FORWARD-LOOKING INFORMATION - Management's Discussion and Analysis ("MD&A") includes "forward-looking statements". All statements, other than statements of historical facts, included in this MD&A regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside of the Company's control, that could cause actual results to materially differ from such statements. While the Company believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors, especially the timing and magnitude of technological advances; the prospects for future acquisitions; the competition in the solar water heaters and boilers industry and the impact of such competition on pricing, revenues and margins; uncertainties surrounding budget reductions or changes in funding priorities of existing government programs and the cost of attracting and retaining highly skilled personnel.

OVERVIEW

Deli Solar (USA), Inc. ("we," "us" or the Company) is a holding company for our indirectly wholly-owned subsidiary, Bazhou Deli Solar Heating Energy Co. Ltd, a company incorporated in the People's Republic of China ("PRC") ("Deli Solar (Bazhou)") through our directly wholly-owned subsidiary Deli Solar Holding Ltd. ("Deli Solar (BVI)"), a company incorporated in the British Virgin Islands. Deli Solar (Bazhou)'s principal products are solar water heaters and space heating and cooking products including coal-fired residential boilers. It also sells accessories, component parts, and provides after-sales maintenance and repair services. We also directly wholly own Beijing Deli Solar Technology Development Co., Ltd. ("Deli Solar (Beijing)"), which is principally engaged in solar power heater integrated construction projects in major cities in China.

In October 2006, we signed a Memorandum of Understanding ("MOU") with Tianjin Huaneng Group to acquire its 51% ownership of Tianjin Huaneng Energy Equipment Company ("Tianjin Huaneng"), which manufactures energy saving boilers and environmental protection equipment for industrial customers. Aside from the purchase price, which is still being negotiated, we also agreed to invest approximately $2.5 million into the new company. The transaction has not yet taken place as of the date of this Report. We believe Tianjin Huaneng had approximately $15 million sales revenue and $2 million in net profits before taxes for fiscal 2006 and we are continuing due diligence on the company and there can be no assurance the actual revenues and profits will be at these levels.

In December 2006 we signed an MOU with Shenzhen Xiongri Solar Power Co., Ltd. ("Shenzhen Xiongri") to acquire 60% of its equity for a purchase price of approximately $250,000 and additional contingent consideration of up to $5 million consisting of shares of our common stock. Shenzhen Xiongri is located Shenzhen, PRC. Its local government provides strong support for the solar water heater industry which could help us grow business in that area. We paid an initial deposit of $256,278 to Shenzhen Xiongri. The acquisition has not taken place as of the date of this Report. We believe Shenzhen Xiongri had approximately $7 million sales revenue and $1 million in net profits before taxes in 2006 and we are continuing due diligence on the company and there can be no assurance the actual revenues and profits will be at these levels.

We are in the process of constructing a flat plate collector production line and a water tank assembly line. We anticipate that these two lines will be ready for operation by the end of May 2007. We believe that the new assembly line is likely to enhance our production efficiency and improve the quality of our products.

During the quarter ended March 31, 2007, our integrated solar heating installation project under the agreement with Beijing Municipal Mengtougou District Yingtaogou Village Committee was suspended because of the default of payment by the other party. As of March 31, 2007 there were approximately $12,920 in accounts receivable under that project. We had anticipated revenues of approximately $389,000 from this project.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

Sales and Gross Profit

Sales for the three months ended March 31, 2007 were $2,995,863 as compared to $2,353,287 for the same period last year, an increase of 27%. Gross profit for the three months ended March 31, 2007 was $746,948, an increase of approximately 31%, as compared to $570,615 for the three months ended March 31, 2006. The increase in sales is attributable to our continued investment in brand marketing, sales promotion and our development of a sales distribution network. Our sales gross margin in the first three months in 2007 was approximately 24.94%, which is slightly higher than the 24.25% in the same period last year which was primarily a result of higher proportion of sales of residential boilers with higher margin. The residential boilers we sell are custom designed based on requested specifications. Therefore, it is more difficult for our competitors to compete against us for residential boilers as we have the capability to custom make residential boilers. We are still facing severe price competition in the traditional solar water heater market. We expect price competition to continue in the following quarters in 2007. As a result, we expect the margin on solar water heaters is likely to decrease.

The following chart is a break down of our sales and the margin for each category of our products.

                               Three Months Ended          Three Months Ended
                                 March 31, 2007              March 31, 2006              Sales Comparison              Margins Comparison
                                                                                    Increase/                      Increase/
                               Sales        Margins        Sales        Margins      Decrease      Percentage      Decrease       Percentage
Total                       $  2,995,863       24.94 %  $  2,353,287       24.25 %  $  642,576              27 %         0.69 %           2.85 %
From Solar Water Heaters    $  1,222,623       20.80 %  $    956,371       21.10 %  $  266,252            27.8 %        -0.30 %          -1.42 %
From Coal Fired
Residential Boilers         $  1,665,151       26.90 %  $  1,258,713       25.60 %  $  406,438            32.3 %         1.30 %           5.08 %
From accessories and
component parts             $    108,089       40.50 %  $    138,203       33.70 %    ($30,114 )         -21.7 %         6.80 %          20.18 %

Operating Expenses

Operating expenses for the three months ended March 31, 2007 were $473,323, as compared to $362,847 for the same period in 2006, an increase of 30%. The increased operating expenses were primarily due to increased marketing and advertising activities, as well as the selling expenses detailed below.

Advertising expenses for the three months ended March 31, 2007 were $141,474 as compared to $105,776 for the same period last year, an increase of $35,698, or approximately 34%. The increase in advertising expense was a result of our emphasis on advertising to increase product awareness, branding and sales. Management believes strengthening marketing is an effective method the Company can use to gain more market share in the face of severe competition.

Selling expenses for the three months ended March 31, 2007 were $44,030 as compared to $35,902 for the same period last year, an increase of $8,128, or approximately 23%. Selling expenses consisted primarily of distribution transportation expenses, agency administration expenses and after sales service, such as expenses for installation and replacements. The increase in selling expenses was primarily due to the increase in sales volume.

Other general and administrative expenses for the three months ended March 31, 2007 were $213,131, as compared to $162,013 for the same period last year, an increase of $51,118, or approximately 32%. The increase of the other general and administrative expenses was primarily due to the potential mergers and acquisitions we are contemplating including the related consulting services and due diligence services.

Income from Operations

Income from operations for the three months ended March 31, 2007 was $273,625, an increase of 31.6% as compared to $207,768 for the three months ended March 31, 2006. The increased income was due to the increased sales revenue and our budget control on operating expenses in the first quarter of 2007.

Net Income

Net income was $275,282 for the three months ended March 31, 2007, compared with $203,993 in the same period last year, an increase of $71,289 or approximately 34.9%. The increase was primarily due to the increased sales and our budget control on operating expenses in the first quarter of 2007.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by our operating activities was $909,192 for the three months ended March 31, 2007, and was $263,696 for the same period of 2006. The increase in net cash provided by operations was due to effective control over our working capital, especially the tight control over accounts receivable and advances to suppliers.

Net cash used in investing activities was $154,617 for the three months ended March 31, 2007, compared with $1,342,641 for the same period of 2006. The decrease was due to decreased capital expenditures on new facilities and assembly lines in the Bazhou factory as of March 31, 2007 as compared to that as of March 31, 2006.

As of March 31, 2007, the Company did not have long term or short term debt.

We intend to use our available funds to accelerate the development and testing of new product lines. We believe that our available funds will provide us with sufficient capital for the next twelve months. However, to the extent that we make acquisitions or establish additional production facilities, we may require additional capital for the acquisition or for the operation of the combined companies. We cannot assure you that such funding will be available.

ACCOUNTS RECEIVABLE

During the three months ended March 31, 2007, accounts receivable decreased to $615,384 from $986,809, primarily due to our active collection efforts.

INVENTORY

Inventories as of March 31, 2007 increased to $400,200 from $315,765 as of December 31, 2006 principally because of our preparation for the peak selling season in the second quarter of 2007.

CASH

Cash and cash equivalents increased to $3,994,191 at March 31, 2007 from $3,212,065 at December 31, 2006, primarily as a result of the increased operational income and our continued effort in working capital management. In the foreseeable future, if the acquisition of Tianjin Huaneng and/or Shenzhen Xiongri occurs, our cash may decrease.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying notes. Note 2 to the Consolidated Financial Statements describe the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. The areas described below are affected by critical accounting estimates and are impacted significantly by judgments and assumptions in the preparation of the Consolidated Financial Statements. Actual results could differ materially from the amounts reported based on these critical accounting estimates.

a) Revenue Recognition

Product sales are recognized when the products are delivered to and inspected by customers and title has passed. The Company provides a three-year standard warranty to all of the products it manufactures. Under this standard warranty program, repair and replacement of defective component parts are free of any charge during the first year following the purchase. In the second and third year, customers must pay for the purchase of the replacement parts, but not for repair services. Our warranty services are performed by our independent sales agents and distributors in return for a 1-2% discount of the purchase price they pay for our products.

b) Allowance for Doubtful Accounts

The Company's business operations are conducted in the People's Republic of China. We extend unsecured trade credit to our relatively large customers according to their sales volume and historical payment records. The allowance for doubtful accounts is established through charges to the provision for bad debts. We regularly evaluate the adequacy of the allowance for doubtful accounts based on historical trends in collections and write-offs, our judgment as to the probability of collecting accounts and our evaluation of business risk.. This evaluation is inherently subjective, as it requires estimates that are susceptible to revision as more information becomes available. Accounts are determined to be uncollectible when the debt is deemed to be worthless or only recoverable in part and are written off at that time through a charge against the allowance.

c) Plant and Equipment

Plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded utilizing the straight-line method over the estimated original useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life of the asset or the term of the lease, whichever is shorter. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales.