            (19,817,000
            )Total
                liabilities and stockholders' equity (deficit)
            
            $
            40,967,000
            
            $
            25,115,000





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


3


**Solar
      EnerTech Corp.**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**


**Three Months Ended March 31,**
                
                **Six Months Ended March 31,****2008**
                
                **2007**
                
                **2008**
                
                **2007**Net
                    sales
                
                $
                3,471,000
                
                $
                3,000
                
                $
                8,310,000
                
                $
                3,000Cost
                    of sales
                
                
                (4,171,000
                )
                
                (6,000
                )
                
                (9,476,000
                )
                
                (6,000
                )Gross
                    loss
                
                
                (700,000
                )
                
                (3,000
                )
                
                (1,166,000
                )
                
                (3,000
                )Operating
                    expenses:Selling,
                    general & administrative
                
                
                2,797,000
                
                
                2,426,000
                
                
                6,682,000
                
                
                4,935,000Research
                    & development
                
                
                54,000
                
                
                4,000
                
                
                151,000
                
                
                106,000Loss
                    on debt extinguishment
                
                
                2,105,000
                
                
                -
                
                
                2,467,000
                
                
                -Total
                    operating expenses
                
                
                4,956,000
                
                
                2,430,000
                
                
                9,300,000
                
                
                5,041,000Operating
                    loss
                
                
                (5,656,000
                )
                
                (2,433,000
                )
                
                (10,466,000
                )
                
                (5,044,000
                )Other
                    income (expense):Interest
                    income
                
                
                46,000
                
                
                7,000
                
                
                56,000
                
                
                13,000Interest
                    expense
                
                
                (298,000
                )
                
                (54,000
                )
                
                (576,000
                )
                
                (54,000
                )Loss
                    on issuance of convertible notes
                
                
                -
                
                
                (15,209,000
                )
                
                -
                
                
                (15,209,000
                )Gain
                    (loss) on change in fair market value of compound embedded
                    derivative
                
                
                11,190,000
                
                
                (12,600,000
                )
                
                12,289,000
                
                
                (12,600,000
                )Gain
                    (loss) on change in fair market value of warrant liability
                
                
                10,808,000
                
                
                (9,959,000
                )
                
                10,923,000
                
                
                (9,959,000
                )Other
                    expense
                
                
                (290,000
                )
                
                -
                
                
                (328,000
                )
                
                -Net
                    income (loss)
                
                $
                15,800,000
                
                $
                (40,248,000
                )
                $
                11,898,000
                
                $
                (42,853,000
                )Net
                    income (loss) per share - basic
                
                $
                0.15
                
                $
                (0.51
                )
                $
                0.13
                
                $
                (0.55
                )Net
                    income (loss) per share - diluted
                
                $
                0.03
                
                $
                (0.51
                )
                $
                (0.04
                )
                $
                (0.55
                )Weighted
                    average shares outstanding - basic
                
                
                102,851,788
                
                
                78,807,012
                
                
                90,941,543
                
                
                77,982,836Weighted
                    average shares outstanding - diluted
                
                
                157,954,180
                
                
                78,807,012
                
                
                122,086,159
                
                
                77,982,836





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


4




**Solar
      EnerTech Corp.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**




**Six Months Ended March 31,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            11,898,000
            
            $
            (42,853,000
            )Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:Depreciation
                of fixed assets
            
            
            706,000
            
            
            9,000Stock-based
                compensation
            
            
            4,157,000
            
            
            4,225,000Loss
                on issuance of convertible notes
            
            
            -
            
            
            15,209,000Loss
                on debt extinguishment
            
            
            2,467,000
            
            
            -Amortization
                of note discount and deferred financing cost
            
            
            28,000
            
            
            -Loss
                (gain) on change in fair market value of compound embedded
                derivative
            
            
            (12,289,000
            )
            
            12,600,000Loss
                (gain) on change in fair market value of warrant liability
            
            
            (10,923,000
            )
            
            9,959,000Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (2,098,000
            )
            
            -Advance
                payments and other
            
            
            (1,561,000
            )
            
            (2,230,000
            )Inventories
            
            
            (947,000
            )
            
            (1,228,000
            )Tax
                and other receivable
            
            
            (1,188,000
            )
            
            -Accounts
                payable and accrued liabilities
            
            
            (1,103,000
            )
            
            315,000Customer
                advance payment
            
            
            894,000
            
            
            778,000Accounts
                payable and accrued liabilities, related parties
            
            
            -
            
            
            (69,000
            )Net
                cash used in operating activities
            
            
            (9,959,000
            )
            
            (3,285,000
            )**Cash
                flows from investing activities:**Acquisition
                of fixed assets
            
            
            (2,550,000
            )
            
            (2,287,000
            )Net
                cash used in investing actives
            
            
            (2,550,000
            )
            
            (2,287,000
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of common stock, net of offering cost
            
            
            19,887,000
            
            
            1,089,000Proceeds
                from note payable
            
            
            -
            
            
            100,000Proceeds
                from issuance of convertible notes, net of offering cost
            
            
            -
            
            
            15,950,000Net
                cash provided by financing activities
            
            
            19,887,000
            
            
            17,139,000Effect
                of exchange rate on cash and cash equivalents
            
            
            1,285,000
            
            
            33,000Net
                increase in cash and cash equivalents
            
            
            8,663,000
            
            
            11,600,000Cash
                and cash equivalents, beginning of period
            
            
            3,908,000
            
            
            2,799,000Cash
                and cash equivalents, end of period
            
            $
            12,571,000
            
            $
            14,399,000





The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.


5





**SOLAR
      ENERTECH CORP.**





**Notes
      to Condensed Consolidated Financial Statements**


**March
      31, 2008 (Unaudited)**





**NOTE
      1 — ORGANIZATION AND NATURE OF OPERATIONS**





Solar
      EnerTech Corp. (formerly Safer Residence Corporation) was incorporated in
      Nevada, United States of America, on July 7, 2004. To facilitate a change in
      focus from providing customers with home security assistance services to the
      solar energy industry on March 27, 2006, Safer Residence Corp. merged with
      and
      into Solar EnerTech Corp., and on April 7, 2006, changed its name to Solar
      EnerTech Corp. (the “Company”).





On
      July
      18, 2006, the Company executed an agency agreement with Solar EnerTech
      (Shanghai) Co., Ltd. (formerly known as Infotech (Shanghai) Solar Technologies
      Ltd.), effective April 10, 2006, to engage in business in China on its behalf.
      Infotech Shanghai is controlled through a Hong Kong company which is 100% owned
      by the Company’s President and CEO. See additional disclosures related to the
      agency agreement in Note 2 described below.





The
      Company was in the development stage through March 31, 2007. The quarter ended
      June 30, 2007 was the first quarter during which the Company was considered
      an
      operating company and no longer in the development stage.





**NOTE
      2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Principles
      of consolidation and basis of accounting**





These
      consolidated financial statements have been prepared in U.S. dollars and in
      accordance with accounting principles generally accepted in the United States
      of
      America, and include the accounts of Solar EnerTech and its wholly-controlled
      variable interest entities, Infotech (Hong Kong) Solar Technologies Ltd
      (“Infotech HK”) and Solar EnerTech (Shanghai) Co., Ltd. (formerly known as
      Infotech (Shanghai) Solar Technologies Ltd.) (“Infotech Shanghai”). Collectively
      the variable interest entities are referred to in these financial statements
      as
“Infotech”. Infotech HK is the holding company for Infotech Shanghai. Infotech
      HK does not have any investments or operations separate from Infotech Shanghai.
      All material intercompany accounts and transactions have been eliminated. The
      minority interests in Infotech were not significant at March 31, 2008 and as
      a
      result, no minority interest balance is reflected in these financial
      statements.





**Variable
      interest entities**





A
      variable interest entity (“VIE”) is an entity with an ownership, contractual or
      other financial interest held by a primary beneficiary that is determined by
      control attributes other than a majority voting interest. The Company’s
      contractual, financial and operating relationships with Infotech make the
      Company the primary beneficiary of Infotech’s losses, which are expected to
      extend into fiscal 2008 or longer, and any residual returns, if any, thereafter.
      Upon consolidation, the primary beneficiary records all of the VIE’s assets,
      liabilities and non-controlling interests as if it were consolidated based
      on a
      majority voting interest.





Under
      the
      Agency Agreement dated April 10, 2006, the Company engaged Infotech to undertake
      all activities necessary to build a solar technology business in China,
      including the acquisition of manufacturing facilities and equipment, employees
      and inventory. Because the Company and Infotech share the same managers and
      staff and the Company provides Infotech’s sole source of financial support, the
      companies effectively operate as parent and subsidiary. Infotech is not
      compensated for its services as agent; however, the Company is required to
      reimburse Infotech for the normal and usual expenses of managing the Company’s
      business activities as contemplated by the agreement. The Company does not
      have
      any responsibility to absorb costs incurred by Infotech beyond those incurred
      in
      its capacity as an agent for the Company nor does the Company have any rights
      to
      future returns of Infotech that are not associated with them acting in their
      capacity as our agent. However, substantially all of Infotech’s operations
      consist of them acting as our agent.





6




Under
      the
      terms of the Agency Agreement, the Agency Agreement continues through April
      10,
      2008 unless earlier terminated, and continues month-to-month thereafter unless
      otherwise terminated. The Company may terminate the agreement at any time.
      While
      the Agency Agreement does not specifically provide the right for Infotech
      Shanghai to terminate the agreement, after expiration of the initial term on
      April 10, 2008, Infotech Shanghai may presumably terminate the Agency Agreement
      by electing not to continue. Upon termination of the agreement, (i) Infotech
      Shanghai is obligated to return any funds advanced by the Company for future
      expenses and deliver to the Company a final accounting of expenses incurred
      on
      behalf of the Company along with associated books and records and (ii) the
      Company is obligated to pay Infotech Shanghai any outstanding amounts owed
      to
      Infotech Shanghai. Upon termination of the Agency Agreement, shareholders of
      the
      Company would not have rights to the net assets of Infotech Shanghai which
      exist
      independent of the Agency Agreement. However, any property, plant and equipment
      purchased or constructed on behalf of the Company under the Agency Agreement
      which were funded by the Company are legally owned by the Company and not by
      Infotech Shanghai and therefore while the Agency Agreement does not specifically
      provide for the transfer of any of the net assets of Infotech Shanghai, under
      general principals of agency law, Infotech Shanghai would be required to
      transfer such assets to the Company upon request. As of the date of this report,
      the Company and Infotech are in the process of renewing the Agency Agreement
      and
      expect to complete the agreement during the third fiscal quarter ended June
      30,
      2008.





While
      Infotech is not a subsidiary of the Company, under Chinese law, funds held
      by
      Infotech for the operation of the Company’s business can be transferred from
      Infotech pursuant to an agreement such as the existing Agency Agreement. We
      are
      not aware of any significant currency or other restrictions on Infotech’s
      ability to perform under the Agency Agreement.





All
      of
      the Company’s business activities conducted in China are carried out by
      Infotech. As of March 31, 2008 and September 30, 2007, total assets held by
      Infotech as agent for Solar EnerTech amounted to $32.1 million and $21.6
      million, respectively. Total advances and reimbursements made to date from
      the
      Company to Infotech as of March 31, 2008 and September 30, 2007 were $37.5
      million and $26.2 million, respectively, which effectively represent
      intercompany receivables to the Company from Infotech Shanghai which are
      eliminated during consolidation. Infotech’s operating expenses on behalf of
      Solar for the six months ended March 31, 2008 and 2007 totaled $1.6 million and
      $0.3
      million ,
      respectively. Infotech’s only debt consisted of advances received from the
      Company.





**Inventories**





Inventories
      are stated at the lower of cost or market. Cost is determined by the
      weighted-average method. Raw material cost is based on purchase costs while
      work-in-progress and finished goods comprise of direct materials, direct labor
      and an allocation of manufacturing overhead costs. Provisions are made for
      excess, slow moving and obsolete inventory as well as inventory whose carrying
      value is in excess of net realizable value.





**Income
      taxes**





The
      Company files federal and state income tax returns in the United States for
      its
      United States operations, and files separate foreign tax returns for its foreign
      subsidiary in the jurisdictions in which this entity operates. The Company
      accounts for income taxes under the provisions of SFAS No. 109, Accounting
      for Income Taxes (“SFAS 109”).





Under
      the
      provisions of SFAS 109, deferred tax assets and liabilities are recognized
      for
      the future tax consequences attributable to differences between their financial
      statement carrying amounts and their respective tax bases. Deferred tax assets
      and liabilities are measured using enacted tax rates expected to apply to
      taxable income in the years in which those temporary differences are expected
      to
      be recovered or settled. The effect on deferred tax assets and liabilities
      of a
      change in tax rates is recognized in income in the period that includes the
      enactment date.





**Valuation
      allowance**





Significant
      judgment is required in determining any valuation allowance recorded against
      deferred tax assets. In assessing the need for a valuation allowance, we
      consider all available evidence including past operating results, estimates
      of
      future taxable income, and the feasibility of tax planning strategies. In the
      event that we change our determination as to the amount of deferred tax assets
      that can be realized, we will adjust our valuation allowance with a
      corresponding impact to the provision for income taxes in the period in which
      such determination is made.




7




**Unrecognized
      Tax Benefits**




Effective
      on October 1, 2007, the Company adopted the provisions of Interpretation No.
      48,
“Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
      Statement No. 109” (“FIN 48”).  Under FIN 48, the impact of an uncertain
      income tax position on the income tax return must be recognized at the largest
      amount that is more-likely-than-not to be sustained upon audit by the relevant
      taxing authority based solely on the technical merits of the associated tax
      position.  An uncertain income tax position will not be recognized if it
      has less than a 50% likelihood of being sustained. The Company also elected
      the
      accounting policy that requires interest recognized in accordance with Paragraph
      15 of FIN 48 and penalties recognized in accordance with Paragraph 16 of FIN
      48
      be classified as part of its income taxes. The Company classifies the liability
      for unrecognized tax benefits as current to the extent that it anticipates
      payment (or receipt) of cash within one year, otherwise, the liability will
      be
      classified as non-current. Additionally, FIN 48 provides guidance on
      de-recognition, accounting in interim periods, disclosure and transition.
 See Note 6 of Notes to Condensed Consolidated Financial Statements for
      additional information.




**Derivative
      financial instruments**





Statement
      of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. These derivatives, including
      embedded derivatives in our structured borrowings, are separately valued and
      accounted for on the balance sheet. Fair values for exchange-traded securities
      and derivatives are based on quoted market prices. Where market prices are
      not
      readily available, fair values are determined using market based pricing models
      incorporating readily observable market data and requiring judgment and
      estimates.





In
      September 2000, the Emerging Issues Task Force issued EITF 00-19, “Accounting
      for Derivative Financial Instruments Indexed to and Potentially Settled in,
      a
      Company’s Own Stock,” (“EITF 00-19”) which requires freestanding contracts that
      are settled in a company’s own stock, including common stock warrants, to be
      designated as an equity instrument, an asset or a liability. Under the
      provisions of EITF 00-19, a contract designated as an asset or a liability
      must
      be carried at fair value on a company’s balance sheet, with any changes in fair
      value recorded in the company’s results of operations.





The
      Company’s management used market-based pricing models to determine the fair
      values of the Company’s derivatives. The model uses market-sourced inputs such
      as interest rates, exchange rates and option volatilities. Selection of these
      inputs involves management’s judgment and may impact net income.





The
      method used to estimate the value of the compound embedded derivatives (“CED”)
      as of each valuation date was a Monte Carlo simulation. Under this method the
      various features, restrictions, obligations and options related to each
      component of the CED were analyzed and spreadsheet models of the net expected
      proceeds resulting from exercise of the CED (or non-exercise) were created.
      Each
      model is expressed in terms of the expected timing of the event and the expected
      stock price as of that expected timing.





Because
      the potential timing and stock price may vary over a range of possible values,
      a
      Monte Carlo simulation was built based on the possible stock price paths (i.e.,
      daily expected stock price over a forecast period). Under this approach an
      individual potential stock price path is simulated based on the initial stock
      price at the measurement date, the expected volatility and risk free rate over
      the forecast period. Each path is compared against the logic described above
      for
      potential exercise events (or non-exercise which result in $0 value) and the
      present value recorded. This is repeated over a significant number of trials,
      or
      individual stock price paths, in order to generate an expected or mean value
      for
      the present value of the CED.





The
      Company’s management used the binomial valuation model to value warrants issued
      in conjunction with convertible notes entered into in March 2007. The model
      uses
      inputs such as implied term, suboptimal exercise factor, volatility, dividend
      yield and risk-free interest rate. Selection of these inputs involves
      management’s judgment and may impact estimated value.





**Stock-Based
      Compensation**





On
      January 1, 2006, the Company began recording compensation expense associated
      with stock options and other forms of employee equity compensation in accordance
      with Statement of Financial Accounting Standards No. 123R, *Share-Based Payment,* as
      interpreted by SEC Staff Accounting Bulletin No. 107.




8




The
      Company estimates the fair value of stock options granted using the
      Black-Scholes-Merton option-pricing formula and a single option award approach.
      This fair value is then amortized on a straight-line basis over the requisite
      service periods of the awards, which is generally the vesting period. The
      following assumptions are used in the Black-Scholes-Merton option pricing
      model:





Expected
      Term —The Company’s expected term represents the period that the Company’s
      stock-based awards are expected to be outstanding;





Expected
      Volatility— The Company’s expected volatilities are based on historical
      volatility of the Company’s stock, adjusted where determined by management for
      unusual and non-representative stock price activity not expected to recur.
      Due
      to the limited trading history, we also considered volatility data of guidance
      companies;





Expected
      Dividend —The Black-Scholes-Merton valuation model calls for a single expected
      dividend yield as an input. The Company currently pays no dividends and does
      not
      expect to pay dividends in the foreseeable future;





Risk-Free
      Interest Rate— The Company bases the risk-free interest rate on the implied
      yield currently available on United States Treasury zero-coupon issues with
      an
      equivalent remaining term; and





Estimated
      Forfeitures— When estimating forfeitures, the Company uses the average
      historical option forfeitures over a period of four years.





In
      conjunction with stock option awards granted to the President/CEO and a director
      in March 2006, the management estimated the fair value of the equity of the
      Company using a simple weighted average (50/50) of the Income Approach,
      Discounted Cash Flow Method (“Income Approach”), and Market Approach, Guideline
      Public Company Method (“Market Approach”). There were no discounts taken for
      this determination of the equity value of The Company.





For
      the
      Income Approach, management utilized a five year forecast of income and
      expenses, including capital expenditures, to determine debt-free cash flow.
      Management used a multiple of 2.9 times 2010 forecasted revenue to determine
      a
      terminal value for the Company. The multiple of 2.9 was based upon the median
      2008 business enterprise value to revenue multiple of three comparable public
      companies in the same industry as the Company, and of similar size. The discrete
      cash flows and the terminal value were present-valued using a discount rate
      of
      fifty percent. The discount rate was based upon guideline discount rates for
      early stage companies from the AICPA Practice Aid Series, *Valuation*  *of
      Privately-Held-Company Equity Securities Issued as Compensation* .
      The sum
      of the present values of the discrete cash flows plus the terminal value
      determined the business enterprise value of the Company. “Net Debt” was
      subtracted from the business enterprise value to determine the value of equity
      of the Company.





For
      the
      Market Approach, management used the same three guideline public companies
      that
      were used for the terminal value multiple to determine 1) a revenue multiple
      for
      the twelve months trailing the Valuation Date of March 1, 2006; 2) a revenue
      multiple for 2007; and 3) a revenue multiple for 2008 (the same multiple used
      to
      determine the terminal value of the Company). As the Company had no revenue
      for
      the trailing twelve months prior to the Valuation Date, management relied upon
      the revenue multiples for 2007 and 2008. Management applied the multiples to
      the
      revenue forecast of the Company for the years 2007 and 2008, and determined
      an
      equity value for the Company as an equally weighted average sum of the two
      multiples.





**Revenue
      Recognition**





The
      Company recognizes revenue in accordance with Staff Accounting Bulletin (SAB)
      No. 104, Revenue Recognition, which states that revenue is realized or
      realizable and earned when all of the following criteria are met: persuasive
      evidence of an arrangement exists; delivery has occurred or services have been
      rendered; the price to the buyer is fixed or determinable; and collectability
      is
      reasonably assured. Where a revenue transaction does not meet any of these
      criteria it is deferred and recognized once all such criteria have been met.
      In
      instances where final acceptance of the product, system, or solution is
      specified by the customer, revenue is deferred until all acceptance criteria
      have been met.





For
      the
      six months ended March 31, 2008, approximately 40% of the Company’s revenue came
      from reselling of polysilicon or wafer raw materials. On a transaction by
      transaction basis, we determine if the revenue should be recorded on a gross
      or
      net basis based on criteria discussed in EITF99-19, *Reporting Revenue Gross as a Principal versus Net as an Agent* .
      We
      consider the following factors when we determine the gross versus net
      presentation: if the Company (i) acts as principal in the transaction; (ii)
      takes title to the products; (iii) has risks and rewards of ownership, such
      as
      the risk of loss for collection, delivery or return; and (iv) acts as an agent
      or broker (including performing services, in substance, as an agent or broker)
      with compensation on a commission or fee basis. All transactions incurred in
      fiscal year 2008 were recorded on a gross basis.




**Segment
      Information**





Solar
      EnerTech identifies its operating segments based on its business activities
      and
      geographical locations. Solar EnerTech operates within a single operating
      segment, being the manufacture of solar energy cells and modules. Solar EnerTech
      operates in the United States and in China. All of the Company’s sales occurred
      in China and substantially all of the Company’s fixed assets are located in
      China.





9





**Reclassifications**





Certain
      amounts in the prior year financial statements have been reclassified to conform
      to the current year presentation. These reclassifications have no effect on
      previously reported results of operations.





**Recent
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
      Measurements.” SFAS 157 defines fair value to measure assets and liabilities,
      establishes a framework for measuring fair value, and requires additional
      disclosures about the use of fair value. SFAS 157 is applicable whenever another
      accounting pronouncement requires or permits assets and liabilities to be
      measured at fair value. SFAS 157 does not expand or require any new fair value
      measures. SFAS 157 is effective for fiscal years beginning after November 15,
      2007. The Company is currently evaluating the impact that the adoption of FAS
      157 will have on its financial position or results of operations.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
      for Financial Assets and Financial Liabilities—Including an Amendment of FASB
      Statement No. 115.” SFAS 159 expands the use of fair value accounting but does
      not affect existing standards which require assets or liabilities to be carried
      at fair value. The objective of SFAS 159 is to improve financial reporting
      by
      providing companies with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. Under SFAS 159, a company
      may elect to use fair value to measure eligible items at specified election
      dates and report unrealized gains and losses on items for which the fair value
      option has been elected in earnings at each subsequent reporting date. Eligible
      items include, but are not limited to, accounts and loans receivable,
      available-for-sale and held-to-maturity securities, equity method investments,
      accounts payable, guarantees, issued debt and firm commitments. If elected,
      SFAS
      159 is effective for fiscal years beginning after November 15, 2007. The Company
      is currently assessing whether fair value accounting is appropriate for any
      of
      its eligible items and is in process of estimating the impact, if any, on its
      results of operations or financial position.





In
      December 2007, the FASB issued Statement No. 160 (“SFAS 160”),
“Noncontrolling Interests in Consolidated Financial Statements, an amendment
      of
      ARB No. 51.” The standard changes the accounting for noncontrolling
      (minority) interests in consolidated financial statements, including the
      requirements to classify noncontrolling interests as a component of consolidated
      stockholders’ equity, and the elimination of “minority interest” accounting in
      results of operations with earnings attributable to non-controlling interests
      reported as part of consolidated earnings. Additionally, SFAS 160 revises
      the accounting for both increases and decreases in a parent’s controlling
      ownership interest. SFAS 160 is effective for the first annual reporting period
      beginning on or after December 15, 2008. Thus, SFAS 160 will be
      effective for the Company in fiscal 2010, with early adoption prohibited. The
      Company is evaluating the potential impact of the implementation of
      SFAS 160 on its financial position and results of operations.





In
      December 2007, the FASB issued Statement 141 (revised) (“SFAS 141(R)”),
“Business Combinations.” The standard changes the accounting for business
      combinations, including the measurement of acquirer shares issued in
      consideration for a business combination, the recognition of contingent
      consideration, the accounting for preacquisition gain and loss contingencies,
      the recognition of capitalized in-process research and development, the
      accounting for acquisition-related restructuring cost accruals, the treatment
      of
      acquisition related transaction costs, and the recognition of changes in the
      acquirer’s income tax valuation allowance. SFAS 141(R) is effective for the
      first annual reporting period beginning on or after December 15, 2008.
      Thus, SFAS 141(R) will be effective for the Company in fiscal 2010, with
      early adoption prohibited. The Company is evaluating the potential impact of
      the
      implementation of Statement 141(R) on its financial position and results of
      operations.





In
      March 2008, the FASB issued SFAS No. 161 (“SFAS 161”),
“Disclosures ** about
      Derivative Instruments and Hedging Activities.” SFAS 161 requires additional
      disclosures related to the use of derivative instruments, the accounting for
      derivatives and how derivatives impact financial statements.  SFAS
      No. 161 is effective for fiscal years and interim periods beginning after
      November 15, 2008.  Thus, the Company is required to adopt this
      standard on January 1, 2009.  The Company is currently evaluating the
      impact of adopting SFAS No. 161 on its financial position and results of
      operations.




10





**NOTE
      3 — INVENTORIES**





At
      March
      31, 2008 and September 30, 2007, inventories consist of:





**March 31, 2008**
            
            **September 30, 2007**Raw
                materials
            
            $
            3,654,000
            
            $
            2,724,000Work
                in process
            
            
            486,000
            
            
            839,000Finished
                goods
            
            
            2,515,000
            
            
            2,145,000Total
                inventories
            
            $
            6,655,000
            
            $
            5,708,000




**NOTE 4
      — ADVANCE PAYMENTS AND OTHER**





At
      March
      31, 2008 and September 30, 2007, advance payments and other consist
      of:





**March 31, 2008**
            
            **September 30, 2007**Prepayment
                for raw materials
            
            $
            8,018,000
            
            $
            6,500,000Others
            
            
            43,000
            
            
            -Total
                advance payments and other
            
            $
            8,061,000
            
            $
            6,500,000





**NOTE
      5— FIXED ASSETS**





At
      March
      31, 2008 and September 30, 2007, fixed assets consist of:





**March 31, 2008**
            
            **September 30, 2007**Production
                equipment
            
            $
            2,541,000
            
            $
            1,065,000Leasehold
                improvement
            
            
            2,043,000
            
            
            1,615,000Machinery
            
            
            670,000
            
            
            455,000Automobiles
            
            
            411,000
            
            
            333,000Office
                equipment
            
            
            178,000
            
            
            88,000Furniture
            
            
            59,000
            
            
            38,000Construction
                in progress
            
            
            749,000
            
            
            -Total
                Fixed Assets
            
            
            6,651,000
            
            
            3,594,000Less:
                Accumulated depreciation
            
            
            (1,084,000
            )
            
            (379,000
            )Net
                Fixed Assets
            
            $
            5,567,000
            
            $
            3,215,000




**NOTE
      6 — INCOME TAX**





The
      Company has no taxable income and no provision for federal and state income
      taxes is required for the three and six months ended March 31, 2008 and March
      31, 2007, respectively, except for certain minimum state taxes.





The
      Company accounts for income taxes using the liability method in accordance
      with
      Financial Accounting Standards Board Statement No. 109, Accounting for
      Income Taxes (“SFAS 109”). SFAS 109 requires recognition of deferred tax assets
      and liabilities for the expected future tax consequences of events that have
      been recognized in the Company’s financial statements, but have not been
      reflected in the Company’s taxable income. A valuation allowance is established
      to reduce deferred tax assets to their estimated realizable value. Therefore,
      the Company provides a valuation allowance to the extent that the Company does
      not believe it is more likely than not that the Company will generate sufficient
      taxable income in future periods to realize the benefit of the Company’s
      deferred tax assets. As of March 31, 2008 and March 31, 2007, the deferred
      tax
      asset was subject to a 100% valuation allowance and therefore is not recorded
      on
      the Company’s balance sheet as an asset. Realization of the Company’s deferred
      tax assets is limited and the Company may not be able to fully utilize these
      deferred tax assets to reduce the Company’s tax rates.





As
      of
      March 31, 2008, due to the history of losses the Company has generated in the
      past, the Company believes that it is more-likely-than-not that the deferred
      tax
      assets cannot be realized before the respective utilization expiration dates.
      Therefore, we have a full valuation allowance on our deferred tax assets.
      Utilization of the net operating loss carry forwards and credits may be subject
      to a substantial annual limitation due to the ownership change limitations
      provided by the Internal Revenue Code of 1986, as amended and similar state
      provisions. The annual limitation may result in the expiration of net operating
      losses and credits before utilization. The Company also has net operating losses
      in its foreign jurisdiction and that loss can be carried over 5 years from
      the
      year the loss was incurred.




11




In
        July
        2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
        in
        income taxes recognized in any entity’s financial statements in accordance with
        SFAS 109 and prescribes a recognition threshold and measurement attributes
        for
        financial statement disclosure of tax positions taken or expected to be taken
        on
        a tax return. Under FIN 48, the impact of an uncertain income tax position
        on
        the income tax return must be recognized at the largest amount that is
        more-likely-than-not to be sustained upon audit by the relevant taxing
        authority. An uncertain income tax position will not be recognized if it
        has
        less than a 50% likelihood of being sustained. Additionally, FIN 48 provides
        guidance on de-recognition, classification, interest and penalties, accounting
        in interim periods, disclosure and transition. FIN 48 is effective for fiscal
        years beginning after December 15, 2006.
 
 The
        Company has adopted the provisions of FIN 48 on October 1, 2007. The total
        amount of unrecognized tax benefits as of the date of adoption was not material.
        As a result of the implementation of FIN 48, the Company recognized no increase
        in the liability for unrecognized tax benefits and no retained earnings
        adjustment as of October 1, 2007. We have adopted the accounting policy such
        that interest recognized in accordance with Paragraph 15 of FIN 48 and penalty
        recognized in accordance with Paragraph 16 of FIN 48 are classified as part
        of
        our income tax expense.
  The
        Company is subject to taxation in the United States and China. There are
        no
        ongoing examinations by taxing authorities at this time. The Company has
        open
        tax years from 2004 to present in various taxing jurisdictions. Tax returns
        filed for these tax years may be audited by the applicable tax
        authorities.
 
 **NOTE
        7— CONVERTIBLE NOTES**
 
 On
        March
        7, 2007, Solar EnerTech entered into a securities purchase agreement to issue
        $17,300,000 of secured convertible notes (the “notes”) and detachable stock
        purchase warrants (the “warrants”). Accordingly, during the three months ended
        March 31, 2007, Solar EnerTech sold units consisting of:
  **•**
              $5,000,000
                  in principal amount of Series A Convertible Notes and warrants
                  to purchase
                  7,246,377 shares (exercise price of $1.21 per share) of its common
                  stock;
 
 **•**
              $3,300,000
                  in principal amount of Series B Convertible Notes and warrants
                  to purchase
                  5,789,474 shares (exercise price of $0.90 per share) of its common
                  stock;
                  and
 
 **•**
              $9,000,000
                  in principal amount of Series B Convertible Notes and warrants
                  to purchase
                  15,789,474 shares (exercise price of $0.90 per share) of its common
                  stock.
 
 These
        notes bear interest at 6% per annum and are due in 2010. The principal amount
        of
        the Series A Convertible Notes may be converted at the initial rate of $0.69
        per
        share for a total of 7,246,377 shares of common stock (which amount does
        not
        include shares of common stock that may be issued for the payment of interest).
        The principal amount of the Series B Convertible Notes may be converted at
        the
        initial rate of $0.57 per share for a total of 21,578,948 shares of common
        stock
        (which amount does not include shares of common stock that may be issued
        for the
        payment of interest).
 
 In
        connection with the issuance of the notes and warrants, the Company engaged
        an
        exclusive advisor and placement agent (the “advisor”) and issued warrants to the
        advisor to purchase an aggregate of 1,510,528 shares at an exercise price
        of
        $0.57 per share and 507,247 shares at an exercise price of $0.69 per share,
        of
        the Company’s common stock (the “advisor warrants”). In addition to the issuance
        of the warrants, the Company paid $1,038,000 in commissions, an advisory
        fee of
        $173,000, and other fees and expenses of $84,025.
 
 The
        Company evaluated the notes for derivative accounting considerations under
        SFAS
        133 and EITF 00-19 and determined that the notes contain two embedded derivative
        features, the conversion option and a redemption privilege accruing to the
        holder if certain conditions exist (the “compound embedded derivative”). The
        compound embedded derivative is measured at fair value both initially and
        in
        subsequent periods. Changes in fair value of the compound embedded derivative
        are recorded in the account “gain (loss) on fair market value of compound
        embedded derivative” in the accompanying consolidated statements of
        operations.
 
 The
        warrants (including the advisor warrants) are classified as a liability,
        as
        required by SFAS No. 150, due to the terms of the warrant agreement which
        contains cash redemption provision in the event of a fundamental transaction.
        The warrants are measured at fair value both initially and in subsequent
        periods. Changes in fair value of the warrants are recorded in the account
“gain
        (loss) on fair market value of warrant liability” in the accompanying
        consolidated statements of operations.
  12





The
      following table summarizes the valuation of the notes, the warrants (including
      the advisor warrants), and the compound embedded derivative:





**Amount**Proceeds
                of convertible notes
            
            $
            17,300,000Allocation
                of proceeds:Fair
                value of warrant liability (excluding advisor warrants)
            
            
            (15,909,000
            )Fair
                value of compound embedded derivative liability
            
            
            (16,600,000
            )Loss
                on issuance of convertible notes
            
            
            15,209,000Carrying
                amount of notes at grant date
            
            $
            -Carrying
                amount of notes at September 30, 2007
            
            $
            7,000Amortization
                of note discount
            
            
            21,000Carrying
                amount of notes at March 31, 2008
            
            $
            28,000Fair
                value of warrant liability at September 30, 2007
            
            $
            17,390,000Gain
                on fair market value of warrant liability
            
            
            (10,923,000
            )Fair
                value of warrant liability at March 31, 2008
            
            $
            6,467,000Fair
                value of compound embedded derivative at September 30,
                2007
            
            $
            16,800,000Gain
                on fair market value of embedded derivative liability
            
            
            (12,289,000
            )Conversion
                of Series A Notes
            
            
            (1,611,000
            )Fair
                value of compound embedded derivative at March 31, 2008
            
            $
            2,900,000





The
      value
      of the warrants (including the advisor warrants) was estimated using a binomial
      valuation model with the following assumptions:





**March 31, 2008**
            
            **September 30, 2007**Implied
                term (years)
            
            
            3.93
            
            
            4.43Suboptimal
                exercise factor
            
            
            2.5
            
            
            2.5Volatility
            
            
            82
            %
            
            72
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Risk
                free interest rate
            
            
            2.13
            %
            
            4.23
            %





In
      conjunction with March 2007 financing, we recorded total deferred financing
      cost
      of $2.5 million, of which $1.3 million represented cash payment and $1.2 million
      represented the fair market value of the advisor warrants. The deferred
      financing cost is amortized over the three year life of the notes using a method
      that approximates the effective interest rate method. The advisor warrants
      were
      recorded as a liability and adjusted to fair value in each subsequent period.
      As
      of March 31, 2008, total unamortized deferred financing cost was $2.1
      million.





The
      method used to estimate the value of the compound embedded derivatives (“CED”)
      as of each valuation date was a Monte Carlo simulation. Under this method the
      various features, restrictions, obligations and option related to each component
      of the CED were analyzed and spreadsheet models of the net expected proceeds
      resulting from exercise of the CED (or non-exercise) were created. Each model
      is
      expressed in terms of the expected timing of the event and the expected stock
      price as of that expected timing.





Because
      the potential timing and stock price may vary over a range of possible values,
      a
      Monte Carlo simulation was built based on the possible stock price paths (i.e.,
      daily expected stock price over a forecast period). Under this approach an
      individual potential stock price path is simulated based on the initial stock
      price at the measurement date, the expected volatility and risk free rate over
      the forecast period. Each path is compared against the logic describe above
      for
      potential exercise events and the present value (or non-exercise which result
      in
      $0 value) recorded. This is repeated over a significant number of trials, or
      individual stock price paths, in order to generate an expected or mean value
      for
      the present value of the CED.


13





The
      significant assumptions used in estimating stock price paths as of each
      valuation date are:





**March 31, 2008**
            
            **September 30, 2007**Starting
                stock price (closing price on date preceding valuation
                date)
            
            
            0.59
            
            
            1.28Annual
                volatility of stock
            
            
            82.00
            %
            
            72.10
            %Risk
                free rate (based on 3yr T-Bill)
            
            
            1.62
            %
            
            3.97
            %





Additional
      assumptions were made regarding the probability of occurrence of each exercise
      scenario, based on stock price ranges (based on the assumption that scenario
      probability is constant over narrow ranges of stock price). The key scenarios
      included public offering, bankruptcy and other defaults.





During
      the quarter ended March 31, 2008, $2.1 million of Series A and B convertible
      notes were converted into our common shares. We recorded a loss on debt
      extinguishment of $2.1 million as a result of the conversion based on the quoted
      market closing price of our common shares on the conversion dates. For the
      six
      months ended March 31, 2008, $3.1 million of Series A and B convertible notes
      were converted into our common shares. We recorded a loss on debt extinguishment
      of $2.8 million as a result of the conversion based on the quoted market closing
      price of our common shares on the conversion dates.




The
      loss
      on debt extinguishment is computed at the conversion dates as
      follow:





**Three Months Ended**
            
            **Six Months Ended****March 31, 2008**
            
            **March 31, 2008**Fair
                value of the common shares
            
            $
            2,709,000
            
            $
            4,008,000Unamortized
                deferred financing costs associated with the converted
                notes
            
            
            310,000
            
            
            449,000Fair
                value of the CED liability associated with the converted
                notes
            
            
            (910,000
            )
            
            (1,611,000
            )Accreted
                amount of the notes discount
            
            
            (4,000
            )
            
            (5,000
            )Loss
                on debt extinguishment
            
            $
            2,105,000
            
            $
            2,841,000





For
      the
      six months ended March 31, 2008, we recorded $2.8 million of loss on debt
      extinguishment from Series A and B convertible notes. This loss was offset
      by a
      gain on debt extinguishment from settlement agreement with Coach Capital LLC
      in
      the amount of $0.4 million (see Note 8 below).  The net amount of $2.5
      million loss on debt extinguishment is included in the Consolidated Statements
      of Operations.




**NOTE
      8 — EQUITY TRANSACTIONS**





**Common
      stock issued for repayment of loans**





During
      the quarter ended December 31, 2007, the Company was informed by Thimble Capital
      that it had assigned the note payable of $100,000 due from us to Coach Capital
      LLC. The Company was also informed by Infotech Essentials Ltd. that it had
      assigned the note payable of $450,000 due from us to Coach Capital
      LLC.





On
      December 20, 2007, we entered into a settlement agreement with Coach Capital
      LLC
      to settle all outstanding notes payable in the amount of $1.2 million and
      related interest in exchange for the issuance of the Company’s common stock. The
      share price stated in the settlement agreement was $1.20 per share. The
      Company’s shares of common stock were valued at $0.84 per share, the closing
      price, on December 20, 2007. As a result, the Company recorded a gain on
      extinguishment of debt of $0.4 million.





**Warrants**





During
      November 2006, in connection with the sale of the Company’s common stock, the
      board of directors approved the issuance of a warrant to purchase an additional
      2,500,000 shares of the Company’s common stock. The warrant is exercisable at $1
      per share and expired as of November 20, 2007.





The
      fair
      value of the warrants issued in May through November 2006 in connection with
      the
      purchase of common stock has been allocated on a relative fair value basis
      between the value of the common stock and the warrants issued using the
      Black-Scholes -Merton option pricing model with the following assumptions:
      a
      risk-free interest rate of 4.50%, no dividend yield, a volatility factor of
      82.57% and a contract life of one year.





During
      March 2007, in conjunction with the issuance of $17,300,000 in convertible
      debt,
      the board of directors approved the issuance of warrants (as described in Note
      7
      above) to purchase shares of the Company’s common stock. The 7,246,377 series A
      warrants and the 21,578,948 series B warrants are exercisable at $1.21 and
      $0.90, respectively and expire in March 2012. In addition, in March 2007, as
      additional compensation for services as placement agent for the convertible
      debt
      offering, the Company issued the advisor warrants, which entitle the placement
      agent to purchase 507,247 and 1,510,528 shares of the Company’s common stock at
      exercise prices of $0.69 and $0.57 per share, respectively. The advisor warrants
      expire in March 2012.


14


On
        January 11, 2008, the Company sold 24,318,181 shares of its common stock
        and
        24,318,181 Series C warrants to purchase shares of Common Stock for an aggregate
        purchase price of $21.4 million in a private placement offering to accredited
        investors. The exercise price of the warrants is $1.00 per share. The warrants
        are exercisable for a period of 5 years from the date of issuance of the
        warrants. We intend to use the net proceeds from the offering for working
        capital and general corporate purposes.
 
 For
        the
        services in connection with this closing, the placement agent and the selected
        dealer, Knight Capital Markets, LLC and Ardour Capital Investments, received
        an
        aggregate of a 6.0% cash commission, a 1.0% advisory fee and warrants to
        purchase 1,215,909 shares of common stock at $0.88 per share, exercisable
        for a
        period of 5 years from the date of issuance of the warrants. The net proceeds
        from issuing common stocks and Series C warrants in January 2008 after all
        the
        financing costs were $19.9 million and were recorded in additional paid in
        capital and common stock. Neither the shares of common stock nor the shares
        of
        common stock underlying the warrants sold in this offering were granted
        registration rights. Additionally, in connection with the offering all of
        our
        Series A and Series B warrant holders waived their full ratchet
        anti-dilution and price protection rights previously granted to them in
        connection with our March 2007 convertible note and warrant financing.


The
      warrants (including the advisor warrants) are classified as a liability, as
      required by SFAS No. 150 (as interpreted by FASB Staff Position
      150-1 *“Issuer’s*  *Accounting for Freestanding Financial Instruments Composed of More Than
      One*  *Option or Forward Contract Embodying Obligations under FASB Statement No.
      150,*  *Accounting for Certain Financial Instruments with Characteristics of
      Both*  *Liabilities and Equity”,* due to
      the terms of the warrant agreements which contain cash redemption provisions
      in
      the event of a fundamental transaction (as defined below), which provide that
      the Company would repurchase any unexercised portion of the warrants at the
      date
      of the occurrence of the fundamental transaction for the value as determined
      by
      the Black-Scholes Merton valuation model. As a result, the warrants are measured
      at fair value both initially and in subsequent periods. Changes in fair value
      of
      the warrants are recorded in the account “gain (loss) on fair market value of
      warrant liability” in the accompanying Consolidated Statements of
      Operations.





A
      summary
      of warrant activities through March 31, 2008 is as follows:


**Number
                  of Shares**
              
              **Exercise
                  Price ($)**
              
              **Recognized
                  as**Granted
                  in connection with common stock purchase
              
              
              2,500,000
              
              
              1.00
              
              
              Additional
                  paid in capitalGranted
                  in connection with convertible notes — Series A
              
              
              7,246,377
              
              
              1.21
              
              
              Discount
                  to notes payableGranted
                  in connection with convertible notes — Series B
              
              
              21,578,948
              
              
              0.90
              
              
              Discount
                  to notes payableGranted
                  in connection with placement service
              
              
              507,247
              
              
              0.69
              
              
              Deferred
                  financing costGranted
                  in connection with placement service
              
              
              1,510,528
              
              
              0.57
              
              
              Deferred
                  financing costOutstanding
                  at September 30, 2007
              
              
              33,343,100Granted
                  in connection with common stock purchase — Series C
              
              
              24,318,181
              
              
              1.00
              
              
              Additional
                  paid in capitalGranted
                  in connection with placement service
              
              
              1,215,909
              
              
              0.88
              
              
              Additional
                  paid in capitalExpired
              
              
              (2,500,000
              )Outstanding
                  at March 31, 2008
              
              
              56,377,190


At
      March
      31, 2008, the range of warrant prices for shares under warrants and the
      weighted-average remaining contractual life is as follows:





**Warrants
                Outstanding and Exercisable****Weighted-****Weighted-**
            
            **Average****Range
                of**
            
            
            
            **Average**
            
            **Remaining****Warrant**
            
            **Number
                of**
            
            **Exercise**
            
            **Contractual****Exercise
                Price**
            
            **Warrants**
            
            **Price**
            
            **Life**$0.57-$0.69
            
            
            2,017,775
            
            $
            0.60
            
            
            3.96$0.88-$1.00
            
            
            47,113,038
            
            $
            0.95
            
            
            4.41$1.21
            
            
            7,246,377
            
            $
            1.21
            
            
            3.94




**Options**





***Non-Plan
      Options***





Pursuant
      to an option agreement dated March 1, 2006 between Jean Blanchard, a former
      officer and director, and the President of the Company, the President has the
      right and option to purchase a total of 36,000,000 shares of the Company’s
      common stock at a price of $0.0001 per share, until February 10, 2010. The
      options granted under the agreement vest in three equal installments over a
      period of two years, with the first installment vesting immediately, and the
      remaining installments vesting at 12 and 24 months after the date of the
      agreement. During the year ended September 30, 2006, the President exercised
      10,750,000 options to purchase 10,750,000 shares and transferred 5,750,000
      shares to various employees of Infotech Shanghai. The Company recorded a stock
      compensation charge of $10,695,000 in the fiscal year ended September 30, 2006
      for the transfer of shares to the employees.


15





Pursuant
      to an option agreement dated March 1, 2006 between Jean Blanchard, a former
      officer and director of the Company, and Frankie Xie, a former director of
      the
      Company, Mr. Xie has the right and option to purchase a total of 1,500,000
      shares of the Company’s common stock at a price of $0.0001 per share, until
      February 10, 2010. The options granted under the agreement vested immediately.
      Mr. Xie exercised the 1,500,000 shares of the Company’s common stock in April
      2008.





The
      fair
      value of the options granted under these agreements was estimated at $26.4
      million using the Black-Scholes stock price valuation model with the following
      assumptions:




**•**
              Volatility
                  of 82.57%;
 
 **•**
              Risk-free
                  interest rate of 4.65%;
 
 **•**
              Expected
                  lives - 4 years;
 
 **•**
              No
                  dividend yield; and
 
 **•**
              Market
                  value per share of stock on measurement date of
                  $0.70.


Summary
      information regarding these options as of March 31, 2008 is as
      follows:





**Options
                Outstanding****Weighted****Number**
            
            
            
            
            
            
            
            **Number**
            
            **Average**
            
            **Weighted****of**
            
            
            
            
            
            
            
            **Outstanding**
            
            **Remaining**
            
            **Average****Options**
            
            
            
            **Exercise**
            
            
            
            **At March**
            
            **Contractual**
            
            **Exercise****Granted**
            
            **Expiration Date**
            
            **Price**
            
            **Exercised**
            
            **31, 2008**
            
            **Life (year)**
            
            **Price**Granted
                to Leo Young, the President, March 1, 2006
            
            
            36,000,000
            
            
            February 10, 2010
            
            $
            0.0001
            
            
            10,750,000
            
            
            25,250,000
            
            
            1.87
            
            $
            0.0001Granted
                to Frank Fang Xie, a former director, March 1, 2006
            
            
            1,500,000
            
            
            February 10, 2010
            
            $
            0.0001
            
            
            —
            
            
            1,500,000
            
            
            1.87
            
            $
            0.0001Total
            
            
            37,500,000
            
            
            
            
            
            
            
            
            10,750,000
            
            
            26,750,000
            
            
            1.87





As
      of
      March 31, 2008 the option to purchase 25.3 million shares of the Company’s
      common stock has vested for Mr. Young. Mr. Xie’s option vested on the grant date
      in March 2006.





***2007
      Equity Incentive Plan***





In
      September 2007, the Company adopted the 2007 Stock Incentive Plan (the “Plan”)
      that allows the Company to grant nonstatutory stock options to employees,
      consultants and directors. A total of 10,000,000 shares of the Company’s common
      stock are authorized for issuance under the Plan. The maximum number of shares
      that may be issued under the Plan will be increased for any options granted
      that
      expire, are terminated or repurchased by the Company for an amount not greater
      than the holder’s purchase price and may also be adjusted subject to action by
      the stockholders for changes in capital structure. Stock options may have
      exercise prices of not less than 100% of the fair value of a share of stock
      at
      the effective date of the grant of the option.


16





These
      options vest over various periods up to four years and expire no more than
      ten
      years from the date of grant. A summary of activity under this Plan is as
      follows:




**Shares Available For
                Grant**
            
            **Number of Shares**
            
            **Weighted**
              **Average Fair**
              **Value Per**
              **Share**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price Per**
              **Share**Balance
                at September 30, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —Shares
                reserved
            
            
            10,000,000
            
            
            —
            
            
            —
            
            
            —Options
                granted
            
            
            (7,300,000
            )
            
            7,300,000
            
            $
            0.66
            
            $
            1.20Balance
                at September 30, 2007
            
            
            2,700,000
            
            
            7,300,000
            
            $
            0.66
            
            $
            1.20Options
                cancelled
            
            
            200,000
            
            
            (200,000
            )
            $
            0.66
            
            $
            1.20Options
                granted
            
            
            (620,000
            )
            
            620,000
            
            $
            0.47
            
            $
            1.19Balance
                at March 31, 2008
            
            
            2,280,000
            
            
            7,720,000
            
            $
            0.64
            
            $
            1.20





At
      March
      31, 2008 and September 30, 2007, 7,720,000 and 7,300,000 options were
      outstanding, respectively and had a weighted-average remaining contractual
      life
      of 9.01 years and an exercise price of $1.20. Of these options, 1,830,006 and
      1,453,338 shares were vested and exercisable on March 31, 2008 and September
      30,
      2007, respectively.  The
      fair
      values of employee stock options granted were estimated using the Black-Scholes
      option-pricing model with the following weighted average
      assumptions:




**Three Months Ended**
                
                **Six Months Ended****March 31, 2008**
                
                **March 31, 2008**Volatility
                
                
                83.6
                %
                
                83.6
                %Expected
                    dividend
                
                
                0.0
                %
                
                0.0
                %Risk-free
                    interest rate
                
                
                2.2
                %
                
                2.8
                %Expected
                    term in years
                
                
                2.9
                
                
                3.0Weighted-average
                    fair value
                
                $
                0.43
                
                $
                0.47





**NOTE
      9 — OTHER COMPREHENSIVE INCOME**





The
      components of comprehensive income (loss) were as follows:


**Three Months Ended March 31,**
              
              **Six Months Ended March 31,****2008**
              
              **2007**
              
              **2008**
              
              **2007**Net
                  income (loss)
              
              $
              15,800,000
              
              $
              (40,248,000
              )
              $
              11,898,000
              
              $
              (42,853,000
              )Other
                  comprehensive income:Change
                  in foreign currency translation
              
              
              817,000
              
              
              (25,000
              )
              
              1,286,000
              
              
              10,000Comprehensive
                  income (loss)
              
              $
              16,617,000
              
              $
              (40,273,000
              )
              $
              13,184,000
              
              $
              (42,843,000
              )





Accumulated
      other comprehensive income at March 31, 2008 and September 30, 2007 is
      comprised of accumulated translation adjustments of $1.9 million and $0.6
      million, respectively.


17





**NOTE
      10 — NET INCOME (LOSS) PER SHARE**





The
      following table presents the computation of basic and diluted net income (loss)
      per share applicable to common stockholders:


**Three
                  Months Ended**
              
              **Six
                  Months Ended****March
                  31, 2008**
              
              **March
                  31, 2008**Calculation
                  of net income per share - basic:Net
                  income
              
              $
              15,800,000
              
              $
              11,898,000Weighted-average
                  number of common shares outstanding
              
              
              102,851,788
              
              
              90,941,543Net
                  income per share - basic
              
              $
              0.15
              
              $
              0.13Calculation
                  of net income (loss) per share - diluted:Net
                  income
              
              $
              15,800,000
              
              $
              11,898,000Less:
                  Gain on change in fair market value of compound embedded
                  derivative
              
              
              (11,190,000
              )
              
              (12,289,000
              )Deferred
                  financing costs
              
              
              20,000
              
              
              30,000Interest
                  expense on convertible notes
              
              
              298,000
              
              
              576,000Less:
                  Gain on change in fair market value of advisor warrants
              
              
              (722,300
              )
              
              (763,189
              )Less:
                  Gain on change in fair market value of Series B warrants
              
              
              -
              
              
              (3,846,211
              )Net
                  income (loss) assuming dilution
              
              $
              4,205,700
              
              $
              (4,394,400
              )Weighted-average
                  number of common shares outstanding
              
              
              102,851,788
              
              
              90,941,543Effect
                  of potentially dilutive secruties:Warrants
                  issued to advisors
              
              
              445,046
              
              
              661,974Convertible
                  notes
              
              
              28,825,325
              
              
              28,825,325Options
                  to officers
              
              
              25,832,021
              
              
              -Series
                  B Warrants
              
              
              -
              
              
              1,657,317Weighted-average
                  number of common shares outstanding assuming dilution
              
              
              157,954,180
              
              
              122,086,159Net
                  income (loss) per share - diluted
              
              $
              0.03
              
              $
              (0.04
              )




**NOTE
      11 — COMMITMENTS AND CONTINGENCIES**





**Capital
      investments**





Pursuant
      to a joint research and development laboratory agreement with Shanghai
      University, dated December 15, 2006 and expiring on December 15, 2016, Solar
      EnerTech is committed to fund the establishment of laboratories and completion
      of research and development activities. The Company committed to invest no
      less
      than RMB5 million each year for the first three years and no less than RMB30
      million cumulatively for the first five years. The following table summarizes
      the commitments in U.S. dollar based upon a translation of the RMB amounts
      into
      U.S. dollars at an exchange rate of 7.0190.




**Year**
            
            **Amount**2008
                (Remaining balance)*
            
            $
            1,092,0002009
            
            
            912,0002010
            
            
            912,0002011
            
            
            1,083,000Total
            
            $
            3,999,000





*
            The
                amount includes approximately $294,000 of 2007 commitment. The Company
                intended to increase research and development spending as we grow
                our
                business. The payment to Shanghai University will be used to fund
                program
                expenses and equipment purchase. The delay in payment could lead
                to
                Shanghai University requesting the Company to pay the committed amount
                within a certain time frame. If the Company is still not able to
                correct
                the breach within the time frame, Shanghai University could seek
                compensation up to an additional 15% of the committed amount which
                would
                then total a 2007 commitment of approximately$642,000.As
                of the date of this report, we have not received any request from
                Shanghai
                University.


18


The
      agreement is for shared investment in research and development on fundamental
      and applied technology in the fields of semi-conductive photovoltaic theory,
      materials, cells and modules. The agreement calls for Shanghai University to
      provide equipment, personnel and facilities for joint laboratories. The Company
      will provide funding, personnel and facilities for conducting research and
      testing. Research and development achievements from this joint research and
      development agreement will be available to both parties. The Company is entitled
      to intellectual property rights including copyrights and patents obtained as
      a
      result of this research.





Expenditures
      under his agreement will be accounted for as research and development
      expenditures under Statement of Financial Accounting Standard #2 - ‘Accounting
      for Research and Development Costs’ and expensed as incurred.





**NOTE
      12 — RELATED PARTY TRANSACTIONS**





At
      March
      31, 2008, accounts payable and accrued liabilities, related party, of $4 million
      primarily representing compensation expense related to the Company’s obligation
      to withhold tax upon exercise of stock options by our President and CEO of
      the
      transaction incurred in the fiscal year 2006. The amount represents the
      Company’s estimate of the tax withholding obligation.





**ITEM
      2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




All
      references to the “Company,” “we,” “our,” and “us” refer to Solar EnerTech Corp.
      and its subsidiaries (“Solar EnerTech”).





The
      following discussion contains forward-looking statements within the meaning
      of
      the Private Securities Litigation Reform Act of 1995 that relate to our current
      expectations and views of future events. In some cases, readers can identify
      forward-looking statements by terminology such as “may,” “will,” “should,”
“could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” or “continue.” These statements relate to events that involve known
      and unknown risks, uncertainties and other factors, including those listed
      under
      the heading “Risks Related to Our Business,” “Risks Related to an Investment in
      Our Securities” and under the heading “Risks Related To an Investment in Our
      Securities” in our Form 10-KSB filed with the Securities and Exchange Commission
      (the “SEC”) on December 28, 2007 as well as other relevant risks detailed in our
      filings with the SEC which may cause our actual results, performance or
      achievements to be materially different from any future results, performance
      or
      achievements expressed or implied by the forward-looking statements. The
      information set forth in this report on Form 10-Q should be read in light of
      such risks and in conjunction with the consolidated financial statements and
      the
      notes thereto included elsewhere in this Form 10-Q.




**Overview**





We
      were
      incorporated under the laws of the state of Nevada on July 7, 2004 and engaged
      in a variety of businesses, including home security assistance, until March
      2006, when we began our current operations. We manufacture and sell photovoltaic
      (commonly known as “PV”) cells and modules. PV modules consist of solar cells
      that produce electricity from the sun’s rays. Our manufacturing operations are
      based in Shanghai, China, where we established a 42,000 square-foot
      manufacturing facility. We also plan to expand our marketing, purchasing and
      distribution office in Menlo Park, California. While we expect to sell most
      of
      our products in Europe, the United States and China, our goal is to become
      a
      worldwide supplier of PV cells.





As
      of
      December 31, 2006, construction of our manufacturing facility was completed
      and
      we began production of solar cells and modules which are sold under the brand
      name “SolarE”. During the three months ended March 31, 2008, we expanded our
      module production and increased the production capacity from 25 MW to 50 MW.
      We
      intend to expand our solar cell production and add a second production line.
      We
      expect the second production line to be completed by the end of 2008 calendar
      year.





Our
      joint
      venture with Shanghai University is for shared investment in research and
      development on fundamental and applied technology in the fields of
      semi-conductive photovoltaic theory, materials, cells and modules. The agreement
      calls for Shanghai University to provide equipment, personnel and facilities
      for
      joint laboratories. It is our responsibility to provide funding, personnel
      and
      facilities for conducting research and testing. The agreement requires us to
      make minimum investments through December 15, 2016. We are required to make
      an
      investment of approximately $4 million in the next 4 years. Research and
      development achievements from this joint research and development agreement
      will
      be available for use by both parties. We are entitled to the intellectual
      property rights, including copyrights and patents, obtained as a result of
      this
      research. The research and development we will undertake pursuant to this
      agreement includes the following:




**•**
              we
                  plan to research and test theories of PV, thermo-physics, physics
                  of
                  materials and chemistry;
 
 **•**
              we
                  plan to develop efficient and ultra-efficient PV cells with
                  light/electricity conversion rates of up to 20% to
                  35%;
 
 **•**
              we
                  plan to develop environmentally friendly high conversion rate
                  manufacturing technology of chemical compound film PV cell
                  materials;
  19
 
 **•**
              we
                  plan to develop highly reliable, low-cost manufacturing technology
                  and
                  equipment for thin film PV cells;
 
 **•**
              we
                  plan to research and develop key material for low-cost flexible
                  film PV
                  cells and non-vacuum technology;
                  and
 
 **•**
              we
                  plan to research and develop key technology and fundamental theory
                  for
                  third-generation PV cells.


In
      December 2007, we entered into a sales contract with Sky Solar (Hong Kong)
      International Co., Ltd. (“Sky Solar”), a subsidiary of Sky Global Group to
      distribute solar modules. Sky Global Group is a global distributor and system
      integrator of solar panels. The total shipment to Sky Solar under the contract
      approximates $21.8 million shipments. The majority of shipment to Sky Solar
      was
      scheduled to be delivered during the quarter ended March 31, 2008. However,
      the
      delivery schedule was delayed primarily due to a tight raw material market,
      delay in machinery delivery and the severe cold weather in February 2008 as
      several major infrastructures in southern China were closed during that period.
      We subsequently revised the contract with Sky Solar and lowered the delivery
      amount to approximately $13 million. We expect the majority of products to
      be
      delivered during the quarter ended June 30, 2008.





On
      January 11, 2008, we sold 24,318,181 shares of our common stock and 24,318,181
      Series C warrants to purchase shares of common stock for an aggregate purchase
      price of $21.4 million in a private placement offering to accredited investors.
      The exercise price of the warrants is $1.00 per share. The warrants are
      exercisable for a period of 5 years from the date of issuance of the warrants.
      We intend to use the net proceeds from the offering for working capital and
      general corporate purposes. We believe that the funds will provide us with
      working capital for a period of twelve months.





For
      the
      services in connection with this closing, the placement agent and the selected
      dealer, Knight Capital Markets, LLC and Ardour Capital Investments, received
      an
      aggregate of a 6.0% cash commission, a 1.0% advisory fee and warrants to
      purchase 1,215,909 shares of common stock at $0.88 per share, exercisable for
      a
      period of 5 years from the date of issuance of the warrants. The net proceeds
      from issuing common stocks and Series C warrants in January 2008 after all
      the
      financing costs were $19.9 million and were recorded in additional paid in
      capital and common stock. Neither the shares of common stock nor the shares
      of
      common stock underlying the warrants sold in this Offering were granted
      registration rights. Additionally, in connection with the Offering all of our
      Series A and Series B Warrant holders waived their full ratchet
      anti-dilution and price protection rights previously granted to them in
      connection with our March 2007 Convertible Note and Warrant Financing.





Our
      future operations are dependent upon the identification and successful
      completion of additional long-term or permanent equity financing, the support
      of
      creditors and shareholders, and, ultimately, the achievement of profitable
      operations. Other than as discussed in this report, we know of no trends, events
      or uncertainties that are reasonably likely to impact our future
      liquidity.





**Critical
      Accounting Policies**





We
      consider our accounting policies related to principles of consolidation, revenue
      recognition, inventory reserve, and stock based compensation, fair value of
      equity instruments and derivative financial instruments to be critical
      accounting policies. A number of significant estimates, assumptions, and
      judgments are inherent in determining our consolidation policy, when to
      recognize revenue, how to evaluate our equity instruments and derivative
      financial instruments, and the calculation of our inventory reserve and
      stock-based compensation expense. We base our estimates and judgments on
      historical experience and on various other assumptions that we believe to be
      reasonable under the circumstances. Actual results could differ materially
      from
      these estimates. Management believes that there have been no significant changes
      during the six months ended March 31, 2008 to the items that we disclosed as
      our
      critical accounting policies and estimates in Management’s Discussion and
      Analysis or Plan of Operations in our Annual Report on Form 10-KSB filed for
      the
      year ended September 30, 2007 with the Securities and Exchange Commission.
      For a
      description of those critical accounting policies, please refer to our 2007
      Annual Report on Form 10-KSB.




***Recent
      Accounting Pronouncements***





In
      September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
      Measurements.” SFAS 157 defines fair value to measure assets and liabilities,
      establishes a framework for measuring fair value, and requires additional
      disclosures about the use of fair value. SFAS 157 is applicable whenever another
      accounting pronouncement requires or permits assets and liabilities to be
      measured at fair value. SFAS 157 does not expand or require any new fair value
      measures. SFAS 157 is effective for fiscal years beginning after November 15,
      2007. The Company is currently evaluating the impact that the adoption of FAS
      157 will have on its financial position or results of operations.





In
      February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option
      for Financial Assets and Financial Liabilities—Including an Amendment of FASB
      Statement No. 115.” SFAS 159 expands the use of fair value accounting but does
      not affect existing standards which require assets or liabilities to be carried
      at fair value. The objective of SFAS 159 is to improve financial reporting
      by
      providing companies with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. Under SFAS 159, a company
      may elect to use fair value to measure eligible items at specified election
      dates and report unrealized gains and losses on items for which the fair value
      option has been elected in earnings at each subsequent reporting date. Eligible
      items include, but are not limited to, accounts and loans receivable,
      available-for-sale and held-to-maturity securities, equity method investments,
      accounts payable, guarantees, issued debt and firm commitments. If elected,
      SFAS
      159 is effective for fiscal years beginning after November 15, 2007. The Company
      is currently assessing whether fair value accounting is appropriate for any
      of
      its eligible items and is in process of estimating the impact, if any, on its
      results of operations or financial position.


20




In
      December 2007, the FASB issued Statement No. 160 (“SFAS 160”),
“Noncontrolling Interests in Consolidated Financial Statements, an amendment
      of
      ARB No. 51.” The standard changes the accounting for noncontrolling
      (minority) interests in consolidated financial statements, including the
      requirements to classify noncontrolling interests as a component of consolidated
      stockholders’ equity, and the elimination of “minority interest” accounting in
      results of operations with earnings attributable to non-controlling interests
      reported as part of consolidated earnings. Additionally, SFAS 160 revises
      the accounting for both increases and decreases in a parent’s controlling
      ownership interest. SFAS 160 is effective for the first annual reporting period
      beginning on or after December 15, 2008. Thus, SFAS 160 will be
      effective for the Company in fiscal 2010, with early adoption prohibited. The
      Company is evaluating the potential impact of the implementation of
      SFAS 160 on its financial position and results of operations.





In
      December 2007, the FASB issued Statement 141 (revised) (“SFAS 141(R)”),
“Business Combinations.” The standard changes the accounting for business
      combinations, including the measurement of acquirer shares issued in
      consideration for a business combination, the recognition of contingent
      consideration, the accounting for preacquisition gain and loss contingencies,
      the recognition of capitalized in-process research and development, the
      accounting for acquisition-related restructuring cost accruals, the treatment
      of
      acquisition related transaction costs, and the recognition of changes in the
      acquirer’s income tax valuation allowance. SFAS 141(R) is effective for the
      first annual reporting period beginning on or after December 15, 2008.
      Thus, SFAS 141(R) will be effective for the Company in fiscal 2010, with
      early adoption prohibited. The Company is evaluating the potential impact of
      the
      implementation of Statement 141(R) on its financial position and results of
      operations.





In
      March 2008, the FASB issued SFAS No. 161 (“SFAS 161”),
“Disclosures ** about
      Derivative Instruments and Hedging Activities.” SFAS 161 requires additional
      disclosures related to the use of derivative instruments, the accounting for
      derivatives and how derivatives impact financial statements.  SFAS
      No. 161 is effective for fiscal years and interim periods beginning after
      November 15, 2008.  Thus, the Company is required to adopt this
      standard on January 1, 2009.  The Company is currently evaluating the
      impact of adopting SFAS No. 161 on its financial position and results of
      operations.




**Results
      of Operations for the three and six months ended March 31, 2008 and
      2007**





The
      following discussion of the financial condition, results of operations, cash
      flows and changes in financial position of our Company should be read in
      conjunction with our audited consolidated financial statements and notes filed
      with the SEC on Form 10-KSB and its subsequent amendments.





***Revenues,
      Cost of Sales and Gross Margin***


**Three Months Ended March 31, 2008**
              
              **Three Months Ended March 31, 2007**
              
              **Year-Over-Year Change****Amount**
              
              **%
                  of net sales**
              
              **Amount**
              
              **%
                  of net sales**
              
              **Amount**
              
              **% of change**Net
                  sales
              
              $
              3,471,000
              
              
              100.
              %
              $
              3,000
              
              
              100.
              %
              $
              3,468,000
              
              
              115,600.
              %Cost
                  of sales
              
              
              (4,171,000
              )
              
              (120.2
              )%
              
              (6,000
              )
              
              (200.
              )%
              
              (4,165,000
              )
              
              69,416.7
              %Gross
                  loss
              
              $
              (700,000
              )
              
              (20.2
              )%
              $
              (3,000
              )
              
              (100.
              )%
              $
              (697,000
              )
              
              23,233.3
              %





**Six Months Ended March 31, 2008**
            
            **Six Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Net
                sales
            
            $
            8,310,000
            
            
            100.
            %
            $
            3,000
            
            
            100.
            %
            $
            8,307,000
            
            
            276,900.
            %Cost
                of sales
            
            
            (9,476,000
            )
            
            (114.
            )%
            
            (6,000
            )
            
            (200.
            )%
            
            (9,470,000
            )
            
            157,833.3
            %Gross
                loss
            
            $
            (1,166,000
            )
            
            (14.
            )%
            $
            (3,000
            )
            
            (100.
            )%
            $
            (1,163,000
            )
            
            38,766.7
            %





For
      the
      three months ended March 31, 2008, the Company reported total revenue of $3.5
      million compared to $3,000 of revenue in the same period of the prior year.
      The
      revenue of $3.5 million during the three months ended March 31, 2008 primarily
      represented solar module sales of $2.7 million and resale of raw materials
      of
      $0.7 million. While second fiscal quarter 2008 revenue increased as compared
      to
      the same period for fiscal 2007, the second fiscal quarter 2008 revenue was
      below the management’s expectation primarily due to a
      delayed
      production schedule caused by a temporary shortage in raw material supply and
      a
      severe winter storm in China in February 2008
      as
      several major infrastructures in southern China were closed during that period.
      The contract with Sky Solar, our biggest contract signed to date, was revised
      due to these aforementioned problems. The sales amount is estimated to be
      approximately $13 million instead of $21.8 million originally expected. We
      also
      delayed the delivery time and expect majority of shipment to be delivered in
      the
      third quarter ending June 30, 2008.


21





For
      the
      six months ended March 31, 2008, the Company recorded $8.3 million in revenue
      which comprised of $5.0 million in solar module sales and $3.3 million in resale
      of raw materials compared to $3,000 of revenue in the same period of the prior
      year. We generated revenue from resale of raw materials such as silicon wafer
      because we over-stocked due to our still-limited production capability. On
      a
      transaction by transaction basis, we determine if the revenue should be recorded
      on a gross or net basis based on criteria discussed in EITF99-19, Reporting
      Revenue Gross as a   Principal versus Net as an Agent. We consider the
      following factors when we determine the gross versus net presentation: (i)
      if
      the Company acts as principal in the transaction; (ii) if the Company takes
      title to the products; (iii) if the Company has risks and rewards of ownership,
      such as the risk of loss for collection, delivery or return; and (iv) if the
      Company acts as an agent or broker (including performing services, in substance,
      as an agent or broker) with compensation on a commission or fee basis. All
      transactions incurred in fiscal year 2008 were recorded on a gross
      basis.




For
      the
      three months ended March 31, 2008, we incurred a negative gross margin of $0.7
      million. The negative gross margin was primarily a result of adverse winter
      weather conditions in China in February that halted our logistic and production,
      and the recent increase in silicon material cost. Additionally, at the beginning
      of the second fiscal quarter 2008, our
      solar module production lines were halted for a period of time as the line
      was
      relocated into a new 21,000 square foot facility. These preceding factors
      resulted in lower manufacturing volume than expected in the fiscal second
      quarter, which had a negative impact to gross margin.





For
      the
      six months ended March 31, 2008, we incurred a negative gross margin of $1.2
      million. During the six months ended March 31, 2008, we incurred high
      manufacturing costs due to high raw material cost and production inefficiencies
      associated with our low production volume.





***Selling,
      general & administrative***





**Three Months Ended March 31, 2008**
            
            **Three Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Selling,
                general & administrative
            
            $
            2,797,000
            
            
            80.6
            %
            $
            2,426,000
            
            
            80,866.7
            %
            $
            371,000
            
            
            15.3
            %





**Six Months Ended March 31, 2008**
            
            **Six Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Selling,
                general & administrative
            
            $
            6,682,000
            
            
            80.4
            %
            $
            4,935,000
            
            
            164,500.
            %
            $
            1,747,000
            
            
            35.4
            %





For
      the
      three months ended March 31, 2008, we incurred selling, general and
      administrative expense of $2.8 million, an increase of $0.4 million, from $2.4
      million in the three months ended March 31, 2007. The selling, general and
      administrative expense included stock-based compensation charge related to
      employee options of $1.7 million and $2.1 million for the three months ended
      March 31, 2008 and 2007, respectively. The overall increase in the selling,
      general and administrative expense was primarily related to increases in
      professional fees, the number of employees as we grow our business, and sales
      and marketing activities.





For
      the
      six months ended March 31, 2008, we incurred selling, general and administrative
      expense of $6.7 million, an increase of $1.7 million, from $4.9 million in
      the
      six months ended March 31, 2007. The selling, general and administrative expense
      included stock-based compensation charge related to employee options of $4.2
      million for six months ended March 31, 2008 and 2007. The overall increase
      in
      the selling, general and administrative expense was primarily related to
      increases in professional fees, the number of employees as we grow our business,
      and sales and marketing activities.





***Research
      & development***





**Three Months Ended March 31, 2008**
            
            **Three Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Research
                & development
            
            $
            54,000
            
            
            1.6
            %
            $
            4,000
            
            
            133.3
            %
            $
            50,000
            
            
            1,250.
            %





**Six Months Ended March 31, 2008**
            
            **Six Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Research
                & development
            
            $
            151,000
            
            
            1.8
            %
            $
            106,000
            
            
            3,533.3
            %
            $
            45,000
            
            
            42.5
            %





Research
      and development expense represents expense incurred in-house and for the joint
      research and development program with Shanghai University. Research and
      development expense increased in the three and six months ended March 31, 2008
      and 2007 largely as a result of our commitment to fund our development contract
      with Shanghai University. Pursuant to the joint research and development
      laboratory agreement with Shanghai University, dated December 15, 2006 and
      expiring on December 15, 2016, we are committed to funding the establishment
      of
      laboratories and the completion of research and development activities, and
      required to fund an additional $1.0 million in fiscal year 2008 and $4.0 million
      in the next 5 years. We expect to increase our funding to research and
      development activities as we grow our business.


22




***Loss
      on debt extinguishment***





**Three Months Ended March 31, 2008**
            
            **Three Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Loss
                on debt extinguishment
            
            $
            2,105,000
            
            
            60.6
            %
            $
            -
            
            
            0.
            %
            $
            2,105,000
            
            
            *NM*NM=
                Not measureable





**Six Months Ended March 31, 2008**
            
            **Six Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Loss
                on debt extinguishment
            
            $
            2,467,000
            
            
            29.7
            %
            $
            -
            
            
            0.
            %
            $
            2,467,000
            
            
            *NM*NM=
                Not measureable





For
      the
      three months ended March 31, 2008, we incurred a loss on debt extinguishment
      of
      $2.1 million. During the quarter, part of our Series A and B convertible notes
      were converted into common stock which resulted in the non-cash loss of $2.1
      million.





For
      the
      six months ended March 31, 2008, we incurred a loss on debt extinguishment
      of
      $2.5 million. That loss was the result of a loss of $2.8 million related to
      converting Series A and B convertible notes into common stocks. The loss was
      partially offset by a gain of $0.4 million on settlement of loan due to Coach
      Capital LLC and Infotech Essentials Ltd.





***Other
      income (expense)***





**Three Months Ended March 31, 2008**
            
            **Three Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Interest
                income
            
            $
            46,000
            
            
            1.3
            %
            $
            7,000
            
            
            233.3
            %
            $
            39,000
            
            
            557.1
            %Interest
                expense
            
            
            (298,000
            )
            
            (8.6
            )%
            
            (54,000
            )
            
            (1,800.
            )%
            
            (244,000
            )
            
            451.9
            %Loss
                on issuance of convertible notes
            
            
            -
            
            
            0.
            %
            
            (15,209,000
            )
            
            (506,966.7
            )%
            
            15,209,000
            
            
            *NMGain
                (loss) on change in fair market value of compound embedded
                derivative
            
            
            11,190,000
            
            
            322.4
            %
            
            (12,600,000
            )
            
            (420,000.
            )%
            
            23,790,000
            
            
            (188.8
            )%Gain
                (loss) on change in fair market value of warrant liability
            
            
            10,808,000
            
            
            311.4
            %
            
            (9,959,000
            )
            
            (331,966.7
            )%
            
            20,767,000
            
            
            (208.5
            )%Other
                expense
            
            
            (290,000
            )
            
            (8.4
            )%
            
            -
            
            
            0.
            %
            
            (290,000
            )
            
            *NMTotal
                other income (expense)
            
            $
            21,456,000
            
            
            618.1
            %
            $
            (37,815,000
            )
            
            (1,260,500.1
            )%
            $
            59,271,000
            
            
            (156.7
            )%*NM=
                Not measureable





**Six Months Ended March 31, 2008**
            
            **Six Months Ended March 31, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **%
                of net sales**
            
            **Amount**
            
            **% of change**Interest
                income
            
            $
            56,000
            
            
            0.7
            %
            $
            13,000
            
            
            433.3
            %
            $
            43,000
            
            
            330.8
            %Interest
                expense
            
            
            (576,000
            )
            
            (6.9
            )%
            
            (54,000
            )
            
            (1,800.
            )%
            
            (522,000
            )
            
            966.7
            %Loss
                on issuance of convertible notes
            
            
            -
            
            
            0.
            %
            
            (15,209,000
            )
            
            (506,966.7
            )%
            
            15,209,000
            
            
            *NMGain
                (loss) on change in fair market value of compound embedded
                derivative
            
            
            12,289,000
            
            
            147.9
            %
            
            (12,600,000
            )
            
            (420,000.
            )%
            
            24,889,000
            
            
            (197.5
            )%Gain
                (loss) on change in fair market value of warrant liability
            
            
            10,923,000
            
            
            131.4
            %
            
            (9,959,000
            )
            
            (331,966.7
            )%
            
            20,882,000
            
            
            (209.7
            )%Other
                expense
            
            
            (328,000
            )
            
            (3.9
            )%
            
            -
            
            
            0.
            %
            
            (328,000
            )
            
            *NMTotal
                other income (expense)
            
            $
            22,364,000
            
            
            269.2
            %
            $
            (37,809,000
            )
            
            (1,260,300.1
            )%
            $
            60,173,000
            
            
            (159.1
            )%*NM=
                Not measureable





For
      the
      three months ended March 31, 2008, total other income was $21.5 million. We
      incurred an interest expense of $298,000 primarily related to 6% interest
      charges on Series A and B convertible notes. In the three months ended March
      31,
      2008, we recorded a gain on change in fair market value of compound embedded
      derivative of $11.2 million and a gain on change in fair market value of warrant
      liability of $10.8 million compared to a loss on change in fair market value
      of
      compound embedded derivative of $12.6 million and a loss on change in fair
      market value of warranty liability of $10.0 million during the three months
      ended March 31, 2007. Other expense of $290,000 was primarily related to foreign
      exchange loss.





For
      the
      six months ended March 31, 2008, total other income was $22.4 million. We
      incurred an interest expense of $576,000 primarily related to 6% interest
      charges on Series A and B convertible notes. In the six months ended March
      31,
      2008, we recorded a gain on change in fair market value of compound embedded
      derivative of $12.3 million and a gain on change in fair market value of warrant
      liability of $10.9 million compared to a loss on change in fair market value
      of
      compound embedded derivative of $12.6 million and a loss on change in fair
      market value of warrant liability of $10.0 million during the six months ended
      March 31, 2007. Other expense of $328,000 was primarily related to foreign
      exchange loss.


23




**Financial
      Condition**





***Liquidity
      and Capital Resources***




**March 31, 2008**
            
            **September 30, 2007**
            
            **Change**Cash
                and cash equivalents
            
            $
            12,571,000
            
            $
            3,908,000
            
            $
            8,663,000





As
      of
      March 31, 2008, we had cash and cash equivalents of $12.6 million, as compared
      to $3.9 million at September 30, 2007. We funded our operations from private
      sales of equity and loans. In January 2008, we raised approximately $19.9
      million (net of financing cost) through private equity financing. We are using
      the proceeds from the financing for working capital and additional plant
      construction. We believe that we currently have sufficient working capital
      to
      fund our current operations (one production line) for the next twelve months.
      Changes in our operating plans, an increase in our inventory, increased
      expenses, additional acquisitions, or other events, may cause us to seek
      additional equity or debt financing in the future.





**Six Months Ended March 31,****2008**
            
            **2007**Net
                cash provided by (used in):Operating
                activities
            
            $
            (9,959,000
            )
            $
            (3,285,000
            )Investing
                activities
            
            
            (2,550,000
            )
            
            (2,287,000
            )Financing
                activities
            
            
            19,887,000
            
            
            17,139,000Effect
                of exchange rate changes on cash and cash equivalents
            
            
            1,285,000
            
            
            33,000Net
                decrease in cash and cash equivalents
            
            $
            8,663,000
            
            $
            11,600,000





Net
      cash
      used in operating activities were $10.0 million and $3.3 million for the six
      months ended March 31, 2008 and 2007, respectively. The increase of $6.7 million
      was mainly used to support the daily operations and expand the company’s
      selling, marketing and general and administrative functions. The increase of
      net
      cash used in operating activities from operating loss less non-cash items such
      as gain on change in fair market value of warrant liability, gain on change
      in
      fair market value of compound embedded derivatives, loss on issuance of
      convertible notes, depreciation and stock-based compensation charge was
      approximately $3.1 million. In addition, the increase of net cash used in
      operating activities was attributable to the changes in operating assets and
      liabilities of $3.6 million, mainly from higher accounts receivable and lower
      accounts payable, partially offset by higher customer advance payment at March
      31, 2008.





Net
      cash
      used in investment activities were $2.6 million and $2.3 million for the six
      months ended March 31, 2008 and 2007, respectively. The increase of $0.3 million
      in the use of cash was due to the cost to complete and enhance our manufacturing
      facility and production line in Shanghai, China.





Net
      cash
      provided by financing activities totaled $19.9 million and $17.1 million for
      the
      six months ended March 31, 2008 and 2007, respectively. The increase of $2.8
      million was mainly due to proceeds of $19.9 million in January 2008 from issuing
      common stocks and warrants, net of financing cost through private equity
      financing compared to proceeds of $17.0 million in March 2007 from issuing
      convertible notes and common stock, net of deferred acquisition costs through
      private equity financing.





The
      exchange rate changes on cash and cash equivalents were primarily from exchange
      gains of balances held in Chinese Renminbi (RMB). The exchange rates at March
      31, 2008 and September 30, 2007 were 1 U.S. dollar for RMB 7.0190 and 1 U.S.
      dollar for RMB 7.5108, respectively.





Our
      current cash requirements are significant because, aside from our operational
      expenses, we are building our inventory of silicon wafers as we ramp-up our
      production capability. We also have plans to construct a second production
      line
      in fiscal year 2008. The cost of silicon wafers, which is the primary cost
      of
      sales for our SolarE solar modules, is currently volatile and is expected to
      rise due to a current supply shortage. We are uncertain of the extent to which
      this will negatively affect our working capital in the near future. A
      significant increase in the cost of silicon wafers that we cannot pass on to
      our
      customers could cause us to run out of cash more quickly than our projections,
      requiring us to raise additional funds or curtail operations.





24




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance sheet arrangements.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




As
      a
      Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in
      item
      10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting
      obligations and therefore are not required to provide the information requested
      by this Item 3.





**ITEM
      4. CONTROLS AND PROCEDURES**




***Disclosure
      Controls and Procedures***




Management
      carried out an evaluation, under the supervision and with the participation
      of
      our President and our Chief Financial Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures as of the end
      of
      the period covered by this report. The evaluation was undertaken in consultation
      with our accounting personnel. Based on that evaluation, the President and
      Chief
      Financial Officer concluded that our disclosure controls and procedures are
      not
      effective to ensure that information required to be disclosed by us in the
      reports that we file or submit under the Securities Exchange Act of 1934 is
      recorded, processed, summarized and reported within the time periods specified
      in the SEC’s rules and forms because of the existence of a material weakness
      related to inadequate control over accounting and reporting for certain
      non-routine transactions. During the process of preparing the fiscal year 2007
      Form 10-KSB, management was incorrect in calculating the withholding tax
      liability associated with stock options exercised by the President and CEO
      of
      the Company. We restated our consolidated financial statements for the fiscal
      year ended September 30, 2006 and subsequent quarters ended June 30, 2007,
      March
      31, 2007 and December 31, 2006 in order to properly reflect additional accrued
      liability.





We
      have
      taken the following steps to correct this weakness:





**•**
            In
                October 2007, we added a financial controller to oversee our Chinese
                operations;





**•**
            During
                the quarter ended December 31, 2007, we began training of our accounting
                staff on generally accepted accounting principles in the United States
                (“U.S. GAAP”); and





**•**
            We
                began implementation of an Enterprise Resource Planning system in
                December
                2007 to improve our accounting data collection and analysis capability.
                We
                expect the project to complete during the fiscal year
                2008.





***Internal
      Control Over Financial Reporting***





Except
      as
      discussed above, our management, with the participation of our Chief Executive
      Officer and our Chief Financial Officer, has concluded there were no changes
      in
      our internal controls over financial reporting that occurred during the fiscal
      quarter ended March 31, 2008 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting. ****





**ITEM
      4T. CONTROLS AND PROCEDURES**




Reference
      is made to the disclosures above in Item 4. Controls and
      Procedures.





25




**PART
      II - OTHER INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**




None





**ITEM
      1A. RISK FACTORS**




There
      have been no material changes in our risk factors from those disclosed in our
      2007 Annual Report on Form 10-K SB.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**




None





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None





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




None





**ITEM
      5. OTHER INFORMATION**




None





**ITEM
      6. EXHIBITS**




(a)
      Pursuant to Rule 601 of Regulation S-K, the following exhibits are included
      herein or incorporated by reference.




3.1
            Articles
                of Incorporation, Incorporated by reference to our SB-2 Registration
                Statement Amendment 7 filed on May 5,
                2005.





3.2
            By-laws,
                Incorporated by reference to our SB-2 Registration Statement Amendment
                7
                filed on May 5, 2005.





3.3
            Articles
                of Merger filed with the Secretary of State of Nevada, Incorporated
                by
                reference from Exhibit 3.1 to our form 8-K filed on April 10,
                2006.





3.4
            Amendment
                to Articles of Incorporation filed with the Secretary of State of
                Nevada
                on July 6, 2006, incorporated by   reference from Exhibit 3.4 to the
                Form 10-KSB filed on December 28,
                2007.





10.1
            Form
                of Securities Purchase Agreement between the Company and certain
                Buyers
                (as defined therein) dated as of January 11,   2008, incorporated by
                reference from Exhibit 10.29 to our Form 8-K filed on January 16,
                2008
                (without schedules and  
exhibits).





10.2
            Form
                of Series C Warrant dated as of January 11, 2008, incorporated
                by reference from Exhibit 10.30 to our Form 8-K filed on January
                16,
                2008.





31.1
            Section
                302 Certification - Chief Executive
                Officer*





31.2
            Section
                302 Certification - Chief Financial
                Officer*





32.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 - Chief Executive
                Officer.*





32.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 - Chief Financial
                Officer.*





*
      Filed
      herewith.





26




**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




**SOLAR
      ENERTECH CORP.**





Date:
                May 9, 2008
            By:
            */s/
                Anthea Chung*Anthea ChungChief Financial Officer




27