FORWARD-LOOKING INFORMATION - Management's Discussion and Analysis or Plan of Operation ("MD&A") includes "forward-looking statements". All statements, other than statements of historical facts, included in this report 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 prospects for future acquisitions; the competition in the solar hot water product market, the competition in the solar water heaters and boilers industry and the impact of such competition on pricing, revenues and margins; and the cost of attracting and retaining highly skilled personnel.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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 47% of our sales revenues for the fiscal year ended December 31, 2007 were derived from sales of our solar water heaters, 19% derived from sales of heat exchange equipment with the balance of approximately 34% derived from sales of our coal-fired boilers, space heating and other products.

88% of our sales revenues for the fiscal year ended December 31, 2007 were derived from sales made to PRC based customers. Approximately 12% of our sales revenues were derived from the international market.

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 providing from the sale to investors of 4,691,499 shares of common stock at a price of $2.40 per share.

June 2007 Private Placement

On June 13, 2007 we raised gross proceeds of approximately $2,750,000 in a private placement providing for the sale to investors for a purchase price of $1.55 per share of

(i) 1,774,194 shares of Series A Preferred Stock (with each share convertible into one (1) share of common stock, subject to adjustment)

(ii) five year class A 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 class B warrants to purchase an additional 1,774,194 shares of common stock at an exercise price of $2.40 per share (subject to adjustment).

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 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 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 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.

In addition, the Company decided to increase its equity interest in Tianjin Huaneng 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. As a result of the consummation of the agreement and the additional capital contribution, the Company owned approximately 91.82% of the equity interest in Tianjin Huaneng.

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 describes 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.

Revenue Recognition

Product sales are recognized when the products are delivered to and inspected by customers and title has passed. Deli Solar (Bazhou) provides a three-year standard warranty on 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, replacement parts must be paid for by the customer but not the labor. Most of 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. Accordingly, we have recorded no liability for warranty reserve. We also allow our sales agents and distributors to return any defective product for exchange.

Allowance for Doubtful Accounts

Our business operations are conducted in the PRC. 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.

Property, Plant and Equipment

Building, 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.

Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired. We consider assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. We also re-evaluate the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of December 31, 2007, we expect these assets to be fully recoverable.

Because our fiscal year is the calendar year, throughout this section we refer to the fiscal years ended December 31, 2007, 2006 and 2005 as "2007," "2006," and "2005," respectively.

Key Items in 2007

Significant financial items during 2007 include:

· Completed acquisition of Tianjin Huaneng.

· Overall net sales increased 73% to $37,072,346 in 2007.

· Net income for 2007 increased by 104% to $2,525,141 compared to 2006.

· Operating income for 2007 increased by 163% compared to 2006.

RESULTS OF OPERATIONS

Fiscal year ended December 31, 2007 compared to fiscal year ended December 31, 2006

Sales Revenues

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

                                             Fiscal Year Ended
                                                December 31,
                                             2007           2006
Revenue:
Solar Heater/Boiler related products     $ 26,693,850   $ 21,468,313
Heat Pipe related products                  7,002,015              0
Other segments                              3,376,481              0
                                         $ 37,072,346   $ 21,468,313

Overall: Sales revenues increased to $37,072,346 for 2007 as compared to $21,468,313 for 2006, an increase of $15,604,033 or 73%.

The overall increase in sales is the result of (i) the acquisition of Tianjin Huaneng and the commencement by us of the sale of their products which contributed $7,002,015 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 for 2007 increased to $26,693,850 from $21,468,313 for 2006, an increase of about $5,225,537 or 24% over $21,468,313 for 2006. Approximately $17 million were derived from sales of solar hot water heaters, a 35% increase from 2006; approximately $9 million was derived from sales of coal-fired boilers and space heating products, about a 9% increase as compared to 2006.

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 our solar water heaters and our boiler related products. The increase in sales revenues was not associated with a one time event. The increase in sales is not the result of an increase in sales prices of our products but 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 price competition to continue for the next year and we expect sales revenues on this product segment to decrease.

Heat Pipe Related Products: Sales revenues for 2007 were $7,002,015 compared to nil for the same period last year. The sales of heat pipe related products are attributed to the acquisition of Tianjin Huaneng completed in July 1, 2007 and our commencement to sell heat pipe related products.

Other segments: Sales revenues for 2007 were $3,376,481. Other segments refer to solar lighting and spare parts/components which account for less than 10% of the total revenue.

Cost of Revenue

Overall: In line with the 73% increase in our overall sales, our costs of goods sold were $28,772,078 for 2007, an increase of $11,929,084 or 71% from $16,842,994 for 2006.

Solar Water Heaters and Boilers: Our cost of revenue increased to $21,021,407, or 79% of sales, an increase of $4,178,413 or 25% from $16,842,994 for 2006. Although sales revenues increased by 24% for 2007 over 2006 costs of revenues increased by 79% due mainly to the cost of raw materials. Management believes this trend will continue. The Company is endeavoring to minimize its product costs by reducing our manufacturing overhead and reducing waste to keep its product prices competitive.

Heat Pipe Related Products: Our cost of revenue was $5,181,491 or 74% of sales compared to nil for the prior year.

Other Segments: Cost of revenues for 2007 was $2,569,180 or 76% of sales. Other segments refer to solar lighting and spare parts/components which are less than 10% of the total cost of revenue.

Gross Profit

                                            Fiscal Year Ended
                                                December 31
                                            2007          2006
Gross profit:
Solar Heater/Boiler related products     $ 5,672,443   $ 4,625,319
Heat Pipe related products                 1,820,524             0
Other segments                               807,301             0
                                         $ 8,300,268   $ 4,625,319

Overall: Gross profit for 2007 was $8,300,268, compared to $4,625,319 for 2006. The increase in gross profit resulted primarily from the increase in sales revenue from the sales of additional solar water heaters and boilers discussed below. We also commenced selling Tianjin Huaneng's products.

Gross margin (gross profit as a percentage of sales) in 2007 was approximately 22.4% compared to approximately 21.5% in 2006. The profit margin in 2007 increased slightly over 2006 due to the acquisition of Tianjin Huaneng whose products have higher profit margins than our other products. The profit margins on our solar heaters have been falling because of market pressure to keep our prices competitive. 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 26% in 2007.

Solar Heater/Boiler Related Products: Gross profit from this segment was approximately $5,672,443 in 2007, about a 22.6% increase compared to the prior year of approximately $4,625,319. The increase in gross profit is due to the increase in sales volume of products. In 2007, we sold approximately 147,500 solar water heaters and 108,800 boiler heaters compared to 133,000 solar water heaters and 99,000 boiler heaters in 2006.

However, gross profit margin for this segment decreased slightly in 2007 to 21.2% compared to the approximately 21.5% in 2006. The profit margins on our solar heaters have been falling because of increased competition causing us to lower our prices. 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 gross profit margin for our solar water heaters to continue decrease. 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 $1,820,524 which was attributed to the acquisition of Tianjin Huaneng. Gross margin (gross profit as a percentage of sales of these products) was approximately 26%. 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.

Other Segments: Gross profit for other segments for 2007 was $807,301. Other segments refer to solar lighting and spare parts/components which are less than 10% of the total gross profit.

Segment assets

Assets in solar heater were $18,690,225, about a 47% increase as compared to 2006 of approximately 12,716,185. The increase is in line with increase in sales generated from solar heater.

Assets in heat pipe were $9,029,994 compared with nil balance in 2006; the increase was mainly due to acquisition of Tianjin Huaneng.

Assets in other segments of $2,919,494 refer to solar lighting products and sales of spare parts/ components which are less than 10% of the total assets.

Operating Expenses

Operating expenses increased to $5,114,634 for 2007 as compared to $3,414,707 for 2006. This represented an increase of $1,699,927 or about 50%. The overall increase in operating expenses was primarily due to the acquisition of Tianjin Huaneng (whose operating expenses amounted to $1,721,729) as well as increased selling and distribution expenses described below (which amounted to $827,839) and increased advertising expenses which amounted to $1,415,493.

Selling and distribution expenses increased to $827,839 from $459,746 for 2006 (or 2.2% of sales) an increase of $368,093, or 80%. These selling and distribution expenses consisted primarily of non cash sales promotion expenses ($127,365), outbound distribution expenses ($177,413), traveling and transportation expenses ($166,319), agency administration expenses ($268,653) and after sales services ($88,089). The increase in selling and distribution expenses was primarily the result of our acquisition of Tianjin Huaneng (whose selling and distribution expenses were $125,912.)

General and administrative expenses were $4,003,973 for 2007 (or approximately 11% of sales) compared to $2,800,015 (or approximately 13% of sales) for 2006. The net increase of $1,203,958 was mainly due to the acquisition of Tianjin Huaneng which had general and administrative expenses of $1,486,751. This was offset by the decrease in general and administrative expenses by Deli Solar (Bazhou) of approximately $0.3 million. Deli Solar (Bazhou) and Deli Solar (Beijing)'s expenses were approximately $1,852,430 and the Company at the U.S. level incurred a total of $664,792 which included legal fees of approximately $340,197. General and administrative expenses include advertising expenses and salaries and benefits.

o Advertising expenses (which is a component of our general and administrative expenses line item) for 2007 were $1,415,493 as compared to $1,106,488 for 2006, an increase of $309,005 or approximately 28%. The increase in advertising expense was a result of our acquisition of Tianjin Huaneng (whose advertising expenses were $30,687) as well as our continued spending on advertising to increase our product awareness, branding and sales of our solar water heaters and boilers). We believe that through advertising and marketing, we will able to face our competition and generate greater market share for our products.

o Salaries and benefits (which is also a component of our general and administrative expenses line item) increased from $279,069 for 2006 to $454,012 for 2007, an increase of $174,943 or 63% from the same corresponding period last year. The increase reflects the addition of 550 employees as a result if the Tianjin Huaneng acquisition. Per employee, salaries and benefits decreased from $1,188 for 2006 to $890 for 2007, a decrease of $298 or 25% from the same corresponding period last year.

Depreciation and amortization expense for 2007 increased by $127,876 to $282,822 or 83% from $154,946 for 2006. The increase was due to an increased depreciation and amortization expense of $109,066 as a result of the acquisition of Tianjin Huaneng as well as increased depreciation expense of $18,810 as a result of new equipment used.

Income from Operations

Income from operations for 2007 was $3,185,634, an increase of $1,975,022 or 163% as compared to $1,210,612 for 2006. The increased operating income was due to the increased sales revenue and the acquisition of Tianjin Huaneng and our commencement of the sale of their products. As a percentage of sales, operating income was 8.59% in 2007 as compared to 5.64% for 2006. The increase in operating income as a percentage of sales was substantially due to the increase in sales and controlling selling expenses in 2007.

Net Income

Net income was $2,525,141 for 2007, compared with $1,239,501 for 2006, an increase of $1,285,640 or approximately 104%. The increase was primarily due to increase in sales volume of the exiting products and increased sales attributable to our acquisition of Tianjin Huaneng.

Minority Interests

Minority interests of $199,744 arise as of December 31, 2007 primarily due to share of profits by minority interests from consolidation with Tianjin Huaneng.

Income Taxes

We did not carry on any business or maintain any branch office in the United States during 2007 or 2006. Therefore, no provision for U.S. federal income taxes or tax benefits on the undistributed earnings and/or losses has been made.

Normally a PRC company is subject to enterprise income tax at the rate of 33%, value added tax at the rate of 17% for most of the goods sold, and business tax on services at a rate ranging from 3% to 5% annually. However, pursuant to the applicable laws and regulations in the PRC, Deli Solar (Bazhou), and Deli Solar (Beijing) as wholly foreign owned enterprises ("WFOEs") in the PRC, are entitled to an exemption from the PRC enterprise income tax for two years commencing from its first profitable year, after loss carry-forwards from the previous five years have been recovered. Since Deli Solar (Bazhou) was converted into a WFOE in March 2005, it enjoyed a two-year tax-exempt treatment in the PRC which ended on March 31, 2007. Since then it has been subject to 50% of its enterprise income tax from 2007 until 2010. Our direct subsidiary, Deli Solar (Beijing), had a net loss for 2007. Consequently, it did not incur income tax. Tianjin Huaneng is domestically owned and subject to the Corporate Income Tax governed by the Income Tax Law of the People's Republic of China, at a statutory rate of 33%, which is comprised of a 30% national income tax and 3% local income tax.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by our operating activities was $4,673,831 for 2007, an increase of $3,420,933 or approximately 273% from $1,252,898 for 2006.

Net cash used in investing activities was $5,419,926 for 2007, an increase of $1,415,518 or approximately 35% compared with 2006. The increase is mainly due to the increase in purchase of property, plant and equipment associated with the acquisition of Tianjin Huaneng in July 2007.

Net cash (used in) provided by financing activities was $2,400,306 for 2007, an increase of $2,425,251 from $(24,945) from 2006. The increase was due to the . . .