**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**








(Mark
                One)R
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended December 31, 2007****OR**£
            **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
                Filer   oNon-accelerated
                filer
            o
            
            Smaller
                reporting company   x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes £ No R





Number
      of
      shares outstanding of registrant’s class of common stock as of February 4, 2008:
**105,700,161**





**Table
      of Contents**





PART
                IFINANCIAL
                INFORMATIONITEM
                1. FINANCIAL STATEMENTS
            3ITEM
                2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                RESULTS
                OF OPERATIONS
            20ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            24ITEM
                4. CONTROLS AND PROCEDURES
            25ITEM
                4(T). CONTROL AND PROCEDURES
            25PART
                IIOTHER
                INFORMATIONITEM
                1. LEGAL PROCEEDINGS
            26ITEM
                1A. RISK FACTORS
            26ITEM
                2. UNREGISTERED SALES 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
            28


2





**PART
      I**





**ITEM
      1. FINANCIAL STATEMENTS**


3





**Solar
      Enertech Corp.**


**Consolidated
      Balance Sheets**


**(Unaudited)**





**December 31, 2007**
            
            **September 30, 2007****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            1,904,000
            
            $
            3,908,000Accounts
                receivable
            
            
            1,813,000
            
            
            913,000Advance
                payments and others
            
            
            5,031,000
            
            
            6,500,000Inventory
            
            
            4,750,000
            
            
            5,708,000Tax
                and other receivable
            
            
            596,000
            
            
            590,000Total
                Current Assets
            
            
            14,094,000
            
            
            17,619,000Fixed
                assets, net of accumulated depreciation
            
            
            4,727,000
            
            
            3,215,000Deferred
                financing costs, net of accumulated amortization
            
            
            2,401,000
            
            
            2,540,000Deposits
            
            
            1,591,000
            
            
            1,741,000Total
                Assets
            
            $
            22,813,000
            
            $
            25,115,000**LIABILITIES
                AND STOCKHOLDER'S DEFICIT**Current
                Liabilities:Accounts
                payable
            
            $
            3,908,000
            
            $
            2,891,000Customer
                advance payment
            
            
            166,000
            
            
            1,603,000Accrued
                interest expense
            
            
            330,000
            
            
            615,000Accrued
                expenses
            
            
            700,000
            
            
            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
            
            
            15,000,000
            
            
            16,800,000Warrant
                liabilities
            
            
            17,275,000
            
            
            17,390,000Total
                Current Liabilities
            
            
            41,348,000
            
            
            44,925,000Convertible
                notes, net of discount
            
            
            15,000
            
            
            7,000Total
                Liabilities
            
            
            41,363,000
            
            
            44,932,000Commitments
                and contingencies (Note 10)**STOCKHOLDER'S
                DEFICIT:**Common
                stock - 200,000,000 Shares authorized at $0.001 par value 81,237,051
                and
                78,827,012 shares issued and outstanding at December 31, 2007 and
                September 30, 2007, respectively
            
            
            81,000
            
            
            79,000Additional
                paid in capital
            
            
            43,890,000
            
            
            39,192,000Other
                comprehensive gain
            
            
            1,061,000
            
            
            592,000Accumulated
                deficit
            
            
            (63,582,000
            )
            
            (59,680,000
            )Total
                Stockholders' Deficit
            
            
            (18,550,000
            )
            
            (19,817,000
            )Total
                Liabilities and Stockholders' Deficit
            
            $
            22,813,000
            
            $
            25,115,000





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


4





**Solar
      Enertech Corp.**


**Consolidated
      Statements of Operations**


**(Unaudited)**





**Quarter Ended December 31,****2007**
            
            **2006**Net
                sales
            
            $
            4,839,000
            
            $
            -Cost
                of sales
            
            
            (5,305,000
            )
            
            -Gross
                loss
            
            
            (466,000
            )
            
            -Operating
                expenses:Selling,
                general & administrative
            
            
            3,885,000
            
            
            2,509,000Research
                & development
            
            
            97,000
            
            
            102,000Loss
                on debt extinguishment
            
            
            362,000
            
            
            -Total
                Operating Expenses
            
            
            4,344,000
            
            
            2,611,000Operating
                Loss
            
            
            (4,810,000
            )
            
            (2,611,000
            )Other
                income (expenses):Interest
                income
            
            
            10,000
            
            
            6,000Interest
                expense
            
            
            (278,000
            )
            
            -Gain
                on change in fair market value of compound embedded
                derivative
            
            
            1,099,000
            
            
            -Gain
                on change in fair market value of warrant liability
            
            
            115,000
            
            
            -Other
                expense
            
            
            (38,000
            )
            
            -Net
                loss
            
            $
            (3,902,000
            )
            $
            (2,605,000
            )Net
                Loss per Share: Basic & Diluted
            
            $
            (0.05
            )
            $
            (0.03
            )Number
                of weighted average common shares outstanding: Basic &
                Diluted
            
            
            79,168,174
            
            
            77,176,571





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


5


**Solar
      Enertech Corp.**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**





**Quarter Ended December 31,****2007**
            
            **2006****Cash
                Flows from Operating Activities:**Net
                Loss
            
            $
            (3,902,000
            )
            $
            (2,605,000
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                of fixed assets
            
            
            -
            
            
            3,000Stock
                based compensation
            
            
            2,446,000
            
            
            2,103,000Loss
                on debt extinguishment
            
            
            362,000
            
            
            -Amotization
                of note discount and deferred financing cost
            
            
            9,000
            
            
            -Gain
                on change in fair market value of compound embedded
                derivative
            
            
            (1,099,000
            )
            
            -Gain
                on change in fair market value of warrant liability
            
            
            (115,000
            )
            
            -Changes
                in:
            
            
            
            
            
            -Accounts
                receivable
            
            
            (900,000
            )
            
            -Advance
                payments and others
            
            
            1,469,000
            
            
            4,000Due
                from related party
            
            
            -
            
            
            (44,000
            )Inventory
            
            
            958,000
            
            
            (389,000
            )Tax
                and other receivable
            
            
            (6,000
            )
            
            -Accounts
                payable and accrued liabilities
            
            
            1,104,000
            
            
            380,000Customer
                advance payment
            
            
            (1,437,000
            )
            
            -Accounts
                payable and accrued liabilities, related parties
            
            
            -
            
            
            (58,000
            )**Cash
                used in operating activities**
            
            
            (1,111,000
            )
            
            (606,000
            )**Cash
                flows from investing Activities:**Acquisition
                of fixed assets
            
            
            (1,362,000
            )
            
            (1,231,000
            )**Cash
                used in investing actives**
            
            
            (1,362,000
            )
            
            (1,231,000
            )**Cash
                flows from Financing Activities:**Proceeds
                from issuance of common stock, net of offering cost
            
            
            -
            
            
            1,500,000**Cash
                provided by financing activities**
            
            
            -
            
            
            1,500,000Effect
                of exchange rate on cash and cash equivalents
            
            
            469,000
            
            
            15,000**Net
                decrease in cash and cash equivalents**
            
            
            (2,004,000
            )
            
            (322,000
            )Cash
                and cash equivalents, beginning of period
            
            
            3,908,000
            
            
            2,799,000**Cash
                and cash equivalents, end of period**
            
            $
            1,904,000
            
            $
            2,477,000





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


6





**SOLAR
      ENERTECH CORP.**





**Notes
      to Consolidated Financial Statements**


**December
      31, 2007 (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) (“Infotech Shanghai”), 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 is 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 United States 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 December 31, 2007 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 at the earliest, and any residual returns 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.


7


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.





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 December 31, 2007 and September 30, 2007 total assets held
      by
      Infotech as agent for Solar Enertech amounted to $20.6 million and $21.6 million
      and total advances and reimbursements made to date from the Company to Infotech
      totaled $25.4 million and $26.2 million which effectively represent intercompany
      receivables to the Company from Infotech Shanghai which are eliminated during
      consolidation. Infotech’s principal undertaking during this period was to
      construct manufacturing facilities for Solar. Infotech’s operating expenses on
      behalf of Solar for the quarters ended December 31, 2007 and 2006 totaled
      $856,000 and $311,000, respectively. Infotech’s only debt consisted of advances
      received from the Company.





**Inventory**





Inventories
      are stated at lower of cost or market (estimated net realizable value) using
      the
      first-in, first-out (FIFO) method. Inventory write-downs are considered to
      permanently establish a new cost basis for inventory and are not subsequently
      reversed to income even if circumstances later suggest that increased carrying
      amounts are recoverable, except when the associated inventory is disposed of
      or
      sold.





We
      determine market value of our raw materials inventory on-hand and raw materials
      inventory purchase commitments (both of which are comprised principally of
      silicon wafers) based upon current spot market prices for silicon as quoted
      by
      our vendors for our most recent purchases. We determine our obsolete or excess
      inventories based upon our rolling sales forecast for a forward-looking period
      of 12 months. To the extent that such quantities are in excess of the forecast
      amount or for which we could not liquidate the inventory in some other fashion
      (for example the resale of our silicon wafer inventory, which is a commodity
      product for which an active resale market exists) we would record a write-down
      to what we estimate the net realizable value of that inventory would be. At
      the
      same time we consider our expected forecast margins relative to the current
      costs of our inventory and assess whether lower-of-cost or market adjustments
      are needed against some or all of our inventories.





**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 SFAS (“SFAS”) No. 109, *Accounting
      for Income*  *Taxes.*





Under
      SFAS No.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. Under SFAS No. 109, 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.


8


**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.




**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 interest recognized in accordance with Paragraph 15
        of
        FIN48 and penalties recognized in accordance with Paragraph 16 of FIN48 are
        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 to the 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 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.





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.





**Fair
      Value of Warrants**





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.





**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.


9


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, and Market Approach, Guideline Public Company
      Method. 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
      quarter ended December 31, 2007, over 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 2007 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.




10


**Reclassifications**





Certain
      prior year amounts 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.





**NOTE
      3 — INVENTORY**





At
      December 31, 2007 and September 30, 2007, inventory consists of:





**December 31, 2007**
            
            **September 30, 2007**Raw
                materials
            
            $
            1,669,000
            
            $
            2,724,000Work
                in process
            
            
            323,000
            
            
            839,000Finished
                goods
            
            
            2,758,000
            
            
            2,145,000Total
                inventory
            
            $
            4,750,000
            
            $
            5,708,000


11





**NOTE 4
      — ADVANCE PAYMENTS AND OTHERS**





At
      December 31, 2007 and September 30, 2007, advance payments and others consist
      of:




**December 31, 2007**
            
            **September 30, 2007**Prepayment
                for raw materials
            
            $
            4,950,000
            
            $
            6,500,000Others
            
            
            81,000
            
            
            -Total
                advance payments and others
            
            $
            5,031,000
            
            $
            6,500,000




**NOTE
        5— FIXED ASSETS**
 
 At
        December 31, 2007 and September 30, 2007, fixed assets consists of:
 
 **December 31, 2007**
              
              **September 30, 2007**Construction
                  in progress
              
              $
              1,707,000
              
              $
              -Leasehold
                  improvement
              
              
              1,706,000
              
              
              1,615,000Production
                  equipment
              
              
              916,000
              
              
              1,065,000Machinery
              
              
              582,000
              
              
              455,000Automobiles
              
              
              332,000
              
              
              333,000Office
                  equipment
              
              
              132,000
              
              
              88,000Furniture
              
              
              51,000
              
              
              38,000Total
                  Fixed Assets
              
              
              5,426,000
              
              
              3,594,000Less:
                  Accumulated depreciation
              
              
              (699,000
              )
              
              (379,000
              )Net
                  Fixed Assets
              
              $
              4,727,000
              
              $
              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 quarters ended December 31, 2007 and 2006 except
      for certain minimum state taxes.





A
      reconciliation of the statutory federal rate and the Company’s effective tax
      rate for the quarters ended December 31, 2007 and 2006 is as
      follows:




**Quarter
                Ended December 31, 2007**
            
            **Quarter
                Ended**
              **December 31, 2006**Provision
                at statutory rate
            
            
            34
            %
            
            34
            %Difference
                between statutory rate and foreign effective rate
            
            
            (12
            %)
            
            (2
            %)Change
                in valuation allowance
            
            
            (11
            %)
            
            (2
            %)Non-deductible
                expenses
            
            
            (12
            %)
            
            (30
            %)Others
            
            
            1
            %
            
            0
            %Provision
                for income taxes
            
            
            0
            %
            
            0
            %




As
      of
      December 31, 2007, 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.


12




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
      FASB Statement No. 109, *Accounting
      for Income Taxes* 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 that interest recognized in accordance with
      Paragraph 15 of FIN48 and penalty recognized in accordance with Paragraph 16
      of
      FIN48 are classified as part of our income taxes.




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’s various
      tax years starting 2004 to 2007 are remain open in various taxing
      jurisdictions.





**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 quarter 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
      is
      recorded in the account “gain / (loss) on fair market value of compound embedded
      derivative” in the accompanying consolidated statements of
      operations.


13


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 a cash redemption provision in the event of a Fundamental Transaction
      (as defined below). 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.





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
            
            $
            -Amortization
                of note discount
            
            $
            7,000Carrying
                amount of notes at September 30, 2007
            
            
            7,000Amortization
                of note discount
            
            
            8,000Carrying
                amount of notes at December 31, 2007
            
            $
            15,000Fair
                value of warrant liability (including Advisor Warrants) at
                issuance
            
            $
            17,100,000Loss
                on fair market value of warrant liability
            
            
            290,000Fair
                value of warrant liability at September 30, 2007
            
            
            17,390,000Gain
                on fair market value of warrant liability
            
            
            (115,000
            )Fair
                value of warrant liability at December 31, 2007
            
            $
            17,275,000Fair
                value of compound embedded derivative at grant date
            
            $
            16,600,000Loss
                on fair market value of embedded derivtive liability
            
            
            200,000Fair
                value of compound embedded derivative at September 30,
                2007
            
            
            16,800,000Gain
                on fair market value of embedded derivtive liability
            
            
            (1,099,000
            )Conversion
                of Series A Notes
            
            
            (701,000
            )Fair
                value of compound embedded derivative at December 31, 2007
            
            $
            15,000,000





As
      of the
      issuance date, the Company recorded a loss on issuance of convertible notes
      of
      $15.2 million. The amount represents the excess of the fair value of the
      Warrants issued to note holder and the Compound Embedded Derivative over the
      principal of the Notes at issuance date.





The
      value
      of the Warrants (including the “Advisor Warrants”) was estimated using a
      binomial valuation model with the following assumptions:





**December 31, 2007**
            
            **September 30, 2007**Implied
                term (years)
            
            
            4.18
            
            
            4.43Suboptimal
                exercise factor
            
            
            2.5
            
            
            2.5Volatility
            
            
            84
            %
            
            72
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Risk
                free interest rate
            
            
            3.45
            %
            
            4.23
            %


14







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.





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.





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





**December 31, 2007**
            
            **September 30, 2007**Starting
                stock price (Closing price on date preceding valuation
                date)
            
            
            1.24
            
            
            1.28Annual
                volatility of stock
            
            
            83.90
            %
            
            72.10
            %Risk
                free rate (Based on 3yr T-Bill)
            
            
            3.05
            %
            
            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 December 31, 2007, $947,000 of Series A convertible note
      was
      converted into our common shares. We recorded a loss on debt extinguishment
      of
      $736,000 as a result of the conversion based on the quoted market closing price
      of our common share on the conversion dates.




The
        loss
        on debt extinguishment is computed at the conversion dates as
        follow:
 Fair
                    value of the common shares
                
                $
                1,299,000Unamortized
                    deferred financing costs associated with the converted
                    notes
                
                
                139,000Fair
                    value of the CED liability associated with the converted
                    notes
                
                
                (701,000
                )Accreted
                    amount of the notes discount
                
                
                (1,000
                )Loss
                    on debt extinguishment
                
                $
                736,000
  The
        $736,000 loss on debt extinguishment is offset by a gain on debt extinguishment
        in the amount of $374,000 (see Note 8 below).  The net amount of $362,000
        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 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 $374,000.





**Warrants**





During
      the period May 2006 through September 2006, in connection with the sale of
      the
      Company’s common stock, the board of directors approved the issuance of warrants
      to purchase an additional 3,607,000 shares of the Company’s common stock. The
      warrants were initially exercisable at $1.60, but were re-priced in November
      2006 to $1 per share. All of the warrants expire one year from the date of
      issuance. A total of 3,607,000 warrants have expired leaving no warrant
      outstanding as of September 30, 2007.


15


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
      6
      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.





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 activity through December 31, 2007 is as follows:





**Number of**
            
            
            
            
            
            **Fair Value at**
            
            **Recognized****Shares**
            
            **Exercise Price**
            
            **Expiration Date**
            
            **Issuance ($)**
            
            **As**Granted
                in connection with common stock purchase
            
            
            2,500,000
            
            
            1.00
            
            
            November 2007
            
            
            365,000
            
            
            Additional paid in capitalGranted
                in connection with convertible notes — Series A
            
            
            7,246,377
            
            
            1.21
            
            
            March
                2012
            
            
            3,811,000
            
            
            Discount to notes payableGranted
                in connection with convertible notes — Series B
            
            
            21,578,948
            
            
            0.90
            
            
            March
                2012
            
            
            12,319,000
            
            
            Discount to notes payableGranted
                in connection with placement service
            
            
            507,247
            
            
            0.69
            
            
            March
                2012
            
            
            306,000
            
            
            Deferred financing costGranted
                in connection with placement service
            
            
            1,510,528
            
            
            0.57
            
            
            March
                2012
            
            
            954,000
            
            
            Deferred financing costOutstanding
                at September 30, 2007 and December 31, 2007
            
            
            33,343,100
            
            
            
            
            
            
            
            
            17,755,000


16




At
      December 31, 2007, 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
            
            
            4.21$ 
                .90-$1.00
            
            
            24,078,948
            
            $
            0.91
            
            
            4.21$        
                  1.21
            
            
            7,246,377
            
            $
            1.21
            
            
            4.19





**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 stock
      compensation charge of $10,695,000 in the fiscal year ended September 30, 2006
      for the transfer of shares to the employees.





Pursuant
      to an option agreement dated March 1, 2006 between
      Jean Blanchard, a former
      officer and director of the Company, and
      Frankie Xie, a
      current
      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.





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 is as follows:





**Options Outstanding****Weighted****Number**
            
            
            
            
            
            
            
            **Number**
            
            **Average**
            
            **Weighted****of**
            
            
            
            
            
            
            
            **Outstanding**
            
            **Remaining**
            
            **Average****Options**
            
            
            
            **Exercise**
            
            
            
            **At September**
            
            **Contractual**
            
            **Exercise****Granted**
            
            **Expiry**
            
            **Price**
            
            **Exercised**
            
            **30,
                2007**
            
            **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
            
            
            2.36
            
            $
            0.0001Granted
                to Frank Fang Xie, a director, March 1, 2006
            
            
            1,500,000
            
            
            February
                  10, 2010
            
            $
            0.0001
            
            
            0
            
            
            1,500,000
            
            
            0.14
            
            $
            0.000137,500,000
            
            
            
            
            
            
            
            
            10,750,000
            
            
            26,750,000
            
            
            2.50
            
            $
            0.0001




17




As
      of
      December 31, 2007 the option to purchase 14,750,000 shares of the Company’s
      common stock has vested for Mr. Young. Mr. Xie’s option vested on the grant date
      in March 2006.





The
      Black-Scholes model valued the options at $26,406,000 which is amortized over
      the service period: $14,435,000 in fiscal year 2006, $8,450,000 in fiscal year
      2007 and $3,521,000 in fiscal year 2008.





***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.





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
            
            
            (220,000
            )
            
            220,000
            
            $
            0.77
            
            $
            1.65Balance
                at December 31, 2007
            
            
            2,680,000
            
            
            7,320,000
            
            $
            0.66
            
            $
            1.21


At
      December 31, 2007 and September 30, 2007, 7,320,000 and 7,300,000 options were
      outstanding and had a weighted-average remaining contractual life of 9.99 years
      and an exercise price of $1.21 and $1.20, respectively. Of these options,
      900,000 and 876,000 were vested and exercisable on December 31, 2007 and
      September 30, 2007, respectively.





The
      fair
      values of employee stock options granted were estimated to be between $0.41
      and
      $0.72 per share on the date of grant using the Black-Scholes option-pricing
      model with the following assumptions:





**•**
            Volatility
                of 84%





**•**
            Risk-free
                interest rates ranging from 4% to 4.13%





**•**
            Expected
                lives ranging between 1 and 3.5 years





**•**
            No
                dividend yield





**•**
            Market
                value per share of stock on measurement date of $1.20 and
                $1.65.




18




**NOTE
      9 — OTHER COMPREHENSIVE INCOME**





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




**Quarter Ended****December 31,****2007**
              
              **2006**Net
                  income (loss)
              
              $
              (3,902,000
              )
              $
              (2,605,000
              )Other
                  comprehensive income:Change
                  in foreign currency translation
              
              
              469,000
              
              
              -Comprehensive
                  income (loss)
              
              $
              (3,433,000
              )
              $
              (2,605,000
              )




The
      Company’s accumulated other comprehensive income consists of the following:




**December 31,**
              
              **September 30,****2007**
              
              **2007**Foreign
                  currency translation adjustments
              
              $
              1,061,000
              
              $
              592,000





**NOTE
      10 — 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 RMB5million 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 US dollar based upon a translation of the RMB amounts into
      U.S. dollars at an exchange rate of 7.4.





**Year**
            
            **Amount**2008
                (Remaining balance)*
            
            $
            1,059,0002009
            
            
            865,0002010
            
            
            865,0002011
            
            
            1,027,000Total
            
            $
            3,816,000





*
            Included
                approximately $362,000 of 2007 commitment. We committed to fund $516,000
                to the program in 2007 for program expense and research equipment.
                As of
                September 30, 2007, we had only funded $154,000. The Company intended
                to
                increase research and development spending in the fiscal year 2008.
                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 $600,000. As of the date of this report,
                we
                have not received any request from Shanghai University.


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.




19




**NOTE
      11 — RELATED PARTY TRANSACTIONS**





At
      December 31, 2007, accounts payable, accrued liability, 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.




**NOTE
      12 - SUBSEQUENT EVENTS**





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. The Company intends to use the net proceeds from the offering for
      working capital and general corporate purposes.


For
      their
      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, exercisable at $0.88 per share.
      Neither the shares of Common Stock nor the shares of Common Stock underlying
      the
      Warrants sold in this Offering were granted registration rights.




**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-meter
      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”, we entered into a joint venture with Shanghai University to
      operate a research facility to study various aspects of PV
      technology.





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 capital investments through December 15, 2016. We are required
      to
      make a capital investment of approximately $4 million in the next 5 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:




20





**•**
            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;





**•**
            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 US$21.8 million. Shipments, aimed for solar power installations
      in
      Spain, are scheduled to be delivered over a 5 month period beginning in January
      2008, with the majority of solar module shipments scheduled for the second
      and
      third quarter of fiscal 2008. The shipment schedule was revised since we filed
      Form 8-K on December 18, 2007 as a result of the mutual agreement between the
      Company and the customer.





In
      January 2008, we raised an additional $19 million (net of financing cost)
      through private equity financing. The Company intends to use the net proceeds
      from the offering for working capital and general corporate purposes, including
      the financing of its recent $21.8 million purchase order with Sky Solar and
      the
      installation of a second 25MW production line. We intend to begin construction
      of our second production line in the second fiscal quarter. We believe that
      the
      funds will provide us with working capital for a period of twelve
      months.





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 three months ended December 31, 2007 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.




21




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.




**Results
      of Operations**





***Quarter
      ended December 31, 2007 compared to quarter ended December 31,
      2006***





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***





**Quarter Ended December 31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                change**Net
                sales
            
            $
            4,839,000
            
            $
            -
            
            $
            4,839,000
            
            
            -Cost
                of sales
            
            
            (5,305,000
            )
            
            -
            
            
            (5,305,000
            )
            
            -Gross
                loss
            
            $
            (466,000
            )
            $
            -
            
            $
            (466,000
            )
            
            -Gross
                loss as % of net sales
            
            
            (10
            %)





For
      the
      quarter ended December 31, 2007, we had $4.8 million of revenue as compared
      to
      no revenue for the quarter ended December 31, 2006. Included in the our revenue
      was $2.2 million of cell and module sales and the rest of the $2.6 million
      in
      reported revenue consists of sales of solar cells and resale of our raw
      materials such as silicon wafer that we over-stocked due to our still-limited
      production capability and the fact that we were still fine-tuning our
      manufacturing process. Our module sales were mainly sold to European customers.





For
      the
      quarter ended December 31, 2007, a significant portion of the Company’s revenue
      came from reselling of our raw materials. On 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 quarter ended December 31, 2007
      were
      recorded on a gross basis.





During
      the quarter ended December 31, 2007, we incurred high manufacturing costs due
      to
      production inefficiencies associated with our low production volume. This
      resulted in a negative gross margin of $466,000 for the quarter ended December
      31, 2007.





***Selling,
      general & administrative***





**Quarter Ended December 31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                change**Selling,
                general & administrative
            
            $
            3,885,000
            
            $
            2,509,000
            
            $
            1,376,000
            
            
            55
            %As
                % of net sales
            
            
            80
            %




22




For
      the
      quarter ended December 31, 2007, we incurred selling, general and administrative
      expense of $3.9 million, an increase of $1.4 million, from $2.5 million in
      the
      quarter ended December 31, 2006. The selling, general and administrative expense
      included stock based compensation charge related to employee options of $2.4
      million and $2.1 million for the quarters ended December 31, 2007and 2006,
      respectively. The remaining increase primarily related to an increase in
      professional fees, an increase in the number of employees as we grow our
      business, and an increase in sales and marketing activities.





***Research
      & development***





**Quarter Ended December 31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                change**Research
                & development
            
            $
            97,000
            
            $
            102,000
            
            $
            (5,000
            )
            
            (5
            %)As
                % of net sales
            
            
            2
            %





Research
      and development expense represents expense incurred in-house and for the joint
      research and development program with Shanghai University. Research and
      development expense remained relatively consistent in the quarters ended
      December 31, 2007 and 2006. Pursuant to a 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. Pursuant
      to the joint research and development agreement, we are required to fund an
      additional $1 million in fiscal year 2008 and $3.8 million in the next 5 years.




***Loss
      on debt extinguishment***





**Quarter Ended December 31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                change**Loss
                on debt extinguishment
            
            $
            362,000
            
            $
            -
            
            $
            362,000
            
            
            -As
                % of net sales
            
            
            7
            %




Loss
      on
      debt extinguishment of $362,000 represented a loss of $736,000 on converting
      $947,000 of Series A convertible notes into common stock. The loss was partially
      offset by a gain of $374,000 on settlement of loan due to Coach Capital LLC
      and
      Infotech Essentials Ltd.





***Other
      income (expense)***





**Quarter Ended December 31,****2007**
            
            **2006**
            
            **Change**
            
            **%
                change**Interest
                income
            
            $
            10,000
            
            $
            6,000
            
            $
            4,000
            
            
            67
            %Interest
                expense
            
            
            (278,000
            )
            
            -
            
            
            (278,000
            )
            
            -Gain
                on change in fair market value of compound embedded
                derivative
            
            
            1,099,000
            
            
            -
            
            
            1,099,000
            
            
            -Gain
                on change in fair market value of warrant liability
            
            
            115,000
            
            
            -
            
            
            115,000
            
            
            -Other
                expense
            
            
            (38,000
            )
            
            -
            
            
            (38,000
            )
            
            -Total
            
            $
            908,000
            
            $
            6,000
            
            $
            902,000
            
            
            15,033
            %As
                % of net sales
            
            
            19
            %




Other
      income of $908,000 consisted of interest expense of $278,000. Interest expense
      primarily related to 6% interest charges associated with Series A and B
      convertible notes. In the quarter ended December 31, 2007, we recorded gain
      on
      change in fair market value of compounded embedded derivative of $1.1 million
      and warrant liability of $115,000. We had no comparable expense during the
      quarter ended December 31, 2006.




23




**Financial
        Condition**
 
 ***Liquidity
        and Capital Resources***




**Quarter Ended December 31,**Net
                  cash provided by (used in):
              
              **2007**
              
              **2006**Operating
                  activities
              
              $
              (1,111,000
              )
              $
              (606,000
              )Investing
                  activities
              
              
              (1,362,000
              )
              
              (1,231,000
              )Financing
                  activities
              
              
              -
              
              
              1,500,000Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              4
                  69,000
              
              
              15,000Net
                  decrease in cash and cash equivalents
              
              $
              (2,004,000
              )
              $
              (322,000
              )


As
      of
      December 31, 2007, we had cash and cash equivalents of $1.9 million. We funded
      our operations from private sales of equity and loans. In March 2007 we
      completed an offering of Series A and Series B Convertible Notes and warrants
      pursuant to which we raised approximately $16 million in net proceeds. In
      addition, in January 2008, we raised an additional $19 million (net of financing
      cost) through private equity financing. We will use 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.





For
      the
      quarter ended December 31, 2007, we used $1.1 million of cash in operations.
      The
      amount was mainly used to support the daily operations and expand the company’s
      selling, marketing and general and administrative functions. Operating loss
      less
      non-cash items such as stock based compensation charge and gain on change in
      fair market value of compound embedded derivatives, etc. approximated $2.3
      million in the quarter ended December 31, 2007. The Company increased advance
      payment & others by $1.5 million and inventories by $958,000. The
      increase was offset by decrease in accounts receivable of $900,000. For
      the quarter ended December 31, 2006, the Company used $606,000 in operating
      activities. The cash was mainly used to hire of personnel and establish selling,
      general and administrative functions.





Net
      cash
      used in investment activities were $1.4 million and $1.2 million in the quarters
      ended December 31, 2007 and 2006. For the quarters ended December 31, 2007
      and
      2006, cash was used to complete or enhance our manufacturing facility and
      production line in Shanghai, China.





Net
      cash
      provided by financing activities for the quarter ended December 31, 2006 was
      $1.5 million. The proceeds resulted from the Company issuing common stocks
      and
      warrants. We do not have similar activity during the quarter ended December
      31,
      2007. However, subsequent to the quarter end, the Company raised $20 million
      (net of financing cost) through private equity financing.





Our
      exchange difference is primarily from exchange gains from balances held in
      Chinese Renminbi (RMB). The exchange rates at December 31, 2007 and September
      30, 2007 were 1 U.S. dollar for RMB 7.3046 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. We also have plans
      to
      construct the 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 indicate, requiring us to raise additional funds
      or
      curtail operations.





**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.




24




**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, we noted that the 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”).





**•**
            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 our fiscal
      quarter ended December 31, 2007 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**




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 1A.




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




On
      December 20, 2007, we entered in a Settlement and Release Agreement dated
      as of December 10, 2007 with Coach Capital LLC, a Delaware limited
      liability company (“Coach”), pursuant to which we agreed to issue 1,037,580
      shares of common stock to Coach in exchange for full settlement and satisfaction
      of certain promissory notes of the Company of which the aggregate outstanding
      principal balance together with all interest accrued through the date of the
      Release Agreement was equal to $1,245,095.89. The issuance of the common stock
      to Coach was made in reliance on the exemption from registration provided by
      Regulation D promulgated under the Securities Act of 1933, as amended. More
      information regarding this transaction is included in our Form 8-K filed with
      the SEC on December 21, 2007.




**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, 20056.





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





10.1
            Amendment
                to Articles of Incorporation filed with the Secretary of State of
                Nevada
                on July 6, 2006, incorporated byreference
                from Exhibit 3.4 to the Form 10-KSB filed on December 28,
                2007.





10.2
            Settlement
                and Release Agreement between the Company and Coach Capital LLC dated
                December 10, 2007, incorporated byreference
                from Exhibit 31.1 to our Form 10-KSB filed on December 28,
                2007.





10.3
            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 andexhibits).





10.4
            Form
                of Series C Warrant dated as of January 11, 2008, incorporated
                by reference from Exhibit 10.30 to our Form 8-K filedon
                January 16, 2008.


26





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.




27


**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:
                February 7, 2008
            By:
            */s/
                Ming Wai Anthea Chung*Ming Wai Anthea ChungChief Financial Officer


28