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, which 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

We are engaged in the solar and renewable energy business in the People's Republic of China ("PRC").

Our business is conducted through our wholly-owned PRC based operating subsidiaries, Deli Solar (Bazhou) and Deli Solar (Beijing) and our recently acquired indirect majority owned subsidiary Tianjin Huaneng Group Energy Equipment Co., Ltd. ("Tianjin Huaneng") and indirect subsidiary Shenzhen PengSangPu Solar Industrial Products Corporation ("SZPSP").

The Company has three reportable segments namely solar heater/boiler related products, heat pipe related products and energy-saving projects.

· the solar heater/boiler related products are mainly sold by Deli Solar (Bazhou)

· the heat pipe related products are mainly sold by Tianjin Huaneng

· energy-savings projects are mainly sold by SZPSP.

Deli Solar (Bazhou), founded in 1997, designs, manufactures and sells renewable energy systems to produce hot water and for space heating in the PRC. Deli Solar (Bazhou)'s principal products are solar hot water heaters and multifunctional space heaters, including coal-fired boilers for residential use. Deli Solar (Bazhou) also sells component parts for its products and provides after-sales maintenance and repair services.

Deli Solar (Beijing), established during the second quarter of 2006, is principally engaged in the installation of large solar water heaters in construction projects in major cities in the PRC, including Beijing. However, so far there is no revenue derived from Deli solar (Beijing).

Tianjin Huaneng manufactures heating products such as heating pipes, heat exchangers, specialty heating pipes and tubes, high temperature hot blast stoves, heating filters, normal pressure water boilers, solar energy water heaters and radiators.

SZPSP is principally engaged in the manufacture of solar hot water systems for commercial use. Its customers include factories, hospitals, schools and hotels. SZPSP's solar energy products include flat plate solar collectors, solar water heater systems, central solar water heater system and solar energy photovoltaic technology.

Approximately 51.6% of our sales revenues for the three month period ended September 30, 2008 were derived from sales of our solar water heaters and boiler related products, approximately 27.5% derived from sales of heat pipe related products and 20.8% derived from sales of energy-saving projects.

Approximately 99.9% of our sales revenues for the nine month period ended September 30, 2008 were derived from sales made to PRC based customers. Approximately 0.1% of our sales revenues were derived from the international market, all of which were sales of heat pipe related products made by Tianjin Huaneng.

Recent Developments

Additional Capital

February 2008 Private Placement

On February 25, 2008 we raised gross proceeds of approximately $11,300,000 in a private placement from the sale to investors of 4,691,499 shares of common stock at a price of $2.40 per share.

Acquisition of Shenzhen PengSangPu Solar Industrial Products Corporation

On April 1, 2008 Deli Solar (Beijing) completed the acquisition of 100% of the outstanding equity interests of SZPSP from its three shareholders. SZPSP was incorporated as a limited liability company under the laws of the PRC on September 23, 1993.

Cash Purchase Price: $4,087,832 (RMB 28,800,000) of the purchase price was paid in cash. This cash portion was based on an appraisal of SZPSP. The three shareholders agreed to loan the cash portion back to SZPSP to be used as working capital. Fifty percent (50%) of the principal amount of this loan is required to be repaid within one year of entry into the complementary agreement and the remaining balance is required to be paid off within two years.

Stock Purchase Price: In addition to the cash portion of the purchase price, the parties agreed to an additional consideration of RMB 20 million (approximately $2,839,458) representing the agreed-upon value of SZPSP's intangible assets. The purchase price for these intangible assets is required to be paid in 1,419,729 shares of our common stock (based on the average closing price of the common stock for the 30 days immediately preceding the execution of the Complementary Agreement (the "Share Price"), provided that if on March 31, 2009 (the first anniversary of the closing) the common stock price is lower than the Share Price, the Company will pay the difference. Fifty percent (50%) of these shares are transferable and unrestricted after March 31 2009 and the remaining fifty percent (50%) transferable after March 31, 2010. The shares are required to be transferred to SZPSP within 180 days of the closing.

Warrants: In addition, as part of the purchase price the sellers were issued five year warrants to purchase 141,973 shares of common stock at an exercise price of $2.50 per share (subject to adjustment).

Acquisition of shares interest from Tianjin Huaneng minority shareholders

On October 27, 2008, Beijing Deli Solar Technology Development Co., Ltd., our wholly-owned subsidiary ("Deli Solar (Beijing)"), entered into an Equity Interest Purchase Agreement (hereinafter the "Agreement") to acquire approximately 29.97% of the outstanding equity interest of Tianjin Huaneng Group Energy Equipment Co., Ltd., a majority-owned subsidiary of the Company ("Tianjin Huaneng"), from the 29 minority shareholders of Tianjin Huaneng named therein (the "Tianjin Huaneng Shareholders").

Cash Purchase Price: Under the Agreement, Deli Solar (Beijing) agreed to purchase 29.97% of the current equity interest of Tianjin Huaneng from the Tianjin Huaneng Shareholders for RMB 10.68 million ($1,557,578 US Dollars) payable in cash within seven days of the execution of the Agreement.

Warrants Purchase Price. In addition to the cash purchase price, the Company also agreed to issue to the Tianjin Huaneng Shareholders or their designated beneficiaries a total of 1,000,000 five year warrants to purchase the Company's common stock at an exercise price of $1.10 per share.

Moreover, the Company decided to increase its equity interest in Tianjin Huaneng Corporation by contributing an additional RMB 15,740,000 ($2,295,531 US Dollars), which increased the registered capital of Tianjin Huaneng from RMB 5.94 million to RMB 21.68 million following the consummation of the Agreement.

On July 1, 2007, Deli Solar (Beijing) had previously purchased 51% of the equity in Tianjin Huaneng for a purchase price of approximately $1,689,741. Following consummation of the Agreement and the additional capital contribution, the Company will own approximately 91.82% of the equity interest in Tianjin Huaneng.

RESULTS OF OPERATIONS

The sales and operating income amounts related to the acquisition of SZPSP are separately stated under Energy Saving Projects as this is now a separate product line of the company. We believe that presenting the operating results of this product line separately from other product lines results in greater clarity on the reasons for changes in operating results.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

Sales Revenues

An analysis of the Company's revenues and gross profits for each segment is as
follows:

                                                  Three months ended
                                                     September 30,
Revenue                                           2008            2007
Solar water heaters/Boilers & Space heaters   $ 11,317,236.   $  8,813,298
Heat-pipe related products                    $   6,032,199   $  3,816,338
Energy-saving projects                        $   4,567,206   $          0
                                              $  21,916,641   $ 12,629,636

Overall: Sales revenues for the three months ended September 30, 2008 were $21,916,641.86 as compared to $12,629,636.00 for the same period last year, an increase of $9,287,005.86 or 73.53% compared to the same period in 2007. The overall increase in sales is primarily attributed to the acquisition of SZPSP.

Solar Heater/Boiler Related Products: Sales revenues for these products for the three months ended September 30, 2008 were $11,317,236.34 as compared to $8,813,298.00 for the same period last year, an increase of $2,503,938.34 or 28.41%. The increase in sales of solar heaters and boiler related products was a result of higher sales volume resulting from sales promotion in the solar heater segment. We expect an increase in sales of solar heaters and boiler related products due to higher sales volume resulting from increased market demand in the boiler related product segment with the upcoming winter season. The average selling price decreased as a result of increased competition. We expect price competition to continue for the remainder of 2008.

Heat Pipe Related Products: Sales revenues for the three months ended September 30, 2008 were $6,032,199.14 compared to $3,816,338.00 for the same period last year, an increase of $2,215,861 or 58%. The sales of heat pipe related products are attributed to the acquisition of Tianjin Huaneng completed in July 1, 2007. The increase in sales of heat pipe related products was a result of higher sales volume resulting from sales promotion in this segment. We expect an increase in sales of heat pipe related products due to higher sales volume resulting from increased market demand in the boiler related product segment when winter is coming. The average selling price decreased as a result of increased competition. We expect the price competition to continue for the rest of 2008.

Energy saving projects: Sales revenues for the three months ended September 30, 2008 were $4,567,206.38 compared to none for the same period last year. The sales of energy saving projects are attributed to the acquisition of SZPSP completed in April 1, 2008.

Gross Profit

                                                     Three months ended
                                                        September 30,
Gross Profit                                       2008             2007
Solar water heaters/Boilers & Space heaters   $ 2,281,451.28   $ 1,780,175.00
Heat-pipe related products                      1,915,611.27       770,852.00
Energy-saving projects                            668,711.33                0
                                              $ 4,865,773.88   $ 2,551,027.00

Overall: Gross profit for the three months ended September 30, 2008 was $4,865,774, an increase of $2,314,747 or approximately 90.74%, compared to $2,551,027 for the three months ended September 30, 2007. Our gross margin (gross profit as a percentage of sales) in the third quarter of 2008 was approximately 22% compared to approximately 20% in the same period last year. This is primarily due to the increase in the volume of sales of higher margin products such as heat pipe related products.

Solar Heater/Boiler Related Products: Gross profit was $2,281,451 an increase of $501,276 or 28% compared to the same period in the prior year. The increase in overall gross profit was caused mainly by increased revenue due to increased sales volume. Gross margin for the three month period ended September 30, 2008 was unchanged at approximately 20% compared to approximately 20% in the same period last year. However, sales prices decreased slightly. We expect the price competition to continue for the rest of 2008 and as a result we expect gross profit and gross margin on these products to decrease slightly for the rest of 2008.

Heat Pipe Related Products: Gross profit for the three months ended September 30, 2008 was $1,915,611.27 compared to $770,852 for the same period last year. Gross profit of heat pipe related products is attributed to the acquisition of Tianjin Huaneng completed in July 1, 2007. Gross margin (gross profit as a percentage of sales) on these products in the third quarter of 2008 was approximately 32 % compared to 20% for the second quarter.

Energy saving projects: Gross profit for the three months ended September 30, 2008 was $668,711 compared to none for the same period last year. Gross profits of energy saving projects are attributed to the acquisition of SZPSP completed in April 1, 2008. Gross margin (gross profit as a percentage of sales) on these products in the third quarter of 2008 was approximately 15%.

Operating Expenses

Operating expenses for the three months ended September 30, 2008 were $2,777,602, as compared to $1,768,342 for the same period in 2007, an increase of $1,009,260 or 57.1%. The overall increase in operating expenses was primarily due to the acquisition of SZPSP as well as increased sales and marketing expenses detailed below.

Depreciation and amortization expense increased to $183,216 from $82,731 for the same period last year. The increase was mainly due to an increased depreciation and amortization expense of $19,446 as a result of the acquisition of SZPSP as well as increased depreciation expense of $30,039 as a result of new equipment used.

Selling and distribution expense increased to $1,440,357 or 147%, from $583,166 for the same period last year. The increase was mainly due to increased expenses incurred in the development of sales network and promotion programs. Selling expenses consisted of sales promotion expense ($354,467.00), traveling and transportation expenses ($508,662), agency administration expenses ($ 388,713.94) and after sales service ($ 188,513.97).

General and administrative expenses were $719,601 for the three months ended September 30, 2008 (or approximately 5.2% of sales) compared to $532,137 (or approximately 8.7% of sales) for the same period in 2007. The net increase of $187,464 was mainly due to the acquisition of SZPSP.

Advertising expenses for the three months ended September 30, 2008 were $191,615 as compared to $458,652 for the same period in 2007, a decrease of $267,037 or approximately 58%. The decrease in advertising expense was a result of lower TV advertising. Management believes expensive advertising on TV is not the only effective method to increase market share in the face of severe competition. This year, we have focused more on print and internet advertising.

Salaries and benefits increased to $242,813 for the three months ended September 30, 2008 from $111,650 for the same period in 2007, an increase of $131,157 or 117%. The increase reflects both increased salaries and benefits and the number of management and employees as a result of the SZPSP acquisition.

Solar Heater/Boiler Related Products:

Operating expenses for the three months ended September 30, 2008 were $1,544,002 compared to $1,194,010 for the same period in 2007, a decrease of $349,992 or approximately 29%. The decrease in operating expenses was primarily due to decreased general and administrative expenses explained below.

General and administrative expense decreased to $376,280, or 57%, from $870,084 for the same period last year. General and administrative expenses mainly include advertising expenses, salaries and benefits of management, business travel expenses, office expenses and other general and administrative expenses.

Advertising expenses for the three months ended September 30, 2008 were $129,866, as compared to $ 458,652 for the same period last year, a decrease of $328,787.51 or approximately 72%. The decrease in advertising expense was the result of our reduced advertising on TV and with more focus on print and internet advertising.

Depreciation and amortization expense increased to $48,484 an increase of $12,328 or 37% from $36,156.34 for the same period last year. The additional expense was incurred by Deli Solar (Bazhou) in connection with manufacturing property which it began using at the end of 2007.

Selling and distribution expense increased to $892,135, or approximately 290%, from $228,679.57 for the same period last year. The increased expense was due to the development of new distribution networks and the improvement of existing distribution networks as well as additional sales promotion expenses.

Heat pipe related products

Operating expenses for the three months ended September 30, 2008 were $831,227 compared to $574,332 for the same period in 2007. The increase in operating expenses was primarily due to the increase of selling expenses. Operating expenses included selling expenses of $465,709, depreciation and amortization expenses of $64,286 and general and administrative expenses of $301,233.

Energy-saving projects

Operating expenses for the three months ended June 30, 2008 were $252,646 compared to none for the same period in 2007. The increase in operating expenses was primarily due to the acquisition of SZPSP completed in April 1, 2008. Operating expenses included selling expenses $82,513, depreciation and amortization expenses $19,445, and general and administrative expenses $150,687.

Net Income

Net income was $1,639,201 for the three months ended September 30, 2008, compared to $499,074 in the same period last year, an increase of $1,140,127 or approximately 228%. The increase was primarily due to organic growth of sales and the increased sales attributable to our acquisitions of SZPSP.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

Key Items during nine months ended September 30 2008

Significant financial items during the nine months ended September 30 2008 include:

· Completed acquisition of SZPSP.

· Overall net sales increased 95% to $48,846,916.

· Net income increased by120% to $3,125,064

Sales Revenues

An analysis of the Company's revenues for each segment follows:

                                                       Nine months ended
                                                         September 30,
Revenue                                             2008              2007
Solar water heaters/Boilers & Space heaters   $ 24,143,764.24   $ 21,227,322.00
Heat-pipe related products                    $ 17,349,528.95   $  3,816,338.00
Energy saving projects                        $  7,353,622.80   $             0
                                              $ 48,846,915.98   $ 25,043,660.00

Overall: Sales revenues increased to $48,846,915.98 during the nine months ended September 30, 2008 as compared to $25,043,660.00 for the same period in 2007, an increase of $23,803,255.98 or 95%.

The overall increase in sales is the result of (i) the acquisitions of SZPSP, which contributed $7,353,623 to our sales revenues and (ii) our investment in marketing, sales promotion of our solar water heaters and the development of a more extensive sales distribution network for our solar water heaters and our boiler related products discussed below.

Solar Heater/Boiler Related Products: Sales revenues of this product segment during the nine months ended September 30, 2008 increased to $24,143,764.24 from $21,227,322.00 for the same period in 2007, an increase of $2,916,442.24 or approximately 13.8%. Approximately $16 million were derived from sales of solar hot water heaters, a 13% increase from the same period in 2007; approximately $8.14 million was derived from sales of coal-fired boilers and space heating products, about a 14.9% increase as compared to the same period in 2007.

The increase in sales of solar heaters and boiler related products was a result of our investment in marketing and sales promotion and the development of a more extensive sales distribution network for these products. The increase in sales revenues was not a onetime event, and it is not the result of an increase in sales prices of our products. It is the result of increased sales volume. On the contrary, the sales prices for our solar heater and boiler related products have been declining due to increased competition. Going forward, we believe that the continued organic growth of revenue of this segment will be negatively impacted by increased competition in the solar heater segment which is causing us to lower our prices. We expect the price competition to continue for the next year and we expect sales revenues on this product segment to increase slightly.

Heat Pipe Related Products: Sales revenues during the nine months ended September 30, 2008 were $17,349,528.95 compared to $3,816,338 for the same period last year, an increase of $13,533,191 or approximately 355%. The sales of heat pipe related products are attributed to the acquisition of Tianjin Huaneng completed in July 1, 2007.

Energy saving projects: Sales revenues during the nine months ended September 30 2008 were $7,353,622.80 compared to none for the same period last year. The sales of energy-saving projects are attributed to the acquisition of SZPSP completed in April 1, 2008 and our commencement to sell these products.

Gross Profit

                                                     Nine months ended
                                                       September 30,
Gross Profit                                       2008              2007
Solar water heaters/Boilers & Space heaters   $  4,901,772.66   $    4,429,629
Heat-pipe related products                    $  5,697,302.91   $      796,378
Energy-saving projects                        $  1,178,740.85   $            -
                                              $ 11,777,816.42   $ 5,226,007.00

Overall: Gross profit during the nine months ended September 30, 2008 was $11,777,816 compared to $5,226,007 for the same period last year. The increase in gross profit is the result of our organic growth of gross profit $6,551,809 and the acquisition of SZPSP, which contributed $1,178,741 to our gross profit, accounting for 10% of our overall gross profit.

Gross margin (gross profit as a percentage of sales) during the nine months ended September 30, 2008 was approximately 24% compared to approximately 21% in the same period in 2007. The higher profit margin achieved during the nine months ended September 30, 2008 is due to sales of Tianjin Huaneng's products with higher profit margins. The profit margins on our solar heaters have been falling because of market pressure to keep our prices competitive (down by 2% compared to the same period last year). We are facing severe price competition in the traditional solar water heater market. We expect price competition to continue through the end of 2008. As a result, we expect our gross profit margin for our solar water heaters to continue to decrease. However, we anticipate that Tianjin Huaneng's energy saving boilers and environmental protection equipment will generate better gross profit margins to offset the decline in our profit margins for solar water heaters and residential boilers. The gross margin on the sale of the Tianjin Huaneng's products was 33% during the nine months ended September 30 2008.

Solar Heater/Boiler Related Products: Gross profit was approximately $4,901,772 during the nine months ended September 30, 2008, about a 11% increase compared to the same period of prior year of approximately $4,429,629.

ed slightly during the nine months ended September 30, 2008 to 20.3% compared to the approximately 20.9% in the same period in 2007. The increased competition led to the drop of the profit margin of the solar system. We are facing severe price competition in the traditional solar water heater market. We expect price competition to continue through the end of 2008. As a result, we can forsee the continuous decrease in the profit margin of the solar water heaters. Accordingly, to deal with this trend, management intends to invest more in R & D to develop a new high tech product and focus on flat-plate solar panels for commercial and industrial customers instead of traditional evacuated tube solar water heaters for residential customers.

Heat Pipe Related Products: Gross profit on the sale of heat pipe related products was $5,697,303 which was attributed to the acquisition of Tianjin Huaneng. Gross margin (gross profit as a percentage of sales of these products) was approximately 33%. We anticipate that Tianjin Huaneng's energy saving boilers and environmental protection equipment will generate better gross profit margins to offset the decline in our profit margins for solar water heaters and residential boilers.

Energy-saving projects: Gross profit on the sale of energy-saving projects was $1,178,741 which was attributed to the acquisition of SZPSP. Gross margin (gross profit as a percentage of sales of these products) was approximately 16%. However, we anticipate that SZPSP's energy saving projects will generate better gross profit margins for the rest of the year and the following years, as we expect to sign more contracts with higher price and higher gross margin as a result of the excellent marketing of our products and brands.

Operating Expenses

Operating expenses increased to $6,436,978 during the nine months ended September 30, 2008 as compared to $3,384,882 for the same period in 2007. This represented an increase of $3,052,096 or about 90%. The overall increase in operating expenses was primarily due to the acquisition of SZPSP (whose operating expenses amounted to $757,765) as well as increased selling and distribution expenses described below.

Selling and distribution expenses increased to $3,060,961 from $864,698 for the same period in 2007, an increase of $2,196,262.61, or 254%. These selling and distribution expenses consisted primarily of non cash sales promotion expenses ($588,122), traveling and transportation expenses ($1,016,441), and agency administration expenses ($1,018,995) and after sales services ($437,402). The increase in selling and distribution expenses was primarily the result of our acquisition of SZPSP (whose selling and distribution expenses were $102,740.)

General and administrative expenses were $1,602,809 during the nine months ended . . .