Summary of DELI SOLAR (USA), INC.

Item 2. Management's Discussion and Analysis or Plan of Operation

FORWARD-LOOKING INFORMATION

The 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 indirect wholly-owned subsidiary, Bazhou Deli Solar Heating Energy Co. Ltd, a People's Republic of China ("PRC") company ("Deli Solar (Bazhou)"). Its 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 are in the process of constructing a flat plate collector production line and a water tank assembly line. The new assembly line may enhance our production efficiency and improve the quality of our products.

In mid-October 2006, we signed a Memorandum of Understanding ("MOU") with Tianjin Huaneng Group to acquire its 51% ownership of the Tianjin Huaneng Energy Equipment Company, ("Tianjin Huaneng"), which manufactures energy saving boilers and environmental protection equipment for industrial customers. On May 18th 2007, we signed the purchase agreement to acquire the 51% of the Tianjin Hua Neng Energy Equipment company for a purchase price of $3,149,147. We paid approximately $1,575,600 in July 2007. By supplemental agreement dated August 8, 2007 the purchase price was reduced to $1,689,741. However, in addition to the purchase price we are required to pay a finder's fee of approximately $769,418. We also agreed to invest approximately $2.5 million into the new company. The accounting date for this acquisition is July 1, 2007.

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 $258,592 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 tax 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.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

Sales and Gross Profit

Sales for the three months ended June 30, 2007 were $9,418,160 as compared to $7,063,189 for the same period last year, an increase of 33%. Gross profit for the three months ended June 30, 2007 was $1,928,031, an increase of approximately 30%, as compared to $1,487,156 for the three months ended June 30, 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 second quarter in 2007 was about 20.5%, slightly lower as compared with 21.1% in the same period last year which was primarily a result of sales price competition from solar water heaters. We are facing severe price competition in the traditional solar water heaters market. We expect price competition to continue in the following quarters in 2007. As a result, we expect the margins on solar water heaters will likely continue to decrease. However, we believe our new Flat Plate Collector products will improve the gross margin in the following quarters in 2007.

Operating Expenses

Operating expenses for the three months ended June 30, 2007 were $1,143,216, as compared to $1,188,512 for the same period in 2006, a decrease of 4%. The decreased operating expenses were primarily due to effective control of general and administrative expenses.

Advertising expenses for the three months ended June 30, 2007 were $518,619 as compared to $393,128 for the same period last year, an increase of $125,491, or approximately 32%. The increase in advertising expense was a result of our continued increasing emphasis on advertising to increase product awareness, branding and sales. Management believes increased marketing is an effective method the Company can use to gain more market shares in the face of severe competition.

Selling expenses for the three months ended June 30, 2007 were $237,502 as compared to $149,426 for the same period last year, an increase of $88,076, or approximately 59%. These selling expenses consisted primarily of sales promotions, distribution transportation expenses, agency administration expenses and after sales services, such as expenses for installation and replacements. The increase in selling expenses was primarily due to the increase in sales volume and increase in sales promotion activities.

Other general and administrative expenses for the three months ended June 30, 2007 were $241,824, as compared to $539,643 for the same period last year, a decrease of $297,819, or approximately 55%.

Income from Operations

Income from operations for the three months ended June 30, 2007 was $784,815, increased 163% as compared to $298,644 for the three months ended June 30, 2006. The increased income from operations was due to the increased sales revenue and our budget control on operating expenses in the second quarter of 2007.

Net Income

Net income was $646,820 in the three months ended June 30, 2007, compared with $296,236 in the same period last year, primarily due to the increased sales and our budget control on operating expenses in the second quarter of 2007.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

Sales and Gross Profit

Sales for the six months ended June 30, 2007 were $12,414,023 as compared to $9,416,475 for the same period last year, an increase of 32%. Gross profit for the six months ended June 30, 2007 was $2,674,979, an increase of approximately 30%, as compared to $2,057,770 for the six months ended June 30, 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 half year of 2007 was about 21.5%, slightly lower as compared with 21.9% in the same period last year which was primarily a result of sales price competition from solar water heaters.

Operating Expenses

Operating expenses for the six months ended June 30, 2007 were $1,616,539 as compared to $1,551,331 for the same period in 2006, an increase of 4%. Among the operating expenses, the advertising expenses for the six months ended June 30, 2007 were $660,093 as compared to $498,904 for the same period last year, an increase of $161,189, or approximately 32%. The increase in advertising expense was a result of our continued increasing emphasis on advertising to increase product awareness, branding and sales.

Selling expenses for the six months ended June 30, 2007 were $281,532 as compared to $185,328 for the same period last year, an increase of $96,204, or approximately 52%. These selling expenses consisted primarily of sales promotions, distribution transportation expenses, agency administration expenses and after sales services, such as expenses for installation and replacements. The increase in selling expenses was primarily due to the increase in sales volume and increase in sales promotion activities.

Other general and administrative expenses for the six months ended June 30, 2007 were $454,955, as compared to $701,630 for the same period last year, a decrease of $246,675, or approximately 35%. The decrease of the other general and administrative expenses was primarily due to our effective budget control.

Income from Operations

Income from operations for the six months ended June 30, 2007 was $1,058,440, increased 109% as compared to $506,439 for the six months ended June 30, 2006. The increased income was due to the increased sales revenue and our budget control on operating expenses.

Net Income

Net income was $922,102 in the six months ended June 30, 2007, compared with $500,229 in the same period last year, an increase of $421,873, or approximately 84%. The increase was primarily due to the fast growing sales revenue and our budget control on operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by our operating activities was $294,938 for the six months ended June 30, 2007, and was $275,822 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 $374,030 for the six months ended June 30, 2007, compared with $1,550,097 for the same period of 2006. The decrease was due to less capital expenditures on the new facilities and assembly lines in the Bazhou factory as of June 30, 2007 as compared to June 30, 2006.

Net cash provided by financing activities was $2,501,080 for the six months ended June 30, 2007, compared with $31,210 for the same period of 2006. The increase was due to the issuance of preferred stock in June 2007. On June 14, 2007 we raised $2,581,000 (which is equivalent to $2,750,000 less $169,000 stock issuance cost.) in a private placement from the sale of Series A Preferred Stock and Warrants. The investors purchased (i) an aggregate of 1,774,194 shares of Series A Preferred Stock (with each share of Series A Preferred Stock being convertible into one (1) share of Common Stock, subject to adjustment); (ii) five year warrants to purchase 1,774,194 shares of Common Stock at an exercise price $1.90 per share (subject to adjustment); and (iii) five year warrants to purchase an additional 1,774,194 shares of Common Stock at an exercise price of $2.40 per share (subject to adjustment). Additional shares of Series A Preferred Stock (not to exceed 900,000) are required to be issued to the investors in the event that the Company fails to achieve certain income targets for the fiscal years ended December 31, 2007 and 2008.

As of June 30, 2007, the Company did not have long term and 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 six months ended June 30, 2007, accounts receivable increased to $1,295,211 from $986,809 at the end of last year, primarily due to the peak sales season in the second half of the year.

INVENTORY

Inventories as of June 30, 2007 increased to $1,105,550 from $315,765 as of December 31, 2006 mainly because of our preparation for the peak season coming in the second half of the year.

CASH

Cash and cash equivalents increased to $5,711,503 at June 30, 2007 from $3,212,065 at December 31, 2006, primarily as a result of capital raising in June 2007. Our cash balance may decrease in the near future because of purchasing Tianjin Huaneng and the possible purchase of Shenzhen Xiongri.

While we anticipate that our cash flows will be sufficient to support our operations for the next 12 months, we will need to raise additional equity capital to make acquisitions in the following quarters of 2007. There can be no assurance that financing will be available to us, or that if available, that it will be available on satisfactory terms.