UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Mark One

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2011

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 000-51717

SOLAR ENERTECH CORP.

(Exact name of registrant as specified in its charter)

DELAWARE		98-0434357
State or other jurisdiction of incorporation or organization		(I.R.S. Employer Identification No.)

655 West Evelyn Avenue, Suite #2

Mountain View, CA 94041

(Address of principal executive offices) (Zip Code)

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

Securities registered under Section 12(b) of the Exchange Act:

Title of each class		Name of each exchange on which registered
None		None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.001 Par Value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

¨ Large accelerated filer		¨ Accelerated filer		¨ Non-accelerated filer		x Smaller reporting company
				(Do not check if a small reporting company)

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

The aggregate market value of the common stock held by non-affiliates of the registrant, computed based on the closing sale price as of the last business day of the registrant’s second fiscal quarter, March 31, 2011, was approximately $10,614,813.

According to the records of the registrant's registrar and transfer agent, the number of shares of the registrant's common stock outstanding as of December 5, 2011 was 181,480,266.

TABLE OF CONTENTS

	Page
PART I

Item 1. Business	4
Item 1A. Risk Factors	8
Item 1B. Unresolved Staff Comments	20
Item 2. Properties	20
Item 3. Legal Proceedings	20
Item 4. Submission of Matters to a Vote of Security Holders	20

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6. Selected Financial Data	23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	33
Item 8. Financial Statements and Supplementary Data	33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A. Controls and Procedures	63
Item 9B. Other Information	64

PART III

Item 10. Directors and Executive Officers and Corporate Governance	65
Item 11. Executive Compensation	66
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	69
Item 13. Certain Relationship and Related Transactions, and Director Independence	71
Item 14. Principal Accounting Fees and Services	72

PART IV

Item 15. Exhibits, Financial Statement Schedule	73

Signatures	76

EXHIBIT 21.1

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

XBRL Content

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, in particular in our Management’s Discussion and Analysis of Financial Condition and Results of Operations, which relate to our current expectations and views of future events. 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 Doing Business in China” and “Risks Related To an Investment in Our Securities” in this document as well as other relevant risks detailed in our filings with the Securities and Exchange Commission (the “SEC”) which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. The information set forth in this report on Form 10-K should be read in light of such risks.

In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “aim”, “estimate”, “intend”, “plan or planned”, “believe”, “potential”, “continue”, “is/are likely to”, “hope” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

These forward-looking statements include, among other things, statements relating to:

•

our expectations regarding the worldwide demand for electricity and the market for solar energy in certain countries;

•

our beliefs regarding the effects of environmental regulation, lack of infrastructure reliability and long-term fossil fuel supply constraints;

•

our beliefs regarding the inability of traditional fossil fuel-based generation technologies to meet the demand for electricity;

•

our beliefs regarding the importance of environmentally friendly power generation;

•

our expectations regarding research and development agreements and initiatives;

•

our expectations regarding governmental support and incentive programs for the deployment of solar energy;

•

our beliefs regarding the acceleration of adoption of solar technologies;

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our beliefs regarding the competitiveness of photovoltaic (“PV”) products;

•

our expectations regarding the creation and development of our manufacturing capacity;

•

our expected benefits from manufacturing based on China’s favorable policies and cost-effective workforce;

•

our expectations with respect to revenue and sales and our ability to achieve profitability resulting from increases in production volumes;

•

our expectations with respect to our ability to secure raw materials in the future;

•

our future business development, results of operations and financial condition; and

•

competition from other manufacturers of PV products and conventional energy suppliers.

YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING

STATEMENTS

The forward-looking statements made in this report on Form 10-K relate only to events or information as of the date on which the statements are made in this report on Form 10-K. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we expect or hope.

PART I

ITEM 1. BUSINESS

Our Business

Solar EnerTech Corp. was originally incorporated under the laws of the State of Nevada on July 7, 2004. In April 2006, we changed our name to Solar EnerTech Corp. and in August 2008, we reincorporated to the State of Delaware through a merger whereby the predecessor Nevada entity merged with and into a Delaware wholly-owned subsidiary. Solar EnerTech Corp. is a solar product manufacturer with its headquarters based in Mountain View, California, and with low-cost operations located in Shanghai, China. Our principal products are monocrystalline silicon and polycrystalline silicon solar cells and solar modules. Solar cells convert sunlight to electricity through the photovoltaic effect, with multiple solar cells electrically interconnected and packaged into solar modules to form the building blocks for solar power generating systems. We primarily sell solar modules to solar panel installers who incorporate our modules into their power generating systems that are sold to end-customers located in Europe, Australia, North America and China.

We have established our manufacturing base in Shanghai, China to capitalize on the cost advantages offered in manufacturing of solar power products. In our 67,107-square-foot manufacturing facility, we operate two 25 Megawatts (“MW”) solar cell production lines and a 50MW solar module production facility. We believe that the choice of Shanghai, China for our manufacturing base provides us with convenient and timely access to key resources and conditions to support our growth and low-cost manufacturing operations.

Our Industry

Solar power has emerged as one of the most rapidly growing renewable energy sources. Through a process known as the photovoltaic (PV) effect, electricity is generated by solar cells that convert sunlight into electricity. In general, global solar cell production can be categorized by three different types of technologies, namely, monocrystalline silicon, polycrystalline silicon and thin film technologies. Crystalline silicon technology is currently the most commonly used.

Although selling prices for solar power products, including the average selling prices of our products, have generally stabilized at levels substantially below pre-crisis prices resulting from global recession, there is no assurance that such prices may not decline again. In addition, demand for solar power products is significantly affected by government incentives adopted to make solar power competitive with conventional fossil fuel power. The widespread implementation of such incentive policies, as has occurred in many countries in Europe, Asia Pacific and North America, has significantly stimulated demand, whereas reductions or limitations on such policies, as have recently been announced in Germany, Spain and South Korea, can reduce demand for such products. We have taken mitigating efforts to reduce this risk by developing customers in other emerging markets and in our established markets. We are currently expanding our niche market, which are customers who are often underserved by major manufacturers who prefer to sell solar product in large volumes.

We believe the following factors will continue to drive demand in the global solar power industry, in spite of recent downturn due to financial crisis in Europe:

•

environmental and other advantages of solar power;

•

long-term growth in demand for alternative sources of energy;

•

government incentives for solar power; and

•

decreasing costs of producing solar energy.

We believe the following are the key challenges presently facing the solar power industry:

•

higher cost of solar power compared with other sources of energy to consumers;

•

difficulties in obtaining cost-effective financing for solar power projects;

•

continual reliance on government subsidies and incentives;

•

volatility of prices in the polysilicon and solar power product markets; and

•

need to promote awareness and acceptance of solar power usage.

Our Competitive Strengths

We believe that the following strengths enable us to compete successfully in the solar power industry:

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our focus on niche, “emerging markets” and “emerging customers” in existing markets not typically covered by the major solar manufacturers;

•

our ability to provide high-quality products enables us to increase our sales and enhance our brand recognition;

•

our strategic locations provide us with convenient access to key resources and conditions to support our low-cost manufacturing operations; and

•

our modern production equipment enables us to enhance our productivity.

Our Strategy

In order to achieve our goal of becoming a leading supplier of solar power products, we intend to pursue the following principal strategies:

•

continuing to diversify our customer base with a focus on quality, service and competitive pricing, but with a focus on niche, “emerging markets” and “emerging customers” in existing markets not typically covered by the major solar manufacturers;

•

commercialize our new thin film product which we have developed together with AQT Solar, a company in California during the past two years;

•

continuing to enhance our research and development capability with a focus on improving our manufacturing processes to increase overall cell efficiency, reduce our average cost and improve the quality of our products;

•

establishing regional sales and support offices and warehouses in Central Europe and North America to expand our sales and marketing network and enhance our sales and marketing channels; and

•

establishing strategic alliances with medium and small installers, who also serve as distributors, and system integrators and securing silicon raw material supplies at competitive cost.

Our Challenges

We believe that the following are some of the major challenges, risks and uncertainties that may materially affect us:

•

we have a limited amount of cash to fund our operations and we may not be able to secure external financing when needed; and if available, financing may not be obtained on terms favorable to us or our stockholders;

•

we may be adversely affected by volatile market and industry trends, in particular, the demand for our solar power products or the price at which we can charge may decline, which may reduce our sales and earnings;

•

a significant reduction in or discontinuation of government subsidies and economic incentives for installation of solar energy systems may have a material adverse effect on our results of operations;

•

our limited operating history makes it difficult to evaluate our results of operations and prospects;

•

notwithstanding our continuing efforts to further diversify our customer base, we derive, and expect to continue to derive, a significant portion of our sales from a limited number of customers. As a result, the loss of, or a significant reduction in orders from, any of these customers would significantly reduce our sales and harm our results of operations;

•

our failure to successfully execute our business expansion plans would have a material adverse effect on the growth of our sales and earnings;

•

we may not be able to obtain sufficient silicon raw materials in a timely manner, which could have a material adverse effect on our results of operations and financial condition;

•

volatility in the prices of silicon raw materials makes our procurement planning challenging and could have a material adverse effect on our results of operations and financial condition; and

•

fluctuations in exchange rates could adversely affect our results of operations because the currency we generally do business in is the RMB Yuan, our financial statements are expressed in U.S. dollars and a significant portion of our sales and expenses are denominated in foreign currencies.

Principal Products and Services

The essential component in all solar panel applications is the photovoltaic solar cell, which converts the sun’s visible light into electricity. Solar cells are then assembled in modules for specific applications. We manufacture PV solar cells, and we design and produce advanced PV modules for a variety of applications, such as standard panels for solar power stations, roof panels, solar arrays, and modules incorporated directly into exterior walls.

Marketing Strategy

The primary solar market is currently in Europe and Australia, where significant government incentive programs are helping fuel high demand for solar products. Our secondary market is the United States, where the State of California has launched an ambitious One Million Solar Roof incentive program for residences and businesses.

Sales Strategy

We manufacture high-quality and high-conversion-rate solar products with outstanding after-sale services. By keeping costs low, we expect to market our panels, to be trademarked as “SolarE”, at prices generally lower than many of our competitors.

Research and Development

We have established a joint Research and Development (“R&D”) laboratory with Shanghai University to facilitate improvements to our products. The main focus of this research laboratory is to:

•

Develop mass-production process for Copper Indium Gallium Selenide (“CIGS”) thin film technology we jointly developed with AQT Solar;

•

Develop environmentally-friendly high-conversion-rate manufacturing technology for chemical compound film PV cell; materials;

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Research and develop key materials for new low-cost flexible-film PV cells and non-vacuum technology; and

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Research and develop key technologies and fundamental theories for third-generation PV cells.

Our management believes that the joint R&D laboratory will enable us to be at the forefront of PV research and development, and hopes to create a valuable comparative advantage over solar cell producers today, with the goal of enabling us to become an important solar-cell manufacturer.

Competition

The solar energy market is highly competitive. Outside China, our competitors include BP Solar, Kyocera Corporation, Mitsubishi Electric Corporation, Motech Industries Inc., Sharp Corporation, Q-Cells AG, Sanyo Electric Co., Ltd. and Sunpower Corporation. In China, the Company’s primary competitors are Suntech Power Holding’s Co., Ltd., Trina Solar Ltd., Baoding Tianwei Yingli New Energy Resources Co., Ltd. and Nanjing PV-Tech Co., Ltd, Canadian Solar Inc. and Solarfun Power Holdings Co., Ltd.

We compete primarily on the basis of the power efficiency, quality, performance and appearance of our products, price, post-sale service and brand image. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial and marketing resources than us.

Intellectual Property

We are not, at present, the holder of any patents, trademarks or copyrights on our products. We intend to trademark the trade name “SolarE” in Asia, Europe and North America in the future and will, if we are successful in our conduct of research and development activities seek intellectual property protection for such products. Solar cells are in the public domain and our only protection in producing them is in the know-how or experience of our employees and management in producing our products.

The Market

Energy generated from PV cells continues to be researched and the resulting products deployed. PV technology is relatively a simple concept: harness the sun’s energy on a solid-state device and generate electricity. In many markets around the world – especially Japan, Germany, Spain and the U.S. – PV electricity has already become a favored energy choice, and within this established base, the technology of PV’s is poised to help transform the energy landscape within the next decade.

Photovoltaic Industry and the World

The photovoltaic industry has made huge improvements in solar cell efficiencies as well as having achieved significant cost reductions. The global photovoltaic industry is expanding rapidly: In the last few years, most solar production has moved and continues to move to Europe and China. Countries like Germany and Spain have had government-incentive programs that have made solar systems more attractive. In the United States, Energy Policy Act (EPACT) enacted a 30% investment tax credit for solar, and in January 2006, California approved the largest solar program in the country's history that provides for long term subsidies in the form of rebates to encourage use of solar energy where possible. As the current administration in the United States pursues a “Green Economy”, we expect both federal and state incentives to play an important role in boosting the use of solar electricity in the near future.

The price of electricity produced from solar cells is still significantly more expensive than from fossil fuels, such as coal and oil, especially when environmental costs are not considered. The competitiveness of solar-generated electricity in grid-connected applications is largely a function of electricity rates, which are subject to regulations and taxes that vary from country to country across the world.

With the global solar boom in the past five years and with renewable energy laws being implemented as best-practice models often with attractive solar energy delivery compensation rules in many nations, solar companies have been expanding their activities in Europe, the U.S., with growing markets in Africa and Asia, numerous opportunities exist for competitors in the photovoltaic market.

Compared to other energy technologies, solar power’s benefits include:

•

Environmental Superiority. Solar power is one of the most benign electric generation resources. Solar cells and concentrated solar power (“CSP”) systems generate electricity without significant air or water emissions, habitat impact or waste generation;

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Price Stability. Unlike fossil fuels, solar energy has no fuel price volatility or delivery risk. Although there is variability in the amount and timing of sunlight, it is predictable, and a properly configured system can be designed to be highly reliable while providing long-term, fixed price electricity;

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Location Flexibility. Unlike other renewable resources such as hydroelectric or wind power, solar power can be generated where it is needed. This limits the expense and energy losses associated with transmission and distribution of large, centralized power stations;

•

Peak Generation. Solar power is well-suited to match peak energy needs as maximum sunlight hours generally correspond to peak demand periods when electricity prices are at their highest;

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System Modularity. Solar power products can be deployed in many sizes and configurations to meet the specific needs of the user; and

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Reliability. With no moving parts or regular required maintenance, photovoltaic systems are among the most reliable forms of electricity generation.

Environmental Regulations

In our manufacturing process, we will use, generate and discharge toxic, volatile or otherwise hazardous chemicals and wastes in our manufacturing activities. We are subject to a variety of foreign, federal, state and local governmental laws and regulations related to the purchase, storage, use and disposal of hazardous materials. If we fail to comply with present or future environmental laws and regulations, we could be subject to fines, suspension of production or a cessation of operations. In addition, under some foreign, federal, state and local statutes and regulations, a governmental agency may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for the release or otherwise was not at fault.

Management believes that we have all environmental permits necessary to conduct our business and have obtained all necessary environmental permits for our facility in Shanghai. Management also believes that we have properly handled our hazardous materials and wastes and have appropriately remediated any contamination at any of our premises. We are not aware of any pending or threatened environmental investigation, proceeding or action by foreign, federal, state or local agencies, or third parties involving our current facilities. Any failure by us to control the use of or to restrict adequately the discharge of, hazardous substances could subject us to substantial financial liabilities, operational interruptions and adverse publicity, any of which could materially and adversely affect our business, results of operations and financial condition.

Principal Suppliers

We currently purchase silicon wafers, our key raw material, from the spot market. In 2011 and 2010, our five largest suppliers supplied in the aggregate approximately 81.5% and 87.5%, respectively, of our total silicon wafer material purchases by value.

Employees

As of September 30, 2011, we employed approximately 290 people, as follows: our California office currently has 2 employees and the manufacturing plant in Shanghai currently has 288 employees.

ITEM 1A. RISK FACTORS

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our common stock. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. The trading price could decline due to any of these risks, and an investor may lose all or part of an investor’s investment. Some of these factors have affected our financial condition and operating results in the past or are currently affecting our company. Our filings with the SEC also contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face described below. See “Special Note Regarding Forward-Looking Statements.” In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Annual Report on Form 10-K, including our September 30, 2011 consolidated financial statements and related notes.

RISKS RELATED TO OUR BUSINESS AND OUR INDUSTRY

We have a limited amount of cash to fund our operations. If we cannot obtain additional sources of cash, our growth prospects and future profitability may be materially adversely affected and we may not be able to continue as a going concern.

During the fourth quarter of fiscal year 2011, the gross margin was negative 2%, mainly because of the decrease in average selling price of solar modules from $1.91 per watt in the first quarter of 2011 to $1.05 per watt in the fourth quarter of fiscal year 2011, coupled with a decline in sales volume from 8.0 MW in the first quarter of 2011 to 2.2 MW in the fourth quarter of fiscal year 2011 due to a downturn in major European and Australian markets which has left module shipments well in excess of demand. Also, the devaluation of the Euro dollar against RMBnegatively affecting our return, usually 45-60 days after cargo was shipped. The Feed-in Tariff (FIT) policy cancellation caused high inventory and low sales orders, and the lower production volume resulted in a higher fixed cost per unit, driving down margins. We have already secured orders from two major customers amounting to 40 MW in volume and anticipate additional volume from other existing customers. Additionally, in May 2011, to finance projected operating requirements, we successfully entered into agreement of accounts receivable financing with Bank of China (“BOC”). Through the agreement, we believe we can get the financing we need to support our operations. Nonetheless, we may be unable to secure sufficient financing to support our operations, and our liquidity and financial position raises substantial doubt about our ability to continue as a going concern.

On March 19, 2010, we entered into an Exchange Agreement (the “Exchange Agreement”) with Capital Ventures International (“CVI”) whereby we issued a Series B-1 Convertible Note (the “Note”) to CVI with an original principal amount of $1,815,261, which is due on March 19, 2012 and bears interest at 6% per annum. On May 11, 2011, we executed an amendment with CVI (“Amendment”) whereby CVI waives the following Trigger Events: (a) the migration of our listing from the OTCBB to the OTCQB, (b) the failure of us to timely pay the interest payment due on April 1, 2011 and (c) any other Trigger Event that may exist as of the date of this Amendment. According to the Amendment, Section 3(c) of the Exchange Agreement is amended to reduce the conversion price of the Note from $0.15 to $0.10 per common share, subject to further adjustment upon certain specified events as defined in the Exchange Agreement. As of September 30, 2011, the outstanding principal of the Note was $1,540,261, the carrying amount was $1,474,000 and the related interest was $23,294.

Pursuant to a joint research and development laboratory agreement with Shanghai University, there are approximately $3.2 million remaining of research and development commitment to be funded in full by December 15, 2014. If we fail to make pre-approved funding payments, when requested, it is deemed to be a breach of the agreement. If we are unable to correct the breach within the requested time frame, Shanghai University could seek compensation up to an additional 15% of the total committed amount for approximately $0.7 million. As of September 30, 2011, we were not in breach as we had not received from Shanghai University any additional compensation requests for pre-approved funding payments.

On August 21, 2008, we acquired two million shares of common stock of 21-Century Silicon for $1.0 million in cash. We may also be obligated to acquire an additional two million common shares (at $0.50 per share) of 21-Century Silicon upon the first polysilicon shipment meeting the quality specifications determined solely by us. As of September 30, 2011, we had not yet acquired the additional two million shares as the product shipment had not occurred.

The Company conducts a substantial part of its operations under a wholly-owned subsidiary in Shanghai, China named Solar EnerTech (Shanghai) Co., Ltd. The paid-in capital of Solar EnerTech (Shanghai) Co., Ltd as of June 30, 2011 was $32 million, with an outstanding remaining balance of $15.5 million to be funded by the Company. The Board of Directors of the Company has decided not to fund the remaining balance of $15.5 million. On September 11, 2011, Solar EnerTech (Shanghai) Co., Ltd received approval from Shanghai Government to reduce the capital requirement to $32 million.

Our subsidiary in Yizheng Jiangsu Province was formed with a registered capital requirement of $33 million, of which $23.4 million was to be funded by October 16, 2011. In order to fund the registered capital requirement, we will have to raise funds or otherwise obtain the approval of local authorities to extend the payment of registered capital for the subsidiary. On February 8, 2010, we acquired land use rights of a parcel of land at the price of approximately $0.7 million. As part of the right of land use, we are required to complete construction of the facility by February 8, 2012. The Board of Directors of the Company has decided not to continue to fund the investment in the Yizheng Jiangsu Province subsidiary. We received the approval on December 22, 2011 to write-off the registration of the Yizheng Jiangsu Province subsidiary.

As of September 30, 2011, we had a cash and cash equivalents balance of approximately $1.3 million. Operating cash outflows amounted to $3.0 million in the fiscal year ended September 30, 2011, mainly due to payments to our vendors based on contractual terms. There have been no significant changes in the payment terms of our major vendors in the fiscal year ended September 30, 2011 compared to the same period in the prior year. If we are unable to successfully generate enough revenues to cover our costs or secure additional financing, our liquidity and results of operations may be materially and adversely affected and may not continue as a going concern.

If we fail to comply with our covenants on our credit facility, our debt may be accelerated or future drawdown requests may not be honored.

Our credit facility with BOC contains provisions whereby BOC can demand repayment of outstanding debt if we do not comply with any of the covenants, including but not limited to, maintaining our creditworthiness, complying with all our contractual obligations as requested by BOC, fulfillment of other indebtedness (if any), maintaining our business license and continuing operations, ensuring our financial condition does not deteriorate, remaining solvent, and other conditions, as defined in the credit facility agreement. Since certain of the covenants are broadly constructed and subjective in nature, BOC may have the right to demand repayment of any outstanding debt as it may determine in its own discretion.

We may be adversely affected by volatile market and industry trends and, in particular, the demand or pricing for our solar power products may decline, which may reduce our sales and earnings.

We are affected by solar power market and industry trends. Recently, many of our key markets, including Belgium, Germany, and Australia, experienced a period of economic contraction and significantly slower economic growth. In particular, from late 2009 through the end of fiscal year 2011, the credit crisis, weak consumer confidence and diminished consumer and business spending contributed to a significant slowdown in market demand for solar power products. Meanwhile, manufacturing capacity for solar power products increased during the same period. This resulted in prices for solar power products declining significantly. These same trends continue to cause prices for solar power products to decline.

In addition, many of our customers and end-users of our products depend on debt financing to fund the initial capital expenditure required to purchase our products. Due to the global credit crisis, our customers and end-users have experienced difficulty in obtaining financing or have experienced an increase in the cost of financing. This may have affected their decision on whether to purchase our products and/or the timing of their purchases. The global economy has begun recovering since the first half of 2009 and this resulted in an increased availability of financing for solar power projects. Taken in conjunction with decreased average selling prices for solar power products, demand for solar power products has increased since the second half of 2009. However, if demand for solar power products declines again and the supply of solar power products continues to grow, the average selling price of our products will be materially and adversely affected.

Also, demand for solar power products is influenced by available supply and prices for other energy products, such as oil, coal and natural gas, as well as government regulations and policies concerning the electric utility industry. A decrease in oil prices, for example, may reduce demand for investment in alternative energy like solar. If these negative market and industry trends continue and the prices of our solar power products continue to decrease as a result, our business and results of operations may be materially and adversely affected.

A significant reduction in or discontinuation of government subsidies and economic incentives for installation of solar energy systems may have a material adverse effect on our results of operations.

A majority of our products sold are eventually incorporated into solar power systems. We believe that the near-term growth of the market for solar power systems depends substantially on government incentives because the cost of solar power continues to substantially exceed the cost of conventional power in many locations around the world. Various governments have used different policy initiatives to encourage or accelerate the development and adoption of solar power and other renewable energy sources. Countries in Europe, most notably Germany and Spain, certain countries in Asia, including China, Japan and South Korea, as well as Australia and the United States have adopted renewable energy policies. Examples of government-sponsored financial incentives include capital cost rebates, feed-in tariffs, tax credits, net metering and other incentives to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar power in both on-grid and off-grid applications and reduced dependency on other forms of energy. However, political changes in a particular country could result in significant reductions or eliminations of subsidies or economic incentives, and the effects of the recent global financial crisis may affect the fiscal ability of governments to offer certain types of incentives, such as tax credits.

A significant reduction in the scope or discontinuation of government incentive programs, especially those in our target overseas markets, such as Germany, Spain and South Korea could cause demand for our products and our sales to decline, and have a material adverse effect on our business, financial condition, results of operations and prospects. Governments may decide to reduce or eliminate these economic incentives for political, financial or other reasons. Reductions in, or eliminations of government subsidies and economic incentives before the solar power industry reaches a sufficient scale to be cost-effective in a non-subsidized marketplace could reduce demand for our products and adversely affect our business prospects and results of operations. A significant reduction in the scope or discontinuation of government incentive programs, especially those in the target markets of our major customers, could cause demand for our products and our sales to decline and have a material adverse effect on our business, financial condition, results of operations and prospects. We have taken mitigating efforts to reduce this risk by developing customers in other emerging markets and in our established markets. We are currently expanding our niche market, which are customers who are often underserved by major manufacturers who prefer to sell solar product in large volumes. Accordingly, we believe that demand will continue to grow rapidly in the long term as solar power becomes an increasingly important source of renewable energy.

We have a history of losses and cash outflow from operations which may continue if we do not continue to increase our sales and/or further reduce our costs.

While we have been able to increase sales since our inception, we have generated an operating loss in each financial period since inception. After various cost cutting efforts, our operational expenses have been reduced significantly. In order to improve our profitability, we will need to continue to generate new sales while controlling our costs. As we plan on continuing to invest to grow our business, we may not be able to successfully generate sufficient sales to reach profitability. Our ability to achieve profitability also depends on the growth rate of the photovoltaic portion of the market, the continued market acceptance of photovoltaic products, the competitiveness of our products as well as our ability to provide new products and services to meet the demands of our customers. If we fail to reduce the cash consumption from operations and to generate cash from these other sources on a timely basis, or if the cash requirements of our business change as the result of changes in terms from vendors or other causes, we could no longer have the cash resources required to run our business.

Our limited operating history makes it difficult to evaluate our results of operations and prospects.

We have only been operating since 2006 and have limited operating history. Our future success will require us to scale up our production capacity beyond our existing capacity and further expand our customer base. Although we have experienced sales growth in certain periods, we cannot assure you that our sales will increase at previous rates or at all, or that we will be able to operate profitably in future periods. Our limited operating history makes the prediction of future results of operations difficult, and therefore, past sales growth experienced by us should not be taken as indicative of the rate of sales growth, if any, that can be expected in the future. We believe that period to period comparisons of our operating results are not meaningful and that the results for any period should not be relied upon as an indication of future performance. You should consider our business and prospects in light of the risks, uncertainties, expenses and challenges that we will face as an early-stage company seeking to manufacture and sell new products in a volatile and challenging market.

Notwithstanding our continuing efforts to further diversify our customer base, we derive, and expect to continue to derive, a significant portion of our sales from a limited number of customers. As a result, the loss of, or a significant reduction in orders from, any of these customers would significantly reduce our sales and harm our results of operations.

We expect that our results of operations will, for the foreseeable future, continue to depend on the sale of our products to a relatively small number of customers. For the fiscal years ended September 30, 2011 and 2010, sales to three and two customers, respectively, exceeded 10% of our sales and accounted for approximately 73.0% and 66.6% respectively, of our sales. Consequently, any one of the following events may cause material fluctuations or declines in our sales and have a material adverse effect on our results of operations:

reduction, delay or cancellation of orders from one or more significant customers;

loss of one or more significant customers and failure to identify additional or replacement customers;

failure of any significant customers to make; and

timely payment for products.

We cannot assure you that these customers will continue to generate significant sales for us or that we will be able to maintain these customer relationships. We also cannot assure you that we will be successful in diversifying our number of customers, which diversification in itself may create additional financial risk. In addition, our business is affected by competition in the market for products that many of our major customers sell, and any decline in the businesses of our customers could reduce the purchase of our products by these customers. The loss of sales to any of these customers could also have a material adverse effect on our business, prospects and results of operations.

Our failure to successfully execute our business expansion plans would have a material adverse effect on the growth of our sales and earnings.

Our future success depends, to a large extent, on our ability to expand our production capacity, increase vertical integration and continue technological development of cell efficiencies. If we are able to raise sufficient capital, we plan to increase our annual silicon solar cell and module production capacity from 50 MW to approximately 100 MW. If we are unable to do so, we will not be able to attain the production capacity and desired level of economies of scale in our operations or cut the marginal production cost to the level necessary to effectively maintain our pricing and other competitive advantages. The planned expansion requires substantial capital expenditures, significant engineering efforts, timely delivery of manufacturing equipment and dedicated management attention, and is subject to significant risks and uncertainties, including:

in order to finance our production capacity expansion, we will need to raise additional capitalthrough bank borrowings or the issuance of our equity or debt securities, which may not be available on reasonable terms or at all, and which could be dilutive to our existing stockholders;

we will be required to obtain government approvals, permits or documents of similar nature with respect to any acquisitions or new expansion projects, and we cannot assure you that such approvals, permits or documents will be obtained in a timely manner or at all;

we may experience cost overruns, construction delays, equipment problems, including delays in manufacturing equipment deliveries or deliveries of equipment that does not meet our specifications, and other operating difficulties; and

we may not have sufficient management resources to properly oversee capacity expansion as currently planned.

Any of these or similar difficulties could significantly delay or otherwise constrain our ability to undertake our capacity expansion as currently planned, which in turn would limit our ability to increase sales, reduce marginal manufacturing costs or otherwise improve our prospects and profitability.

In addition, we may have limited access to financing to fund working capital requirements, or may have to adjust the terms of our contracts with our suppliers or customers to accommodate their requests, or our suppliers and customers may be unable to perform their obligations under our existing contracts with them. For example, if we are required to prepay for raw materials or to buy equipment for our manufacturing facilities, we will need to maintain sufficient working capital for such payments and we may not be unable to obtain on reasonable terms to finance such payments or at all. The occurrence of any of these events would affect our ability to achieve economies of scale and higher utilization rates, which may in turn hinder our ability to increase vertical integration and expand our production capacity as planned.

Volatility in the prices of raw materials makes our procurement planning challenging and could have a material adverse effect on our results of operations and financial condition.

We procure raw materials primarily through spot market purchases. We expect that the prices of raw materials may become increasingly volatile, making our procurement planning challenging. For example, if we refrain from entering into more fixed-price, long-term supply contracts, we may miss opportunities to secure long-term supplies of raw materials at favorable prices if the price of raw materials increases significantly in the future.

On the other hand, if we enter into more fixed-price, long-term supply contracts, we may not be able to renegotiate or otherwise adjust the purchase prices under such long-term supply contracts if the price declines. If we fail to obtain silicon wafers, our key raw material from the spot market, due to the volatility of raw material prices, we may be unable to manufacture our products. If we are able to manufacture our products, our products may be available at a higher cost or after a long delay in connection with our efforts to obtain silicon wafers. The inability to obtain silicon wafers could prevent us from delivering our products to potential customers and meeting their required quantities and prices that are profitable to us. The failure to obtain materials and components that meet quality, quantity and cost requirements in a timely manner could impair our ability to manufacture products or increase our expected costs, or could cause us to experience order cancellations and loss of market share. In each case, our business, financial condition and results of operations may be materially and adversely affected.

Our dependence on a limited number of suppliers for a substantial majority of raw materials, especially our silicon wafers, could prevent us from delivering our products in a timely manner to our customers in the required quantities, which could result in order cancellations, decreased sales and loss of market share.

In fiscal years 2011 and 2010, our five largest suppliers supplied in the aggregate approximately 81.5% and 87.5%, respectively, of our total silicon wafer material purchases by value. If we fail to develop or maintain our relationships with these or our other suppliers, we may be unable to manufacture our products, our products may only be available at a higher cost or after a long delay, or we could be prevented from delivering our products to our customers in the required quantities, at competitive prices and on acceptable terms of delivery. Problems of this kind could cause us to experience order cancellations, decreased sales and loss of market share. In general, the failure of a supplier to supply silicon wafer materials that meet our quality, quantity and cost requirements in a timely manner due to lack of supplies or other reasons could impair our ability to manufacture our products or could increase our costs, particularly if we are unable to obtain these materials and components from alternative sources in a timely manner or on commercially reasonable terms. Some of our suppliers have a limited operating history and limited financial resources, and the contracts we entered into with these suppliers do not clearly provide for remedies to us in the event any of these suppliers is not able to, or otherwise does not, deliver, in a timely manner or at all, any materials it is contractually obligated to deliver. Any disruption in the supply of silicon wafer materials to us may adversely affect our business, financial condition and results of operations.

We face intense competition in solar power product markets. If we fail to adapt to changing market conditions and to compete successfully with existing or new competitors, our business prospects and results of operations would be materially and adversely affected.

The markets for solar cells and solar modules are intensely competitive. As we build up our solar cell and solar module production capacity and increase the output of our products, we compete with manufacturers of solar cells and solar modules both outside as well as inside China. Outside China, our competitors include BP Solar, Kyocera Corporation, Mitsubishi Electric Corporation, Motech Industries Inc., Sharp Corporation, Q-Cells AG, Sanyo Electric Co., Ltd. and Sunpower Corporation. In China, our primary competitors are Suntech Power Holding’s Co., Ltd., Trina Solar Ltd., Baoding Tianwei Yingli New Energy Resources Co., Ltd., Nanjing PV-Tech Co., Ltd, Canadian Solar Inc., JA Solar Holdings Co. Ltd. and Solarfun Power Holdings Co., Ltd. We compete primarily on the basis of the power efficiency, quality, performance and appearance of our products, price, strength of supply chain and distribution network, after-sales service and brand image. Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial and marketing resources than we do. They may also have existing relationships with suppliers of silicon wafers, which may give them an advantage in the event of a silicon shortage.

Moreover, we expect an increase in the number of competitors entering our markets over the next few years. The key barriers to entry into our industry at present consist of availability of financing and availability of experienced technicians and executives familiar with the industry. If these barriers disappear or become more easily surmountable, new competitors may successfully enter into our industry, resulting in loss of our market share and increased price competition, which could adversely affect our operating and net margins.

We also compete with alternative solar technologies. Some companies have spent significant resources in the research and development of proprietary solar technologies that may eventually produce photovoltaic products at costs similar to, or lower than, those of monocrystalline or polycrystalline wafers without compromising product quality. For example, some companies are developing or currently producing photovoltaic products based on thin film photovoltaic materials, which require significantly less polysilicon to produce than monocrystalline or polycrystalline solar power products. These alternative photovoltaic products may cost less than those based on monocrystalline or polycrystalline technologies while achieving the same level of conversion efficiency, and therefore, may decrease the demand for monocrystalline and polycrystalline wafers, which may adversely affect our business prospects and results of operations.

In addition, the solar power market in general also competes with other sources of renewable energy and conventional power generation. If prices for conventional and other renewable energy sources decline, or if these sources enjoy greater policy support than solar power, the solar power market could suffer and our business and results of operations may be adversely affected.

If solar power technology is not suitable for widespread adoption, or sufficient demand for solar power products do not develop or takes longer to develop than we anticipate, sufficient sales may not develop, which may have an adverse effect on our business and results of operations.

The solar power market is still at a young stage of development and the extent to which solar power products will be widely adopted is uncertain. Market data in the solar power industry is not as readily available as those in other more established industries where trends can be assessed more reliably from data gathered over a longer period of time. If solar power technology proves unsuitable for widespread adoption or if the demand for solar power products fails to develop sufficiently, we may not be able to grow our business or generate sufficient sales to become profitable or sustain profitability. In addition, demand for solar power products in targeted markets, including China, may not develop or may develop to a lesser extent than we anticipate. Many factors may affect the viability of widespread adoption of solar power technology and the demand for solar power products, including:

cost-effectiveness of solar power products compared to conventional and other non-solar energy sources and products;

performance and reliability of solar power products compared to conventional and other non-solar energy sources and products;

availability of government subsidies and incentives to support the development of the solar power industry;

success of other alternative energy generation technologies, such as wind power, hydroelectric power and biofuels;

fluctuations in economic and market conditions that affect the viability of conventional and non- solar alternative energy sources, such as increases or decreases in the prices of oil and other fossil fuels;

capital expenditures by end users of solar power products, which tend to decrease when economy slows down; and

deregulation of the electric power industry and broader energy industry.

If solar power technology proves unsuitable for wide commercial adoption and application or if demand for solar power products fails to develop sufficiently, we may not be able to grow our business or generate sufficient sales to sustain our profitability.

Technological changes in the solar power industry could render our products uncompetitive or obsolete, which could reduce our market share and cause our sales and net income to decline.

The solar power industry is characterized by evolving technologies and standards. These technological evolutions and developments place increasing demands on the improvement of our products, such as solar cells with higher conversion efficiency and larger and thinner silicon wafers and solar cells. Other companies may develop production technologies enabling them to produce silicon wafers that could yield higher conversion efficiencies at a lower cost than our products. Some of our competitors are developing alternative and competing solar technologies that may require significantly less silicon than solar cells and modules, or no silicon at all. Technologies developed or adopted by others may prove more advantageous than ours for commercialization of solar power products and may render our products obsolete. As a result, we may need to invest significant resources in research and development to maintain our market position, keep pace with technological advances in the solar power industry and effectively compete in the future. Our failure to further refine and enhance our products or to keep pace with evolving technologies and industry standards could cause our products to become uncompetitive or obsolete, which could in turn reduce our market share and cause our sales to decrease and net loss to increase.

We face risks associated with the marketing, distribution and sale of PV products internationally, and if we are unable to effectively manage these risks, they could impair our ability to expand our business abroad.

We market PV products outside of China. The marketing, international distribution and sale of PV products exposes us to a number of risks, including:

fluctuations in currency exchange rates;

difficulty in engaging and retaining distributors who are knowledgeable about and, can function effectively in, overseas markets;

difficulty to get paid within the time period allowed for reimbursement of Value-added Tax imposed by the Chinese tax authorities;

difficulty and cost relating to compliance with the different commercial and legal requirements of the overseas markets in which we offer our anticipated products;

inability to obtain, maintain or enforce intellectual property rights; and

trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our anticipated products and make us less competitive in some countries.

A significant portion of our sales and expenses are now denominated in foreign currencies. It has not been our recent practice to engage in the hedging of foreign currency transactions to mitigate foreign currency risk. For example, if the Euro depreciates against the RMB Yuan, the currency we use to purchase most of our raw materials, then our profits may be negatively impacted because a large amount of our sales are in Euros and US dollars. We are attempting to limit the impact of a declining Euro by quoting our prices in U.S. dollars, but this exposes us to the fluctuations between the RMB Yuan and the US dollar. Therefore, fluctuations in the value of foreign currencies have and can continue to have a negative impact on the profitability of our global operations, which would seriously harm our business, results of operations, and financial condition.

We are subject to risks associated with currency fluctuations, and changes in the exchange rates of applicable currencies could impact our results of operations.

Historically, most of our revenues are primarily denominated in Euros and US dollars and greater than the majority of our operating expenses and costs of sales are denominated in the RMB Yuan, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars, changes in the exchange rate between the RMB Yuan and the U.S. dollar and the Euro and the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative to RMB Yuan, a depreciation in the U.S. dollar relative to the RMB Yuan could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.S. dollar were to appreciate relative to the RMB Yuan. Fluctuations in foreign currency exchange rates also impact the reporting of our receivables and payables in non-U.S. currencies. As a result of foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations.

Existing regulations and policies and changes to these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products.

The market for electricity generation products is heavily influenced by government regulations and policies concerning the electric utility industry, as well as policies adopted by electric utilities companies. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation. In a number of countries, these regulations and policies are being modified and may continue to be modified. Customer purchases of, or further investment in the research and development of, alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which could result in a significant reduction in the demand for our products. For example, without a regulatory mandated exception for solar power systems, utility customers are often charged interconnection or standby fees for putting distributed power generation on the electric utility grid. These fees could increase the cost of solar power and make it less desirable, thereby decreasing the demand for our products, harming our business, prospects, results of operations and financial condition.

In addition, we anticipate that solar power products and their installation will be subject to oversight and regulation in accordance with national and local regulations relating to building codes, safety, environmental protection, utility interconnection, and metering and related matters. Any new government regulations or utility policies pertaining to solar power products may result in significant additional expenses to the users of solar power products and, as a result, could eventually cause a significant reduction in demand for our products.

We require a significant amount of cash to fund our operations and business expansion; if we cannot obtain additional capital on terms satisfactory to us when we need it, our growth prospects and future profitability may be materially and adversely affected.

We require a significant amount of cash to fund our operations, including payments to suppliers of our raw materials. We will also need to raise funds for the expansion of our production capacity and other investing activities, as well as our research and development activities in order to remain competitive. Future acquisitions, expansions, market changes or other developments may cause us to require additional funds. Our ability to obtain external financing is subject to a number of uncertainties, including:

our future financial condition, results of operations and cash flows;

the state of global credit markets;

general market conditions for financing activities by companies in our industry; and

economic, political and other conditions in China and elsewhere.

If we are unable to obtain funding in a timely manner or on commercially acceptable terms, or at all, our growth prospects and future profitability may be materially and adversely affected.

Our research and development initiatives may fail to enhance manufacturing efficiency or quality of our products.

We are making efforts to improve our manufacturing processes and improve the conversion efficiency and quality of our products. We plan to focus our research and development efforts on improving each step of our production process, making us an industry leader in technological innovation. In addition, we undertake research and development to enhance the quality of our products. We cannot assure you that such efforts will improve the efficiency of manufacturing processes or yield products with expected quality. In addition, the failure to realize the intended benefits from our research and development initiatives could limit our ability to keep pace with rapid technological changes, which in turn would hurt our business and prospects.

Failure to achieve satisfactory production volumes of our products could result in a decline in sales.

The production of solar cells and solar modules involves complex processes. Deviations in the manufacturing process can cause a substantial decrease in output and, in some cases, disrupt production significantly or result in no output. We have from time to time experienced lower-than-anticipated manufacturing output during the ramp-up of production lines. This often occurs during the introduction of new products, the installation of new equipment or the implementation of new process technologies. As we bring additional lines or facilities into production, we may operate at less than intended capacity during the ramp-up period. This would result in higher marginal production costs and lower than expected output, which could have a material adverse effect on our results of operations.

Because a majority of our products are sold with warranties extending for 25 years, problems with product quality or product performance may cause us to incur warranty expenses. If these expenses are significant, they could have a material adverse affect on our business and results of operations.

Our standard solar modules are typically sold with a two-year warranty for defects in materials and workmanship and a ten-year and twenty-five-year warranty against declines of more than 10.0% and 20.0%, respectively, of the initial minimum power generation capacity at the time of delivery. Due to the long warranty period, we bear the risk of extensive warranty claims long after we have shipped the product and recognized the sale. Because our products are new to the market, we are not able to evaluate their performance for the entire warranty period before we offer them for sale. If our products fail to perform as expected and we experience a significant increase in warranty claims, we may incur significant repair and replacement costs associated with such claims. In addition, product defects could cause significant damage to our market reputation and reduce our product sales and market share, and our failure to maintain the consistency and quality throughout our production process could result in substandard quality or performance of our products. If we deliver our products with defects, or if there is a perception that our products are of substandard quality, we may incur substantially increased costs associated with returns or replacements of our products, our credibility and market reputation could be harmed and our sales and market share may be adversely affected.

Our operations are subject to natural disasters, adverse weather conditions, operating hazards and labor disputes.

We may experience earthquakes, floods, snowstorms, typhoon, power outages, labor disputes or similar events beyond our control that would affect our operations. Our manufacturing processes involve the use of hazardous equipment, and we also use, store and generate volatile and otherwise dangerous chemicals and wastes during our manufacturing processes, which are potentially destructive and dangerous if not properly handled or in the event of uncontrollable or catastrophic circumstances, including operating hazards, fires and explosions, natural disasters, adverse weather conditions and major equipment failures, for which we cannot obtain insurance at a reasonable cost or at all.

Our CEO and a significant stockholder collectively hold a controlling interest in us, they have significant influence over our management and their interests may not be aligned with our interests or the interests of our other stockholders.

As of September 30, 2011, our director, president and chief executive officer, Leo Shi Young, beneficially owns 15,284,286 shares of our common stock, or approximately 8%, of our common stock. As of September 30, 2010, The Quercus Trust, which nominated David Anthony to our Board of Directors, beneficially owns 125,734,189 shares of our common stock, or approximately 56%, of our common stock. Therefore, our CEO and the Quercus Trust have substantial control over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors, dividend policy and other significant corporate actions. They may take actions that are not in the best interest of our company or our securities holders. For example, this concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common stock. On the other hand, if our chief executive officer and the Quercus Trust are in favor of any of these actions, these actions may be taken even if they are opposed by our other stockholders, including you and those who invest in our common stock.

We have limited insurance coverage and may incur losses resulting from product liability claims, business interruption or natural disasters.

We are exposed to risks associated with product liability claims in the event that the use of our products results in property damage or personal injury. Since our products are ultimately incorporated into electricity generating systems, it is possible that users could be injured or killed by devices that use our products, whether as a result of product malfunctions, defects, improper installations or other causes. Due to our limited operating history, we are unable to predict whether product liability claims will be brought against us in the future or to predict the impact of any resulting adverse publicity on our business. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments. We carry limited product liability insurance and may not have adequate resources to satisfy a judgment in the event of a successful claim against us. In addition, we do not carry any business interruption insurance. As the insurance industry in China is still in its early stage of development, even if we decide to take out business interruption coverage, such insurance available in China offers limited coverage compared with that offered in many other countries. Any business interruption or natural disaster could result in substantial losses and diversion of our resources and materially and adversely affect our business, financial condition and results of operations.

Our lack of sufficient patent protection in and outside of China may undermine our competitive position and subject us to intellectual property disputes with third parties, both of which may have a material adverse effect on our business, results of operations and financial condition.

We have developed various production process related know-how and technologies in the production of our products. Such know-how and technologies play a critical role in our quality assurance and cost reduction. In addition, we have implemented a number of research and development programs with a view to developing techniques and processes that will improve production efficiency and product quality. Our intellectual property and proprietary rights arising out of these research and development programs will be crucial in maintaining our competitive edge in the solar power industry. However, we have not sought to protect our intellectual property and proprietary knowledge by applying for patents for them. We use contractual arrangements with employees and trade secret protections to protect our intellectual property and proprietary rights. Nevertheless, contractual arrangements afford only limited protection and the actions we may take to protect our intellectual property and proprietary rights may not be adequate.

In addition, others may obtain knowledge of our know-how and technologies through independent development. Our failure to protect our production process, related know-how and technologies and/or our intellectual property and proprietary rights may undermine our competitive position. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property and proprietary rights. Policing unauthorized use of proprietary technology can be difficult and expensive. Litigation, which can be costly and divert management attention and other resources away from our business, may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of our proprietary rights. We cannot assure you that the outcome of such potential litigation will be in our favor. An adverse determination in any such litigation will impair our intellectual property and proprietary rights and may harm our business, prospects and reputation.

We may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to us, could cause us to pay significant damage awards.

Our success also depends largely on our ability to use and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity and scope of claims relating to photovoltaic technology patents involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. We may be subject to litigation involving claims of patent infringement or violation of intellectual property rights of third parties. The defense and prosecution of intellectual property suits and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, to pay ongoing royalties, or to redesign our anticipated products or subject us to injunctions prohibiting the manufacture and sale of our anticipated products or the use of our technologies. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our anticipated products until resolution of such litigation.

Our business depends substantially on the continuing efforts of our president and chief executive officer and key technical personnel, as well as our ability to maintain a skilled labor force. Our business may be materially and adversely affected if we lose their services.

Our future success depends to a significant extent on Leo Shi Young, our president and chief executive officer. We do not maintain key man life insurance on our executive officers. If Mr. Young becomes unable or unwilling to continue in his present position, we may not be able to replace him readily. In that case our business could be severely disrupted, and we may incur substantial expenses to recruit and retain new officers. Furthermore, recruiting and retaining capable personnel, particularly experienced engineers and technicians familiar with our products and manufacturing processes, is vital to maintain the quality of our products and improve our production methods. There is substantial competition for qualified technical personnel, and we cannot assure you that we will be able to attract or retain qualified technical personnel. If we are unable to attract and retain qualified employees, key technical personnel and our executive officers, our business may be materially and adversely affected.

Compliance with environmental, safe production and construction regulations can be costly, while non-compliance with such regulations may result in adverse publicity and potentially significant monetary damages, fines and suspension of our business operations.

We use, store and generate volatile and otherwise dangerous chemicals and wastes during our manufacturing processes, and are subject to a variety of government regulations related to the use, storage and disposal of such hazardous chemicals and waste. We are required to comply with all People’s Republic of China (“PRC”), national and local environmental protection regulations. Under such regulations, we are prohibited from commencing commercial operations of our manufacturing facilities until we have obtained the relevant approvals from PRC environmental protection authorities. In addition, the PRC government may issue more stringent environmental protection, safe production and construction regulations in the future and the costs of compliance with new regulations could be substantial. If we fail to comply with the future environmental, safe production and construction laws and regulations, we may be required to pay fines, suspend construction or production, or cease operations. Moreover, any failure by us to control the use of, or to adequately restrict the discharge of, dangerous substances could subject us to potentially significant monetary damages and fines or the suspension of our business operations.

RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our anticipated products and materially and adversely affect our competitive position.

All of our business operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

the amount of government involvement;

the level of development;

the growth rate;

the control of foreign exchange; and

the allocation of resources.

While the Chinese economy has grown significantly in the past 20 years, the growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources, some of which benefit us and some of which may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has reduced state ownership of productive assets, a substantial portion of the productive assets in China is still owned by the PRC government. The continued control of these assets and other aspects of the national economy by the PRC government could materially and adversely affect our business. The PRC government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Efforts by the PRC government to slow the pace of growth of the Chinese economy could result in decreased capital expenditure by solar energy users, which in turn could reduce demand for our anticipated products.

Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of renewable energy investments and expenditures in China, which in turn could lead to a reduction in the demand for our anticipated products and consequently have a material adverse effect on our businesses.

Uncertainties with respect to the Chinese legal system could have a material adverse effect on us.

We conduct substantially all of our business through a subsidiary in China. This subsidiary is generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us or our management.

We conduct a substantial portion of our operations in China and the majority of our assets are located in China. In addition, all of our executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or in China against us or upon our executive officers, including with respect to matters arising under United States federal securities laws or applicable state securities laws. Moreover, there is uncertainty that the courts of China would enforce judgments of United States courts against us or our directors and officers based on the civil liability provisions of the securities laws of the United States or any state, or entertain an original action brought in China based upon the securities laws of the United States or any state.

Restrictions on currency exchange may limit our ability to receive and use our sales effectively.

Foreign exchange transactions by our Shanghai subsidiary under the capital account continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities, including the State Administration of Foreign Exchange (SAFE). We will need to fund our Shanghai subsidiary by means of capital contributions. We cannot assure you that we will be able to obtain government approvals on a timely basis, if at all, with respect to future capital contributions by the U.S. Company to our Shanghai subsidiary. If we fail to receive such approvals, our ability to use the proceeds we have received from our fund raising to capitalize our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

RISKS RELATED TO AN INVESTMENT IN OUR SECURITIES

Our stock price is volatile. There is no guarantee that our shares will appreciate in value or that our shareholders will be able to sell their shares at a price that is greater than the price they paid for them.

The trading price of our common stock has been and continues to be subject to fluctuations. The stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, the operating and stock performance of other companies that investors may deem comparable and news reports relating to trends in the marketplace, among other factors. Significant volatility in the market price of our common stock may arise due to factors such as:

our developing business;

a continued negative cash flow;

relatively low price per share;

relatively low public float;

variations in quarterly operating results;

general trends in the industries in which we do business;

the number of holders of our common stock; and

the interest of securities dealers in maintaining a market for our common stock.

We cannot guarantee that the shares our shareholders purchase will appreciate in value or that our shareholders will be able to sell the shares at a price equal to or greater than what they paid for them.

If we do not file our quarterly or annual reports with the SEC, we may be de-listed from the OTCQB.

OTCQB is the middle tier of the OTC market. OTCQB companies report to the SEC or a U.S. banking regulator, making it easy for investors to identify companies that are current in their reporting obligations. There are no financial or qualitative standards to be in this tier. OTCQB securities may also be quoted on the FINRA BB. The OTCQB allows investors to easily identify reporting companies traded in the OTC market regardless of where they are quoted.

Under OTCQB rules relating to the timely filing of periodic reports with the SEC, if we fail to file a periodic report (Forms 10-Q or 10-K) by the due date of such report, may be removed from the OTCQB and our common stock may only be able to be traded on the OTC Pink. The OTC Pink is the bottom tier of the OTC market – a speculative trading marketplace that helps broker-dealers get the best prices for investors. Accordingly, our securities may become worthless and we may be forced to curtail or abandon our business plan.

We are subject to the penny stock rules and these rules may adversely affect trading in our common stock.

Our common stock is a “low-priced” security under rules promulgated under the Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.

Trading of our common stock is limited.

Trading of our common stock is on the Over-the-Counter Quotation Board, or “OTCQB” This has adversely effected the liquidity of our securities, not only in terms of the number of securities that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts' and the media's coverage of us. This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and asked prices for our common stock.

We have raised substantial amounts of capital in private placements and if we inadvertently failed to comply with the applicable securities laws, ensuing rescission rights or lawsuits would severely damage our financial position.

Some securities offered in our private placements were not registered under the Securities Act of 1933, as amended, or any state “blue sky” law in reliance upon exemptions from such registration requirements. Such exemptions are highly technical in nature and if we inadvertently failed to comply with the requirements or any of such exemptions, investors would have the right to rescind their purchase of our securities or sue for damages. If one or more investors were to successfully seek such rescission or prevail in any such suit, we would face severe financial demands that could materially and adversely affect our financial position. Financings that may be available to us under current market conditions frequently involve sales at prices below the prices at which our common stock currently is reported on the OTC Bulletin Board, as well as the issuance of warrants or convertible securities at a discount to market price.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

All of our properties are leased and we do not own any real property.

We lease a 45,601 square foot manufacturing and research facility in Shanghai’s Jinqiao Modern Science and Technology Park. The lease expires on February 19, 2014. The termination clause in the agreement requires a notice of three months. Monthly costs are $24,000. We added 21,506 square feet to our existing facility with monthly rent of $12,000. The lease expires in August 2012.

We also have an operating lease for 3,365 square foot of office space in Shanghai. The monthly rent for this space is $11,000. The lease expires on December 31, 2012 and can be renewed with a three-month advance notice.

On February 8, 2010, we acquired land use rights for a parcel of land at the price of approximately $0.7 million. This piece of land is 68,025 square meters and is located in Yizheng, Jiangsu Province of China, and it was to be used to house our second manufacturing facility. As part of the right of land use, we are required to complete construction of the facility by February 8, 2012. The Board of Directors of the Company has decided not to continue to fund the investment in the Yizheng Jiangsu Province subsidiary. We received the approval on December 22, 2011 to write-off the registration of the Yizheng Jiangsu Province subsidiary.

Finally, we lease 678 square feet of office space on a month-to-month basis in Mountain View, in Northern California’s Silicon Valley, to handle our United States operations.

We consider these facilities adequate to meet our current needs.

ITEM 3. LEGAL PROCEEDINGS

We are involved in various claims and actions arising in the ordinary course of business. In the opinion of management, based on consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on us. We believe appropriate accruals have been made for the disposition of these matters. We establish an accrual for a liability when it is both probable that the liability has been incurred and the amount of the loss can be reasonably estimated. These accruals are reviewed quarterly and adjusted to reflect the impact of negotiations, settlements and payments, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Legal expenses related to defense, negotiations, settlements, rulings, and advice of outside legal counsel are expensed as incurred. As of the date of this report, we have no involvement with any claims.

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On May 11, 2011, we migrated our listing from Over-The-Counter Bulletin Board (“OTCBB”) to Over-The-Counter Quote Board (“OTCQB”), which is operated by OTC Markets Group Inc. under the symbol “SOEN”. The following table shows, for the periods indicated, the high and low closing prices of common stock.

	Year Ended September 30,				Year Ended September 30,
	2011				2010
	High		Low		High		Low

First Quarter	$	0.12	$	0.07	$	0.30	$	0.24
Second Quarter	$	0.14	$	0.09	$	0.32	$	0.19
Third Quarter	$	0.13	$	0.06	$	0.21	$	0.12
Fourth Quarter	$	0.08	$	0.03	$	0.17	$	0.11

As of November 30, 2011, there were 59 stockholders of record of the common stock (which does not include the number of persons or entities holding stock in nominee or street name through various brokerage firms).

Dividends

We have neither declared nor paid any cash dividends on our capital stock and do not anticipate paying cash dividends in the foreseeable future. Our current policy is to retain any earnings in order to finance the expansion of our operations. Our Board of Directors will determine future declaration and payment of dividends, if any, in light of the then-current conditions they deem relevant and in accordance with applicable corporate law.

Authorized Shares

On May 5, 2008, the Company’s stockholders approved an increase of the Company’s authorized capital stock from 200 million common shares with a par value of $0.001 to 400 million common shares with a par value of $0.001. The increase in the Company’s authorized capital was affected in conjunction with the Company’s reincorporation into the State of Delaware.

Amended and Restated 2007 Equity Incentive Plan

On September 24, 2007, our Board of Directors approved the adoption of the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the issuance of a maximum of 10 million shares of common stock in connection with awards under the 2007 Plan. Such awards may include stock options, restricted stock purchase rights, restricted stock bonuses and restricted stock unit awards. The 2007 Plan may be administered by the Company’s Board of Directors or a committee duly appointed by the Board of Directors and has a term of 10 years. Participation in the 2007 Plan is limited to employees, directors and consultants of the Company and its subsidiaries and other affiliates. Options granted under the 2007 Plan must have an exercise price per share not less than the fair market value of the Company’s common stock on the date of grant. Options granted under the 2007 Plan may not have a term exceeding 10 years. Awards will vest upon conditions established by the Board of Directors or it’s duly appointed Committee. Subject to the requirements and limitations of section 409A of the Internal Revenue Code of 1986, as amended, in the event of a Change in Control (as defined in the 2007 Plan), the Board of Directors may provide for the acceleration of the exercisability or vesting and/settlement of any award, the Board of Directors may provide for a cash-out of awards or the Acquirer (as defined in the 2007 Plan) may either assume or continue the Company’s rights and obligations under any awards.

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

As of September 30, 2011, the Board of Directors has granted options to purchase 5,190,000 shares of our common stock to our employees, director and consultants pursuant to the Amended 2007 Plan.

2008 Restricted Stock Plan

On August 19, 2008, Mr. Leo Young, our Chief Executive Officer, entered into a Stock Option Cancellation and Share Contribution Agreement with Jean Blanchard, a former officer, to provide for (i) the cancellation of a stock option agreement by and between Mr. Young and Ms. Blanchard dated on or about March 1, 2006 and (ii) the contribution to the Company by Ms. Blanchard of the remaining 25,250,000 shares of common stock underlying the cancelled Option Agreement.

On the same day, an Independent Committee of the Company’s Board adopted the 2008 Restricted Stock Plan (the “2008 Plan”) providing for the issuance of 25,250,000 shares of restricted common stock to be granted to the Company’s employees pursuant to forms of restricted stock agreements.

The 2008 Plan provides for the issuance of a maximum of 25,250,000 shares of restricted stock in connection with awards under the 2008 Plan. The 2008 Plan is administered by the Company’s Compensation Committee, a subcommittee of our Board of Directors, and has a term of 10 years. Participation is limited to employees, directors and consultants of the Company and its subsidiaries and other affiliates. During any period in which shares acquired pursuant to the 2008 Plan remain subject to vesting conditions, the participant shall have all of the rights of a stockholder of the Company holding shares of stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. If a participant terminates his or her service for any reason (other than death or disability), or the participant’s service is terminated by the Company for cause, then the participant shall forfeit to the Company any shares acquired by the participant which remain subject to vesting Conditions as of the date of the participant’s termination of service. If a participant’s service is terminated by the Company without cause, or due to the death or disability of the participant, then the vesting of any restricted stock award shall be accelerated in full as of the effective date of the participant’s termination of service.

On July 2, 2011, the Company issued 8,600,000 shares of restricted common stock to the Company’s employees pursuant to the Company’s 2008 Restricted Stock Plan, with such awards to be evidenced by and subject to the terms and conditions of the form of restricted stock agreement previously adopted by the Company, except that the vesting of such restricted stock awards shall be over three years, with one-third of such shares vested upon the one year anniversary of the date of grant, and the balance to vest in equal monthly installments thereafter. The issuance of the shares of restricted stock was not registered under the Securities Act in reliance on the exemption from registration provided under Regulation S, as promulgated under the Securities Act. Shares of restricted stock were issued only to non-U.S. persons in offshore transactions who met the conditions under Regulation S.

Out of the 8,600,000 shares of restricted common stock issued, the Company issued 1,000,000 shares of restricted common stock to Yihong Yao, the Company’s Chief Financial Officer, pursuant to the Company’s 2008 Restricted Stock Plan, with such awards to be evidenced by and subject to the terms and conditions of the form of restricted stock agreement previously adopted by the Company, except that the vesting of such restricted stock awards shall be over three years, with one-third of such shares vested upon the one year anniversary of the date of grant, and the balance to vest in equal monthly installments thereafter.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)			Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c)
Equity compensation plans approved by security holders		5,190,000	(1)	$	0.18		9,810,000
Equity compensation plans not approved by security holders		—		$	—		—

(1) Represents options to purchase common stock issued pursuant to the terms of 2007 Plan, as amended and restated.

a — Our common stock is currently quoted by the Over-The-Counter Quote Board under the symbol “SOEN”.

b — We have approximately 59 record holders on November 30, 2011.

c — No cash dividend has been declared.

Rules Governing Low-Price Stocks that May Affect Our Stockholders’ Ability to Resell Shares of Our Common Stock

Our stock trades under the symbol “SOEN” on OTC Markets Group Inc’s OTCQB.

Quotations on the OTCQB reflect inter-dealer prices, without retail mark-up, markdown or commission and may not reflect actual transactions. Our common stock may be subject to certain rules adopted by the SEC that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks generally are securities with a price of less than $5.00, other than securities registered on certain national exchanges or quoted on the NASDAQ system, provided that the exchange or system provides current price and volume information with respect to transaction in such securities. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market.

The penny stock rules require broker-dealers, prior to a transaction in a penny stock not otherwise exempt from the rules, to make a special suitability determination for the purchaser to receive the purchaser’s written consent to the transaction prior to sale, to deliver standardized risk disclosure documents prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.

Recent Sales of Unregistered Securities

On October 1, 2011, we issued 784,304 shares of our common stock as accrued interest to the holder of our Series B-1 convertible note. These shares were exempt from any registration requirement under the Securities Act pursuant to Section 3(a)(9) of the Securities Act and Rule 144 promulgated under the Securities Act.

In October, 2011, 800,000 shares of our restricted stock were cancelled due to employees’ resignation.

ITEM 6. SELECTED FINANCIAL DATA

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 6.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. 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 involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those stated herein. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in Item 1A, “Risks Related to Our Business,” “Risks Related to Doing Business in China” and “Risks Related to an Investment in Our Securities” as well as in Item 1, “Business” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. You should carefully review these risks and also review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q that we will file. You are cautioned not to place undue reliance on these forward-looking statements, and we expressly assume no obligations to update the forward-looking statements in this report that occur after the date hereof.

Company Description and Overview

Solar EnerTech Corp. is a solar product manufacturer with its headquarters based in Mountain View, California, and with low-cost operations located in Shanghai, China. Our principal products are monocrystalline silicon and polycrystalline silicon solar cells and solar modules. Solar cells convert sunlight to electricity through the photovoltaic effect, with multiple solar cells electrically interconnected and packaged into solar modules to form the building blocks for solar power generating systems. We primarily sell solar modules to solar panel installers who incorporate our modules into their power generating systems that are sold to end-customers located in Europe, Australia, North America and China.

We have established our manufacturing base in Shanghai, China to capitalize on the cost advantages offered in manufacturing of solar power products. In our 67,107-square-foot manufacturing facility we operate two 25 MW solar cell production lines and a 50 MW solar module production facility. We believe that the choice of Shanghai, China for our manufacturing base provides us with convenient and timely access to key resources and conditions to support our growth and low-cost manufacturing operations.

Our solar cells and modules are sold under the brand name “SolarE”. Our total sales for the fiscal year ended September 30, 2011 was $42.7 million and our end users are mainly in Europe and Australia. In anticipation of entering the US market, we have established a headquarter office which also serves as marketing, purchasing and distribution office in Mountain View, California. Our goal is to become a worldwide supplier of PV cells and modules.

We purchase our key raw materials, silicon wafers, from the spot market. We do not have a long term contract with any silicon supplier.

We have been able to increase sales since our inception in 2006. Although our efforts to reach profitability have been adversely affected by the global recession, the credit market contraction and a volatile polysilicon market, during fiscal year 2010 and the first quarter of fiscal year 2011 we had significantly improved our gross margin as a result of declines in raw materials costs and the efficiencies gained from greater capacity utilization at our facilities. However, during the fiscal year 2011, the gross margin was negative 2%, mainly because of the decrease in average selling price of solar modules and decline in sales volume.

In December 2006, we entered into a joint venture with Shanghai University to operate a research facility to study various aspects of advanced PV technology. Our joint venture with Shanghai University is for shared investment in research and development on fundamental and applied technologies 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. 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:

develop mass-production process for CIGS thin film technology which we jointly developed with AQT Solar;

develop efficient and ultra-efficient PV cells with light/electricity conversion rates ranging from 20% to 35%;

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

research and develop key materials for new low-cost flexible-film PV cells and non-vacuum technology; and

research and develop key technologies and fundamental theories for third-generation PV cells.

On January 7, 2010 (the “Conversion Date”), we entered into a Series A and Series B Notes Conversion Agreement (the “Conversion Agreement”) with the holders of Notes representing at least seventy-five percent of the aggregate principal amounts outstanding under the Notes to restructure the terms of the Notes. On January 7, 2010, as part of the Conversion Agreement, approximately $9.8 million of convertible notes outstanding were successfully converted into shares of our common stock. On January 19, 2010, a holder of approximately $1.8 million of our formerly outstanding Series B Notes and Series B Warrants disputed the effectiveness of the Conversion Agreement and the Warrant Amendment. Accordingly, such holder did not tender its Series B Notes for conversion. After negotiations with such holder, on March 19, 2010, we entered into an Exchange Agreement with the holder Capital Ventures International (“CVI”) (“Exchange Agreement”), whereby we issued the Series B-1 Note with a principal amount of $1.8 million (the “Series B-1 Note”) due on March 19, 2012 and an interest at 6% per annum, which extended the original maturity date by 24 months, in exchange for the Series B Notes.

On May 11, 2011, we executed an amendment with CVI (“Amendment”) whereby CVI waives the following Trigger Events: (a) the migration of our listing from the OTCBB to the OTCQB, (b) the failure of us to timely pay the interest payment due on April 1, 2011 and (c) any other Trigger Event that may exist as of the date of this Amendment. According to the Amendment, Section 3(c) of the Exchange Agreement was amended to reduce the conversion price of the Note from $0.15 to $0.10 per common shares, subject to further adjustment upon certain specified events as defined in the Exchange Agreement. As of September 30, 2011, the outstanding principal of the Note was $1,540,261, the carrying amount was $1,474,000 and the related interest was $23,294.

On May 5, 2011, we entered into a credit facility arrangement with BOC, in which we can draw up to the cumulative amount of accounts receivable outstanding from our key customer. If we are unable to successfully generate enough revenues to cover our costs or secure additional financing, our liquidity and results of operations may be materially and adversely affected. As of September 30, 2011, we had short term loans outstanding of approximately $0.3 million. Other than as discussed in this report, we know of no trends, events or uncertainties that are reasonably likely to impact our future liquidity.

On July 6, 2011, our Board of Directors approved the appointment of Child, Van Wagoner & Bradshaw, PLLC as our new auditor replacing Ernst & Young Hua Ming (“E&Y China”). The resignation of E&Y China on May 17, 2011 was not related to any disagreements with our management on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of E&Y China would have caused it to make reference thereto in any reports on our financial statements for the past two fiscal years.

Environmental, Health and Safety Regulations

Solar Energy Industry

We believe that economic and national security issues, technological advances, environmental regulations seeking to limit emissions by fossil fuel, air pollution regulations restricting the release of greenhouse gasses, aging electricity transmission infrastructure and depletion and limited supply of fossil fuels, has made reliance on traditional sources of fuel for generating electricity less attractive. Government policies, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. For example, in the U.S., the Energy Policy Act (EPACT) enacted a 30% investment tax credit for solar, and in January 2006, California approved the largest solar program in the country's history that provides for long term subsidies in the form of rebates to encourage use of solar energy where possible.

Government Subsidies and Incentives

Various subsidies and tax incentive programs exist at the federal and state level to encourage the adoption of solar power including capital cost rebates, performance-based incentives, feed-in tariffs, tax credits and net metering. Capital cost rebates provide funds to customers based on the cost or size of a customer's solar power system. Performance-based incentives provide funding to a customer based on the energy produced by their solar system. Under a feed-in tariff subsidy, the government sets prices that regulated utilities are required to pay for renewable electricity generated by end-users. The prices are set above market rates and may be differentiated based on system size or application. Feed-in tariffs pay customers for solar power system generation based on kilowatt-hours produced, at a rate generally guaranteed for a period of time. Tax credits reduce a customer's taxes at the time the taxes are due. Under net metering programs, a customer can generate more energy than used, during which periods the electricity meter will spin backwards. During these periods, the customer "lends" electricity to the grid, retrieving an equal amount of power at a later time. Net time metering programs enable end-users to sell excess solar electricity to their local utility in exchange for a credit against their utility bills. Net metering programs are usually combined with rebates, and do not provide cash payments if delivered solar electricity exceeds their utility bills. In addition, several states have adopted renewable portfolio standards, which mandate that a certain portion of electricity delivered to customers come from a set of eligible renewable energy resources. Under a renewable portfolio standard, the government requires regulated utilities to supply a portion of their total electricity in the form of renewable electricity. Some programs further specify that a portion of the renewable energy quota must be from solar electricity.

Despite the benefits of solar power, there are also certain risks and challenges faced by solar power. Solar power is heavily dependent on government subsidies to promote acceptance by mass markets. We believe that the near-term growth in the solar energy industry depends significantly on the availability and size of these government subsidies and on the ability of the industry to reduce the cost of generating solar electricity. The market for solar energy products is, and will continue to be, heavily dependent on public policies that support growth of solar energy. There can be no assurances that such policies will continue. Decrease in the level of rebates, incentives or other governmental support for solar energy would have an adverse affect on our ability to sell our products.

Results of Operations

Comparison of the Fiscal Years Ended September 30, 2011 and 2010

Revenues, Cost of Sales and Gross Margin

	Year Ended September 30, 2011						Year Ended September 30, 2010						Year-Over-Year Change
	Amount			% of net sales			Amount			% of net sales			Amount			% of change
Sales	$	42,694,000			100.0	%	$	70,029,000			100.0	%	$	(27,335,000	)		(39.0	)%
Cost of sales		(43,720,000	)		(102.4	)%		(64,820,000	)		(92.6	)%		21,100,000			(32.6	)%
Gross loss	$	(1,026,000	)		(2.4	)%	$	5,209,000			7.4	%	$	(6,235,000	)		(119.7	)%

For the fiscal year ended September 30, 2011, the Company reported total revenue of $42.7 million, representing a decrease of $27.3 million or 39.0% compared to $70.0 million of revenue in the same period of fiscal year 2010. For the year ended September 30, 2011, we recorded $42.7 million in revenue which comprised of $42.0 million in solar module sales and $0.7 million in solar cell sales compared to $70.0 million of revenue in the same period of the prior year which comprised of $62.3 million in solar module sales, $5.1 million in solar cell sales and $2.6 million in resale of raw materials. The decrease in revenue resulted from a decrease in solar module shipments from 34.9 MW in fiscal year 2010 to 24.3 MW in fiscal year 2011 and a 6% decrease in average selling prices for solar modules from $1.8 per watt in fiscal year 2010 to $1.7 per watt in fiscal year 2011. In addition, the decline in sales was mainly due to a downturn in major European and Australian markets which has left module supply well in excess of demand.

For the fiscal year ended September 30, 2011, we incurred a negative gross margin of $1.0 million compared to a positive gross margin of $5.2 million in fiscal year 2010. The decrease in gross profit margin was primarily due to a decrease in average selling price for solar modules, lower production volume for the fiscal year ended September 30, 2011 (resulting in higher fixed production cost per unit), and lower sales volume which caused the total margin to decrease.

Selling, general and administrative

	Year Ended September 30, 2011					Year Ended September 30, 2010					Year-Over-Year Change
	Amount		% of net sales			Amount		% of net sales			Amount			% of change
Selling, general and administrative	$	6,813,000		16.0	%	$	9,565,000		13.7	%	$	(2,752,000	)		(28.8	)%

For the fiscal year ended September 30, 2011, we incurred selling, general and administrative expense of $6.8 million, representing a decrease of $2.8 million or 28.8% from $9.6 million in the same period of fiscal year 2010. Selling, general and administrative expense as a percentage of net sales for the fiscal year ended September 30, 2011 increased to 16.0% from 13.7% for fiscal year 2010. The decrease in the selling, general and administrative expenses was primarily due to decreases in shipping and handling costs of $2.2 million resulted from lower revenue in fiscal year 2011 and a decrease of $0.5 million in stock-based compensation expenses related to employee options and restricted stock from $2.8 million for the fiscal year ended September 30, 2010 to $2.3 million for the fiscal year ended September 30, 2011.

Research and development

	Year Ended September 30, 2011					Year Ended September 30, 2010					Year-Over-Year Change
	Amount		% of net sales			Amount		% of net sales			Amount		% of change
Research and development	$	361,000		0.8	%	$	347,000		0.5	%	$	14,000		4.0	%

Research and development expenses in the fiscal years ended September 30, 2011 and 2010 were $0.4 million and $0.3 million, respectively. Research and development expenses as a percentage of net sales for the fiscal year ended September 30, 2011 increased to 0.8% from 0.5% for the fiscal year ended September 30, 2010 due to lower revenue for the fiscal year ended September 30, 2011 compared to revenue for the fiscal year ended September 30, 2010.

In accordance with our joint research and development laboratory agreement with Shanghai University, dated December 15, 2006 (amended on November 12, 2010) expiring on December 15, 2016, we committed to fund the establishment of laboratories and completion of research and development activities at no less than RMB 30 million ($4.5 million) cumulatively within eight years (extended from five years). The funding requirements are based on specific milestones agreed upon by Shanghai University and us. Shanghai University needs to obtain pre-approval from us before incurring expenditures on the program. We paid $13,000 in funding to Shanghai University during the year ended September 30, 2011. As of September 30, 2011, there are approximately $3.2 million remaining to be funded in full by December 15, 2014.

Loss on debt extinguishment

	Year Ended September 30, 2011					Year Ended September 30, 2010					Year-Over-Year Change
	Amount		% of net sales			Amount		% of net sales			Amount			% of change
Loss (gain) on debt extinguishment	$	-		0.1	%	$	18,540,000		26.5	%	$	(18,540,000	)		(100.0	)%

We had no cumulative loss on debt extinguishment for the fiscal year ended September 30, 2011.

For the fiscal year ended September 30, 2010, we incurred a loss on debt extinguishment of $18.5 million as a result of the Conversion Agreement and the Exchange Agreement dated January 7, 2010.

Reversal of payroll related tax accrual

	Year Ended September 30, 2011						Year Ended September 30, 2010					Year-Over-Year Change
	Amount			% of net sales			Amount		% of net sales			Amount			% of change
Reversal of payroll related tax accrual	$	(5,817,000	)		(13.6	)%	$	-		0.0	%	$	(5,817,000	)		0.0	%

The reversal of payroll related tax accrual was $5.8 million and $0 million during the fiscal years ended September 30, 2011 and 2010, respectively. The $5.8 million reversal of payroll related tax accrual in the fiscal year ended September 30, 2011 represented $4.8 million of compensation expense related to our obligation to withhold tax upon exercise of stock options by Mr. Young in the fiscal year 2006 and the related interest and penalties, and $1.0 million of indemnification provided by us to Mr. Young for any liabilities he may incur as a result of previous stock options granted to him by Ms. Blanchard, a former officer, in conjunction with the purchase of Infotech on August 19, 2008.

Both our obligation to withhold tax upon the exercise of stock options by Mr. Young and the indemnification have a three year statute of limitation. The statute of limitation expired as of December 31, 2010. As a result, we have released the $5.8 million in the fiscal year ended September 30, 2011.

Other income (expense)

	Year Ended September 30, 2011						Year Ended September 30, 2010						Year-Over-Year Change
	Amount			% of net sales			Amount			% of net sales			Amount			% of change
Interest income	$	5,000			0.0	%	$	7,000			0.0	%	$	(2,000	)		(28.6	)%
Interest expense		(304,000	)		(0.7	)%		(5,446,000	)		(7.8	)%		5,142,000			(94.4	)%
Gain on change in fair market value of compound embedded derivative		393,000			0.9	%		1,235,000			1.8	%		(842,000	)		(68.2	)%
Gain on change in fair market value of warrant liability		902,000			2.1	%		4,511,000			6.4	%		(3,609,000	)		(80.0	)%
Impairment loss on investment		-			0.0	%		(1,000,000	)		(1.4	)%		1,000,000			(100.0	)%
Other expense		(302,000	)		(0.7	)%		(1,078,000	)		(1.5	)%		776,000			(72.0	)%
Total other income (expense)	$	694,000			1.6	%	$	(1,771,000	)		(2.5	)%	$	2,465,000			(139.2	)%

For the fiscal year ended September 30, 2011, total other income was $0.7 million, representing an increase of $2.5 million, or 139.2%, compared to total other expense of $1.8 million for the same period of the prior year. Other income as a percentage of sales for the fiscal year ended September 30, 2011 was 1.6% compared to other expense as a percentage of sales of 2.5% for the same period in the prior year. In the fiscal year ended September 30, 2011, we recorded a gain on change in fair market value of compound embedded derivative of $0.4 million and a gain on change in fair market value of warrant liability of $0.9 million compared to a gain on change in fair market value of compound embedded derivative of $1.2 million and a gain on change in fair market value of warrant liability of $4.5 million during the fiscal year ended September 30, 2010. The lower conversion price of the compound embedded derivative and warrant in the fiscal year ended September 30, 2011 compared to that in the fiscal year ended September 30, 2010, resulted in greater decreases in the fair value of the compound embedded derivative and warrant liability and higher gains on change in fair market value of the compound embedded derivative and warrant liability. We incurred interest expenses of $0.3 million and $5.4 million in the fiscal years ended September 30, 2011 and 2010, respectively, primarily related to the amortization of the discount on the convertible notes and deferred financing cost, and 6% interest charges on Series A and Series B notes, which was converted to our common stock on January 7, 2010 and 6% interest charges on Series B-1 Convertible Notes. Other expense of $0.3 million for the fiscal year ended September 30, 2011 and other expense of $1.1 million for the fiscal year ended September 30, 2010 were primarily related to foreign exchange gain (loss).

The $1.0 million in impairment loss on investment for fiscal year ended September 30, 2010 was related to the write-down of our investment in 21-Century Silicon, which we consider unrecoverable. No write-down of investment was recorded for the fiscal year ended September 30, 2011.

Liquidity and Capital Resources

	Year Ended September 30,
	2011		2010		Change

Cash and cash equivalents	$	1,324,000	$	6,578,000	$	(5,254,000	)

	Year Ended September 30,
	2011			2010			Change

Net cash provided by (used in):
Operating activities	$	(2,979,000	)	$	4,277,000		$	(7,256,000	)
Investing activities		(1,728,000	)		(770,000	)		(958,000	)
Financing activities		(1,040,000	)		1,312,000			(2,352,000	)
Effect of exchange rate changes on cash and cash equivalents		493,000			40,000			453,000
Net increase (decrease) in cash and cash equivalents	$	(5,254,000	)	$	4,859,000		$	(10,113,000	)

As of September 30, 2011 and 2010, we had cash and cash equivalents of $1.3 million and $6.6 million, respectively. We will require a significant amount of cash to fund our operations. Changes in our operating plans, an increase in our inventory, increased expenses, or other events, may cause us to seek additional equity or debt financing in the future. In order to continue as a going concern, we will need to continue to generate new sales while controlling our costs. If we are unable to successfully generate enough sales to cover our costs, our liquidity and results of operations may be materially and adversely affected and we may not continue as a going concern.

Our liquidity is impacted to a large extent based on both the nature of the products we sell and also the geographical location of our customers, as our payment terms on sale vary greatly depending on both factors. With respect to the products we sell, while in the past we have engaged in transactions where we have resold our raw materials due to our overstock of materials relative to our then limited production capacity, as our production capacity has increased over the years, our sales now consist primarily of solar modules to solar panel installers in Europe and Australia who incorporate our modules into their power generating systems that are sold to end-customers. Payment terms for the sale of our modules are generally longer than payment terms where we resell our raw materials in China and as a result, our payment terms have lengthened relative to prior years. In addition, with respect to the geographic location of our customers, the payment terms for the sale of our solar modules are generally longer for our customers in the United States than for our customers in Europe and Australia. While our current sales to customers in the United States are limited, if we are able to increase our sales in the U.S. market or in other markets that may have longer payment terms, our payment terms may lengthen. Payment terms for our solar module sales generally range from 0 to 60 days. In some cases, these terms are extended up to 200 days for certain qualifying customers of whom we applied rigorous credit requirements. If we have more sales of products or in geographies with longer payment terms, the longer payment terms will impact the timing of our cash flows.

Net cash used in operating activities was $3.0 million for the fiscal year ended September 30, 2011, representing an increase of $7.3 million, compared to net cash provided by operating activities of $4.3 million for the fiscal year ended September 30, 2010. Cash flow from operating activities reflected a net loss of $1.6 million adjusted for non-cash items, including depreciation of property and equipment, stock-based compensation, reversal of payroll related tax accruals, gain on debt extinguishment, amortization of note discount and deferred financing cost, the change in the fair market value of the compound derivative liabilities and warrants liabilities, and payment of interest by issuance of shares. The increase of $7.3 million in net cash used in operating activities from the fiscal year ended September 30, 2010 to the fiscal year ended September 30, 2011 was mainly attributable to more cash out flow for purchase of raw materials in the fiscal year ended September 30, 2011 compared to the same period in 2010. The payment terms granted by our major vendors ranged from 0 to 60 days. There were no material changes in the payment terms granted by our major vendors in the fiscal year ended September 30, 2011 compared to the same period in the prior year. The net loss excluding non-cash expenses for the fiscal year ended September 30, 2011 decreased compared to the same period in 2010, coupled with lower balances in accounts payable as of September 30, 2011 compared to September 30, 2010.

Net cash used in investing activities were $1.7 million and $0.8 million in fiscal years 2011 and 2010, respectively. The increase of $1.0 million in net cash used in investing activities was primarily due to higher property and equipment acquisitions during fiscal year 2011 compared to the fiscal year 2010.

Net cash used in and provided by financing activities were $1.0 million in fiscal year 2011 and $1.3 million in fiscal year 2010, respectively because of draw downs from our credit facility with Industrial Bank Co., Ltd (“IBC”) and Bank of China (“BOC”).

Our consolidated balance sheet, statements of operations and cash flows have been prepared on the assumption that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

On March 25, 2010, we entered into a one year contract with China Export & Credit Insurance Corporation (“CECIC”) to insure the collectability of outstanding accounts receivable of our key customers. We pay a fee based on a fixed percentage of the accounts receivable outstanding and expense this fee when it is incurred. In addition, on March 30, 2010, we entered into a one year revolving credit facility arrangement with IBC that is secured by the accounts receivable balances of our key customers insured by CECIC above. On March 25, 2011, we renewed our contract with CECIC for another one year to insure the collectability of outstanding accounts receivable of one of our customers for up to $3.5 million. On May 5, 2011, we terminated the credit facility arrangement with IBC and on the same day, we entered into a revolving credit facility arrangement with Bank of China (“BOC”), which is also secured by the accounts receivable balances of our key customers insured by CECIC above. If the insured customer fails to repay the amounts outstanding due to us, the insurance proceeds will be remitted directly to BOC instead of us. The interest rate of the credit facility is variable and ranged from 3.78% to 5.30% during the fiscal year ended September 30, 2011. The amount drawn down as of September 30, 2011 was $273,000 and there have been no insurance claims submitted to CECIC. We paid the short term loan of $273,000 to BOC on October 9, 2011.The credit facility contains certain non-financial ratios related covenants, including maintaining creditworthiness, complying with all contractual obligations as requested by BOC, fulfillment of other indebtedness (if any), maintaining its business license and continuing operations, ensuring its financial condition does not deteriorate, remaining solvent, and other conditions, as defined in the credit facility agreement. We complied with these covenants as September 30, 2011. If we fail to comply with our covenants on our credit facility, our debt may be accelerated or future drawdown requests may not be honored.

As of September 30, 2011, we had cash and cash equivalents balance of approximately $1.3 million. If we experience a material shortfall versus our operating plans, we have a range of actions we can take to remediate the cash shortage, including but not limited to raising additional funds through debt financing, securing a credit facility, entering into secured or unsecured bank loans, or undertaking equity offerings such as a rights offering to existing shareholders. However, due to the conditions of capital and credit markets, we cannot be sure that external financing will be available when needed or that, if available, financing will be obtained on terms favorable to us or our stockholders. If we are unable to successfully generate enough revenues to cover our costs or secure additional financing, our liquidity and results of operations may be materially and adversely affected.

Off-Balance Sheet Arrangements

Future minimum payments under all non-cancelable lease obligations and payments under our agreement with Shanghai University are as follows as of September 30, 2011:

			Payments Due by Period
	Total		Less than 1 year		1 to 3 years		4 to 5 year		More than 5 years

Operating lease	$	1,073,000	$	627,000	$	446,000	$	-	$	-
Research and development commitment		3,240,000		-		3,240,000		-		-

Total contractual obligations	$	4,313,000	$	548,000	$	3,686,000	$	-	$	-

Pursuant to a joint research and development laboratory agreement with Shanghai University, dated December 15, 2006 and expiring on December 15, 2016, we are committed to funding the establishment of laboratories and completion of research and development activities. On November 12, 2010, we amended the agreement with Shanghai University and extended the commitment from five years to eight years, and consequently the agreement will end on December 15, 2014. Based on the amendment, we committed to fund no less than RMB 30 million ($4.5 million) cumulatively across the eight years. The funding requirements are based on specific milestones agreed upon by Shanghai University and us. As of September 30, 2011, there are approximately $3.2 million remaining to be funded in full by December 15, 2014.

We intend to increase research and development spending as we grow our business. The payment to Shanghai University was to be used to fund program expenses and equipment purchase. Shanghai University needs to obtain the pre-approval from us before incurring expenditures on the program. If we fail to make pre-approved funding payments, when requested, we will be deemed to be in breach of the agreement. If we are unable to correct the breach within the requested time frame, Shanghai University could seek compensation up to an additional 15% of the total committed amount for approximately $0.7 million. As of September 30, 2011, we are not in breach as we have not received any additional compensation requests for pre-approved funding payment from Shanghai University.

On August 21, 2008, we entered into an equity purchase agreement in which we acquired two million shares of common stock of 21-Century Silicon for $1.0 million in cash. However, 21-Century Silicon’s production facilities and technical development were significantly below expected standards and was in a working capital deficit. Therefore, we considered the above findings as indicators that a significant adverse effect on the fair value of our investment in 21-Century Silicon had occurred. Accordingly, an impairment loss of $1.0 million was recorded to fully write-down the carrying amount of the investment as of September 30, 2010. See “Note 3 — Summary of Significant Accounting Policies – Investments” in the Notes to Consolidated Financial Statements of this Form 10-K.

On September 22, 2008, the registered capital of Solar EnerTech (Shanghai) Co., Ltd was increased from $25 million to $47.5 million, which was approved by our Board of Directors and authorized by Shanghai Municipal Government (the “Shanghai Government”). The paid-in capital as of September 30, 2011 was $32 million. The Board of Directors of the Company has decided not to fund the remaining balance of $15.5 million. On September 11, 2011, Solar EnerTech (Shanghai) Co., Ltd received approval from Shanghai Government to reduce the capital requirement to $32 million.

On January 15, 2010, we incorporated a wholly-owned subsidiary in Yizheng, Jiangsu Province of China to supplement our existing production facilities to meet increased sales demands. The subsidiary was formed with a registered capital requirement of $33 million, of which $23.4 million was to be funded by October 16, 2011. The Board of Directors of the Company has decided not to continue to fund the investment in the Yizheng Jiangsu Province subsidiary. We received the approval on December 22, 2011 to write-off the registration of the Yizheng Jiangsu Province subsidiary.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified the following accounting policies, described below, as the most important to an understanding of our current financial condition and results of operations.

Inventories

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

Impairment of Long Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When such factors and circumstances exist, management compares the projected undiscounted future cash flows associated with the future use and disposal of the related asset or group of assets to their respective carrying values. Impairment, if any, is measured as the excess of the carrying value over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. No loss on property and equipment impairment was recorded during fiscal years ended September 30, 2011 and 2010.

Investment

Investment in an entity where we own less than twenty percent of the voting stock of the entity and do not exercise significant influence over operating and financial policies of the entity are accounted for using the cost method. Investment in the entity where we own twenty percent or more, but not in excess of fifty percent of the voting stock of the entity or less than twenty percent and exercises significant influence over operating and financial policies of the entity are accounted for using the equity method. We have a policy in place to review our investments at least annually and to evaluate the carrying value of the investments in these companies. The cost method investment is subject to impairment assessment if there are identified events or changes in circumstance that may have a significant adverse effect on the fair value of the investment. If we believe that the carrying value of an investment is in excess of estimated fair value, it is our policy to record an impairment charge to adjust the carrying value to the estimated fair value, if the impairment is considered other-than-temporary.

On August 21, 2008, we entered into an equity purchase agreement in which we acquired two million shares of common stock of 21-Century Silicon for $1.0 million in cash. See “Note 3 – Summary of Significant Accounting Policies – Investments” in the Notes to Consolidated Financial Statements of this Form 10-K.

Warranty Cost

We provide product warranties and accrue for estimated future warranty costs in the period in which revenue is recognized. Our standard solar modules are typically sold with a two-year warranty for defects in materials and workmanship and a ten-year and twenty five-year warranty against declines of more than 10.0% and 20.0%, respectively, of the initial minimum power generation capacity at the time of delivery. We therefore maintain warranty reserves to cover potential liabilities that could arise from our warranty obligations and accrue the estimated costs of warranties based primarily on management’s best estimate. In estimating warranty costs, we applied 460 – Guarantees, specifically paragraphs, 460-10-25-5 to 460-10-25-7 of the FASB Accounting Standards Codification. This guidance requires that we make a reasonable estimate of the amount of a warranty obligation. It also provides that in the case of an entity that has no experience of its own, reference to the experience of other entities in the same business may be appropriate. Because we began to commercialize our products in fiscal year 2007, there is insufficient experience and historical data that can be used to reasonably estimate the expected failure rate of our solar modules. Thus, we consider warranty cost provisions of other China-based manufacturers that produce photovoltaic products that are comparable in engineering design, raw material input and functionality to our products, and sold to a similar target and class of customer with similar warranty coverage. In determining whether such peer information can be used, we also consider the years of experience that these manufacturers have in the industry. Because our industry is relatively young as compared to other traditional manufacturing industries, the selected peer companies that we consider have less than ten years in manufacturing and selling history. In addition, they have a manufacturing base in China, offer photovoltaic products with comparable engineering design, raw material input, functionality and similar warranty coverage, and sell in markets, including the geographic areas and class of customer, where we compete. Based on the analysis applied, we accrue warranty at 1% of sales. We have not experienced any material warranty claims to date in connection with declines of the power generation capacity of our solar modules and will prospectively revise the actual rate to the extent that actual warranty costs differ from the estimates.

Income Taxes

We account for income taxes under the liability method per the provisions of FASB ASC 740, “Income Taxes”, formerly referenced as SFAS No. 109, “Accounting for Income Taxes”.

Under the provisions of FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between their financial statement carrying values and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation Allowance

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

Unrecognized Tax Benefits

Effective on October 1, 2007, we adopted the provisions related to uncertain tax positions under FASB ASC 740, “Income Taxes”, formerly referenced as FIN 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109”. Under FASB ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority based solely on the technical merits of the associated tax position. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. We also elected the accounting policy that requires interest and penalties to be recognized as a component of tax expense. We classify the unrecognized tax benefits that are expected to result in payment or receipt of cash within one year as current liabilities, otherwise, the unrecognized tax benefits will be classified as non-current liabilities.

Fair Value of Warrants

Our management used the binomial valuation model to value the warrants issued in conjunction with convertible notes entered into in March 2007. The model uses inputs such as implied term, suboptimal exercise factor, volatility, dividend yield and risk free interest rate. Selection of these inputs involves management’s judgment and may impact estimated value. Management selected the binomial model to value these warrants as opposed to the Black-Scholes-Merton model primarily because management believes the binomial model produces a more reliable value for these instruments because it uses an additional valuation input factor, the suboptimal exercise factor, which accounts for expected holder exercise behavior which management believes is a reasonable assumption with respect to the holders of these warrants.

Stock-Based Compensation

On January 1, 2006, Solar EnerTech began recording compensation expense associated with stock options and other forms of employee equity compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation”.

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

Expected Term — Our expected term represents the period that our stock-based awards are expected to be outstanding.

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

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

Risk-Free Interest Rate— We base the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Estimated Forfeitures— When estimating forfeitures, we take into consideration the historical option forfeitures over the expected term.

Revenue Recognition

We recognize revenues from product sales in accordance with guidance in FASB ASC 605, “Revenue Recognition”, which states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectability is reasonably assured. Where a revenue transaction does not meet any of these criteria it is deferred and recognized once all such criteria have been met. In instances where final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met.

On a transaction by transaction basis, the Company determines if the revenue should be recorded on a gross or net basis based on criteria discussed in the Revenue Recognition topic of the FASB Subtopic 605-405, “Reporting Revenue Gross as a Principal versus Net as an Agent”. The Company considers the following factors to determine the gross versus net presentation: if the Company (i) acts as principal in the transaction; (ii) takes title to the products; (iii) has risks and rewards of ownership, such as the risk of loss for collection, delivery or return; and (iv) acts as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are carried at net realizable value. We record our allowance for doubtful accounts based upon its assessment of various factors. We consider historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect customers’ ability to pay.

Recent Accounting Pronouncements

For recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated condensed financial statements, see “Note 3 – Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements included in this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15 (a) for an index to the Consolidated Financial Statements and Supplementary Financial Information, which are attached hereto and incorporated by reference herein.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Solar EnerTech Corp.

We have audited the accompanying consolidated balance sheet of Solar EnerTech Corp. (the Company) as of September 30, 2011, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive loss, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Solar EnerTech Corp. as of September 30, 2011, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit and has suffered recurring losses from operations. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Child, Van Wagoner & Bradshaw, PLLC

Salt Lake City, Utah

December 27, 2011

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Solar EnerTech Corp.

We have audited the accompanying consolidated balance sheets of Solar Enertech Corp. (the "Company") as of September 30, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended September 30, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Solar Enertech Corp. at September 30, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the two years in the period ended September 30, 2010, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, the Company's recurring losses from operations raise substantial doubt about its ability to continue as a going concern. Management's plans as to these matters also are described in Note 2. The fiscal 2010 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Ernst & Young Hua Ming

Shanghai, Peoples Republic of China

December 17, 2010

Solar EnerTech Corp.

Consolidated Balance Sheets

	September 30,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	1,324,000		$	6,578,000
Accounts receivable, net of allowance for doubtful accounts of
$454,000 and $42,000 at September 30, 2011 and September 30, 2010, respectively		7,715,000			6,546,000
Advance payments and other		703,000			1,274,000
Inventories, net		2,189,000			4,083,000
VAT receivable		535,000			870,000
Other receivable		807,000			690,000
Total current assets		13,273,000			20,041,000
Property and equipment, net		8,523,000			8,874,000
Other assets		-			735,000
Deposits		81,000			102,000
Total assets	$	21,877,000		$	29,752,000

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable	$	7,035,000		$	7,895,000
Customer advance payment		1,599,000			2,032,000
Accrued expenses		2,023,000			2,596,000
Accounts payable and accrued liabilities, related parties		-			5,817,000
Short-term loans		273,000			1,312,000
Convertible notes, net of discount		1,474,000			-
Derivative liabilities		3,000			-
Total current liabilities		12,407,000			19,652,000
Convertible notes, net of discount		-			1,531,000
Derivative liabilities		-			422,000
Warrant liabilities		-			902,000
Total liabilities		12,407,000			22,507,000

STOCKHOLDERS' EQUITY:
Common stock - 400,000,000 shares authorized at $0.001 par value, 181,495,962
and 170,338,954 shares issued and outstanding at September 30, 2011 and
September 30, 2010, respectively		181,000			170,000
Additional paid in capital		100,422,000			97,656,000
Accumulated other comprehensive income		3,893,000			2,755,000
Accumulated deficit		(95,026,000	)		(93,336,000	)
Total stockholders' equity		9,470,000			7,245,000
Total liabilities and stockholders' equity	$	21,877,000		$	29,752,000

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

Solar EnerTech Corp.

Consolidated Statements of Operations

	Year Ended September 30,
	2011			2010


Sales	$	42,694,000		$	70,029,000
Cost of sales		(43,720,000	)		(64,820,000	)
Gross profit (loss)		(1,026,000	)		5,209,000

Operating expenses:
Selling, general and administrative		6,813,000			9,565,000
Research and development		361,000			347,000
Loss on debt extinguishment		-			18,540,000
Reversal of payroll related tax accrual		(5,817,000	)		-
Total operating expenses		1,357,000			28,452,000

Operating loss		(2,383,000	)		(23,243,000	)

Other income (expense):
Interest income		5,000			7,000
Interest expense		(304,000	)		(5,446,000	)
Gain on change in fair market value of compound embedded derivative		393,000			1,235,000
Gain on change in fair market value of warrant liability		902,000			4,511,000
Impairment loss on investment		-			(1,000,000	)
Other expense		(302,000	)		(1,078,000	)
Loss before income tax expense		(1,689,000	)		(25,014,000	)
Income tax expense		(1,000	)		-
Net loss	$	(1,690,000	)	$	(25,014,000	)


Net loss per share - basic		(0.01	)	$	(0.18	)
Net loss per share - diluted	$	(0.01	)	$	(0.18	)

Weighted average shares outstanding - basic		162,633,557			135,557,265
Weighted average shares outstanding - diluted		162,633,557			135,557,265

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

Solar EnerTech Corp.

Consolidated Statements of Stockholders’ Equity

	Common Stock						Additional Paid-		Accumulated Other Comprehensive		Accumulated			Total Stockholders'			Total Comprehensive
	Number			Amount			In Capital		Income		Deficit			Equity			Loss

Balance at September 30, 2009		111,406,696		$	111,000		$	75,389,000	$	2,456,000	$	(68,322,000	)	$	9,634,000		$	(65,866,000	)
Stock-based compensation		-			-			2,705,000		-		-			2,705,000			-
Issuance of common stock to Board of Director and non-employees		800,000			1,000			211,000		-		-			212,000			-
Issuance of stock for warrants		450,878			-			157,000		-		-			157,000			-
Issuance of stock for convertible notes		67,681,380			68,000			19,184,000		-		-			19,252,000			-
Cancellation of unvested restricted stock		(10,000,000	)		(10,000	)		10,000		-		-			-			-
Currency translation adjustment		-			-			-		299,000		-			299,000			299,000
Net loss for the year ended September 30, 2010		-			-			-		-		(25,014,000	)		(25,014,000	)		(25,014,000	)
Balance at September 30, 2010		170,338,954		$	170,000		$	97,656,000	$	2,755,000	$	(93,336,000	)	$	7,245,000		$	(90,581,000	)
Stock-based compensation		-			-			2,442,000		-		-			2,442,000			-
Issuance of stock for convertible notes		2,812,008			2,000			324,000		-		-			326,000			-
Restricted Shares Granted		8,600,000			9,000										9,000			-
Cancellation of unvested restricted stock		(255,000	)		-			-		-		-			-			-
Currency translation adjustment		-			-			-		1,138,000		-			1,138,000			1,138,000
Net loss for the year ended September 30, 2011		-			-			-		-		(1,690,000	)		(1,690,000	)		(1,690,000	)
Balance at September 30, 2011		181,495,962		$	181,000		$	100,422,000	$	3,893,000	$	(95,026,000	)	$	9,470,000		$	(91,133,000	)

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

Solar EnerTech Corp.

Consolidated Statements of Cash Flows

	Year Ended September 30,
	2011			2010
Cash flows from operating activities:
Net loss	$	(1,690,000	)	$	(25,014,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment		2,553,000			2,408,000
Loss (gain) on disposal of property and equipment		(5,000	)		51,000
Stock-based compensation		2,442,000			2,916,000
Accounts payable and accrued liabilities, related parties		(5,817,000	)		171,000
Amortization of other assets		768,000			11,000
Loss on debt extinguishment		-			18,540,000
Impairment loss on investment		-			1,000,000
Payment of interest by issuance of shares		126,000			237,000
Amortization of note discount and deferred financing cost		126,000			5,177,000
Gain on change in fair market value of compound embedded derivative		(393,000	)		(1,235,000	)
Gain on change in fair market value of warrant liability		(902,000	)		(4,511,000	)
Changes in operating assets and liabilities:
Accounts receivable, net		(760,000	)		1,057,000
Advance payments and other		634,000			(54,000	)
Inventories, net		2,104,000			2,000
VAT receivable		371,000			(523,000	)
Other receivable		(98,000	)		(263,000	)
Accounts payable, accrued liabilities and customer advance payment		(2,438,000	)		4,320,000
Deposits		-			(13,000	)
Net cash provided by (used in) operating activities		(2,979,000	)		4,277,000

Cash flows from investing activities:
Acquisition of property and equipment		(1,766,000	)		(779,000	)
Proceeds from sales of property and equipment		38,000			9,000
Net cash used in investing activities		(1,728,000	)		(770,000	)

Cash flows from financing activities:
Borrowing under short-term loans		5,317,000			2,842,000
Short-term loans repayment		(6,357,000	)		(1,530,000	)
Net cash provided by (used in) financing activities		(1,040,000	)		1,312,000

Effect of exchange rate on cash and cash equivalents		493,000			40,000
Net increase (decrease) in cash and cash equivalents		(5,254,000	)		4,859,000
Cash and cash equivalents, beginning of period		6,578,000			1,719,000
Cash and cash equivalents, end of period	$	1,324,000		$	6,578,000

Cash paid:
Interest	$	78,000		$	7,000
Supplemental disclosure of non-cash activities:
Extinguishment of convertible notes by issuance of common stock	$	(200,000	)	$	(5,779,000	)
Extinguishment of convertible notes by issuance of Series B-1 Note		-			(1,815,000	)
Issuance of Series B-1 Note		-			1,535,000
Acquisition of other assets		-			746,000

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

SOLAR ENERTECH CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

NOTE 1 — ORGANIZATION AND NATURE OF OPERATIONS

Solar EnerTech Corp. was originally incorporated under the laws of the State of Nevada on July 7, 2004 as Safer Residence Corporation and was reincorporated to the State of Delaware on August 13, 2008 (“Solar EnerTech” or the “Company”). The Company engaged in a variety of businesses until March 2006, when the Company began its current operations as a photovoltaic (“PV”) solar energy cell (“PV Cell”) manufacturer. The Company’s management decided that, to facilitate a change in business that was focused on the PV Cell industry, it was appropriate to change the Company’s name. A plan of merger between Safer Residence Corporation and Solar EnerTech Corp., a wholly-owned inactive subsidiary of Safer Residence Corporation, was approved on March 27, 2006, under which the Company was to be renamed “Solar EnerTech Corp.” On April 7, 2006, the Company changed its name to Solar EnerTech Corp. On August 13, 2008, the Company reincorporated to the State of Delaware.

The Company conducts a substantial part of its operations under a wholly-owned subsidiary in Shanghai, China named Solar EnerTech (Shanghai) Co., Ltd.

On April 27, 2009, the Company entered into a Joint Venture Agreement with Jiangsu Shunda Semiconductor Development Co., Ltd. to form a joint venture in the United States by forming a new company, to be known as Shunda-SolarE Technologies, Inc., in order to jointly pursue opportunities in the United States solar market. The Agreement was valid for 18 months and expired on October 27, 2010. After its formation, the joint venture company’s name was later changed to SET-Solar Corp. Since the agreement expired on October 27, 2010, SET-Solar Corp. became an independent company and transactions with SET-Solar Corp after that date are not considered as related party transactions.

On January 15, 2010, the Company incorporated a wholly-owned subsidiary in Yizheng, Jiangsu Province of China to supplement its existing production facilities to meet increased sales demands. On February 8, 2010, the Company acquired land use rights of a 68,025 square meter parcel of land located in Yizheng, Jiangsu Province of China, which was to be used to house the Company’s second manufacturing facility. The Board of Directors of the Company has decided not to continue to fund the investment in the Yizheng Jiangsu Province subsidiary. The Company received the approval on December 22, 2011 to write-off the registration of the Yizheng Jiangsu Province subsidiary.

NOTE 2 — GOING CONCERN

The Company has incurred significant net losses during each period from inception through September 30, 2011 and has an accumulated deficit of approximately $95.0 million at September 30, 2011. The conditions described raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements have been prepared on the assumption that it will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.

While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.

During 2011, the Company intends to raise financing for the purpose of funding operating expenses and working capital. In addition, the Company engaged in various cost cutting programs and renegotiated most of the contacts to reduce operating expenses. However, there can be no assurance that the raising of future equity will be successful and that the Company’s anticipated financing will be available in the future, at terms satisfactory to the Company. Failure to achieve the equity and financing at satisfactory terms and amounts could have a material adverse effect on the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Accounting

Prior to August 19, 2008, the Company operated its business in the People’s Republic of China through Solar EnerTech (HK) Corporation, Limited (“Solar EnerTech HK”) and Solar EnerTech (Shanghai) Co., Ltd (“Infotech Shanghai” and together with Solar EnerTech HK, “Infotech”). While the Company did not own Infotech, the Company’s financial statements have included the results of the financials of each of Solar EnerTech HK and Infotech Shanghai since these entities were wholly-controlled variable interest entities of the Company through an Agency Agreement dated April 10, 2006 by and between the Company and Infotech (the “Agency Agreement”). Under the Agency Agreement the Company engaged Infotech to undertake all activities necessary to build a solar technology business in China, including the acquisition of manufacturing facilities and equipment, employees and inventory. The Agency Agreement continued through April 10, 2008 and then on a month to month basis thereafter until terminated by either party.

To permanently consolidate Infotech with the Company through legal ownership, the Company acquired Infotech at a nominal amount on August 19, 2008 through a series of agreements. In connection with executing these agreements, the Company terminated the original agency relationship with Infotech.

The Company had previously consolidated the financial statements of Infotech with its financial statements pursuant to FASB ASC 810-10 “Consolidations”, formerly referenced as FASB Interpretation No. 46(R), due to the agency relationship between the Company and Infotech and, notwithstanding the termination of the Agency Agreement, the Company continues to consolidate the financial statements of Infotech with its financial statements since Infotech became a wholly-owned subsidiary of the Company as a result of the acquisition.

The Company’s consolidated financial statements include the accounts of Solar EnerTech Corp. and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in U.S. dollars and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash within ninety days of deposit.

Currency and Foreign Exchange

The Company’s functional currency is the Renminbi as substantially all of the Company’s operations are in China. The Company’s reporting currency is the U.S. dollar.

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with FASB ASC 830, “Foreign Currency Matters,” formerly referenced as SFAS No. 52, “Foreign Currency Translation”, and are included in determining net income or loss.

For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive loss.

Property and Equipment

The Company’s property and equipment are stated at cost net of accumulated depreciation. Depreciation is provided using the straight-line method over the related estimated useful lives, as follows:

		Useful Life (Years)
Office equipment		3 to 5
Machinery		10
Production equipment		5
Automobiles		5
Furniture		5
Leasehold improvement		the shorter of the lease term or 5 years

Expenditures for maintenance and repairs that do not improve or extend the lives of the related assets are expensed to operations. Major repairs that improve or extend the lives of the related assets are capitalized.

Inventories

Warranty Cost

The Company provides product warranties and accrues for estimated future warranty costs in the period in which revenue is recognized. The Company’s standard solar modules are typically sold with a two-year warranty for defects in materials and workmanship and a ten-year and twenty five-year warranty against declines of more than 10.0% and 20.0%, respectively, of the initial minimum power generation capacity at the time of delivery. The Company therefore maintains warranty reserves to cover potential liabilities that could arise from its warranty obligations and accrues the estimated costs of warranties based primarily on management’s best estimate. In estimating warranty costs, the Company applied Accounting Standards Codification Topic 460 (“ASC 460”) – Guarantees, specifically paragraphs 460-10-25-5 to 460-10-25-7 of the FASB Accounting Standards Codification. This guidance requires that the Company make a reasonable estimate of the amount of a warranty obligation. It also provides that in the case of an entity that has no experience of its own, reference to the experience of other entities in the same business may be appropriate. Because the Company began to commercialize its products in fiscal year 2007, there is insufficient experience and historical data that can be used to reasonably estimate the expected failure rate of its solar modules. Thus, the Company considers warranty cost provisions of other China-based manufacturers that produce photovoltaic products that are comparable in engineering design, raw material input and functionality to the Company’s products, and sold to a similar target and class of customer with similar warranty coverage. In determining whether such peer information can be used, the Company also considers the years of experience that these manufacturers have in the industry. Because the Company’s industry is relatively young as compared to other traditional manufacturing industries, the selected peer companies that the Company considers have less than ten years in manufacturing and selling history. In addition, they have a manufacturing base in China, offer photovoltaic products with comparable engineering design, raw material input, functionality and similar warranty coverage, and sell in markets, including the geographic areas and class of customer, where the Company competes. Based on the analysis applied, the Company accrues warranty at 1% of sales. The Company has not experienced any material warranty claims to date in connection with declines of the power generation capacity of its solar modules and will prospectively revise its actual rate to the extent that actual warranty costs differ from the estimates. As of September 30, 2011 and 2010, the Company’s warranty liability was $1,532,000 and $1,125,000, respectively. The Company’s warranty costs for the fiscal years ended September 30, 2011 and 2010 were $407,000 and $595,000, respectively. The Company did not make any warranty payments during the fiscal years ended September 30, 2011 and 2010.

Other Assets

The Company acquired land use rights to a parcel of land from the government in the People’s Republic of China (“PRC”). All land in the PRC is owned by the PRC government and cannot be sold to any individual or entity. The government in the PRC, according to relevant PRC law, may sell the right to use the land for a specified period of time. Thus, the Company’s land purchase in the PRC is considered to be leased land and recorded as other assets at cost less accumulated amortization. Amortization is provided over the term of the land use right agreements on a straight-line basis, which is for 46.5 years from February 8, 2010 through August 31, 2056.

Impairment of Long Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When such factors and circumstances exist, management compares the projected undiscounted future cash flows associated with the future use and disposal of the related asset or group of assets to their respective carrying values. Impairment, if any, is measured as the excess of the carrying value over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. No loss on property and equipment impairment was recorded during the fiscal years ended September 30, 2011 and 2010.

Investments

Investments in an entity where the Company owns less than twenty percent of the voting stock of the entity and does not exercise significant influence over operating and financial policies of the entity are accounted for using the cost method. Investments in the entity where the Company owns twenty percent or more but not in excess of fifty percent of the voting stock of the entity or less than twenty percent and exercises significant influence over operating and financial policies of the entity are accounted for using the equity method. The Company has a policy in place to review its investments at least annually, to evaluate the carrying value of the investments in these companies. The cost method investment is subject to impairment assessment if there are identified events or changes in circumstance that may have a significant adverse affect on the fair value of the investment. If the Company believes that the carrying value of an investment is in excess of estimated fair value, it is the Company’s policy to record an impairment charge to adjust the carrying value to the estimated fair value, if the impairment is considered other-than-temporary.

On August 21, 2008, the Company entered into an equity purchase agreement in which it acquired two million shares of common stock of 21-Century Silicon, Inc., a polysilicon manufacturer based in Dallas, Texas (“21-Century Silicon”), for $1.0 million in cash. The two million shares of common stock represented approximately 7.8% of 21-Century Silicon’s outstanding equity. In connection with the equity purchase agreement, the Company also signed a memorandum of understanding with 21-Century Silicon for a four-year supply framework agreement for polysilicon shipments. The first polysilicon shipment from 21-Century Silicon was initially expected in March 2009, but was subsequently delayed to March 2010. On March 5, 2009, the Emerging Technology Fund, created by the State of Texas, invested $3.5 million in 21-Century Silicon to expedite production and commercialization of research. The Company’s ownership of 21-Century Silicon became 5.5% as a result of the dilution. This first polysilicon shipment that was to be delivered in March 2010 was further delayed without a specified date given by 21-Century Silicon. As a result of the continued delays in shipment, in July 2010, members of the Company’s executive team, including the CEO, visited 21-Century Silicon and conducted reviews of the production facility and technical development. The review indicated that 21-Century Silicon’s production facility and technical development were significantly below expected standards. Based on the findings from this visit, the timing of the first polysilicon shipment is unknown and it is unknown whether it will even occur. In addition, management of 21-Century Silicon expressed the need for more funding to sustain operations. Moreover, 21-Century Silicon could not provide the Company with updated financial information concerning 21-Century Silicon’s working capital condition and future cash flows. The Company considered the above findings were indicators that a significant adverse effect on the fair value of the Company’s investment in 21-Century Silicon had occurred. Accordingly, an impairment loss of $1.0 million was recorded in the Consolidated Statements of Operations for the fiscal year ended September 30, 2010 to fully write-down the carrying amount of the investment. The Company may also be obligated to acquire an additional two million shares of 21-Century Silicon upon the first polysilicon shipment meeting the quality specifications determined solely by the Company. As of September 30, 2011, the Company has not yet acquired the additional two million common shares (at $0.50 per share) as the product shipment has not occurred. On October 7, 2010, the X-Change Corporation announced that it has acquired 21-Century Silicon, Inc. The terms of the acquisition are anticipated to involve a change in control of the 21-Century Silicon and the appointment of new directors. The X-Change Corporation is anticipated to issue 20 million shares of its unregistered, restricted common stock to the shareholders of 21-Century Silicon in exchange for 100% of the issued and outstanding stock of 21-Century Silicon. As of the date of this report, the X-Change Corporation has not issued its shares to the Company.

Income Taxes

The Company accounts for income taxes under the liability method per the provisions of Accounting Standards Codification Topic 740 (“ASC 740”), “Income Taxes”.

Under the provisions of ASC 740, deferred tax assets and liabilities are determined based on the differences between their financial statement carrying values and their respective tax bases using enacted tax rates that will be in effect in the period in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Valuation Allowance

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

Unrecognized Tax Benefits

Effective on October 1, 2007, the Company adopted the provisions related to uncertain tax positions under ASC 740, “Income Taxes”, formerly referenced as FIN 48, “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109”. Under ASC 740, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority based on the technical merits of the associated tax position. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The Company also elected the accounting policy that requires interest and penalties to be recognized as a component of tax expense. The Company classifies the unrecognized tax benefits that are expected to be effectively settled within one year as current liabilities, otherwise, the unrecognized tax benefits will be classified as non-current liabilities.

Fair Value of Warrants

The Company’s management used the binomial valuation model to value the warrants issued in conjunction with convertible notes entered into in March 2007. The model uses inputs such as implied term, suboptimal exercise factor, volatility, dividend yield and risk free interest rate. Selection of these inputs involves management’s judgment and may impact estimated value. Management selected the binomial model to value these warrants as opposed to the Black-Scholes-Merton model primarily because management believes the binomial model produces a more reliable value for these instruments because it uses an additional valuation input factor, the suboptimal exercise factor, which accounts for expected holder exercise behavior which management believes is a reasonable assumption with respect to the holders of these warrants.

Stock-Based Compensation

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

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

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

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

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

Estimated Forfeitures — When estimating forfeitures, the Company takes into consideration the historical option forfeitures over the expected term.

Revenue Recognition

The Company recognizes revenues from product sales in accordance with guidance provided in FASB ASC 605, “Revenue Recognition”, which states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed or determinable; and collectability is reasonably assured. Where a revenue transaction does not meet any of these criteria it is deferred and recognized once all such criteria have been met. In instances where final acceptance of the product, system, or solution is specified by the customer, revenue is deferred until all acceptance criteria have been met.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are carried at net realizable value. The Company records allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect customers’ ability to pay.

Shipping and Handling Costs

The Company incurred shipping and handling costs of $448,000 and $1,761,000 for the fiscal years ended September 30, 2011 and 2010, respectively, which are included in selling expenses. Shipping and handling costs include costs incurred with third-party carriers to transport products to customers.

Research and Development Cost

Expenditures for research activities relating to product development are charged to expense as incurred. Research and development cost for the fiscal years ended September 30, 2011 and 2010 were $361,000 and $347,000, respectively.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) is reported in the consolidated statements of shareholder’s equity. Accumulated other comprehensive income (loss) of the Company consists of cumulative foreign currency translation adjustments.

Segment Information

The Company identifies its operating segments based on its business activities. The Company operates within a single operating segment - the manufacture of solar energy cells and modules in China. The Company’s manufacturing operations and fixed assets are all based in China. The solar energy cells and modules are distributed to customers, located in Europe, Australia, North America and China.

During the fiscal years ended September 30, 2011 and 2010, the Company had three and two customers, respectively that accounted for more than 10% of net sales.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820) (“ASU 2011-04”). The amendments to this update provide a uniform framework for applying the principles of fair value measurement and include (i) amendments that clarify the Board’s intent about the application of existing fair value measurement and disclosure requirements and (ii) amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. These amendments do not require additional fair value measurements. The Company will adopt ASU 2011-04 in the second quarter of fiscal year 2012. The Company does not believe the adoption of ASU 2011-04 will have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2001-05 amends Topic 220, “Comprehensive Income”, to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects. This ASU is effective for the Company’s financial statements for annual and interim periods beginning on or after December 15, 2011, and must be applied retrospectively. The Company will adopt ASU 2011-05 in the first quarter of fiscal year 2012. The adoption of ASU 2011-05 is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 4 — FINANCIAL INSTRUMENTS

The Company’s assets that are potentially subject to significant concentration of credit risk are primarily cash and cash equivalents, advance payments to suppliers and accounts receivable.

The Company maintains cash deposits with financial institutions, which from time to time may exceed federally insured limits. The Company has not experienced any losses in connection with these deposits and believes it is not exposed to any significant credit risk from cash. At September 30, 2011 and 2010, the Company had approximately $82,000 and $82,000, respectively in excess of insured limits.

Other financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited because a number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs credit evaluations for all new customers but generally does not require collateral to support customer receivables. All of the Company’s customers have gone through a very strict credit approval process. The Company diligently monitors the customers’ financial position. Payment terms for our solar module sales generally range from 0 to 60 days. In some cases, these terms are extended up to 200 days for certain qualifying customers of whom the Company applied rigorous credit requirements. The Company has also purchased insurance from the China Export & Credit Insurance Company to insure the collectability of the outstanding accounts receivable balances of a key customer. During the fiscal years ended September 30, 2011 and 2010, the Company had three and two customers, respectively that accounted for more than 10% of net sales.

Foreign exchange risk and translation

The Company may be subject to significant currency risk due to the fluctuations of exchange rates between the Chinese Renminbi, Euro and the United States dollar.

The local currency is the functional currency for the China subsidiary. Assets and liabilities are translated at end of period exchange rates while revenues and expenses are translated at the average exchange rates in effect during the period. Equity is translated at historical rates and the resulting cumulative translation adjustments, to the extent not included in net income, are included as a component of accumulated other comprehensive income (loss) until the translation adjustments are realized. Included in accumulated other comprehensive income was foreign currency translation adjustment gains of $1.1 million and $0.3 million for the fiscal years ended September 30, 2011 and 2010, respectively. Foreign currency transaction gains and losses are included in earnings. For the fiscal years ended September 30, 2011 and 2010, the Company recorded foreign exchange losses of $0.3 million and $1.1 million, respectively.

NOTE 5 — ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

At September 30, 2011 and 2010, the accounts receivable, net of allowance for doubtful accounts consists of:

	September 30, 2011			September 30, 2010
Accounts receivable, gross	$	8,170,000		$	6,588,000
Allowance for doubtful accounts		(454,000	)		(42,000	)
Accounts receivable, net	$	7,716,000		$	6,546,000

The following table summarizes the activities of the allowance for doubtful accounts as of September 30, 2011 and 2010:

	Allowance for doubtful accounts
As of September 30, 2009	$	117,000
Addition		-
Write-down		(75,000	)
As of September 30, 2010	$	42,000
Addition		432,000
Write-down		(20,000	)
As of September 30, 2011	$	454,000

NOTE 6 — ADVANCE PAYMENTS AND OTHER

At September 30, 2011 and 2010, advance payments and other consist of:

	September 30, 2011		September 30, 2010
Prepayment for raw materials	$	310,000	$	673,000
Prepayment for equipment		-		402,000
Others		393,000		199,000
Total advance payments and other	$	703,000	$	1,274,000

NOTE 7 — INVENTORIES

At September 30, 2011 and 2010, inventories consist of:

	September 30, 2011			September 30, 2010
Raw materials	$	1,268,000		$	2,667,000
Finished goods		2,415,000			1,618,000
Inventories, gross	$	3,683,000		$	4,285,000
Inventory Provision		(1,494,000	)		(202,000	)
Inventories, net	$	2,189,000		$	4,083,000

The inventory provision is an inventory allowance for aged or obsolete inventory items as well as inventory whose carrying value is in excess of net realizable value.

NOTE 8 — PROPERTY AND EQUIPMENT

The Company depreciates its assets over their estimated useful lives. A summary of property and equipment at September 30, 2011 and 2010 is as follows:

	September 30, 2011			September 30, 2010
Production equipment	$	9,782,000		$	8,130,000
Leasehold improvements		3,950,000			3,709,000
Automobiles		318,000			366,000
Office equipment		411,000			348,000
Machinery		3,121,000			2,916,000
Furniture		71,000			40,000
Total property and equipment		17,653,000			15,509,000
Less: accumulated depreciation		(9,130,000	)		(6,635,000	)
Total property and equipment, net	$	8,523,000		$	8,874,000

NOTE 9 — OTHER ASSETS

Other assets at September 30, 2011 and 2010 mainly consist of the following:

	September 30, 2011		September 30, 2010

Land use rights
Cost	$	-	$	746,000
Less: Accumulated amortization		-		(11,000	)
Total other assets	$	-	$	735,000

On February 8, 2010, the Company acquired land use rights of a 68,025 square meter parcel of land located in Yizheng, Jiangsu Province of China, which was to be used to house the Company’s second manufacturing facility. For each of the next five years, annual amortization expense of the land use rights will be approximately $17,000 with an estimated useful life of 46.5 years.

As part of the acquisition of the land use right, we are required to complete construction of the facility by February 8, 2012. The Board of Directors of the Company has decided not to continue to fund the investment in the Yizheng Jiangsu Province subsidiary. The Company received the approval on December 22, 2011 to write-off the registration of the Yizheng Jiangsu Province subsidiary.

In September 2011, the Company wrote off the land use rights and received a partial refund. The remaining refund of approximately $31,000 is estimated to be received in January 2012.

NOTE 10 — SHORT TERM LOANS

At September 30, 2011 and 2010, short-term loans consist of:

	September 30, 2011		September 30, 2010

Short-term loans	$	273,000	$	1,312,000

On March 25, 2010, the Company entered into a one year contract with China Export & Credit Insurance Corporation (“CECIC”) to insure the collectability of outstanding accounts receivable for two of the Company’s key customers. The Company pays a fee based on a fixed percentage of the accounts receivable outstanding and expenses this fee when it is incurred. In addition, on March 30, 2010, the Company entered into a one year revolving credit facility arrangement with Industrial Bank Co., Ltd. (“IBC”) that was secured by the accounts receivable balances of the two key customers insured by CECIC above. The cost of the insurance on accounts receivable is recorded as selling, general and administrative costs in the Consolidated Statements of Operations of the Company. On May 5, 2011, the Company terminated the credit facility arrangement with IBC and on the same day, the Company entered into a revolving credit facility arrangement with Bank of China (“BOC”), which is also secured by the accounts receivable balances of our key customers insured by CECIC above.

If the insured customer fails to repay the amounts outstanding due to the Company, the insurance proceeds will be remitted directly to BOC instead of the Company. The amount drawn down as of September 30, 2011 was $273,000. The Company paid the short term loan of $273,000 to BOC on October 9, 2011. There have been no insurance claims submitted to CECIC. There are no commitment fees associated with the unused portion of the credit facility. The interest rate of the credit facility is variable and ranged from 3.78% to 5.30% during the fiscal year ended September 30, 2011. The weighted average interest rate on this credit facility during the fiscal year ended September 30, 2011 was 4.42% per annum.

NOTE 11 — INCOME TAXES

The Company has no taxable income and no provision for federal and state income taxes is required for 2011 and 2010, except certain state minimum tax.

Accounting income (loss) before income taxes consists of:

	Year Ended September 30,
	2011			2010

United States	$	3,781,000			(23,280,000	)
The PRC		(5,470,000	)		(1,734,000	)
Total		(1,689,000	)		(25,014,000	)

The Company conducts its business in the United States and in various foreign locations and generally is subject to the respective local countries’ statutory tax rates.

A reconciliation of the statutory federal rate and the Company’s effective tax rate for the fiscal years ended September 30, 2011 and 2010 are as follows:

	Year Ended September 30,
	2011			2010
U.S. federal taxes (benefit)
At statutory rate		34	%		34	%
Gain (loss) on derivative/warrant and other permanents		41	%		(24	)%
Stock-based compensation		(50	)%		(4	)%
Difference between statutory rate and foreign effective rate		(58	)%		(4	)%
Change in Valuation allowance		39	%		(4	)%
Deferred tax expenses		(6	)%		2	%
Total		0	%		0	%

Significant components of the Company’s deferred tax assets and liabilities as of September 30, 2011 and 2010 are as follows:

	Year Ended September 30,
	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	5,475,000		$	4,978,000
Stock-based compensation		798,000			565,000
Allowances and reserve		1,967,000			3,272,000
Depreciation and amortization		223,000			281,000
Total deferred tax assets		8,463,000			9,096,000
Less valuation allowance		(8,463,000	)		(9,096,000	)
Net deferred tax assets	$	-		$	-

As of September 30, 2011 and 2010, the Company had United States federal net operating loss carry forwards of approximately $7.3 million and $6.7 million, respectively. These net operating loss carry forwards will expire at various dates beginning in 2026 if not utilized. In addition, the Company had U.S. state net operating loss carry forwards of approximately $4.1 million and $3.8 million as of September 30, 2011 and 2010, respectively, and these losses will begin to expire at various dates beginning in 2020 if not utilized. In addition, the Company had foreign net operating loss carry forwards of approximately $13.7 million and $9.4 million as of September 30, 2011 and 2010, respectively. These net operating loss carryforwards will begin to expire in 2013 if not utilized. The Company has no tax credit carry forwards.

As of September 30, 2011, due to the history of losses the Company has generated, the Company believes that it is more-likely-than-not that the deferred tax assets will not be realized. Therefore, the Company has a full valuation allowance on the Company’s deferred tax assets of $8.5 million. Utilization of the U.S. federal and state net operating loss carry forwards may be subject to substantial annual limitation due to certain limitations resulting from ownership changes provided by U.S. federal and state tax laws. The annual limitation may result in the expiration of net operating losses carryforwards and credits before utilization.

Under the New Income Tax Law in PRC, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject to PRC withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaties with certain countries. The Company has no accumulated earnings in PRC as of September 30, 2011.

Under the Enterprise Income Tax (“EIT”) Law, a “resident enterprise” which may include an enterprise established outside of the PRC with management located in the PRC, will be subject to the PRC income tax. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed a resident enterprise, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25%. The Company will continue to monitor its tax status with regard to the PRC tax resident enterprise regulation.

The Company continues to enjoy the 50% reduction in the regular income tax rate of 25% until December 31, 2012 under the transitional rules of new EIT law and was approved by the tax authority.

There are no ongoing examinations by taxing authorities at this time. The Company’s tax years starting from 2006 to 2010 remain open in various tax jurisdictions. The Company has not recorded any unrecognized tax benefits; and does not anticipate any significant changes within the next 12 months.

NOTE 12 — CONVERTIBLE NOTES

On March 7, 2007, Solar EnerTech entered into a securities purchase agreement to issue $17.3 million of secured convertible notes (the “Notes”) and detachable stock purchase warrants the “Series A and Series B Warrants”). Accordingly, during the quarter ended March 31, 2007, Solar EnerTech sold units consisting of:

$5.0 million in principal amount of Series A Convertible Notes and warrants to purchase 7,246,377 shares (exercise price of $1.21 per share) of its common stock;

$3.3 million in principal amount of Series B Convertible Notes and warrants to purchase 5,789,474 shares (exercise price of $0.90 per share) of its common stock ; and

$9.0 million in principal amount of Series B Convertible Notes and warrants to purchase 15,789,474 shares (exercise price of $0.90 per share) of its common stock.

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

The Company evaluated the Notes for derivative accounting considerations under FASB ASC 815 and determined that the notes contained two embedded derivative features, the conversion option and a redemption privilege accruing to the holder if certain conditions exist (the “compound embedded derivative” or “CED”). The compound embedded derivative is measured at fair value both initially and in subsequent periods. Changes in fair value of the compound embedded derivative are recorded in the account “gain (loss) on fair market value of compound embedded derivative” in the accompanying consolidated statements of operations.

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

The Series A and Series B Warrants (including the Advisor Warrants) were classified as a liability, as required by FASB ASC 480, “Distinguishing Liabilities from Equity”, formerly referenced as SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, due to the terms of the warrant agreement which contains a cash redemption provision in the event of a fundamental transaction. The warrants are measured at fair value both initially and in subsequent periods. Changes in fair value of the warrants are recorded in the account “gain (loss) on fair market value of warrant liability” in the accompanying consolidated statements of operations.

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

On January 7, 2010 (the “Conversion Date”), the Company entered into a Series A and Series B Notes Conversion Agreement (the “Conversion Agreement”) with the holders of Notes representing at least seventy-five percent of the aggregate principal amounts outstanding under the Notes to restructure the terms of the Notes. As of the Conversion Date, approximately $9.8 million of the Series A and B Convertible Notes were effectively converted into 64,959,227 shares of the Company’s common stock along with 1,035,791 shares of the Company’s common stock as settlement of the accrued interest on the Series A and B Convertible Notes, and the remaining $1.8 million of the Series B Notes were exchanged into another convertible note as further discussed below. In connection with the Conversion Agreement, on January 7, 2010, the Company entered into an Amendment (the “Warrant Amendment”) to the Series A, Series B and Series C Warrants with the holders of at least a majority of the common stock underlying each of its outstanding Series A Warrants, Series B Warrants and Series C Warrants (collectively the “PIPE Warrants”). The Warrant Amendment reduced the exercise price for all of the PIPE Warrants from $1.21, $0.90 and $1.00, respectively, to $0.15, removed certain maximum ownership provisions and removed anti-dilution provisions for lower-priced security issuances.

The Conversion Agreement resulted in modifications or exchanges of the Notes and PIPE Warrants, which should be accounted for pursuant to FASB ASC 405-20, “Liabilities” and FASB ASC 470-50, "Debt/Modifications and Extinguishment" formerly referenced as EITF Consensus for Issue No. 96-19, "Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments". The combination of the adjustment to conversion price and the automatic conversion of the Notes effectively resulted in the settlement of the Notes through the issuance of shares of the Company’s common stock and amendment of the PIPE Warrants’ terms. Since the Company is relieved of its obligation for the Notes, the transaction is accounted for as an extinguishment of the Notes upon issuance of ordinary shares and modification of the PIPE Warrants’ terms. The loss on extinguishment associated with the Conversion Agreement amounted to approximately $17.2 million.

On January 19, 2010, a holder of approximately $1.8 million of the Company’s formerly outstanding Series B Notes and Series B Warrants (hereinafter referred to as the “Holder”) of the Company’s common stock disputed the effectiveness of the Conversion Agreement and the Warrant Amendment. Accordingly, the Holder did not tender its Series B Notes for conversion. After negotiations with the Holder, on March 19, 2010, the Company entered into an Exchange Agreement with the Holder (the “Exchange Agreement”), whereby the Company issued the Series B-1 Note with a principal amount of $1.8 million (the “Series B-1 Note”) to the Holder along with 283,498 shares of the Company’s common stock as settlement of the accrued interest on the Holder’s Series B Notes and 666,666 shares of the Company’s common stock as settlement of the outstanding dispute regarding the effectiveness of the Company’s Conversion Agreement and the Warrant Amendment. The Company did not capitalize any financing costs associated with the issuance of the Series B-1 Note. As of September 30, 2011, the Company has an outstanding convertible note with a principal balance of $1,540,261 consisting of the Series B-1 Note, which was recorded at a carrying amount of $1,474,000. The Series B-1 Note bears interest at 6% per annum and is due on March 19, 2012. During the fiscal year ended September 30, 2011, the Company issued 784,768 shares of its common stock to settle the accrued interest on the Series B-1 Note.

The Exchange Agreement resulted in modifications or exchanges of the Holder’s rights under its former Series B Note, which was accounted for pursuant to FASB ASC 470-50, "Debt/Modifications and Extinguishment" formerly referenced as EITF Consensus for Issue No. 96-19, "Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments", and FASB ASC 470-50, "Debt/Modifications and Extinguishment" formerly referenced as EITF Consensus for Issue No.06-06, "Debtor's Accounting for a Modification (or Exchange) of Convertible Debt Instruments". The loss on debt extinguishment associated with the Exchange Agreement amounted to approximately $1.3 million.

The costs associated with the Conversion Agreement were directly derived from the execution of the Company’s plan in improving its liquidity and business sustainability. The related loss on debt extinguishment was a cost that was integral to the continuing operations of the business which is different in nature to the continuing interest payments and change in fair value of the compound embedded derivative and warrant liability. Accordingly, the loss on debt extinguishment is included in operating expenses in the accompanying consolidated statements of operations.

The Company evaluated the Series B-1 Note for derivative accounting considerations under FASB ASC 815 and determined that the Series B-1 Note contained two embedded derivative features, the conversion option and a redemption privilege accruing to the holder if certain conditions exist (the “compound embedded derivative”). The compound embedded derivative is measured at fair value both initially and in subsequent periods. Changes in fair value of the compound embedded derivative are recorded in the account “gain (loss) on fair market value of compound embedded derivative” in the accompanying consolidated statements of operations.

On March 19, 2010, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Capital Ventures International (“CVI”) whereby the Company issued a Series B-1 Convertible Note (the “Note”) to CVI with an original principal amount of $1,815,261, which is due on March 19, 2012 and bears interest at 6% per annum. On May 11, 2011, the Company executed an amendment with CVI (“Amendment”) whereby CVI waives the following Trigger Events: (a) the migration of the Company’s listing from the OTCBB to the OTCQB, (b) the failure of the Company to timely pay the interest payment due on April 1, 2011 and (c) any other Trigger Event that may exist as of the date of this Amendment. According to the Amendment, Section 3(c) of the Exchange Agreement is amended to reduce the conversion price of the Note from $0.15 to $0.10 per common share, subject to further adjustment upon certain specified events as defined in the Exchange Agreement. As of September 30, 2011, the outstanding principal of the Note was $1,540,261, the carrying amount was $1,474,000 and the related interest was $23,294.

The loss on debt extinguishment is computed as follows:

	Fiscal Years Ended September 30,
	2011		2010
Fair value of the common shares	$	-	$	18,915,000
Fair value of Series B-1 Note		-		3,108,000
Unamortized deferred financing costs associated with the converted notes		-		594,000
Fair value of the CED liability associated with the converted notes		-		(94,000	)
Accreted amount of the notes discount		-		(7,585,000	)
Common shares issued in conjunction with Series B-1 Note		-		100,000
Loss on extinguishment of warrants		-		3,502,000
Loss on debt extinguishment	$	-	$	18,540,000

During the fiscal year ended September 30, 2010, $75,000 of the Series B-1 Note was converted into 500,000 shares of the Company’s common stock. The Company recorded a cumulative loss on debt extinguishment of approximately $18.5 million as a result of the Conversion Agreement and the Exchange Agreement during the fiscal year ended September 30, 2010.

The following table summarizes the valuation of the Notes and the related Compound Embedded Derivative, the Series A and Series B Warrants (including the Advisor Warrants), and the Series B-1 Note and the related Compound Embedded Derivative:

Carrying amount of Series B-1 Note at March 19, 2010	$	1,815,000
Fair value of compound embedded derivative liabilities		(1,573,000	)
Loss on debt extinguishment		1,293,000
Amortization of note discount and conversion effect		(4,000	)
Carrying amount of Series B-1 Note at September 30, 2010	$	1,531,000
Amortization of note discount and conversion effect		(57,000	)
Carrying amount of Series B-1 Note at September 30, 2011	$	1,474,000

Fair value of the Series B-1 compound embedded derivative liabilities at March 19, 2010	$	1,573,000
Gain on fair market value of embedded derivative liability		(1,131,000	)
Effect on debt conversion		(20,000	)
Fair value of the Series B-1compound embedded derivative liabilities at September 30, 2010	$	422,000
Gain on fair market value of embedded derivative liability		(393,000	)
Effect on debt conversion		(26,000	)
Fair value of the Series B-1compound embedded derivative liabilities at September 30, 2011	$	3,000

Fair value of warrant liability at September 30, 2009	$	2,068,000
Loss on PIPE warrant extinguishment		3,502,000
Cashless exercise of warrants		(157,000	)
Gain on fair market value of warrant liability		(4,511,000	)
Fair value of warrant liability at September 30, 2010	$	902,000
Gain on fair market value of warrant liability		(902,000	)
Fair value of warrant liability at September 30, 2011	$	-

Series B-1 Note

The material terms of the Series B-1 Note are as follows:

Interest Payments

The Series B-1 Note bears interest at 6% per annum and the principal of $1.5 million is due on March 19, 2012. Accrued interest is payable quarterly in arrears on each of January 1, April 1, July 1 and October 1 , beginning on the first such date after issuance, in cash or registered shares of common stock at the option of the Company. If the Company elects to pay any interest due in registered shares of the Company’s common stock: (i) the issuance price will be 90% of the 5-day weighted average price of the common stock ending on the day prior to the interest payment due date, and (ii) a trigger event shall not have occurred.

Voting Rights

The holder of the Series B-1 Note does not have voting rights under these agreements.

Dividends

Until all amounts owed under the Series B-1 Note have been converted, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capital stock without the prior express written consent of the required holders.

Conversion Right

At any time or times on or after the issuance date of the Series B-1 Note, the holder is entitled to convert, at the holder’s sole discretion, any portion of the outstanding and unpaid conversion amount (principal, accrued and unpaid interest and accrued and unpaid late charges) may be converted into fully paid and non-assessable shares of common stock, at the conversion rate discussed next.

Conversion Rate

The number of shares of common stock issuable upon conversion of the Series B-1 Note is determined by dividing (x) the conversion amount (principal, interest and late charges accrued and unpaid), by (y) the then applicable conversion price (initially $0.15 and currently $0.10 for Series B-1 Note after the execution of Amendment on May 11, 2011, subject to adjustment as provided in the agreement). No adjustment in the conversion price of the Series B-1 Note will be made in respect of the issuance of additional shares of common stock unless the consideration per share of an additional share of common stock issued or deemed to be issued by the Company is less than the conversion price of the Series B-1 Note in effect on the date of, and immediately prior to, such issuance. Should the outstanding shares of common stock increase (by stock split, stock dividend, or otherwise) or decrease (by reclassification or otherwise), the conversion price of the Series B-1 Note in effect immediately prior to the change shall be proportionately adjusted.

Redemptions

The Series B-1 Note permits the holder the right of redemption in the event of certain specified triggering events such as:

1)	The suspension from trading or failure of the common stock to be listed on the principal market or an eligible market for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period;

The Company’s (A) failure to cure a conversion failure by delivery of the required number of shares of common stock within ten (10) trading days after the applicable conversion date or (B) notice, written or oral, to any holder of the Series B-1 Note, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of any Series B-1 Note into shares of common stock that is tendered in accordance with the provisions of the Series B-1 Note;

The Company's failure to pay to the Holder any amount of principal (including, without limitation, any redemption payments), interest, late charges or other amounts when and as due under this Series B-1 Note except, in the case of a failure to pay any interest and late charges when and as due, in which case only if such failure continues for a period of at least five (5) business days;

(A) The occurrence of any payment default or other default under any indebtedness of the Company or any of its subsidiaries that results in a redemption of or acceleration prior to maturity of $100,000 or more of such indebtedness in the aggregate, or (B) the occurrence of any material default under any indebtedness of the Company or any of its subsidiaries having an aggregate outstanding balance in excess of $100,000 and such default continues uncured for more than ten (10) business days, other than, in each case (A) or (B) above, or a default with respect to any other Series B-1 Note;

The Company or any of its subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official, (D) makes a general assignment for the benefit of its creditors or (E) admits in writing that it is generally unable to pay its debts as they become due;

A court of competent jurisdiction enters an order or decree under any bankruptcy law that (A) is for relief against the Company or any of its subsidiaries in an involuntary case, (B) appoints a custodian of the Company or any of its subsidiaries or (C) orders the liquidation of the Company or any of its subsidiaries;

A final judgment or judgments for the payment of money aggregating in excess of $250,000 are rendered against the Company or any of its subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $250,000 amount set forth above so long as the Company provides the holder with a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance of such judgment; and

8)	The Company breaches any representation, warranty, covenant or other term or condition of any transaction document, except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least ten (10) consecutive business days.

At any time after becoming aware of a trigger event, the holder may require the Company to redeem all or any portion of the Series B-1 Note at an amount equal to any accrued and unpaid liquidated damages, plus the greater of (A) the conversion amount to be redeemed multiplied by the redemption premium (125% for trigger events described above in subparagraphs 1 to 5 and 8 above or 100% for other events), or (B) the conversion amount to be redeemed multiplied by the quotient of (i) the closing sale price at the time of the trigger event (or at the time of payment of the redemption price, if greater) divided by (ii) the conversion price, provided, however, (B) shall be applicable only in the event that a trigger event of the type specified above in subparagraphs 1, 2 or 3 has occurred and remains uncured or the conversion shares otherwise could not be received or sold by the holder without any resale restrictions.

Rights upon Fundamental Transaction, Change of Control and Qualified Financing

The Series B-1 Note also contains certain provisions relating to the occurrences of a fundamental transaction limiting the type of entity that can be a successor entity and requiring the successor entity to assume the obligations of the Series B-1 Note. In addition, the Series B-1 Note contains certain provisions relating to a change of control or qualified financing which permit the holder the right of redemption for all or a portion of the Series B-1 Note.

1)	Assumption. The Company may not enter into or be party to a fundamental transaction, as such terms is defined in the Series B-1 Note, unless:

•

The successor entity assumes in writing all of the obligations of the Company under the Series B-1 Note and related documents; and

•

The successor entity (including its parent entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an eligible market.

Redemption Right on Change of Control. At any time during the period beginning on the date of the holder’s receipt of a change of control notice and ending twenty (20) trading days after the consummation of such change of control, the holder may require the Company to redeem all or any portion of the Series B-1 Note in cash for an amount equal to any accrued and unpaid liquidated damages, plus the greater of (i) the product of (x) the conversion amount being redeemed and (y) the quotient determined by dividing (A) the greater of the closing sale price of the common stock immediately prior to the consummation of the change of control, the closing sale price immediately following the public announcement of such proposed change of control and the closing sale price of the common stock immediately prior to the public announcement of such proposed change of control by (B) the conversion price and (ii) 125% of the conversion amount being redeemed .

Redemption Right on Subsequent Financing. In the event that the Company or any of its subsidiaries shall issue any of its or its subsidiaries' equity or equity equivalent securities, or commit to issue or sell in one or more series of related transactions or financings, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for shares of common stock, options or convertible securities (any such offer, sale, grant, disposition or announcement of such current or future committed financing is referred to as a "Subsequent Financing"), the Company is obligated to provide the Holder written notice of the Subsequent Financing and the Holder, at its option, may require the Company to redeem the Series B-1 Note up to the Redemption Amount.

(A) In the event that the Gross Proceeds of the Subsequent Financing equals or exceeds $15,000,000 (a “Qualified Financing”), the “Redemption Amount” shall equal 100% of the Principal Amount then outstanding. For purposes hereof, “Gross Proceeds” shall mean the aggregate proceeds received or receivable by the Company in respect of one or more series of related future transactions or financings for which the Company is committed in connection with such Qualified Financing.

(B) In the event that the Gross Proceeds of the Subsequent Financing is less than $15,000,000, the Redemption Amount shall equal a pro-rated portion of the Principal Amount equaling a ratio, the numerator of which is the amount of proceeds raised by the Company in the Subsequent Financing and the denominator which is $15,000,000.

NOTE 13 — STOCKHOLDERS’ EQUITY

Warrants

During March 2007, in conjunction with the issuance of $17,300,000 in convertible debt, the Board of Directors approved the issuance of Warrants to purchase shares of the Company’s common stock. Under their original terms, the 7,246,377 Series A warrants and the 21,578,948 Series B warrants are exercisable at $1.21 and $0.90, respectively and expire in March 2012. In addition, in March 2007, as additional compensation for services as placement agent for the convertible debt offering, the Company issued the Advisor Warrants, which entitle the placement agent to purchase 507,247 and 1,510,528 shares of the Company’s common stock at exercise prices of $0.69 and $0.57 per share, respectively. The Advisor Warrants expire in March 2012.

The Series A and Series B Warrants (including the Advisor Warrants) are classified as a liability in accordance with FASB ASC 480, “Distinguishing Liabilities from Equity”, due to the terms of the warrant agreements which contain cash redemption provisions in the event of a fundamental transaction, which provide that the Company would repurchase any unexercised portion of the warrants at the date of the occurrence of the fundamental transaction for the value as determined by the Black-Scholes Merton valuation model. As a result, the warrants are measured at fair value both initially and in subsequent periods. Changes in fair value of the warrants are recorded in the account “gain (loss) on fair market value of warrant liability” in the accompanying Consolidated Statements of Operations.

Additionally, in connection with the offering, all of the Company’s Series A and Series B warrant holders waived their full ratchet anti-dilution and price protection rights previously granted to them in connection with the Company’s March 2007 convertible note and warrant financing.

On January 12, 2008, the Company sold 24,318,181 shares of its common stock and 24,318,181 Series C warrants (the “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. Under its original terms, the exercise price of the Series C Warrants is $1.00 per share. The warrants are exercisable for a period of 5 years from the date of issuance of the Series C Warrants.

For the services in connection with this closing, the placement agent and the selected dealer, Knight Capital Markets, LLC and Ardour Capital Investments, received an aggregate of a 6.0% cash commission, a 1.0% advisory fee and warrants to purchase 1,215,909 shares of common stock at $0.88 per share, exercisable for a period of 5 years from the date of issuance of the warrants. The net proceeds from issuing common stock 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.

In connection with the Conversion Agreement, on January 7, 2010, the Company entered into an Amendment (the “Warrant Amendment”) to the Series A, Series B and Series C Warrants with the holders of at least a majority of the common stock underlying each of its outstanding Series A Warrants, Series B Warrants and Series C Warrants (collectively the “PIPE Warrants”). The Warrant Amendment reduced the exercise price for all of the PIPE Warrants from $1.21, $0.90 and $1.00, respectively, to $0.15, removed certain maximum ownership provisions and removed anti-dilution provisions for lower-priced security issuances. Given the above, the liability associated with the PIPE Warrants at the pre Conversion Agreement exercise price was considered extinguished and was replaced with the liability associated with the PIPE Warrants at the post Conversion Agreement exercise price, which were recorded at fair value.

There were no warrants exercised during the fiscal year ended September 30, 2011. During the fiscal year ended September 30, 2010, a warrants holder exchanged 1,147,394 warrants for 450,878 shares of the Company’s common stock in a cashless exercise.

A summary of outstanding warrants as of September 30, 2011 is as follows:

	Number of Shares			Exercise Price ($)		Recognized as
Granted in connection with convertible notes — Series A		7,246,377			1.21	Discount to notes payable
Granted in connection with convertible notes — Series B		21,578,948			0.90	Discount to notes payable
Granted in connection with common stock purchase — Series C		24,318,181			1.00	Additional paid in capital
Granted in connection with placement service		507,247			0.69	Deferred financing cost
Granted in connection with placement service		1,510,528			0.57	Deferred financing cost
Granted in connection with placement service		1,215,909			0.88	Additional paid in capital
Extinguishment in accordance with the Conversion Agreement		(53,143,506	)		N/A	Loss on debt extinguishment
Issuance in accordance with the Conversion Agreement		53,143,506			0.15	Warrant liabilities
Cashless exercise of warrants		(1,147,394	)		0.15	Additional paid in capital
Outstanding at September 30, 2011		55,229,796

At September 30, 2011, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:

Warrants Outstanding and Exercisable
					Weighted-
			Weighted-		Average
Range of			Average		Remaining
Warrant	Number of		Exercise		Contractual
Exercise Price	Warrants		Price		Life
$0.15		51,996,112	$	0.15		0.84
$0.57-$0.88		3,233,684	$	0.71		0.77

Restricted Stock

On August 19, 2008, Mr. Leo Young, the Company’s Chief Executive Officer, entered into a Stock Option Cancellation and Share Contribution Agreement with Jean Blanchard, a former officer, to provide for (i) the cancellation of a stock option agreement by and between Mr. Young and Ms. Blanchard dated on or about March 1, 2006 and (ii) the contribution to the Company by Ms. Blanchard of the remaining 25,250,000 shares of common stock underlying the cancelled option agreement.

The 2008 Plan provides for the issuance of a maximum of 25,250,000 shares of restricted stock in connection with awards under the 2008 Plan. The 2008 Plan is administered by the Company’s Compensation Committee, a subcommittee of the Company’s Board of Directors, and has a term of 10 years. Restricted stock vest over a three year period and unvested restricted stock are forfeited and cancelled as of the date that employment terminates. Participation is limited to employees, directors and consultants of the Company and its subsidiaries and other affiliates. During any period in which shares acquired pursuant to the 2008 Plan remain subject to vesting conditions, the participant shall have all of the rights of a stockholder of the Company holding shares of stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. If a participant terminates his or her service for any reason (other than death or disability), or the participant’s service is terminated by the Company for cause, then the participant shall forfeit to the Company any shares acquired by the participant which remain subject to vesting Conditions as of the date of the participant’s termination of service. If a participant’s service is terminated by the Company without cause, or due to the death or disability of the participant, then the vesting of any restricted stock award shall be accelerated in full as of the effective date of the participant’s termination of service.

Issuance of fully vested restricted stock to the Company’s former Board of Directors

On January 12, 2010, the Company issued 400,000 shares of fully vested restricted stock to the Company’s former Board of Directors on their resignation date. As the former directors no longer provide services to the Company, these awards were properly accounted for as awards to non-employees in accordance with FASB ASC 718.

Issuance of common shares to non-employees

On February 1, 2010, the Company issued 400,000 shares of common stock to the Company’s third party financial advisors. These awards were properly accounted for as awards to non-employees in accordance with FASB ASC 718.

The following table summarizes the activity of the Company’s unvested restricted stock units as of September 30, 2011 and 2010 is presented below:

	Restricted Stock
				Weighted-
	Number of			average grant-
	shares			date fair value
Unvested as of September 30, 2009		23,150,000		$	0.62
Restricted stock canceled		(10,000,000	)	$	0.62
Restricted stock granted		400,000		$	0.31
Restricted stock vested		(400,000	)	$	0.31
Unvested as of September 30, 2010		13,150,000		$	0.62
Restricted stock canceled		(255,000	)	$	0.62
Restricted stock granted		8,600,000		$	0.08
Restricted stock vested		(13,070,000	)	$	0.62
Unvested as of September 30, 2011		8,425,000		$	0.49

The total unvested restricted stock as of September 30, 2011 and 2010 were 8,425,000 and 13,150,000 shares, respectively.

The total restricted stock granted during the fiscal year ended September 30, 2011 was 8,600,000 shares. Of these shares, 1,000,000 shares were granted to Ms. Yao.

Stock-based compensation expense for restricted stock for the fiscal years ended September 30, 2011 and 2010 were $2.4 million and $2.8 million, respectively. As of September 30, 2011, the total unrecognized compensation expense net of forfeitures related to unvested awards was $0.6 million and is expected to be amortized over a weighted average period of 2.75 years.

Options

Amended and Restated 2007 Equity Incentive Plan

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

On February 5, 2008, the Board of Directors of the Company adopted the Amended and Restated 2007 Equity Incentive Plan (the “Amended 2007 Plan”), which increases the number of shares authorized for issuance from 10 million to 15 million shares of common stock and was to be effective upon approval of the Company’s stockholders and upon the Company’s reincorporation into the State of Delaware.

On May 5, 2008, at the Company’s Annual Meeting of Stockholders, the Company’s stockholders approved the Amended 2007 Plan. On August 13, 2008, the Company reincorporated into the State of Delaware. As of September 30, 2011 and 2010, 9,810,000 and 12,860,000 shares of common stock, respectively remain available for future grants under the Amended 2007 Plan.

These options vest over various periods up to four years and expire no more than ten years from the date of grant. A summary of activity under the Amended 2007 Plan is as follows:

	Options Available For Grant			Number of Options Outstanding			Weighted Average Fair Value Per Share		Weighted Average Exercise Price Per Share
Balance at September 30, 2009		12,060,000			2,940,000		$	0.39	$	0.62
Options granted		(250,000	)		250,000		$	0.13	$	0.20
Options cancelled		1,050,000			(1,050,000	)	$	0.39	$	0.62
Balance at September 30, 2010		12,860,000			2,140,000		$	0.32	$	0.55
Options granted		(4,000,000	)		4,000,000		$	0.05	$	0.06
Options cancelled		950,000			(950,000	)	$	0.20	$	0.32
Balance at September 30, 2011		9,810,000			5,190,000		$	0.11	$	0.18

The total fair value of shares vested during the fiscal years ended September 30, 2011 and 2010 were approximately $6,000 and $36,000, respectively.

At September 30, 2011 and 2010, 5,190,000 and 2,140,000 options were outstanding, respectively and had a weighted-average remaining contractual life of 8.99 years and 7.66 years, respectively. Of these options, 1,190,000 and 1,542,917 shares were vested and exercisable on September 30, 2011 and 2010, respectively. The weighted-average exercise price and weighted-average remaining contractual term of options currently exercisable were $0.62 and 6.0 years, respectively.

The option granted during the fiscal year ended September 30, 2011 was 4,000,000 options. Of these options, 3,000,000 shares were granted to Mr. Young under the terms of the Company’s 2007 Stock Incentive Plan with an exercise price of $0.055.

The fair values of employee stock options granted during the fiscal years ended September 30, 2011 and 2010 were estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Year Ended September 30,
	2011			2010
Volatility		95.0	%		93.0	%
Expected dividend		0.0	%		0.0	%
Risk-free interest rate		0.33	%		1.70	%
Expected term in years		3.9			3.32
Weighted-average fair value	$	0.05		$	0.20

In accordance with the provisions of FASB ASC 718, the Company has recorded stock-based compensation expense of $2.4 million and $2.9 million for the fiscal years ended September 30, 2011 and 2010, respectively, which include the compensation effect for the options and restricted stock. The stock-based compensation expense is based on the fair value of the options at the grant date. The Company recognized compensation expense for share-based awards based upon their value on the date of grant amortized over the applicable service period, less an allowance estimated future forfeited awards.

NOTE 14 — FAIR VALUE OF FINANCIAL INSTRUMENTS

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”, codified in FASB ASC 820, “Fair Value Measurements and Disclosures”, which 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. FASB ASC 820 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. FASB ASC 820 does not expand or require any new fair value measures. FASB ASC 820 is effective for fiscal years beginning after November 15, 2007. In December 2007, the FASB agreed to a one year deferral of FASB ASC 820’s fair value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. The Company adopted FASB ASC 820 on October 1, 2008, which had no effect on the Company’s financial position, operating results or cash flows.

FASB ASC 820 defines fair value and establishes a hierarchal framework which prioritizes and ranks the market price observability used in fair value measurements. Market price observability is affected by a number of factors, including the type of asset or liability and the characteristics specific to the asset or liability being measured. Assets and liabilities with readily available, active quoted market prices or for which fair value can be measured from actively quoted prices generally are deemed to have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Under FASB ASC 820, the inputs used to measure fair value must be classified into one of three levels as follows:

Level 1 -

Quoted prices in an active market for identical assets or liabilities;

Level 2 -

Observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 -

Assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment.

The Company’s liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of September 30, 2011:

	Fair Value at September 30, 2011		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
			(Level 1)		(Level 2)		(Level 3)

Derivative liabilites	$	3,000		-		-	$	3,000
Warrant liabilities		-		-		-		-

Total liabilities	$	3,000		-		-	$	3,000

The method used to estimate the value of the Series B-1 Note compound embedded derivatives (“CED”) was a binomial model with the following assumptions:

	September 30, 2011			September 30, 2010
Implied term (years)		0.47			1.46
Suboptimal exercise factor		2.50			2.50
Volatility		80.20	%		66.30	%
Dividend yield		0.00	%		0.00	%
Risk-free interest rate		0.06	%		0.34	%

The fair value of the Series A and Series B Warrants (including the Advisor Warrants) were estimated using a binomial valuation model with the following assumptions:

	September 30, 2011			September 30, 2010
Implied term (years)		0.43			1.43
Suboptimal exercise factor		2.5			2.5
Volatility		78	%		78	%
Dividend yield		0	%		0	%
Risk free interest rate		0.05	%		0.33	%

The carrying values of cash and cash equivalents, accounts receivable, accrued expenses, accounts payable, accrued liabilities and amounts due to related party approximate fair value because of the short-term maturity of these instruments. The Company does not invest its cash in auction rate securities.

At September 30, 2011, the principal outstanding and the carrying amount of the Company’s Series B-1 Note were $1,540,261 and $1,474,000, respectively. The Series B-1 Note contains two embedded derivative features, the conversion option and a redemption privilege accruing to the holder if certain conditions exist (the “compound embedded derivative”), which are measured at fair value both initially and in subsequent periods. The fair value of the convertible notes can be determined based on the fair value of the entire financial instrument.

NOTE 15 — NET LOSS PER SHARE

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

	Year Ended September 30,
	2011			2010

Calculation of net loss per share - basic and diluted

Net loss	$	(1,690,000	)	$	(25,014,000	)
Weighted-average number of common shares outstanding - basic and diluted		162,633,557			135,557,265
Net loss per share - basic and diluted	$	(0.01	)	$	(0.18	)

During the fiscal year ended September 30, 2011, 5,190,000 stock options, 55,229,796 warrants and 8,425,000 restricted stocks were excluded from the calculation of earnings per share because their effect would be anti-dilutive.

NOTE 16 — COMMITMENTS AND CONTINGENCIES

Research and development commitment

Pursuant to a joint research and development laboratory agreement with Shanghai University, dated December 15, 2006 and expiring on December 15, 2016, Solar EnerTech is committed to fund the establishment of laboratories and completion of research and development activities. On November 12, 2010, the Company amended the agreement with Shanghai University and extended the funding commitment from five years to eight years, and consequently the agreement will end on December 15, 2014. Based on the amendment, the Company has committed to fund no less than RMB 30 million ($4.5 million) cumulatively across the eight years. The funding requirements are based on specific milestones agreed upon by the Company and Shanghai University. As of September 30, 2011, there are approximately $3.2 million remaining to be funded in full by December 15, 2014.

The Company will continue to invest in research and development as it grows its business. The payment to Shanghai University will be used to fund program expenses and equipment purchase. Shanghai University needs to obtain the pre-approval from the Company before incurring expenditures on the program. If the Company fails to make pre-approved funding payments, when requested, it is deemed to be a breach of the agreement. If the Company is unable to correct the breach within the requested time frame, Shanghai University could seek compensation up to an additional 15% of the total committed amount for approximately $0.7 million. As of September 30, 2011, the Company is not in breach as it has not received any additional compensation requests for pre-approved funding payment from Shanghai University.

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

Other than capital expenditure related to purchase of fixed assets, expenditures under this agreement will be accounted for as research and development expenditures under FASB ASC 730, "Research and Development” and expensed as incurred.

Convertible note

NOTE 17 — RELATED PARTY TRANSACTIONS

At September 30, 2011 and 2010, the accounts payable and accrued liabilities, related party balance was $0 million and $5.8 million, respectively. The $5.8 million accrued liability at fiscal year ended September 30, 2010 represented $4.8 million of compensation expense related to the Company’s obligation to withhold tax upon exercise of stock options by Mr. Young in the fiscal year 2006 and the related interest and penalties, and $1.0 million of indemnification provided by the Company to Mr. Young for any liabilities he may incur as a result of previous stock options granted to him by Ms. Blanchard, a former officer, in conjunction with the purchase of Infotech on August 19, 2008.

Both the Company’s obligation to withhold tax upon the exercise of stock options by Mr. Young and the indemnification has a three year statute of limitation. The statute of limitation expired as of December 31, 2010. As a result, the Company released the $5.8 million on December 31, 2010.

NOTE 18 — FOREIGN OPERATIONS

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

The Company’s manufacturing operations and fixed assets are all based in China. The Company’s sales occurred in Europe, Australia, North America and China.

NOTE 19 — SUBSEQUENT EVENTS

The Company has reviewed all subsequent events and transactions that occurred from the balance sheet date through the date these financial statements were issued.

In October, 2011, 800,000 shares of our restricted stock were cancelled due to employees’ resignation.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No events or disagreements occurred which are requiring disclosure under Item 304 of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934, our Chief Executive Officer and Chief Financial Officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities Exchange Commission, and to ensure that such information required to be disclosed by our company in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our company's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the lack of finance and accounting personnel with an appropriate level of knowledge, experience and training in the application of U.S. GAAP. Our plan to remediate the material weakness primarily consisted of hiring finance and accounting personnel with an appropriate level of knowledge, experience and training in the application of U.S. GAAP and training, educating and equipping our existing personnel on U.S. GAAP accounting matters. We have improved the training, education and equipment of our accounting personnel in U.S. GAAP, hired a new accounting supervisor and engaged a consulting firm to provide us with professional advice on how to improve our disclosure controls and procedures.

We are in the process of implementing the following measures to remediate these material weaknesses: (a) hire additional financial reporting and accounting personnel with relevant account experience, skills, and knowledge in the preparation of financial statements under the requirements of U.S. GAAP; and (b) continue to work with internal and external consultants to improve the process for collecting and reviewing information required for the preparation of financial statements.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and or our Board of Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the interim or annual consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Under the supervision of our Chief Executive Officer and Chief Financial Officer, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2011, using the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. The material weakness was lacking of expertise in U.S accounting principles among the accounting personnel. The lack of personnel who are trained in U.S. accounting principles is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP. It was determined that we inappropriately accounted for our debt extinguishment transactions, and as such we recorded audit adjustments to properly account for the loss on debt extinguishment.

The material weakness described above could result in a material misstatement of the Company’s consolidated financial statements that would not be prevented or detected. Based on this assessment, management concluded that our internal control over financial reporting was not effective as of September 30, 2011.

We maintain our primary accounting books and records under PRC GAAP, and we prepare our consolidated financial statements under U.S. GAAP through the use of memorandum entries.

Remediation of Material Weakness

We have engaged in, and will continue to engage in, substantial efforts to address the material weakness in our internal control over financial reporting. The audit committee will continue to monitor the remediation plan to address the material weakness noted in prior periods and which remains at the completion of this evaluation of the Company’s internal controls over financial reporting.

To remediate the material weakness described above, the Company has implemented or plans to implement the remedial measures described below.

Employ resources with sufficient U.S. GAAP competence to improve our finance and accounting department and the quality of our US GAAP accounting books and records;

Provide additional training and cross-training to our existing personnel, including areas of new and emerging accounting standards; and

Enhance our accounting and finance policy and procedure manuals to provide guidance to our finance and accounting staff and develop tools or checklists to improve the completeness and accuracies of financial disclosures.

Changes in Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has concluded there were no changes in our internal controls over financial reporting that occurred during the fiscal year ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this Annual Report.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth certain information regarding our directors and executive officers. There are no family relationships among our executive officers and directors.

Name	Age	Position
Leo Shi Young	56	Director, President and Chief Executive Officer
Yihong Yao	36	Chief Financial Officer, Treasurer and Secretary
David Anthony (*)	48	Director, Vice-President, Chief Operating Officer

(*) –Mr. David Anthony resigned as a member of our Board of Directors effective December 5, 2011

LEO SHI YOUNG, Director, President and Chief Executive Officer since April 2006

Prior to becoming our President and Chief Executive Officer, Mr. Young was the co-founder, President and Chief Executive Officer of InfoTech Essentials Inc., an energy-saving technology company in China from 2001 to 2006. Mr. Young was a senior member of the California trade delegation to China in 2005, headed by Governor Arnold Schwarzenegger, and currently serves as an organizing committee member of China’s National Renewable Energy Forum. Mr. Young holds an MBA from Fordham University, New York (2005); an MA from the School of the Art Institute of Chicago (1985); and a BA from Tsinghua University of Beijing (1982).

YIHONG YAO, Chief Financial Officer, Treasurer and Secretary since May 2011

Ms. Yao joined us in May 2011. Ms. Yao has over fourteen years of work experience in accounting and finance in multinational corporations. Prior to joining the Company, Ms. Yao served as Financial Controller at Shanghai Shen-Mei Beverage & Food Co., Ltd., a Coca-Cola subsidiary in China from May 2010 to May 2011. Prior to her position at Coca-Cola, Ms. Yao was Deputy Finance Chief at Shanghai SVA-NEC Liquid Crystal Display Co., Ltd. for six years and previous to that worked at Shanghai Hewlett-Packard Co., Ltd. as a costing supervisor. Ms. Yao began her career at Shanghai Jiao Tong University as an accounting lecturer. She holds a bachelor’s degree in both accounting and economic law from Jiangxi University of Finance and Economics and a master’s degree in accounting from the Shanghai University of Finance and Economics.

DAVID ANTHONY, Director since January 2010

Mr. Anthony is an experienced entrepreneur, venture capitalist, and educator. He is the Managing Director of 21 Ventures, a position he has held since 2003, and sits on the boards of ThermoEnergy Corporation, Agent Video Intelligence, Axion Power International, Inc., 3GSolar, BioPetroClean, Open Energy and VOIP Logic. Prior to 21 Ventures, Mr. Anthony launched Notorious Entertainment, a developer of multimedia brands.

Board Composition and Committees

As of September 30, 2011, our Board of Directors comprised of Leo Shi Young and David Anthony. Of such directors, David Anthony was an “independent director” as such term is defined in NASDAQ Manual Rule 5605 (a)(2) of the listing standards of the NASDAQ Stock Market. Mr. Anthony resigned as a member of our Board of Directors effective December 5, 2011. We were not a party to any transaction, relationship or other arrangement with any of our “independent directors” that was considered by our Board of Directors under NASDAQ Manual Rule 5605 (a)(2) in the determination of such director’s independence.

Our Board of Directors directs the management of our business and affairs, as provided by Delaware law, and conducts its business through meetings of the Board of Directors. The composition of the board committees will comply, when required, with the applicable rules of the exchange on which our common stock is listed and applicable law. Our Board of Directors has adopted a written charter for each of the standing committees, each of which is available on our website.

While we have charters providing for an Audit Committee, Compensation Committee and Nominating and Governance Committee, we do not currently have members of the Board of Directors serving on any of the committees.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934 requires any person who is our director or executive officer or who beneficially holds more than 10% of any class of our securities which have been registered with the SEC, to file reports of initial ownership and changes in ownership with the SEC. These persons are also required under the regulations of the SEC to furnish us with copies of all Section 16(a) reports they file.

Based solely on a review of copies of such reports furnished to us and written representations that no other reports were required during the fiscal year ended September 30, 2011, we believe that all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis with the SEC.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and directors. The Code of Business Conduct and Ethics is available on our website at www.solarE-power.com and was filed with SEC on February 11, 2008 as Exhibit 14.1 to our Form 8-K.

ITEM 11. EXECUTIVE COMPENSATION

The following table and discussion sets forth information with respect to all compensation awarded to, earned by or paid to our Chief Executive Officer and to any executive officer whose annual salary and bonus exceeded $100,000 during our last completed fiscal year.

SUMMARY COMPENSATION TABLE

				Option Awards($)			Other Compensation
Name and principal position	Year	Salary ($)		(1)			($)			Total ($)
Leo Shi Young	2011		250,000		2,154,000	(3)		30,000	(2)		2,434,000
President and Chief Executive Officer	2010		238,000		2,428,000	(3)		29,000	(2)		2,695,000

Yihong Yao
Chief Financial Officer	2011		35,000		6,000	(4)					41,000

(1)

Option award values reflect the amortization expense recognized by the Company in accordance with FASB ASC 718, “Compensation – Stock Compensation” (“FASB ASC 718"), during fiscal year 2007 for unvested and outstanding stock option grants. The total value to be expensed over the amortization or vesting period for each award was determined using the Black-Scholes option pricing model with assumptions as disclosed in this Form 10-K in Item 7 Financial Statements, Note 3. Summary of Significant Accounting Policies under the heading “Stock Based Compensation.”

(2)	The Company provided apartment while Mr. Young was working in the Shanghai office.

(3)

On August 19, 2008, Mr. Young was granted 11.75 million restricted shares. These restricted shares were fully vested on August 19, 2011. On August 18, 2011, Mr. Young was granted 3.0 million options under the terms of the Company’s 2007 Stock Incentive Plan with an exercise price of $0.055. The amount shown reflect the grant date fair value computed in accordance with FASB ASC 718.

(4)

On July 2, 2011, Ms. Yao was granted 1.0 million restricted shares. One-third of these shares will vest on July 2, 2012 and the remaining two-thirds will vest monthly beginning on August 2, 2012 until July 2, 2014. The amount shown reflect the grant date fair value computed in accordance with FASB ASC 718.

AGREEMENT WITH PRINCIPAL EXECUTIVE OFFICER

Amended and Restated Executive Employment, Incentive, and Severance Agreement with Mr. Leo Shi Young

Under the terms of the Amended and Restated Executive Employment, Incentive, and Severance Agreement entered into between the Company and Mr. Young dated January 7, 2010 (the “Amended Young Employment Agreement”) which amended and restated that certain Equity Incentive, Change of Control Retention and Severance Agreement dated August 19, 2008; Mr. Young is entitled to receive (i) an annual base salary of $250,000; (ii) additional options for a number of shares of the Company’s common stock to be determined by the Board if the Company reaches certain operating and financial metrics agreed upon between the Board and Mr. Young; (iii) a severance arrangement of a lump sum payment in an amount equal to eighteen (18) months of Mr. Young’s then effective base salary and acceleration of vesting of stock options and restricted stock under certain conditions; and (iv) other benefits as set forth in the Amended Young Employment Agreement.

Amended and Restated Employment Agreement with Ms. Yihong Yao

The Company entered into a labor contract (the “Yao Agreement”) effective May 16, 2011 with Yihong Yao whereby Ms. Yao serves as the Company’s Chief Financial Officer. Under the Yao Agreement, Ms. Yao receives an annual salary of Chinese RMB 600,000 and Ms. Yao will be eligible to receive an annual bonus equal to approximately one month’s salary. The term of the Agreement is three years.

On August 10, 2011, the Company entered into an amendment ("Labor Contract Amendment") to the Yao Agreement. Under the Labor Contract Amendment, the parties agreed that the issuance of 1,000,000 shares of restricted common stock to Yihong Yao on July 2, 2011 pursuant to the Company's 2008 Restricted Stock Plan (with such award to be evidenced by and subject to the terms and conditions of the form of restricted stock agreement previously adopted by the Company, except that the vesting of such restricted stock awards shall be over three years, with one-third of such shares vested upon the one year anniversary of the date of grant, and the balance to vest in equal monthly installments thereafter) superseded any obligation of the Company to issue a stock option grant to purchase up to 500,000 shares of the Company's Common Stock referenced in the original labor contract. The Company does not have any further obligations to issue equity securities to Yihong Yao.

Outstanding Equity Awards at Fiscal Year-End

OUTSTANDING EQUITY AWARDS AT SEPTEMBER 30, 2011

Name

Number of Securities

Underlying Unexercised

Options (#)

Exercisable

Number of Securities

Underlying Unexercised

Options (#)

Unexercisable

Option Exercise

Price ($)

Option Expiration

Date

Number of Shares or

Units of Stock(#)

That Have Not Vested

(#)

Market Value of

Shares or units of

Stock That have Not

Vested ($) (1)

Leo Shi Young

3,000,000

(2)

0.055

8/18/2021

Yihong Yao

1,000,000

(3)

30,000

(1)	Based on a closing price of Solar EnerTech's common stock of $0.03 on September 30, 2011.

(2)	Represents options granted to Mr. Young on August 18, 2011 under the terms of the Company’s 2007 Stock Incentive Plan with an exercise price of $0.055. The options vest 25% annually over 4 years beginning on August 18, 2012.

(3)	On July 2, 2011, Ms. Yao was granted 1.0 million shares of restricted stocks. One-third of these shares will vest on July 2, 2012 and the remaining two-thirds will vest monthly over 2 years beginning on August 2, 2012 until July 2, 2014.

DIRECTOR COMPENSATION

Name

Option Awards ($)

All Other

Compensation

($)

Total ($)

Leo Shi Young (1)

David Anthony (2) (3)

(1)	Please see the Summary Compensation Table above with respect to compensation earned by Mr. Young as an executive officer of the Company.

(2)	No cash compensation and share options received by David Anthony.

(3)	Mr. Anthony resigned as a member of our board of directors effective December 5, 2011.

Compensation of Directors

Narrative to Director Compensation Table

On February 22, 2008, the Compensation Committee of the Board of Directors recommended and the Board adopted the following compensation arrangements for our non-employee directors:

	Attendance Fees	Stock Option Award

All Board Members	$1,500 per Board meeting attended in person; $300 per Board meeting attended telephonically	25,000 shares vesting ratably over one year


Audit Committee	$1,500 per committee meeting attended in person; $300 per committee meeting attended telephonically (1)	—

Audit Committee Chair	—	Additional award of 175,000 shares vesting ratably over one year

Compensation Committee	$1,500 per committee meeting attended in person; $300 per committee meeting attended telephonically (1)	—

Compensation Committee Chair	—	Additional award of 75,000 shares vesting ratably over one year

Nominating and Governance Committee	$1,500 per committee meeting attended in person; $300 per committee meeting attended telephonically (1)	—

Nominating and Governance Committee Chair	—	Additional award of 75,000 shares vesting ratably over one year

(1)	Attendance of committee meetings that are held on the same day with a general Board meeting do not result in receiving additional attendance fees for attendance of the committee meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)			Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column a) (c)
Equity compensation plans approved by security holders		5,190,000	(1)	$	0.18		9,810,000
Equity compensation plans not approved by security holders		—		$	—		—

(1) Represents options to purchase common stock issued pursuant to the terms of the 2007 Equity Incentive Plan, as amended and restated.

a — Our common stock is currently quoted by the Over-The-Counter Quote Board under the symbol “SOEN”.

b — We have approximately 59 record holders on November 30, 2011.

c — No cash dividend has been declared.

Options

Amended and Restated 2007 Equity Incentive Plan

On September 24, 2007, our Board of Directors approved the adoption of the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the issuance of a maximum of 10 million shares of common stock in connection with awards under the 2007 Plan. Such awards may include stock options, restricted stock purchase rights, restricted stock bonuses and restricted stock unit awards. The 2007 Plan may be administered by the Company’s Board of Directors or a committee duly appointed by the Board of Directors and has a term of 10 years. Participation in the Plan is limited to employees, directors and consultants of the Company and its subsidiaries and other affiliates. Options granted under the 2007 Plan must have an exercise price per share not less than the fair market value of the Company’s common stock on the date of grant. Options granted under the 2007 Plan may not have a term exceeding 10 years. Awards will vest upon conditions established by the Board of Directors or it’s duly appointed Committee. Subject to the requirements and limitations of section 409A of the Internal Revenue Code of 1986, as amended, in the event of a Change in Control (as defined in the 2007 Plan), the Board of Directors may provide for the acceleration of the exercisability or vesting and/settlement of any award, the Board of Directors may provide for a cash-out of awards or the Acquirer (as defined in the 2007 Plan) may either assume or continue the Company’s rights and obligations under any awards.

On February 5, 2008, the Board of Directors adopted the Amended and Restated 2007 Equity Incentive Plan (the “Amended 2007 Plan”), which increases the number of shares authorized for issuance from 10 million to 15 million shares of common stock and was to be effective upon approval of the Company’s stockholders and upon the Company’s reincorporation into the State of Delaware. On May 5, 2008, at the Company’s Annual Meeting of Stockholders, the Company’s stockholders approved the Amended 2007 Plan. On August 13, 2008, the Company reincorporated into the State of Delaware.

As of September 30, 2011, the Board of Directors granted options to purchase 5,190,000 shares of our common stock to our employees, director and consultants.

2008 Restricted Stock Plan

The 2008 Plan provides for the issuance of a maximum of 25,250,000 shares of restricted stock in connection with awards under the 2008 Plan. The 2008 Plan is administered by the Company’s Compensation Committee, a subcommittee of our Board of Directors, and has a term of 10 years. Restricted stock vest over a three year period and unvested restricted stock are forfeited and cancelled as of the date that employment terminates. Participation is limited to employees, directors and consultants of the Company and its subsidiaries and other affiliates. During any period in which shares acquired pursuant to the 2008 Plan remain subject to vesting conditions, the participant shall have all of the rights of a stockholder of the Company holding shares of stock, including the right to vote such shares and to receive all dividends and other distributions paid with respect to such shares. If a participant terminates his or her service for any reason (other than death or disability), or the participant’s service is terminated by the Company for cause, then the participant shall forfeit to the Company any shares acquired by the participant which remain subject to vesting Conditions as of the date of the participant’s termination of service. If a participant’s service is terminated by the Company without cause, or due to the death or disability of the participant, then the vesting of any restricted stock award shall be accelerated in full as of the effective date of the participant’s termination of service.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables sets forth security information as of November 30, 2011, as to each person or group who is known to us to be the beneficial owner of more than 5% of our outstanding voting securities, each of our executive officers and directors and of all of our executive officers and directors as a group. On November 30, 2011, we had 181,480,266 shares of common stock outstanding.

Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each shareholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the shareholder.

Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days after November 30, 2011 are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

Security Ownership of Certain Beneficial Owners

Name and Address		Number of Shares Beneficially Owned				Percentage Owned
The Quercus Trust (1)			125,734,189				56	%

(1) Information based on Amendment No. 7 to Schedule 13D dated January 7, 2010. The address for The Quercus Trust is 1835 Newport Blvd., A109-PMB 467, Costa Mesa, CA 92627. Each of David Gelbaum and Monica Chavez Gelbaum, acting alone, has the power to exercise voting and investment control over the shares of Common Stock owned by The Quercus Trust. The Quercus Trust holds 83,127,191 shares of common stock and warrants to purchase 42,606,998 shares of common stock.

Security Ownership of Management

	Number of Shares
Name and Address (1)	Beneficially Owned			Percentage Owned

Leo Shi Young		15,284,286	(2)		8	%

Yihong Yao		1,000,000	(3)		1	%

All directors and officers as a group		16,284,286			9	%

(1)	The address for our officers and directors is 655 West Evelyn Avenue, Suite #2, Mountain view, CA 94041.

(2)	On August 18, 2011, Mr. Young was granted 3.0 million options under the terms of the Company’s 2007 Stock Incentive Plan with an exercise price of $0.055. The options vest 25% annually over 4 years beginning on August 18, 2011. As of September 30, 2011, none of the shares have been vested.

(3)

Ms. Yao was granted 1,000,000 of restricted shares on July 2, 2011. One-third of these shares will vest on July 2, 2012 and the remaining two-thirds will vest monthly beginning on August 2, 2012 until July 2, 2014. These restricted shares bear voting rights and therefore are included in this calculation.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

At September 30, 2011 and 2010, the accounts payable and accrued liabilities, related party balance was $0 million and $5.8 million, respectively. The $5.8 million accrued liability in the fiscal year ended September 30, 2010 represented $4.8 million of compensation expense related to the Company’s obligation to withhold tax upon exercise of stock options by Mr. Young in the fiscal year 2006 and the related interest and penalties, and $1.0 million of indemnification provided by the Company to Mr. Young for any liabilities he may incur as a result of previous stock options granted to him by Ms. Blanchard, a former officer, in conjunction with the purchase of Infotech on August 19, 2008.

Both the Company’s obligation to withhold tax upon the exercise of stock options by Mr. Young and the indemnification have three year statute of limitation. The statute of limitation expired as of December 31, 2010. As a result, the Company released the $5.8 million on December 31, 2010.

DIRECTOR INDEPENDENCE

As of September 30, 2011, the Board of Directors comprised of Leo Shi Young and David Anthony. Of such directors, David Anthony was an “independent director” as such term is defined in NASDAQ Manual Rule 5605 (a)(2) of the listing standards of the NASDAQ Stock Market. Mr. Anthony resigned as a member of our Board of Directors effective December 5, 2011. The Company was not a party to any transaction, relationship or other arrangement with any of its “independent directors” that was considered by our Board of Directors under NASDAQ Manual Rule 5605 (a)(2) in the determination of such director’s independence.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate fees billed by our auditors for professional services rendered for the audit of our annual consolidated financial statements and the review of our quarterly financial statements for the fiscal years ended September 30, 2011 and 2010 were as follows:

	Fiscal Year 2011		Fiscal Year 2010
Child, Van Wagoner & Bradshaw, PLLC — Audit fee	$	190,000	$	-
Child, Van Wagoner & Bradshaw, PLLC — Audit related fees		8,000		-
Ernst & Young Hua Ming — Audit fee		80,000		390,000
Ernst & Young Hua Ming — Audit related fees		-		80,000

Total	$	278,000	$	470,000

Tax Fees

We paid no fees to auditors for tax compliance, tax advice or tax compliance services during the fiscal years ended September 30, 2011 and 2010, respectively.

All Other Fees

We did not incur any other fees billed by auditors for services rendered to our Company, other than the services covered in “Audit Fees” and S-1 filing fee for the fiscal years ended September 30, 2011 and 2010.

Pre-Approval Policies Regarding Audit and Permissible Non-Audit Services

Our Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent auditor and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE

The following documents are being filed as part of this report on Form 10-K:

(a) Index to Consolidated Financial Statements:

	Page

Reports of Independent Registered Public Accounting Firm		34
Consolidated Balance Sheets as of September 30, 2011 and 2010		36
Consolidated Statements of Income for the years ended September 30, 2011 and 2010		37
Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2011 and 2010		38
Consolidated Statements of Cash Flows for the years ended September 30, 2011 and 2010		39
Notes to Consolidated Financial Statements		40

(b) Exhibits

2.1		Agreement and Plan of Merger with Solar EnerTech Corp., a Nevada corporation and our predecessor in interest, dated August 13, 2008, incorporated by reference from Exhibit 2.1 to our Form 8-K filed on August 14, 2008.

3.1		Certificate of Incorporation, incorporated by reference from Exhibit 3.1 to our Form 8-K filed on August 14, 2008.

3.2		By-laws, incorporated by reference from Exhibit 3.2 to our Form 8-K filed on August 14, 2008.

4.1		Specimen Common Stock Certificate, incorporated by reference from Exhibit 4.1 to our Form 8-K filed on August 14, 2008.

4.2		Form of Notice of Repricing, incorporated by reference from Exhibit 4.1 to our Form 8-K filed on May 13, 2008.

10.1		English summary of Labor Contract between the Company and Yihong Yao dated May 16, 2011, incorporated by reference from Exhibit 10.2 to our Form 10-Q filed on August 15, 2011.

10.2		Amendment to Labor Contract between the Company and Yihong Yao dated August 10, 2011, incorporated by reference from Exhibit 10.3 to our Form 10-Q filed on August 15, 2011.

10.3		Stock Purchase Agreement, dated August 19, 2008, incorporated by reference from Exhibit 10.1 to our Form 8-K filed on August 19, 2008.

10.4		2008 Restricted Stock Plan established effective as of August 19, 2008, incorporated by reference from Exhibit 10.3 to our Form 8-K filed on August 19, 2008.

10.5		Forms of Restricted Stock Agreement, incorporated by reference from Exhibit 10.4 to our Form 8-K filed on August 19, 2008.

10.6		Form of Indemnity Agreement, incorporated by reference from Exhibit 10.1 to our Form 8-K filed on August 14, 2008.

10.7		Amended and Restated 2007 Equity Incentive Plan, incorporated by reference from Exhibit 10.2 to our Form 8-K filed on August 14, 2008.

10.8		Notice of Grant and Stock Option Agreement (For Participant Resident in the United States of America), incorporated by reference from Exhibit 10.3 to our Form 8-K filed on September 27, 2007.

10.9		Notice of Grant and Stock Option Agreement (For Participant Resident in The Peoples Republic of China), incorporated by reference from Exhibit 10.4 to our Form 8-K filed on September 27, 2007.

10.10		Form of Securities Purchase Agreement between the Company and certain Buyers (as defined therein) dated as of January 11, 2008, incorporated by reference from Exhibit 10.29 to our Form 8-K filed on January 16, 2008.

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

10.12		Form of Securities Purchase Agreement between the Company and certain Buyers (as defined therein) dated as of March 7, 2007, incorporated by reference from Exhibit 10.1 to our Form 8-K filed on March 8, 2007.

10.13		Form of Series A Warrant dated as of March 7, 2007, incorporated by reference from Exhibit 10.4 to our Form 8-K filed on March 8, 2007.

10.14		Form of Series B Warrant dated as of March 7, 2007, incorporated by reference from Exhibit 10.5 to our Form 8-K filed on March 8, 2007.

10.15		Form of Registration Rights Agreement dated as of March 7, 2007, incorporated by reference from Exhibit 10.6 to our Form 8-K filed on March 8, 2007.

10.16		Joint R&D Laboratory Agreement between Solar EnerTech (Shanghai) Co., Ltd. and Shanghai University dated December 15, 2006, incorporated by reference from Exhibit 10.19 to our Form SB-2 filed on April 23, 2007.

10.17		Management Agreement between the Company and Qizhuang Cai dated effective April 6, 2007, incorporated by reference from Exhibit 10.27 to our Form SB-2 filed on April 23, 2007.

10.18		Lease Agreement between Solar EnerTech, Ltd. and Shanghai Jin Qiao Technology Park, Ltd. commenced on February 20, 2006, incorporated by reference from Exhibit 4.1 to our Form 8-K filed on May 12, 2006.

10.19		Joint Venture Agreement between the Company and Jiangsu Shunda Semiconductor Development Co., Ltd. effective April 27, 2009, incorporated by reference from Exhibit 10.1 to our Form 8-K filed on May 1, 2009.

10.20		Exchange Agreement effective March 19, 2010, incorporated by reference from Exhibit 10.1 to our Form 8-K filed on March 22, 2010.

10.21		Series B-1 Convertible Note issued effective March 19, 2010, incorporated by reference from Exhibit 10.2 to our Form 8-K filed on March 22, 2010.

10.22		Engagement letter agreement dated November 11, 2010 by and between the Company and Rodman & Renshaw, LLC,, incorporated by reference from Exhibit 10.23 to our Form S-1/A filed on November 12, 2010.

10.23		Series A and Series B Notes Conversion Agreement dated January 7, 2010 by and between the Company and the Required Holders (as defined therein), incorporated by reference from Exhibit 10.1 to our Form 8-K filed on January 11, 2010.

10.24		Amendment to the Series A, Series B and Series C Warrants dated January 7, 2010 by and between the Company and the Consenting Holders (as defined therein), incorporated by reference from Exhibit 10.2 to our Form 8-K filed on January 11, 2010.

10.25		Voting Agreement dated January 7, 2010 by and between the Company and the Stockholders (as defined therein), incorporated by reference from Exhibit 10.5 to our Form 8-K filed on January 11, 2010.

10.26		Amendment to Series B-1 Convertible Note and Waiver Agreement between Solar EnerTech Corp. and Capital Ventures International dated May 11, 2011, incorporated by reference from Exhibit 10.1 to our Form 8-K filed on May 11, 2011.

14.1		Code of Business Conduct and Ethics, incorporated by reference from Exhibit 14.1 to our Form 8-K filed on February 11, 2008.

21.1		Subsidiaries of the Registrant*

31.1		Section 302 Certification – Chief Executive Officer*

31.2		Section 302 Certification – Chief Financial Officer*

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

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

*	filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOLAR ENERTECH CORP.
Date: December 27, 2011
	By:	/s/ Yihong Yao
		Yihong Yao Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Leo Shi Young and Yihong Yao, and each of them individually, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities to sign any and all amendments to this Report on Form 10-K, and to file the same with, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his or her substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

By:	/s/ Leo Shi Young	Date: December 27, 2011
	Leo Shi Young President, Chief Executive Officer and Director (Principal Executive Officer)

By:	/s/ Yihong Yao	Date: December 27, 2011
	Yihong Yao Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

SOLAR ENERTECH CORP 10-K