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

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

Overview

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

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

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

• we plan to research and test theories of PV, thermo-physics, physics of materials and chemistry;

• we plan to develop efficient and ultra-efficient PV cells with light/electricity conversion rates of up to 20% to 35%;

• we plan to develop environmentally friendly high conversion rate manufacturing technology of chemical compound film PV cell materials;

• we plan to develop highly reliable, low-cost manufacturing technology and equipment for thin film PV cells;

• we plan to research and develop key material for low-cost flexible film PV cells and non-vacuum technology; and

• we plan to research and develop key technology and fundamental theory for third-generation PV cells.

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

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

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

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

Critical Accounting Policies

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

Recent Accounting Pronouncements

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

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

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

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

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

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

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

Revenues, Cost of Sales and Gross Margin

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



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

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

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

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

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

Selling, general & administrative

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



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

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

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

Research & development

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

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

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

Loss on debt extinguishment

                                      Three Months Ended March 31, 2008           Three Months Ended March 31, 2007                          Year-Over-Year Change
                                         Amount               % of net sales            Amount                % of net sales             Amount              % of change
Loss on debt extinguishment      $             2,105,000                 60.6 %   $                -                        0. %   $        2,105,000                    *NM

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

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

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

Other income (expense)

                                              Three Months Ended March 31, 2008          Three Months Ended March 31, 2007                  Year-Over-Year Change
                                                  Amount             % of net sales           Amount            % of net sales             Amount         % of change
Interest income                           $               46,000                 1.3 %   $           7,000                  233.3 %    $        39,000           557.1 %
Interest expense                                        (298,000 )              (8.6 )%            (54,000 )              (1,800. )%          (244,000 )         451.9 %
Loss on issuance of convertible notes                          -                  0. %         (15,209,000 )           (506,966.7 )%        15,209,000             *NM
Gain (loss) on change in fair market
value of compound embedded derivative                 11,190,000               322.4 %         (12,600,000 )            (420,000. )%        23,790,000          (188.8 )%
Gain (loss) on change in fair market
value of warrant liability                            10,808,000               311.4 %          (9,959,000 )           (331,966.7 )%        20,767,000          (208.5 )%
Other expense                                           (290,000 )              (8.4 )%                  -                     0. %           (290,000 )           *NM
Total other income (expense)              $           21,456,000               618.1 %   $     (37,815,000 )         (1,260,500.1 )%   $    59,271,000          (156.7 )%

                                            Six Months Ended March 31, 2008            Six Months Ended March 31, 2007             Year-Over-Year Change
                                              Amount             % of net sales           Amount          % of net sales          Amount         % of change
Interest income                        $              56,000                 0.7 %   $          13,000              433.3 %   $        43,000           330.8 %
Interest expense                                    (576,000 )              (6.9 )%            (54,000 )          (1,800. )%         (522,000 )         966.7 %
Loss on issuance of convertible
notes                                                      -                  0. %         (15,209,000 )       (506,966.7 )%       15,209,000             *NM
Gain (loss) on change in fair
market value of compound embedded
derivative                                        12,289,000               147.9 %         (12,600,000 )        (420,000. )%       24,889,000          (197.5 )%
Gain (loss) on change in fair
market value of warrant liability                 10,923,000               131.4 %          (9,959,000 )       (331,966.7 )%       20,882,000          (209.7 )%
Other expense                                       (328,000 )              (3.9 )%                  -                 0. %          (328,000 )           *NM
Total other income (expense)           $          22,364,000               269.2 %   $     (37,809,000 )     (1,260,300.1 )%  $    60,173,000          (159.1 )%

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