**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




____________________





FORM
      10-KSB


____________________




(Mark
      One)





x
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      Fiscal Year Ended  December
      31, 2007





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      transition period from ________________ to __________________





Commission
      File Number 000-12561




**China
      Solar & Clean Energy Solutions, Inc.**


(Name
      of
      small business issuer in its charter)





Nevada
            
            95-3819300(State
                or other jurisdiction of incorporation or
              organization)
            
            (IRS.
                Employer Identification No.)Building
                3 No. 28, Feng Tai North Road, Beijing,
              China
            
            100071(Address
                of principal executive offices)
            
            (Zip
                Code)





Issuer’s
      telephone number, including area code +86-10-63850516




Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: **c** ommon
      stock $.001 par value





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  Yes o No x





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


Yes x No o





Check
      if
      there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
      S-K contained in this form, and no disclosure will be contained, to the best
      of
      registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB.   o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o No x










State
      issuer’s revenues for its most recent fiscal year: $37,072,346 for the fiscal
      year ended December 31, 2007.





The
      aggregate market value of the voting and non-voting common stock held by
      non-affiliates of the registrant, based on the closing price of the registrant's
      common stock as quoted on the OTC Bulletin Board on March 24, 2008 of $ 1.90,
      was approximately $12,476,711.





The
      number of shares of common stock outstanding as of the close of business on
      March 24, 2008 was 13,136,305.





Documents
      Incorporated By Reference: None.





Transitional
      Small Business Disclosure Format (check one):





Yes o No: x











**China
      Solar & Clean Energy Solutions, Inc.**


**Form
      10-KSB**


**For
      the Fiscal Year Ended December 31, 2007**




Table
      of Contents





Cautionary
      Note Regarding Forward-Looking Statements And Other Information Contained In
      This Report ****


Currency




PagePART
                  IItem
                1.
            Description
                of Business
            1Item
                2.
            Description
                of Property
            20Item
                3.
            Legal
                Proceedings
            21Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            21PART
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            22Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            24Item
                7.
            Financial
                Statements
            31Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            32Item
                8A.
            Controls
                and Procedures
            32Item
                8B.
            Other
                Information
            34PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons and Corporate
                Governance; Compliance with Section 16(a) of the Exchange
                Act
            35Item
                10.
            Executive
                Compensation
            38Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            40Item
                12.
            Certain
                Relationships and Related Transactions
            41Item
                13.
            Exhibits
            41Item
                14.
            Principal
                Accountant Fees and Services
            43Signatures
            
            44Financial
                Statements


i




**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN
      THIS REPORT**





This
      report contains some forward-looking statements. Forward-looking statements
      give
      our current expectations or forecasts of future events. You can identify these
      statements by the fact that they do not relate strictly to historical or current
      facts. Forward -looking
      statements involve risks and uncertainties. Forward-looking statements include
      statements regarding, among other things, (a) our projected sales, profitability
      and cash flows, (b) our growth strategies, (c) anticipated trends in our
      industries, (d) our future financing plans and (e) our anticipated needs for
      working capital. They are generally identifiable by use of the words "may,"
      "will," "should," "anticipate," "estimate," "plans," “potential," "projects,"
      "continuing," "ongoing," "expects," "management believes," "we believe," "we
      intend" or the negative of these words or other variations on these words or
      comparable terminology. These statements may be found under "Management's
      Discussion and Analysis of Financial Condition and Plan of Operation" and
      "Business," as well as in this report generally. In
      particular, these include statements relating to future actions, prospective
      products or product approvals, future performance or results of current and
      anticipated products, sales efforts, expenses, the outcome of contingencies
      such
      as legal proceedings, and financial results.




Any
      or
      all of our forward-looking statements in this report may turn out to be
      inaccurate. They can be affected by inaccurate assumptions we might make or
      by
      known or unknown risks or uncertainties. Consequently, no forward-looking
      statement can be guaranteed. Actual future results may vary materially as
      a
      result of various factors, including, without limitation, the risks and matters
      described in this report generally. In light of these risks and uncertainties,
      there can be no assurance that the forward-looking statements contained in
      this
      filing will in fact occur. You should not place undue reliance on these
      forward-looking statements.





**Currency**





Unless
      otherwise noted, all currency figures in this filing are in U.S.dollars.
      References to "yuan" or "RMB" are to the Chinese yuan (also known as the
      Renminbi). According to xe.com as of March 24, 2008, $1 = 7.0525
      yuan.


ii




**PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS**




Except
      as
      otherwise specifically stated or unless the context otherwise requires, the
      “Company,” we," "our" and "us" refers collectively to:





(i)
            China
                Solar & Clean Energy Solutions, Inc. ("China Solar") formerly known
                as ("Deli Solar (USA)
                Inc.)",


(ii)
            Deli
                Solar Holding Ltd., ("Deli Solar (BVI)"), a wholly-owned subsidiary
                of China Solar and a limited liability company organized under the
                International Business Companies Act of the British Virgin Islands,


(iii)
            Bazhou
                Deli Solar Energy Heating Co., Ltd. ("Deli Solar Bazhou”), a wholly-owned
                subsidiary of Deli Solar (BVI) and a limited liability company organized
                under the laws of the PRC


(iv)
            Beijing
                Deli Solar Technology Development Co. (“Deli Solar (Beijing)”),a
                wholly-owned subsidiary of China Solar and a limited liability
                company organized under the laws of the
                PRC,


(v)
            Shenzhen PengSangPu
                Solar Industrial Products Corporation (“SZPSP”),
                a wholly-owned subsidiary of Deli Solar (Beijing); and


(vi)
            Tianjin
                Huaneng Group Energy Equipment Co., Ltd. (“Tianjin Huaneng”), a
                majority-owned subsidiary of Deli Solar (Beijing).




**Business
      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), Deli Solar (Beijing) and our recently acquired indirect
      majority owned subsidiary Tianjin Huaneng.





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 heating products, including coal-fired boilers for residential use. Deli
      Solar (Bazhou) also sells component parts for its systems, and provides
      after-sales maintenance and repair services.





Most
      end
      users of Deli Solar (Bazhou)’s products use them to heat water for their homes,
      with a concentration in rural areas where electricity is in short supply. Deli
      Solar (Bazhou)’s coal-fired boilers, furnaces and heating stoves are also used
      as primary household space heaters during cold weather and as cooking stoves.





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.





Tianjin
      Huaneng, acquired in July 2007, manufactures and installs waste heat recovery
      systems primarily for use in manufacturing facilities whose manufacturing
      processes require the generation of large amounts of heat, such as steel and
      chemical plants. The waste heat can be sued to generate hot water at the
      manufacturing facilities Tianjin Huaneng’s products include 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. Products and systems manufactured and sold by Tianjin
      Huaneng during the period from May 1, 2007 (the date of acquisition) through
      December 31, 2007 represented 19% of our sales revenues for the fiscal year
      ended December 31, 2007. Tianjin Huaneng’s products are sold in more than 28
      provinces in the PRC as well as Singapore, Indonesia, and North Korea.





1




SZPSP,
      which we acquired effective March 31, 2008, is principally engaged in the resale
      of energy-saving heating products such as heat pipes, heat exchangers, pressure
      water boilers, solar energy water heaters and radiators.  Currently, SZPSP
      is also operating a distribution facility in Shenzhen, PRC. This acquisition
      will add to the assortment of solar water products which we have available
      for
      sale.




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





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




**Products**





***Solar
      Hot Water Heaters***





We
      manufacture two types of solar hot water heaters: evacuated tubular solar water
      heaters and flat plate solar water heaters. Our solar water heaters are
      primarily used to generate hot water for residential use. Among evacuated
      tubular solar water heaters, regular evacuated tubular solar water heaters
      using
      all-glass vacuum collectors are our best selling product, comprising
      approximately 85% of our total solar water heater revenues for 2007. This type
      of solar water heater can generate hot water even in cold weather and therefore
      can be used throughout the year. Further, these water heaters are relatively
      easy and inexpensive to produce compared to other solar hot water heaters using
      other types of vacuum collectors. Because our primary market is in rural areas
      of the PRC, our regular evacuated tubular solar water heaters annually account
      for most of our sales.





***Boilers***





We
      also
      manufacture boilers, furnaces, stove heating, and space heating products. Most
      of our boilers and space heating products are coal-fired, small scale units
      for
      residential space heating and cooking.





Sales
      of
      our hot water heaters and boilers comprised approximately 72% of our total
      sales
      revenues in 2007.





***Heat
      Pipe Related Products***





We
      also
      manufacture waste heat recovery systems, 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.





Sales
      of
      these products and systems comprised approximately 19% of our total sales
      revenues in 2007.





**Recent
      Developments.**




***February
      2008 Private Placement***




On
      February 25, 2008 we raised gross proceeds of approximately $ 11,300,000 in a
      private placement providing
      for the sale 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
      January 9, 2008 Deli Solar (Beijing) entered into an equity purchase agreement
      and a complementary agreement with Shenzhen PengSangPu Solar Industrial Products
      Corporation (“SZPSP”) and its shareholders to acquire 100% of the outstanding
      equity interests of SZPSP from its three shareholders. The closing occurred
      on
      March 31, 2008.




2




SZPSP
      was
      incorporated as a limited liability company under the laws of the PRC on
      September 23, 1993.  Its registered capital was Renminbi Yuan (“RMB”)
      2,650,000 (equivalent to $365,916) which was contributed by its three
      shareholders. On July 13, 2006, the registered capital increased to $1,767,443
      (RMB 12,800,000).





SZPSP
      specializes in the manufacture of solar hot water systems for commercial use.
      Our 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,
      etc.
      It acquired ISO9001: 2000 international quality system accreditation in 2004.





SZPSP
      is
      principally engaged in the manufacture and distribution of solar heating
      products such as heat pipes, heat exchangers, pressure water boilers, solar
      energy water heaters and radiators.   Currently, SZPSP is also operating a
      distribution facility in Shenzhen, PRC. SZPSP had sales revenues of
      RMB73,885,035 ($10,114,864) for 2007.





The
      purchase price consisted of $4,087,832 (RMB 28,800,000) in cash, 1,419,729
      shares of our common stock, and five year warrants to purchase 141,973 shares
      of
      common stock at an exercise price of $2.50 per share (subject to adjustment).
      The cash portion was based on an appraisal of SZPSP. The three shareholders
      agreed to loan the cash purchase price back to the Deli Solar (Beijing) to
      be
      used as working capital. Fifty (50%) of the principal amount of this loan is
      required to be repaid within one year and the remaining balance is required
      to
      be repaid within two years.  In addition to the payment of the cash
      purchase price, we paid RMB 20 million for SZPSP’s trademarks and other
      intangible assets which was paid in 1,419,729 shares of our common stock. We
      agreed that if on the first anniversary of the closing our common stock price
      is
      lower than the share price ($2), we will pay the difference.




SZPSP
      warranted that if (i) for the year ended December 31, 2008 its sales
      revenues are less than RMB 99 million (approximately $13,670,068) or its
      after-tax net profits are less than RMB 9.43 million (approximately $1,302,108);
      or (ii) for the year ended December 31, 2009, sales revenues are less than
      RMB
      143.9 million (approximately $19,868,336) or its after-tax net profits are
      less
      than RMB 12.13 million (approximately $1,674,789), SZPSP will pay the difference
      between the revenue and the targeted revenue of the year specified by reducing
      the amount payable on the shareholders’ loan. If the shareholders’ loan is not
      sufficient to pay the difference, the common shares held by SZPSP will be
      returned to us to the extent necessary for the remaining balance.




The
      current shareholders of SZPSP, being the management of SZPSP, have entered
      into
      employment contracts with us for a term of three years to remain in their
      current managing positions of SZPSP.





Deli
      Solar (Beijing) has the right to elect a majority of the board members of SZPSP.





***Acquisition
      of Tianjin Huaneng***





On
      May
      18, 2007, Deli Solar (Beijing) entered into an agreement with Tianjin Municipal
      Ji County State-owned Assets Administration Commission (the “SAAC”) to purchase
      51% of the equity interests in Tianjin Huaneng Group Energy Equipment Co.,
      Ltd.
      (“Tianjin Huaneng”) for a purchase price of RMB24,100,000 (approximately
      $3,149,147). The transaction closed on July 1, 2007 and we paid approximately
      $1,575,600 in July 2007. By supplemental agreement between the parties dated
      August 8, 2007, the purchase price was reduced to approximately $1,689,741.
      However in addition to the purchase price we are required to pay a finder’s fee
      of approximately $769,418. At the closing Deli Solar (Beijing) assumed 51%
      of
      the liabilities of Tianjin Huaneng. In addition, we are required to contribute
      RMB20,000,000 (approximately $2,613,400) as working capital to the acquired
      company. Deli Solar (Beijing) also agreed to employ the 550 current Tianjin
      Huaneng employees pursuant to new three year employment contracts.





3




Tianjin
      Huaneng had sales revenues of approximately $11 million for 2006 and since
      July
      2007 contributed approximately $9.6 million or approximately 26% of our total
      sales revenue of approximately $37 million for 2007.





Tianjin
      Huaneng, incorporated in 1987, is a state-owned enterprise with 51% of its
      equity formerly-owned by SAAC and 49% owned by the employees.





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.




Tianjin
      is a city in the PRC which is approximately 50 miles from Beijing and has a
      population of approximately 10.24 million (as of December 31, 2004), and is
      one
      of only four municipal cities directly governed by the central government in
      China.





**Change
      of Name**





Effective
      October 29, 2007, we changed our name from Deli Solar (USA), Inc. to China
      Solar
& Clean Energy Solutions, Inc. We believe that the new name better reflects
      the direction of the business. The name change was completed by means of a
      short
      form merger under the Nevada law, under which Du Solar, Inc., our wholly
      owned subsidiary merged into us. We survived as the surviving corporation and
      we
      effected the name change in connection with that merger. No shareholder approval
      was required for the short form merger and the related name change. The name
      change became effective with the OTCBB at the opening of trading on
      November 5, 2007 under the new stock symbol “CSOL.OB.” Our new CUSIP number is
      16943E 105.




**June
      2007 Private Placement**




On
      June
      13, 2007 we raised gross proceeds of $2,750,000 in a private placement providing
      for the sale at 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).




**Corporate
      History**





China
      Solar & Clean Energy Solutions, Inc. was formerly known as Deli Solar (USA),
      Inc., which was formerly known as Meditech Pharmaceuticals, Inc.
      (“Meditech”).





Meditech
      was incorporated in Nevada on March 21, 1983.





***Organization
      of Holding Company and Acquisition of Deli Solar (Bazhou)***





In
      2004,
      Deli Solar (BVI), was organized as a limited liability company under
      the
      International Business Companies Act of the British Virgin Islands by Mr. Deli
      Du
      of Bazhou City, Hebei Province, PRC and
      others (with Mr. Du owning 80% ) as
      a
      holding company for Deli Solar (Bazhou).




On
      August
      1, 2004, Deli Solar (BVI) purchased all the capital stock of Deli Solar (Bazhou)
      from Messrs. Deli Du, his brother Xiaosan Du and Xiao'er Du, for RMB 6,800,000
      (approximately $879,920). As a result of that transaction, Deli Solar (Bazhou)
      became a wholly foreign-owned enterprise ("WFOE") under PRC law, by virtue
      of
      its status as a wholly-owned subsidiary of a foreign company, Deli Solar
      (BVI).


4


***Reverse
      Merger and Financing***





On
      March
      31, 2005, Meditech entered into a stock contribution agreement with the
      shareholders of Deli Solar (BVI) under which Meditech acquired all of the issued
      and outstanding shares of capital stock of Deli Solar (BVI) in exchange for
      the
      issuance to the shareholders of Deli Solar (BVI) of 4,067,964 shares of
      Meditech’s common stock.





In
      connection with the stock contribution, also on March 31, 2005, we received
      net
      proceeds of $5,748,015 from the sale of 1,642,990 shares of common stock
      and warrants to a number of accredited investors in a private placement. (The
      number and the price of the shares as described in this and the prior paragraph
      have been adjusted to give effect to the one-for-six reverse stock split of
      the
      common stock, which became effective on August 15, 2005.)





As
      a
      result of foregoing transactions, the former shareholders of Deli Solar (BVI)
      (including Mr. Du) became holders of a majority of the common stock of Meditech
      and Deli Solar (BVI) became a wholly-owned subsidiary of Meditech. Following
      (i)
      Mr. Du's purchase of the 56,259 shares from a third party for $500,000, (ii)
      the
      issuance to him of the additional 3,254,371 shares in exchange for his 80%
      of
      the outstanding shares of Deli Solar (BVI) and (iii) the simultaneous issuance
      by the Company of an additional 1,642,990 shares to accredited investors in
      the
      private placement, Mr. Du then owned, **** of
      record, 57% of the issued and outstanding common stock of the Company.





On
      August
      15, 2005, Meditech changed its name from Meditech to Deli Solar (USA), Inc
      and
      completed a one of six reverse stock split of the common stock.





On
      August
      29, 2005 Meditech completed a spin-off of its drug development business to
      East
      West Distributors, Inc., its wholly owned subsidiary.





During
      the quarter ended June 30, 2006, Deli Solar (USA) set up a new wholly-owned
      subsidiary, Deli Solar (Beijing) to further develop our business in Beijing.
      Deli Solar (USA) contributed $1 million into Deli Solar (Beijing) as its
      registered capital.





**Corporate
      Structure**





The
      following diagram sets forth our current corporate structure:


5





China energy





Neither
      China Solar nor Deli Solar (BVI) has any operations or currently intend to
      have any operations in the future other than acting as a holding company and
      management company for Deli Solar (Bazhou) and Deli Solar (Beijing) and raising
      capital for their operations.





**Products**





We
      manufacture solar water heaters, boilers as well as heat pipe products.





***Solar
      Hot Water Heater Products***




Our
      solar
      water heaters are primarily used to generate hot water for residential
      use.





Approximately
      47% of our total revenues for 2007 were derived from sales of our solar hot
      water heaters compared to 60% of our total revenues for 2006.





We
      manufacture two types of solar hot water heaters: evacuated tubular solar water
      heaters and flat plate solar water heaters.





Among
      evacuated tubular solar water heaters, regular evacuated tubular solar water
      heaters using all-glass vacuum collectors are our best selling product,
      comprising approximately 85% **** of
      our
      total solar water heater revenues for 2007. This type of solar water heater
      can
      generate hot water even in cold weather and therefore, can be used throughout
      the year. Further, they are relatively easy and inexpensive to produce compared
      to other solar hot water heaters using other types of vacuum collectors. Because
      our primary market is in rural areas of the PRC, our regular evacuated tubular
      solar water heaters account for most of our sales of solar water heaters.





Solar
      hot
      water heaters use sunlight to heat either water or a heat-transfer fluid in
      collectors. The solar collector is mounted on or near a house facing south.
      As
      sunlight passes through the collector's glazing, it strikes an absorbing
      material. This material converts sunlight into heat, and the glazing prevents
      the heat from escaping. The two most common types of solar collectors used
      in
      solar water heaters in the PRC market are evacuated tube collectors and glazed
      flat plates.




Solar-heated
      water is stored in an insulated tank until use. Hot water is drawn off the
      tank
      when tap water is used, and cold make-up water enters at the bottom of the
      tank.
      Solar water heaters tend to have a slightly larger hot water storage capacity
      than conventional water heaters. This is because solar heat is available only
      during the day and sufficient hot water must be collected to meet evening and
      morning requirements.


6





We
      produce and sell solar hot water heaters using both evacuated tube collectors
      and glazed flat plate. Evacuated tubular solar water heaters are our principal
      solar products. There are two major types of evacuated tubular solar water
      heaters: standard evacuated tubular solar water heaters and evacuated heat
      pipe
      solar water heaters.





The
      following table sets forth our product types and the approximate percentage
      of
      the sales of each type:





Types
            
            Approx. % of water
              heater revenues
            
            Sub-types
            
            Approx. % of total solar
              product revenueEvacuated
                Tubular Solar
              Water
                Heaters
            
            
            90%
            
            
            Regular
                Evacuated
              Tubular
                Solar Water
              Heaters
            
            
            85%Evacuated
                Heat Pipe
              Solar
                Water Heaters
            
            
            5%Flat
                Plate Solar Water
              Heaters
            
            
            10%
            
            
            
            
            
            N/A




***Evacuated
      Tubular Solar Water Heaters***




This
      line
      of products represents about 5% of our sales revenues from solar water heaters
      in 2007. They can generate hot water all year round for homes, whether or not
      they are located in a cold climate. There are two types of vacuum tube water
      heaters currently available: (i) the regular evacuated tubular solar water
      heaters; and (ii) evacuated heat-pipe solar water heaters. Our regular evacuated
      tubular solar water heaters use all-glass vacuum tubes, and our evacuated heat
      pipe solar water heaters use heat pipe vacuum tubes. The primary use of our
      evacuated tubular solar water heaters is to generate hot water for household
      use. However, solar thermal energy can also be employed in industrial processes,
      timber treatment, agricultural processes, cooling and space heating.





*All
      glass:* Our
      regular evacuated products use all-glass evacuated tubular collectors. These
      collectors consist of rows of parallel transparent glass tubes, which are double
      layered and made of borosilicate glass. Each tube contains an absorber and
      is
      covered with a selective coating. Sunlight enters the tube, strikes the
      absorber, and heats the water flowing through the absorber. The space between
      the glass tubes and the absorber is "evacuated," or is a "vacuum". This vacuum
      helps the collectors achieve extremely high temperatures (170-350 degrees F).
      Because all-glass evacuated tubular collectors are relatively easy and cheap
      to
      make as compared to heat pipe vacuum tubes, our regular evacuated tubular solar
      water heaters are our best selling solar hot water heater and comprise
      approximately 85% of our solar water heaters sales.




*Heat
      Pipe:* Our
      evacuated heat pipe solar water heaters comprise approximately 5% of our solar
      hot water heaters sales. These solar water heaters use heat pipe vacuum tubes
      to
      convert solar energy into thermal energy. A heat pipe vacuum tube is a
      hermetically sealed evacuated tube containing a mesh or sintered powder wick
      and
      a working fluid in both the liquid and vapor phase. When one end of the tube
      is
      heated the liquid turns to vapor absorbing the latent heat of vaporization.
      The
      hot vapor flows to the colder end of the tube where it condenses and gives
      off
      heat. The use of the latent heat of the fluid enables heat to be transferred
      at
      500 to 1000 times the rate compared with a solid metal rod and at temperature
      differences between the ends of the pipe as low as 2 °C (i.e. 3.6°F difference).
      The heat-pipe vacuum tube is a combined pipe and vacuum technology. This product
      line features fast heating, minimum thermal loss, high temperature resistance,
      anti-freeze and good pressure resistance. Evacuated heat pipe solar water
      heaters, if pressurized, can produce high pressure hot water which provides
      a
      solution where uneven temperature is a problem. Our pressurized evacuated heat
      pipe solar water haters can be customized according to actual needs of our
      customers. Moreover, heat pipe vacuum tubes are more difficult to manufacture
      and have higher production costs than all-glass vacuum tubes. Given our targeted
      residential household market, we only sell a limited amount of evacuated heat
      pipe solar water heaters.


7





***Flat
      Plate Solar Water Heaters***





Our
      sales
      of this product comprise approximately 10% of our total solar hot water heater
      sales.




This
      type
      of solar water heater consists of a flat-plate solar collector and a hot water
      tank with natural circulation (thermosyphon). The collector is constructed
      from
      either a copper-aluminum mix, all copper, or anti-corrosive aluminum. The
      collector is a rectangular box with a transparent cover and a back side
      insulation layer. Small tubes run through the box and carry fluid-either water
      or other fluid, such as an antifreeze solution. The tubes attach to the
      collector. **** As
      heat
      builds up in the collector, it heats the fluid passing through the tubes. The
      hot water or liquid goes to a storage tank. Flat plate solar water heaters
      made
      by foreign manufacturers typically can provide a household with 70-100 liters
      of
      hot water (at 40-60°C) per day all year round. However, the anti-freeze
      technology for the flat plate has not fully developed in the PRC. Our flat
      plate
      solar hot water heaters, and to our knowledge, other flat plate solar hot water
      heaters that are currently available in China, can be used only during the
      spring, summer and fall seasons.





***Integrated
      Solar Heating Packages***





A
      number
      of our products are being used in complete building integrated solar heating
      packages, which integrate our solar hot water and space heating systems directly
      into the construction of new multi-family dwellings, commercial office buildings
      and industrial developments. In August 2005 we entered into a construction
      agreement with Beijing Municipal Mengtougou District Yingtaogou Village
      Committee to install our solar hot water and space heating systems in 83
      detached houses by March 30, 2007. As of December 31, 2006 we completed the
      installation of our solar hot water and space heating systems in 16 of such
      houses. The project continues to be suspended due to a payment default.





***Boilers
      and Space Heating Products***




We
      also
      manufacture boilers, furnaces, stove heating, and space heating products,
      comprising approximately 27% of our total sales revenues in the year of 2007.





Most
      of
      our boilers and space heating products are coal-fired, small scale units for
      residential space heating and cooking.





We
      manufacture more than 80 types of boilers, furnaces, space heating and stove
      cooking products. Separated by functions and use, our boilers, furnaces and
      stove heating products can be divided into three types: 1) combined cooking
      and
      space heating, comprising approximately 60% of our sales of boilers and space
      heating products, 2) combined shower and space heating, comprising approximately
      10% of our sales of boiler and space heating products, and 3) multifunctional
      shower, cooking and space heating, comprising approximately 30% of our sales
      of
      boilers and space heating products.





We
      have
      also developed two environmentally friendly boilers: smokeless coal-fired
      boilers and bio-materials furnaces. The former does not produce smoke and the
      latter utilizes waste materials such as dry hay to generate heat. The
      development of these products has been completed and we have sent samples of
      these products to our distributors. As of the date of this report we have not
      made significant sales of these environmentally friendly new
      products.





***New
      Product Pipeline***




We
      have
      the following products in the product planning and developing stage:




***Photovoltaic
      powered water heaters*** .
      We are
      in the process of improving the physical performance of photovoltaic powered
      water heaters. Photovoltaic technology (PV) is a technology that converts solar
      energy into electricity. Photovoltaic modules or panels are made of
      semiconductors that allow sunlight to be converted directly into electricity.
      These modules can provide customers with a safe, reliable, maintenance-free
      and
      environmentally friendly source of power for a very long time. This system
      consists of a photovoltaic array connected to several resistive heating elements
      within a water storage tank. The PV array produces electrical power during
      periods of solar irradiation and this power is immediately dissipated in the
      resistive elements.


8





We
      believe that the following factors make photovoltaic powered water heaters
      an
      attractive addition to our existing product line:




·
            severe
                electricity shortages for the PRC's grid-connected residents,


·
            the
                complete absence of grid electricity for millions of others and the
                poor
                prospect of improvement via incremental central station capacity
                and grid
                development in the near future,


·
            the
                abundance of solar energy resource in the PRC and an active rural
                banking
                system.





Our
      sales
      of photovoltaic powered water heaters have not been significant thus far.




***Densely
      Covered Regular Tubular Heaters*** *.* We have
      developed a new solar water heater which is designed with densely covered
      evacuated tubes to improve heating efficiency with only a small cost increase.
      As an updated regular evacuated tubular heater, this product installs more
      tubes
      in one square meter than normal products do. For instance, it has ten tubes
      on
      one collector while others only have eight. We began marketing this product
      in
      June 2007 and we had sales through December 31, 2007 of RMB30 million.




***Raw
      Materials and Principal Suppliers***




The
      primary raw materials for manufacturing our products are stainless steel plate,
      vacuum tubes, iron and regular steel plate. These raw materials are generally
      available on the market and Deli Solar (Bazhou) has not experienced any raw
      material shortage in the past. Because of the general availability of these
      raw
      materials, it has not been our standard practice to enter into long-term
      contracts or arrangements with most of our raw materials suppliers. We believe
      that this gives us the flexibility to select the most suitable suppliers based
      on product quality and price terms provided by suppliers each year. We generally
      have at least three suppliers that are pre-approved for each raw material
      supply. However, this arrangement does not provide any guarantee that necessary
      raw materials will continue to be available at prices or delivery terms
      acceptable to us.




During
      the past three years, we have purchased stainless steel plate primarily from
      Lingyi Co. in Shangdong Province. Our three principal suppliers of vacuum tubes
      have been Shangdong Taian Co., Beijing Linuo Co. and Beijing Tianpu Co. Our
      principal supplier of steel and iron plate has been the local market in Bazhou
      City, where Deli Solar (Bazhou) is located, which has approximately 100 steel
      suppliers. We do not rely on any particular suppliers to procure other raw
      materials.




***Manufacturing
      Process, Cost, and Capacity***




Deli
      Solar (Bazhou) assembles and manufactures most of its products in its own
      production facility in Bazhou. Tianjin Huaneng assembles and manufactures most
      of its products in its own production facility in Tianjin. SZPSP assembles
      and
      manufactures most of its products in its own production facility in Shenzhen.
      Our senior manufacturing personnel include a number of professional engineers
      and senior technology consultants. We primarily use manual labor for our product
      because of availability of cheap labor in the Bazhou area. However, Deli Solar
      (Bazhou) is in the process of automating some of its production processes.
      In
      February 2006, Deli Solar (Bazhou) purchased an automated production line for
      the manufacture of water tanks. That production line has been assembled, tested
      and validated and is expected to be in use by the end of the second quarter
      of
      2008.


9





As
      of
      March 24, 2008, we employed approximately 815 permanent manufacturing employees
      and also 250 contract temporary workers. We added 550 employees as a result
      of
      the Tianjin acquisition and will be adding an additional 185 employees as a
      result of the SZPSP acquisition. During manufacturing peak season for solar
      hot
      water heaters, which normally are the second and third calendar quarters of
      the
      year, we have at least approximately 300 workers working 3 shifts and 7 days
      per
      week. Because of the strategic location of our manufacturing facilities, we
      are
      able to take advantage of low labor cost in the Bazhou, Tianjin and Shenzhen
      areas, which we estimate to be approximately 40% lower than that in the Beijing
      or Shanghai areas. We have not experienced a great deal of worker turnover
      because there are relatively few manufacturing employment positions in the
      Bazhou and Tianjin areas and believe that we have achieved a high level of
      employee loyalty. Set forth below is certain information regarding our current
      manufacturing capacity:




**Current
      Manufacturing Capacity**





Daily Production (Approximate Units)
            
            Annual Production (Approximate Units)Solar
                Hot Water Heaters
            
            500
            
            133,000Boilers
                and Space Heating Products
            
            120
            
            26,000





**Quality
      Control**





Our
      manufacturing processes follow strict guidelines and standard operating
      procedures that we believe are compliant with ISO 14000. Our products are
      routinely tested as are individual aspects of our production. Deli Solar
      (Bazhou) is in the process of applying for ISO 14000 certification and
      anticipates that the certification will be issued by the end of
      2008. **** SZPSP
      has
      been issued **** ISO9001:
      2000 certification.





Because
      of our stringent quality control system, most of our products are certified
      by
      governmental quality control testing centers, such as the Institute of China
      Product Quality Association, Hebei Province New Energy Products and Projects
      Quality Control and Testing Center, and Beijing Technology Supervisory Bureau.
      We also received awards from Hebei Province Consumers Organization and Hebei
      Province Administration of Industry and Commerce, as well as endorsement from
      the China Rural Areas Energy Industry Association. The following table sets
      forth the brands of our products that are certified by Beijing Technology
      Supervisory Bureau to have met the National Industry Standard NY-T 343-1998,
      which is the testing standard for solar hot water heaters' thermal
      power:





Brands
            
            Products
            
            Model NumbersDeli
                Solar Brand
            
            Solar
                Water Heaters
            
            DLYG-12/75Ailiyang
                Brand
            
            Solar
                Water Heaters
            
            ALY-12/75Dudeli
                Brand
            
            Solar
                Water Heaters
            
            DDL-12/75Deyu
                Brand
            
            Solar
                Water Heaters
            
            DY-12/75




***Original
      Equipment Manufacturer (OEM) Arrangement***




Our
      sales
      peak season normally occurs in the second and third calendar quarters of the
      year for solar hot water heaters and the third and fourth calendar quarters
      of
      the year for boilers and space heating products. During the peak season when
      our
      production capacity falls short of the market demand, we assemble and
      manufacture products through OEM arrangements. Under a typical OEM arrangement,
      we authorize an OEM to manufacture products under our brand names and/or
      trademarks. We achieve quality control over products manufactured under such
      OEM
      arrangement by sending our technicians on site to supervise the production
      and
      test the products. During fiscal year 2007, we contracted with two OEMs,
      Shandong Xin Xing Solar Power Heater Co., Ltd. and Lian Yun Gang Solar Power
      Heating Co Ltd.




10





Manufacturing
      through OEM arrangements comprises approximately 30% to 40% of our total sales
      during the peak season. For 2007, the two OEM generated an aggregate of 40%
      of
      our annual revenues. The OEM manufacturers typically receive approximately
      1% of
      the gross sales from the products they manufacture for us. Most of the OEM
      manufacturers we select are located near areas where products are demanded,
      thereby minimizing transportation costs.




**Demand
      for Our Products**





The
      majority of the demand for our solar water heaters and space heaters is from
      residential households in the PRC, particularly in rural areas. Presently,
      we
      sell our solar water heaters and space heaters primarily in the rural areas
      of
      the north-east part of the PRC including Hebei, Beijing, Tianjin, Heilongjiang,
      and Liaoning, where there is prolonged sunny and dry weather.





We
      believe the rural residential market has additional growth potential because
      it
      is an emerging market where we have encountered relatively little competition.
      Historically, the PRC's rural households have used primitive means of generating
      hot water and space heating by using biomass, local agricultural wastes, and/or
      kerosene. As the PRC's rural population has been earning incremental
      discretionary income in recent years, modern hot water and space heating systems
      have become increasingly affordable and a priority for discretionary spending.




**Seasonality
      of Business**




Our
      sales
      fluctuate, reflecting seasonal variations in solar energy supply during the
      four
      seasons. We have higher sales of solar hot water products in the spring because
      solar hot water heaters perform the best during the summer when solar energy
      is
      abundant. High sales volumes for coal boilers occur in the fall because
      customers purchase our space heating products for the winter. Sales volumes
      for
      our products tend to be lower between January and March.




**The
      PRC Solar Hot Water and Space Heating Market**





***The
      PRC's Economic Growth, Energy Shortage and Renewable Energy Policy***




The
      rapid
      economic growth of the PRC in recent years has fueled a massive demand for
      coal,
      oil and gas, which has caused a depletion in the country’s coal and oil reserves
      and a resulting shortage in supply, as well as serious environmental problems.
      Recognizing that accelerating the country's transition to efficient and
      renewable energy would ease this depletion and the environmental concerns,
      the
      National People's Congress, the PRC's parliament, passed the China Renewable
      Energy Promotion Act, which became effective on January 1, 2006. The Act aims
      to
      promote the use of renewable energy as an alternative source of energy to the
      more polluting fuels. Renewable energy currently accounts for a negligible
      percentage of the country’s total energy supply. The Act, however, does not
      provide for any incentive schemes for purchasers.




***Urban
      and Rural Market Segmentation for Hot Water and Space Heating Systems in China***




Recently
      the market for hot water and space heating systems in the PRC has shown
      substantial growth. According to a research conducted by the China Hardware
      Products Association and the China Information Center in 2002, only 71.5% of
      urban households had modern hot water systems. We do not know the number of
      rural households that currently have hot water systems but believe that it
      significantly less due to the fact that modern hot water and heating
      systems have still not become available to and are not affordable in many
      households in the country. Only recently have some of these households started
      to earn the disposable income required to purchase the hot water and space
      heating systems.




11





In
      the
      rural areas of the PRC the infrastructure is insufficient to facilitate delivery
      of conventional energy solutions that are available in more developed countries.
      The infrastructure to deliver natural gas or propane, two of the most common
      energy sources used in the United States, for example, are not well developed
      in
      the PRC, even in larger cities. As to electrical energy, while it has become
      more available in the urban areas of the PRC, it remains much less available
      in
      rural areas. Large portions of the PRC's rural areas are not electrified or
      connected to the electric grid and approximately 60% of rural communities that
      are grid-connected experience serious shortages of electricity. According to
      the
      National Renewable Energy Laboratories Eleven rural counties with a population
      of approximately 70 million have no electricity at all. In addition, the cost
      of
      electricity is high in many rural areas, making it impractical for hot water
      and
      space heating purposes.




We
      believe that in most provinces of the PRC, solar-generated hot water for rural
      home use is the most available and economical solution. Compared with
      electricity, natural gas or propane, we believe that solar hot water is more
      available, less expensive and more suitable to rural household needs as shown
      in
      the following table.




**Cost
      Economics of Solar Hot Water Heaters**




(in
                $USD)
            
            Solar
            
            Gas
            
            ElectricInitial
                Equipment Cost
            
            
            241
            
            
            120
            
            
            72Engineering
                Life (Years)
            
            
            15
            
            
            6
            
            
            5Equipment
                Cost (15 years)
            
            
            241
            
            
            300
            
            
            216Annual
                Additional Energy Cost
            
            
            0
            
            
            98
            
            
            81Total
                Operating Cost (15 years)
            
            
            241
            
            
            1,770
            
            
            1,431




**Projected
      Growth of Solar Hot Water Industry**




The
      PRC
      solar hot water industry is an emerging, but fast growing industry. It has
      experienced an annual growth rate of approximately 30% since 1999 as measured
      by
      the square meters of systems installed. The Solar Energy Usage Commission of
      the
      PRC Rural Energy Industry Association and the PRC Renewable Energy Industries
      Association project such growth to continue at an annual average rate of 27.36%
      until2015 as shown in the following table:





**Aggregate
      Solar Hot Water Industry Sales**





Annual Sales1999
                A
            
            
            5.0
                million
              m(2
            )2000
                A
            
            
            6.0
                million
              m(2
            )2001
                A
            
            
            8.0
                million
              m(2
            )2002
                A
            
            
            10.0
                million
              m(2
            )2003
                A
            
            
            12.0
                million
              m(2
            )2004
                F
            
            
            16.2
                million
              m(2
            )2015
                F
            
            
            232.0
                million m(2
            )


12





A
      =
      actual. F = forecast. *Source* :
      China
      Solar Hot Water Industries Development and Research Report (2001-2003), jointly
      published by the solar energy association and commission described above.




Because
      of the rapid growth in solar hot water industry, solar hot water heaters have
      become one of the three major hot water sources along with gas-fired heaters
      and
      electric heaters for PRC households and the PRC has become the world's largest
      producer and consumer of solar hot water heaters.





**Boiler
      and Space Heating Industry**




The
      PRC
      space heating industry is not new, but the modern systems that we sell are
      new
      for our customers. While many rural PRC households have considered hot water
      a
      luxury, heat generating facilities for cooking and space heating purposes in
      one
      form or another are considered basic necessities. These heat generating
      facilities are generally extremely primitive and inefficient, and usually
      consist of hearths and biomass stoves, which are dirty, unsafe and difficult
      to
      handle with respect to fuel. As many rural households have started to earn
      disposable income in recent years, many of them can afford to modernize their
      cooking and space heating facilities by using coal-fired boilers, which have
      become one of the principal means for such modernization among the PRC rural
      households.




**Our
      Product Warranty**




We
      provide a three-year standard warranty to our end users for all of the products
      we manufacture. Under this standard warranty program, we provide free repair
      and
      exchange of component parts in the first year following the purchase, and we
      charge labor costs for repair and maintenance but provide free exchange of
      component parts in the second and third years following the purchase.
      Thereafter, end users are required to pay for any repair and maintenance
      services, as well as exchange of component parts. 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. According to
      the
      standard terms of our agreement with sales agents, we allow our sales agents
      and
      distributors to return any defective product for exchange.





**Our
      Growth Strategy:**





***Acquisition
      Strategy***





As
      part
      of our business strategy, we review acquisition and strategic investment
      prospects that we believe would complement our current product offerings,
      increase our market coverage or enhance our technical capabilities, or otherwise
      offer growth opportunities.





In
      July
      2005 we acquired a 51% interest in Tianjin Huaneng and in March 2008 we acquired
      a 100% interest in SZSP.





From
      time
      to time we consider investing in new businesses and we expect to make
      investments in, and to acquire businesses, products, or technologies in the
      future.





***Our
      Organic Growth Strategies***




We
      are
      seeking to grow and expand our business through the following strategies:





·
            focus
                on rural market segment.




13




·
            extensive
                and targeted advertising.





·
            multi-brand
                strategy.




·
            a larger
                distribution and agency network.





·
            after-sales
                services network.




***Our
      focus on rural market segment***




We
      market
      our products in both the urban and the rural markets in the PRC. While most
      solar hot water manufacturers focus on the urban market, we have always focused
      on the rural market because the size of the rural market in the PRC is about
      eight times larger than that of the urban market. Further, our rural customers
      regard purchasing a hot water heater as a long term investment in a durable
      good, more so than urban customers.




We
      have
      eight years of experience in operating marketing and sales organizations in
      rural areas. Our marketing and sales team works with our agents to educate
      our
      end users and inform them of the utility, functionality and comparative cost
      advantages of our products as compared to electricity and gas water heaters.
      We
      have also received a great deal of feedback from rural customers and have
      designed our products and marketing to meet their needs and concerns.


14


***Our
      Advertising***




Based
      on
      various advertising effectiveness studies in the PRC, we believe that large
      scale advertising on TV and other mass media can have a significant impact
      on
      rural residential purchase decisions. Accordingly, we spent approximately
      $1,415,493, or 3.8% of sales, on advertising in 2007 compared to $1.1 million,
      or 5.2% of sales in 2006. In 2005 and 2004, we spent over $646,000 and $278,000,
      respectively, or 4.2% and 4.6% of sales, respectively, on
      advertising.





***Our
      Multi-Brand Strategy***




In
      order
      to position our products in different tiers of markets, we have utilized a
      multi-brand approach. Our solar hot water brands include: "Ailiyang", "DeYu"
      and
      "Deli Solar", among which, Ailiyang is not a registered trademark; our space
      heating brands include "De Yu" and "Du Deli". Each of these brands targets
      a
      different type of customer. We classify the brand names of the solar hot heaters
      into three types: Premium, Standard, and Economy, and space heating products
      into two types: Premium and Standard. Below are some of our products and related
      brand names and classifications:





***Solar
      Hot Water Heater Series***





Our
                Brand Name
            
            Our
                Classification of ProductsDeli
                Solar
            
            PremiumDeYu
            
            Standard




***Space
      Heating Series***




Our
                Brand Name
            
            Our
                Classification of ProductsDu
                Deli
            
            PremiumDeYu
            
            Standard





We
      intend
      to achieve the following objectives through the Multi-Brand Strategy:




·
            to
                target different products in different tiers of the same geographical
                market.




·
            to
                eliminate agency dominance in a regional market by granting non-exclusive
                agencies to more than one distributor in a region.




·
            to
                create competition among agents by assigning only one specific brand
                of
                our products to one distributor in a sales region so that each different
                distributor will be responsible for selling a brand different from
                other
                distributors in the same geographical region. We periodically evaluate
                the
                performance of distributors in the same region, and then provide
                suggestions to help them perform better. In addition, we also encourage
                them to increase sales of our premium products.




·
            to
                increase the market share of our products.




Our
      brand
      logos are the following:


15





China energy





***Our
      distribution and agency network***




We
      use a
      network of wholesalers, dealers and retailers to distribute our products. After
      we manufacture and assemble our products, we sell them to our wholesalers,
      generally located in major cities or provincial hubs, who then sell our products
      on to a network of smaller distributors, or dealers, in outlying areas.
      Sometimes when the dealers are closer to our warehouse, we also sell directly
      to
      dealers to simplify the payment process and reduce transportation costs. Because
      these dealers are usually developed by the wholesalers, each direct sale to
      a
      dealer will be recorded on the account of the wholesaler who developed the
      business relationship with such dealer. Our end users purchase their products
      from either wholesalers or dealers, who also handle the installation and
      warranty service of the systems for the end users.





We
      also
      have a Marketing Department consisting of approximately 87 marketing and sales
      personnel who collect feedback from our customers and other market information
      for our management and our product development team.




**Distribution
      Channels for Solar Water Heater Systems**




The
      PRC
      is a vast country geographically and the market for our products covers many
      regions. To penetrate the market effectively, especially the less-developed
      rural areas, we have established a vast distribution and sales network that
      includes approximately 604 distributors and wholesalers and approximately 2,000
      local appliance retailers covering 27 provinces in China, with a focus on the
      northern PRC area, north-eastern PRC area, Beijing metropolitan area, and
      Tianjin metropolitan area. The northern PRC area includes Hebei Province, Henan
      Province, Shangdong Province, Shanxi Province, and An'hui Province. The
      north-eastern PRC area includes Liaoning Province and Heilongjiang Province. **** Sales
      to
      these areas consist of approximately 70% of our total sales revenues. We believe
      that our comprehensive distribution and sales network enables us to efficiently
      service the rural communities without having to rely on any particular agent
      or
      distributor for our sales. In the past five years, no single agent or
      distributor has generated more than 5% of our total annual sales.




We
      are
      able to attract a large number of distributors, sales agents, and retailers
      for
      the following reasons:




·
                We
                    produce both solar hot water heaters and boilers, while the majority
                    of
                    manufacturers in the PRC normally produce only one type of product.
                    Sales
                    of solar hot water heaters and boilers are both affected by seasonality.
                    As described elsewhere in this report, solar hot water heaters
                    are in high
                    demand in the spring and boilers are in high demand in the fall.
                    Therefore, the combined production of solar hot water heaters
                    and boilers
                    allows us to provide our distributors, wholesalers and retailers
                    with
                    products for sale throughout the year.


·
                We
                    carefully select our distributors and provide support to them.
                    Our
                    contracts with our wholesalers and distributors normally have
                    a three- to
                    five-year term. While most of our agency and distributor contracts
                    are
                    non-exclusive, we are seeking to establish exclusive distribution
                    relationships with some strong distributors. We require new sales
                    agents
                    to deposit a significant amount of cash as a down payment towards
                    the
                    purchase of our systems. We consider the following factors in
                    our
                    selection of a new distributor or wholesaler:


·
              Local
                  solar energy status and market potential




·
            Local
                competition





·
            Sales
                and market potential in the covered
                area




16




·
            Presence
                of alternatives, such as gas or electricity





·
            Credibility
                of the candidate




For
      each
      candidate we select, we enter into an agency contract with it, under which
      we
      provide warranty cards, product testing certificates, product brochures, and
      other promotional materials. In addition, we help them design store logos and
      show rooms, provide them with uniforms, and assist them to make marketing plans.





**Our
      After-Sales Services Network**




We
      are in
      the process of implementing an after-sales services network in parallel with
      our
      national sales and distribution network. Our after-sales services are primarily
      performed by our sales agents and distributors. We have begun to provide
      technical training to our 300 distributors in order to provide after-sales
      services to our end users. The local distributors are very enthusiastic about
      having the ability to provide after-sales services to the end users, which
      also
      provides the distributors with a new source of revenue. One additional benefit
      to us provided by the after-sales services network is the ability to receive
      product feedback from our end users on a constant basis. We can use this
      information to continuously adjust our production plans, product designs,
      inventory control and marketing and sales strategies.




**COMPETITION**




The
      solar
      hot water market in the PRC is highly fragmented. According to statistics from
      the Chinese Energy Research Association, there are currently over 3,500 solar
      hot water heater manufacturers producing products under more than 3,000 brands.
      The top 51 companies have, on average, over 10 million RMB in sales
      (approximately $1.2 million), with the top ten companies together controlling
      17% of the domestic market.





We
      believe our success lies in our quality control, brand recognition strategy,
      comprehensive distribution network and advertising.





**RESEARCH
      AND DEVELOPMENT ACTIVITIES**




Our
      research and development ("R&D") expenses have historically been
      approximately 1% to 2% of our annual sales revenues. Most of these expenses
      were
      spent in designing and manufacturing new products. In 2005, our R&D expenses
      consisted of approximately 0.5% of our annual sales revenues, which we used
      to
      improve the functions and appearance of our current products instead of
      developing new products. In 2006, we spent approximately $51,741 in R&D on
      the development of pressurized evacuated heat pipe solar water heaters. In
      2007,
      we spent approximately $1.8 million in R&D on biomass fuel system program,
      multi-source energy program. We also conduct other R&D activities based on
      our customers' specific request for certain new functions or improvements on
      our
      existing products. The R&D expenses associated with such R&D activities
      are generally borne by the requesting customers. ****




Currently,
      we have a R&D team of three full time members and part time research
      assistants. Our senior engineer members include: Luo Yunjun, who also serves
      as
      the chairman of Beijing Solar Industry Association, and Hao Fangzhou, who also
      serves as the chairman of the Chinese Economic Boiler Association.




In
      February 2006, we executed a non binding Cooperation Memorandum (the “Memo”)
      with the Key Laboratory of Heat Transmission and Energy Saving Education of
      Beijing University of Industry (“BUI”) in February 2006 for cooperation on
      research and development of renewable energy technologies. The Memo sets forth
      a
      general cooperation framework between the two parties: we make available funding
      for certain renewable energy research and development projects undertaken by
      BUI. Further details of each party’ rights and obligations will be on a project
      by project basis with specific agreements. To date we have not incurred any
      expenses under this arrangement.


17





**INTELLECTUAL
      PROPERTY**




***Trademarks***





Deli
      Solar (Bazhou) is the holder of the following trademarks registered with the
      Trademark Offices of the PRC National Industrial and Commerce Administrative
      Bureau (the “PRC Trademark Offices”):





Trademark
            
            Authorized
                Scope
            
            Valid
                Term
            
            Certificate
                NumberDeli
                Solar
            
            Boiler
                (Space Heating Utility);
            
            03/14/2003
            
            to
                1978396Solar
                Hot Water Utility;
            
            03/13/2013Solar
                Stove and Solar EnergyCollection
                HeaterDu
                Deli
            
            The
                same as the above
            
            01/28/2003
            
            to
                197853201/27/2013De
                Yu
            
            Solar Energy Collection Heat
            
            07/28/1998
            
            to
                1195609and
                Boiler (Not machine accessory)
            
            07/27/2008Aili
                Solar (to replace our brand "Ailiyang")
            
            Approved,
                pending the trademark certificate
                delivery




A
      registered trademark is protected for a term of ten years, renewable for another
      term of ten years under the trademark law of the PRC, so long as an application
      for renewal is submitted to the PRC Trademark Offices within six months prior
      to
      the expiration of the initial term.




***Patents.***





SZPSP
      has obtained
      the following patents in the PRC for its unique solar energy selective absorbing
      coat and manufacturing technology:





Authorized
                Scope
            
            Valid
                Term
            
            Certificate
                NumberCold
                water recovery system in solar heating
            
            2015
            
            ZL200620016815XRecycle
                Heating Product in different temperature system
            
            n/a
            
            Application
              submitted
                7/4/06


18





***Domain
      names.***





We
      own
      and operate a website under the internet domain name http://www.cn-sce.com .
      Traffic
      to our other internet domain names www.AiLiYang.com are directed to that
      website. SZPSP owns and operates a website under the internet domain name http://www.szpsp.com.




**Government
      Regulation**




We
      are
      not subject to any requirements for governmental permits or approvals or any
      self regulatory professional associations for the manufacture and sale of solar
      hot water heaters. We are required to obtain a production approval from the
      Quality and Technology Supervisory and Control Bureau at the provincial level
      for the manufacture and sale of boilers and space heating products. Deli Solar
      (Bazhou) obtained the approval to manufacture, install and repair small and
      regular size pressure boilers and space heating products from Hebei Provincial
      Quality and Technology Supervisory and Control Bureau on August 28, 2002
      effective for five years. We are currently in the process of renewing the
      certificate. Other than the foregoing, Deli Solar (Bazhou) is not subject to
      any
      other significant government regulation of its business or production, or any
      other government permits or approval requirements, except for the laws and
      regulations of general applicability for corporations formed under the laws
      of
      the PRC.




**Compliance
      With Environmental Laws**




To
      our
      knowledge, neither the production nor the sale of our products constitute
      activities or generate materials, in a material manner, which causes our
      operation to be subject to the PRC environmental laws.





**Executive
      Offices**





Our
      executive office is located at Building 3, No. 28 Feng Tai North Road, Beijing,
      China, 100071 and our telephone number is +86-10-63850516.





Deli
      Solar (Bazhou)’s factory facilities are located outside of the city of Bazhou in
      the Hebei Province of the PRC.  Deli Solar (Bazhou) utilizes one factory in
      Bazhou with a total of over 10,000 square meters of production, warehouse,
      and
      office space and space for use as a distribution center and approximately 2,000
      square meters of office space and exhibition center in Beijing





Tianjin
      Huaneng’s factory facilities are located outside of the Tianjin municipalities
      of the PRC.  Tianjin Huaneng’s utilizes one factory in Tianjin with over
      51,000 square meters of production, warehouse, and office space and space for
      use as a distribution center.





SZPSP’s
      factory facilities are located outside of the city of Shenzhen in the Guangdong
      Province of the PRC. SZPSP utilizes two factories in Shenzhen with a total
      of over 2,000 square meters of production, warehouse, and office space and
      space
      for use as a distribution center





**Employees**





As
      of
      March 24, 2008 we had approximately 815 full time employees and 250 part time
      employees.




Deli
      Solar (Bazhou) requires each employee to enter into a one-year standard
      employment agreement. Tianjin employees have three year agreements. The standard
      employment agreement contains a confidentiality clause and a
      covenant-not-to-compete clause, under which an employee must keep confidential
      all manufacturing technology including drawings and other technology materials,
      sales and financial information, and trade secrets obtained through his or
      her
      employment with us. Breach of this confidentiality clause will result in
      termination of employment. Further, each employee may not compete against us
      for
      a certain period of time following the termination of employment with us. We
      purchase group workers' compensation policy on behalf of our employees, and
      the
      premium is deducted from each employee's paycheck.


19





**Risk
      of Loss And Product Liability Insurance**




Delivery
      of our products can be arranged by our sales agents and distributors, or by
      us.
      In the latter case, we deliver our products primarily through trucks,
      supplemented with trains and cargo ships. Our standard agency contract generally
      requires our sales agents to pay for the transportation cost. Although the
      agency contract has not specifically provided for the issue of risk of loss,
      our
      customary practice is that sales agents bear the risk of loss in shipping and
      purchase shipping insurance at their expense.




We
      currently do not carry any product liability or other similar insurance, nor
      do
      we have property insurance covering our plants, manufacturing equipment and
      office buildings. While product liability lawsuits in the PRC are rare and
      Deli
      Solar (Bazhou) has never experienced significant failures of its products,
      we
      cannot assure you that Deli Solar (Bazhou) would not face liability in the
      event
      of any failure of any of its products. We plan to purchase property insurance
      to
      cover our manufacturing plants, equipment and office buildings by the end of
      the
      second quarter of 2008.





**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY**




All
      land
      in the PRC is owned by the government and cannot be sold to any individual
      or
      entity. Instead, the government grants landholders a "land use right." The
      following are the details regarding our land use rights with regard to the
      two
      pieces of land that we use in our business. The land use rights owned by Deli
      Du, our Chief Executive Officer, President and Director, were transferred to
      us
      in October 2005 for a price of RMB20,000 (approximately $2,588). The application
      for the change of the land use right certificate for this piece of land was
      submitted to Bazhou City National Land Resources Bureau on January 16, 2006.
      Once the application is approved, the registered holder for this land will
      be
      Deli Solar (Bazhou). As of October 11, 2007, the application has not yet
      been approved and the registered holder is still Mr. Du.




Deli
      Solar (Bazhou)’s factory facilities are located outside of the city of Bazhou in
      the Hebei Province of the PRC.  Deli Solar (Bazhou) utilizes one factory in
      Bazhou with a total of over 10,000 square meters of production, warehouse,
      and
      office space and space for use as a distribution center and an approximately
      2,000 square meters of office space and exhibition center in
      Beijing





On
      March
      17, 2006, Deli Solar (Bazhou) entered into an agreement with the local
      government to acquire land use rights of a land of 61,530 square meters at
      the
      price of approximately $919,858. This piece of land is close to the present
      Bazhou factory and is used to enlarge the present manufacturing base at Bazhou
      City. The land use right has been approved by the local government after payment
      of approximately $919,858. An official certificate evidencing the land lease
      has
      not yet been delivered from the government to the Company.


20




Registered
                Holder
            
            Location
                & Deed Number
            
            Usage
                and Nature
            
            Square
                meters
            
            Construction/building
                on the land
            
            Term
                of use right
            
            Transfer
                priceDeli
                Solar (Bazhou)
            
            Bazhou,
                Ningnan Village; #98060026
            
            Industrial
                Transferred Land
            
            10,244.05
                Sq. M
            
            Plant,
                warehouses, accessories room, convention center
            
            50
                years (from March 25, 1998 to March 25, 2048
            
            RMB
                615,000
              (approximately
                $79,581) was paid to the Langfang Municipal Land Administration Bureau,
                plus annual land use fee of RMB 5122 (approximately $
                662.79)Mr.
                Deli Du
            
            Eighty
                kilometers from
              Bazhou
                Jingbao Road North; #20010700405
            
            Office
                space for Deli Solar (Bazhou) Granted Land
            
            816
                Sq. M
            
            Office
                building, accessories room
            
            50
                years (from June 11, 2001 to June 3, 2051
            
            RMB
                20,000 (approximately $ 2,588) was paid to the Langfang Municipal
                Land
                Administration BureauDeli
                Solar (Bazhou)
            
            Close
                to Bazhou Jingbao Road
            
            Factory
                Facilities
            
            61,530
                Sq. M
            
            Factory
                facilities
            
            Pending
                the Land Use Right Certificate
            
            approximately
                $919,858 was paid to Bazhou local governmentTianjin
                Huaneng
              Group
                Energy Equipment
              Co.
                Ltd.
            
            No.
                119 Yuyang South Road
              Ji
                County, Tianjin
            
            Factory
            
            51,000
                Sq. M
            
            
            
            50
                years from September 2004 to September 2054
            
            Approximately
                528,000 was paid to Ji countyTotal
            
            
            
            
            
            72,590.05
                Sq. M





We
      lease
      19,140 square meters of land (“Leased Land”) from Bazhou County Credit Union
      Lianshe Branch ("Credit Union") for an office building pursuant to a 20 year
      renewal lease at an annual rent of RMB 120,000 (approximately $15,528) which
      commenced on May 1, 2003. The lease is automatically renewable for another
      20
      year term subject to terms to be negotiated at the expiration of the first
      20-year term. We are retaining a majority of the building's usable space for
      our
      business and seeking to sublease the rest to parties with business related
      to
      ours such as our sales agents, distributors, accessory parts dealers, and
      after-sales service agents. We also constructed a business center on the Leased
      Land. The business center is to be used for show rooms, retail stores, and
      a
      distribution center for solar related products and space heating
      products.





We
      lease
      our Beijing office facility of approximately 2,000 square meters at No. 28,
      Fengtai Bei Road, Fengtai District from Beijing Dajiangxia Technology and Trade
      Co., Ltd. pursuant to a renewable lease commencing October 1, 2005 to August
      8,
      2011 for an annual rent of RMB370,000 (approximately $47,878) for the first
      year
      and RMB400,000 (approximately $ 51,760) for the second year, and the following
      years pending a possible increase. We paid annual rent of RMB 400,000 in
      2007.





**ITEM
      3. LEGAL PROCEEDINGS**





Neither
      we nor any of our subsidiaries is a party to any pending legal
      proceedings.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





There
      was
      no matter submitted to a vote of our securities holders during the fourth
      quarter of 2007 through the solicitation of proxies or
      otherwise.


21




**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES.**





***Market
      Information***





Our
      common stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under
      the symbol "CSOL.OB". There has never been any established public market for
      shares of our common stock.





The
      following table sets forth the high and low bid prices, in the over-the-counter
      market, as reported and summarized by the OTCBB, for each fiscal quarter during
      each of the fiscal years ended December 31, 2006 and December 31, 2007. These
      prices are based on inter-dealer prices, without retail markup, markdown or
      omissions and may not represent actual transactions.




Quarter
                Ended
            
            High
            
            Low03/31/2006
            
            
            11
            
            
            7.506/30/2006
            
            
            11
            
            
            1109/30/2006
            
            
            6.50
            
            
            1.312/31/2006
            
            
            2.50
            
            
            0.703/31/2007
            
            
            3.73
            
            
            3.5006/30/2007
            
            
            2.60
            
            
            1.8109/30/2007
            
            
            3.45
            
            
            1.7512/31/2007
            
            
            4.50
            
            
            2.4003/31/2008
            
            
            3.70
            
            
            1.50




As
      of
      March 24, 2008, the last reported sale price of our common stock was $1.90
      per
      share.





Since
      the
      completion of the reverse merger, our common stock has traded sporadically
      and
      with high volatility. Consequently, our historical prices may not be an accurate
      indication of the future prices of our common stock.




***Holders***





As
      of
      March 24, 2008, there were 13,136,305 shares of our common stock issued and
      outstanding, and there were approximately 2,533 holders of record of our
      outstanding shares of common stock. This does not reflect the number of persons
      or entities who held stock in nominee or "street" name through various brokerage
      firms.





***Dividends***





We
      have
      never declared or paid any cash dividends on our common stock. The payment
      of
      dividends, if any, is at the discretion of the Board of Directors and is
      contingent on the Company's revenues and earnings, capital requirements,
      financial conditions and the ability of our PRC based operating subsidiaries
      Deli Solar (Bazhou) and Deli Solar (Beijing) to obtain approval to send monies
      out of the PRC. We currently intend to retain all earnings, if any, for use
      in
      business operations. Accordingly, we do not anticipate declaring any dividends
      in the near future.





The
      PRC's
      national currency, the Yuan, is not a freely convertible currency. The PRC
      government imposes controls on the convertibility of Renminbi into foreign
      currencies and, in certain cases, the remittance of currency out of the PRC.
      Shortages in the availability of foreign currency may restrict our ability
      to
      remit sufficient foreign currency to pay dividends.




22




In
      addition, under the terms of the certificate of designation which was filed
      in
      the office of Secretary of State for the State of Nevada on June 12, 2007 in
      connection with the issuance of the Series A Preferred Stock, we are restricted
      in paying dividends on our common stock.





***Securities
      Authorized for Issuance Under Equity Compensation
      Plans.***





We
      currently do not have any equity compensation plans.




**Recent
      Sales of Unregistered Securities; Use of Proceeds from Unregistered
      Securities.**





*February
      2008 Private Placement*




On
      February 25, 2008 we raised gross proceeds of approximately $11,300,000 in
      a
      private placement providing for the sale to the investors of 4,691,499 shares
      of
      common stock at a price of $2.40 per share. The net proceeds to us from that
      transaction were $9,995,156.51. The net proceeds are to be used for acquisitions
      and for general working capital. The shares were not registered under the
      Securities Act of 1933, as amended, in reliance on the exemption from
      registration provided in Section 4(2) of the Act and Regulation D promulgated
      thereunder.





*June
      2007 Private Placement*




On
      June
      13, 2007 we raised net proceeds of $2,581,000 in a private placement providing
      for the sale for an aggregate purchase price of $2,750,000 (or $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).




The
      net
      proceeds were to be used for acquisitions and for general working capital.
      The
      securities were not registered under the Securities Act of 1933, as amended,
      in
      reliance on the exemption from registration provided in Section 4(2) of the
      Act
      and Regulation D promulgated thereunder.




23




**ITEM 6.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





*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 and indirect subsidiary 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 heating products, including coal-fired boilers for residential use. Deli
      Solar (Bazhou) also sells component parts for its systems, and provides
      after-sales maintenance and repair services.





Most
      end
      users of our products use them to heat water for their homes, with a
      concentration in rural areas where electricity is in short supply. Our
      coal-fired boilers, furnaces and heating stoves are also used as primary
      household space heaters during cold weather and as cooking stoves.





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.





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 resale of energy-saving heating products such as
      heat
      pipes, heat exchangers, pressure water boilers, solar energy water heaters
      and
      radiators.  Currently, SZPSP is also operating a distribution facility in
      Shenzhen, PRC.




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.





24




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).


***Acquisitions***





As
      part
      of our business strategy, we review acquisition and strategic investment
      prospects that we believe would complement our current product offerings,
      increase our market coverage or enhance our technical capabilities, or otherwise
      offer growth opportunities. From time to time we consider investing in new
      businesses and we expect to make investments in, and to acquire businesses,
      products, or technologies in the future. We are currently considering a number
      of possible investments of this kind but we have not made any definitive
      investment or acquisition decisions.





***Acquisition
      of Shenzhen PengSangPu Solar Industrial Products
      Corporation***





On
      March
      31, 2008 Deli Solar (Beijing) completed the acquisition of 100% of the
      outstanding equity interests of Shenzhen PengSangPu Solar Industrial Products
      Corporation (“SZPSP”) from its three shareholders. SZPSP was incorporated as a
      limited liability company under the laws of the PRC on September 23, 1993.





SZPSP
      is
      principally engaged in the resale of energy-saving heating products such as
      heat
      pipes, heat exchangers, pressure water boilers, solar energy water heaters
      and
      radiators. Currently, SZPSP is also operating a distribution facility in
      Shenzhen, PRC.




*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 the Deli Solar (Beijing) which will be used as
      working capital. Fifty (50%) of the principal amount of this loan is required
      to
      be repaid within one year of entry of the complementary agreement and the
      remaining balance is required to be paid off within two
      years.




25




*Stock
      Purchase Price* .
      In
      addition to the cash purchase price, the parties agreed to an appraised value
      of
      RMB 20 million for SZPSP’s intangible assets. The purchase price for these
      intangible assets was paid in 1,419,729 shares of our common stock. If on March
      31, 2009 (the first anniversary of the closing) our common stock price is lower
      than $2, we will make up the difference. Fifty percent (50%) of these shares
      shall be transferable and unrestricted within one (1) year after the closing
      and
      the remaining fifty percent (50%) transferable within two (2) years.




*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 Tianjin Huaneng***





On
      July
      1, 2007 Deli Solar (Beijing) purchased 51% of the equity in Tianjin Huaneng
      Group Energy Equipment Co., Ltd. (“Tianjin Huaneng”) for a purchase price of
      approximately $1,689,741. In addition to the purchase price we paid a finder’s
      fee of approximately $769,418. Deli Solar (Beijing) assumed 51% of the
      liabilities of Tianjin Huaneng and contributed RMB 20,000,000
      (approximately $2,613,400) as working capital to the acquired company. Deli
      Solar (Beijing) also agreed to employ the 550 current Tianjin Huaneng employees
      pursuant to new three year employment contracts.





Tianjin
      Huaneng, incorporated in 1987, was a state-owned enterprise with 51% of its
      equity formerly- owned by SAAC and 49% owned by the employees. 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.




Tianjin
      is a city in the PRC which is approximately 50 miles from Beijing with a
      population of 10.24 million (as of 12/31/04), and is one of only four municipal
      cities directly governed by the central government in China.




***Shenzhen
      Xiongri***





In
      December 2006 we signed a memorandum of understanding 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 in 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. Management has
      decided not to complete this acquisition due to the fact that Shenzhen Xiongri’s
      sales revenues were significantly less than our management had expected. We
      have
      asked that our deposit be returned, and Shenzens Xiongr’s management has agreed
      to return it to us by the end of 2008. There can be assurance that it will
      in
      fact be returned.




**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.




26




***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.




•
            
            Excluding
                sales attributable to Tianjin Huaneng net sales increased 28 % to
                $27,480,290 in 2007.





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




•
            
            Excluding
                Tianjin Huaneng, operating income for 2007 increased 89% compared
                to
                2006.





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




27




***RESULTS
      OF OPERATIONS***




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





***Sales***




Sales
      increased to $37,072,346 for 2007 as compared to $21,468,313 for 2006, an
      increase of approximately $15,604,033 or 73%. Excluding Tianjin Huaneng our
      sales revenues increased to $27,480,290 an increase of about 28% of our sales
      revenues. 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 is attributed to the acquisition of
      Tianjin Huaneng and from sales of its energy-saving boilers and environmental
      protection equipment and due to our continued investment in brand marketing,
      sales promotion and our development of a more extensive sales distribution
      network. We continued to develop new sales agents to expand our sales network
      in
      rural areas in 2008. We recruited 10 additional sales agents and expanded our
      sales coverage. The increase in the average household income, particularly
      in
      the rural areas and small and medium size cities, continues to drive up the
      demand of our products.





***Gross
      Profit***





Gross
      profit for 2007 was $8,300,268 or 22.39% of revenues as compared to gross profit
      of $4,625,319 or 21.5% of revenues for 2006. Excluding Tianjin Huaneng our
      gross
      profit for 2007 was $5,681,565 or 21% of revenues. The increase in gross profit
      resulted primarily from the increase in sales revenue. In 2007, we sold
      approximately 147,500 solar water heater products and 108,800 units of boiler
      heater products compared to 133,000 solar water heaters and 99,000 boiler heater
      products in 2006. The profit margin in 2007 increased slightly 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.





***Cost
      of Sales***





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. Excluding Tianjin Huaneng our cost of sales increased to $21,798,724
      or
      79% of sales. Management is continuing to focus on cost controls for raw
      materials. The supply of raw materials is currently a buyer’s market and
      management believes this trend will continue, which will provide us with the
      opportunity to be more selective in our purchase of raw materials. We try to
      minimize our product costs and keep our product prices competitive.





***Operating
      Expenses***





Operating
      expenses increased to $5,114,634 for 2007 as compared to $3,414,707 for 2006
      an
      increase of $1,699,927 or about 50%. Excluding Tianjin Huaneng our operating
      expenses increased to $3,392,905 or 12.35% of sales.





Among
      the
      increase of operating expenses, selling and distribution expenses increased
      to
      $827,839 from $459,746 for 2006, an increase of $368,093, or 80%. 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 our acquisition of Tianjin Huaneng and due to the increase
      in
      sales volume and increase in sales promotion activities.





Advertising
      expenses 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 continued emphasis on advertising to increase our product
      awareness, branding and sales. We believe that through marketing, we will able
      to face down competition and generate greater market share for our products.




28




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
      increase was mainly due to the acquisition of Tianjin Huaneng which incurred
      general and administrative expenses of approximately $1,486,751; Deli Solar
      (Bazhou) and Deli Solar (Beijing)’s expenses incurred 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.





Salaries
      and benefits 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.




***Income
      from Operations***





Operating
      income was $3,185,634 for 2007 as compared to operating income of $1,210,612
      for
      2006, an increase of $1,975,022 or 163%. The increased operating income was
      due
      to our acquisition of Tianjin Huaneng and the increased sales revenue and our
      budget control on operating expenses in 2007.  As a percentage of sales,
      operating income was 8.59% in 2007 as compared to 5.64% for 2006. Excluding
      Tianjin Huaneng our operating income was $2,288,660 or 8% of sales. The increase
      in operating income as a percentage of sales was substantially due to the
      increase in sales and controlling selling expenses in 2007.





***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.




***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.





***Net
      Income***





Net
      income was $2,525,141 in 2007, an increase of $1,285,640 or about 104% from
      $1,239,501 for 2006. Excluding Tianjin Huaneng our net income was $2,134,129
      in
      2007, an increase of 72% from 2006. The increase was primarily due to an
      increase in our revenue and our acquisition of Tianjin Huaneng and resultant
      sales of its products.




29




**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 issuance
      of
      preferred stock in June 2007. On June 14, 2007 we raised net sale proceeds
      of
      $2,581,000 in a private placement of our Series A Preferred Stock and warrants.
      Investors purchased an aggregate of 1,774,194 shares of our Series A Preferred
      Stock. Each share of Series A Preferred Stock is convertible into one share
      of
      our common stock, 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 we fail to achieve certain income targets for the fiscal years ended
      December 31, 2007 and 2008. We achieved the income target for the year ended
      December 31, 2007.





We
      believe that current cash will be sufficient to meet anticipated working capital
      and capital expenditures for at least the next twelve months. However, we need
      to require additional cash resources for future developments 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 $5,466,637 at December 31, 2007 from $3,212,065
      at
      December 31, 2006. We raised $2,581,000 in net proceeds from the sale of stock
      to investors in June 2007. We also raised $9,995,156 in net proceeds from the
      sale of stock to investors in February 2008. While we anticipate that our cash
      flow will be sufficient to support our operations for the next 12 months, we
      will need to raise additional equity capital to make further acquisitions.
      There
      can be no assurance that financing will be available to us, or that if
      available, that it will be available on satisfactory terms.





**Accounts
      Receivable**





During
      2007, accounts receivable increased to $7,453,009 from $870,446 at the end
      of
      2006, primarily due to consolidation with Tianjin Huaneng. Tianjin Huaneng
      has a
      large balance of accounts receivable.





The
      majority of Tianjin Huaneng’s sales are on credit terms in accordance with terms
      specified in the contracts governing the relevant transactions. We evaluate
      the
      need for an allowance for doubtful accounts based on specifically identified
      amounts that we believe to be uncollectible. If actual collections experience
      changes, revisions to the allowance may be required. Based upon the
      aforementioned criteria, the allowances for doubtful accounts for 2007 were
      $650,432.





**Inventory**





Inventories
      as of December 31, 2007 increased to $3,875,658 from $315,765 as of December
      31,
      2006 primarily due to consolidation with Tianjin Huaneng. The inventory mainly
      consists of finished goods waiting for transportation or installation.





**Other
      receivables and prepayments**





Other
      receivables and prepayments as of December 31, 2007 increased to $1,637,948
      from
      $1,387,911 as of December 31, 2006. Other receivables and prepayments mainly
      consist of advances to suppliers, prepaid expenses and customers’
deposits.




30




**Property,
      plant and equipment**





Property,
      plant and equipment as of December 31, 2007 increased to $8,819,216 from
      $5,926,468 as of December 31, 2006 primarily due to consolidation with Tianjin
      Huaneng. The increase is mainly contributed from increase in buildings, plant
      and machinery and office equipment from $3,528,180, $71,131 and $65,749 as
      of
      December 31, 2006 to $5,573,982, $1,836,914 and $1,004,118 as of December 31,
      2007 respectively.





**Goodwill**





Goodwill
      of $1,789,324 arises as of December 31, 2007 primarily due to consolidation
      with
      Tianjin Huaneng.





**Intangible
      assets**





Intangible
      assets refer to land use rights of the Company. The amount increased from
      $1,003,530 as of December 31, 2006 to $1,597,921 as of December 31, 2007
      primarily due to consolidation with Tianjin Huaneng. All of the Company’s land
      purchases in the PRC are considered to be leasehold land and are stated at
      cost
      less accumulated amortization and any recognized impairment loss. Amortization
      is provided over the term of the land use right agreement which is 50 years,
      on
      a straight-line basis.





**Accounts
      payable**





Account
      payable as of December 31, 2007 increased to $2,111,028 from $147,901 as of
      December 31, 2006 primarily due to consolidation with Tianjin
      Huaneng.





**Income
      tax payables**





Income
      tax payable of $1,108,433 arises as of December 31, 2007 primarily due to
      consolidation with Tianjin Huaneng. Tianjin Huaneng are 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.





**Other
      payables and accrued liabilities**





Other
      payables and accrued liabilities as of December 31, 2007 increased to $8,552,452
      from $342,811 as of December 31, 2006 primarily due to consolidation with
      Tianjin Huaneng. The increase is mainly contributed from increase in accrued
      expenses, customer deposits, other payable, taxes payable and deferred revenue.





**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.





Item 7.
              **FINANCIALSTATEMENTS**





The
      following table presents selected financial data for the Company on a
      consolidated basis for the fiscal years ended December 31, 2007 and
      2006.





We
      derived the selected financial data set forth below from the Company's
      consolidated audited statements of operations for the fiscal years ended
      December 31, 2007 and 2006 and the consolidated audited balance sheets as at
      December 31, 2007 and 2006, each of which is included in this report. You should
      read the following summary financial data in conjunction with the consolidated
      financial statements and "Management's Discussion and Analysis of Financial
      Condition or Plan of Operation" appearing elsewhere in this report.





31


For
                the Fiscal Year ended
              December
                31,2007
            
            2006Gross
                revenues
            
            $
            37,072,346
            
            $
            21,468,313Income
                from operations
            
            $
            3,185,634
            
            $
            1,210,612Net
                income
            
            $
            2,525,141
            
            $
            1,239,501Comprehensive
                income
            
            $
            3,125,502
            
            $
            1,598,853Total
                assets
            
            $
            30,639,713
            
            $
            12,716,185Total
                liabilities (1)
            
            $
            11,771,913
            
            $
            490,712





(1)
            Total
                liabilities consisted of deposits from customers $2,281,909, deferred
                revenues $795,022, trade account payables $2,111,028, other payables
                $3,508,066, tax payables $1,359,140, income tax payables $1,108,433,
                and
                accrued expenses $608,315. The increase reflects the revenue potential
                and
                working capital needs for the business
                expansion.





The
      Company's consolidated audited financial statements for the fiscal years ended
      December 31, 2007 and 2006, together with the report of the independent
      certified public accounting firm thereon and the notes thereto, are presented
      beginning at page F-1.




**ITEM 8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON****ACCOUNTING
                AND FINANCIAL DISCLOSURE**





The
      disclosure required by Item 304 (a) of Regulation S-B was previously disclosed
      in our Current Report on Form 8-K filed on January 30, 2008.




**ITEM 8AT.**
            **CONTROLS
                AND PROCEDURES**




Attached
      as exhibits to this Form 10-KSB are certifications of the Company’s Chief
      Executive Officer (CEO) and Chief Financial Officer (CFO), which are required
      in
      accordance with Rule 13a-14 of the Securities
      Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). This ‘‘Controls and
      Procedures’’ section includes information concerning the controls and controls
      evaluation referred to in the certifications.





**Evaluation
      of Disclosure Controls and Procedures**





We
      conducted an evaluation of the effectiveness of the design and operation of
      our
‘‘disclosure controls and procedures’’ (‘‘Disclosure Controls’’) as of the end
      of the period covered by this Form 10-KSB. The Disclosure Controls evaluation
      was conducted under the supervision and with the participation of management,
      including our CEO and CFO. Disclosure Controls are controls and procedures
      designed to reasonably assure that information required to be disclosed in
      our
      reports filed under the Exchange Act, such as this Form 10-SBK, is recorded,
      processed, summarized, and reported within the time periods specified in the
      SEC’s rules and forms. Disclosure Controls are also designed to reasonably
      assure that such information is accumulated and communicated to our management,
      including the CEO and CFO, as appropriate to allow timely decisions regarding
      required disclosure. Our quarterly evaluation of Disclosure Controls includes
      an
      evaluation of some components of our internal control over financial reporting,
      and internal control over financial reporting is also separately evaluated
      on an
      annual basis for purposes of providing the management report, which is set
      forth
      below.





The
      evaluation of our Disclosure Controls included a review of the Disclosure
      Controls’ objectives and design, the Company’s implementation of the Disclosure
      Controls, and their effect on the information generated for use in this Form
      10-KSB. Many of the components of our Disclosure Controls are also evaluated
      on
      an ongoing basis by other personnel in our finance department. The overall
      goals
      of these various evaluation activities are to monitor our Disclosure Controls,
      and to modify them as necessary. Our intent is to maintain the Disclosure
      Controls as dynamic systems that change as conditions warrant.




32




Based
      on
      the Disclosure Controls evaluation, our CEO and CFO have concluded that, as
      of
      the end of the period covered by this Form 10-KSB, our Disclosure Controls
      were
      effective to provide reasonable assurance that information required to be
      disclosed in our Exchange Act reports is recorded, processed, summarized, and
      reported within the time periods specified by the SEC, and that material
      information related to the Company and its consolidated subsidiaries is made
      known to management, including the CEO and CFO, particularly during the period
      when our periodic reports are being prepared.





**Management
      Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting to provide reasonable assurance regarding
      the
      reliability of our financial reporting and the preparation of financial
      statement for external purposes in accordance with U.S. generally accepted
      accounting principles. Internal control over financial reporting includes those
      policies and procedures that (i) pertain to the maintenance of records that
      in
      reasonable detail accurately and fairly reflect the transactions and
      dispositions of the assets of the Company; (ii) provide reasonable assurance
      that transactions are recorded as necessary to permit preparation of financial
      statements in accordance with U.S. generally accepted accounting principles,
      and
      that receipts and expenditures of the Company are being made only in accordance
      with authorizations of management and directors of the Company; and
      (iii) provide reasonable assurance regarding prevention or timely detection
      of unauthorized acquisition, use, or disposition of the Company’s assets that
      could have a material effect on the financial statements.





Management
      assessed our internal control over financial reporting as of
      December 31, 2007, the end of our fiscal year. Management’s assessment
      included evaluation of the design and operating effectiveness of key financial
      reporting controls, process documentation, accounting policies, and our overall
      control environment. This assessment
      is supported by testing and monitoring performed by our internal finance
      department.





Based
      on
      our assessment, management has concluded that our internal control over
      financial reporting was effective as of the end of the fiscal year to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external reporting purposes in
      accordance with U.S. generally accepted accounting principles.





This
      Annual Report does not include an attestation report of registered public
      accounting firm, regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this Annual Report.





**Inherent
      Limitations on Effectiveness of Controls**




The
      Company’s management, including the CEO and CFO, does not expect that our
      Disclosure Controls or our internal control over financial reporting will
      prevent or detect all error and all fraud. A control system, no matter how
      well
      designed and operated, can provide only reasonable, not absolute, assurance
      that
      the control system’s objectives will be met. The design of a control system must
      reflect the fact that there are resource constraints, and the benefits of
      controls must be considered relative to their costs. Further, because of the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that misstatements due to error or fraud will not
      occur or that all control issues and instances of fraud, if any, within the
      Company have been detected. These inherent limitations include faulty judgments
      and breakdowns due to simple error or mistake. Controls can also be circumvented
      by individuals, by collusion, or by management override (whether such action
      is
      intentional or unintentional). The design of any system of controls is based
      in
      part on certain assumptions about the likelihood of future events, and there
      can
      be no assurance that any design will succeed in achieving its stated goals
      under
      all potential future conditions. Over time, controls may become inadequate
      because of changes in conditions or deterioration in the degree of compliance
      with policies or procedures. Therefore, any current evaluation of controls
      can
      not and should not be projected to future periods.




33




**Changes
      in Internal Controls**





There
      were no changes in the Company’s internal control over financial reporting that
      occurred during our fourth fiscal quarter of 2007 that has materially affected
      or is reasonably likely to materially affect our internal control over financial
      reporting.




**ITEM 8B.**
            **OTHER
                INFORMATION**




None.




34





**PART
      III**




**ITEM 9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.**




Our
      executive officers and directors as of the date of this report are as
      follows:





Name
            
            Position
            
            AgeDeli
                Du
            
            President,
                CEO and a director
            
            43Yihai
                Yang
            
            Acting
                Chief Financial Officer
            
            43Zhaolin
                Ding
            
            director
            
            40Zhenhang
                Jia
            
            director
            
            61Kevin
                Randolph
            
            director
            
            58





Our
      board
      of directors currently consists of four members. We also have an audit committee
      and a compensation committee. Misses Zhenghang Jia and Zhaolin Ding serve on
      both of those committees. The directors serve until our next annual meeting
      or
      until their successors are duly elected and qualified. The officers serve at
      the
      pleasure of the Board.





Effective
      March 14, 2008, Mr. Yihai Yung was appointed to serve as Acting Chief Financial
      Officer.




Effective
      November 1, 2007, Mr. Kevin Randolph was appointed as a director. Mr. Randolph
      is qualified as an “independent director” as defined by the rules of the Nasdaq
      Stock Market and as a result of his appointment we have a majority of
“independent directors,” as three of our directors, namely Mssrs. Ding, Jia
      and Randolph, are “independent directors” under the Rules of NASDAQ,
      Marketplace Rule 4200(a)(15).




Under
      the
      terms securities purchase agreement entered into on June 13, 2007 with the
      investors in that financing, we were required, prior to July 13, 2007, to
      increase the size of our Board to five or seven and cause the appointment of
      a
      majority of the Board of Directors to be “independent directors,” as defined by
      the rules of the Nasdaq Stock Market. Prior to November 1, 2007 our Board
      consisted of four members two of whom were “independent.” Under the terms of the
      securities purchase agreement we are required to pay those investors
      liquidated damages equal to one percent (1%) per month of the purchase price
      of
      the then outstanding shares of Series A Preferred Stock, in cash or in Series
      A
      Preferred Stock at the option of the investors, based on the number of days
      that such obligation is not met beyond certain grace periods.
      Accordingly, we were delinquent by 110 days in meeting this obligation and
      we are required to pay the investors a total of $99,000 as of that date.
      Effective March 31, 2008 Mr. Jianmin Li resigned from our board of directors
      as
      a result of which our board again consists of four members.




In
      addition, under the terms of the securities purchase agreement, we were
      required, prior to August 12, 2007 to appoint (i) an audit committee comprised
      solely of at least three independent directors and a (ii) compensation committee
      comprised of at least three directors, a majority of whom are independent
      directors. Our audit and compensation currently each currently consists of
      two
      members both of whom are independent, namely Mssrs. Zhaolin Ding and Zhenghang
      Jia. Accordingly, we are currently delinquent in this obligation. However,
      under
      the terms of the securities purchase agreement no liquidated damages are
      required to be paid for this breach during any period for which liquidated
      damages are payable for failing to have an independent board. Accordingly,
      damages began to accrue for breach of this provision on November 1, 2007. As
      of
      March 31, 2008 we were delinquent by 152 days in meeting this obligation and
      we
      are required to pay investors a total of approximately $137,500.00.





Deli
      Du,
      age 43, was appointed as President, CEO and as a director on March 31, 2005.
      Mr.
      Du founded Deli Solar (Bazhou) in 1997 and has been its controlling equity
      holder, chairman and chief executive officer during the past five (5) years.
      Since June 2004 he has also been a director and manager of Deli Solar (BVI).
      He
      is a standing member of the China Solar Energy Utilization Association, the
      China Efficiency Boiler Association and the Beijing New Energy and Renewable
      Energy Union.




35




Yihai
      Yang, age 43, was appointed as our Acting Chief Financial Officer effective
      March 14, 2008. From September 2006 until the present Mr. Yang, served as
      Financial Controller of China Diagnostics Medical Corporation, a company engaged
      in the business of pharmaceutical research and development. From April 2005
      to
      August 2006, Mr. Yang served as the Chief Financial Officer of Beijing
      Tanglewood Tour Development, Ltd., a company engaged in the business of real
      estate investment and development. From March 2000 to July 2003 Mr. Yang worked
      for CE Accountancy Ltd. as a project manager. In 1990 Mr. Yang graduated from
      Shenyang Industrial University with a BA in Financial Accounting and in March
      2005, he obtained his Masters Degree in Finance and Accounting from London
      South
      Bank University




Zhaolin
      Ding, age 40, was appointed as a director on August 3, 2007. Mr. Ding is
      currently the director of Everbright International Executive Management
      Education Center, an adjunct professor of the Executive Program, School of
      Continuing Education, Tsinghua University and a visiting professor of executive
      program of Peking University and Renmin University of China. He is an officially
      appointed news commentator of China National Radio. He also worked as research
      associate in the Center for International Communication Studies of Tsinghua
      University. He holds an MBA degree from Harvard University, a Master’s degree in
      International Journalism from China School of Journalism, a bachelor degree
      of
      Law in International Affairs from the University of International Relations.





Zhenhang
      Jia, age 60, was appointed as our director on August 3, 2007. He has been a
      director on Beijing Mechanic Engineering and Reusable Energies and Vice
      Secretary-in-Chief of China Rural Energy Association Energy Saving Space Heating
      Professional Society from April 1994. He also has been vice chairman, vice
      secretary-in-chief of Beijing Municipal New Energy and director in Beijing
      Mechanics and Engineering Committee, Energy Resourses and Engineering Branch
      from 1995. Mr. Jia has been lecturing in his field of profession in colleges
      and
      universities for over ten years and has published two professional books such
      as
      Enterprise Energy Saving Technology and 70 papers.




Kevin
      Randolph, age 58, was appointed as a director effective November 1, 2007. 
In 1992 he founded and has served as president and CEO of Randolphs.com, LLC,
      a
      company that provides interim management, strategic/market/product planning
      and
      other services. From 1998 to 2000, he was President and CEO of Asia Online,
      Ltd., headquartered in Hong Kong. Asia Online provided Internet service, web
      development, web hosting and system integration services in 12 countries through
      Asia Pacific. He is a graduate of Washington State University with a degree
      in
      Business Administration, majoring in marketing and electrical
      engineering.





The
      following are the officers and directors of Deli Solar (Bazhou) as of the date
      of this report:




Name
            
            Positions
            
            AgeDeli
                Du
            
            Chairman
                and Director
            
            43Yunjin
                Luo
            
            Director
            
            72Hao
                Dong
            
            CEO
            
            33Xueling
                Wu
            
            Controller
            
            27




Yunjun
      Luo was appointed a director in June 2005. He holds a Bachelor's degree in
      Pyrology from the Southeast University (Bazhou) with further studies and
      research within the PRC at The Academy of Social Sciences (structural
      mechanics), the Commission of Science, Technology and Industry for National
      Defense (space satellites) and the Beijing Solar Energy Research Institute
      (solar heaters). For over five (5) years he has been associated with the Beijing
      New Energy and Renewable Energy Association, serving as a director and associate
      professor. He also serves as a director and chief consultant for Ailiyang.





Hao
      Dong
      was appointed as CEO of Deli Solar (Bazhou) in January 2005. He has been working
      for Deli Solar (Bazhou) since 1997, holding positions in the technology
      department (from 1997 to 1999), manufacturing department (from 1999 to 2004)
      and
      sales department. Mr. Dong graduated from Bazhou Municipal Technical College
      in
      1995 and worked as technical staff for Bazhou Municipal Hua Xin Construction
      Co., Ltd. before joining Deli Solar (Bazhou). Mr. Dong is an assistant engineer
      on mechanics, a certification recognized by Bazhou Municipal Government
      Technology Department.




36





Xueling
      Wu was appointed as controller of Deli Solar (Bazhou) in January 2005. Prior
      to
      that, Ms. Wu had worked for Deli Solar (Bazhou) since 2001 as a staff
      accountant, inventory controller and sales person. She graduated from Hebei
      Provincial Fisheries College and is a PRC Certified Accountant.




There
      are
      no family relationships among our directors or executive officers. We currently
      do not have directors and officers insurance.





**AUDIT
      COMMITTEE FINANCIAL EXPERT**




Our
      audit
      committee currently consists of two members both of whom are independent, namely
      Zhenhang Jia and Zhaolin Ding. The audit committee does not currently have
      an
      audit committee "financial expert" as defined under Item 407(d)(5)(i) of
      Regulation S-B. The Board of Directors is in the process of searching for a
      suitable candidate for this position.




Under
      the
      terms of the securities purchase agreement, we were required, prior to August
      12, 2007 to appoint an audit committee comprised solely of at least three
      independent directors and damages began to accrue for breach of this provision
      on November 1, 2007. As of March 31, 2008 we were delinquent by 152 days in
      meeting this obligation and we are required to pay investors a total of
      approximately $137,500.00.





**SECTION
      16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**




Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
      directors and executive officers, and persons who own more than 10% of a
      registered class of our equity securities, to file with the SEC initial reports
      of ownership and reports of changes in ownership of common stock and our other
      equity securities. These insiders are required by SEC regulations to furnish
      us
      with copies of all Section 16(a) forms they file, including Forms 3, 4 and
      5.





SEC
      rules
      require disclosure in the Company’s Annual Report on Form 10-KSB of the failure
      of an executive officer, director or 10% beneficial owner to file such forms
      on
      a timely basis. Based upon a review of the filings made on their behalf during
      2007, as well as an examination of the SEC's EDGAR system Form 3, 4, and 5
      filings and the Company's records, the following table sets forth exceptions
      to
      timely filings:





Name
            
            Reporting
                EventArdsley
                Partners and its affiliates (1)
            
            Form
                3 to be filed reporting purchase of 1,666,500 shares on February
                25,
                2008.Deli
                Du (2)
            
            Form
                4 to be filed reporting transfer of 315,604 shares on February 26,
                2008.





(1)
            These
                shares were purchased by affiliates of Ardsley as set forth
                below:




Name
            
            Number of
              SharesArdsley
                Partners Fund II, L.P.
            
            
            702,500Ardsley
                Offshore Fund, Ltd.
            
            
            491,500Ardsley
                Partners Institutional Fund, L.P.
            
            
            455,000Marion
                Lynton
            
            
            17,500





(2)
            As
                a closing condition to the unit purchase agreement under which the
                certain
                accredited investors subscribed for shares from the Company in the
                private
                placement transaction which closed on March 31, 2005, Mr. Du agreed
                to
                place 10% of the shares of common stock then held by him (approximately
                315,604 shares) into escrow for the benefit of the investors in the
                event
                we fail to attain specified levels of net income. The Company failed
                to
                attain those numbers and consequently Mr. Du transferred 315,604
                shares.




37




**CODE
      OF ETHICS**





On
      July
      20, 2006, our Board adopted a Code of Ethics that applies to our executive
      offers and employees. We filed a copy of the Code of Ethics as exhibit 14 to
      our
      Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006.





**ITEM 10.**
            **EXECUTIVE
                COMPENSATION**




The
      following table reflects the compensation paid to our principal executive
      officer during each of our fiscal years ending December 31, 2007, 2006 and
      2005.
      None of our other executive officers was paid a salary and bonus of more than
      $100,000 in 2007 and so none are included in this table.




Name
                and
              Principal
              Position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            Non-Qualified
              Deferred
              Compensation
              Earnings
              ($)
            
            All Other
              Compensation
              ($)
            
            Total
              ($)Deli
                Du (1)
            
            
            2007
            
            
            80,000
            
            
            0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            80,0002006
            
            
            80,000
            
            
            0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            80,0002005
            
            
            60,000
            
            
            0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            60,000





(1)
      Commencing March 31, 2005, Mr. Du receives an annual salary of $80,000.




***Outstanding
      Equity Awards at 2007 Fiscal Year End***





There
      were no option exercises or options outstanding in 2007.





***Employment
      Agreements***





We
      have
      no employment agreements with any of our executive officers. We plan to enter
      into an employment agreement with Mr. Yang shortly but no such agreement has
      yet
      been executed. In the absence of written employment agreements, the PRC labor
      laws provide the terms of employment such as the term of employment, the
      provision of labor-related insurance, termination for cause, termination on
      30
      days’ notice and termination without notice and the labor-related benefits.





**Compensation
      Discussion and Analysis**





***Overview
      of Compensation Program and Philosophy***





The
      Company’s compensation committee currently has two members both of whom are
      independent, namely Zhenhang Jia and Zhaolin Ding. Under the terms of the June
      2007 securities purchase agreement with Barron Partners and the other investors,
      we were required, prior to August 12, 2007 to appoint an audit committee
      comprised solely of at least three independent directors and damages began
      to
      accrue for breach of this provision on November 1, 2007. As of March 31, 2008
      we
      were delinquent by 152 days in meeting this obligation and we are required
      to
      pay investors a total of approximately $137,500.





The
      Compensation Committee’s goal in determining compensation levels is to
      adequately reward the efforts and achievements of executive officers for the
      management of the Company. The Company currently has no pension plan, stock
      option plan, non-equity incentive plan or deferred compensation arrangement.
      The
      Company has not used a compensation consultant in any capacity but believes
      that
      it executive compensation package is comparable to similar businesses in its
      location of its operations.




38




None
      of
      the executive officers currently has an employment agreement with the Company.





***Director
      Compensation***





Our
      standard arrangement with our directors provides that we pay each director
      annual compensation in the amount of $20,000 for serving as a director. There
      are no other elements of compensation paid to our directors but it is expected
      that in the future, we may create a remuneration and expense reimbursement
      plan.
      It is anticipated that such a plan would be primarily based on stock
      options.





The
      following table reflects the compensation of directors for our fiscal year
      ended
      December 31, 2007:




Name
                of Director
            
            Fees
              Earned
              or
              Paid in
              Cash
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            Change in
              Pension value
              and
              Nonqualified
              Deferred
              Compensation
              Earnings
            
            All Other
              Compensation
              ($)
            
            Total
              ($)Zhaolin
                Ding
            
            
            8,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,400Deli
                Du
            
            
            20,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            20,000Kevin
                Randolph(1)
            
            
            3,300
            
            
            4,285
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            7,585Zhenhang
                Jia
            
            
            8,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,400Jianmin
                Li
            
            
            8,400
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,400






(1)
      Effective November 1, 2007, Mr. Kevin Randolph was appointed as a director.
      Under the terms of the securities purchase agreement, dated June 13, 2007,
      by
      and among Barron Partners, L.P. and two other investors, we were obligated
      to
      appoint independent directors to constitute the majority of the board. Mr.
      Randolph has not had any relationship with us (either as a partner, stockholder
      or employee) in the past three years and he is qualified as an independent
      director as defined by rules of the Nasdaq Stock Market. With Kevin Randolph
      appointed as a director we have a majority of independent directors. Mr.
      Randolph receives an annual director’s fee of $5,000, and he will be compensated
      with $5,000 for each full Board of Directors meeting held at Beijing, China
      and
      $2,500 for each board meeting by conference call. In addition, he is entitled
      to
      receive shares of our common stock at the amount of 0.36% of our total
      outstanding common stock to be vested monthly over three years. As of
      December 31, 2007, Mr. Randolph had earned 1,242 shares of common stock with
      a
      value of $4,285, based on a closing price on December 31, 2007 of $3.45.




39





**ITEM 11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**




The
      following table sets forth certain information with respect to the beneficial
      ownership of the voting securities by (i) any person or group with more than
      5%
      of the Company's securities, (ii) each director, (iii) each executive officer
      and (iv) all executive officers and directors as a group, as of March 24,
      2008.





Named
                and Address of Beneficial Owner
            
            Amount and
              Nature
                of
              Beneficial
              Ownership
            
            Percent (%) of
              Class
                (1)***5%
                Owners***David
                Gelbaum and Monica Chavez as trustees of
              The
                Quercus Trust,
              2309
                Santiago Drive
              Newport
                Beach, CA 92660 (2)
            
            
            2,449,283
            
            
            18.64
            %Ardsley
                Partners (3)
            
            
            1,666,500
            
            
            12.69
            %***Executive
                Officers***Deli
                Du,
              President,
                CEO and director
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            
            2,837,282
            
            
            21.6
            %Yihai
                Yang,
              Acting
                Chief Financial Officer
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            
            0***Directors***Deli
                Du,
              President,
                CEO and director
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            
            2,837,282
            
            
            21.6
            %Zhaolin
                Ding, director
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            
            0Jianmin
                Li, director
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            
            0Zhenhang
                Jia, director
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            
            0Kevin
                Randolph, director
              309
                3rd Ave SE
              Ephrata,
                WA 98823-2245 (4)
            
            
            3,236
            
            
            *





Less
      that
      1%.





(1)
            As
                of March 24, 2008 we had 13,136,305 outstanding shares of common
                stock. In
                determining the percent of common stock owned by a stockholder on
                March
                24, 2008, (a) the numerator is the number of shares of common stock
                beneficially owned by such stockholder, including shares the beneficial
                ownership of which may be acquired, within 60 days upon the conversion
                of
                convertible securities or the exercise of warrants held by such
                stockholder, and (b) the denominator is the sum of (i) 13,136,305,
                the
                number of shares outstanding on March 24, 2008, and (ii) the total
                number
                of shares underlying the convertible securities and warrants, which
                such
                stockholders has the right to acquire within 60 days following March
                24,
                2008.





40


(2)
              Based
                  on information set forth in Amendment No 1. to a Schedule 13D filed
                  on
                  March 04, 2008.(3)
              These
                  shares are held by affiliates of Ardsley as set forth
                  below:


Name
            
            Number of SharesArdsley
                Partners Fund II, L.P.
            
            
            702,500Ardsley
                Offshore Fund, Ltd.
            
            
            491,500Ardsley
                Partners Institutional Fund, L.P.
            
            
            455,000Marion
                Lynton
            
            
            17,500




(4)
            Mr.
                Randolph****is
                entitled to receive common stock at the amount of 0.36% of our total
                outstanding common stock vested monthly over 3 years. As of March 24,
                2008 Mr. Randolph was entitled to receive 3,236 shares.





**ITEM 12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND****DIRECTOR
                INDEPENDENCE**




Since
      January 1, 2007 we have not engaged in any transactions with any related persons
      which would require disclosure under Item 404 of Regulation S-B.





Three
      of
      our five directors are independent directors under the definition of
“independent director” of the Rules of NASDAQ, Marketplace Rule 4200(a)(15).




**ITEM 13.**
            **EXHIBITS**




3.1
            Certificate
                of Incorporation (including all amendments thereto) is incorporated
                by
                reference to Exhibit 3.1 to the registration statement on Form SB-2
                filed
                by the Company with the SEC on November 2, 2005.3.2-1
            Bylaws,
                is incorporated herein by reference to the registration statement
                on Form
                S-1 filed with the by the Company with the SEC in August
                1983.3.2-2
            Amendment
                to Bylaws dated October 17, 2005, is incorporated herein by reference
                to
                the Registrant's Registration Statement on Form SB-2 filed by the
                Company
                with the SEC on March 26, 2001.4.1
            Common
                Stock Specimen, is hereby incorporated by reference to the annual
                report
                on Form 10-KSB filed on April 17, 2006.4.1-1
            Certificate
                of Designation Rights and Preferences for our Series A Preferred
                Stock is
                incorporated by reference to Exhibit 4.1 to our Current Report on
                Form 8-K
                filed by the Company with the SEC on June 19, 2007.4.1-2
            Form
                of Series A Preferred Stock Certificate, is hereby incorporated by
                reference to our Current Report on Form 8-K filed by the Company
                with the
                SEC on June 19, 2007.




41




4.2
            Form
                of Warrant is incorporated by reference to Exhibit 4.2 to the registration
                statement on Form SB-2 filed by the Company with the SEC on November
                2,
                2005.4.3
            Form
                of Class A Warrant issued on June 13, 2007 is incorporated by reference
                to
                Exhibit 4.2 to the to our Current Report on Form 8-K filed by the
                Company
                with the SEC on June 19, 2007.4.4
            Form
                of Class B Warrant issued on June 13, 2007 is incorporated by reference
                to
                Exhibit 4.3 to the to our Current Report on Form 8-K filed by the
                Company
                with the SEC on June 19, 2007.10.1
            Securities
                Purchase Agreement dated June 13, 2007 by and among the Company,
                Barron
                Partners LP and the other investors named therein, is incorporated
                by
                reference to Exhibit 10.1 to our Current Report on Form 8-K filed
                by the
                Company with the SEC on June 19, 2007.10.2
            Registration
                Rights Agreement dated June 13, 2007 by and among the Company, Barron
                Partners LP and the other investors named therein, is incorporated
                by
                reference to Exhibit 10.2 to our Current Report on Form 8-K filed
                by the
                Company with the SEC on June 19, 2007.10.3
            Stock
                Escrow Agreement dated June 13, 2007 by and between the Company and
                Tri-State Title & Escrow, LLC, as escrow agent, is incorporated by
                reference to Exhibit 10.3 to our Current Report on Form 8-K filed
                by the
                Company with the SEC on June 19, 2007.10.4
            Closing
                Escrow Agreement dated June 13, 007 by and between the Company and
                Barron
                Partners, L.P., and the other investors named therein and Tri-State
                Title
                & Escrow, LLC, as escrow agent, is incorporated by reference to
                Exhibit 10.3 to our Current Report on Form 8-K filed by the Company
                with
                the SEC on June 19, 2007.10.5
            Securities
                Purchase Agreement dated as of February 25, 2008 by and among the
                Company
                and the investors named therein, is incorporated by reference to
                Exhibit
                10.1 to our Current Report on Form 8-K filed by the Company with
                the SEC
                on February 29, 2008.10.6
            Registration
                Rights Agreement dated as of February 25, 2008 by and among the Company
                and the investors named therein, is incorporated by reference to
                Exhibit
                10.2 to our Current Report on Form 8-K filed by the Company with
                the SEC
                on February 29, 2008.10.7
            Make
                Good Escrow Agreement dated as of February 25, 2008 by and between
                the
                Company, the investors named therein, Roth Capital Partners, LLC
                and
                Tri-State Title & Escrow, LLC, as escrow agent, is incorporated by
                reference to Exhibit 10.3 to our Current Report on Form 8-K filed
                by the
                Company with the SEC on February 29, 2008.10.8
            Escrow
                Agreement dated as of February 25, 2008 by and between the Company,
                Roth
                Capital Partners, LLC and Tri-State Title & Escrow, LLC, as escrow
                agent, is incorporated by reference to Exhibit 10.4 to our Current
                Report
                on Form 8-K filed by the Company with the SEC on February 29,
                2008.10.8
            Waiver
                and Consent dated as of February 25, 2008 , is incorporated by reference
                to Exhibit 10.5 to our Current Report on Form 8-K filed by the Company
                with the SEC on February 29, 2008.14
            Code
                of Ethics is incorporated by reference to Exhibit 14 to our Annual
                Report
                on Form 10-KSB for the fiscal year ended December 31, 2006 filed
                by the
                Company with the SEC on April 11, 2007.21.1
            List
                of subsidiaries.31.1
            Certification
                of Deli Du pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002;




42




31.2
            Certification
                of Yihai Yang pursuant to Exchange Act Rules 13a-14(a) and 15d- 14(a),
                as
                adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002;32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.




**ITEM 14.**
            **PRINCIPAL
                ACCOUNTANT FEES AND SERVICES**




The
      following tables set forth the fees billed to us for the periods covered by
      this
      report by our accountants:


Audit
      and
      Non-Audit Fees paid and payable to Corovano and Honeck LLP (“C&H”), our
      current auditors, and Zhong Yi (Hong Kong) C.P.A. Company Limited (“ZY”),
      auditors to Tianjin Huaneng, as follows:





***Fiscal Year Ended***
            ***Fiscal Year Ended******December 31, 2006***
            ***December 31, 2007******C&H***Audit
                Fees
            None.
            60,000Audit-Related
                Fees(1)
            None
            NoneTax
                Fees
            None
            NoneAll
                Other Fees
            None
            None***ZY***Audit
                Fees
            None.
            53,664Audit-Related
                Fees(1)
            None
            NoneTax
                Fees
            None
            NoneAll
                Other Fees
            None
            None





Audit
      and
      Non-Audit Fees Paid to our former auditor, Child, Van Wagoner & Bradshaw,
      PLLC and its predecessor firm, Child, Sullivan & Company:





Fiscal Year Ended
            Fiscal Years EndedDecember 31, 2006
            December 31, 2007Audit
                Fees
            $83,000
            $33,500Audit
                Related Fees
            None
            NoneTax
                Fees
            None
            NoneAll
                Other Fees
            None
            None




(1)
            All
                audit related fees paid to Child, Van Wagoner & Bradshaw, PLLC and its
                predecessor firm, Child, Sullivan & Company in 2006 and 2007 are
                related to review of the financial statements due for periodic reports
                and
                review of the Company’s registration statements and amendment thereto
                filed during 2006 and 2007 which incorporates their report relating
                to the
                Company’s financial statements for the fiscal y years ended Decemerb31
                2006 and 2005.





Our
      audit
      committee did not pass on whether any non-audit services impacted our auditor's
      independence. We currently do not have any policy or procedures in place for
      approval of audit and permitted non-audit services by our audit committee.





43




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
      has duly caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




CHINA
                SOLAR & CLEAN ENERGY SOLUTIONS, INC.Date:
                April 8, 2008
            /s/ Deli
                DuBy:
                Deli Du,
              Chief
                Executive Officer and President (principal
              executive
                officer)/s/ 
                Yihai YangBy:
                Yihai Yang
              Acting
                Chief Financial Officer (principal financial
              officer
                and accounting officer)




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, this Report has been signed below by the following persons on behalf
      of
      the registrant and in the capacities and on the dates indicated.




/s/ Deli
                Du
            
            April
                8, 2008By:
                Deli Du, Director/s/ Zhaolin
                Ding
            
            April
                8, 2008Zhaolin
                Ding, Director/s/ Zhenhang
                Jia
            
            April
                8, 2008By:
                Zhenhang Jia , Director




44


**CHINA
                  SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
                
                **Consolidated
                  Financial Statements**
                **For
                  The Years Ended December 31, 2007 and 2006**
                
                **(With
                  Report of Independent Registered Public Accounting Firm
                  Thereon)**
     **Cordovano
        and Honeck LLP**
 
 ***Independent
        Registered Public Accounting Firm***
  
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Page**Report
                      of Independent Registered Public Accounting Firm for the years
                      ended
                      December 31, 2006 and 2005
                  F-2Report
                      of Independent Registered Public Accounting Firm for the year
                      ended
                      December 31, 2007
                  F-3Consolidated
                      Balance Sheets
                  F-4Consolidated
                      Statements of Income
                  F-5Consolidated
                      Statements of Cash Flows
                  F-6Consolidated
                      Statements of Changes in Stockholders’ Equity and Comprehensive
                      Income
                  F-7Notes
                      to Consolidated Financial Statements
                  F-8
                      - F-28
  F-1
  
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors
 China
        Solar & Clean Energy Solutions, Inc. (fka Deli Solar (USA),
        Inc.)
 Beijing,
        People’s Republic of China
 
 We
        have
        audited the consolidated balance sheet of China Solar & Clean Energy
        Solutions, Inc. (fka Deli Solar (USA), Inc.) (the Company) as of December
        31,
        2006, and the related consolidated statements of operations, changes in
        stockholders’ equity, and cash flows for the years ended December 31, 2006 and
        2005. These consolidated financial statements are the responsibility of the
        Company’s management. Our responsibility is to express an opinion on these
        consolidated financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        consolidated financial statements are free of material misstatement. The
        company
        is not required to have, nor were we engaged to perform, an audit of its
        internal control over financial reporting. Our audits included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the company’s internal control
        over financial reporting. Accordingly, we express no such opinion. An audit
        also
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements, assessing the accounting principles
        used and significant estimates made by management, as well as evaluating
        the
        overall financial statement presentation. We believe that our audits provide
        a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of China Solar & Clean
        Energy Solutions, Inc. (fka Deli Solar (USA), Inc.) as of December 31, 2006,
        and
        the results of its operations and its cash flows for the years ended December
        31, 2006 and 2005, in conformity with accounting principles generally accepted
        in the United States of America.
  /s/
                Child, Van
                Wagoner & Bradshaw, PLLCChild,
                  Van Wagoner & Bradshaw, PLLC
                Salt
                  Lake City, Utah
                March
                  31, 2007
  F-2
 **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 The
          Board
          of Directors and stockholders of
 **CHINA
          SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
  We
          have
          audited the accompanying consolidated balance sheet of China Solar & Clean
          Energy Solutions, Inc. (the “Company”) as of December 31, 2007 and the related
          consolidated statements of income, cash flows and changes in stockholders’
equity and comprehensive income for the year ended December 31, 2007. These
          consolidated financial statements are the responsibility of the Company’s
          management. Our responsibility is to express an opinion on these consolidated
          financial statements based on our audits.
  We
          conducted our audit in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. The
          Company
          is not required to have, nor were we engaged to perform, an audit of its
          internal control over financial reporting. Our audits include consideration
          of
          internal control over financial reporting as a basis for designing audit
          procedures that are appropriate in the circumstances, but not for the purpose
          of
          expressing an opinion on the effectiveness of the Company’s internal control
          over financial reporting. Accordingly, we express no such opinion. An audit
          also
          includes examining, on a test basis, evidence supporting the amounts and
          disclosures in the consolidated financial statements, assessing the accounting
          principles used and significant estimates made by management, as well as
          evaluating the overall consolidated financial statement presentation. We
          believe
          that our audit provides a reasonable basis for our opinion.
  In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of the Company as of December
          31, 2007 and the results of their operations and their cash flows for the
          year
          ended December 31, 2007 in conformity with accounting principles generally
          accepted in the United States of America.
  /s/
          Cordovano and Honeck LLP
  Englewood,
          Colorado USA
  March
          28,
          2008
  F-3
  **CHINA
          SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **CONSOLIDATED** **BALANCE
          SHEETS**
 **(Currency
          expressed in United States Dollars (“US$”), except for number of
          shares)**
 
 As
                    of December 31,2007
                
                2006**ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                5,466,637
                
                $
                3,212,065Accounts
                    receivable, net
                
                
                7,453,009
                
                
                870,446Inventories
                
                
                3,875,658
                
                
                315,765Other
                    receivables and prepayments
                
                
                1,637,948
                
                
                1,387,911Total
                    current assets
                
                
                18,433,252
                
                
                5,786,187Property,
                    plant and equipment, net
                
                
                8,819,216
                
                
                5,926,468Goodwill
                
                
                1,789,324
                
                
                -Intangible
                    assets, net
                
                
                1,597,921
                
                
                1,003,530**TOTAL
                    ASSETS**
                
                $
                30,639,713
                
                $
                12,716,185**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**Current
                    liabilities:Accounts
                    payable, trade
                
                $
                2,111,028
                
                $
                147,901Income
                    tax payables
                
                
                1,108,433
                
                
                -Other
                    payables and accrued liabilities
                
                
                8,552,452
                
                
                342,811Total
                    current liabilities
                
                
                11,771,913
                
                
                490,712Minority
                    interests
                
                
                935,825
                
                
                -Stockholders’
                    equity:Convertible
                    preferred stock: par value $0.001;25,000,000
                    shares authorized, 1,774,194 and -0- shares issued and outstanding,
                    respectively
                
                
                1,774
                
                
                *-*Common
                    stock, $0.001 par value; 66,666,667 shares authorized; 6,205,290
                    and
                    6,205,290 shares issued and outstanding, respectively
                
                
                6,205
                
                
                6,205Additional
                    paid-in capital
                
                
                9,260,607
                
                
                5,705,574Accumulated
                    other comprehensive income
                
                
                1,134,270
                
                
                533,909Retained
                    earnings
                
                
                7,529,119
                
                
                5,979,785Total
                    stockholders’ equity
                
                
                17,931,975
                
                
                12,225,473**TOTAL
                    LIABILITIES AND STOCKHOLDERS’ EQUITY**
                
                $
                30,639,713
                
                $
                12,716,185
 
 See
          accompanying notes to consolidated financial statements.
  F-4
  **CHINA
          SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **CONSOLIDATED** **STATEMENTS
          OF INCOME**
 **(Currency
          expressed in United States Dollars (“US$”))**
 
 Years
                    ended December 31,2007
                
                2006
                
                2005**Revenue,
                    net**
                
                $
                37,072,346
                
                $
                21,468,313
                
                $
                15,577,447**Cost
                    of revenue**
                
                
                28,772,078
                
                
                16,842,994
                
                
                11,868,459**Gross
                    profit**
                
                
                8,300,268
                
                
                4,625,319
                
                
                3,708,988Operating
                    expenses:Depreciation
                    and amortization
                
                
                282,822
                
                
                154,946
                
                
                14,631Selling
                    and distribution
                
                
                827,839
                
                
                459,746
                
                
                256,634General
                    and administrative
                
                
                4,003,973
                
                
                2,800,015
                
                
                2,117,920Total
                    operating expenses
                
                
                5,114,634
                
                
                3,414,707
                
                
                2,389,185**Income
                    from operations**
                
                
                3,185,634
                
                
                1,210,612
                
                
                1,319,803Other
                    income (expenses):Other
                    income
                
                
                220,057
                
                
                45,606
                
                
                -Interest
                    expense
                
                
                (65,481
                )
                
                (16,717
                )
                
                (20,829
                )Total
                    other income (expenses)
                
                
                154,576
                
                
                28,889
                
                
                (20,829
                )**Income
                    before income taxes**
                
                
                3,340,210
                
                
                1,239,501
                
                
                1,298,974Income
                    tax expense
                
                
                (615,325
                )
                
                -
                
                
                -Minority
                    interests
                
                
                (199,744
                )
                
                -
                
                
                -**NET
                    INCOME**
                
                $
                2,525,141
                
                $
                1,239,501
                
                $
                1,298,974**NET
                    INCOME AVAILABLE TO COMMON STOCKHOLDERS**
                
                $
                1,549,334
                
                $
                1,239,501
                
                $
                1,298,974**Net
                    income per share – basic**
                
                $
                0.25
                
                $
                0.20
                
                $
                0.23**Net
                    income per share – diluted**
                
                $
                0.14
                
                $
                0.18
                
                $
                0.17**Weighted
                    average shares outstanding - basic**
                
                
                6,205,290
                
                
                6,205,290
                
                
                5,732,616**Weighted
                    average shares outstanding - diluted**
                
                
                11,233,026
                
                
                6,957,876
                
                
                7,558,335
 
 See
          accompanying notes to consolidated financial statements.
  F-5
  **CHINA
          SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(Currency
          expressed in United States Dollars)**
 Years
                      ended December 31,2007
                  
                  2006
                  
                  2005**Cash
                      flows from operating activities:**Net
                      income
                  
                  $
                  2,525,141
                  
                  $
                  1,239,501
                  
                  $
                  1,298,974Adjustments
                      to reconcile net income to net cashprovided
                      by operating activities:Depreciation
                      and amortization
                  
                  
                  324,157
                  
                  
                  178,437
                  
                  
                  100,171Provision
                      for allowance on accounts receivable
                  
                  
                  650,432
                  
                  
                  (77,267
                  )
                  
                  105,030Changes
                      in operating assets and liabilities:Accounts
                      receivable, trade
                  
                  
                  (7,232,995
                  )
                  
                  (238,334
                  )
                  
                  (476,106
                  )Inventories
                  
                  
                  (3,559,893
                  )
                  
                  67,418
                  
                  
                  (8,279
                  )Other
                      receivables and prepayments
                  
                  
                  (250,037
                  )
                  
                  (238,268
                  )
                  
                  (566,989
                  )Accounts
                      payable, trade
                  
                  
                  1,963,127
                  
                  
                  58,526
                  
                  
                  (79,124
                  )Income
                      tax payable
                  
                  
                  1,108,433
                  
                  
                  -
                  
                  
                  -Other
                      payables and accrued liabilities
                  
                  
                  8,209,641
                  
                  
                  262,885
                  
                  
                  (300,621
                  )Minority
                      interest
                  
                  
                  935,825
                  
                  
                  -
                  
                  
                  -Net
                      cash provided by operating activities
                  
                  
                  4,673,831
                  
                  
                  1,252,898
                  
                  
                  73,056**Cash
                      flows from investing activities:**Acquisition
                      of a subsidiary
                  
                  
                  (489,459
                  )
                  
                  -
                  
                  
                  -Deposits
                      made to acquire subsidiary
                  
                  
                  -
                  
                  
                  (256,278
                  )
                  
                  -Purchase
                      of intangible assets
                  
                  
                  (635,726
                  )
                  
                  (932,732
                  )
                  
                  (2,711
                  )Purchase
                      of property, plant and equipment
                  
                  
                  (4,294,741
                  )
                  
                  (2,815,398
                  )
                  
                  (845,126
                  )Net
                      cash used in investing activities
                  
                  
                  (5,419,926
                  )
                  
                  (4,004,408
                  )
                  
                  (847,837
                  )**Cash
                      flows from financing activities:**Repayment
                      of short-term borrowings
                  
                  
                  (180,694
                  )
                  
                  (130,112
                  )
                  
                  (403,101
                  )Capital
                      contribution received from shareholders
                  
                  
                  -
                  
                  
                  -
                  
                  
                  4,882,389Proceeds
                      from issuance of preferred stock (net of offering costs of
                      $169,000 paid
                      in cash)
                  
                  
                  2,581,000
                  
                  
                  -
                  
                  
                  -Related
                      receivable
                  
                  
                  -
                  
                  
                  82,639
                  
                  
                  518,637Related
                      payables
                  
                  
                  -
                  
                  
                  22,528
                  
                  
                  (10,341
                  )Net
                      cash (used in) provided by financing activities
                  
                  
                  2,400,306
                  
                  
                  (24,945
                  )
                  
                  4,987,584**Foreign
                      currency translation adjustment**
                  
                  
                  600,361
                  
                  
                  359,352
                  
                  
                  174,557**NET
                      CHANGE IN CASH AND CASH EQUIVALENTS**
                  
                  
                  2,254,572
                  
                  
                  (2,417,103
                  )
                  
                  4,387,360**CASH
                      AND CASH EQUIVALENTS, BEGINNING OF YEAR**
                  
                  
                  3,212,065
                  
                  
                  5,629,168
                  
                  
                  1,241,808**CASH
                      AND CASH EQUIVALENTS,****END
                      OF YEAR**
                  
                  $
                  5,466,637
                  
                  $
                  3,212,065
                  
                  $
                  5,629,168**SUPPLEMENTAL
                      DISCLOSURE OF CASH FLOW INFORMATION**Cash
                      paid for income taxes
                  
                  $
                  939,798
                  
                  $
                  -
                  
                  $
                  -Cash
                      paid for interest expenses
                  
                  $
                  95,446
                  
                  $
                  16,717
                  
                  $
                  20,884**SUPPLEMENTAL
                      DISCLOSURE OF NONCASH INVESTING AND FINANCING
                      TRANSACTIONS**Warrant
                      shares granted for offering costs
                  
                  $
                  138,338
                  
                  $
                  -
                  
                  $
                  -
 
 See
          accompanying notes to consolidated financial statements.
  F-6
  **CHINA
          SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **CONSOLIDATED
          STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME**
 **(Currency
          expressed in United States Dollars (“US$”), except for number of
          shares)**
  Preferred
                        stock
                    
                    Common
                        stock
                    
                    Additional
                      paid-in
                    
                    Accumulated
                      other
                      comprehensive
                    
                    Retained
                    
                    Total
                      stockholders’No.
                        of shares
                    
                    Par
                        value
                    
                    No.
                        of shares
                    
                    Par
                        value
                    
                    Capital
                    
                    income
                    
                    earnings
                    
                    equityBalance
                        at January 1, 2005
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,431,000
                    
                    
                    4,430
                    
                    
                    824,960
                    
                    
                    -
                    
                    
                    3,441,310
                    
                    
                    4,270,700Shares
                        issued for private placement, net of offering costs of $1,348,626
                        in
                        cash
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,714,290
                    
                    
                    1,715
                    
                    
                    4,649,674
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,651,389*Warrants
                        exercised*
                    
                    
                    -
                    
                    
                    -
                    
                    
                    60,000
                    
                    
                    60
                    
                    
                    230,940
                    
                    
                    -
                    
                    
                    -
                    
                    
                    231,000Comprehensive
                        income:
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Net
                        income for the year
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,298,974
                    
                    
                    1,298,974Foreign
                        currency translation adjustment
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    174,557
                    
                    
                    -
                    
                    
                    174,557Comprehensive
                        income:
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,473,531Balance
                        as of December 31, 2005
                    
                    
                    -
                    
                    
                    -
                    
                    
                    6,205,290
                    
                    
                    6,205
                    
                    
                    5,705,574
                    
                    
                    174,557
                    
                    
                    4,740,284
                    
                    
                    10,626,620Comprehensive
                        income:Net
                        income for the year
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,239,501
                    
                    
                    1,239,501Foreign
                        currency translation adjustment
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    359,352
                    
                    
                    -
                    
                    
                    359,352Comprehensive
                        income:
                    
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,598,853Balance
                        as of December 31, 2006
                    
                    
                    -
                    
                    
                    -
                    
                    
                    6,205,290
                    
                    
                    6,205
                    
                    
                    5,705,574
                    
                    
                    533,909
                    
                    
                    5,979,785
                    
                    
                    12,225,473Shares
                        issued for private placement, net of offering costs of $169,000
                        in cash
                        and $138,338 in warrants.
                    
                    
                    1,774,194
                    
                    
                    1,774
                    
                    
                    
                    
                    
                    
                    
                    
                    2,579,226
                    
                    
                    
                    
                    
                    
                    
                    
                    2,581,000Preferred
                        share dividends
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    975,807
                    
                    
                    
                    
                    
                    (975,807
                    )
                    
                    -Comprehensive
                        income:Net
                        income for the year
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,525,141
                    
                    
                    2,525,141Foreign
                        currency translation adjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    600,361
                    
                    
                    
                    
                    
                    600,361Comprehensive
                        income:
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,125,502Balance
                        as of December 31, 2007
                    
                    
                    1,774,194
                    
                    $
                    1,774
                    
                    
                    6,205,290
                    
                    $
                    6,205
                    
                    $
                    9,260,607
                    
                    $
                    1,134,270
                    
                    $
                    7,529,119
                    
                    $
                    17,931,975
 See
          accompanying notes to consolidated financial statements.
  F-7
  **CHINA
          SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
          expressed in United States Dollars (“US$”))**
 
 **1.**
                **ORGANIZATION
                    AND BUSINESS BACKGROUND**
 
 China
          Solar & Clean Energy Solutions, Inc. (“China Solar”), formerly known as Deli
          Solar (USA) Inc. was incorporated in the State of Nevada on March 21, 1983
          as
          Meditech Pharmaceuticals, Inc. (“Meditech”). In late 2004, the Board of
          Directors of Meditech contemplated a strategic reorganization with Deli
          Solar
          Holding Ltd., a corporation organized in the British Virgin Islands (“Deli Solar
          (BVI)”). In contemplation of the reorganization, the Board of Directors resolved
          to spin off Meditech's drug development business to the shareholders of
          Meditech
          of record on February 17, 2005, through a pro rata distribution in the
          form of a
          stock dividend. The spin-off was completed on August 29, 2005. The acquisition
          of Deli Solar (BVI) was accounted for as a recapitalization of Deli Solar
          (BVI).
 
 Deli
          Solar (BVI) was formed in June 2004. On August 1, 2004, Deli Solar (BVI)
          purchased Bazhou Deli Solar Energy Heating Co., Ltd. (“Deli Solar (Bazhou)”), a
          corporation duly organized under the laws of the People’s Republic of China
          (“PRC”) from Messrs. Deli Du, Xiao'er Du, and Xiaosan Du for RMB 6,800,000. As
          a
          result of this transaction, Deli Solar (Bazhou) became a wholly-foreign
          owned
          enterprise ("WFOE") under PRC law on March 30, 2005. This acquisition was
          accounted for as a transfer of entities under common control.
 
 Deli
          Solar (Bazhou) was incorporated on August 19, 1997 under the laws of the
          PRC. In
          the PRC, Ltd, or Limited, is equivalent to Inc, or Incorporated, in the
          United
          States (“US”).
 
 The
          result of the above transactions is that Deli Solar (BVI) is now our direct,
          wholly-owned subsidiary and Deli Solar (Bazhou) remains a wholly-owned
          subsidiary of Deli Solar (BVI).
 
 On
          November 21, 2005 Deli Solar (Bazhou) acquired Ailiyang Solar Energy Technology
          Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli
          Solar (Bazhou). The transaction was accounted for as a transfer of entities
          under common control.
 
 Beijing
          Deli Solar Technology Development Co., Ltd. (“Deli Solar (Beijing)”) was founded
          in 2006 and is principally engaged in solar power heater integrated construction
          projects in major cities in the PRC.
 
 In
          January 2007, Deli Solar (Bazhou) via Mr. Deli Du, set up a branch sales
          offices
          in the
          city
          of Lian Yun Gang and the City of Bazhou to
          cope
          with the increasing sales demand in that region. This branch office exists
          in
          the form of a sole-proprietorship set up in the name of Mr. Deli Du but
          is
          beneficially owned by Deli Solar (Bazhou), so is regarded as a variable
          interest
          entity (“VIE”) by the Company.
 
 On
          July
          1, 2007, Deli Solar (Beijing) acquired 51% of Tianjin Hua Neng Energy Equipment
          Company (“Tianjin Huaneng”), which manufactures energy saving boilers and
          environmental protection equipment for industrial customers. The
          transaction was accounted for under the purchase method. See Note
          2.
 
 China
          Solar, Deli Solar (BVI), Deli Solar (Bazhou), Ailiyang, Deli Solar (Beijing),
          Tianjin Huaneng are hereinafter referred to as (“the Company”).
  F-8
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 ·
              Basis
                  of presentation
 
 These
        accompanying financial statements have been prepared in accordance with
        generally accepted accounting principles in the United States of America
        (“US
        GAAP”).
 
 ·
              Basis
                  of consolidation
 
 The
        consolidated financial statements include the financial statements of China
        Solar, Deli Solar (BVI), Deli Solar (Bazhou), Ailiyang, Deli Solar (Beijing),
        Tianjin Huaneng and the
        VIE.
 
 The
        Company adopted the provisions of Financial Accounting Standards Board
        Interpretation No. 46R, “Consolidation of Variable Interest Entities ” (“FIN
        46R”). The sole-proprietorship business in the name of Mr. Deli Du is regarded
        a
        VIE of the Company and is consolidated in the Company’s financial
        statements.
 
 All
        significant intercompany balances and transactions within the Company have
        been
        eliminated upon consolidation.
 
 ·
              Use
                  of estimates
 
 In
        preparing these financial statements, management makes estimates and assumptions
        that affect the reported amounts of assets and liabilities in the balance
        sheets
        and revenues and expenses during the years reported. Actual results may differ
        from these estimates.
 
 ·
              Cash
                  and cash equivalents
 
 The
        Company considers all highly liquid securities with original maturities of
        three
        months or less when acquired to be cash equivalents. At December 31, 2007
        and
        2006, the Company had $5,466,637 and $3,212,065, respectively, in cash
        equivalents.
 
 ·
              Accounts
                  receivable and allowance for doubtful
                  accounts
 
 Accounts
        receivable consists of amounts due from customers. The Company extends unsecured
        credit to its customers in the ordinary course of business but mitigates
        the
        associated risks by performing credit checks and actively pursuing past due
        accounts. An allowance for doubtful accounts is established and determined
        based
        on management’s assessment of known requirements, aging of receivables, payment
        history, the customer’s current credit worthiness and the economic environment.
 
 ·
              Inventories
 
 Inventories
        include direct materials, labor and factory overhead and are stated at lower
        of
        cost or market value, cost being determined on a first-in, first-out basis.
        The
        Company periodically reviews historical sales activity to determine excess,
        slow
        moving items and potentially obsolete items and also evaluates the impact
        of any
        anticipated changes in future demand. The Company provides inventory allowances
        based on excess and obsolete inventories determined principally by customer
        demand. As of December 31, 2007, 2006 and 2005, the Company did not record
        an
        allowance for obsolete inventories, nor have there been any
        write-offs.
  F-9
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 ·
              Property,
                  plant and equipment
 
 Property,
        plant and equipment are stated at cost less accumulated depreciation and
        accumulated impairment losses, if any. Depreciation is calculated on the
        straight-line basis over the following expected useful lives from the date
        on
        which they become fully operational and after taking into account their
        estimated residual values. Property, plant and equipment are depreciated
        over
        their estimated useful lives as follows:
 
 Depreciable life
              
              Residual valueBuildings
              
              
              6-50
                  years
              
              
              10%Plant
                  and machinery
              
              
              10
                  years
              
              
              10%Office
                  equipments
              
              
              7
                  years
              
              
              10%Motor
                  vehicles
              
              
              7
                  years
              
              
              10%Computer
                  equipment
              
              
              3
                  years
              
              
              10%
 
 ·
              Construction-in-progress
 
 All
        facilities purchased for installation, self-made or subcontracted are accounted
        for under construction-in-progress. Construction-in-progress is recorded
        at
        acquisition cost, including cost of facilities, installation expenses and
        the
        interest capitalized during the course of construction for the purpose of
        financing the project. Upon completion and readiness for use of the project,
        the
        cost of construction-in-progress is to be transferred to fixed
        assets.
 
 ·
              Goodwill
                  and intangible assets
 
 Goodwill
        and intangibles, including intellectual property, were generally acquired
        in
        acquisitions in 2007. Statement of Financial Accounting Standards No. 142,
        Goodwill and Other Intangible Assets, or SFAS No. 142, requires goodwill to
        be tested for impairment on an annual basis and between annual tests in certain
        circumstances, and written down when impaired. We perform this analysis during
        the fourth quarter of each year. No impairment of goodwill has been identified
        since the date of acquisition.
 
 Furthermore,
        SFAS No. 142 requires purchased intangible assets other than goodwill to be
        amortized over their useful lives unless these lives are determined to be
        indefinite. Purchased intangible assets are carried at cost less accumulated
        amortization. No impairment of intangibles has been identified since the
        date of
        acquisition. All lands in the PRC are owned by the PRC government. The
        government in the PRC, according to the relevant PRC law, may sell the right
        to
        use the land for a specified period of time. Thus, all of the Company’s land
        purchases in the PRC are considered to be leasehold land and are stated at
        amortized cost. Amortization is provided over the term of the land use right
        agreements on a straight-line basis, which is 50 years and they will expire
        in
        2048, 2051 and 2054.
 
 ·
              Impairment
                  of long-lived assets
 
 In
        accordance with SFAS No. 144, *“Accounting
        for the Impairment or Disposal of Long-Lived Assets”* ,
        a
        long-lived assets and certain identifiable intangible assets held and used
        by
        the Company are reviewed for impairment whenever events or changes in
        circumstances indicate that the carrying amount of an asset may not be
        recoverable. Recoverability
        of assets to be held and used is evaluated by a comparison of the carrying
        amount of assets to estimated undiscounted net cash flows expected to be
        generated by the assets. If such assets are considered to be impaired, the
        impairment to be recognized is measured by the amount by which the carrying
        amounts of the assets exceed the fair value of the assets. There has been
        no
        impairment as of December 31, 2007, 2006 and 2005.
  F-10
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 ·
              Revenue
                  recognition
 
 The
        Company sells their products and services under a bundled sales arrangement,
        which typically include equipment, installation, testing and maintenance
        components. The components of equipment, installation and testing are
        non-separable and considered as a single unit of deliverables, namely product
        revenue. Hence, the product and maintenance are considered separate units
        of
        accounting in the arrangement. Revenues under these bundled arrangements
        are
        allocated considering the relative fair values of two separate deliverables:
        (a)
        product deliverable and (b) maintenance deliverable, included in the bundled
        arrangement based on the estimated relative fair values of each element in
        accordance with EITF 00-21, “Accounting for Multiple Element Revenue
        Arrangements” and recognized when the applicable revenue recognition criteria
        for each element are met. Revenue
        from product deliverables are recognized upon final acceptance, which is
        signed
        by the customer when installation is completed. Revenue from maintenance
        support
        for the Company’s products are deferred and recognized ratably over the term of
        the service period upon the acceptance of the products, which is generally
        12
        months.
 
 Revenue
        from the provision of energy-saving projects are recognized when persuasive
        evidence of an arrangement exists, transfer of title has occurred or services
        have been rendered, the selling price is fixed or determinable and
        collectibility is reasonably assured.
 
 T he
        Company recognizes its revenues net of value-added taxes (“VAT”). The Company is
        subject to VAT which is levied on the majority of the products at the rate
        of
        17% on the invoiced value of sales. Output VAT is borne by customers in addition
        to the invoiced value of sales and input VAT is borne by the Company in addition
        to the invoiced value of purchases to the extent not refunded for export
        sales.
 
 ·
              Cost
                  of revenue
 
 Cost
        of
        revenue consists primarily of material costs, direct labor, shipping and
        handling fee, depreciation and manufacturing overheads, which are directly
        attributable to the manufactured products and the provision of the energy-saving
        projects.
 
 ·
              Advertising
                  expenses
 
 Advertising
        costs are expensed as incurred in accordance with the American Institute
        of
        Certified Public Accountants (“AICPA”) Statement of Position 93-7, *“Reporting
        for Advertising Costs”* . Advertising expenses for the years ended December 31, 2007, 2006 and 2005
        were
        $1,415,493, $1,106,488 and $646,667, respectively.
 
 ·
                Retirement
                    plan costs
 
 Contributions
        to retirement schemes (which are defined contribution plans) are charged
        to
        general and administrative expenses in the accompanying consolidated statements
        of operations as the related employee service is provided.
 
 ·
              Comprehensive
                  income
 
 SFAS
        No.
        130, *“Reporting
        Comprehensive Income”,* establishes standards for reporting and display of comprehensive income,
        its
        components and accumulated balances. Comprehensive income as defined includes
        all changes in equity during a period from non-owner sources. Accumulated
        other
        comprehensive income, as presented in the accompanying statement of changes
        in
        owners’ equity consists of changes in unrealized gains and losses on foreign
        currency translation. This comprehensive income is not included in the
        computation of income tax expense or benefit.
  F-11
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 ·
              Income
                  taxes
 
 The
        Company accounts for income tax using SFAS No. 109 *“Accounting
        for Income Taxes”* ,
        which
        requires the asset and liability approach for financial accounting and reporting
        for income taxes. Under this approach, deferred income taxes are provided
        for
        the estimated future tax effects attributable to temporary differences between
        financial statement carrying amounts of assets and liabilities and their
        respective tax bases, and for the expected future tax benefits from loss
        carry-forwards and provisions, if any. Deferred tax assets and liabilities
        are
        measured using the enacted tax rates expected in the years of recovery or
        reversal and the effect from a change in tax rates is recognized in the
        statement of operations and comprehensive (loss) income in the period of
        enactment. A valuation allowance is provided to reduce the amount of deferred
        tax assets if it is considered more likely than not that some portion of,
        or all
        of the deferred tax assets will not be realized.
 
 ·
              Net
                  income per share
 
 The
        Company calculates net income per share in accordance with SFAS
        No. 128, *“Earnings
        per Share.”* Basic
        income per share is computed by dividing the net income by the weighted-average
        number of common shares outstanding during the period. Diluted income per
        share
        is computed similar to basic income per share except that the denominator
        is
        increased to include the number of additional common shares that would have
        been
        outstanding if the potential common stock equivalents had been issued and
        if the
        additional common shares were dilutive.
 
 ·
              Foreign
                  currency translation
 
 The
        reporting currency of the Company is United States dollar (“US$”). Transactions
        denominated in currency other than US$ are translated into US$ at the average
        rate for the period. Monetary assets and liabilities denominated in currency
        other than US$ are translated into US$ at the rates of exchange ruling at
        the
        balance sheet date. The resulting exchange differences are recorded in other
        expenses in the accompanying statements of operations.
 
 The
        financial records of the Company’s operating subsidiaries are maintained in
        their local currency, the Renminbi (“RMB”), which is the functional currency.
        Assets and liabilities are translated at the exchange rates at the balance
        sheet
        date, equity accounts are translated at historical exchange rates, and income
        and expenses items are translated using the average rate for the period.
        The
        translation adjustments are recorded in accumulated other comprehensive income
        in the statements of changes in stockholders’ equity and comprehensive
        income.
 
 ·
              Stock
                  based compensation
 
 Prior
        to
        January 1, 2006, we accounted for stock-based compensation using the
        intrinsic value method prescribed in Accounting Principles Bulletin No. 25, *Accounting
        for Stock Issued to Employees* , or APB
        No. 25 and related interpretations. Compensation expense for stock options
        was recognized ratably over the vesting period.
  F-12
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 Effective
        January 1, 2006, we adopted the fair value recognition provisions of
        Financial Accounting Standards Board, or FASB, Statement of Financial Accounting
        Standards, *Share-Based
        Payment* , or
        SFAS No. 123(R) using the modified prospective application method. Under
        SFAS No. 123R, stock-based compensation expense is measured at the
        grant date based on the value of the option or restricted stock and is
        recognized as expense, less expected forfeitures, over the requisite service
        period.
  ·
              Product
                  Warranty
 
 The
        Company provides a three-year standard warranty to all Deli Solar (Bazhou)
        manufactured products. Repair and replacement of defective component parts
        during the first year following purchase are covered under the standard warranty
        program. In the second and third year, repair services are covered under
        the
        warranty program but customers pay for the purchase of the replacement parts.
        Warranty services on the products manufactured by Deli Solar (Bazhou) are
        performed by independent sales agents and distributors in exchange for 1%-2%
        discount off the purchase price of our products.
 
 Under
        the
        terms of the contracts for energy-saving projects, the Company provides a
        product warranty on the equipment to its customers for a period of twelve
        months
        upon the completion of installation at the Company’s expense. The Company has
        not experienced any material returns where it was under obligation to honor
        this
        standard warranty provision. As such, no reserve for product warranty has
        been
        provided in the statements of operations for
        the
        years ended December 31, 2007, 2006 and 2005, respectively.
 
 ·
              Segment
                  reporting
 
 SFAS
        No.
        131 *“Disclosures
        about Segments of an Enterprise and Related Information”* establishes standards for reporting information about operating segments
        on a
        basis consistent with the Company’s internal organization structure as well as
        information about geographical areas, business segments and major customers
        in
        financial statements. The Company operates in two principal reportable segments: Sales
        of
        solar heater or boiler related products and sales of heat pipe related
        products.
 
 ·
              Fair
                  value of financial instruments
 
 The
        Company values its financial instruments as required by SFAS No. 107, *“Disclosures
        about Fair Value of Financial Instruments”* .
        The
        estimated fair value amounts have been determined by the Company, using
        available market information and appropriate valuation methodologies. The
        estimates presented herein are not necessarily indicative of amounts that
        the
        Company could realize in a current market exchange.
 
 The
        Company’s financial instruments primarily include cash and cash equivalents,
        accounts receivable, other receivables and prepayments, accounts payable,
        other
        payables and accrued liabilities. As of the balance sheet date, the estimated
        fair values of financial instruments were not materially different from their
        carrying values as presented due to short maturities of these
        instruments.
  F-13
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 ·
              Registration
                  payment arrangements
 
 The
        Company accounts for registration payment arrangement in accordance with
        FASB
        Staff Position EITF 00-19-2, *Accounting*** *for*** *Registration*** *Payment*** *Ar

        ra
        ngements***("FSP
        EITF 00-19-2") which provides guidance on the accounting for registration payment arrangements.
        FSP
        EITF 00-19-2 specifies that the contingent obligation to make future
        payments or otherwise transfer consideration under a registration payment
        arrangement, whether issued as a separate agreement or included as a provision
        of a financial instrument or other agreement, should be separately recognized
        and measured in accordance with FASB Statement No. 5,*Accounting
        for Contingencies*.
        A
        registration payment arrangement is defined in FSP EITF 00-19-2 as an
        arrangement with both of the following characteristics: (1) the arrangement
        specifies that the issuer will endeavor (a) to file a registration
        statement for the resale of specified financial instruments and/or for the
        resale of equity shares that are issuable upon exercise or conversion of
        specified financial instruments and for that registration statement to be
        declared effective by the Securities and Exchange Commission within a specified
        grace period, and/or (b) to maintain the effectiveness of the registration
        statement for a specified period of time (or in perpetuity); and(2) the
        arrangement requires the issuer to transfer consideration to the counterparty
        if
        the registration statement for the resale of the financial instrument or
        instruments subject to the arrangement is not declared effective or if
        effectiveness of the registration statement is not maintained.
 
 ·
              Uncertain
                  tax positions
 
 The
        Company adopted Financial Accounting Standards Board Interpretation No. 48, *“Accounting
        for Uncertainty in Income Taxes”* (“FIN
        48”), on January 1, 2007. FIN 48 prescribes a more likely than not
        threshold for financial statement recognition and measurement of a tax position
        taken or expected to be taken in a tax return. This Interpretation also provides
        guidance on derecognition of income tax assets and liabilities, classification
        of current and deferred income tax assets and liabilities, accounting for
        interest and penalties associated with tax positions, accounting for income
        taxes in interim periods, and income tax disclosures. The Company did not
        have
        any adjustment to the opening balance of retained earnings as of January 1,
        2007 as a result of the implementation of FIN 48. For the year ended
        December 31, 2007, the Company did not have any interest and penalties
        associated with tax positions. As of December 31, 2007, the Company did not
        have any significant unrecognized uncertain tax positions.
 
 ·
              Recently
                  issued accounting standards
 
 In
        2008,
        the Securities and Exchange Commission (the “SEC”) adopted rule amendments that
        replace the category of “Small Business Issuers” with a broader category of
“Smaller Reporting Companies.”  Under these rules, a "Smaller Reporting
        Company" is a company with a public float less than $75,000,000 (measured
        at end
        of Q2).  Companies that meet this definition are able to elect "scaled
        disclosure standards" on an item-by-item or "a-la-carte" basis.  With this
        change, the SEC has streamlined and simplified reporting for many companies,
        and
        has not added any significant disclosure requirements.
 
 In
        February 2007, the FASB
        issued Statement of Financial Accounting Standard No. 159, *“The
        Fair Value Option for Financial Assets and Financial
        Liabilities”* ,
        or SFAS
        159. SFAS 159 permits companies to choose to measure many financial instruments
        and certain other items at fair value. It is expected to expand the use of
        fair
        value measurements which is consistent with the Financial Accounting Standards
        Board’s long-term measurement objectives for accounting for financial
        instruments. SFAS 159 is effective for our first fiscal year that begins
        after
        November 15, 2007, which is our fiscal year 2008 that begins in January 2008.
        The Company is currently evaluating the impact of this statement to its
        financial position and results of operations.
  F-14
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 In
        December 2007, the FASB issued SFAS No. 141 (Revised 2007), *‘’Business
        Combinations’’* ,
        or SFAS
        No. 141R. SFAS No. 141R will change the accounting for business combinations.
        Under SFAS No. 141R, an acquiring entity will be required to recognize all
        the
        assets acquired and liabilities assumed in a transaction at the acquisition-date
        fair value with limited exceptions. SFAS No. 141R will change the accounting
        treatment and disclosure for certain specific items in a business combination.
        SFAS No. 141R applies prospectively to business combinations for which the
        acquisition date is on or after the beginning of the first annual reporting
        period beginning on or after December 15, 2008. Accordingly, any business
        combinations we engage in will be recorded and disclosed following existing
        GAAP
        until January 1, 2009. We expect SFAS No. 141R will have an impact on accounting
        for business combinations once adopted but the effect is dependent upon
        acquisitions at that time. We are still assessing the impact of this
        pronouncement.
 
 In
        December 2007, the FASB issued SFAS No. 160, *"Noncontrolling Interests in Consolidated Financial Statements--An Amendment
        of
        ARB No. 51’’* ,
        or SFAS
        No. 160. SFAS No. 160 establishes new accounting and reporting standards
        for the
        noncontrolling interest in a subsidiary and for the deconsolidation of a
        subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
        December 15, 2008. We believe that SFAS 160 should not have a material impact
        on
        our financial position or results of operations.
  Acquisition
 
 On
        May
        18, 2007, the Company’s wholly owned subsidiary, Beijing Deli Solar Technology
        Development Co., Ltd. entered into a purchase agreement to acquire 51% equity
        interest in Tianjin Huaneng held by Tianjin Municipal Ji County State-owned
        Assets Administration Commission for a total purchase price of $3,149,147.
        By
        supplemental agreement dated August 8, 2007, the purchase price was reduced
        to
        approximately $1,689,741. The Company also incurred additional cost of $769,418
        related to finder’s fee, which has been included in the total cost of the
        acquisition of $2,459,159. As of December 31, 2007, the Company paid
        approximately $2,345,018 of the purchase price and the finder’s fee. The
        remaining balance as of the date of this report was $114,141. In addition,
        the
        Company agreed to provide working capital of approximately $2.6 million to
        Tianjin Huaneng. The accounting date of the acquisition was July 1, 2007
        and was
        accounted for under the purchase method. Tianjin Huaneng results of operations
        have been included in our consolidated financial statements since the date
        of
        acquisition. Tianjin Huaneng is principally engaged in the design, development
        and manufacturing and marketing of energy-saving related heating products
        such
        as heat 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. These products are distributed
        in the
        PRC and Southeast Asia. Goodwill recorded as part of the purchase price
        allocation was $1,789,324. Identifiable intangible assets acquired as part
        of
        the acquisition included definite-lived intangibles such as land use rights
        which totaled $256,157, with a weighted average amortization period of
        approximately 50 years. We continue to evaluate the purchase price allocation
        for the Tianjin Huaneng acquisition, including intangible assets, contingent
        liabilities and property, plant and equipment.
 
 The
        aggregate purchase price was $2,459,159, including $1,689,741 of cash and
        costs
        related to the acquisition of $769,418. Below is a summary of the total purchase
        price:
 
 Cash
              
              $
              1,689,741Direct
                  acqusition costs
              
              
              769,418Total
                  purchase price
              
              $
              2,459,159
  F-15
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 The
        total
        purchase price was allocated to the estimated fair value of the assets acquired
        and liabilities assumed as follows:
 
 Fair
                  value of tangible net assets acquired
              
              $
              5,256,426Fair
                  value of intangible net assets acquired
              
              
              256,157Goodwill
              
              
              1,789,324Trade
                  accounts payable, accrued expenses and other liabilities
              
              
              (4,842,748
              )$
              2,459,159
 
 The
        following unaudited pro forma financial information for the Company gives
        effect
        to the 2007 acquisition as if they had occurred on January 1, 2006. These
        pro forma results do not purport to be indicative of the results of operations
        which actually would have resulted had the acquisitions occurred on such
        date or
        to project the Company’s results of operations for any future
        period.
 
 Years
                  ended December 31,2007
              
              2006Pro
                  forma net sales
              
              $
              43,552,104
              
              $
              34,981,140Pro
                  forma net income
              
              
              2,558,974
              
              
              1,445,425Pro
                  forma earnings per common share — net incomeBasic
              
              $
              0.26
              
              $
              0.23Diluted
              
              $
              0.14
              
              $
              0.21Weighted
                  average common shares outstandingBasic
              
              
              6,206,290
              
              
              6,205,290Diluted
              
              
              11,233,026
              
              
              6,957,876
 
 **3.**
              **ACCOUNTS
                  RECEIVABLE, NET**
 
 The
        majority of the Company’s sales are on open credit terms and in accordance with
        terms specified in the contracts governing the relevant transactions. The
        Company evaluates the need of an allowance for doubtful accounts based on
        specifically identified amounts that management believes to be uncollectible.
        If
        actual collections experience changes, revisions to the allowance may be
        required.
 
 As
                  of December 31,2007
              
              2006Accounts
                  receivable, cost
              
              $
              8,219,804
              
              $
              986,809Less:
                  allowance for doubtful accounts
              
              
              (766,795
              )
              
              (116,363
              )Accounts
                  receivable, net
              
              $
              7,453,009
              
              $
              870,446
 
 For
        the
        year ended December 31, 2006, the Company recorded the reversal of the allowance
        for doubtful accounts of $77,267. For the year ended December 31, 2007, the
        Company recorded allowance for doubtful accounts of $650,432.
  F-16
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 **4.**
              **INVENTORIES**
 
 Inventories
        consisted of the following:
 As
                    of December 31,2007
                
                2006Raw
                    materials
                
                $
                656,605
                
                $
                150,748Consumables
                
                
                5,359
                
                
                5,970Work-in-process
                
                
                2,464,441
                
                
                -Finished
                    goods
                
                
                749,253
                
                
                159,047Inventories
                
                $
                3,875,658
                
                $
                315,765
 
 **5.**
              **OTHER
                  RECEIVABLES AND
                  PREPAYMENTS**
 
 Other
        receivables and prepayments consisted of the following:
 As
                    of December 31,2007
                
                2006Advance
                    to suppliers
                
                $
                493,421
                
                $
                1,007,709Prepaid
                    expenses
                
                
                249,598
                
                
                58,203Deposits
                
                
                894,268
                
                
                256,278Other
                    receivables
                
                
                661
                
                
                65,721Other
                  receivables and prepayments
                
                $
                1,637,948
                
                $
                1,387,911
 
 **6.**
              **PROPERTY,
                  PLANT AND EQUIPMENT, NET**
 
 Property,
        plant and equipment, net, consisted of the following:
 As
                    of December 31,2007
                
                2006Buildings
                
                $
                5,573,982
                
                $
                3,528,180Plant
                    and machinery
                
                
                1,836,914
                
                
                71,131Office
                    equipments
                
                
                1,004,118
                
                
                65,749Motor
                    vehicles
                
                
                81,497
                
                
                76,176Computer
                    equipment
                
                
                13,507
                
                
                12,625Construction
                    in progress
                
                
                2,118,615
                
                
                2,580,03110,628,633
                
                
                6,333,892Less:
                    accumulated depreciation
                
                
                (1,809,417
                )
                
                (407,424
                )Property,
                    plant and equipment, net
                
                $
                8,819,216
                
                $
                5,926,468
  F-17
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 Depreciation
        expenses for the years ended December 31, 2007, 2006 and 2005 were $282,822,
        $162,695 and $100,171, respectively.
 
 **7.**
              **INTANGIBLE
                  ASSETS, NET**
 
 Intangible
        assets consisted of the following:
 As
                    of December 31,2007
                
                2006Land
                    use rights, at cost
                
                $
                1,654,998
                
                $
                1,019,272Less:
                    accumulated amortization
                
                
                (57,077
                )
                
                (15,742
                )Land
                    use rights, net
                
                $
                1,597,921
                
                $
                1,003,530
 
 All
        lands
        in the PRC are owned by the PRC government. The government in the PRC, according
        to the relevant PRC law, may sell the right to use the land for a specified
        period of time. Thus, all of the Company’s land purchases in the PRC are
        considered to be leasehold land and are stated at cost less accumulated
        amortization and any recognized impairment loss. Amortization is provided
        over
        the term of the land use right agreement which is 50 years, on a straight-line
        basis. Amortization
        expenses for the years ended December 31, 2007, 2006 and 2005 were $41,335,
        $15,742 and $-0-, respectively.
 
 **8.**
              **OTHER
                  PAYABLES AND ACCRUED
                  LIABILITIES**
 
 Other
        payables and accrued liabilities consisted of the following:
 As
                    of December 31,2007
                
                2006Related
                    party payable
                
                $
                -
                
                $
                22,528Accrued
                    expenses
                
                
                608,315
                
                
                22,080Customer
                    deposits
                
                
                2,281,909
                
                
                262,269Other
                    payables
                
                
                3,508,066
                
                
                35,934Taxes
                    payables
                
                
                1,359,140
                
                
                -Deferred
                    revenue
                
                
                795,022
                
                
                -$
                8,552,452
                
                $
                342,811
 
 **9.**
              **STOCK
                  HOLDERS’ EQUITY**
 
 *Authorized
        Capital*
 
 The
        Company’s authorized capital
        stock consists of 66,666,667 shares of $0.001 par value per share common
        stock
        and 25,000,000 shares of $0.001 par value per share preferred stock
  F-18
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 *Class
        A Preferred stock*
 
 The
        Company has designated 3,500,000 of its Preferred Shares as Class A Convertible
        Preferred Shares. In the event of any voluntary or involuntary liquidation,
        dissolution, or winding up of the corporation, Class A Convertible Preferred
        Shareholders shall
        be
        entitled to receive out of the assets of the Corporation, an amount equal
        to
        $1.55 per share. Each share of Series A Preferred Stock shall be initially
        convertible into one (1) share of Common Stock at the conversion price of
        $1.55,
        subject to adjustment for stock dividend and stock splits, sale or issuance
        of
        common stock at a price which is less than the conversion price and pro rata
        distribution, at the option of the investors, at any time after the original
        issue date.
 
 The Class
        A
        Convertible Preferred Shares contain
        a
        beneficial conversion feature in favor of the holder. The beneficial conversion
        feature was measured at its intrinsic value at the date of issuance of the
        shares and is recognized immediately as a return to the preferred shareholders
        through a charge to retained earnings, since the conversion feature is
        immediately exercisable by the holders. The charge during the current year
        was
        $975,807. Although there is no impact on net income, the charge to retained
        earnings affects the computation of both basic and diluted EPS for US GAAP
        in
        the same way that dividends on the preferred shares do.
 
 *Sale
        of Units*
 
 On
        June
        13, 2007, the Company entered into a Securities Purchase Agreement with Barron
        Partners L.P., and two accredited investors in a private placement (“Private
        Placement) providing for the sale of: (i) 1,774,194 shares of our Series
        A
        Convertible Preferred Stock; (ii) stock purchase warrants to purchase an
        aggregate of 1,774,194 shares of common stock at a price of $1.90 per share;
        and
        (iii) stock purchase warrants to purchase an aggregate of 1,774,194 shares
        of
        common stock at a price of $2.40 per share. In
        connection with the Private Placement, the Company deposited 900,000 shares
        of
        Series A Convertible Preferred Stock into escrow as security in the event
        (i)
        the earnings target for 2007 is not met and (ii) the earnings target for
        2008 is
        not met. The
        900,000 shares held in escrow were included in the diluted earnings per share
        calculation. Net proceeds of $2,581,000 were used to finance business
        acquisitions.
 
 *Registration
        Rights*
  On
        June
        13, 2007, the Company also entered into a registration rights
        agreementfor the
        common stock underlying the convertible preferred shares and all warrants
        related to the Private Placement, under which it agreed to use its commercially
        reasonable efforts to cause the initial registration statement to be declared
        effective by the SEC at the earlier of (i) 150 days following the filing
        date
        with respect to the registration statement, (ii) 10 days following the receipt
        of a “No Review” or similar letter from the SEC or (iii) the third business day
        following the day the Company receives notice from the SEC that the SEC has
        determined that the registration statement eligible to be declared effective
        without further comments by the SEC. The Company is subject to monthly
        liquidated damages of 17,742 shares of Series A Preferred Stock, up to a
        maximum
        of 266,129 shares of Series A Preferred Stock in aggregate, for failing to
        register the shares timely. The Company is under the obligation to have the
        Registration Statement effective on January 10, 2008. However, it was not
        effective until 28 days later on February 7, 2008 being the effectiveness
        date
        of SB-2. 17,742 shares of preferred stock per month prorated per 28 days
        means
        16,559 shares of preferred stock will be issued to
        investors.
  F-19
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 *Common
        stock*
 
 On
        March
        30, 2005, the Company issued 4,067,968 shares of its common stock in the
        recapitalization transaction with Deli Solar (BVI).
 
 On
        March
        30, 2005, the Company issued 1,714,290 shares of its common stock at $3.50
        per
        share in a private placement transaction along with five year warrants to
        purchase 1,714,290 additional common shares at $3.85 per share. Gross proceeds
        to the Company totaled $6,000,015 and costs of issuance totaled
        $1,348,626.
 
 On
        August
        15, 2005 the Company effected a 1:6 reverse stock split. Fractional shares
        were
        rounded up the nearest whole share. These financial statements have been
        retroactively restated to give effect to the reverse split for all periods
        presented. Immediately prior to the reverse stock split there were 36,850,379
        common shares outstanding and following the split there were 6,145,290 shares
        outstanding.
 
 In
        October 2005, the Company issued 60,000 shares of its common stock in exercise
        of warrants.
 
 *Warrants
        for services*
 
 In
        connection with the Private Placement on June 13, 2007, the Board of Directors
        granted to consultants and agents warrants to purchase an aggregate of 181,452
        shares of the Company’s common stock, of which 75,000 warrants are exercisable
        at US$2.90 per share and 106,452 warrants are exercisable at US$2.71 per
        share,
        or on a cashless exercise basis. The warrants vested immediately and expire
        on
        June 13, 2012. The market price of the stock was US$2.10 per share on the
        grant
        date. The Company valued the 75,000 warrants at US$0.74 per share and the
        106,452 warrants at US$0.78 per share, or $138,338 in aggregate in accordance
        with SFAS 123R, which were recorded as offering cost in additional paid-in
        capital in the accompanying consolidated financial statements for the year
        ended
        December 31, 2007.
 
 The
        fair
        value of the warrants was estimated at the date of grant using the Black-Scholes
        option-pricing model with the following assumptions:
 
 Risk
                  free interest rate (%)
              
              
              5.00
              %Dividend
                  yield (%)
              
              
              0.00
              %Expected
                  life of warrant grants (years)
              
              
              5
                  yearsExpected
                  volatility of warrant grants (%)
              
              
              43.79
              %
 
 On
        March
        30, 2005, in
        conjunction with a private placement sale of common stock the Company issued
        five year warrants to purchase 1,714,290 shares of common stock at a price
        of
        $3.85 per share to investors. Concurrently, the Company issued five year warrants to purchase 171,429 common
        shares at $3.85 per share to financial advisers and others. No share-based
        compensation expense was recorded, as management determined this transaction
        to
        be a cost of issuance.
  F-20
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
  A
        summary
        of the status of the Company’s outstanding common stock warrants as of December
        31, 2007 and 2006:
 
 **Number of**
                **Shares**
              
              **Weighted-**
                **average
                  Exercise Price**
              
              **Weighted-**
                **average**
                **Remaining
                  Contractual**
                **Term**
              
              **Aggregate**
                **Intrinsic**
                **Value**Outstanding
                  at December 31, 2005
              
              
              1,825,719
              
              $
              3.85
              
              
              —
              
              $
              —Granted
              
              
              —
              
              
              —
              
              
              —
              
              
              —Exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Forfeited
              
              
              —
              
              
              —
              
              
              —
              
              
              —Expired
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  at December 31, 2006
              
              
              1,825,719
              
              
              3.85
              
              
              2.25
                  years
              
              
              —Granted
              
              
              3,729,840
              
              
              2.18
              
              
              4.50
                  years
              
              
              354,839Exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Forfeited
              
              
              —
              
              
              —
              
              
              —
              
              
              —Expired
              
              
              —
              
              
              —
              
              
              —
              
              
              —Outstanding
                  and Exercisable at December 31, 2007
              
              
              5,555,559
              
              $
              2.73
              
              
              3.76
                  years
              
              $
              354,839
 
 **10.**
              **INCOME
                  TAXES**
 
 The
        Company is registered in the United States of America and has operations
        in
        three tax jurisdictions: the United States of America, British Virgin Island
        (“BVI”) and the PRC. The operations in the United States of America and British
        Virgin Island have incurred net operating losses for income tax purposes.
        The
        Company generated substantially its net income from the operation of its
        subsidiary in the PRC and subject to the PRC tax jurisdiction. The Company
        has
        recorded income tax provision for the years ended December 31, 2007 and
        2006.
 
 The
        components of (loss) income before income taxes separating U.S., BVI and
        PRC tax
        jurisdictions are as follows:
 
 Years ended December 31,2007
              
              2006
              
              2005Tax
                  jurisdictions from:Loss
                  subject to U.S.
              
              $
              (461,433
              )
              $
              (693,745
              )
              $
              -Loss
                  subject to BVI
              
              
              (184,056
              )
              
              (73,691
              )
              
              -Income
                  subject to the PRC
              
              
              3,985,699
              
              
              2,006,937
              
              
              1,298,974Income
                  before income taxes
              
              $
              3,340,210
              
              $
              1,239,501
              
              $
              1,298,974
 
 *United
        States of America*
 
 China
        Solar is registered in the State of Nevada  and
        is
        subject to the tax laws of United States of America.
 
 As
        of
        December 31, 2007, the operation in the United States of America incurred
        $461,433 of net operating losses available for federal tax purposes, which
        are
        available to offset future taxable income. The net operating loss carry forwards
        will to expire through 2028, if unutilized. The Company has provided for
        a full
        valuation allowance against the deferred tax assets of $461,433 on the expected
        future tax benefits from the net operating loss carryforwards as the management
        believes it is more likely than not that these assets will not be realized
        in
        the future.
  F-21
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 *British
        Virgin Island*
 
 Under
        the
        current BVI law, the Company is not subject to tax on income.
 
 *The
        PRC*
 
 The
        Company's subsidiary operating in the PRC, Ailiyang and Tianjin Huaneng are
        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.
 
 In
        March
        2005, the Deli Solar (Bazhou) became a foreign investment enterprise. Hence,
        effective from the year ended 2005, Deli Solar (Bazhou) is entitled to a
        two-year exemption from enterprise income tax and a reduced enterprise income
        tax rate of 15% for the following three years.
 
 In
        September 2006, the Deli Solar (Beijing) was founded as a foreign investment
        enterprise. Hence, effective from the year ended 2006, Deli Solar (Beijing)
        is
        entitled to a two-year exemption from enterprise income tax and a reduced
        enterprise income tax rate of 15% for the following three years.
 
 On
        March
        16, 2007, the National People’s Congress approved the Corporate Income Tax Law
        of the People’s Republic of China (the “New CIT Law”). The new CIT Law, among
        other things, imposes a unified income tax rate of 25% for both domestic
        and
        foreign invested enterprises with effect from January 1, 2008. Deli Solar
        (Bazhou) and Deli Solar (Beijing) are considered a foreign invested enterprise
        and its ultimate applicable effective tax rate in 2008 and beyond will depend
        on
        many factors, including but not limited to whether certain of its legal entity
        will be subject to a transitional policy under the Corporate Income Tax Law,
        whether Deli Solar (Bazhou) and Deli Solar (Beijing) can continue to enjoy
        the
        unexpired tax holidays.
 
 The
        reconciliation of income tax rate to the effective income tax rate based
        on
        income before income taxes stated in the statements of operations for the
        years
        ended December 31, 2007, 2006 and 2005 is as follows:
 
 Years ended December 31,2007
              
              2006
              
              2005Income
                  before income taxes
              
              $
              3,340,210
              
              $
              1,239,501
              
              $
              1,298,974Statutory
                  income tax rate
              
              
              33
              %
              
              15
              %
              
              15
              %1,102,269
              
              
              185,925
              
              
              194,846Less:
                  items not subject to taxesEffect
                  for tax holiday
              
              
              (486,944
              )
              
              (185,925
              )
              
              (194,846
              )Income
                  tax expenses
              
              $
              615,325
              
              $
              -
              
              $
              -
  F-22
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 The
        following table sets forth the significant components of the aggregate deferred
        tax assets of the Company as of December 31, 2007 and 2006:
 
 As of December 31,2007
              
              2006Deferred
                  tax assets:-
                  Net operating loss carried forward
              
              $
              1,432,326
              
              
              767,436Less:
                  valuation allowance
              
              
              (1,432,326
              )
              
              (767,436
              )Deferred
                  tax assets
              
              $
              -
              
              $
              -
 
 **11.**
              **NET
                  INCOME PER SHARE**
 
 Basic
        net
        income per share is computed using the weighted average number of the ordinary
        shares outstanding during the year. Diluted net income per share is computed
        using the weighted average number of ordinary shares and ordinary share
        equivalents outstanding during the year less number of warrants issued during
        the year in note 10.
 
 The
        following table sets forth the computation
        of basic and diluted net income per share for the years ended December 31,
        2007,
        2006 and 2005:
 
 Years ended December 31,2007
              
              2006
              
              2005Basic
                  and diluted net income per share calculationNumerator:Net
                  income
              
              
              2,525,141
              
              
              1,239,501
              
              
              1,298,974Less:
                  Preferred stock dividends
              
              
              (975,807
              )
              
              -
              
              
              -Net
                  income available to common stockholders in computing basic net
                  income per
                  share
              
              $
              1,549,334
              
              $
              1,239,501
              
              $
              1,298,974Denominator:
                  - Weighted average ordinary shares outstanding
              
              
              6,205,290
              
              
              6,205,290
              
              
              5,732,616-
                  Weighted average preferred stock outstanding
              
              
              1,337,097
              
              
              -
              
              
              --
                  Weighted average warrant shares outstanding
              
              
              3,690,639
              
              
              752,586
              
              
              1,825,71911,233,026
              
              
              6,957,876
              
              
              7,558,335Basic
                  net income per share
              
              $
              0.25
              
              $
              0.20
              
              $
              0.23Diluted
                  net income per share
              
              $
              0.14
              
              $
              0.18
              
              $
              0.17
  F-23
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 **12.**
              **SEGMENT
                  REPORTING, GEOGRAPHICAL
                  INFORMATION**
 
 (a)
              Business
                  information
 
 The
        Company has two reportable segments namely solar heater/boiler related products
        and heat pipe related products for the three year ended December 31, 2007,
        2006
        and 2005. The solar heater/boiler related products are mainly under the
        management of Deli Solar (Bazhou) while the heat pipe related products are
        energy-savings projects under the management of Tianjin Huaneng.
 
 An
        analysis of the Company’s revenue and total assets are as follows:
 
 Years ended December 31,2007
              
              2006
              
              2005**Revenue:**Solar
                  Heater/Boiler related products
              
              $
              26,693,850
              
              $
              21,468,313
              
              $
              15,577,447Heat
                  Pipe related products
              
              
              7,002,015
              
              
              -
              
              
              -Unallocated
              
              
              3,376,481
              
              
              -
              
              
              -$
              37,072,346
              
              $
              21,468,313
              
              $
              15,577,447Years ended December 31,2007
              
              
              2006
              
              
              2005**Gross
                  profit:**Solar
                  Heater/Boiler related products
              
              $
              5,672,443
              
              $
              4,625,319
              
              $
              3,708,988Heat
                  Pipe related products
              
              
              1,820,524
              
              
              -
              
              
              -Unallocated
              
              
              807,301
              
              
              -
              
              
              -$
              8,300,268
              
              $
              4,625,319
              
              $
              3,708,988As
                  of December 31,2007
              
              
              2006
              
              
              2005**Total
                  assets:**Solar
                  Heater/Boiler related products
              
              $
              18,690,225
              
              $
              12,716,185
              
              $
              10,903,506Heat
                  Pipe related products
              
              
              9,029,994
              
              
              -
              
              
              -Unallocated
              
              
              2,919,494
              
              
              -
              
              
              -$
              30,639,713
              
              $
              12,716,185
              
              $
              10,903,506**Total
                  goodwill:**Solar
                  Heater/Boiler related products
              
              $
              -
              
              $
              -
              
              $
              -Heat
                  Pipe related products
              
              
              1,789,324
              
              
              -
              
              
              -$
              1,789,324
              
              $
              -
              
              $
              -
  F-24
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 (b)
              Geographic
                  information
 
 The
        Company operates in the PRC and all of the company’s long lived assets are
        located in the PRC.  In
        respect of geographical segment reporting, sales are based on the country
        in
        which the customer is located and total assets and capital expenditure are
        based
        on the country where the assets are located.
 
 The
        Company’s operations are located in PRC, which is the main geographical areas.
        The Company’s sales and total assets by geographical market are analyzed as
        follows:
 
 Years ended December 31,2007
              
              2006
              
              2005**Revenue:**PRC
              
              $
              32,623,664
              
              $
              19,321,482
              
              $
              14,331,251Others
              
              
              4,448,682
              
              
              2,146,831
              
              
              1,246,196$
              37,072,346
              
              $
              21,468,313
              
              $
              15,577,447Years ended December 31,2007
              
              
              2006
              
              
              2005**Gross
                  profit:**PRC
              
              $
              6,806,220
              
              $
              4,070,281
              
              $
              3,338,089Others
              
              
              1,494,048
              
              
              555,038
              
              
              370,899$
              8,300,268
              
              $
              4,625,319
              
              $
              3,708,988As of December 31,2007
              
              
              2006
              
              
              2005**Total
                  assets:**PRC
              
              $
              29,107,727
              
              $
              11,445,134
              
              $
              9,704,120Others
              
              
              1,531,986
                  -
              
              
              1,271,051
              
              
              1,199,386$
              30,639,713
              
              $
              12,716,185
              
              $
              10,903,506
  **13.**
              **CHINA
                  CONTRIBUTION PLAN**
 
 Under
        the
        PRC Law, full-time employees of the Company’s subsidiaries, Deli Solar (Bazhou),
        Ailiyang, Deli Solar (Beijing) and Tianjin Huaneng are entitled to staff
        welfare
        benefits including medical care, welfare subsidies, unemployment insurance
        and
        pension benefits through a China government-mandated multi-employer defined
        contribution plan. The Company is required to accrue for these benefits based
        on
        certain percentages of the employees’ salaries. The total contributions made for
        such employee benefits were $327,257, $201,072 and $199,472 for the years
        ended
        December 31, 2007, 2006 and 2005, respectively.
  F-25
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 **14.**
              **CONCENTRATION****OF
                  RISK**
 
 (a)
              Major
                  customers
 
 No
        revenue from customers that individually represent greater than 10% of the
        total
        revenue for each of the years ended December 31, 2007, 2006 and 2005.
 
 (b)
              Major
                  vendors
 
 The
        following is a table summarizing the purchases from vendors that individually
        represent greater than 10% of the total purchases for each of the years ended
        December 31, 2007, 2006 and 2005 and their outstanding balances as at year-end
        date:
 
 Year ended December 31, 2007Vendor
              
              Purchases
              
              Percentage of
                total purchases
              
              Accounts
                payable, tradeVendor
                  A
              
              $
              5,475,372
              
              
              50.4
              %
              $
              667,718Year ended December 31, 2006Vendor
              
              
              Purchases
              
              
              Percentage of
                total purchases
              
              
              Accounts
                payable, tradeVendor
                  A
              
              $
              3,800,242
              
              
              49.0
              %
              $
              379,215Year ended December 31, 2005Vendor
              
              
              Purchases
              
              
              Percentage of
                total purchases
              
              
              Accounts
                payable, tradeVendor
                  A
              
              $
              3,669,748
              
              
              55.2
              %
              $
              390,678
 
 (c)
              Credit
                  risks
 
 Financial
        instruments that are potentially subject to credit risk consist principally
        of
        cash and trade receivables. All cash held in financial institutions are not
        insured and therefore subject to credit risk. The Company believes the
        concentration of credit risk in its trade receivables is substantially mitigated
        by its ongoing credit evaluation process and relatively short collection
        terms.
        The Company does not generally require collateral from customers. The Company
        evaluates the need for an allowance for doubtful accounts based upon factors
        surrounding the credit risk of specific customers, historical trends and
        other
        information.
 
 (d)
              Interest
                  rate risk
 
 As
        the
        Company has no significant interest-bearing assets, the Company’s income and
        operating cash flows are substantially independent of changes in market interest
        rates.
 
 The
        Company’s interest-rate risk arises from short-term borrowings. Borrowings
        issued at floating rates expose the Company to cash flow and fair value
        interest-rate risk. Company policy is to maintain approximately all of its
        borrowings in floating rate instruments. At the year end, all of borrowings
        were
        at floating rates.
  F-26
  **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 **15.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 (a)
              Operating
                  lease commitment
 
 The
        Company leases land and buildings under non-cancelable operating lease
        agreements. Based on the current rental lease agreements, the future minimum
        rental payments required for the coming years are as follows:
 
 Years
                  ending December 31:2008
              
              $
              20,0152009
              
              
              20,0152010
              
              
              20,0152011
              
              
              20,014Total
                  future minimum operating lease payments
              
              $
              80,059
 
 For
        the
        years ended December 31, 2007, 2006 and 2005, rental expenses were $101,780,
        $77,246, and $21,985, respectively.
 
 **16.**
              **SUBSEQUENT
                  EVENTS**
 
 On
          January 9, 2008 and
          March
          25, 2008 Beijing Deli Solar Technology Development Co., Ltd., the Company’s
          wholly-owned subsidiary (“Deli Solar (Beijing)”), entered into an Equity
          Purchase Agreement, a Complementary Agreement and a Supplementary, with
          Shenzhen
          PengSangPu Solar Industrial Products Corporation (“SZPSP”) and its shareholders
          to acquire 100% of the outstanding equity interests of SZPSP from its three
          current shareholders. The closing will be effective March 31, 2008.
  Under
          the
          agreements, Deli Solar (Beijing) agreed to purchase the 100% equity interest
          of
          SZPSP from its current three shareholders.  Part of the consideration of
          the transaction is RMB 28.8 million ($4,087,832) payable in cash. This
          purchase
          price is based on an appraisal of SZPSP. The three shareholders have agreed
          to
          loan the proceeds back to the Deli Solar (Beijing) and will be used as
          working
          capital (the “Shareholders’ Loan”). Fifty (50%) of the principal of the
          Shareholders’ Loan shall be paid within one year upon the entry of the
          Complementary Agreement (the “Closing”) and the remaining balance be paid off
          within two years.
  In
          addition to the payment of the cash purchase price under the Complementary
          Agreement the parties agreed to an appraisal value of RMB 20 million of
          SZPSP’s
          intangible assets which was paid in 1,419,729 shares of common stock. Provided
          that if on the first anniversary of the closing the common stock price
          is lower
          than $2, the Company will pay the difference. Fifty percent (50%) of these
          shares shall be transferable and unrestricted within one year after the
          Closing
          and the remaining Fifty percent (50%) transferable within two years. The
          shares
          shall be transferred to SZPSP within 180 days of the closing.  In addition,
          as part of the purchase price, the shareholders of SZPSP will receive five
          years
          warrants to purchase a total of 141,973 shares of common stock at an exercise
          price of $2.5 per share, subject to future adjustments.
  F-27
 
 **CHINA
        SOLAR & CLEAN ENERGY SOLUTIONS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Currency
        expressed in United States Dollars (“US$”))**
 
 SZPSP
          warranted in the Complementary Agreement that if (i) its sales revenue
          is less
          than RMB 99 million (approximately $13,670,068) with an after-tax net profit
          of
          less than RMB 9.43 million (approximately $1,302,108) for the year ended
          December 31, 2008; or (ii) if in the year ended December 31, 2009, it
          does not
          reach the targeted sales revenue of RMB 143.9 million (approximately
          $19,868,336) or the after-tax net profit of RMB 12.13 million (approximately
          $1,674,789), SZPSP will pay the difference between the revenue and the
          targeted
          revenue of the year specified by reducing the amount payable on the
          shareholders’ loan. If the shareholders’ loan is not sufficient to pay the
          difference, the common shares held by SZPSP will be returned to us to the
          extent
          necessary for the remaining balance.
 
 The
          current shareholders of SZPSP, being the management of SZPSP, will enter
          into
          employment contracts with the Company for a term of three years to remain
          in
          their current managing positions of SZPSP, subject to further amendments
          of such
          employment arrangement.
 
 After
          the
          Closing, Deli Solar (Beijing) has the right to a majority of the board
          seats of
          SZPSP.
 
 On
          February 25, 2008 the Company raised gross proceeds of approximately $11,300,000
          in a private placement providing for the sale of 4,691,499 shares of common
          stock at a price of $2.40 per share.
  F-28