Forward-Looking Information - This item includes "forward-looking statements". All statements, other than statements of historical facts, included in this item 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 PRC. Our business is conducted through our wholly-owned PRC based operating subsidiaries, Bazhou Deli Solar, Beijing Deli Solar, and our indirect subsidiary Tianjin Huaneng (majority owned).

The Company has two reportable segments: (i) Solar heater/Biomass stove/Boiler related products and (ii) Heat pipe related equipment/Energy-saving projects.

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

Deli Solar (Beijing) 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 net revenue derived from Beijing Deli Solar.

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

Approximately 20.4% of our net revenue for the six months ended June 30, 2009 were derived from sales of our solar heater/biomass stove/boiler related products and 79.6% from sales of our heat pipe related equipment/energy-saving projects, respectively. Approximately 97.2% and 2.8% of our net revenues for the six months ended June 30, 2009, were derived from sales made inside the PRC and outside the PRC, respectively.

Recent Developments

On July 6, 2009, Beijing Deli Solar entered into the Termination Agreement with the SZPSP Shareholders. The Termination Agreement terminates the Equity Purchase and Complementary Agreements Beijing Deli Solar entered into with the SZPSP Shareholders on January 9, 2008, which were amended and supplemented by the Supplementary Agreement Beijing Deli Solar entered into with the SZPSP Shareholders on March 25, 2008. The terms of the Equity Purchase and Complementary Agreements are described in our Form 8-K report filed on January 15, 2008. The terms of the Supplementary Agreement are described in our Form 8-K report filed on April 1, 2008. We accounted for SZPSP as a wholly-owned subsidiary from March 31, 2008 up to March 31, 2009.

The key terms of the Termination Agreement are:

· Deli Solar (Beijing) having already received RMB12,960,486.30 from the SZPSP Shareholders prior to the execution of the Termination Agreement, the SZPSP Shareholders to pay to Beijing Deli Solar the remaining RMB15,839,513.70 from the RMB28.8 million purchase price specified in the Supplementary Agreement in two installments (RMB8,000,000 within 10 days from the execution date of the Termination Agreement and the remaining balance within two months from the execution date of the Termination Agreement)

· The SZPSP Shareholders to return to Beijing Deli Solar an aggregate of 939,364 shares in our Company they received pursuant to the Supplementary Agreement

· The SZPSP Shareholders will also pay to Deli-Solar (Beijing) a portion of SZPSP's net profit for the period from April 1, 2008 to March 31, 2009, an amount which will be determined at a future date by the SZPSP Shareholders and Deli-Solar (Beijing)

Three months ended June 30, 2009 compared to three months ended June 30, 2008

Sales Revenue

                                                            Three months ended
                                                                  June 30
                                                           2009             2008
  Revenue
  Solar heater/Biomass stove/Boiler related products    $ 1,464,143        9,996,713
  Heat pipe related equipments/Energy-saving projects   $ 8,195,105        5,847,069
  total                                                 $ 9,659,248       15,843,782

Overall: Sales revenue for the three months ended June 30, 2009 were $9,659,248 as compared to $15,843,782 for the three months ended June 30, 2008, a decrease of $6,184,534 or 39.0%. The decrease in sales was primarily attributable to the decline in revenue from our solar heater/biomass stove/boiler related products under the management of Deli Solar (Bazhou). We expect overall sales revenue for heat pipe related equipments and energy-saving projects to increase during the rest of the year with the completion of pending orders from the first quarter and the collection of account receivables corresponding to these projects.

Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for the three months ended June 30, 2009 were $1,464,143 as compared to $9,996,713 for the three months ended June 30, 2008, a decrease of $8,532,570 or 85.4%. The decrease in sales revenue derived from solar heaters/biomass stove/boiler related products was due to a weak market and strong competition. We expect competition to continue for the remainder of 2009.

Heat pipe related equipments/Energy-saving projects: Sales revenue for the three months ended June 30, 2009 was $8,195,105 compared to $5,847,069 for the three months ended June 30, 2008, a substantial increase of $2,348,036 or 40.2%. The increase in sales of heat pipe related equipments/energy-saving projects was due to certain large orders placed in the fourth quarter of 2008, revenue from which we recognized during the second quarter of 2009.

Gross Profit

                                                            Three months ended
                                                                  June 30
                                                           2009            2008
  Gross profit
  Solar heater/Biomass stove/Boiler related products    $   319,922       2,045,428
  Heat pipe related equipments/Energy-saving projects   $ 1,551,401       1,901,525
                                                        $ 1,871,323       3,946,953

Overall: Gross profit margin for the three months ended June 30, 2009 decreased by approximately 5.5% to 19.4%, as compared to 24.9% for the three months ended June 30, 2008. This was primarily due to the decrease in sales of our heat pipe related equipment/energy-saving projects and the increase in the cost of key raw materials. We increased our inventory of stainless steel while the price of stainless steel price was high, resulting in higher production costs and a lower gross profit.

Solar heater/Biomass stove/Boiler related products: Gross profit margin for the three months ended June 30, 2009 was approximately 21.9%, a slight increase of 1.4% as compared to 20.5% for the three months ended June 30, 2008.

Heat pipe related equipments/Energy-saving projects: Gross profit margin for the three months ended June 30, 2009 was approximately 18.9%, a decrease of 13.6% from 32.5% for the three months ended June 30, 2008 due to an increase in the cost of raw materials.

Operating Expenses

Operating expenses for the three months ended June 30, 2009 were $1,234,781, as compared to $2,242,757 for the three months ended June 30, 2008, a decrease of $1,007,976, or 44.9%. The overall decrease in operating expenses was primarily due to the decrease in sales of our solar heater/biomass stove/boiler related products and the resulting decrease in selling and distribution expenses and general and administrative expenses.

Depreciation and amortization expenses decreased to $103,028 for the three months ended June 30, 2009, or 22.1%, from $132,216 for the three months ended June 30, 2008, primarily as a result of the end of useful life for certain of our manufacturing equipment in the first quarter of 2009.

Selling and distribution expenses decreased to $480,587 for the three months ended June 30, 2009, or 56.2%, from $1,097,814 for the three months ended June 30, 2008, primarily due to the decrease in sales of our solar heater/biomass stove/boiler related products.

General and administrative expenses were $651,166 for the three months ended June 30, 2009 (or approximately 6.7% of sales) compared to $1,012,727 (or approximately 6.4% of sales) for the three months ended June 30, 2008, a decrease of 35.7%. The decrease was primarily due to the decrease in sales of solar heater/biomass stove/boiler related products.

Net Income

Net income was $1,094,944 for the three months ended June 30, 2009, compared to $1,096,214 for the three months ended June 30, 2008. The net loss for the first quarter of 2009 was $940,548. The increase in net income as compared with the first quarter of this year was mainly due to the gain on disposal of SZPSP and increase in sales from heat pipe related equipments and energy-saving projects under the management of Tianjin Huaneng.

Six months ended June 30, 2009 compared to six months ended June 30, 2008

Sales Revenue

                                                             Six months ended
                                                                  June 30
                                                           2009             2008
 Revenue
 Solar heater/Biomass stove/Boiler related products    $  3,011,395       12,826,528
 Heat pipe related equipments/Energy-saving projects   $ 11,764,174       11,317,330
                                                       $ 14,775,569       24,143,858

Overall: Sales revenue for the six months ended June 30, 2009 were $14,775,569 as compared to $24,143,858 for the six months ended June 30, 2008, a decrease of $9,368,289 or 38.8% compared to the six months ended June 30, 2008. The decrease in sales revenue was primarily attributable to the decline in revenue from the solar heater/biomass stove/boiler related products under the management of Deli Solar (Bazhou).

Solar heater/Biomass stove/Boiler related products: Sales revenue for these products for the six months ended June 30, 2009 were $3,011,395 as compared to $12,826,528 for the six months ended June 30, 2008, a decrease of $9,815,133 or 76.5%. The decrease in sales revenue derived from solar heater/biomass stove/boiler related products was due to a weak market and competition. We expect competition to continue for the remainder of 2009.

Heat pipe related equipments/Energy-savings projects: Sales revenue for the six months ended June 30, 2009 were $11,764,174 compared to $11,317,330 for the six months ended June 30, 2008, an increase of $446,844 or 4.0%. The increase in sales of heat pipe related equipments/energy-saving projects was due to completion of certain large orders placed in the fourth quarter of 2008, revenue from which we recognized during the second quarter of 2009.

Gross Profit

                                                             Six months ended
                                                                  June 30
                                                           2009            2008
  Gross profit
  Solar heater/Biomass stove/Boiler related products    $   648,234       2,620,321
  Heat pipe related equipments/Energy-saving projects   $ 2,397,579       3,781,692
                                                        $ 3,045,813       6,402,013

Overall: Gross profit margin for the six months ended June 30, 2009 decreased by approximately 5.9% to 20.6% from 26.5% for the six months ended June 30, 2008. This was primarily due to the decrease in sales of heat pipe related equipment/energy-saving projects and increase in the cost of key raw materials. We increased our inventory of stainless steel while the price of stainless steel price was high, resulting in higher production costs and a lower gross profit.

Solar heater/Biomass stove/Boiler related products: Gross profit margin remained fairly constant for the six months ended June 30, 2009 at 21.5% compared to 20.4% for the six months ended June 30, 2008.

Heat pipe related equipment/Energy-saving projects: Gross profit margin for the six months ended June 30, 2009 was approximately 20.4%, a decrease of 13.0% from 33.4% for the six months ended June 30, 2009. The decrease in gross profit margin was due to the lower average product sales price and higher production costs.

Operating Expenses

Operating expenses for the six months ended June 30, 2009 were $2,782,513, as compared to $3,496,140 for the six months ended June 30, 2008, a decrease of $713,627 or 20.4%. The overall decrease in operating expenses was primarily due to the decrease in sales of solar heater/biomass stove/boiler related products and the resulting decrease in selling and distribution expenses and general and administrative expenses.

Depreciation and amortization expense decreased to $191,906 for the six months ended June 30, 2009 from $281,383 for the six months ended June 30, 2008, primarily as a result of the end of useful life for certain manufacturing equipments in the first quarter of 2009.

Selling and distribution expense decreased to $1,040,072, for the six months ended June 30, 2009 or 35.0%, from $1,600,377 for the six months ended June 30, 2008, primarily due to the decrease in sales of solar heater/biomass stove/boiler related products.

General and administrative expenses were $1,550,535 (or approximately 10.5% of sales revenue) for the six months ended June 30, 2009, compared to $1,614,380 (or approximately 6.7% of sales revenue) for the six months ended June 30, 2008, primarily due to the decrease in sales of solar heater/biomass stove/boiler related products.

Net Income

Net income was $154,396 for the six months ended June 30, 2009, compared to $1,485,865 for the six months ended June 30, 2008, a decrease of $1,331,469 or approximately 89.6%. The decrease in net income was due primarily to a decrease in sales of solar heater/biomass stove/boiler related products.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $3,249,424 for the six months ended June 30, 2009, while net cash used in our operating activities was $3,690,958 for the six months ended June 30, 2008.

Net cash provided by investing activities was $199,174 for the six months ended June 30, 2009, compared with net cash used in investing activities in the amount of $5,949,774 for the six months ended June 30, 2008.

Net cash provided by financing activities was $51,231 for the six months ended June 30, 2009, compared with $10,102,656 for the six months ended June 30, 2008.

We believe that current cash flow is sufficient to meet anticipated working capital and capital expenditures for at least the next twelve months. We may require additional cash for further development of business, including any investments or acquisitions we may decide to pursue. However, we cannot assure you that such funding will be available.

Cash

Cash and cash equivalents increased to $2,659,638 as of June 30, 2009, compared to $1,820,882 as at December 31, 2008, primarily as a result of an increase in sales and collection of accounts receivable in the first quarter of 2009.

Accounts Receivable

Accounts receivable increased to $8,457,470 as at June 30, 2009, from $5,962,051 as at December 31, 2008, primarily due to an increase in accounts receivable in connection with an increase in the projects under construction by Tianjin Huaneng.

Inventory

Inventories decreased to $2,701,654 as at June 30, 2009, as compared to $5,158,153 as at December 31, 2008. This substantial decrease was primarily due to strong sales and a sharp decrease in finished products inventory by Tianjin Huaneng.

Other Receivables and Prepayments

Other receivables and prepayments increased slightly to $7,708,106 as at June 30, 2009, compared to $6,705,578 as at December 31, 2008.

Accounts Payable

Accounts payable increased to $1,650,559 as at June 30, 2009, compared to $1,148,428 as at December 31, 2008. This increase was primarily due an increase in inventory of raw materials.

Other Payables and Accrued Liabilities

Other payables and accrued liabilities decreased to $5,149,009 as at June 30, 2009 from $7,296,294 as at December 31, 2008, primarily due to a decrease in shareholder loans and customer deposits.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.