**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934****For
                the quarterly period ended June 30, 2008****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES****EXCHANGE
                ACT OF 1934****For
                the transition period from ________________ to
                _________________**





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





**SOLAR
      ENERTECH CORP.**


(Exact
      name of registrant as specified in its charter)





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





**1600
      Adams Drive**


**Menlo
      Park, CA 94025**


(Address
      of principal executive offices) (Zip Code)





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





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





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





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





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





Number
      of
      shares outstanding of registrant’s class of common stock as of August 1,
      2008: **111,906,710**





**Table
      of Contents**





**SOLAR
      ENERTECH CORP**





**FORM
      10-Q**





**I** **NDEX**




**PAGE****Part
                I. Financial Information**Item
                1.
            Financial
                StatementsUnaudited
                Condensed Consolidated Balance Sheets - June 30, 2008 and September
                30,
                2007
            
            3Unaudited
                Condensed Consolidated Statements of Operations – Three and Nine
                Months Ended June 30, 2008 and June 30, 2007
            
            4Unaudited
                Condensed Consolidated Statements of Cash Flows – Nine Months Ended
                June 30, 2008 and June 30, 2007
            
            5Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            20Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risks
            
            25Item
                4.
            Controls
                and Procedures
            
            25Item
                4T.
            Controls
                and Procedures
            
            26**Part
                II. Other Information**Item
                1.
            Legal
                Proceedings
            
            27Item 1A.
            Risk
                Factors
            
            27Item
                2.
            Unregistered
                Sale of Equity Securities and Use of Proceeds
            
            27Item
                3.
            Defaults
                upon Senior Securities
            
            27Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            27Item
                5.
            Other
                Information
            
            28Item
                6.
            Exhibits
            
            28Signatures
            
            29


2


**PART
      I**




**ITEM
      1. FINANCIAL STATEMENTS**




**Solar
      EnerTech Corp.**


**Condensed
      Consolidated Balance Sheets**





**June 30, 2008**
            
            **September 30, 2007****(Unaudited)**
            
            **(Audited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            2,681,000
            
            $
            3,908,000Accounts
                receivable
            
            
            2,568,000
            
            
            913,000Advance
                payments and other
            
            
            4,955,000
            
            
            6,500,000Inventories,
                net
            
            
            9,312,000
            
            
            5,708,000VAT
                taxes receivable
            
            
            2,601,000
            
            
            -Other
                receivable
            
            
            1,438,000
            
            
            590,000Total
                current assets
            
            
            23,555,000
            
            
            17,619,000Fixed
                assets, net of accumulated depreciation
            
            
            8,300,000
            
            
            3,215,000Deferred
                financing costs, net of accumulated amortization
            
            
            1,860,000
            
            
            2,540,000Deposits
            
            
            3,105,000
            
            
            1,741,000Total
                assets
            
            $
            36,820,000
            
            $
            25,115,000**LIABILITIES
                AND STOCKHOLDER'S EQUITY (DEFICIT)**Current
                liabilities:Accounts
                payable
            
            $
            589,000
            
            $
            2,891,000Customer
                advance payment
            
            
            1,184,000
            
            
            1,603,000Accrued
                interest expense
            
            
            -
            
            
            615,000Accrued
                expenses
            
            
            485,000
            
            
            507,000Accounts
                payable and accrued liabilities, related parties
            
            
            3,969,000
            
            
            3,969,000Demand
                note payable to a related party
            
            
            -
            
            
            450,000Demand
                notes payable
            
            
            -
            
            
            700,000Derivative
                liabilities
            
            
            2,500,000
            
            
            16,800,000Warrant
                liabilities
            
            
            6,360,000
            
            
            17,390,000Total
                current liabilities
            
            
            15,087,000
            
            
            44,925,000Convertible
                notes, net of discount
            
            
            55,000
            
            
            7,000Total
                liabilities
            
            
            15,142,000
            
            
            44,932,000Commitments
                and contingencies (Note 11)**STOCKHOLDER'S
                EQUITY (DEFICIT):**Common
                stock - 200,000,000 shares authorized at $0.001 par value 111,616,855
                and
                78,827,012 shares issued and outstanding at June 30, 2008 and September
                30, 2007, respectively
            
            
            112,000
            
            
            79,000Additional
                paid in capital
            
            
            70,519,000
            
            
            39,192,000Other
                comprehensive income
            
            
            2,361,000
            
            
            592,000Accumulated
                deficit
            
            
            (51,314,000
            )
            
            (59,680,000
            )Total
                stockholders' equity (deficit)
            
            
            21,678,000
            
            
            (19,817,000
            )Total
                liabilities and stockholders' equity (deficit)
            
            $
            36,820,000
            
            $
            25,115,000





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


3


**Solar
      EnerTech Corp.**


**Condensed
      Consolidated Statements of Operations**


**(Unaudited)**





**Three Months Ended June 30,**
            
            **Nine Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                sales
            
            $
            10,272,000
            
            $
            1,517,000
            
            $
            18,582,000
            
            $
            1,520,000Cost
                of sales
            
            
            (10,235,000
            )
            
            (1,507,000
            )
            
            (19,680,000
            )
            
            (1,513,000
            )Gross
                profit (loss)
            
            
            37,000
            
            
            10,000
            
            
            (1,098,000
            )
            
            7,000Operating
                expenses:Selling,
                general & administrative
            
            
            1,606,000
            
            
            2,798,000
            
            
            8,185,000
            
            
            7,733,000Research
                & development
            
            
            198,000
            
            
            7,000
            
            
            483,000
            
            
            113,000Loss
                on debt extinguishment
            
            
            1,529,000
            
            
            -
            
            
            3,996,000
            
            
            -Total
                operating expenses
            
            
            3,333,000
            
            
            2,805,000
            
            
            12,664,000
            
            
            7,846,000Operating
                loss
            
            
            (3,296,000
            )
            
            (2,795,000
            )
            
            (13,762,000
            )
            
            (7,839,000
            )Other
                income (expense):Interest
                income
            
            
            24,000
            
            
            27,000
            
            
            80,000
            
            
            40,000Interest
                expense
            
            
            (238,000
            )
            
            (280,000
            )
            
            (814,000
            )
            
            (334,000
            )Loss
                on issuance of convertible notes
            
            
            -
            
            
            -
            
            
            -
            
            
            (15,209,000
            )Gain
                (loss) on change in fair market value of compound embedded
                derivative
            
            
            (22,000
            )
            
            7,100,000
            
            
            12,267,000
            
            
            (5,500,000
            )Gain
                (loss) on change in fair market value of warrant liability
            
            
            107,000
            
            
            4,532,000
            
            
            11,030,000
            
            
            (5,427,000
            )Other
                expense
            
            
            (107,000
            )
            
            (267,000
            )
            
            (435,000
            )
            
            (267,000
            )Net
                income (loss)
            
            $
            (3,532,000
            )
            $
            8,317,000
            
            $
            8,366,000
            
            $
            (34,536,000
            )Net
                income (loss) per share - basic
            
            $
            (0.03
            )
            $
            0.11
            
            $
            0.09
            
            $
            (0.44
            )Net
                income (loss) per share - diluted
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.10
            )
            $
            (0.44
            )Weighted
                average shares outstanding - basic
            
            
            104,528,145
            
            
            78,807,012
            
            
            97,518,130
            
            
            78,257,561Weighted
                average shares outstanding - diluted
            
            
            104,528,145
            
            
            119,343,005
            
            
            120,531,481
            
            
            78,257,561





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


4


**Solar
      EnerTech Corp.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**





**Nine Months Ended June 30,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                income (loss)
            
            $
            8,366,000
            
            $
            (34,536,000
            )Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:Depreciation
                of fixed assets
            
            
            877,000
            
            
            10,000Stock-based
                compensation
            
            
            4,777,000
            
            
            6,349,000Loss
                on issuance of convertible notes
            
            
            -
            
            
            15,209,000Loss
                on debt extinguishment
            
            
            3,996,000
            
            
            -Inventory
                reserve
            
            
            438,000
            
            
            -Amortization
                of note discount and deferred financing cost
            
            
            61,000
            
            
            2,000Loss
                (gain) on change in fair market value of compound embedded
                derivative
            
            
            (12,267,000
            )
            
            5,500,000Loss
                (gain) on change in fair market value of warrant liability
            
            
            (11,030,000
            )
            
            5,427,000Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,339,000
            )
            
            (85,000
            )Advance
                payments and other
            
            
            2,069,000
            
            
            (2,774,000
            )Inventories,
                net
            
            
            (3,485,000
            )
            
            (4,011,000
            )VAT
                taxes receivable
            
            
            (2,601,000
            )
            
            -Other
                receivable
            
            
            (848,000
            )
            
            -Accounts
                payable and accrued liabilities
            
            
            (2,735,000
            )
            
            1,480,000Customer
                advance payment
            
            
            (419,000
            )
            
            794,000Accounts
                payable and accrued liabilities, related parties
            
            
            -
            
            
            (35,000
            )Net
                cash used in operating activities
            
            
            (14,140,000
            )
            
            (6,670,000
            )**Cash
                flows from investing activities:**Acquisition
                of fixed assets
            
            
            (5,482,000
            )
            
            (2,671,000
            )Deposits
                on equipment
            
            
            (1,364,000
            )
            
            388,000Net
                cash used in investing actives
            
            
            (6,846,000
            )
            
            (2,283,000
            )**Cash
                flows from financing activities:**Proceeds
                from issuance of common stock, net of offering cost
            
            
            19,887,000
            
            
            1,089,000Proceeds
                from note payable
            
            
            -
            
            
            100,000Proceeds
                from issuance of convertible notes, net of offering cost
            
            
            -
            
            
            15,950,000Net
                cash provided by financing activities
            
            
            19,887,000
            
            
            17,139,000Effect
                of exchange rate on cash and cash equivalents
            
            
            (128,000
            )
            
            84,000Net
                increase (decrease) in cash and cash equivalents
            
            
            (1,227,000
            )
            
            8,270,000Cash
                and cash equivalents, beginning of period
            
            
            3,908,000
            
            
            2,799,000Cash
                and cash equivalents, end of period
            
            $
            2,681,000
            
            $
            11,069,000





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


5


**SOLAR
      ENERTECH CORP.**





**Notes
      to Condensed Consolidated Financial Statements**


**June
      30, 2008 (Unaudited)**





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





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





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





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




On
      August 13, 2008 the Company reincorporated to the
      State of Delaware. See Note 13 of Notes to Condensed Consolidated Financial
      Statements for additional information.





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





**Principles
      of consolidation and basis of accounting**





These
      consolidated financial statements have been prepared in U.S. dollars and in
      accordance with accounting principles generally accepted in the United States
      of
      America, and include the accounts of Solar EnerTech and its wholly-controlled
      variable interest entities, Infotech (Hong Kong) Solar Technologies Ltd
      (“Infotech HK”) and Solar EnerTech (Shanghai) Co., Ltd. (formerly known as
      Infotech (Shanghai) Solar Technologies Ltd.) (“Infotech Shanghai”).
      Collectively, the variable interest entities are referred to in these financial
      statements as “Infotech”. Infotech HK is the holding company for Infotech
      Shanghai. Infotech HK does not have any investments or operations separate
      from
      Infotech Shanghai. All material intercompany accounts and transactions have
      been
      eliminated. The minority interests in Infotech were not significant at June
      30,
      2008 and as a result, no minority interest balance is reflected in these
      financial statements.





**Variable
      interest entities**





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





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




Under
      the
      terms of the Agency Agreement, the Agency Agreement continues through its
      initial term ended April 10, 2008 term and remains effective on a month-to-month
      basis unless otherwise terminated. The Company may terminate the agreement
      at
      any time. While the Agency Agreement did 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 at any time 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.


6


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 June 30, 2008 and September 30, 2007, total assets held by
      Infotech as agent for the Company amounted to $33.0 million and $21.6 million,
      respectively. Total advances and reimbursements made to date from the Company
      to
      Infotech as of June 30, 2008 and September 30, 2007 were $34.4 million and
      $26.2
      million, respectively, which effectively represent intercompany receivables
      to
      the Company from Infotech Shanghai which are eliminated during consolidation.
      Infotech’s operating expenses on behalf of Solar for the nine months ended June
      30, 2008 and 2007 totaled $2.5 million and $0.7 million, respectively.
      Infotech’s only debt consisted of advances received from the
      Company.





**Inventories**





Inventories
      are stated at the lower of cost or market. Cost is determined by the
      weighted-average method. Raw material cost is based on purchase costs while
      work-in-progress and finished goods comprise of direct materials, direct labor
      and an allocation of manufacturing overhead costs. Inventory
      in-transit is included in finished goods and consists of products shipped but
      not recognized as revenue because they did not meet the revenue recognition
      criteria. Provisions
      are made for excess, slow moving and obsolete inventory as well as inventory
      whose carrying value is in excess of net realizable value.





**Income
      taxes**





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





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





**Valuation
      allowance**





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




**Unrecognized
      Tax Benefits**




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




**Derivative
      financial instruments**





Statement
      of Financial Accounting Standard No. 133 (“SFAS 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.


7


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





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





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





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





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





**Stock-Based
      Compensation**





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





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





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





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





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





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





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





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





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


8


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 revenues from product sales 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.





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,
      (“* EITF99-19 *”)* .
      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.





For
      the
      nine months ended June 30, 2008, approximately 12% of the Company’s revenue came
      from reselling of polysilicon or wafer raw materials. There was no such revenue
      for the quarter ended June 30, 2008. All transactions related to reselling
      of
      polysilicon or wafer raw materials incurred in fiscal year 2008 were recorded
      on
      a gross basis. For the three months ended June 30, 2008, approximately 13%
      of
      the Company’s revenue came from contract manufacturing of solar modules. We
      produced modules based on requirements specified by the customer. Our revenue
      related to contract manufacturing was recorded on a net basis based on criteria
      discussed in EITF 99-19.





**Segment
      Information**





The
      Company identifies its operating segments based on its business activities
      and
      geographical locations. The Company operates within a single operating segment
      -
      the manufacture of solar energy cells and modules. The Company 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.





**Reclassifications**





Certain
      amounts in the prior year financial statements have been reclassified to conform
      to the current year presentation. These reclassifications have no effect on
      previously reported results of operations. The
      Company has also reclassified current year to date amounts, specifically
      relating to stock-based compensation expense.





**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.


9


In
      December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Non-controlling
      Interests in Consolidated Financial Statements, an amendment of ARB
      No. 51.” The standard changes the accounting for non-controlling (minority)
      interests in consolidated financial statements, including the requirements
      to
      classify non-controlling interests as a component of consolidated stockholders’
equity, and the elimination of “minority interest” accounting in results of
      operations with earnings attributable to non-controlling interests reported
      as
      part of consolidated earnings. Additionally, SFAS 160 revises the
      accounting for both increases and decreases in a parent’s controlling ownership
      interest. SFAS 160 is effective for the first annual reporting period beginning
      on or after December 15, 2008. Thus, SFAS 160 will be effective for
      the Company on October 1, 2009, with early adoption prohibited. The Company
      is
      evaluating the potential impact of the implementation of SFAS 160 on its
      financial position and results of operations.





In
      December 2007, the FASB issued SFAS No. 141 (revised) (“SFAS 141(R)”),
“Business Combinations.” The standard changes the accounting for business
      combinations, including the measurement of acquirer shares issued in
      consideration for a business combination, the recognition of contingent
      consideration, the accounting for preacquisition gain and loss contingencies,
      the recognition of capitalized in-process research and development, the
      accounting for acquisition-related restructuring cost accruals, the treatment
      of
      acquisition related transaction costs, and the recognition of changes in the
      acquirer’s income tax valuation allowance. SFAS 141(R) is effective for the
      first annual reporting period beginning on or after December 15, 2008.
      Thus, SFAS 141(R) will be effective for the Company on October 1, 2009,
      with early adoption prohibited. The Company is evaluating the potential impact
      of the implementation of Statement 141(R) on its financial position and results
      of operations.





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





In
      May
      2008, the FASB issued SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally
      Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      the United States (the GAAP hierarchy). This Statement is effective for
      financial statements issued 60 days following the SEC’s approval of the Public
      Company Accounting Oversight Board amendments to AU Section 411, The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles. The Company is currently evaluating the impact of adopting SFAS
      162
      on its financial
      position and results of operations.




**NOTE
      3 — INVENTORIES**





At
      June
      30, 2008 and September 30, 2007, inventories consist of:





**June 30, 2008**
            
            **September 30, 2007**Raw
                materials
            
            $
            4,636,000
            
            $
            2,724,000Work
                in process
            
            
            204,000
            
            
            839,000Finished
                goods
            
            
            4,472,000
            
            
            2,145,000Total
                inventories
            
            $
            9,312,000
            
            $
            5,708,000





At
      June
      30, 2008, the Company had $2.9 million of raw materials loaned to a customer
      in
      conjunction with the contract manufacturing arrangement.


10


**NOTE 4
      — ADVANCE PAYMENTS AND OTHER**





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




**June 30, 2008**
            
            **September 30, 2007**Prepayment
                for raw materials
            
            $
            4,796,000
            
            $
            6,500,000Others
            
            
            159,000
            
            
            -Total
                advance payments and other
            
            $
            4,955,000
            
            $
            6,500,000





**NOTE
      5— FIXED ASSETS**





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





**June 30, 2008**
            
            **September 30, 2007**Production
                equipment
            
            $
            5,103,000
            
            $
            1,065,000Leasehold
                improvement
            
            
            2,235,000
            
            
            1,615,000Automobiles
            
            
            539,000
            
            
            333,000Office
                equipment
            
            
            352,000
            
            
            88,000Machinery
            
            
            201,000
            
            
            455,000Furniture
            
            
            38,000
            
            
            38,000Construction
                in progress
            
            
            1,173,000
            
            
            -Total
                Fixed Assets
            
            
            9,641,000
            
            
            3,594,000Less:
                Accumulated depreciation
            
            
            (1,341,000
            )
            
            (379,000
            )Net
                Fixed Assets
            
            $
            8,300,000
            
            $
            3,215,000





**NOTE
      6 — INCOME TAX**





The
      Company has no taxable income and no provision for federal and state income
      taxes is required for the three and nine months ended June 30, 2008 and June
      30,
      2007, respectively, except for certain minimum state taxes.





The
      Company accounts for income taxes using the liability method in accordance
      with
      Financial Accounting Standards Board Statement No. 109 (“SFAS 109”),
“Accounting for Income Taxes”. SFAS 109 requires recognition of deferred tax
      assets and liabilities for the expected future tax consequences of events that
      have been recognized in the Company’s financial statements, but have not been
      reflected in the Company’s taxable income. A valuation allowance is established
      to reduce deferred tax assets to their estimated realizable value. Therefore,
      the Company provides a valuation allowance to the extent that the Company does
      not believe it is more likely than not that the Company will generate sufficient
      taxable income in future periods to realize the benefit of the Company’s
      deferred tax assets. As of June 30, 2008 and June 30, 2007, the deferred tax
      asset was subject to a 100% valuation allowance and therefore is not recorded
      on
      the Company’s balance sheet as an asset. Realization of the Company’s deferred
      tax assets is limited and the Company may not be able to fully utilize these
      deferred tax assets to reduce the Company’s tax rates.





As
      of
      June 30, 2008, due to the history of losses the Company has generated in the
      past, the Company believes that it is more-likely-than-not that the deferred
      tax
      assets cannot be realized before the respective utilization expiration dates.
      Therefore, we have a full valuation allowance on our deferred tax assets.
      Utilization of the net operating loss carry forwards and credits may be subject
      to a substantial annual limitation due to the ownership change limitations
      provided by the Internal Revenue Code of 1986, as amended and similar state
      provisions. The annual limitation may result in the expiration of net operating
      losses and credits before utilization. The Company also has net operating losses
      in its foreign jurisdiction and that loss can be carried over 5 years from
      the
      year the loss was incurred.





In
      July
      2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
      in
      income taxes recognized in any entity’s financial statements in accordance with
      SFAS 109 and prescribes a recognition threshold and measurement attributes
      for
      financial statement disclosure of tax positions taken or expected to be taken
      on
      a tax return. Under FIN 48, the impact of an uncertain income tax position
      on
      the income tax return must be recognized at the largest amount that is
      more-likely-than-not to be sustained upon audit by the relevant taxing
      authority. An uncertain income tax position will not be recognized if it has
      less than a 50% likelihood of being sustained. Additionally, FIN 48 provides
      guidance on de-recognition, classification, interest and penalties, accounting
      in interim periods, disclosure and transition. FIN 48 is effective for fiscal
      years beginning after December 15, 2006.


11


The
      Company has adopted the provisions of FIN 48 on October 1, 2007. The total
      amount of unrecognized tax benefits as of the date of adoption was not material.
      As a result of the implementation of FIN 48, the Company recognized no increase
      in the liability for unrecognized tax benefits and no retained earnings
      adjustment as of October 1, 2007. We have adopted the accounting policy such
      that interest recognized in accordance with Paragraph 15 of FIN 48 and penalty
      recognized in accordance with Paragraph 16 of FIN 48 are classified as part
      of
      our income tax expense.




The
      Company is subject to taxation in the United States and China. There are no
      ongoing examinations by taxing authorities at this time. The Company has open
      tax years from 2004 to present in various taxing jurisdictions. Tax returns
      filed for these tax years may be audited by the applicable tax
      authorities.





**NOTE
      7— CONVERTIBLE NOTES**





On
      March
      7, 2007, the Company entered into a securities purchase agreement to issue
      $17,300,000 of secured convertible notes (the “notes”) and detachable stock
      purchase warrants (the “warrants”). Accordingly, during the three months ended
      March 31, 2007, the Company sold units consisting of:




**•**
            $5,000,000
                in principal amount of Series A Convertible Notes and warrants to
                purchase
                7,246,377 shares (exercise price of $1.21 per share) of its common
                stock;




**•**
            $3,300,000
                in principal amount of Series B Convertible Notes and warrants to
                purchase
                5,789,474 shares (exercise price of $0.90 per share) of its common
                stock;
                and




**•**
            $9,000,000
                in principal amount of Series B Convertible Notes and warrants to
                purchase
                15,789,474 shares (exercise price of $0.90 per share) of its common
                stock.





These
      notes bear interest at 6% per annum and are due in 2010. The principal amount
      of
      the Series A Convertible Notes may be converted at the initial rate of $0.69
      per
      share for a total of 7,246,377 shares of common stock (which amount does not
      include shares of common stock that may be issued for the payment of interest).
      The principal amount of the Series B Convertible Notes may be converted at
      the
      initial rate of $0.57 per share for a total of 21,578,948 shares of common
      stock
      (which amount does not include shares of common stock that may be issued for
      the
      payment of interest).





In
      connection with the issuance of the notes and warrants, the Company engaged
      an
      exclusive advisor and placement agent (the “advisor”) and issued warrants to the
      advisor to purchase an aggregate of 1,510,528 shares at an exercise price of
      $0.57 per share and 507,247 shares at an exercise price of $0.69 per share,
      of
      the Company’s common stock (the “advisor warrants”). In addition to the issuance
      of the warrants, the Company paid $1,038,000 in commissions, an advisory fee
      of
      $173,000, and other fees and expenses of $84,025.





The
      Company evaluated the notes for derivative accounting considerations under
      SFAS
      133 and EITF 00-19 and determined that the notes contain two embedded derivative
      features, the conversion option and a redemption privilege accruing to the
      holder if certain conditions exist (the “compound embedded derivative”). The
      compound embedded derivative is measured at fair value both initially and in
      subsequent periods. Changes in fair value of the compound embedded derivative
      are recorded in the account “gain (loss) on fair market value of compound
      embedded derivative” in the accompanying consolidated statements of
      operations.





The
      warrants (including the advisor warrants) are classified as a liability, as
      required by SFAS No. 150, due to the terms of the warrant agreement which
      contains a cash redemption provision in the event of a fundamental transaction.
      The warrants are measured at fair value both initially and in subsequent
      periods. Changes in fair value of the warrants are recorded in the account
“gain
      (loss) on fair market value of warrant liability” in the accompanying
      consolidated statements of operations.


12


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





**Amount**Proceeds
                of convertible notes
            
            $
            17,300,000Allocation
                of proceeds:Fair
                value of warrant liability (excluding advisor warrants)
            
            
            (15,909,000
            )Fair
                value of compound embedded derivative liability
            
            
            (16,600,000
            )Loss
                on issuance of convertible notes
            
            
            15,209,000Carrying
                amount of notes at grant date
            
            $
            -Amortization
                of note discount
            
            $
            7,000Carrying
                amount of notes at September 30, 2007
            
            
            7,000Amortization
                of note discount
            
            
            48,000Carrying
                amount of notes at June 30, 2008
            
            $
            55,000Fair
                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
            
            
            (11,030,000
            )Fair
                value of warrant liability at June 30, 2008
            
            $
            6,360,000Fair
                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 derivative liability
            
            
            (12,267,000
            )Conversion
                of Series A and B Notes
            
            
            (2,033,000
            )Fair
                value of compound embedded derivative at June 30, 2008
            
            $
            2,500,000





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





**June 30, 2008**
            
            **September 30, 2007**Implied
                term (years)
            
            
            3.68
            
            
            4.43Suboptimal
                exercise factor
            
            
            2.5
            
            
            2.5Volatility
            
            
            82
            %
            
            72
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Risk
                free interest rate
            
            
            3.06
            %
            
            4.23
            %





In
      conjunction with March 2007 financing, we recorded total deferred financing
      cost
      of $2.5 million, of which $1.3 million represented cash payment and $1.2 million
      represented the fair market value of the advisor warrants. The deferred
      financing cost is amortized over the three year life of the notes using a method
      that approximates the effective interest rate method. The advisor warrants
      were
      recorded as a liability and adjusted to fair value in each subsequent period.
      As
      of June 30, 2008, total unamortized deferred financing cost was $1.9
      million.





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





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


13


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





**June 30, 2008**
            
            **September 30, 2007**Starting
                stock price (closing price on date preceding valuation
                date)
            
            $
            0.59
            
            $
            1.28Annual
                volatility of stock
            
            
            82.30
            %
            
            72.10
            %Risk
                free rate
            
            
            2.63
            %
            
            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 June 30, 2008, $1.5 million of Series A and B convertible
      notes were converted into our common shares. We recorded a loss on debt
      extinguishment of $1.5 million as a result of the conversion based on the quoted
      market closing price of our common shares on the conversion dates. For the
      nine
      months ended June 30, 2008, $4.6 million of Series A and B convertible notes
      were converted into our common shares. We recorded a loss on debt extinguishment
      of $4.4 million as a result of the conversion based on the quoted market closing
      price of our common shares on the conversion dates.




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





**Three Months Ended**
            
            **Nine Months Ended****June 30, 2008**
            
            **June 30, 2008**Fair
                value of the common shares
            
            $
            1,735,000
            
            $
            5,743,000Unamortized
                deferred financing costs associated with the converted
                notes
            
            
            224,000
            
            
            673,000Fair
                value of the CED liability associated with the converted
                notes
            
            
            (422,000
            )
            
            (2,033,000
            )Accreted
                amount of the notes discount
            
            
            (8,000
            )
            
            (13,000
            )Loss
                on debt extinguishment
            
            $
            1,529,000
            
            $
            4,370,000





For
      the
      nine months ended June 30, 2008, we recorded $4.4 million of loss on debt
      extinguishment from Series A and B convertible notes. This loss was offset
      by a
      gain on debt extinguishment from settlement agreement with Coach Capital LLC
      in
      the amount of $0.4 million (see Note 8 below).  The net amount of $4.0
      million loss on debt extinguishment is included in the Consolidated Statements
      of Operations.




**NOTE
      8 — EQUITY TRANSACTIONS**





**Common
      stock issued for repayment of loans**





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





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





**Warrants**





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





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


14


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





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.





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





The
      warrants (including the advisor warrants) are classified as a liability in
      accordance with 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, which provide that the Company would
      repurchase any unexercised portion of the warrants at the date of the occurrence
      of the fundamental transaction for the value as determined by the Black-Scholes
      Merton valuation model. As a result, the warrants are measured at fair value
      both initially and in subsequent periods. Changes in fair value of the warrants
      are recorded in the account “gain (loss) on fair market value of warrant
      liability” in the accompanying Consolidated Statements of Operations.





A
      summary
      of warrant activities through June 30, 2008 is as follows:





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





At
      June
      30, 2008, the range of warrant prices for shares under warrants and the
      weighted-average remaining contractual life is as follows:





**Warrants Outstanding and Exercisable****Weighted-****Weighted-**
            
            **Average****Range of**
            
            
            
            **Average**
            
            **Remaining****Warrant**
            
            **Number of**
            
            **Exercise**
            
            **Contractual****Exercise Price**
            
            **Warrants**
            
            **Price**
            
            **Life**$0.57-$0.69
            
            
            2,017,775
            
            $
            0.60
            
            
            3.71$0.88-$1.00
            
            
            47,113,038
            
            $
            0.95
            
            
            4.16$1.21
            
            
            7,246,377
            
            $
            1.21
            
            
            3.69




15


**Options**





***Non-Plan
      Options***





Pursuant
      to an option agreement dated March 1, 2006 between Jean Blanchard, a former
      officer and director, and the President of the Company, the President has the
      right and option to purchase a total of 36,000,000 shares of the Company’s
      common stock at a price of $0.0001 per share, until February 10, 2010. The
      options granted under the agreement vest in three equal installments over a
      period of two years, with the first installment vesting immediately, and the
      remaining installments vesting at 12 and 24 months after the date of the
      agreement. During the year ended September 30, 2006, the President exercised
      10,750,000 options to purchase 10,750,000 shares and transferred 5,750,000
      shares to various employees of Infotech Shanghai. The Company recorded a stock
      compensation charge of $10.7 million 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 former director of
      the
      Company, Mr. Xie has the right and option to purchase a total of 1,500,000
      shares of the Company’s common stock at a price of $0.0001 per share, until
      February 10, 2010. The options granted under the agreement vested immediately.
      Mr. Xie exercised the 1,500,000 shares of the Company’s common stock in April
      2008.





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





**•**
            Volatility
                of 82.57%;





**•**
            Risk-free
                interest rate of 4.65%;





**•**
            Expected
                lives - 4 years;





**•**
            No
                dividend yield; and





**•**
            Market
                value per share of stock on measurement date of
                $0.70.





Summary
      information regarding these options as of June 30, 2008 is as
      follows:





****
            
            ****
            
            ****
            
            ****
            
            **Options Outstanding****Weighted****Number**
            
            
            
            
            
            
            
            **Number**
            
            **Average**
            
            **Weighted****of**
            
            
            
            
            
            
            
            **Outstanding**
            
            **Remaining**
            
            **Average****Options**
            
            
            
            **Exercise**
            
            
            
            **At June**
            
            **Contractual**
            
            **Exercise****Granted**
            
            **Expiration Date**
            
            **Price**
            
            **Exercised**
            
            **30, 2008**
            
            **Life (year)**
            
            **Price**Granted
                to Leo Young, the President, March 1, 2006
            
            
            36,000,000
            
            
            February 10, 2010
            
            $
            0.0001
            
            
            10,750,000
            
            
            25,250,000
            
            
            1.62
            
            $
            0.0001Granted
                to Frank Fang Xie, a former director, March 1, 2006
            
            
            1,500,000
            
            
            February 10, 2010
            
            $
            0.0001
            
            
            —
            
            
            1,500,000
            
            
            1.62
            
            $
            0.0001Total
            
            
            37,500,000
            
            
            
            
            
            
            
            
            10,750,000
            
            
            26,750,000
            
            
            1.62





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





***2007
      Equity Incentive Plan***





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


16


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





**Shares Available For**
              **Grant**
            
            **Number of Shares**
            
            **Weighted****Average****Fair**
              **Value****Per Share**
            
            **Weighted****Average**
              **Exercise****Price Per****Share**Balance at September 30, 2006
            
            
            —
            
            
            —
            
            
            —
            
            
            —Shares
                reserved
            
            
            10,000,000
            
            
            —Options
                granted
            
            
            (7,300,000
            )
            
            7,300,000
            
            $
            0.66
            
            $
            1.20Options
                exercised
            
            
            —
            
            
            —
            
            
            —
            
            
            —Options
                cancelled
            
            
            —
            
            
            —
            
            
            —
            
            
            —Balance
                at September 30, 2007
            
            
            2,700,000
            
            
            7,300,000
            
            $
            0.66
            
            $
            1.20Options
                cancelled
            
            
            298,958
            
            
            (298,958
            )
            $
            0.55
            
            $
            1.20Options
                granted
            
            
            (870,000
            )
            
            870,000
            
            $
            0.37
            
            $
            0.61Balance
                at June 30, 2008
            
            
            2,128,958
            
            
            7,871,042
            
            $
            0.38
            
            $
            0.62





At
      June
      30, 2008 and September 30, 2007, 7,871,042 and 7,300,000 options were
      outstanding, respectively and had a weighted-average remaining contractual
      life
      of 9.28 years and an exercise price of $0.62 and $1.20, respectively. Of these
      options, 2,694,590 and 1,453,338 shares were vested and exercisable on June
      30,
      2008 and September 30, 2007, respectively. The fair values of employee
      stock options granted were estimated using the Black-Scholes option-pricing
      model with the following weighted average assumptions:





**Three
                Months Ended**
            
            **Nine
                Months Ended****June
                30, 2008**
            
            **June
                30, 2008**Volatility
            
            
            99.2
            %
            
            99.2
            %Expected
                dividend
            
            
            0.0
            %
            
            0.0
            %Risk-free
                interest rate
            
            
            2.24
            %
            
            2.38
            %Expected
                term in years
            
            
            2.2
            
            
            2.6Weighted-average
                fair value
            
            $
            0.36
            
            $
            0.37





On
      May 5,
      2008, at the Company’s Annual Meeting of Stockholders, the Company’s
      stockholders approved an amendment and restatement of the Plan, which, among
      other things, will increase the maximum number of shares of Common Stock that
      may be issued under the Plan from 10,000,000 shares to 15,000,000 shares upon
      its effectiveness upon the Company’s anticipated reincorporation to the State of
      Delaware.





On
      May 9,
      2008, the Compensation Committee of the Board of Directors of the Company
      authorized the repricing of all outstanding options issued to current employees,
      directors, officers and consultants prior to February 5, 2008 under the
      Company’s 2007 Equity Incentive Plan ("Plan") to $0.62, determined in accordance
      with the Plan as the closing price for shares of Common Stock on the
      Over-the-Counter Bulletin Board on the date of the repricing.





The
      Company repriced a total of 7,720,000 shares of Common Stock underlying
      outstanding options. The
      other
      terms of the options, including the vesting schedules, remained unchanged as
      a
      result of the repricing. Total additional compensation expense on non-vested
      options relating to the May 9, 2008 repricing is approximately $0.4 million
      which will be expensed ratably over the remaining vesting period. Additional
      compensation expense on vested options relating to the May 9, 2008 repricing
      is
      approximately $0.3 million which was fully expensed as of June 30, 2008. The
      repriced options had originally been issued with $0.94 to $1.65 per share option
      exercise prices, which prices reflected the then current market prices of our
      stock on the dates of original grant. As a result of the recent sharp reduction
      in our stock price, our Board of Directors believed that such options no longer
      would properly incentivize our employees, officers, directors and consultants
      who held such options to work in the best interests of our company and
      stockholders.





In
      accordance with the provisions of SFAS 123(R), the Company has recorded
      stock-based compensation expense of $0.6 million and $4.8 million for the three
      months and nine months ended June 30, 2008, respectively, which include the
      compensation effect for the options repriced. The stock-based compensation
      expense is based on the fair value of the options at the grant
      date.


17


**NOTE
      9 — OTHER COMPREHENSIVE INCOME**





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





**Three Months Ended June 30,**
            
            **Nine Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                income (loss)
            
            $
            (3,532,000
            )
            $
            8,317,000
            
            $
            8,366,000
            
            $
            (34,536,000
            )Other
                comprehensive income:Change
                in foreign currency translation
            
            
            484,000
            
            
            74,000
            
            
            1,769,000
            
            
            84,000Comprehensive
                income (loss)
            
            $
            (3,048,000
            )
            $
            8,391,000
            
            $
            10,135,000
            
            $
            (34,452,000
            )





Accumulated
      other comprehensive income at June 30, 2008 and September 30, 2007 is
      comprised of accumulated translation adjustments of $2.4 million and $0.6
      million, respectively.





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





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





**Three Months Ended**
            
            **Nine Months Ended****June 30, 2008**
            
            **June 30, 2007**
            
            **June 30, 2008**
            
            **June 30, 2007**Calculation
                of net income (loss) per share - basic:Net
                income (loss)
            
            $
            (3,532,000
            )
            $
            8,317,000
            
            $
            8,366,000
            
            $
            (34,536,000
            )Weighted-average
                number of common shares outstanding
            
            
            104,528,145
            
            
            78,807,012
            
            
            97,518,130
            
            
            78,257,561Net
                income (loss) per share - basic
            
            $
            (0.03
            )
            $
            0.11
            
            $
            0.09
            
            $
            (0.44
            )Calculation
                of net loss per share - diluted:Net
                income (loss)
            
            $
            (3,532,000
            )
            $
            8,317,000
            
            $
            8,366,000
            
            $
            (34,536,000
            )Less:
                Gain on change in fair market value of compound embedded
                derivative
            
            
            —
            
            
            (7,100,000
            )
            
            (12,267,000
            )
            
            —Interest
                expense on convertible notes
            
            
            —
            
            
            259,000
            
            
            814,000
            
            
            —Less:
                Gain on change in fair market value of advisor warrants
            
            
            —
            
            
            —
            
            
            (765,000
            )
            
            —Less:
                Gain on change in fair market value of Series B warrants
            
            
            —
            
            
            (4,531,000
            )
            
            (7,786,000
            )
            
            —Net
                loss assuming dilution
            
            $
            (3,532,000
            )
            $
            (3,055,000
            )
            $
            (11,638,000
            )
            $
            (34,536,000
            )Weighted-average
                number of common shares outstanding
            
            
            104,528,145
            
            
            78,807,012
            
            
            97,518,130
            
            
            78,257,561Effect
                of potentially dilutive securities:Warrants
                issued to advisors
            
            
            —
            
            
            11,710,668
            
            
            511,102
            
            
            —Convertible
                notes
            
            
            —
            
            
            28,825,325
            
            
            21,397,371
            
            
            —Series
                B Warrants
            
            
            —
            
            
            —
            
            
            1,104,878
            
            
            —Weighted-average
                number of common shares outstanding assuming dilution
            
            
            104,528,145
            
            
            119,343,005
            
            
            120,531,481
            
            
            78,257,561Net
                loss per share - diluted
            
            $
            (0.03
            )
            $
            (0.03
            )
            $
            (0.10
            )
            $
            (0.44
            )





**NOTE
      11 — COMMITMENTS AND CONTINGENCIES**





**Capital
      investments**





Pursuant
      to a joint research and development laboratory agreement with Shanghai
      University, dated December 15, 2006 and expiring on December 15, 2016, the
      Company is committed to fund the establishment of laboratories and completion
      of
      research and development activities. The Company committed to invest no less
      than RMB5 million each year for the first three years and no less than RMB30
      million cumulatively for the first five years. The following table summarizes
      the commitments in U.S. dollar based upon a translation of the RMB amounts
      into
      U.S. dollars at an exchange rate of 6.8591.


18





**Year**
            
            **Amount**2008
                (Remaining balance)*
            
            $
            966,0002009
            
            
            933,0002010
            
            
            933,0002011
            
            
            1,108,000Total
            
            $
            3,940,000





*
            The
                amount includes approximately $149,000 of 2007 commitment, which
                remained
                unpaid as of June 30, 2008. The Company intended to increase research
                and
                development spending as we grow our business. The payment to Shanghai
                University will be used to fund program expenses and equipment purchase.
                The delay in payment could lead to Shanghai University requesting
                the
                Company to pay the committed amount within a certain time frame.
                If the
                Company is still not able to correct the breach within the time frame,
                Shanghai University could seek compensation up to an additional 15%
                of the
                committed amount which would then total a 2007 commitment of approximately
                $656,000. 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 are accounted for as research and development expenditures
      under Statement of Financial Accounting Standard No. 2, “Accounting for Research
      and Development Costs” and expensed as incurred.





**NOTE
      12 — RELATED PARTY TRANSACTIONS**





At
      June
      30, 2008, accounts payable and accrued liabilities, related party, of $4 million
      primarily represent 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
        13 - SUBSEQUENT EVENTS**
 
 **Reincorporation**
 
 On
        August
        13, 2008, the Company entered into an Agreement and Plan of Merger with Solar
        EnerTech Corp., a Delaware corporation and wholly owned subsidiary of the
        Company (“Solar EnerTech Delaware”), whereby the Company merged with and into
        Solar EnerTech Delaware in order to effect a reincorporation changing the
        Company’s state of domicile from Nevada to Delaware (the “Reincorporation”).
        After the Reincorporation, the Company ceased to exist and Solar EnerTech
        Delaware was the surviving entity.
 
 The
        Reincorporation was duly approved by both the Company’s Board of Directors and a
        majority of the Company’s stockholders at its annual meeting of stockholders
        held on May 5, 2008. On August 13, 2008, the Reincorporation was completed.
        The
        Reincorporation into Delaware did not result in any change to the Company’s
        business, management, employees, directors, capitalization, assets or
        liabilities.
  19


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




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





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 63,000 square-foot
      manufacturing facility. We also plan to expand our marketing, purchasing and
      distribution office in Menlo Park, California. While we expect to sell most
      of
      our products in Europe, the United States and China, our goal is to become
      a
      worldwide supplier of PV cells.





We
      currently have one 25MW solar cell production line and 50MW solar module
      production facility. We intend to expand our solar cell production and add
      a
      second production line. We expect the second production line to be completed
      by
      the end of the 2008 calendar year.


20


During
      the quarter ended June 30, 2008, we recorded revenue of $10.3 million. A
      majority of the sales were to Sky Solar (Hong Kong) International Co., Ltd.
      (“Sky Solar”), a contract we previously disclosed in our Form 10-Q for the
      quarter ended March 31, 2008. We also shipped to other customers in Europe
      and
      Australia. Approximately 36% of modules shipped during the quarter used our
      own
      solar cells. The remaining cells were purchased from a third party. We are
      ramping up our solar cell production and expect to produce majority of the
      modules using our own cells in the fourth fiscal quarter 2008.





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





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 nine months ended June 30, 2008 to the items that we disclosed as
      our
      critical accounting policies and estimates in Management’s Discussion and
      Analysis or Plan of Operations in our Annual Report on Form 10-KSB filed for
      the
      year ended September 30, 2007 with the Securities and Exchange Commission.
      For a
      description of those critical accounting policies, please refer to our 2007
      Annual Report on Form 10-KSB.




***Recent
      Accounting Pronouncements***





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





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




In
      December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Non-controlling
      Interests in Consolidated Financial Statements, an amendment of ARB
      No. 51.” The standard changes the accounting for non-controlling (minority)
      interests in consolidated financial statements, including the requirements
      to
      classify non-controlling interests as a component of consolidated stockholders’
equity, and the elimination of “minority interest” accounting in results of
      operations with earnings attributable to non-controlling interests reported
      as
      part of consolidated earnings. Additionally, SFAS 160 revises the
      accounting for both increases and decreases in a parent’s controlling ownership
      interest. SFAS 160 is effective for the first annual reporting period beginning
      on or after December 15, 2008. Thus, SFAS 160 will be effective for
      the Company on October 1, 2009, with early adoption prohibited. The Company
      is
      evaluating the potential impact of the implementation of SFAS 160 on its
      financial position and results of operations.


21


In
      December 2007, the FASB issued SFAS No. 141 (revised) (“SFAS 141(R)”),
“Business Combinations.” The standard changes the accounting for business
      combinations, including the measurement of acquirer shares issued in
      consideration for a business combination, the recognition of contingent
      consideration, the accounting for preacquisition gain and loss contingencies,
      the recognition of capitalized in-process research and development, the
      accounting for acquisition-related restructuring cost accruals, the treatment
      of
      acquisition related transaction costs, and the recognition of changes in the
      acquirer’s income tax valuation allowance. SFAS 141(R) is effective for the
      first annual reporting period beginning on or after December 15, 2008.
      Thus, SFAS 141(R) will be effective for the Company on October 1, 2009,
      with early adoption prohibited. The Company is evaluating the potential impact
      of the implementation of Statement 141(R) on its financial position and results
      of operations.





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





In
      May
      2008, the FASB issued SFAS
      No. 162
      (“ SFAS 162”),
      “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies
      the sources of accounting principles and the framework for selecting the
      principles to be used in the preparation of financial statements of
      nongovernmental entities that are presented in conformity with generally
      accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).
      This Statement is effective for financial statements issued 60 days following
      the SEC’s approval of the Public Company Accounting Oversight Board amendments
      to AU Section 411, The Meaning of Present Fairly in Conformity With
      Generally Accepted Accounting Principles. The Company is currently evaluating
      the impact of adopting SFAS 162 on itsfinancial
      position and results of operations.





**Results
      of Operations for the three and nine months ended June 30, 2008 and
      2007**





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





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





**Three Months Ended June 30, 2008**
            
            **Three Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Net sales
            
            $
            10,272,000
            
            
            100.
            %
            $
            1,517,000
            
            
            100.
            %
            $
            8,755,000
            
            
            577.1
            %Cost
                of sales
            
            
            (10,235,000
            )
            
            (99.6
            )%
            
            (1,507,000
            )
            
            (99.3
            )%
            
            (8,728,000
            )
            
            579.2
            %Gross
                profit (loss)
            
            $
            37,000
            
            
            0.4
            %
            $
            10,000
            
            
            0.7
            %
            $
            27,000
            
            
            270.
            %





**Nine Months Ended June 30, 2008**
            
            **Nine Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Net sales
            
            $
            18,582,000
            
            
            100.
            %
            $
            1,520,000
            
            
            100.
            %
            $
            17,062,000
            
            
            1,122.5
            %Cost
                of sales
            
            
            (19,680,000
            )
            
            (105.9
            )%
            
            (1,513,000
            )
            
            (99.5
            )%
            
            (18,167,000
            )
            
            1,200.7
            %Gross
                profit (loss)
            
            $
            (1,098,000
            )
            
            (5.9
            )%
            $
            7,000
            
            
            0.5
            %
            $
            (1,105,000
            )
            
            (15,785.7
            )%





For
      the
      three months ended June 30, 2008, the Company reported total revenue of $10.3
      million compared to $1.5 million of revenue in the same period of the prior
      year. The revenue of $10.3 million during the three months ended June 30, 2008
      primarily represented solar module sales of $9.0 million and contract
      manufacturing revenue of $1.3 million. The majority of the modules purchased
      by
      Sky Solar under the contract, which was previously disclosed in our Form 10-Q
      for the quarter ended March 31, 2008 were delivered during the quarter ended
      June 30, 2008. Besides Sky Solar, our modules were shipped to customers in
      Australia, Holland, Germany, Switzerland and Belgium. For contract manufacturing
      arrangement, we produced modules based on requirements specified by the
      customer.





For
      the
      nine months ended June 30, 2008, the Company recorded $18.6 million in revenue
      which was comprised of $14.3 million in solar module sales, $1.3 million in
      contract manufacturing revenue, $0.7 million in solar cell sales, and $2.3
      million in resale of raw materials compared to $1.5 million of revenue in the
      same period of the prior year. We generated revenue from resale of raw materials
      such as silicon wafer because we were over-stocked due to our still-limited
      production capability.





For
      the
      three months ended June 30, 2008 and 2007, we incurred a gross profit of $37,000
      and $10,000, respectively. The positive gross margin in the third quarter 2008
      was primarily attributable to sales of our solar module compared to the prior
      year period where gross margin benefited primarily from the resale of raw
      materials.





For
      the
      nine months ended June 30, 2008, we incurred a negative gross margin of $1.1
      million mainly from high manufacturing costs due to increased raw material
      cost
      and production inefficiencies associated with our low production
      volume.


22


***Selling,
      general & administrative***





**Three Months Ended June 30, 2008**
            
            **Three Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Selling, general &
                administrative
            
            $
            1,606,000
            
            
            15.6
            %
            $
            2,798,000
            
            
            184.4
            %
            $
            (1,192,000
            )
            
            (42.6
            )%





**Nine Months Ended June 30, 2008**
            
            **Nine Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Selling,
                general & administrative
            
            $
            8,185,000
            
            
            44.
            %
            $
            7,733,000
            
            
            508.8
            %
            $
            452,000
            
            
            5.8
            %





For
      the
      three months ended June 30, 2008, we incurred selling, general and
      administrative expense of $1.6 million, representing a decrease of $1.2 million
      or 43% from $2.8 million in the three months ended June 30, 2007. The selling,
      general and administrative expense included stock-based compensation expense
      related to employee options of $0.5 million and $2.1 million for the three
      months ended June 30, 2008 and 2007, respectively. Excluding stock-based
      compensation expense, our selling, general & administrative costs increased
      by approximately $0.4 million largely from increases in professional fees,
      the
      number of additional employees hired as we grow our business, and increased
      sales and marketing activities.





For
      the
      nine months ended June 30, 2008, we incurred selling, general and administrative
      expense of $8.2 million, representing an increase of $0.5 million or 5.8% from
      the $7.7 million incurred in the nine months ended June 30, 2007. The selling,
      general and administrative expense included stock-based compensation expense
      related to employee options of $4.7 million and $6.3 million for nine months
      ended June 30, 2008 and 2007, respectively. The overall increase in the selling,
      general and administrative expense excluding stock-based compensation was
      primarily related to increases in professional fees and the number of additional
      employees hired as we grow our business, and increased sales and marketing
      activities.





***Research
      & development***





**Three Months Ended June 30, 2008**
            
            **Three Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Research & development
            
            $
            198,000
            
            
            1.9
            %
            $
            7,000
            
            
            0.5
            %
            $
            191,000
            
            
            2,728.6
            %





**Nine Months Ended June 30, 2008**
            
            **Nine Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Research & development
            
            $
            483,000
            
            
            2.6
            %
            $
            113,000
            
            
            7.4
            %
            $
            370,000
            
            
            327.4
            %





Research
      and development expense represents expense incurred in-house as well as for
      the
      joint research and development program with Shanghai University. Research and
      development expense increased in the three and nine months ended June 30, 2008
      and 2007 largely as a result of our commitment to fund our development contract
      with Shanghai University. In accordance with our joint research and development
      laboratory agreement with Shanghai University, dated December 15, 2006 and
      expiring on December 15, 2016, we are committed to funding an additional $1.0
      million in fiscal year 2008 and $3.0 million in the next 3 years. 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 $656,000. As of the date of this
      report, we have not received any compensation request from Shanghai University.
      We expect to increase our funding to research and development activities as
      we
      grow our business.





***Loss
      on debt extinguishment***





**Three Months Ended June 30, 2008**
            
            **Three Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Loss
                on debt extinguishment
            
            $
            1,529,000
            
            
            14.9
            %
            $
            -
            
            
            0.
            %
            $
            1,529,000
            
            
            *NM


*NM=
      Not
      measureable





**Nine Months Ended June 30, 2008**
            
            **Nine Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Loss on debt extinguishment
            
            $
            3,996,000
            
            
            21.5
            %
            $
            -
            
            
            0.
            %
            $
            3,996,000
            
            
            *NM


*NM=
      Not
      measureable





For
      the
      three months ended June 30, 2008, we incurred a loss on debt extinguishment
      of
      $1.5 million. During the quarter, part of our Series A and B convertible notes
      were converted into common stock which resulted in the non-cash loss of $1.5
      million.





For
      the
      nine months ended June 30, 2008, we incurred a loss on debt extinguishment
      of
      $4.0 million. That loss was the result of a loss of $4.4 million related to
      converting Series A and B convertible notes into common stocks. The loss was
      partially offset by a gain of $0.4 million on settlement of loan due to Coach
      Capital LLC and Infotech Essentials Ltd.


23


***Other
      income (expense)***





**Three Months Ended June 30, 2008**
            
            **Three Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Interest income
            
            $
            24,000
            
            
            0.2
            %
            $
            27,000
            
            
            1.8
            %
            $
            (3,000
            )
            
            (11.1
            )%Interest
                expense
            
            
            (238,000
            )
            
            (2.3
            )%
            
            (280,000
            )
            
            (18.5
            )%
            
            42,000
            
            
            (15.
            )%Gain
                (loss) on change in fair market value of compound embedded
                derivative
            
            
            (22,000
            )
            
            (0.2
            )%
            
            7,100,000
            
            
            468.
            %
            
            (7,122,000
            )
            
            (100.3
            )%Gain
                (loss) on change in fair market value of warrant liability
            
            
            107,000
            
            
            1.
            %
            
            4,532,000
            
            
            298.7
            %
            
            (4,425,000
            )
            
            (97.6
            )%Other
                expense
            
            
            (107,000
            )
            
            (1.
            )%
            
            (267,000
            )
            
            (17.6
            )%
            
            160,000
            
            
            (59.9
            )%Total
                other income (expense)
            
            $
            (236,000
            )
            
            (2.3
            )%
            $
            11,112,000
            
            
            732.5
            %
            $
            (11,348,000
            )
            
            (102.1
            )%





**Nine Months Ended June 30, 2008**
            
            **Nine Months Ended June 30, 2007**
            
            **Year-Over-Year Change****Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of net sales**
            
            **Amount**
            
            **% of change**Interest income
            
            $
            80,000
            
            
            0.4
            %
            $
            40,000
            
            
            2.6
            %
            $
            40,000
            
            
            100.
            %Interest
                expense
            
            
            (814,000
            )
            
            (4.4
            )%
            
            (334,000
            )
            
            (22.
            )%
            
            (480,000
            )
            
            143.7
            %Loss
                on issuance of convertible notes
            
            
            -
            
            
            0.
            %
            
            (15,209,000
            )
            
            (1,000.6
            )%
            
            15,209,000
            
            
            *NMGain
                (loss) on change in fair market value of compound embedded
                derivative
            
            
            12,267,000
            
            
            66.
            %
            
            (5,500,000
            )
            
            (361.8
            )%
            
            17,767,000
            
            
            (323.
            )%Gain
                (loss) on change in fair market value of warrant liability
            
            
            11,030,000
            
            
            59.4
            %
            
            (5,427,000
            )
            
            (357.
            )%
            
            16,457,000
            
            
            (303.2
            )%Other
                expense
            
            
            (435,000
            )
            
            (2.3
            )%
            
            (267,000
            )
            
            (17.6
            )%
            
            (168,000
            )
            
            62.9
            %Total
                other income (expense)
            
            $
            22,128,000
            
            
            119.1
            %
            $
            (26,697,000
            )
            
            (1,756.4
            )%
            $
            48,825,000
            
            
            (182.9
            )%


*NM=
      Not
      measureable





For
      the
      three months ended June 30, 2008, total other expense was $0.2 million,
      representing a decrease of $11.3 million compared to the same period of the
      prior year. We incurred interest expenses of $0.2 million and $0.3 million
      in
      the three months ended June 30, 2008 and 2007, respectively primarily related
      to
      the 6% interest charges on Series A and B convertible notes. In the three months
      ended June 30, 2008, we recorded a loss on a change in fair market value of
      a
      compound embedded derivative of $22,000 and a gain on change in the fair market
      value of warrant liability of $0.1 million. This compared to a gain on a change
      in the fair market value of a compound embedded derivative of $7.1 million
      and a
      gain on change in fair market value of warrant liability of $4.5 million during
      the three months ended June 30, 2007. Other expense of $0.1 million in the
      three
      months ended June 30, 2008 was primarily related to foreign exchange loss
      resulting from unfavorable movements in foreign exchange rates.





For
      the
      nine months ended June 30, 2008, total other income was $22.1 million,
      representing an increase of $48.8 million or 182.9% from other expense of $26.7
      million in the nine months ended June 30, 2007. In the nine months ended June
      30, 2008, we recorded a gain on a change in fair market value of a compound
      embedded derivative of $12.3 million and a gain on change in fair market value
      of warrant liability of $11.0 million compared to a loss on change in fair
      market value of compound embedded derivative of $5.5 million and a loss on
      change in fair market value of warrant liability of $5.4 million during the
      nine
      months ended June 30, 2007. We incurred interest expenses of $0.8 million and
      $0.3 million in the nine months ended June 30, 2008 and 2007, respectively,
      primarily related to 6% interest charges on Series A and B convertible notes.
      Other expense of $0.4 million in the nine months ended June 30, 2008 was
      primarily related to foreign exchange loss resulting from unfavorable movements
      in foreign exchange rates.





***Liquidity
      and Capital Resources***




**June 30, 2008**
            
            **September 30, 2007**
            
            **Change**Cash
                and cash equivalents
            
            $
            2,681,000
            
            $
            3,908,000
            
            $
            (1,227,000
            )





As
      of
      June 30, 2008, we had cash and cash equivalents of $2.7 million, as compared
      to
      $3.9 million at September 30, 2007. We funded our operations mainly from private
      sales of equity securities and loans. 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.


24





**Nine Months Ended June 30,****2008**
            
            **2007**Net
                cash provided by (used in):Operating
                activities
            
            $
            (14,140,000
            )
            $
            (6,670,000
            )Investing
                activities
            
            
            (6,846,000
            )
            
            (2,283,000
            )Financing
                activities
            
            
            19,887,000
            
            
            17,139,000Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (128,000
            )
            
            84,000Net
                decrease in cash and cash equivalents
            
            $
            (1,227,000
            )
            $
            8,270,000




Net
      cash
      used in operating activities were $14.1 million and $6.7 million for the nine
      months ended June 30, 2008 and 2007, respectively. The increase of $7.4 million
      was mainly used to support the daily operations and expand the company’s
      selling, marketing and general and administrative functions. The increased
      of
      net cash used in operating activities resulted from $2.7 million of lower
      non-cash items adjustments mainly from gain on change in fair market value
      of
      warrant liability, gain on change in fair market value of compound embedded
      derivatives, loss on issuance of convertible notes and stock-based compensation
      expense, partially offset by higher net income. In addition, the increase of
      net
      cash used in operating activities was attributable to the changes in operating
      assets and liabilities of $4.7 million, mainly from higher accounts receivable,
      higher VAT taxes receivable and lower accounts payable related to inventory
      purchases, partially offset by lower advanced payment for raw material at June
      30, 2008.





Net
      cash
      used in investment activities were $6.8 million and $2.3 million for the nine
      months ended June 30, 2008 and 2007, respectively. The increase of $4.5 million
      in investing activities was due to increased investment in our manufacturing
      facility and production line in Shanghai, China.





Net
      cash
      provided by financing activities totaled $19.9 million and $17.1 million for
      the
      nine months ended June 30, 2008 and 2007, respectively. The increase of $2.8
      million was mainly due to proceeds of $19.9 million in January 2008 from issuing
      common stock and warrants, net of financing cost through private equity
      financing. That compares to proceeds of $17.0 million received in March 2007
      from issuing convertible notes and warrants, net of deferred acquisition costs
      through private equity financing.





The
      exchange rate changes on cash and cash equivalents were primarily from exchange
      gains of balances held in Chinese Renminbi (RMB). The exchange rates at June
      30,
      2008 and 2007 were 1 U.S. dollar for RMB 6.8591 and 1 U.S. dollar for RMB
      7.6155, respectively.





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





**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance sheet arrangements.




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




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


**ITEM
      4. CONTROLS AND PROCEDURES**




***Disclosure
      Controls and Procedures***




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


25


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”);





**•**
            During
                the quarter ended June 30, 2008, we completed implementation of our
                Enterprise Resource Planning systemto
                improve the reporting and business performance.
                The system is used by all key departments in all locations in China;
                and





**•**
            Throughout
                the fiscal year 2008, we engaged a third party consultant with the
                requisite expertise to assist with analysis and accounting for non-routine
                transactions.





***Internal
      Control Over Financial Reporting***





Except
      as
      discussed above, our management, with the participation of our Chief Executive
      Officer and our Chief Financial Officer, has concluded there were no changes
      in
      our internal controls over financial reporting that occurred during the fiscal
      quarter ended June 30, 2008 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial
      reporting. ****




**ITEM
      4T. CONTROLS AND PROCEDURES**





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


26


**PART
      II - OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**




None




**ITEM
      1A. RISK FACTORS**




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




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




None




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None




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




At
      our
      annual meeting of stockholders on May 5, 2008, the stockholders elected each
      of
      the nominees for directors to our Board of Directors. The votes were as
      follows:





Nominee
            
            For
            
            WithheldLeo
                Shi Young
            
            
            79,783,081
            
            
            721,606Shi
                Jian Yin
            
            
            75,775,671
            
            
            729,016Kevin
                Koy
            
            
            79,773,622
            
            
            731,065Robert
                Coackley
            
            
            79,780,699
            
            
            723,988Donald
                Morgan
            
            
            79,782,989
            
            
            781,698





The
      following matters were also submitted to and approved by a vote of the
      stockholders with the results of the voting being as shown:





**Ratification
      of the Appointment of Ernst & Young Hua Ming**




SharesFor
                approval
            
            
            79,400,457Against
                approval
            
            
            281,787Abstained
            
            
            822,443





**Amendment
      and Restatement of 2007 Equity Incentive Plan**




SharesFor
                approval
            
            
            62,261,251Against
                approval
            
            
            1,126,607Abstained
            
            
            347,552Broker
                Non-Votes
            
            
            16,796,277





**Reincorporation
      into the State of Delaware**




SharesFor
                approval
            
            
            63,412,123Against
                approval
            
            
            202,101Abstained
            
            
            121,186Broker
                Non-Votes
            
            
            16,769,277




27


**Approve
      an Increase of the Company’s Authorized Shares of Common
      Stock**





SharesFor
                approval
            
            
            72,938,280Against
                approval
            
            
            5,528,053Abstained
            
            
            538,354


**Approve
      any Adjournments of the Meeting to another time and place**




SharesFor
                approval
            
            
            77,182,379Against
                approval
            
            
            2,105,252Abstained
            
            
            1,217,056




**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
            
            Certificate
                of Incorporation, Incorporated by reference from Exhibit 3.1 to our
                Form
                8-K filed on August 14, 2008.3.2
            
            By-laws,
                Incorporated by reference from Exhibit 3.2 to our Form 8-K filed
                on August
                14, 2008.3.3
            
            Agreement
                and Plan of Merger with Solar EnerTech Corp., a Nevada corporation
                and our
                predecessor in interest, dated August 13, 2008, incorporated by reference
                from Exhibit 2.1 to our Form 8-K filed on August 14,
                2008.31.1
            
            Section
                302 Certification - Chief Executive Officer*31.2
            
            Section
                302 Certification - Chief Financial Officer*32.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 - Chief Executive
                Officer.*32.2
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 - Chief Financial
                Officer.*





*
      Filed
      herewith.


28


**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:
                August 14, 2008
            By:
            */s/
                Anthea Chung*Anthea ChungChief Financial Officer


29