**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM        10-QSB**

 

*(Mark        One)*

|   | þ | Quarterly report under Section 13 or 15(d) of the Securities                        Exchange Act of 1934 for the quarterly period ended**September 30, 2007.** |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   | o | Transition report under Section 13 or 15(d) of the                        Securities Exchange Act of 1934 for the transition period from to                        . |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Commission file number:**001-14791**

 

**SOLAR ENERGY LIMITED**

(Exact        name of small business issuer as specified in its charter)

 

 

| **DELAWARE**

(State or other jurisdiction of

incorporation or organization) | **76-0418364**

(I.R.S. Employer

Identification No.) |
|-------------------------------------------------------------------------------|-------------------------------------------------------|

 

 

**1151-C Triton Drive, Foster City, California 94404**

(Address        of principal executive office) (Zip Code)

 

**(650) 638-1975**

(Issuer’s telephone number)

 

Check        whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d)        of the Exchange Act during the past 12 months (or for such shorter period that the        registrant was required to file such reports), and (2) has been subject to such filing        requirements for the past 90 days.

 

|   | Yes                         þ | No  o |
|--------|------------------------------------------|------------|

 

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

|   | Yes  o | No                         þ |
|--------|-------------|-----------------------------------------|

         

 

The        number of outstanding shares of the registrant’s common stock, $0.0001 par value (the        only class of voting stock) as of December 17, 2007 was 21,923,309.

 

1

 

----

 

**TABLE        OF CONTENTS**

 

**PART        I**

 

| ITEM 1. FINANCIAL STATEMENTS | 3 |
|------------------------------|---|

 

|   | Consolidated Balance Sheets as of September 30, 2007                        (unaudited) and December 31, 2006 | 4 |
|--------|---------------------------------------------------------------------------------------------------------------|---|

         

Unaudited Consolidated Statements of Operations for the three and nine        months ended

|   | September 30, 2007 and 2006 (unaudited) and the period since                        inception | 5 |
|--------|-----------------------------------------------------------------------------------------------|---|

         

Unaudited Consolidated Statements of Cash Flows for nine months        ended

|   | September 30, 2007 and 2006 (unaudited) and the period since                        inception | 6 |
|--------|-----------------------------------------------------------------------------------------------|---|

         

|   | Notes to Unaudited Consolidated Financial                        Statements | 7 |
|--------|-----------------------------------------------------------------------------|---|

 

| ITEM 2. MANAGEMENT'S PLAN OF OPERATION | 17 |
|----------------------------------------|----|

 

| ITEM 3. CONTROLS AND PROCEDURES | 27 |
|---------------------------------|----|

 

**PART        II**

 

| ITEM 1. LEGAL PROCEEDINGS | 28 |
|---------------------------|----|

 

| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES | 28 |
|-------------------------------------------------|----|

 

| ITEM 3. DEFAULTS UPON SENIOR SECURITIES | 28 |
|-----------------------------------------|----|

 

| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES                        HOLDERS | 28 |
|--------------------------------------------------------------------------------------|----|

 

| ITEM 5. OTHER INFORMATION | 29 |
|---------------------------|----|

 

| ITEM 6. EXHIBITS | 29 |
|------------------|----|

 

| SIGNATURES | 30 |
|------------|----|

 

| INDEX TO EXHIBITS | 31 |
|-------------------|----|

 

 

 

 

 

2

 

----

 

**PART        I**

 

| **ITEM 1.** | **FINANCIAL STATEMENTS** |
|-------------|--------------------------|

 

As used        herein the terms “Company,” “we,” “our,” and        “us” refer to Solar Energy Limited, a Delaware corporation and our        subsidiaries, unless otherwise indicated. In the opinion of management, the accompanying        unaudited consolidated financial statements included in this Form 10-QSB reflect all        adjustments (consisting only of normal recurring accruals) necessary for a fair        presentation of the results of operations for the periods presented. The results of        operations for the periods presented are not necessarily indicative of the results to be        expected for the full year.

 

 

3

 

----

 

 

| **SOLAR ENERGY LIMITED**

**(A Development Stage Company)**

**CONSOLIDATED BALANCE SHEETS** |
|----------------------------------------------------------------------------------------------|
|                                                                                         |   |   |   |   |   | September 30, |   |   | December 31, |
|                                                                                         |   |   |   |   |   | 2007 |   |   | 2006 |
|                                                                                         |   |   |   |   |   | (unaudited) |   |   |   |
| **ASSETS**                                                                                   |   |   |   |   |   |   |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| CURRENT ASSETS                                                                               |   |   |   |   |   |
|                                                                                         | Cash |   |   | $ | 584,735 |   | $ | 203,912 |
|                                                                                         | Prepaid expenses |   | 7,941 |   |   | 26,357 |
|                                                                                         |   | TOTAL CURRENT ASSETS |   | 592,676 |   |   | 230,269 |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| OTHER ASSETS                                                                                 |   |   |   |   |   |
|                                                                                         | Deposits |   |   | 4,720 |   |   | 4,720 |
|                                                                                         | Vessels and other fixed assets, net of                        depreciation |   | 796,726 |   |   | - |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| **TOTAL ASSETS**                                                                             | $ | 1,394,122 |   | $ | 234,989 |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' DEFICIT**                                                    |   |   |   |   |   |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| CURRENT LIABILITIES                                                                          |   |   |   |   |   |
|                                                                                         | Accounts payable and accrued expenses | $ | 182,925 |   | $ | 91,904 |
|                                                                                         | Accrued interest - related party |   | 7,147 |   |   | 9,750 |
|                                                                                         | Other current liabilities |   | 2,494 |   |   | 6,700 |
|                                                                                         | Advances payable |   | 224,970 |   |   | - |
|                                                                                         | Note payable to related party |   | 445,122 |   |   | 174,084 |
|                                                                                         | Deferred revenues |   | 250,000 |   |   | 250,000 |
|                                                                                         |   | TOTAL CURRENT LIABILITIES |   | 1,112,658 |   |   | 532,438 |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| LONG-TERM LABILITIES                                                                         |   |   |   |   |   |
|                                                                                         | Debenture payable, net of discount |   | 78,978 |   |   | 72,850 |
|                                                                                         | Accrued interest |   | 11,259 |   |   | 3,252 |
|                                                                                         | Derivative from debenture payable |   | 13,884 |   |   | 18,221 |
|                                                                                         |   | TOTAL LONG-TERM LIABILITIES |   | 104,121 |   |   | 94,323 |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| COMMITMENTS AND CONTINGENCIES                                                                |   | - |   |   | - |
|                                                                                         |   |   |   |   |   |   |   |   |   |
| MINORITY INTEREST

Provision for loss on contract

Minority interest in Subsidiary           |   |  

967,500

425,364 |   |   |  

967,500

- |
|                                                                                         |   |   |   |   |   | 1,392,864 |   |   | 967,500 |
| STOCKHOLDERS' DEFICIT                                                                        |   |   |   |   |   |
|                                                                                         | Common stock, 50,000,000 shares authorized; $0.0001 par                        value, |   |   |   |   |   |
|                                                                                         | 21,823,309 and 19,873,309 shares issued and outstanding,                        respectively | 2,182 |   |   | 1,987 |
|                                                                                         | Additional paid-in capital |   | 15,273,724 |   |   | 10,753,442 |
|                                                                                         | Accumulated deficit during development stage |   | (16,491,427) |   |   | (12,114,701) |
|                                                                                         |   | TOTAL STOCKHOLDERS' DEFICIT |   | (1,215,521) |   |   | (1,359,272) |
|                                                                                         |   |   |   |   |   |   |   |   |   |

 

| **TOTAL LIABILITIES AND STOCKHOLDERS'                        DEFICIT** | $ | 1,394,122 |   | $ | 234,989 |
|------------------------------------------------------------------------|---|-----------|--------|---|---------|

 

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

 

4

 

----

 

 

| **SOLAR ENERGY LIMITED**

**(A Development Stage Company)**

**CONSOLIDATED STATEMENTS OF                        OPERATIONS**  |
|-------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   | From Inception |
|                                                                                                                                |   |   |   |   |   |   | Three Months Ended |   | Nine Months Ended |   | (January 5, 1994) |
|                                                                                                                                |   |   |   |   |   |   | September 30, |   | September 30, |   | September 30, |   | September 30, |   | through |
|                                                                                                                                |   |   |   |   |   |   | 2007 |   | 2006 |   | 2007 |   | 2006 |   | September 30, 2007 |
|                                                                                                                                |   |   |   |   |   |   | (unaudited) |   | (unaudited) |   | (unaudited) |   | (unaudited) |   | (unaudited) |
| REVENUES                                                                                                                            |   |   | $ | - | $ | - | $ | - | $ | - | $ | - |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| EXPENSES                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                | General and administrative |   |   | 1,253,332 |   | 387,546 |   | 2,467,172 |   | 1,305,939 |   | 7,208,623 |
|                                                                                                                                | Vessel operating costs |   |   | 787,378 |   | - |   | 1,305,145 |   | - |   | 1,305,145 |
|                                                                                                                                | Research and development |   |   | 315,315 |   | 51,785 |   | 595,223 |   | 148,212 |   | 3,080,350 |
|                                                                                                                                | Impairment of patents |   |   | - |   | - |   | - |   | - |   | 39,648 |
|                                                                                                                                | Impairment of goodwill |   |   | - |   | - |   | - |   | - |   | 3,514,118 |
|                                                                                                                                |   | TOTAL EXPENSES |   |   | 2,356,025 |   | 439,331 |   | 4,367,540 |   | 1,454,151 |   | 15,147,884 |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                                                                                |   |   | (2,356,025) |   | (439,331) |   | (4,367,540) |   | (1,454,151) |   | (15,147,884) |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSES)                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                | Other income |   |   | 13,931 |   | (21,000) |   | 23,583 |   | 41,000 |   | 373,469 |
|                                                                                                                                | Financing costs |   |   | - |   | - |   | - |   | - |   | (963,500) |
|                                                                                                                                | Charitable contribution |   |   | - |   | - |   | (27,500) |   | - |   | (27,500) |
|                                                                                                                                | Gain (loss) on investments |   |   | - |   | - |   | - |   | - |   | 17,200 |
|                                                                                                                                | Gain (loss) on sale or disposal of assets |   |   | - |   | - |   | - |   | - |   | (10,867) |
|                                                                                                                                | Gain (loss) on derivative instrument |   |   | 4,137 |   | - |   | 4,337 |   | - |   | 15,667 |
|                                                                                                                                | Gain on forgiveness of debt |   |   | - |   | - |   | - |   | - |   | 172,227 |
|                                                                                                                                | Interest income (expense), net |   |   | 8,625 |   | 2,131 |   | (3,478) |   | 2,213 |   | (64,921) |
|                                                                                                                                | Amortization of discount on debenture payable |   |   | (2,160) |   | - |   | (6,128) |   | - |   | (8,529) |
|                                                                                                                                | Provision for loss on contract |   |   | - |   | - |   | - |   | - |   | (967,500) |
|                                                                                                                                | Gain (loss) on sale of subsidiary |   |   | - |   | - |   | - |   | - |   | 120,711 |
|                                                                                                                                |   | TOTAL OTHER INCOME (EXPENSE) |   |   | 24,533 |   | (18,869) |   | (9,186) |   | 43,213 |   | (1,343,543) |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS BEFORE TAXES                                                                                                                   |   |   | (2,331,492) |   | (458,200) |   | (4,376,726) |   | (1,410,938) |   | (16,491,427) |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME TAXES                                                                                                                        |   |   | - |   | - |   | - |   | - |   | - |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS                                                                                                                            |   |   | $ | (2,331,492) | $ | (458,200) | $ | (4,376,726) | $ | (1,410,938) | $ | (16,491,427) |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                | NET LOSS PER COMMON SHARE,BASIC AND DILUTED |   | $ | (0.11) | $ | (0.02) | $ | (0.21) | $ | (0.08) |   |   |
|                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                | WEIGHTED AVERAGE NUMBER OF COMMON SHARES |   |   |   |   |   |   |   |   |   |   |   |

 

|   |   | OUTSTANDING, BASIC AND DILUTED |   |   | 21,823,309 |   | 19,855,377 |   | 20,861,955 |   | 17,604,226 |   |   |
|--------|--------|--------------------------------|--------|--------|------------|--------|------------|--------|------------|--------|------------|--------|--------|

 

 

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

 

5

 

----

 

 

| **SOLAR ENERGY LIMITED**

**(A Development Stage Company)**

**CONSOLIDATED STATEMENTS OF CASH                        FLOWS**  |
|-------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                |   |   |   |   |   |   |   |   | From Inception |
|                                                                                                                                |   |   |   |   | Nine Months Ended |   | (January 5, 1994) |
|                                                                                                                                |   |   |   |   | September 30, |   | September 30, |   | through |
|                                                                                                                                |   |   |   |   | 2007 |   | 2006 |   | September 30, 2007 |
|                                                                                                                                |   |   |   |   | (unaudited) |   | (unaudited) |   | (unaudited) |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                                                           |   |   |   |   |   |   |
|                                                                                                                                | Net loss | $ | (4,376,726) | $ | (1,410,938) | $ | (16,491,427) |
|                                                                                                                                | Adjustments to reconcile net loss to net cash used in                        operating activities: |   |   |   |   |   |   |
|                                                                                                                                | (Net of Acquisition/Sale) |   |   |   |   |   |   |
|                                                                                                                                |   | Amortization and depreciation |   | 9,165 |   | 3,132 |   | 212,809 |
|                                                                                                                                |   | Amortization on discount of debentures |   | 6,128 |   | - |   | 8,529 |
|                                                                                                                                |   | Bad debt |   | - |   | - |   | 250,000 |
|                                                                                                                                |   | Stock issued for services |   | 150,000 |   | - |   | 856,851 |
|                                                                                                                                |   | Services for pre-paid expense |   | - |   | - |   | 169,165 |
|                                                                                                                                |   | (Gain) Loss on derivative |   | (4,337) |   | - |   | (15,667) |
|                                                                                                                                |   | Stock issued for R&D expenses |   | - |   | - |   | 439,900 |
|                                                                                                                                |   | Loss on sale of assets |   | - |   | - |   | 10,867 |
|                                                                                                                                |   | Gain on investments |   | - |   | - |   | (17,199) |
|                                                                                                                                |   | Gain on sale of subsidiary |   | - |   | - |   | (120,711) |
|                                                                                                                                |   | Gain on forgiveness of debt |   | - |   | - |   | (172,227) |
|                                                                                                                                |   | Impairment of patents |   | - |   | - |   | 39,648 |
|                                                                                                                                |   | Financing costs |   | - |   | - |   | 963,500 |
|                                                                                                                                |   | Impairment of goodwill |   | - |   | - |   | 3,514,118 |
|                                                                                                                                |   | Provision for loss on contract |   | - |   | - |   | 967,500 |
|                                                                                                                                |   | Minority interest |   | - |   | - |   | (123,856) |
|                                                                                                                                |   | (Increase) decrease in: |   |   |   |   |   |   |
|                                                                                                                                |   |   | Accounts receivable |   | - |   | (1,913) |   | 39 |
|                                                                                                                                |   |   | Deposits |   | - |   | - |   | (24,883) |
|                                                                                                                                |   |   | Prepaid expenses |   | 18,416 |   | 174,274 |   | 14,559 |
|                                                                                                                                |   | Increase (decrease) in: |   |   |   |   |   |   |
|                                                                                                                                |   |   | Accounts payable |   | 91,021 |   | 26,059 |   | 226,597 |
|                                                                                                                                |   |   | Accrued expenses and other current liabilities |   | 1,198 |   | 2,419 |   | 254,526 |
|                                                                                                                                |   |   | Deferred revenues |   | - |   | - |   | 250,000 |
|                                                                                                                                |   |   | Minority interest |   | 425,364 |   | - |   | 425,364 |
|                                                                                                                                |   | Net cash used by operating activities |   | (3,679,771) |   | (1,206,967) |   | (8,361,998) |
| **CASH FLOWS PROVIDED BY INVESTING                        ACTIVITIES:**                                                             |   |   |   |   |   |   |
|                                                                                                                                | Cash acquired from sale of subsidiary |   | - |   | - |   | 180,000 |
|                                                                                                                                | Cash acquired (sold) from subsidiary |   | 1,953,213 |   | - |   | 2,200,725 |
|                                                                                                                                | Cash paid to subsidiary |   | - |   | - |   | (107,568) |
|                                                                                                                                | Cash paid to RECO and Sunspring |   | - |   | - |   | (2,076) |
|                                                                                                                                | Cash paid for patent costs |   | - |   | - |   | (106,318) |
|                                                                                                                                | Cash received (paid) for property & equipment |   | (805,891) |   | (11,898) |   | (877,737) |
|                                                                                                                                | Cash paid for deposits |   | - |   | - |   | (4,837) |
|                                                                                                                                | Cash received on sale of assets |   | - |   | - |   | 23,000 |
|                                                                                                                                | Cash paid for notes receivable |   | - |   | - |   | (295,000) |
|                                                                                                                                |   | Net cash provided (used) by investing activities |   | 1,147,322 |   | (11,898) |   | 1,010,189 |
| **CASH FLOWS PROVIDED BY FINANCING                        ACTIVITIES:**                                                             |   |   |   |   |   |   |
|                                                                                                                                | Issued stock for cash |   | 2,417,264 |   | 1,401,556 |   | 6,064,733 |
|                                                                                                                                | Cash received from related party notes payable and                        advances |   | 496,008 |   | 3,769 |   | 1,115,890 |
|                                                                                                                                | Stock subscription |   | - |   | (20,000) |   | - |
|                                                                                                                                | Proceeds from debenture payable |   | - |   | 100,000 |   | 100,000 |
|                                                                                                                                | Cash received from advances by shareholders |   | - |   | - |   | 2,044,099 |
|                                                                                                                                | Cash paid on debt financing |   | - |   | - |   | (1,388,178) |
|                                                                                                                                | Net cash provided by financing activities |   | 2,913,272 |   | 1,485,325 |   | 7,936,544 |
|                                                                                                                                | **NET INCREASE (DECREASE) IN CASH** |   | 380,823 |   | 266,460 |   | 584,735 |
| **CASH, BEGINNING OF PERIOD**                                                                                                       |   | 203,912 |   | 188,129 |   | - |
| **CASH, END OF PERIOD**                                                                                                             | $ | 584,735 | $ | 454,589 | $ | 584,735 |
| **SUPPLEMENTAL CASH FLOW INFORMATION:**                                                                                             |   |   |   |   |   |   |

 

|   | Interest paid     | $ | - | $ | - | $ | 17,195 |
|--------|-------------------|---|---|---|---|---|--------|
|   | Income taxes paid | $ | - | $ | - | $ | -      |

 

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

 

6

 

----

 

**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 1 -        DESCRIPTION AND HISTORY OF BUSINESS AND BASIS OF PRESENTATION**

 

Solar        Energy Limited (“the Company”) is in the development stage according to        Financial Accounting Standards Board Statement No. 7 and is currently focusing its        attention on raising capital in order to pursue its goals.

 

The Company        was originally incorporated as Taurus Enterprises, Inc. under the laws the State of        Delaware on January 5, 1994. In August of 1996, the Company merged with Salvage World,        Inc., a private company, changed its name to “Salvage World, Inc.” and        reincorporated in the state of Nevada. On December 17, 1997, the Company merged with Solar        Energy Limited (“Solar”) a Delaware corporation organized on July 24, 1997 and        changed the name to “Solar Energy Limited.” The surviving corporation is a        Delaware corporation and the authorized shares were changed to 50,000,000 par value        $0.0001.

 

On January        1, 1998, the Company acquired 100% of Hydro-Air Technologies, Inc. (“Hydro”) a        New Mexico corporation organized June 18, 1997. Hydro owns various rights to patented        intellectual property called Hydro-Air Renewable Power System (“HARPS”), and        has developed a prototype system to generate electricity from the evaporation of        water.

 

In January        1999 the Company issued 35,000 shares of stock for the acquisition of 100% of Renewable        Energy Corporation (“RECO”) a New Mexico corporation organized November 30,        1998. RECO owns various rights to patented intellectual property associated with the solar        recycling of CO2 to fuel. On June 30, 2000, the Company sold 100% of its interest in RECO        to Jade Electronic, Inc., who changed its name to Renewable Energy Limited        (“REEL”) for 63% of the outstanding stock of REEL and cash of $180,000. At the        point of sale REEL had no assets and no liabilities, thus RECO became its only assets,        liabilities and operations at June 30, 2000. Because the Company essentially sold 37% of        its interest in RECO for cash of $180,000, the Company recorded minority of interest of        $162,800 and a gain of $17,200.

 

In April        2000, the Company acquired all of the outstanding common stock of Sunspring, Inc.        (“Sunspring”) for $14,500. Sunspring was incorporated in April 2000 as        Holisticom.com Limited and subsequently changed its name to “Sunspring, Inc.”        in August 2000. Sunspring is a development stage company and has directed its efforts        towards development of new technology.

 

On April        27, 2004, the Company entered into a stock purchase agreement for RECO with Los Alamos        Renewable Energy, LLC, (“LARE”) a limited liability company for which two of        the Company’s former officers and directors act as managing members. Pursuant to the        agreement, an additional 99,900 shares of common stock of RECO were issued to the Company        and an additional 200,000 shares of RECO were issued to LARE. In effect, the transaction        resulted in the Company owning a 21% interest in RECO and using the equity method of        accounting instead of the consolidation method. The Company has also forgiven debt due from        RECO. At December 31, 2004, a gain of $56,138 has been recognized due to the recapture of        prior year losses.

 

On August        10, 2005, the Company entered into a stock purchase agreement with Mr. Russ George to        acquire 100% of the issued and outstanding stock of Planktos, Inc. (“Planktos”)        for the purchase price of $1,500,000 by issuing a 5 year term convertible debenture bearing        an interest rate of 5%. The proprietary greenhouse emission technology acquired as a result        of this acquisition is focused on taking advantage of the Kyoto Protocol which enables        companies and governments to offset regulated greenhouse emission restrictions by investing        in CO2 reduction programs in exchange for certified emission reduction (“CER”)        credits. These CER credits are traded much like commodities and have their own market of        which they are listed for sale. In determining the purchase price, consideration was given        to previous amounts invested in developing this technology up to the point of acquisition.        On November 21, 2005, Mr. George converted the debenture for 1,500,000 of the        Company’s restricted common shares.

 

7

 

----

 

**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 1 -        DESCRIPTION AND HISTORY OF BUSINESS AND BASIS OF PRESENTATION -*****CONTINUED***

 

On August        17, 2005, the Company and its wholly owned subsidiary, Planktos, executed an        Iron-Fertilization Prove-Out and Purchase Agreement with Diatom Corporation        (“Diatom”) whereby Diatom committed to assist the Company in providing        developmental funding for a marine “iron-fertilization” prove out program in        exchange for exclusive marketing and intellectual property rights to Planktos’ CO2        sequestration process. Planktos expected the cost of the prove out program to be $1,290,000        of which Diatom agreed to provide up to 25%. The Company was responsible for funding the        remainder of the developmental funding. The agreement also provided for a royalty agreement        which entitled Planktos and the Company to 75% of the net sales revenue generated by Diatom        from the sale of CER credits created from the sequestration process until the Company and        Planktos recouped their costs. Thereafter, the Company and Planktos were entitled to 25% of        net sales revenue generated by Diatom from the sale of CERs. Diatom paid $250,000 in cash        for the exclusive marketing and intellectual property rights. Since the Company committed        to fund 75% of the estimated cost to develop the program, a provision for the estimated        loss on the contract of $967,500 was recognized. As of September 30, 2007 this prove out        program has yet to be funded.

 

On August        18, 2005, the Company entered into a stock purchase agreement with Russ George to acquire        100% of the issued and outstanding stock of D2Fusion, Inc. (“D2Fusion”) for the        purchase price of $2,000,000 by issuing a 5 year term convertible debenture bearing an        interest rate of 5%. The proprietary solid-state fusion technology acquired as a result of        this acquisition is aimed at entry level heat and energy applications for homes and        industry with the ultimate goal of producing heat and electricity at a fraction of        today’s cost and with no emissions. In determining the purchase price, consideration        was given to previous amounts invested in developing this technology up to the point of        acquisition. On November 21, 2005, Mr. George converted the debenture for 2,000,000 of the        Company’s restricted common shares.

 

On August        9, 2007 the Company and Diatom completed the sale of 100% of the issued and outstanding        shares of Planktos. Diatom issued 45,000,000 restricted shares of common stock to the        Company which represents 54% of the outstanding common stock of Diatom. This transaction is        in essence an acquisition of Diatom and has been accounted for in accordance with the        principles for reverse acquisition accounting. As part of the transaction, Diatom changed        its name to “Planktos Corp.” These financial statements include the 46%        minority interest the Company does not own on all transactions subsequent to the Planktos        sale to Planktos Corp.

 

The        accompanying unaudited interim financial statements have been prepared in accordance with        United States generally accepted accounting principles for interim financial information        and with the instructions to Form 10-QSB of Regulation S-B. They may not include all        information and footnotes required by United States generally accepted accounting        principles for complete financial statements. However, except as disclosed herein, there        has been no material changes in the information disclosed in the notes to the financial        statements for the year ended December 31, 2006 included in the Company’s Annual        Report on Form 10-KSB filed with the Securities and Exchange Commission. The interim        unaudited financial statements should be read in conjunction with those financial        statements included in the Form 10-KSB. In the opinion of management, all adjustments        considered necessary for a fair presentation, consisting solely of normal and recurring        adjustments have been made. Operating results for the nine months ended September 30, 2007        are not necessarily indicative of the results that may be expected for the year ending        December 31, 2007.

 

 

 

8

 

----

 

**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

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

 

This        summary of significant accounting policies of Solar Energy Limited is presented to assist        in understanding the Company’s financial statements. The financial statements and        notes are representations of the Company’s management, which is responsible for their        integrity and objectivity. These accounting policies conform to accounting principles        generally accepted in the United States of America, and have been consistently applied in        the preparation of the financial statements.

 

Accounting Method

The        Company’s financial statements are prepared using the accrual basis of accounting in        accordance with accounting principles generally accepted in the United States of        America.

 

Cash and        Cash Equivalents

For        purposes of the statement of cash flows, the Company considers all highly liquid        investments and short-term debt instruments with original maturities of three months or        less to be cash equivalents.

 

Concentrations

Financial        instruments that potentially subject the Company to concentrations of credit risk consist        of cash and cash equivalents. The Company places its cash and cash equivalents at        well-known, quality financial institutions. All cash balances in the United States and        Canada are fully insured by the FDIC and CDIC respectively.

 

Deferred        Revenue

The Company        received deferred revenue from licensing its marketing and intellectual property        rights to its CO2 sequestration process to Diatom. Currently this sequestration process is        not yet commercially viable, once the process becomes commercially viable, the Company will        recognize license revenues on a straight-line basis over the license term.

 

Derivative Instruments

The        Financial Accounting Standards Board issued Statement of Financial Accounting Standards        (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging        Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments        and Hedging Activities – Deferral of the Effective Date of FASB No. 133”, SFAS        No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging        Activities”, and SFAS No. 149, “Amendment of Statement 133 on Derivative        Instruments and Hedging Activities”, which is effective for the Company as of its        inception. These statements establish accounting and reporting standards for derivative        instruments, including certain derivative instruments embedded in other contracts, and for        hedging activities. They require that an entity recognize all derivatives as either assets        or liabilities in the balance sheet and measure those instruments at fair value.

 

If certain        conditions are met, a derivative may be specifically designated as a hedge, the objective        of which is to match the timing of gain or loss recognition on the hedging derivative with        the recognition of (i) the changes in the fair value of the hedged asset or liability that        are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted        transaction. For a derivative not designated as a hedging instrument, the gain or loss is        recognized in income in the period of change. Historically, the Company has not entered        into derivatives contracts to hedge existing risks or for speculative purposes.

 

 

 

9

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 2 -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -*****CONTINUED***

 

Derivative Instruments - continued

The Company        issued convertible debt and accounts for that debt according to SFAS 133 and subsequent        pronouncements. Consequently, management recognizes its convertible debt contract as        containing a derivative instrument and accounts for the derivative according to generally        accepted accounting principles in the U.S.

During the        year ended December 31, 2006, the Company issued a debenture for a total of $100,000. The        debenture included provisions for the conversion of the debt and interest into shares of        the Company’s common stock or into CO2 Tonnes. See Note 7.

 

Development Stage Activities

The Company        has been in the development stage since inception. The Company has no revenues from its        planned operations. The Company is in the development stage according to Financial        Accounting Standards Board Statement No. 7 and is currently focusing its attention on        raising capital in order to pursue its goals.

 

Earnings        (Loss) Per Share 

The Company        adopted Statement of Financial Accounting Standards No. 128, which provides for calculation        of “basic” and “diluted” earnings per share. Basic earnings (loss)        per share includes no dilution and is computed by dividing net income (loss) available to        common shareholders by the weighted average common shares outstanding for the period.        Diluted earnings (loss) per share reflect the potential dilution of securities that could        share in the earnings of an entity similar to fully diluted earnings per share. For the        periods reported, diluted net loss per share is the same as basic net loss per share as        there were no common stock equivalents outstanding.

 

As of        September 30, 2007, the Company had outstanding common stock options of 500,000, common        stock warrants of 2,181,500, and convertible debt subject to beneficial conversion of        338,225 common shares. The above common stock equivalents were deemed to be antidilutive        for the Company’s nine month ended September 30, 2007.

 

Fair        Value of Financial Instruments

The        Company's financial instruments as defined by Statement of Financial Accounting Standards        No. 107, “Disclosures about Fair Value of Financial Instruments,” include cash,        trade accounts receivable, and accounts payable and accrued expenses. All instruments are        accounted for on a historical cost basis, which, due to the short maturity of these        financial instruments, approximates fair value at September 31, 2007 and December 31,        2006.

 

Foreign        Currency Translation Gains/Losses

The Company        has adopted Financial Accounting Standard No. 52. Monetary assets and liabilities        denominated in foreign currencies are translated into United States dollars at rates of        exchange in effect at the balance sheet date. Gains or losses are included in income for        the year, except gains or losses relating to long-term debt which are deferred and        amortized over the remaining term of the debt. Non-monetary assets, liabilities and items        recorded in income arising from transactions denominated in foreign currencies are        translated at rates of exchange in effect at the date of the transaction. The        Company’s functional currency is the U.S. dollar.

 

 

 

 

10

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 2 -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -*****CONTINUED***

 

Goodwill

Under SFAS        No. 142, goodwill must be tested annually for impairment using a two step process, the        first process is to test the carrying value of the reporting unit vs. fair value. The        second process tests if the carrying value exceeds fair value. If so, the carrying value is        then compared vs. the fair value of goodwill to measure the amount of goodwill impairment        loss, if any. The Company uses such methods as present value of discounted cash flows,        prices of similar assets, independent appraisals, and other valuation techniques to        determine fair value.

 

Impaired        Asset Policy

The Company        adopted Statement of Financial Accounting Standards No. 144, “Accounting for        Impairment of Disposal of Long-Lived Assets.” In complying with this standard, the        Company reviews its long-lived assets quarterly to determine if any events or changes in        circumstances have transpired which indicate that the carrying value of its assets may not        be recoverable. The Company determines impairment by comparing the undiscounted future cash        flows estimated to be generated by its assets to their respective carrying amount whenever        events or changes in circumstances indicate that an asset may not be        recoverable.

 

Minority        Interest

Minority        interests are reflected in the consolidated statements of operations to the extent income        or losses are allocated to the minority interest shareholders.  Losses in excess of        the minority shareholders’ basis are not allocated to the minority interest        shareholders.

 

Principles of Consolidation

The        September, 2007 financial statements include the accounts of Solar Energy Limited and its        wholly owned subsidiaries: Hydro, Sunspring, REEL, and D2 Fusion, plus 54% of Planktos        Corp. post acquisition. All intercompany accounts and transactions have been eliminated in        the consolidation.

 

Vessels 

Vessels and        other fixed assets are stated at cost less accumulated depreciation. Vessels and other        fixed assets are depreciated when the asset is ready for its intended use.

 

Depreciation is calculated, based on cost, less estimated residual value,        using the straight-line method, over the remaining economic life of each asset. The costs        of significant replacements, renewals and betterments are capitalized and depreciated over        the shorter of the asset’s remaining estimated useful life or the estimated life of        the renewal or betterment. Expenditures for routine maintenance and repairs are expensed as        incurred.

 

Provision for Loss on Contract

The        Company recognizes funding commitments for undeveloped programs as long term liabilities.        As funding is advanced by the Company for the programs, the liability is reduced by the        amount of the advances. As of September 30, 2007 this prove out program has yet to be        funded.

 

Provision for Taxes 

Income        taxes are provided based upon the liability method of accounting pursuant to Statement of        Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Under        this approach, deferred income taxes are recorded to reflect the tax consequences in future        years of differences between the tax basis of assets and liabilities and their financial        reporting amounts at each year-end. A valuation allowance is recorded against deferred tax        assets if management does not believe the Company has met the “more likely than        not” standard imposed by SFAS No. 109 to allow recognition of such an        asset.

 

11

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 2 -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -*****CONTINUED***

 

Reclassifications

Certain        prior year amounts in the accompanying financial statements have been reclassified to        conform to the fiscal 2006 presentation. The reclassifications have no effect on net        assets, net revenues, or net earnings.

 

Revenue        Recognition 

The Company        recognizes revenue for product sales when there is a mutually executed sales contract, when        the products are shipped and title passes to customers, when the contract price and terms        are fixed, and when collectibility is reasonably assured.

 

Use of        Estimates

The process        of preparing financial statements in conformity with accounting principles generally        accepted in the United States of America requires the use of estimates and assumptions        regarding certain types of assets, liabilities, revenues, and expenses. Such estimates        primarily relate to unsettled transactions and events as of the date of the financial        statements. Accordingly, upon settlement, actual results may differ from estimated        amounts.

 

**NOTE 3        – GOING CONCERN**

 

The        accompanying financial statements have been prepared assuming that the Company will        continue as a going concern. As shown in the financial statements, the Company has limited        cash, no revenues, and an accumulated deficit since the inception of the Company. These        factors indicate that the Company may be unable to continue in existence. The Company is        currently putting business plans in place which will, if successful, mitigate these factors        which raise substantial doubt about the Company’s ability to continue as a going        concern.

 

Management’s plans includes the following: (1) obtaining funding from        private placement sources; (2) obtaining additional funding from the sale of the        Company’s securities; (3) establishing revenues from commercializing of its project;        and (4) obtaining loans and grants from various financial institutions, where possible. The        financial statements do not include any adjustments related to the recoverability and        classification of recorded assets, or the amounts and classification of liabilities that        might be necessary in the event the Company cannot continue existence.

 

**NOTE 4        – VESSEL AND OTHER FIXED ASSETS**

 

|   | September 30, |
|--------|---------------|

|   | 2007 |
|--------|------|

|   | Research Vessel “Weatherbird II” | $ | 800,000 |
|--------|----------------------------------------------|---|---------|

|   | Marine Equipment | 23,306 |
|--------|------------------|--------|

|   | 823,306 |
|--------|---------|

|   | Accumulated Depreciation | 26,580 |
|--------|--------------------------|--------|

|   | Net Vessel & Equipment | $ | 796,726 |
|--------|----------------------------|---|---------|

 

 

12

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 5 -        STOCKHOLDERS' EQUITY TRANSACTIONS**

 

During        2006, the Company issued 785,000 shares of common stock from the exercise of warrants for        cash proceeds of $196,250 and 4,162,034 common shares for private placements for net cash        proceeds of $1,205,306.

 

During the        nine months ended September 30, 2007, the Company issued 1,150,000 shares of common stock        for a private placement for $120,000 in cash and related party note payable debt settlement        of $282,500 for net proceeds of $402,500, 500,000 shares of common stock from the exercise        of warrants for cash proceeds of $125,000 and 300,000 shares of common stock for services        valued at $150,000.

 

**NOTE 6 -        NOTES PAYABLE - RELATED PARTY**

 

The loan        from Bay Cove Investments, Ltd., a shareholder, is uncollateralized, bears interest at 6%        per annum and is due upon demand. The loan balance, not including accrued interest, at        September 30, 2007 and December 31, 2006 was $198,260 and $168,260, respectively. The        accrued interest owing at September 30, 2007 and December 31, 2006 on this loan was $13,218        and $9,750, respectively. On May 1, 2007, Bay Cove Investments, Ltd. assigned the        outstanding loan and accrued interest owing totaling $211,478 to Regal RV Resorts,        Inc.

 

The loan        from Regal RV Resorts, Inc., a shareholder, includes the $211,478 assignment of debt from        Bay Cove Investments, Ltd., additional advances of $516,144, and a $282,500 repayment for a        total owing of $445,122. Of this $445,122 loan, $197,511 is uncollateralized and bears no        interest while $247,611 of the loan is uncollateralized and bears 6% per annum and is due        upon demand. The accrued interest owing on this loan at September 30, 2007 and December 31,        2006 was $2,471 and $0, respectively.

 

**NOTE 7 -        DEBENTURE PAYABLE / DERIVATIVE**

 

This loan        bears interest at 10% per year for a three year term. Principal and interest may be        converted into common shares of the Company at an average trading price of the previous 10        days once the holder has given the Company notice of conversion. Upon such notice, the        maximum conversion price is $0.75 per common share. The holder of the debenture also has        the right, at its option, to convert the principal and interest amount due into CO2 tons at        any time prior to the end of the three year term, at a rate of one United States Dollar        ($1.00) per CO2 ton, subject to Company’s ability to deliver such CO2 tons at the        time of conversion. As of September 30, 2007, none of the principal of $100,000 or accrued        interest of $11,259 has been converted.

 

The        original $100,000 debenture was discounted by $29,551 in order to reflect the derivative        portion of the note. This discount on the debenture is amortized over the life of the note        on a quarterly basis. As of September 30, 2007, the discount has been amortized by $8,529        to $21,022 which when netted against the original note gives a value of the debenture        payable of $78,978. The derivative portion is adjusted on a quarterly basis at fair market        value. Any resulting gain or loss is recognized in the consolidated statement of        operations.

 

**NOTE 8        – COMMITMENTS**

 

The founder        of the Hydro-Air Renewable Power System technology has granted the Company’s        subsidiary, Hydro-Air Technologies, Inc., an exclusive license to develop, manufacture and        market the same. For the license, Hydro is committed to a 1% royalty on gross sales and        1/2% royalty on the sale of the electrical power generated by any power plants owned by        Hydro. At September 30, 2007, there were no sales relating to the licensed        technology.

 

 

13

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 8        – COMMITMENTS –*****CONTINUED***

 

On August        17, 2005, the Company and Planktos executed an Iron-Fertilization Prove-Out and Purchase        Agreement with Diatom whereby Diatom committed to assist the Company in providing        developmental funding for a marine “iron-fertilization” prove out program in        exchange for exclusive marketing and intellectual property rights to Planktos’ CO2        sequestration process. Planktos expected the cost of the prove out program to be $1,290,000        of which Diatom had agreed to provide up to 25%. The Company was responsible for funding        the remainder of the developmental funding.

 

On May 31,        2007, the Company entered into a securities exchange agreement and plan of exchange with        Enwin Resources, Inc. whereby Solar intends to sell 100% ownership of D2 Fusion to Enwin        Resources, Inc., in exchange for an aggregate of 30,000,000 shares of Enwin Resources,        Inc.’s common stock, and the fulfillment of certain conditions on or before closing.        The conditions include that Enwin Resources, Inc. (a) make available working capital of no        less than $2,000,000 to D2 Fusion on or before the acquisition is completed, (b) cancel        30,000,000 shares of its issued and outstanding common share capital on or before the        acquisition is completed, and (c) obtain shareholder approval of the transaction. As of        September 30, 2007, Enwin Resources, Inc. had advanced $224,970 towards working capital,        these advances have no specific due dates for repayment, are currently uncollateralized,        and are non-interest bearing. Conditions of this agreement have not been met and the        closing of this transaction is still pending.

 

In the nine        months ended September 30, 2007, Planktos agreed to donate $75,000 to a non-profit        organization. In connection with this donation, the Company received the use of        approximately $50,000 in equipment for the Company’s Weatherbird II vessel. The        Company recorded the value of the equipment in vessel operating costs and recorded the        remainder as a charitable contribution. As of September 30, 2007, the Company had paid only        $27,500 of the donation and recorded the unpaid portion of $22,500 as an outstanding        payable.

 

**NOTE 9        – STOCK OPTIONS**

 

On January        1, 2006, the Company adopted SFAS No. 123 (revised 2004) (“SFAS        No. 123R”), “Share-Based Payment”, which addresses the accounting        for stock-based payment transactions in which an enterprise receives employee services in        exchange for (a) equity instruments of the enterprise or (b) liabilities that are        based on the fair value of the enterprise’s equity instruments or that may be        settled by the issuance of such equity instruments. In January 2005, the Securities        and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107, which        provides supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R        eliminates the ability to account for stock-based compensation transactions using the        intrinsic value method under Accounting Principles Board (APB) Opinion No. 25,        “Accounting for Stock Issued to Employees,” and instead generally requires that        such transactions be accounted for using a fair-value-based method. The Company uses the        Black-Scholes-Merton (“BSM”) option-pricing model to determine the fair-value        of stock-based awards under SFAS No. 123R, consistent with that used for pro forma        disclosures under SFAS No. 123, “Accounting for Stock-Based Compensation.”        The Company has elected the modified prospective transition method as permitted by SFAS        No. 123R and accordingly prior periods have not been restated to reflect the impact of        SFAS No. 123R. The modified prospective transition method requires that stock-based        compensation expense be recorded for all new and unvested stock options, restricted stock,        restricted stock units, and employee stock purchase plan shares that are ultimately        expected to vest as the requisite service is rendered beginning on January 1, 2006. The        Company has adopted the requirements of SFAS No. 123R for the fiscal year beginning on        January 1, 2006 under the prospective method.

 

14

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE 9        – STOCK OPTIONS –*****CONTINUED***

 

Stock-based        compensation expense for awards granted prior to January 1, 2006 is based on the grant date        fair-value as determined under the pro-forma provisions of SFAS No. 123.

 

Prior to        the adoption of SFAS No. 123R, the Company measured compensation expense for its        employee stock-based compensation plans using the intrinsic value method prescribed by APB        Opinion No. 25. The Company applied the disclosure provisions of SFAS No. 123 as        amended by SFAS No. 148, “Accounting for Stock-Based Compensation –        Transition and Disclosure,” as if the fair-value-based method had been applied in        measuring compensation expense. Under APB Opinion No. 25, when the exercise price of        the Company’s employee stock options was equal to the market price of the underlying        stock on the date of the grant, no compensation expense was recognized.

 

Information        with respect to the Company’s stock options at September 30, 2007 is as        follows:

 

|   | Weighted |
|--------|----------|

|   | Stock | Exercise | Average |
|--------|-------|----------|---------|

|   | Options | Price | Exercise |
|--------|---------|-------|----------|

|   | Outstanding at January 1, 2006 | 500,000 | $ | 0.33 | $ | 0.33 |
|--------|--------------------------------|---------|---|------|---|------|

|   | Granted | - | - | - |
|--------|---------|---|---|---|

|   | Exercised | - | - | - |
|--------|-----------|---|---|---|

|   | Forfeited | - | - | - |
|--------|-----------|---|---|---|

|   | Outstanding at December 31, 2006 | 500,000 | 0.33 | 0.33 |
|--------|----------------------------------|---------|------|------|

|   | Granted | - | - | - |
|--------|---------|---|---|---|

|   | Exercised | - | - | - |
|--------|-----------|---|---|---|

|   | Forfeited | - | - | - |
|--------|-----------|---|---|---|

|   | Outstanding at September 30, 2007 | 500,000 | $ | 0.33 | $ | 0.33 |
|--------|-----------------------------------|---------|---|------|---|------|

 

**NOTE        10 – WARRANTS**

 

A summary        of the Company’s warrants at September 30, 2007 and December 31, 2006 and the changes        for 2007 are as follows:

 

|                                              |   |        |   | Weighted |   | Weighted     |
|---------------------------------------------------|--------|-------------|--------|----------|--------|--------------|
|                                              |   |        |   | Average  |   | Average      |
|                                              |   | Warrants    |   | Exercise |   | Remaining    |
|                                              |   | Outstanding |   | Price    |   | Life (years) |
|                                              |   |        |   |     |   |         |
| Balance, December 31, 2005                        |   | 2,185,000   |   | $ 0.28   |   | 1.71         |
| Issued                                            |   | 531,500     |   | 0.40     |   | 1.32         |
| Exercised / Cancelled / Expired                   |   | (785,000)   |   | (0.25)   |   | -            |
|                                              |   |        |   |     |   |         |
| Balance, December 31, 2006                        |   | 1,931,500   |   | 0.33     |   | 0.81         |
| Issued                                            |   | 1,150,000   |   | 0.40     |   | 1.84         |
| Exercised / Cancelled / Expired                   |   | (900,000)   |   | (0.25)   |   | -            |
|                                              |   |        |   |     |   |         |
| Balance                        September 30, 2007 |   | 2,181,500   |   | $ 0.40   |   | 1.01         |

 

 

15

 

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**SOLAR        ENERGY LIMITED**

**(A        Development Stage Company)**

**Condensed Notes to the Interim Consolidated Financial        Statements**

**September 30, 2007**

 

**NOTE        11 – SUBSEQUENT EVENTS**

 

On October 1, 2007, the Company authorized the issuance of 100,000 units,        each unit comprised of one common share and one purchase warrant with an exercise price of        $0.40 for a period of 24 months for cash consideration of $25,000 or $0.25 per        unit.

 

16

 

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| **ITEM 2.** | **MANAGEMENT’S PLAN OF OPERATION** |
|-------------|------------------------------------------|

 

The        following discussion should be read in conjunction with our financial statements and notes        thereto included in this report. All information presented herein is based on our period        ended September 30, 2007. Our fiscal year end is December 31.

 

**Description of Business**

 

The Company        is a research and development incubator of (a) cost-effective renewable energy sources that        do not threaten the environment, and (b) practical solutions to mitigate the effects of        traditional energy sources’ unintended consequences concerning global climate change.        Since 1997 the Company has focused on innovative solutions for global issues related to        water, energy and pollution. Our primary focus was on the development of renewable energy        sources that could compete with traditional energy sources. Operations were concentrated on        research and development activities involving the utilization of solar and water energy, in        addition to increasing engine efficiencies. However, despite the Company’s efforts,        we were unable to bring to market any commercial application of this work.

 

Over the        last two years, the Company has concentrated on furthering the science connected to the        operations of Planktos, Inc. (“Planktos”) and D2Fusion, Inc.        (“D2Fusion”) both of which are involved in developing pioneering technologies.        Planktos intends to sequester CO2 from the earth’s marine environment using an        “iron fertilization” process and from the growth of new forests. These efforts        at sequestration are intended to generate commercial quantities of verifiable carbon        credits to meet global requirements made part of international agreements such as the Kyoto        Protocol. D2Fusion is developing a mechanism to provide limitless renewable energy through        proprietary solid-state fusion, more commonly known as “cold-fusion” aimed at        entry level heat and energy applications for homes and industry.

 

On August        9, 2007, the Company transferred our 100% ownership of Planktos to Planktos Corp. in        exchange for 45,000,000 shares of Planktos Corp.’s common stock pursuant to the terms        of a securities and exchange agreement and plan of exchange executed on January 12, 2007.        The transaction caused us to acquire a controlling interest (53.78%) in the outstanding        common shares of Planktos Corp. Since the shares issued in the acquisition changed control        of the Planktos Corp., the Company has elected to consolidate Planktos Corp. for financial        reporting purposes.

 

On May 31,        2007, the Company entered into a securities exchange agreement and plan of exchange with        Enwin Resources, Inc. (“Enwin”) pursuant to which agreement the Company intends        to transfer our 100% ownership of D2Fusion to Enwin in exchange for an aggregate of        30,000,000 shares of Enwin’s common stock, and the fulfillment of certain conditions        on or before closing. Those conditions include that Enwin (a) make available working        capital of no less than $2,000,000 to D2Fusion on or before the acquisition is completed,        (b) cancel 30,000,000 shares of Enwin’s issued and outstanding common share capital        on or before the acquisition is completed, and (c) obtain shareholder approval of the        transaction. The transaction is pending subject to the fulfillment of these certain        conditions.

 

***Planktos, Inc. and Carbon Credits***

 

The Company        began research and development operations with Planktos in 2005. Planktos is a Foster City,        California based business focused on reviving marine as well as land based ecosystem health        and biodiversity with the intention to slow global climate change. Planktos has launched a        two year pilot project series to restore hundreds of millions of tons of missing plankton        plant life in the open seas that is intended to sequester tens of millions of tons of        CO2 in the deep ocean for centuries or more. On land, Planktos’ partially        owned Hungarian affiliate KlimaFa (translated as “Climate Forest”) intends to        plant thousands of hectares of new, permanently protected, native forests or “climate        parks” in the national parks system of the European Union and elsewhere.

 

17

 

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Both ocean        plankton and forest ecorestoration projects are believed to remove huge quantities of        global warming CO2 from the atmosphere. Long term CO2 reductions can        now be banked and traded like a commodity in international carbon markets. Consequently,        Planktos’ business model intends to not only restore the planet’s most vital        biological systems but generate the largest volume of lowest cost greenhouse gas offsets or        “carbon credits” available to commercial, governmental and green consumer        clients.

 

Planktos is        pioneering natural science intensive marine and terrestrial ecorestoration regimes that        affordably offer unprecedented gains for the climate, the biosphere and the company’s        commercial objectives. Simply, restoring ocean plankton plant life to 1980’s levels        of health could remove 3-4 billion tons of global warming CO2 and generate tens        of billions of dollars in tradable carbon credit value.

 

The advent        of the Kyoto Protocol, the enormous carbon sequestration potential of this work, and the        developing global trade in carbon credits, has become the focus of the Planktos business        model.

 

The Kyoto        Protocol enables companies and governments to offset regulated greenhouse emission        restrictions by investing in CO2 reduction programs in exchange for Carbon        Emission Reduction (“CER”) credits.European nations began tradingCER credits as of January 2005. CER credits are traded much like commodities        with an average value of between $6 and $16 per CER (which represents one ton of        CO2 or equivalent) dependent on whether the carbon credit is certified or not        and depending on the date and origin of the carbon credit. The Kyoto Protocol became law        effective February 16, 2005, the result of which should be a rapidly expanding        multi-billion-dollar market for CER credits.

 

Planktos        has cultivated working partnerships with government labs and ocean science institutions to        assist with measurement and verification procedures and to optimize project designs.        Bankable, tradable investment grade CER credits for corporate buyers and fund managers are        expected to be verified and certified with satellite & aerial mapping, underwater        analysis methods, and bloom measuring sensors on Planktos’ proprietary autonomous        ocean rovers.

 

Russ        George, the president of Planktos, has been involved with ocean restoration and        CO2 sequestration since 1997 and was responsible for establishing the Planktos        Foundation. Planktos’ management team is supported by an Advisory Group headed by Dr.        Noel Brown (formerly the United Nations Environmental Program director) and Dr. Scott Chubb        (US Naval Research Laboratory).

 

***Forests of the Ocean***

 

Plankton in        our oceans is well documented in its utilization of photosynthesis to absorb        CO2. Planktos’ near-term commercial objective is to produce CER credits at        a cost of less than $1 per ton utilizing proprietary technology designed to stimulate        plankton growth in the world’s oceans as a means by which to sequester (isolate from        the atmosphere) CO2.

 

Specifically, Planktos expects to implement its program of sequestration by        “iron fertilization” of the ocean, restoring this micronutrient that is vital        for ocean plant growth and photosynthesis which is now scarce in marine waters. The iron is        similar to that nature has delivered to sustain the oceans throughout history, but that has        been on the decline for thirty years owing to changes in land use. The fertilization        process is intended to trigger vast plankton blooms which will absorb the carbon in        CO2, 30-40% of which sinks deep enough to be verified as sequestered.

 

Planktos’ initial calculations have determined that the introduction        of one ton of iron results in the biological fixation of up to 100,000 tons of        CO2. Moreover, this process has three additional benefits that help to restore        ecosystems of the open ocean:

 

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|   | § | Support and restore diminished fish populations (additional                        plankton means more food) |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | § | Adds to global O2 levels (more plankton results                        in more oxygen as some 60% of the earth’s O2 is produced                        by plankton) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Preserves coral reefs by reducing the acidity of the                        oceans. |
|--------|--------|-------------------------------------------------------------------------------------|

 

Our        research vessel, the Weatherbird II, is equipped with state of the art research equipment        which is available to us from a leading ocean research technology group that routinely        equips US research vessels. The ship is fully equipped to embark on ocean ecorestoration        and other science missions.

 

Over the        coming years, work aboard the Weatherbird II will provide the critical data and knowledge        required by project development documents and methodologies, which is expected to lead to        verifiable certifiable climate change projects among those nations who are signatories to        the Kyoto Accord. Beginning in 2008, the public will be able to follow the progress of the        Weatherbird II’s research via web casts and regular updates on Planktos’        website.

 

The process        of stimulating plankton growth and Planktos’ overall mission can be viewed at        Planktos’ website:*www.planktosinc.com*        .

 

***Forests of the Land***

 

A tree is        composed of about 50% carbon which is produced by removing CO2 from the air        through photosynthesis. KlimaFa is dedicated to afforestation and reforestation projects in        Europe and the Americas. Studies are now underway to develop an ecologically sound        indigenous species mix and planting model of flora to maximize wildlife habitat and        biodiversity in the respective regions. KlimaFa is currently involved in several        government-assisted carbon forest projects in Hungary that intend to restore native mixed        growth forests in national parks and then afforest vast tracts of retired agricultural        lands.

 

The Kyoto        Protocol recognizes a variety of mechanisms to reduce atmospheric CO2 and other        greenhouse gases, and has approved carbon sequestration from new forests. The development        of forests ultimately produces valuable carbon credits. KlimaFa estimates that carbon        credits produced in this manner will cost approximately $4.00 per ton. KlimaFa’s        target is to plant up to 100,000 hectares over the next 24 months.

 

KlimaFa’s first project is near the Bukk National Park in northeastern        Hungary. The area is a large tract of environmentally degraded, abandoned land, one of many        in former Eastern bloc countries. The land was originally called Forest Island, cleared in        the Middle Ages for farming and currently overgrown with weeds. As a forest grows to        replace this wasteland, we expect to absorb 10 times the carbon that is currently        absorbed.

 

The science        and news surrounding eco-restoration can be viewed on KlimaFa’s website:*www.klimafa.com*

 

***D2fusion Inc.***

 

The Company        began research and development operations with D2Fusion in        2005.D2Fusion, based in Foster City, California, and Los Alamos, New        Mexico, is a research and development company staffed by scientists and engineers working        toward the delivery of proprietary solid-state fusion aimed at entry level heat and energy        applications for homes and industry. Solid-state fusion is a solid state, low temperature,        non-radioactive nuclear reaction that fuses two heavy hydrogen nuclei into a helium atom        and releases enormous amounts of heat. The technology is more widely recognized under the        name “cold-fusion.”

 

 

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Unlike the        reactions in “cold-fusion,” D2Fusion technology uses more simple and reliable        solid state processes more akin to high temperature super-conductor physics to produce and        control radiation-free fusion reactions known as “LENR” or Low Energy Nuclear        Reaction in the Solid State. In this most simple form of fusion, the process of LENR fuses        two Deuterium atoms (heavy Hydrogen) that are contained and constrained under solid-state        conditions fuse to form a single Helium-4 isotope (4He) but since the mass of one 4H atom        is slightly less than two Deuterium atoms, each new helium atom created is accompanied by a        release of energy. To put this into a more common perspective, under ideal conditions one        gram of hydrogen fuel holds the equivalent to billions of watts (joules) of        energy.

 

First        discovered in the 1930s then re-discovered and announced in 1989, this safe, low-cost        technology seemed to answer all society's prayers for a clean and abundant new energy        source. To some, however, it appeared to violate conventional physics and threaten        entrenched energy industries, and it was for a time denounced as impossible. Now, after        more than 17 years of painstaking research and experimentation, this enigmatic new        phenomenon has finally given up enough secrets to allow development of laboratory        applications. Upon completion of a consumer model, multi-kilowatt D2Fusion devices will be        able to permeate society, enhancing the economy, environment, and self-sufficiency of        countless nations around the globe.

 

Major        energy research organizations and government agencies around the world are now accelerating        efforts to develop and deliver new forms of nuclear energy. Only solid-state fusion offers        such an energy solution without any radioactivity or nuclear waste. As the departments of        energy and defense in the USA, Europe, and Asia begin to make R&D commitments in this        field, D2Fusion is positioned to pioneer many commercial applications that can finally        bring this clean energy revolution to fruition.

 

Russ George        and Dr. Tom Passell (formerly of the Nuclear Power Division of the Electric Power Research        Institute of Palo Alto), have been involved with solid-state fusion research since 1989.        Mr. George’s successful experimental prototypes have been tested at the Los Alamos        National Laboratory and Stanford Research Institute. D2Fusion’s management team is        supported by a Scientific Advisory Board that includes Dr. Brian Josephson (Cambridge Nobel        Laureate), Dr. Martin Fleischman (one of the two original proponents of cold fusion in        1989) as well as Dr. Tom Clayton, Dr. Dale Tuggle and Dr. Malcolm Fowler, from the Los        Alamos National Laboratory.

 

The        immediate goal of D2Fusion is to produce and operate three, small scale thermal prototypes,        one in Foster City, California, one in Los Alamos, New Mexico and one in Cambridge, England        in order to provide the ability of our scientists to prove their ability to replicate LENR        at disparate locations. D2Fusion is already well on its way to accomplishing this goal as        our facilities in Foster City and Los Alamos already have working prototypes that can        demonstrate LENR. We expect that these prototypes will be further tested and refined by        collaborating research groups in the Silicon Valley, Los Alamos, and Europe.

 

D2Fusion’s ultimate goal is to produce heat and electricity at a        fraction of today’s cost, with no emissions. The first commercial product envisioned        is a small space heater suitable for all residential homes that will not need refueling        over several human life spans.

 

The Company        is well aware of the controversy surrounding “cold fusion” technology. However,        we believe that there is sufficient global evidence that the risk/reward ratio merits our        investment. As D2Fusion’s prototype technology is scaled to commercial size it could        help solve much of the world’s energy, water, and pollution problems. The science and        news surrounding solid-state fusion and D2Fusion can be viewed on its website:*www.d2fusion.com*        .

 

 

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***Historical Research and Development***

 

The Company        is the owner of intellectual property rights related to the acquisition of Hydro-Air        Technologies, Inc., (“HAT”), from Dr. Melvin Prueitt. HAT has certain        intellectual property rights that we intended to develop for the purpose of generating        commercially viable electrical power using the energy generated by the heat of evaporation        of water. Unfortunately, these projects proved difficult to develop into working prototypes        that caused us to abandon research and development specific to these technologies. However,        preliminary work, experiments completed and test results generated from the projects did        prove useful to derivative projects that we expect may become commercially viable at some        future date.

 

The Company        is the owner of a 30% interest in Renewable Energy Limited (“RECO”). The        primary asset of RECO is a project called SOLAREC (Solar Reduction of Carbon Dioxide.) This        project, lead by Dr. Reed Jensen involves the task of recycling carbon dioxide into fuel        using focused ultraviolet and visible light from the sun. One of the goals of the SOLAREC        project is to use solar energy and CO2 to produce a clean usable fuel (gasoline, diesel,        etc.) with electricity and oxygen as the only by-products. RECO has also developed three        solar driven methods for the environmentally friendly production of hydrogen, utilizing        atmospheric or industrially produced CO2 or coal. We believe that the SOLAREC project has        the potential to significantly address today’s global energy and pollution problems;        however, as a minority interest holder we are no longer involved SOLAREC’s business        on a day-to-day basis.

 

The Company        is a research and development company with no revenues and no immediate source of revenue        generation. We have been funded since inception from public or private debt or equity        placements or by major shareholders in the form of loans. All of our projects have been        experimental in nature and virtually all of the capital raised to date has been allocated        for research and the development activities with related administrative costs.

 

**Plan        of Operation**

 

During the        nine month period ended September 30, 2007, the Company was involved in developing        innovative technologies tied to Planktos and D2Fusion, building a management team for both        entities, and completing a private placement to fund research and development. We remain        focused on overseeing the operation of Planktos Corp. as the controlling shareholder and        managing the day to day operation of D2Fusion in anticipation of closing our agreement to        transfer ownership to Enwin.

 

***Planktos, Inc.***

 

Planktos is        currently working with US and European marine research teams to plan and launch significant        ocean iron fertilization projects. Initial efforts will be modest in scope and        research-intensive, but are still designed to verifiably sequester carbon between hundreds        of thousands and millions of tonnage per voyage.

 

Subsequent        to the period ended September 30, 2007, our Weatherbird II research vessel began its first        effort, the “Voyage of Recovery,” upon an invitation from the University of Las        Palmas Ocean Science Department. The mission was to begin research andexperiments dedicated to the study of ocean plankton blooms in the region.        However, in early December of 2007, the Weatherbird II was denied entry to Spanish waters        upon arrival at Las Palmas, Gran Canaria, in the Canary Islands due to non-compliance with        certain administrative and permit issues that are currently under consideration. Since port        authorities could not be moved to permit the Weatherbird II entry until becoming compliant        with Spanish rules and regulations, the vessel was redirected north into Portuguese waters        at Funchal, Madeira. We are now reviewing what options remain to complete the Weatherbird        II’s mission, including a possible return to the Canary Islands to engage in research        with the University of Las Palmas as originally intended.

 

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This launch        was to be the first of a series of up to 6 commercial scale ocean plankton blooms over 24        months designed to verifiably sequester a total of between 24 and 30 million tons of CO2.        Post 2008 projects include additional ships and larger blooms with a target of 250 million        tons of verified CO2 sequestration by 2010.

 

Planktos        and KlimaFa are approaching this work with an array of qualifications:

 

|   | **•** | Years of experience in the basic science of the                        field; |
|--------|------------|-------------------------------------------------------------------------------|

|   | **•** | Collaborative arrangements and working relationships with                        internationally recognized marine science project partners required for                        certification; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Sustainable resource maximization plan designs; |
|--------|------------|-------------------------------------------------|

|   | **•** | Expertise in resource value computation and certification                        procedures; |
|--------|------------|----------------------------------------------------------------------------------------------|

|   | **•** | Market access for resource monetization and trade;                        and |
|--------|------------|-------------------------------------------------------------------------------|

|   | **•** | Experience in structuring all preceding factors into viable                        binding business plans. |
|--------|------------|------------------------------------------------------------------------------------------------------------|

         

Planktos’ plan of operation will require $2,000,000 in funding over        the next 12 months, over $1,000,000 of which has been raised by an equity financing of        Planktos’ common stock as of the period ending September 30, 2007. Planktos’        expects that the $1.4 million is slated for the Weatherbird II and $600,000 to complete the        first stage planting in Hungary by KlimaFa will be made available from additional debt or        equity financings tied Planktos’ common stock.

 

***D2Fusion, Inc.***

 

D2Fusion is        currently working with eminent U.S. and international research teams to continue product        development projects. Using the know-how as well as collaborative expertise from the U.S.        government's top nuclear science labs, D2Fusion is prepared to build, demonstrate, and test        small (kilowatt-scale) thermal module prototypes. D2Fusion intends to achieve the        following:

 

|   | **•** | Pilot project to compellingly demonstrate the commercial                        promise of D2Fusion technology, producing prototype kilowatt-scale thermal                        modules for use in many applications; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Coordinate design, assembly, and testing of these prototype                        modules with leading national laboratory scientific and engineering teams                        to demonstrate these devices deliver safe clean solid-state fusion energy                        in a commercially useful form. This will both legitimate and publicize the                        field as well as generating important intellectual properties; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Design of a licensing and development plan obtain the                        highest possible return on our products and technologies; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Grow the business to develop and deliver new products and                        processes. |
|--------|------------|---------------------------------------------------------------------------------------------|

 

Our plan of        operation for D2Fusion will require $2,000,000 in financing over the next 12 months which        financing is tied to our agreement with Enwin. The Company is confident that Enwin will be        able to finance D2Fusion in the near term. Meanwhile, we will continue to fund limited        research and development of D2Fusion’s LENR technology.

 

Subsequent        to the period ended September 30, 2007, the Company’s inability to obtain required        funding for the continued operation of the business plans of both Planktos and D2Fusion has        forced management to consider a winding down of operations which has so far resulted        redundancies among Planktos employees. Efforts to continue the operations of Planktos and        D2Fusion remain management’s top priority but can in no way be assured given the        present state of the Company’s financial resources.

 

 

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**Results of Operations**

 

The Company        has been funded since inception from public or private debt or equity placements or by        major shareholders in the form of loans. Virtually all of the capital raised to date has        been allocated for research and the development activities and for administrative costs.        All projects under development by the Company are experimental in nature and are recorded        as research and development expenses with related general and administrative        expenses.

 

The Company        did not generate any revenues from operations during this period.

 

The Company        does not expect to receive revenues through 2007.

 

***Net        Losses***

 

For the        period from January 5, 1994 to September 30, 2007 the Company recorded a net loss of        $16,491,427. Net losses for the three month period ended September 30, 2007 were $2,331,492        as compared to $458,200 for the three month period ended September 30, 2006. Net losses for        the nine month period ended September 30, 2007 were $4,376,726 as compared to $1,410,938        for the nine month period ended September 30, 2006. The change in net losses in the current        nine month period can be attributed to increases in general and administrative expenses,        research and development costs and vessel maintenance. General and administrative expenses        include accounting expenses, professional fees consulting fees and costs associated with        the preparation of public disclosure documentation. The research and development expenses        include costs associated with both the pursuit of numerous non-fossil fuel energy        technologies including solar power, cold fusion nuclear power and the sequestration of CO2        in the marine and terrestrial environments. Vessel operating costs are related to expenses        incurred by Planktos in refitting the Weatherbird II research ship.

 

The Company        expects to continue to operate at a loss through fiscal 2007 due to the nature of the        Company’s operations.

 

***Income Tax Expense (Benefit)***

         

The Company        has a prospective income tax benefit resulting from a net operating loss carryforward and        start up costs that may offset any future operating profit.

 

***Impact of Inflation***

         

The Company        believes that inflation has had a negligible effect on operations over the past three        years.

 

***Capital Expenditures***

 

The Company        expended no significant amounts on capital expenditures for the period from inception to        September 30, 2007.

***Liquidity and Capital Resources***

 

As of        September 30, 2007, the Company had current assets totaling $592,676 and a working capital        deficit of $519,982. These assets consist of cash on hand of $584,735 and prepaid expenses        of $7,941. Net stockholders' deficit in the Company was $1,215,521 at September 30, 2007.        The Company is in the

 

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development        stage and, since inception, has experienced significant changes in liquidity, capital        resources and shareholders’ equity.

 

Cash flow        used in operating activities was $8,361,998 for the period from inception to September 30,        2007. Cash flow used in operating activities for the nine month period ended September 30,        2007 was $3,679,771 as compared to $1,206,967 for the nine months ended September 30, 2006.        The increase in cash flow used in operating activities in the current nine month period was        due primarily to an increase in net losses.

 

Cash flow        provided by financing activities was $7,936,544 for the period from inception to September        30, 2007. Cash flow provided by financing activities for the nine month period ended        September 30, 2007 was $2,913,272 as compared to $1,485,325 for the nine months ended        September 30, 2006. Cash flow provided by financing activities in the current nine month        period can be attributed to proceeds received from related party loans, advances, and sales        of our equity.

 

Cash flows        used for investing activities was $1,010,189 for the period from inception to September 30,        2007. Cash flow provided by investing activities for the nine month periods ended September        30, 2007 was $1,147,322 as compared to $11,898 used by investing activities for the nine        months ended September 30, 2006. The recognition of cash flows used by investing activities        is a result of the cash acquired from Planktos.

 

The        Company’s current assets are insufficient to conduct our plan of operation over the        next twelve (12) months and we will have to seek debt or equity financing to fund        operations. The Company has no current commitments or arrangements with respect to, or        immediate sources of funding. Further, no assurances can be given that funding, if needed,        would be available or available to the Company on acceptable terms. The Company’s        shareholders would be the most likely source of new funding in the form of loans or equity        placements though none have made any commitment for future investment and we have no        agreement formal or otherwise. The Company’s inability to obtain funding has had a        material adverse affect on our plan of operation and will continue to diminish our ongoing        businesses.

 

The Company        has no current plans for the purchase or sale of any plant or equipment.

 

The Company        has no current plans to make any changes in the number of employees.

 

**Off        Balance Sheet Arrangements** 

 

As of        September 30, 2007, the Company has no significant off-balance sheet arrangements that have        or are reasonably likely to have a current or future effect on our financial condition,        changes in financial condition, revenues or expenses, results of operations, liquidity,        capital expenditures, or capital resources that is material to stockholders.

**Critical Accounting Policies**

 

In the        notes to the audited consolidated financial statements for the year ended December 31, 2006        included in the Company’s Form 10-KSB, the Company discussed those accounting        policies that are considered to be significant in determining the results of operations and        our financial position. We believe that the accounting principles utilized by us conform to        accounting principles generally accepted in the United States of America.

 

 

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The        preparation of financial statements requires management to make significant estimates and        judgments that affect the reported amounts of assets, liabilities, revenues and expenses.        By their nature, these judgments are subject to an inherent degree of uncertainty. On an        on-going basis, we evaluate our estimates, including those related to bad debts,        inventories, intangible assets, warranty obligations, product liability, revenue, and        income taxes. We base our estimates on historical experience and other facts and        circumstances that are believed to be reasonable, and the results form the basis for making        judgments about the carrying value of assets and liabilities. The actual results may differ        from these estimates under different assumptions or conditions.

 

**Forward Looking Statements and Factors That May Affect Future Results        and Financial Condition**

 

The        statements contained in the section titled*Management's Plan of        Operation*with the exception of historical facts, are forward        looking statements within the meaning of Section 27A of the Securities Act. A safe-harbor        provision may not be applicable to the forward looking statements made in this Form 10-QSB        because of certain exclusions under Section 27A (b). Forward looking statements reflect our        current expectations and beliefs regarding our future results of operations, performance,        and achievements. These statements are subject to risks and uncertainties and are based        upon assumptions and beliefs that may or may not materialize. These statements include, but        are not limited to, statements concerning:

 

|   | **•** | our anticipated financial performance; |
|--------|------------|----------------------------------------|

|   | **•** | the sufficiency of existing capital resources; |
|--------|------------|------------------------------------------------|

|   | **•** | our ability to fund cash requirements for future                        operations; |
|--------|------------|-------------------------------------------------------------------------------------|

|   | **•** | uncertainties related to the development of our                        technologies; |
|--------|------------|--------------------------------------------------------------------------------------|

|   | **•** | the volatility of the stock market; and |
|--------|------------|-----------------------------------------|

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

 

We wish to        caution readers that the Company’s operating results are subject to various risks and        uncertainties that could cause our actual results to differ materially from those discussed        or anticipated in this report. We also wish to advise readers not to place any undue        reliance on the forward looking statements contained in this report, which reflect our        beliefs and expectations only as of the date of this report. We assume no obligation to        update or revise these forward looking statements to reflect new events or circumstances or        any changes in our beliefs or expectations, other that is required by law.

 

**Risks        Related to Our Business**

 

Our future        operating results are highly uncertain. Before deciding to invest in us or to maintain or        increase your investment, you should carefully consider the risks described below, in        addition to the other information contained in this annual report. If any of these risks        actually occur, our business, financial condition or results of operations could be        seriously harmed. In that event, the market price for our common stock could decline and        you may lose all or part of your investment.

 

***We        have a history of significant operating losses and such losses may continue in the        future*****.**

 

Since our        inception in 1994, our operations have resulted in a continuation of losses and an        accumulated deficit which reached $16,491,427 at September 30, 2007. The Company has never        realized revenue from operations. We will continue to incur operating losses as we fund our        subsidiaries’ operations. Our only expectation of future profitability is dependent        upon the success of our subsidiaries’ programs and research and development.        Therefore, we may never be able to achieve profitability.

 

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***Our        businesses will not likely be profitable in the next twelve months and may never be        profitable.***

 

Planktos is        in the process of its iron-fertilization prove-out program and D2Fusion remains in the        research and development stage with no significant revenues and will not likely be        profitable within the next twelve months. While both operations have very high potential        profit, it cannot be assured that iron-fertilization will live up to our expectations or        whether our research into solid state fusion will ever be successful. Therefore, the        possibility of future profits by our subsidiaries is purely speculative.

 

***We        will need additional financing to fund our businesses.***

 

We will        need additional capital to fund Planktos for its iron-fertilization prove-out program and        D2Fusion’s research and development. In our efforts to raise capital or obtain        additional financing, we may be obligated to issue additional shares of common stock or        warrants or other rights to acquire common stock on terms that will result in dilution to        existing shareholders or place restrictions on operations. If adequate funds are not        available or are not available on acceptable terms, our ability to fund our subsidiaries        would be significantly limited.

 

***We        are dependent upon key people, who would be difficult to        replace*****.**

 

Our        continued operations will be largely dependent upon the efforts of our executive officer        and our directors as well as Russ George and our other engineers. Our future success also        will depend in large part upon the Company’s ability to identify, attract and retain        other highly qualified managerial and engineering personnel. Competition for these        individuals is intense. The loss of the services of our managers and engineers, the        inability to identify, attract or retain qualified personnel in the future, or delays in        hiring qualified personnel could make it more difficult for us to maintain our operations        and meet our key objectives.

 

***The        market for our stock is limited and our stock price may be volatile.***

 

The market        for our common stock has been limited due to low trading volume and the small number of        brokerage firms acting as market makers. Because of the limitations of our market and        volatility of the market price of our stock, investors may face difficulties in selling        shares at attractive prices when they want to. The average daily trading volume for our        stock has varied significantly from week to week and from month to month, and the trading        volume often varies widely from day to day.

 

***We        may incur significant expenses as a result of being quoted on the Over the Counter Bulletin        Board, which may negatively impact our financial performance.***

 

We may        incur significant legal, accounting and other expenses as a result of being listed on the        Over the Counter Bulletin Board. The Sarbanes-Oxley Act of 2002, as well as related rules        implemented by the Commission, has required changes in corporate governance practices of        public companies. We expect that compliance with these laws, rules and regulations,        including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as discussed in the        following risk factor, may substantially increase our expenses, including our legal and        accounting costs, and make some activities more time-consuming and costly. As a result,        there may be a substantial increase in legal, accounting and certain other expenses in the        future, which would negatively impact our financial performance and could have a material        adverse effect on our results of operations and financial condition.

 

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***Our        internal controls over financial reporting may not be considered effective, which could        result in a loss of investor confidence in our financial reports and in turn have an        adverse effect on our stock price.***

 

Pursuant to        Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our annual report for the        year ending December 31, 2007, we may be required to furnish a report by our management on        our internal controls over financial reporting. Such report will contain, among other        matters, an assessment of the effectiveness of our internal controls over financial        reporting as of the end of the year, including a statement as to whether or not our        internal controls over financial reporting are effective. This assessment must include        disclosure of any material weaknesses in our internal controls over financial reporting        identified by management. If we are unable to assert that our internal controls are        effective as of December 31, 2007, investors could lose confidence in the accuracy and        completeness of our financial reports, which in turn could cause our stock price to        decline.

 

**Going        Concern**

 

The        Company’s audit expressed substantial doubt as to the Company’s ability to        continue as a going concern as a result of recurring losses, lack of revenue-generating        activities and an accumulated deficit of $12,114,701 as of December 31, 2006 which        increased to $16,491,427 as of September 30, 2007. The Company’s ability to continue        as a going concern is subject to the ability of us to realize a profit and /or obtain        funding from outside sources. Management’s plan to address our ability to continue as        a going concern, include: (i) obtaining funding from private placement sources; (ii)        obtaining additional funding from the sale of our securities; (iii) establishing revenues        from commercializing of its projects; and (iv) obtaining loans and grants from various        financial institutions, where possible. Although management believes that it will be able        to obtain the necessary funding to allow us to remain a going concern through the methods        discussed above, there can be no assurances that such methods will prove        successful.

 

| **ITEM 3.** | **CONTROLS AND PROCEDURES** |
|-------------|-----------------------------|

 

The        Company’s president acts both as the chief executive officer and the chief financial        officer and is responsible for establishing and maintaining disclosure controls and        procedures.

 

| ***a)***   | ***Evaluation of disclosure controls and                        procedures.*** |
|----------------------|--------------------------------------------------------------------------------|

 

Under the        supervision and with the participation of management, including the chief executive officer        and chief financial officer, we evaluated the effectiveness of the design and operation of        our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under        the Securities Exchange Act of 1934, as of September 30, 2007. Based on this evaluation,        the chief executive officer and chief financial officer concluded that, as of the end of        the period covered by this report, our disclosure controls and procedures were effective        and adequately designed to ensure that the information required to be disclosed in the        reports which we file or submit under the Securities Exchange Act of 1934 is recorded,        processed, summarized and reported within the time periods specified in applicable rules        and forms and that such information was accumulated and communicated to our chief executive        officer and chief financial officer, in a manner that allowed for timely decisions        regarding required disclosure.

 

| ***(b)***   | ***Changes in internal controls over financial                        reporting.*** |
|-----------------------|-------------------------------------------------------------------------------------|

 

 

27

 

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During the        quarter ended September 30, 2007 there has been no change in the Company’s internal        control over financial reporting that has materially affected, or is reasonably likely to        materially affect, internal control over financial reporting.

 

 

**PART        II**

 

| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

Legal        proceedings were initiated by Mary Ruth Ladd against the Company, Planktos and certain        individuals affiliated to the Company on October 3, 2007 in the Superior Court of the State        of California, County of San Francisco in connection with allegations of discrimination and        retaliation against a whistle blower, wrongful termination, fraud, breach of contract,        wrongful business acts and intentionally causing injury in the workplace. The claim seeks        $58,280 in lost wages in addition to certain employee benefits and punitive damages. The        Company has retained counsel to respond to these allegations and denies any liability for        these alleged causes of action.

 

| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES** |
|-------------|---------------------------------------------|

 

On October 1, 2007, the Company authorized the issuance of 100,000 units,        each unit comprised of one common share and one purchase warrant with an exercise price of        $0.40 for a period of 24 months to Zmax Capital Corporation, pursuant to exemptions from        registration provided by Section 4(2) and Regulation S of the Securities Act of 1933 in        exchange for cash consideration of $25,000 or $0.25 per unit. No commissions were paid in        connection with this transaction.

 

The Company        complied with Section 4(2) based on the following factors: (1) the issuance was an isolated        private transaction that did not involve a public offering; (2) there was one offeree who        was issued the stock for cash consideration; (3) the offeree stated an intention not to        resell the stock; (4) there were no subsequent or contemporaneous public offerings of the        stock; (5) the stock was not broken down into smaller denominations; and (6) the        negotiations that lead to the issuance of the stock took place directly between the offeree        and the Company.

 

Regulation        S provides generally that any offer or sale that occurs outside of the United States is        exempt from the registration requirements of the Securities Act, provided that certain        conditions are met. Regulation S has two safe harbors. One safe harbor applies to offers        and sales by issuers, securities professionals involved in the distribution process        pursuant to contract, their respective affiliates, and persons acting on behalf of any of        the foregoing (the “issuer safe harbor”), and the other applies to resales by        persons other than the issuer, securities professionals involved in the distribution        process pursuant to contract, their respective affiliates (except certain officers and        directors), and persons acting on behalf of any of the forgoing (the “resale safe        harbor”). An offer, sale or resale of securities that satisfied all conditions of the        applicable safe harbor is deemed to be outside the United States as required by Regulation        S. The distribution compliance period for shares sold in reliance on Regulation S is one        year.

 

The Company        complied with the requirements of Regulation S by having no directed selling efforts made        in the United States, by selling only to an offeree who was outside the United States at        the time of the offering, and ensuring that the entity to whom the stock was issued was a        non-U.S. person with an address in a foreign country.

 

| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES** |
|-------------|-------------------------------------|

 

None.

 

28

 

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| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITIES                        HOLDERS** |
|-------------|----------------------------------------------------------------------------------|

 

None.

 

 

| **ITEM 5.** | **OTHER INFORMATION** |
|-------------|-----------------------|

 

The        Financial Industry Regulatory Authority (“FINRA”) in a letter dated November        20, 2007, notified Planktos that pursuant to NASD Rule 6530(e), it had been delinquent in        its reporting obligations under the Securities Exchange Act of 1934 three times during the        past 24 months. As a result, Planktos was deemed ineligible for trading on the        Over-the-Counter Bulletin Board (the “OTCBB”) for a period of 12 months        beginning November 29, 2007. Planktos requested a hearing with FINRA to appeal the        determination of delinquency which was held on December 13, 2007. On December 17, 2007,        Planktos was advised that its securities would no longer be quoted on the OTCBB as of the        open of business on December 19, 2007.

 

Planktos        intends to comply in a timely manner with all Commission reporting obligations over the        next 12 months in order to be eligible to reapply for quotation on the OTCBB. During this        period Planktos will be quoted on the Pink Sheets LLC.

 

| **ITEM 6.** | **EXHIBITS** |
|-------------|--------------|

 

Exhibits        required to be attached by Item 601 of Regulation SB are listed in the Index to Exhibits on        page 31 of this Form 10-QSB, and are incorporated herein by this reference.

 

29

 

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**SIGNATURES**

 

In        accordance with the requirements of the Securities Exchange Act, the registrant caused this        report to be signed on its behalf by the undersigned, hereunto duly authorized, this        18th day of December, 2007.

 

 

| ***Solar Energy Limited*** |
|----------------------------|

         

         

/s/ Andrew Wallace

| Andrew Wallace |
|----------------|

Chief        Executive Officer, Chief Financial Officer and Principal Accounting Officer

 

 

 

 

 

 

 

 

 

 

30

 

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**EXHIBITS**

 

| ***Exhibit*** | ***Page*** |
|---------------|------------|

| ***No.*** | ***No.*** | ***Description*** |
|-----------|-----------|-------------------|

 

| 3(i) | * Articles of Incorporation (incorporated by reference                        to the Company’s Form 10-SB filed with the Securities and Exchange                        Commission on January 28, 1999). |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(ii) | * By-laws (incorporated herein by reference to the                        Company’s Form 10-SB filed with the Commission on January 28,                        1999). |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(i) | * Stock Purchase Agreement dated April 27, 2004 between                        Renewable Energy Limited, Los Alamos Renewable Energy , LLC, Renewable                        Energy Corporation and the Company (incorporated by reference to the                        Company’s Form 10-QSB filed with the Securities and Exchange                        Commission on August 24, 2004). |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(ii) | * Acquisition Agreement with Planktos, Inc., dated                        August 10, 2005 (incorporated by reference to the Company’s Form 8-K                        filed with the Commission on August 19, 2005). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(iii) | * Acquisition Agreement with D2Fusion Inc., dated                        August 18, 2005 (incorporated by reference to the Company’s Form 8-K                        filed with the Commission on August 19, 2005). |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(iv) | ***** Iron-Fertilization                        Prove-Out and Purchase Agreement with Planktos Corp. (formerly Diatom                        Corporation), dated August 18, 2005 (incorporated by reference to the                        Company's Form 8-K filed with the Commission on August 19,                        2005). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(v) | * Consulting Agreement with Bay Cove Capital                        Corporation dated December 1, 2005 (incorporated by reference to the                        Company's Form 10-QSB filed with the Commission on August 12,                        2007). |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(vi) | * Securities Exchange Agreement and Plan of Exchange                        with Planktos Corp. (formerly Diatom Corporation) dated January 12, 2007                        (incorporated by reference to the Company’s Form 8-K filed with the                        Commission on January 19, 2007). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(vii) | * Amendment to Consulting Agreement with Bay Cove                        Capital Corporation dated May 1, 2007  (incorporated by reference                        to the Company's Form 10-QSB filed with the Commission on August 12,                        2007). |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(viii) | * Securities Exchange Agreement and Plan of Exchange                        with Enwin Resources, Inc. dated May 31, 2007 (incorporated by reference to                        the Company’s Form 8-K filed with the Commission on June 4,                        2007). |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14 | * Code of Ethics adopted March 30, 2004 (incorporated                        herein by reference to Form 10-KSB dated April 1, 2004). |
|----|--------------------------------------------------------------------------------------------------------------------------------------------|

| 31 | Attached   Certification of the Chief                        Executive Officer and Chief Financial Officer pursuant to Section 302 of                        the Sarbanes-Oxley Act of 2002. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 32 | Attached   Certification of the Chief                        Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section                        1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of                        2002. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|