**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, 2006 _____





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




**Deli
      Solar (USA), 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: **** Common
      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





1


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-B 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.  x





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: $21,468,313 for the fiscal
      year ended December 31, 2006.





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days.





The
      aggregate market value of the voting and non-voting common stock held by
      non-affiliates of the registrant, based on the bid price of the registrant's
      common stock as quoted on the OTC Bulletin Board on March 30, 2007, was
      approximately  $11,446,515.





The
      number of shares outstanding of the Registrant's common stock as of March 30,
      2006 was 6,205,290.





Transitional
      Small Business Disclosure Format (check one):





Yes o
      No: x





2


Deli
      Solar (USA), Inc.


Form
      10-KSB


For
      the
      Fiscal Year Ended December 31, 2006




Table
      of Contents





Forward-Looking
      Statements and Associated Risk




PART
                  I
              
              PageItem
                  1.
              Description
                  of Business
              5Item
                  2.
              Description
                  of Property
              24Item
                  3.
              Legal
                  Proceedings
              25Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              25PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              25Item
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operation
              27Item
                  7.
              Financial
                  Statements
              33Item
                  8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              34Item
                  8A.
              Controls
                  and Procedures
              34Item
                  8B.
              Other
                  Information
              35PART
                  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
              39Item
                  12.
              Certain
                  Relationships and Related Transactions, and Director Independence
              40Item
                  13.
              Exhibits
              40Item
                  14.
              Principal
                  Accountant Fees and Services
              41Signatures
              
              42Financial
                  Statements
 
 3




**FORWARD-LOOKING
      STATEMENTS AND ASSOCIATED RISK**





Certain
      statements in this Report, and the documents incorporated by reference herein,
      constitute "forward-looking statements". Such forward-looking statements involve
      known and unknown risks, uncertainties and other factors which may cause
      deviations in actual results, performance or achievements to be materially
      different from any future results, performance or achievements expressed or
      implied. Such factors include, but are not limited to: market and customer
      acceptance and demand for our products; our ability to market our products;
      fluctuations in foreign currency markets; the use of estimates in the
      preparation of our financial statements; the impact of competitive products
      and
      pricing; the ability to develop and launch new products on a timely basis;
      the
      regulatory environment; fluctuations in operating results, including spending
      for research and development and sales and marketing activities; and, other
      risks detailed from time-to-time in our filings with the Securities and Exchange
      Commission (the “SEC”).





The
      words
      "believe, expect, anticipate, intend and plan" and similar expressions identify
      forward-looking statements. These statements are subject to risks and
      uncertainties that cannot be predicted or quantified and, consequently, actual
      results may differ materially from those expressed or implied by such
      forward-looking statements. Readers are cautioned not to place undue reliance
      on
      these forward-looking statements, which speak only as of the date the statement
      was made.





Unless
      otherwise noted, all currency figures in this filing are in U.S. dollars.
      References to "yuan" or "RMB" are to the currency of the People’s Republic of
      China (the “PRC”), yuan (also known as the Renminbi). According to Xe.com as of
      March 30, 2007, $1 = 7.7308 yuan and RMB 1 = $0.1294.





The
      "Company", "we," "us," "our," and the "Registrant" refer to (i) Deli Solar
      (USA), Inc. (“Deli Solar (USA)”, formerly also known as Meditech
      Pharmaceuticals, Inc.), (ii) Deli Solar Holding Ltd., (“Deli Solar (BVI)”), a
      wholly-owned subsidiary of Deli Solar (USA) and a limited liability company
      organized under the International Business Companies Act of the British Virgin
      Islands, (iii) Bazhou Deli Solar Heating Energy 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., Ltd. (“Deli Solar (Beijing)”), a wholly-owned
      subsidiary of Deli Solar (USA) and a limited liability company organized under
      the laws of the PRC, and (v) Beijing Ailiyang Solar Energy Technology Co.,
      Ltd.
      (“Ailiyang”), a wholly-owed subsidiary of Deli Solar (Bazhou). Deli Solar
      (Bazhou), Deli Solar (Beijing) and Ailiyang are sometimes collectively referred
      to as Deli Solar (PRC) in this report but not in the financial notes where
      Deli
      Solar (PRC) solely refers to Deli Solar (Bazhou).





4




**PART
      I**




ITEM
      1.
      DESCRIPTION OF BUSINESS




COMPANY
      HISTORY




Deli
      Solar (USA), Inc. was formerly known as Meditech Pharmaceuticals, Inc.
      (“Meditech”), which was incorporated in Nevada on March 21, 1983. On August 29,
      2005 Meditech completed a spin-off of its drug development business to East
      West
      Distributors, Inc., its wholly owned subsidiary.




Deli
      Solar (BVI) is a holding company for Deli Solar (Bazhou), which operates a
      solar
      and renewable energy business in the PRC. On March 31, 2005, Meditech entered
      into a Stock Contribution Agreement (the "Stock Contribution Agreement") with
      Mr. Deli Du of Bazhou City, Hebei Province, PRC. Under the Stock Contribution
      Agreement, Meditech acquired all of the issued and outstanding shares of capital
      stock of Deli Solar (BVI) (par value US$0.05 per share) in exchange for the
      issuance of 4,067,968 shares (the number and the price of the shares as
      described in this paragraph have been adjusted to give effect to the one-for-six
      reverse stock split of all issued and outstanding shares of our common stock,
      which became effective on August 15, 2005) of Meditech’s common stock (par value
      $.001 per share). In connection with the transactions contemplated by the Stock
      Contribution Agreement, on March 31, 2005, we raised a total of $6,000,015
      from
      the sale of common stock and warrants. As a result of foregoing transactions,
      the former shareholders of Deli Solar (BVI) became holders of majority of the
      common stock of Meditech and Deli Solar (BVI) became a wholly-owned subsidiary
      of Meditech. On August 15, 2005, Meditech changed its name from “Meditech
      Pharmaceuticals, Inc.” to “Deli Solar (USA), Inc.” (the transactions described
      in this paragraph, are collectively referred to herein, the "Reverse Merger").
      Further information regarding the Reverse Merger is contained in the Current
      Report on Form 8-K filed with the SEC by Meditech on April 6, 2005 and a
      Schedule 13D filed by Mr. Deli Du with the SEC on April 18, 2005.





In
      the
      second quarter of 2006, Deli Solar (USA) set up a new wholly-owned subsidiary
      -
      Deli Solar (Beijing) to further develop our business in Beijing. Deli Solar
      (Beijing) is principally engaged in large solar water heater installation and
      construction projects in major cities in the PRC. We contributed $1 million
      into
      Deli Solar (Beijing) as its registered capital.




Summary
      of our Business and Structure




Deli
      Solar (Bazhou) was founded in 1997 and is engaged in the business of designing,
      manufacturing and selling renewable energy systems to produce hot water and
      for
      space heating. Its principal products are solar hot water heaters and
      multifunctional space heating products, including coal-fired residential
      boilers. Deli Solar (Bazhou) also sells component parts for its systems, and
      provides after-sales maintenance and repair services. On August 1, 2004, Deli
      Solar (BVI) purchased all the capital stock of Deli Solar (Bazhou) from Messrs
      Deli Du, Xiao'er Du, and Xiaosan Du for RMB 6,800,000 (approximately $879,920).
      Therefore 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).





5


On
      November 21, 2005, Deli Solar (Bazhou) acquired all the capital stock of
      Ailiyang for a total purchase price of RMB 500,000 (approximately $64,700).
      The
      sole business of Ailiyang has been to serve as a distributor of Deli Solar
      (Bazhou). Details of the acquisition were reported in our Current Report filed
      with the SEC on November 28, 2005.





In
      the
      second quarter of 2006, Deli Solar (USA) set up a new wholly-owned subsidiary
      -
      Deli Solar (Beijing) to further develop our business in Beijing. Deli Solar
      (Beijing) is principally engaged in large solar water heater installation and
      construction projects in major cities in China. We contributed $1 million into
      Deli Solar (Beijing) as its registered capital.





Deli
      Solar (Bazhou) and Deli Solar (Beijing) currently have a total of approximately
      364 employees and utilizes three factory facilities in Bazhou with a total
      of
      over 72,590 square meters of production, warehouse, and office space and space
      for use as a distribution center and a approximately 2,000 square meters of
      office space and exhibition center in Beijing. A complete description of our
      properties and facilities is contained in "Item 2 - Description of Property"
      below.




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. Our factory facilities are located
      outside of the city of Bazhou in the Hebei Province of the PRC.




6


The
      following diagram sets forth the corporate structure of the Company as of
      December 31, 2006:










Neither
      Deli Solar (USA) nor Deli Solar (BVI) have any operations or plan to have any
      operations in the future other than acting as a holding company and management
      company for Deli Solar (Bazhou) and/or Deli Solar (Beijing) and raising capital
      for its operations. However, we reserve the right to change our operating plans
      regarding Deli Solar (USA) and Deli Solar (BVI).





7




OUR
      BUSINESS




We,
      through Deli Solar (PRC), design, manufacture and sell solar hot water heaters
      and coal-fired boilers and space heating products. We also provide components,
      parts and after-sale services associated with these products. Approximately
      60%
      of our revenues are derived from our solar hot water business, with the balance
      of approximately 40% of our revenues from sales of our coal-fired boilers and
      space heating products.





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 residential boilers, furnaces and heating stoves are also used as
      primary household space heaters during cold weather and cooking stoves.




Solar
      Hot
      Water Heater Products




Our
      primary products are solar hot 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 plate.




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.




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 total sales 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
 8


Evacuated
      Tubular Solar Water Heaters.





This
      line
      of products 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 uses.
      However, solar thermal energy can also be employed in industrial processes,
      timber treatment, agricultural processes, cooling and space heating.





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 comprising
      approximately 85% of our solar water heaters sales.




Our
      evacuated heat pipe 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, comprising approximately 5% of our solar hot water
      heaters sales.





9


Flat
      Plate Solar Water Heaters.





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





Integrated
      Solar Heating Packages





A
      growing
      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 is currently in suspension due to a payment default.




Boilers
      and Space Heating Products




Our
      boilers, furnaces and stove heating products are coal-fired, small scale units
      for residential space heating and cooking purposes. We manufacture more than
      80
      types of boilers, furnaces, space heating and stove cooking products. Separated
      by functions and usage, 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 plan to market them
      during the current fiscal year.





10


New
      Product Pipeline




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




*Photovoltaic
      powered water heaters* .
      Currently 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. 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. We currently anticipate that the
      earliest this product will become available on the market is later this year.




*Densely
      Covered Regular Tubular Heaters.* We are
      currently developing 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 plan to begin marketing
      this product in June 2007.




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 (PRC) 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 such 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 to
      us
      that necessary raw materials will continue to be procured at the price or
      delivery terms currently available or 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 consists of approximately
      100
      steel suppliers. We do not rely on any particular suppliers to procure other
      raw
      materials.




11


Manufacturing
      Process, Cost, and Capacity




Deli
      Solar (Bazhou) assembles and manufactures most of its products in its own
      production facility in Bazhou. Our senior manufacturing personnel include a
      number of professional engineers and senior technology consultants. Currently,
      we use primarily manual labor for our product because of availability of cheap
      labor in the Bazhou area. However, we are in the process of automating some
      of
      our production processes. In February 2006, we purchased an automated production
      line for the manufacture of water tanks. That production line is still being
      assembled, tested and validated and is anticipated to commence production in
      May
      2007.





We
      employ
      approximately 235 permanent manufacturing employees and also contract 129
      temporary workers to meet increased production requirements, when necessary.
      During manufacturing peak seasons 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. We pay our
      production workers by items produced. Because of the strategic location of
      our
      manufacturing facilities, we are able to take advantage of low labor cost in
      the
      Bazhou area, 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 area 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


DailyProduction(Approximate
                    Units)
                
                AnnualProduction(Approximate
                    Units)Solar
                    Hot WaterHeaters
                
                300
                
                80,000Boilers
                    and SpaceHeating
                    Products
                
                150
                
                39,000





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. We are in the
      process of applying for ISO 14000 certification. We anticipate that the
      certification may be issued in May 2007.





12


Because
      of our stringent quality control system, most of our products are certified
      by
      governmental quality control testing centers, such as 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




As
      set
      forth above, 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 sales peak seasons when our production capacity falls short of the
      market demand, we assemble and manufacture products through Original Equipment
      Manufacturer ("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 2006, we contracted three OEM. They are Beijing
      Shen Guang Solar Power Co., Ltd., Shandong Xin Xing Solar Power Heater Co.,
      Ltd.
      and Hebei Guang Lei Stove Co., Ltd.




Manufacturing
      through OEM arrangements comprises approximately 30% to 40% of our total sales
      during the peak season. For fiscal year 2006, the three 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 products is from residential households in the
      PRC, particularly in rural areas. Presently, we sell our products primarily
      in
      the rural areas of the north-east part of the PRC including Hebei, Beijing,
      Tianjing, Heilongjiang, and Liaoning, where there is prolonged sunny and dry
      weather.




13


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 such depletion and 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. Such renewable energy currently accounts for a negligible
      percentage of the country’s total energy supply.





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




The
      market for hot water and space heating systems in the PRC has shown substantial
      growth recently. 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. Modern hot water and heating
      systems still have not become available or 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.




There
      is
      insufficient infrastructure in place in the rural areas of the PRC to deliver
      other energy solutions that are available as more conventional options in other
      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. Approximately 60% of rural communities that are
      grid-connected experience serious shortages of electricity. Large portions
      of
      the PRC's rural areas are not electrified or connected to the electric grid.
      Eleven counties containing approximately 70 million of the PRC's rural
      population have no electricity at all, according to National Renewable Energy
      Laboratories. Also, the cost of electricity is high in many rural areas, making
      it impractical for hot water and space heating purposes.




14


We
      believe that in most provinces of the PRC, solar-generated hot water for
      domestic supply 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




Solar
      Hot
      Water Industry




The
      PRC
      solar hot water industry is an emerging, but fast growing industry. It has
      been
      experiencing 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% until 2015 as shown in the following table:





15


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)


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.




16


Our
      Marketing Strategies




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




o
            focus
                on rural market segment.


o
              extensive
                  and targeted advertising.
 o
                multi-brand
                    strategy.
 o
                  a
                      larger distribution and agency network.
 o
                    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 RPC 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.




*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
      $1.1million, or 5.2% of sales, on advertising 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:





17


Solar
      Hot
      Water Heater Series


Our
                  Brand Name
              
              Our
                  Classification of ProductsDeli
                  Solar
              
              PremiumDeYu
              
              StandardAiliYang
              
              Economy




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 product in different tiers of the same geographical
                market.





·
            to
                eliminate agency dominance in a regional market by granting non-exclusive
                agency 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.




18





Our
      brand
      logos are the following:










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 56 marketing and sales
      personnel who collect feedback from our customers and other market information
      for our management and our product development team.




*Distribution
      Channel for Solar Water Heater Systems*




The
      PRC
      is a geographically vast country 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
      Tianjing 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
      because of the following reasons:




We
      produce both solar hot water heaters and boilers, while the majority of
      manufacturers in the PRC normally produce only one single type of product.
      The
      sales of solar hot water heaters and boilers are both affected by seasonality.
      As described above 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.




19


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:


o
              Local
                  solar energy status and market potential
 o
                Local
                    competition
 o
                  Sales
                      and market potential in the covered
                      area
 o
                    Presence
                        of alternatives, such as gas or electricity
 o
                      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.




We
      have
      designed and implemented a horizontal distribution structure to streamline
      the
      efficiency of our distribution network, shorten the product lead time, provide
      better coverage of our geographical markets and reduce distribution costs.
      The
      horizontal distribution structure also facilitates immediate market feedback
      from customers to our management.





The
      horizontal distribution structure is a significant competitive advantage for
      us
      in successfully penetrating the rural market segment. Currently, 50% of our
      products are delivered directly to customers via only one layer of agency
      organization, as compared to 20% in 2001. We expect that 70% of our products
      will move through one layer of agency organization in the future.





*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 585 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.







20


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 control 17%
      of
      the domestic market.





In
      fiscal
      2003, the largest manufacturer was Huangming Solar Water Heaters, Co, Ltd.
      (“Huangming”), which had 5% of the total market. The second and third largest
      companies were Tsinghua Sunshine Solar Water Heaters, Co, Ltd. and Huayang
      Solar
      Water Heaters, Co, Ltd., each of which had approximately 3% of the market in
      the
      PRC. There has not been similar ranking information for fiscal years 2004
      through 2006 available to us; however, we believe the market shares remain
      similar to that of 2003.




Ranking
                    of Solar Hot Water Companies by Market Share Based on Revenue
                    in
                    2003Company
                
                Ranking
                
                Market
                    Share
                
                ProfitableHuangming
                
                1
                
                5%
                
                NoTsinghua
                    Sunshine
                
                2
                
                3%
                
                NoHuayang
                
                3
                
                3%
                
                NoDeli
                    Solar (PRC)
                
                19
                
                0.4%
                
                YesTop
                    10 Companies
                
                
                
                17%





Source:
        Chinese Energy Research Association





In
      fiscal
      year 2003, we generated $6.01 million in sales revenue, representing a market
      share of 0.4% and a ranking of number 19 among solar hot water companies
      nation-wide in terms of sales revenue. Our sales revenue for fiscal years 2004,
      2005 and 2006 were $9.5 million, $15.6 million and  $21.16
      million, respectively.




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. 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.




21


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.




We
      executed a 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 provide 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.




INTELLECTUAL
      PROPERTY




Trademarks.





Deli
      Solar (PRC) 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
              
              Approved,
                  pending the trademark certificate deliveryreplace
                  ourbrand
                  "Ailiyang")




22


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.




We
      were
      informed in March 2007 that our trademark application on "Aili Solar" was
      approved pending the delivery of the certificate.





Patents.





Currently,
      none of our products or technology is patented.




Domain
      names.





We
      own
      and operate a website under the internet domain name http://www.deli-group.com (the
“Company Website”). Traffic to our other internet domain names www.delisolar.com
      and www.AiLiYang.com are directed to the Company Website. The information
      contained in our websites is not incorporated by reference to this Annual
      Report.




GOVERNMENT
      REGULATION




We
      are
      not subject to any requirement 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 (PRC)
      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. Other than the foregoing, Deli Solar (PRC) 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.




EMPLOYEES




Deli
      Solar (PRC) currently has approximately 364 employees, among which approximately
      235 are permanent full time manufacturing employees and 129 are temporary
      workers.




Deli
      Solar (PRC) requires each employee to enter into a one-year standard employment
      agreement. 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.




23


RISK
      OF
      LOSS AND PRODUCT LIABILTITY INSUANCE




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 bears 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 (PRC) has never experienced significant failures of its products, there
      can be no assurance that Deli Solar (PRC) 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
      2006.





**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 CEO, President and Director, have been 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).





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 certificate to Deli Solar (Bazhou) is pending as the
      date of this report.




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) - Pending to be proceeded
            
            Close
                to Bazhou Jingbao Road
            
            Factory
                Facilities
              Collectively
                Owned - transfer pending
            
            61,530
                Sq. M
            
            Factory
                facilities
            
            Pending
                the Land Use Right Certificate
            
            approximately
                $919,858 was paid to Bazhou local governmentTotal
            
            
            
            
            
            72,590.05
                Sq. M





24





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)
      commencing 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.







**ITEM
      3. LEGAL PROCEEDINGS**




Neither
      we nor any of our subsidiaries is a party to any pending legal proceedings,
      nor
      are we aware of the threat of any such proceedings against us.






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





There
      was
      no matter submitted to a vote of securities holders of the Company during the
      fourth quarter of fiscal year 2006 through the solicitation of proxies or
      otherwise.




**PAT
      II**








**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





ISSUER
      PURCHASES OF EQUITY SECURITIES





Market
      for Common Equity and Related Stockholder Matters.





Our
      common stock is quoted on the over-the-counter Bulletin Board under the symbol
      "DLSL.OB".





On
      December 29, 2006, the closing price for the common stock of the Company was
      $1.24. The closing prices for the fiscal quarters for fiscal years ended on
      December 31, 2005 and December 31, 2006 are set forth below:





Quarter
                Ended
            High
            Low03/31/2005
            10.01
            0.0106/30/2005
            2.8
            1.9509/30/2005
            16.75
            1.9512/31/2005
            16.75
            703/31/2006
            11
            7.506/30/2006
            11
            1109/30/2006
            6.5
            1.312/31/2006
            2.5
            0.7




25





Some
      of
      the above prices reflect inter-dealer prices, without retail mark-up, mark-down
      or commission and may not necessarily represent actual transactions. These
      prices have been adjusted to give effect to the one-for-six reverse stock split
      of all issued and outstanding shares of our common stock, which became effective
      on August 15, 2005.





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.




As
      of
      December 31, 2006, there were 6,205,290 shares of our common stock issued and
      outstanding, and there were approximately 2,531 holders of record of our
      outstanding shares. This does not reflect the number of persons or entities
      who
      held stock in nominee or "street" name through various brokerage
      firms.





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





There
      were no sales of unregistered securities by the Company during the year ended
      December 31, 2006.





Dividend
      Policy





The
      payment of dividends, if any, is to be within the discretion of the Company's
      Board of Directors. The Company presently intends to retain all earnings, if
      any, for use in its business operations and accordingly, the Board of Directors
      does not anticipate declaring any dividends in the near future.





Dividends,
      if any, will be contingent upon the Company's revenues and earnings, capital
      requirements, financial conditions and the ability of Deli Solar (PRC) to obtain
      approval to get monies out of the PRC.





Equity
      Compensation Plan Information





We
      do not
      have any equity compensation plans.





Transfer
      Agent





The
      Company's stock transfer agent is Securities Transfer Corporation, located
      at
      2591 Dallas Parkway, Suite 102, Frisco, TX 75034. Their telephone number is
      469-633-0100, and their facsimile is 469-633-0088.





26


Penny
      Stock Regulations





The
      Commission has adopted regulations which generally define "penny stock" to
      be an
      equity security that has a market price of less than $5.00 per share. The
      Company's Common Stock may fall within the definition of penny stock and be
      subject to rules that impose additional sales practice requirements on
      broker-dealers who sell such securities to persons other than established
      customers and accredited investors (generally those with assets in excess of
      $1,000,000, or annual incomes exceeding $200,000 or $300,000, together with
      their spouse).





For
      transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchase of such securities and have received
      the purchaser's prior written consent to the transaction. Additionally, for
      any
      transaction, other than exempt transactions, involving a penny stock, the rules
      require the delivery, prior to the transaction, of a risk disclosure document
      mandated by the Commission relating to the penny stock market. The broker-dealer
      also must disclose the commissions payable to both the broker-dealer and the
      registered representative, current quotations for the securities and, if the
      broker-dealer is the sole market-maker, the broker-dealer must disclose this
      fact and the broker-dealer's presumed control over the market. Finally, monthly
      statements must be sent disclosing recent price information for the penny stock
      held in the account and information on the limited market in penny stocks.
      Consequently, the "penny stock" rules may restrict the ability of broker-dealers
      to sell the Company's Common Stock and may affect the ability of investors
      to
      sell their Common Stock in the secondary market.




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





*FORWARD-LOOKING
      INFORMATION - Management's Discussion and Analysis of Financial Condition and
      Results of Operations ("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.*





OVERVIEW





Deli
      Solar (USA), Inc. was formerly known as Meditech Pharmaceuticals, Inc.
      (“Meditech”), which was incorporated in Nevada on March 21, 1983. On March 31,
      2005, we completed a
      strategic reorganization with Deli Solar Holding Ltd., a corporation organized
      in the British Virgin Islands under its International Business Companies Act
      ("Deli Solar (BVI)"), which is a holding company for Bazhou
      Deli Solar Heating Energy Co., Ltd. ("Deli Solar (Bazhou)") ,
      a
      Chinese operating company in the solar and renewable energy business. On
      August
      29, 2005 Meditech completed a spin-off of its drug development business to
      East
      West Distributors, Inc., its wholly owned subsidiary.





27


Our
      indirectly wholly-owned subsidiary, Deli Solar (Bazhou) was founded in 1997.
      Its
      main products are solar hot water heaters and space heating and cooking products
      including coal-fired residential boilers. It also sells accessories, parts,
      and
      components, and provides after sales maintenance and repair services. Our
      directly wholly-owned subsidiary Deli Solar (Beijing) was founded in 2006 which principally
      engaged in solar power heater integrated construction projects in major cities
      in China. In the new housing projects, large scale application of solar power
      heater integrated technology could achieve the cost efficiency and energy saving
      at the same time. This market is estimated to have a better gross profit than
      solar power heater retail. However, the management is in the process of
      evaluating the market potential and it was said that urban construction regular
      may pose stringent restriction on housing construction which may impact the
      solar power heater integrated construction projects we are contemplating.





In
      mid-October, we signed a Memorandum of Understanding ("MOU") with Tian Jin
      Hua
      Neng Group to acquire its 51% ownership of the Tianjin Hua Neng company, which
      manufactures energy saving boilers and environmental protection equipment for
      industrial customers. Aside from the purchase price, which is still being
      negotiated, we also agreed to invest approximately $2.5 million into the new
      company. The transaction has not yet taken place. We believe Tianjin Huaneng
      had
      approximately $15 million sales revenue and $2 million in net profits before
      taxes for 2006 and we are continuing due diligence on the company and there
      can
      be no assurance the actual revenues and profits will be at these
      levels.





In
      December 2006 we signed anMOU with Shenzhen Xiongri Solar Power Co., Ltd.
      (“Shenzhen Xiongri”) to acquire 60% of its equity for a purchase price of
      approximately $250,000 and additional contingent consideration of up to $5
      million consisting of shares of our common stock. Shenzhen Xiongri is located
      Shenzhen, PRC. Its local government provides strong support for the solar water
      heater industry which could help us grow business in that area. We paid an
      initial deposit of $256,278 to Shenzhen Xiongri. The acquisition has not taken
      place as of the date of this Report. We believe Shenzhen Xiongri had
      approximately $7 million sales revenue and $1 million in net profits before
      tax
      in 2006 but are continuing due diligence on the company and there can be no
      assurance the actual revenues and profits will be at these levels.





We
      developed 71 new sales agents in fiscal 2006 which brings the total number
      of
      our sales agents in the PRC to 604 at December 31, 2006. Most of these new
      sales
      agents are in the northern region of the PRC, close to our manufacturing
      facility, where we can minimize the transportation cost and service. The new
      agents are expected to penetrate their respective markets and strengthen our
      market position there.








28


RESULTS
      OF OPERATIONS





Fiscal
      Years Ended December 31, 2005 and December 31, 2006 .





Sales
      and
      Gross Profit





Sales
      increased to $21,468,313 for the year ended December 31, 2006 as compared to
      $15,577,447 for the prior year, an increase of approximately $5,890,866 or
      37.8%. The increase in our sales was a result of our continued efforts in sales
      and marketing. We recruited more 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, has driven up the demand of our products.
      Approximately, $12.95 million was derived from sales of solar hot water heaters,
      a 26% increase from fiscal 2005; approximately $7.4 million was derived from
      sales of coal-fired boilers and space heating products, about a 49% increase
      as
      compared to fiscal 2005. We plan to continue to develop new sales agents to
      expand our sales network in rural areas in 2007.





Gross
      profit for the year ended December 31, 2006 was $4,625,319 or 21.5% of revenues
      as compared to gross profit of $3,708,988 or 23.8% of revenues for the prior
      year. The increase in gross profit resulted primarily from the increase in
      sales
      revenue. In fiscal 2006, we sold nearly one hundred and thirty three thousand
      units of solar water heater products and ninety-nine thousand units of boiler
      heater products. The profit margin in fiscal 2006 dropped principally because
      of
      market pressure to keep our prices competitive.





Cost
      of
      Sales





In
      line
      with the increase in our sales, our costs of goods sold were $16,842,944 for
      the
      fiscal year ended December 31, 2006, an increase of $4,974,535 or 41.9% from
      the
      period in fiscal 2005. Management continues to focus on cost controls for raw
      materials. The supply of raw materials is currently a buyer’s market and
      management believes such trend will continue, which will provide the company
      the
      opportunity to be more selective in its purchase of raw materials. We try to
      minimize our product costs and keep our product prices competitive.





Operating
      Expenses





Operating
      expenses increased to $3,414,707 for the year ended December 31, 2006 as
      compared to $2,389,185 for the prior year, an increase of $ 1,025,522 or about
      42.9%.





Among
      the
      increase of operating expenses, selling expenses increased to $459,746 from
      $256,634 for the prior year, an increase of $203,122, or 79.1%. Selling
      expenses, other than advertising, consisted primarily of transportation
      expenses, sales agency administration expenses and after sales services. The
      increased selling expenses were principally caused by the increase in our sales
      force and selling activity. We had 364 employees and 604 independent selling
      agents engaged in sales and marketing as of December 31, 2006, as compared
      to
      276 and 586, respectively, as of December 31, 2005.





General
      and administrative expenses were $1,414,459 for the fiscal year ended December
      31, 2006, or approximately 6.6% of sales, compared to $1,279,714 or
      approximately 8.2% of sales, for the fiscal year ended December 31, 2005. Even
      though general and administrative expenses increased in 2006 by 10.5%, as a
      percentage of sales, it decreased year over year based on our budget control
      efforts.





29


We
      spent
      $1,106,488 on advertising, or approximately 5.2% of our sales for the fiscal
      year ended December 31, 2006, a 1% increase as compared with $646, 667 or
      approximately 4.2% of our sales for the fiscal year ended December 31, 2005.
      We
      continue our efforts in advertising to expand our market.





Income
      from Operations





Operating
      income totaled $1,210,612 for the year ended December 31, 2006 as compared
      to
      operating income of $1,319,803 for the year ended December 31, 2005, a decrease
      of $109,191 or 8.3 %. As a percentage of sales, operating income was 5.64%
      in
      2006 as compared to 8.47% for the prior year. The decrease in operating income
      as a percentage of sales was substantially due to the increase in advertising
      and selling expenses in 2006.





Income
      Taxes





We
      did
      not carry on any business or maintain any branch office in the United States
      during the year ended December 31, 2006 or the year ended December 31, 2005.
      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
      relevant laws and regulations in the PRC, Deli Solar (Bazhou), as a wholly
      foreign owned enterprise (“WFOE”) in the PRC, is 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, which ended December 31, 2006. It
      will
      be subject to 50% of its enterprise income tax from 2007 until 2010. Our direct
      subsidiary, Deli Solar (Beijing), is also a WFOE and it had net loss for 2007.
      Consequently, it did not incur income tax.





Net
      Income





Net
      income was $1,239,501 and the comprehensive income including foreign currency
      translation adjustment was $1,598,853 for the fiscal year ended December 31,
      2006, compared with $1,298,974 and $1,473,531 respectively for the fiscal year
      ended December 31, 2005. The net income in fiscal 2006 was affected by the
      decrease in gross margins and increase in sales and marketing expenses.





30


**Liquidity
      and Capital Resources**




Since
      Deli Solar (Bazhou)'s inception, it has financed its operations and met capital
      expenditure requirements primarily through cash flows from operations, bank
      loans and lines of credit, capital from its shareholders and related parties
      and
      outside sources. We has cash in the amount of $3,212,065 at the end of fiscal
      2006, a decrease of $2,417,103, compared to $5,629,168 in the end of the fiscal
      2005. A land purchase in fiscal 2006 consumed $932,732 in cash and construction
      consumed $2,815,398 in cash. As the construction of our new manufacturing
      building and our new automated production line will be coming to an end, we
      do
      not anticipate similar expenditures in 2007.





While
      we
      anticipate that our cash flows will be sufficient to support our operations
      for
      the next 12 months, we will need to raise additional equity capital to make
      acquisitions for which we have entered into an MOU as described above. 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





Deli
      Solar (Bazhou) extended unsecured trade credit to some good sales agents and
      distributors according to their sales volume and historical payment records.
      For
      the year ended December 31, 2006, our accounts receivable were $986,809, an
      increase of $238,334, compared to $748,475 for the same period in 2005. The
      ratio of accounts receivable to sales was 4.6% in 2006 and approximately the
      same level compared with 4.8% in 2005. This is primarily due to keeping our
      credit sales policy and applying it consistently. Some distributors and sales
      agents, who have a long-term business relationship with Deli Solar (Bazhou)
      and
      are well-positioned in the local market but are short on capital resources
      are
      supported by Deli Solar (Bazhou) through the provision of credit terms. However,
      most new agents and small agents are given cash terms.




Allowances
      for Doubtful Accounts





Allowances
      for doubtful accounts were $116,363 as of December 31, 2006, a decrease of
      $77,267 or 39.9%, as compared to $193, 630 as of December 31, 2005. We have
      credit sales policy to some of our sales agents based on their sales volume
      and
      performance. However, some of these sales credits may become risky if repayment
      is delayed longer than the credit terms. In 2006 we took great efforts in
      collection and successfully collected some old debts. We will continue to take
      proactive approach to collect accounts receivable in 2007.





Advances
      to Suppliers





Advances
      to suppliers were $1,007,709 for the fiscal year ended December 31, 2006 as
      compared to $811,275 for the same period in 2005, an increase of $196,434 or
      24.2%. The increase was primarily due to advanced payments to our suppliers
      to
      purchase more raw materials. Such payment in advance allowed us to receive
      stable and competitive purchasing prices and guaranteed stable supplies of
      raw
      materials.





31


Inventory





Inventory
      as of December 31, 2006 and December 31, 2005 amounted to $315,765 and $383,183,
      respectively. In general, the inventory levels are kept stable despite the
      increased sales because we have been shipping our finished products faster
      to
      our customers.





Accounts
      Payable





Accounts
      payable, including trade account payable, other payable and accrued expenses,
      increased to $205,915 as of December 31, 2006 from $141,153 as of December
      31,
      2005. Most of these accounts are payable within one year. There are no interest
      expenses due on these accounts.





Related
      Party Receivable and Other Receivable





There
      was
      no balance in the related party receivable in the end of fiscal year 2006,
      compared to $37,856 in the end of fiscal year 2005, a decrease of $37,856.
      The
      deposits and other receivables were $321,999 at the end of fiscal year 2006,
      compared to $82,090 at the end of fiscal year 2005, an increase of $239,909.
      The
      increase of the other receivables is primarily due to temporary lending to
      Shenzhen Xiongri after we signed the acquisition MOU with its shareholders.




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 3 to the Consolidated
      Financial Statements describe 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. The Company provides a three-year standard
      warranty to 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, customers must pay for the purchase of the replacement parts, but not
      for
      repair services. 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 the Company has recorded no
      liability for warranty reserve. The Company also allows its sales agents and
      distributors to return any defective product for exchange.





32


Allowance
      for Doubtful Accounts





The
      Company's business operations are conducted in the People's Republic of China.
      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. The Company considers assets to be impaired if the carrying
      value exceeds the future projected cash flows from related operations. The
      Company also re-evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      As of December 31, 2006, the Company expects these assets to be fully
      recoverable.




**Item
      7.**  **FINANCIAL
      STATEMENTS**





The
      following table presents selected financial data for the Company on a
      consolidated basis for the previous two fiscal years ended December 31, 2006
      and
      2005.





We
      derived the selected financial data set forth below from the Company's
      consolidated audited statements of operations for the two fiscal years ended
      December 31, 2006 and 2005 and the consolidated audited balance sheets as at
      December 31, 2006 and 2005, 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 and Results of Operations" appearing elsewhere in this
      report.





33


For
                    the Fiscal Year endedDecember
                    31,2006
                
                2005Gross
                    revenues
                
                $
                21,468,313
                
                $
                15,577,447Income
                    from operations
                
                $
                1,210,612
                
                $
                1,319,803Net
                    income
                
                $
                1,239,501
                
                $
                1,298,974Comprehensive
                    income
                
                $
                1,598,853
                
                $
                1,473,531Total
                    assets
                
                $
                12,716,185
                
                $
                10,903,506Total
                    liabilities
                
                $
                490,712
                
                $
                276,886





The
      Company's consolidated audited financial statements for the fiscal years ended
      December 31, 2006 and 2005, 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**





None.




**ITEM
      8A. CONTROLS AND PROCEDURES**




(a)
      Evaluation of Disclosure Controls and Procedures




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported within the time periods specified in the
      Commission's rules and forms, and that such information is accumulated and
      communicated to our management to allow timely decisions regarding required
      disclosure. Management necessarily applied its judgment in assessing the costs
      and benefits of such controls and procedures, which, by their nature, can
      provide only reasonable assurance regarding management's control
      objectives.




Under
      the
      supervision and with the participation of management, including our chief
      executive officer and chief financial officer, we evaluated the effectiveness
      of
      the design and operation of our disclosure controls and procedures, as defined
      in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
      (“Exchange Act”), as of December 31, 2006. Based on this evaluation, our chief
      executive officer and our chief financial officer concluded that, as of the
      end
      of the period covered by this report, our disclosure controls and procedures
      were effective and adequately designed to ensure that the information required
      to be disclosed by us in the reports we submit under the Exchange Act is
      recorded, processed, summarized and reported within the time periods specified
      in the applicable rules and forms and that such information was accumulated
      and
      communicated to our chief executive officer and chief financial officer, in
      a
      manner that allowed for timely decisions regarding required disclosure.




34




(b)
      Changes in Internal Controls




During
      the period ended December 31, 2006, there has been no change in internal control
      over financial reporting that has materially affected, or is reasonably likely
      to materially affect our internal control over financial reporting.




Our
      management, including the chief executive officer and chief financial officer,
      do not expect that its disclosure controls or internal controls will prevent
      all
      error and all fraud. A control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. In addition, 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. Because of
      the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within a company have been detected. These inherent limitations include
      the
      realities that judgments in decision-making can be faulty, and that breakdowns
      can occur because of simple errors or mistakes.




Additionally,
      controls can be circumvented by the individual acts of some persons, by
      collusion of two or more people or by management’s override of the control. The
      design of any systems of controls is based in part upon 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, control may become inadequate because of changes in
      conditions, or the degree of compliance with the policies or procedures may
      deteriorate. Because of these inherent limitations in a cost-effective control
      system, misstatements due to error or fraud may occur and not be detected.
      Individual persons perform multiple tasks which normally would be allocated
      to
      separate persons and therefore extra diligence must be exercised during the
      period these tasks are combined.







**ITEM
      8B. OTHER INFORMATION**




None.




**PART
      III**




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




DIRECTORS
      AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS




35


The
      officers and directors of the Company as of the date of this report, who will
      serve until our next annual meeting, or until their successors are elected
      or
      appointed and qualified, are as follows(1):




Name
              
              Position
              
              AgeDeli
                  Du
              
              President,
                  CEO and Director
              
              42Jianmin
                  Li
              
              Treasurer
                  and CFO
              
              38Yunjun
                  Luo
              
              Director
              
              71


(1)
      As we
      reported on our Current Report on Form 8-K dated March 15, 2007, on March 9,
      2007, John D. Kuhns, Kelly Chow and Ravinder Soin, resigned their directorships.
      Mr. Kuhns also resigned as the Company’s Chairman of the Board and the Audit
      Committee. Ravinder Soin also resigned from the Audit Committee. On the same
      day, the board accepted their resignations. The Company is currently seeking
      additional qualified directors to meet the minimum requirement of three
      directors in its by-laws and to fill the two vacancies in the Audit
      Committee.





Mr.
      Deli
      Du was appointed as a Director, President and CEO of the Company on March 31,
      2005. Mr. Du founded Deli Solar (PRC) 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.





Mr.
      Yunjun Luo was appointed as a Director of the Company in June 2005. He holds
      a
      Bachelor's degree in Pyrology from the Southeast University (PRC) 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.





Mr.
      Jianmin Li was appointed as our Treasurer and CFO of the Company on March 31,
      2005. Prior thereto, commencing October 21, 2001, he served as Senior Finance
      Manager for Tianjin Exist Food Co. Ltd., one of the largest distributors of
      fast
      food consumer goods in Tianjin, PRC. Mr. Li received a Bachelor’s degree in
      Economics from the Business College of Beijing Forestry University in 1991
      and
      has completed the MBA program at Katholicke University Leuven Vlerick Management
      School in Belgium in 2001.





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
                
                42Yunjin
                    Luo
                
                Director
                
                71Hao
                    Dong
                
                CEO
                
                32Xueling
                    Wu
                
                Controller
                
                26




36


Mr.
      Hao
      Dong was appointed as CEO of Deli Solar (PRC) in January 2005. He has been
      working for Deli Solar (PRC) 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 (PRC). Mr. Dong is an assistant engineer
      on
      mechanics, a certification recognized by Bazhou Municipal Government Technology
      Department.




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







FAMILY
      RELATIONSHIPS




There
      are
      no family relationships among our directors or officers.






AUDIT
      COMMITTEE FINANCIAL EXPERT




The
      full
      Board of Directors of the Company currently serves as its audit committee.
      The
      Board of Directors does not currently have an audit committee "financial expert"
      as defined under Rule 401(e) of Regulation S-B. The Board of Directors is in
      the
      process of searching for a suitable candidate for this Board position.




SECTION
      16(a) BENEFICIAL 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 other
      of
      our 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.
      To our knowledge, based solely on review of the copies of such reports furnished
      to us and written representations that no other reports were required, during
      the fiscal year ended December 31, 2006, and to date, all Section 16(a) filing
      requirements applicable to its insiders were complied with.




CODE
      OF
      ETHICS





Our
      board
      has adopted a Code of Ethics that applies to our executive offers and employees
      on July 20, 2006. We filed a copy of the Code of Ethics as exhibit 14 to this
      report.





37




**ITEM
      10. EXECUTIVE COMPENSATION**




The
      following table reflects the compensation paid to our principal executive
      officer. We have not had any executive officer who earned more than $100,000
      in
      any of the previous two fiscal years.




Name
                  and Principal Position
              
              Year
              Salary
                (cash
                  or non-cash)
                ($)
              
              Bonus
                (cash
                  or non-cash)
                ($)
              
              Stock
                  Awards
                ($)
              
              Option
                  Awards
                ($)
              
              Non-Equity
                  Incentive Plan Compensation
                ($)
              
              Non-Qualified
                  Deferred Compensation Earnings
                ($)
              
              All
                  Other Compensation
                ($)
              
              Total
                ($)Deli
                  Du (1)
              
              2006
                
                2005
              80,000
                
                80,000
              
              --
                
                --
              
              --
                
                --
              
              --
                
                --
              
              --
                
                --
              
              --
                
                --
              
              --
                
                --
              
              80,000
                
                80,000





(1)  Starting
      from March 31, 2005, Mr. Du received an annual salary from the Company of
      $80,000. This was not changed in the fiscal year ended December 31,
      2006.





**Compensation
      Discussion and Analysis**





Overview
      of Compensation Program and Philosophy





The
      Company has two executive officers, Messrs Deli Du and Jianmin Li. The Board
      of
      Directors serves as the Company’s compensation committee.





The
      Board
      of Director’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 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 officer
      compensation package is comparable to similar businesses in its location of
      its
      operations.





None
      of
      the executive officers has an employment agreement with the Company. In the
      absence of such employment agreements, the PRC Labor Laws provide for employment
      related terms 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.





Director
      Compensation





The
      following table reflects the compensation of directors for the Company’s fiscal
      year ended December 31, 2006:




38


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
                ($)John
                  D. Kuhns
              
              20,000
              
              --
              
              --
              
              --
              
              --
              
              --
              
              20,000Deli
                  Du
              
              20,000
              
              --
              
              --
              
              --
              
              --
              
              --
              
              20,000Kelly
                  Chow
              
              20,000
              
              --
              
              --
              
              --
              
              --
              
              --
              
              20,000Yunjun
                  Luo
              
              20,000
              
              --
              
              --
              
              --
              
              --
              
              --
              
              20,000Ravinder
                  Soin
              
              20,000
              
              --
              
              --
              
              --
              
              --
              
              --
              
              20,000








Our
      standard arrangement with the directors of the Company provides that we pay
      each
      director an annual compensation in the amount of $20,000 for serving as a
      director of the Company. There are no other elements of compensation 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.




**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 30,
      2007.




Name
                and
            
            Amount
                andTitle
                of
            
            Address
                of
            
            Nature
                of Beneficial
            
            Percent
                ofClass
            
            Beneficial
                Owner
            
            Owner
            
            Class
                (1)Common
                Stock
            
            Yunchun
                Wang
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            320,000
            
            5.2%Common
                Stock
            
            Deli
                Du, President, CEO
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            3,152,886
            
            51.62%(2)Common
                Stock
            
            Yunjun
                Luo, Director
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            0
            
            -Common
                Stock
            
            Jianmin
                Li, CFO
              No.
                28, Fengtai Bei Road
              Fengtai
                District, Beijing, PRC 100071
            
            0
            
            -Common
                Stock
            
            All
                Directors and Officers of the Company as a group
            
            3,152,886
            
            51.62%


(1)
              As
                  of March 30, 2007 we had 6,205,290 outstanding shares. In determining
                  the
                  percent of common stock owned by a Stockholder on March 30, 2007,
                  (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 exercise of the warrants held
                  by such
                  Stockholder, and (b) the denominator is the sum of (i) the total
                  6,205,290
                  shares outstanding on March 30, 2007, and (ii) the total number
                  of shares
                  underlying the warrants, which each of the Stockholders has the
                  right to
                  acquire within 60 days upon the exercise of its warrants.
  
 (2)
              As
                  a closing condition to the unit purchase agreement under which
                  the
                  seventeen stockholders identified as accredited investors subscribed
                  their
                  shares from the Company in the private placement transaction closed
                  on
                  March 31, 2005, Mr. Du agreed to place 10% of his equity interest
                  in the
                  Company (approximately 320,289 shares) into escrow for the benefit
                  of the
                  accredited investors in the event we fail to attain specified levels
                  of
                  net income. As of the date of this report, such shares are still
                  under Mr.
                  Du’s name. Mr. Du agreed to transfer to the accredited investors when
                  the
                  company fails to reach the net income request under the unit purchase
                  agreement.Except for the disclosure made above, the Company knows of no other
                  beneficial owners (as a group or otherwise) of more than five percent
                  (5%)
                  of the Company's shares of Common
                  Stock.


39




Except
      for the disclosure made above, the Company knows of no other beneficial owners
      (as a group or otherwise) of more than five percent (5%) of the Company's shares
      of Common Stock.




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




We
      entered into an agreement, dated April 1, 2005, with Kuhns Brothers, Inc.
      (“Kuhns Brothers”) which is 95% owned by John D. Kuhns, our former Chairman of
      the Board, to render financial advisory and consulting services to the Company
      and its subsidiaries for the period ending December 31, 2005, for which Kuhns
      Brothers was paid $10,000 per month commencing April 1, 2005. This agreement
      was
      renewed on October 22, 2006 and was terminated in March 2007.





Pursuant
      to a Consultancy Agreement dated June 2005 between Deli Solar (PRC) and AUS
      Renewable Energy Ltd., a Hong Kong company controlled by our director, Ravinder
      Soin, Deli Solar (PRC) retained Mr. Soin as its consultant to assist the Company
      to market its products and services outside of China for an annual consulting
      fee of $60,000, payable on a bimonthly basis. Under the agreement, we are
      obligated to reimburse Mr. Soin for certain travel and transportation expenses
      associated with the consulting services. This arrangement has been terminated.





None
      of
      the directors of the Company is an independent director pursuant to the
      definition of “independent director” under the Rules of NASDAQ, Marketplace Rule
      4200(a)(15).




**ITEM
      13. EXHIBITS**




3.1
      Certificate of Incorporation, includes all amendments and restatements, 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 Registrant's 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 reference to the annual report on Form 10-KSB
      filed on April 17, 2006.





4.2
      Form
      of Warrant, is hereby 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.





14
      Code
      of Ethics.





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;





31.2
      Certification of Jianmin Li 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.





40





**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 to MGB Partners, LLP, our former auditor, are as
      follows:





Fiscal
                  Year Ended
              Fiscal
                  Year EndedDecember
                  31, 2006
              December
                  31, 2005Audit
                  Fees
              None.
              None.Audit-Related
                  Fees(1)
              $5,000.
              $1,500Tax
                  Fees
              None
              NoneAll
                  Other Fees
              None
              None


(1)
      All
      audit related fees paid to MGB Partners, LLP in 2005 are related to review
      of
      the financial statements due for periodic reports. The Company paid MGB
      Partners, LLP $5,000 audit related fees on January 25, 2006 for the reviewing
      of
      the Company’s amendment to the registration statement filed on February 6, 2006,
      which incorporates MGB Partners, LLP’s report relating to the Company’s
      financial statements for the period May 4, 1982 (date of inception) through
      May
      31, 2004.





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


Fiscal
                  Year Ended
              Fiscal
                  Years EndedDecember
                  31, 2006
              December
                  31, 2005Audit
                  Fees
              $83,000
              $35,000Audit
                  Related Fees
              None
              NoneTax
                  Fees
              None
              NoneAll
                  Other Fees
              None
              None


Because
      of recent resignation of two of our audit committee members, the full Board
      of
      Directors serves the function of the audit committee. It did not pass on whether
      any non-audit services impacted our auditor's independence. We currently do
      not
      have any policy for approval of audit and permitted non-audit services by our
      board. We are seeking qualified person to serve audit committee of our Board
      of
      Directors and plan to adopt procedures for approval of audit and non-audit
      services.




41





**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.




DELI
              SOLAR (USA),
              INCDate:
              April 11, 2007
            
            /s/ Deli
                DuBy:
                Deli Du,
              Chief
                Executive Officer and President (principal executive
                officer)  /s/ Jianmin
                  LiBy:
                    Jianmin Li
                  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
              11, 2007By:
              Deli Du, Director  /s/ Yunjun
                Luo
              
              
              April
                11,
                2007Yunjun
                Luo, Director
 42









Report
                of Independent Registered Public Accounting Firm
              
              To
                the Board of Directors
              Deli
                Solar (USA), Inc.
              Beijing,
                People’s Republic of China
              
              We
                have audited the consolidated balance sheets of Deli Solar (USA),
                Inc.
                (the Company) as of December 31, 2006 and 2005, and the related
                consolidated statements of operations and comprehensive income,
                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
                audit.
              
              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 Deli
                Solar (USA), Inc. as of December 31, 2006 and 2005, and the results
                of its
                operations and its cash flows for the years ended, in conformity
                with
                accounting principles generally accepted in the United States of
                America.
              
              
              
              /s/
                  Child, Van Wagoner & Bradshaw, PLLC
                Child,
                Van Wagoner & Bradshaw, PLLC
              Salt
                Lake City, Utah
              March
                31, 2007






















































**Deli
      Solar (USA), Inc.**





**Consolidated
      Financial Statements**




**For
      the Year Ended December 31, 2006**






































DELI
      SOLAR ( USA ), INC.





Consolidated
      Balance Sheets





Assets
              
              December
                  31, 2006
              
              December
                  31, 2005Current
                  assetsCash
                  and cash equivalents
              
              $
              3,212,065
              
              $
              5,629,168Trade
                  accounts receivable
              
              
              986,809
              
              
              748,475Allowances
                  for doubtful accounts
              
              
              (116,363
              )
              
              (193,630
              )Net
                  trade accounts receivable
              
              
              870,446
              
              
              554,845Advance
                  to suppliers
              
              
              1,007,709
              
              
              811,275Prepaid
                  expenses
              
              
              58,203
              
              
              44,783Related
                  entities receivable
              
              
              -
              
              
              37,856Inventories
              
              
              315,765
              
              
              383,183Total
                  current assets
              
              
              5,464,188
              
              
              7,461,110Property,
                  plant and equipmentBuildings
              
              
              3,528,180
              
              
              3,175,994Machinery
                  and equipment
              
              
              71,131
              
              
              43,335Vehicles
              
              
              76,176
              
              
              106,636Computer
                  equipment
              
              
              12,625
              
              
              26,197Office
                  equipment
              
              
              65,749
              
              
              6,976Construction
                  in progress
              
              
              2,580,031
              
              
              159,356Total
              
              
              6,333,892
              
              
              3,518,494Accumulated
                  depreciation
              
              
              (407,424
              )
              
              (228,986
              )Net
                  property, plant and equipment
              
              
              5,926,468
              
              
              3,289,508Other
                  receivables
              
              
              65,721
              
              
              82,090Deposits
              
              
              256,278
              
              
              -Prepaid
                  land lease
              
              
              1,003,530
              
              
              70,798Total
                  other assets
              
              
              1,325,529
              
              
              152,888Total
                  assets
              
              $
              12,716,185
              
              $
              10,903,506




















See
      notes
      to financial statements.





DELI
        SOLAR ( USA ), INC.


Consolidated
      Balance Sheets (Continued)





Liabilities
                  and stockholders' equity
              
              December
                  31, 2006
              
              December
                  31, 2005Current
                  liabilitiesTrade
                  accounts payable
              
              
              147,901
              
              
              89,375Related
                  entities payable
              
              
              22,528
              
              
              -Other
                  payables
              
              
              35,934
              
              
              1,733Accrued
                  expenses
              
              
              22,080
              
              
              50,045Customer
                  deposits
              
              
              262,269
              
              
              5,621Short-term
                  notes payable
              
              
              -
              
              
              130,112Total
                  current liabilities
              
              
              490,712
              
              
              276,886Stockholders'
                  equityPreferred
                  stock:par
                  value $0.001;25,000,000 shares authorized, no shares issued and
                  outstandingCommon
                  stock:par
                  value $0.001; 66,666,667 shares authorized, 6,205,290 shares issued
                  and
                  authorized
              
              
              6,205
              
              
              6,205Additional
                  paid in capital
              
              
              5,705,574
              
              
              5,705,574Retained
                  earnings
              
              
              5,979,785
              
              
              4,740,284Accumulated
                  other comprehensive income
              
              
              533,909
              
              
              174,557Total
                  stockholders' equity
              
              
              12,225,473
              
              
              10,626,620Total
                  Liabilities and stockholders' equity
              
              $
              12,716,185
              
              $
              10,903,506


















See
      notes
      to financial statements.





DELI
        SOLAR ( USA ), INC.
  Consolidated
      Statements of Operations and Comprehensive Income





December
                  31,
              
              December
                  31,2006
              
              2005Sales
                  revenues
              
              $
              21,468,313
              
              $
              15,577,447Cost
                  of goods sold
              
              
              16,842,994
              
              
              11,868,459Gross
                  profit
              
              
              4,625,319
              
              
              3,708,988Operating
                  expensesAdvertising
              
              
              1,106,488
              
              
              646,667Selling
                  expense
              
              
              459,746
              
              
              256,634Salaries
                  and benefits
              
              
              279,069
              
              
              191,539Depreciation
              
              
              154,946
              
              
              14,631Other
                  general and administrative
              
              
              1,414,458
              
              
              1,279,714Total
                  operating expenses
              
              
              3,414,707
              
              
              2,389,185Net
                  operating income
              
              
              1,210,612
              
              
              1,319,803Other
                  income (expense)Interest
                  (expenses)
              
              
              (16,717
              )
              
              (20,829
              )Other
                  income
              
              
              45,606
              
              
              -Total
                  other income (expense)
              
              
              28,889
              
              
              (20,829
              )Net
                  income before taxes
              
              
              1,239,501
              
              
              1,298,974Taxes
              
              
              -
              
              
              -Net
                  income
              
              $
              1,239,501
              
              $
              1,298,974Foreign
                  Currency Translation Adjustment
              
              
              359,352
              
              
              174,557Comprehensive
                  Income
              
              $
              1,598,853
              
              $
              1,473,531Basic
                  earnings per share
              
              $
              0.20
              
              $
              0.23Denominator
                  for basic EPS
              
              
              6,205,290
              
              
              5,732,616Fully
                  diluted earnings per share
              
              $
              0.18
              
              $
              0.17Denominator
                  for diluted EPS
              
              
              6,957,876
              
              
              7,558,335





See
      notes
      to financial statements.





DELI
      SOLAR (USA), INC.





Consolidated
      Statements of Changes in Stockholders’ Equity








OtherCommon
              
              Common
              
              Paid
                  in
              
              Retained
              
              ComprehensiveBalances
                  at:
              
              Shares
              
              Stock
              
              Capital
              
              Earnings
              
              Income
              
              TotalsJanuary
                  1, 2005
              
              
              4,431,000
              
              
              4,430
              
              
              824,960
              
              
              3,441,310
              
              
              -
              
              
              4,270,700Shares
                  issued:private placement
              
              
              1,714,290
              
              
              1,715
              
              
              5,998,300
              
              
              -
              
              
              -
              
              
              6,000,015Cost
                  of issuance
              
              
              
              
              
              
              
              
              (1,348,626
              )
              
              
              
              
              
              
              
              (1,348,626
              )Warrants
                  exercised
              
              
              60,000
              
              
              60
              
              
              230,940
              
              
              -
              
              
              -
              
              
              231,000Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              1,298,974
              
              
              -
              
              
              1,298,974Foreign
                  currency
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              174,557
              
              
              174,557Balance:
                  December 31, 2005
              
              
              6,205,290
              
              $
              6,205
              
              $
              5,705,574
              
              $
              4,740,284
              
              $
              174,557
              
              $
              10,626,620Foreign
                  currency
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              359,352
              
              
              359,3522006
                  Net income
              
              
              -
              
              
              -
              
              
              -
              
              
              1,239,501
              
              
              -
              
              
              1,239,501Balance:
                  Dec 31, 2006
              
              
              6,205,290
              
              $
              6,205
              
              $
              5,705,574
              
              $
              5,979,785
              
              $
              533,909
              
              $
              12,225,473




























See
      notes
      to financial statements.





DELI
        SOLAR ( USA ), INC.
  Consolidated
      Statements of Cash Flows


Cash
                  flows from operating activities:
              
              Year
                  ended December 31, 2006
              
              Year
                  ended December 31, 2005Net
                  income
              
              $
              1,239,501
              
              $
              1,298,974Adjustments
                  to reconcile net incometo
                  net cash provided by operations:Depreciation
                  and amortization
              
              
              178,437
              
              
              100,171Provision
                  for allowance on accounts receivable
              
              
              (77,267
              )
              
              105,030Changes
                  in operating liabilities and assets:Trade
                  accounts receivable
              
              
              (238,334
              )
              
              (476,106
              )Advance
                  to suppliers
              
              
              (196,434
              )
              
              (458,231
              )Inventories
              
              
              67,418
              
              
              (8,279
              )Prepaid
                  expenses
              
              
              (58,203
              )
              
              (44,783
              )Other
                  Receivables
              
              
              16,369
              
              
              (63,975
              )Trade
                  accounts payable
              
              
              58,526
              
              
              (79,124
              )Other
                  payables
              
              
              34,201
              
              
              (81,746
              )Accrued
                  expenses
              
              
              (27,965
              )
              
              (212,048
              )Customer
                  deposits
              
              
              256,649
              
              
              (6,827
              )Net
                  cash provided by operations
              
              
              1,252,898
              
              
              73,056Cash
                  flows from investing activities:Deposits
                  made to a acquire subsidiary
              
              
              (256,278
              )
              
              -Prepaid
                  land lease
              
              
              (932,732
              )
              
              (2,711
              )Purchases
                  of property, plant and equipment
              
              
              (2,815,398
              )
              
              (845,126
              )Net
                  cash used in investing activities
              
              
              (4,004,408
              )
              
              (847,837
              )Cash
                  flows from financing activities:Payments
                  on short-term notes payable
              
              
              (130,112
              )
              
              (403,101
              )Capital
                  contribution received from shareholders
              
              
              -
              
              
              4,882,389Related
                  receivable
              
              
              82,639
              
              
              518,637Related
                  payables
              
              
              22,528
              
              
              (10,341
              )Net
                  cash provided by (used in) financing activities
              
              
              (24,945
              )
              
              4,987,584Effect
                  of rate changes on cash
              
              
              359,352
              
              
              174,557Increase
                  in cash and cash equivalents
              
              
              (2,417,103
              )
              
              4,387,360Cash
                  and cash equivalents, beginning of period
              
              
              5,629,168
              
              
              1,241,808Cash
                  and cash equivalents, end of period
              
              $
              3,212,065
              
              $
              5,629,168Supplemental
                  disclosures of cash flow information:Interest
                  paid in cash
              
              $
              16,717
              
              $
              20,884Income
                  taxes paid in cash
              
              $
              -
              
              $
              -











See
      notes
      to financial statements.









**Notes
      to Financial Statements**





1 **.
      Nature of operations**





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 alliance with Deli Solar (BVI).
      In contemplation of the alliance, 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 acquisition of Deli Solar (BVI) was accounted for as a
      recapitalization of Deli Solar (BVI).





Deli
      Solar (BVI) was formed in June, 2004 in the Territory of the British Virgin
      Islands. On August 1, 2004, Deli Solar (BVI) purchased Deli Solar (PRC), 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 (PRC) 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 (PRC) 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 (PRC) remains a wholly-owned subsidiary
      of Deli Solar (BVI).





On
      November 21, 2005 Deli Solar (PRC) acquired Ailiyang Solar Energy Technology
      Co., Ltd. (“Ailiyang”), an entity formerly controlled by the owners of Deli
      Solar (PRC). The transaction was accounted for as a transfer of entities under
      common control.





In
      January 2006, the Company formed a new 100% owned subsidiary in the PRC known
      as
      Beijing Deli Solar Technology Development, Ltd.





Deli
      Solar (PRC) designs, manufactures and sells solar hot water heaters, coal-fired
      boilers and space heating products within the PRC.








**2.
      Basis of Presentation**





The
      consolidated financial statements include the accounts of Deli Solar (USA),
      Inc., Deli Solar (BVI), Deli Solar (PRC), Beijing Deli Solar and Ailiyang.
      All
      material intercompany accounts and transactions have been eliminated in
      consolidation.





**2.
      Basis of Presentation (continued)**





The
      accompanying consolidated financial statements are prepared in accordance with
      accounting principles generally accepted in the United States of America (“US
      GAAP”). This basis differs from that used in the statutory accounts of the Deli
      Solar (PRC), which were prepared in accordance with the accounting principles
      and relevant financial regulations applicable to enterprises in the PRC. All
      necessary adjustments have been made to present the financial statements in
      accordance with US GAAP. These statements have been retroactively restated
      to
      show the effects due to the consolidation of a Ailiyang (see note 10), a
      recapitalization effected on March 31, 2005, wherein the Company assumed the
      capital structure of Meditech Pharmaceuticals, Inc. and a 1:6 reverse stock
      split that was effected on August 15, 2005.





**3.
      Summary of Significant Accounting Policies**





Economic
      and Political Risks





The
      Company faces a number of risks and challenges as a result of having primary
      operations and markets in the PRC. Changing political climates in the PRC could
      have a significant effect on the Company’s business.





Restrictions
      on Transfer of Assets Out of the PRC





Dividend
      payments by Deli Solar (PRC) are limited by certain statutory regulations in
      the
      PRC. No dividends may be paid by Deli Solar (PRC) without first receiving prior
      approval from the Foreign Currency Exchange Management Bureau. Dividend payments
      are restricted to 85% of profits, after tax.





Control
      by Principal Stockholders





The
      directors, executive officers and their affiliates or related parties own,
      beneficially and in the aggregate, the majority of the voting power of the
      outstanding shares of the common stock of the Company. Accordingly, the
      directors, executive officers and their affiliates, if they voted their shares
      uniformly, would have the ability to control the approval of most corporate
      actions, including increasing the authorized capital stock of the Company and
      the dissolution, merger or sale of the Company's assets.





**3.
      Summary of Significant Accounting Policies (continued)**





Cash
      and Cash Equivalents





For
      purposes of the statements of cash flows, cash and cash equivalents include
      cash
      on hand and demand deposits held by banks. Cash deposits in PRC and BVI banks
      are not insured by any government agency or entity. Cash deposits in US banks
      are guaranteed by the Federal Deposit Insurance Corporation to a maximum of
      $100,000. At December 31, 2006 the Company had $451,944 in a single US
      bank.





Trade
      Accounts Receivable





Trade
      accounts receivable are recognized and carried at original invoice amount less
      an allowance for any uncollectible amounts. Management reviews past due accounts
      on a regular basis and determines collectibility based on a customer’s current
      financial condition and recent payment history, and the Company’s success in
      recent collection efforts. An estimate for doubtful accounts is made when
      collection of the full amount becomes questionable.





Inventories





Inventories
      consist of raw materials and low cost consumables for the construction of the
      Company’s products, as well as finished goods. The inventories are valued at the
      lower of cost or market using the first-in, first-out method. Impairment and
      changes in market value are evaluated on a per item basis. If the cost of the
      inventory exceeds the market value evaluation based on total inventory,
      provisions are made for the difference between the cost and the market value.
      Provision for potential obsolete or slow moving inventory is made based on
      analysis of inventory levels, age of inventory and future sales forecasts.
      Inventories consisted of the following:




2006
              
              2005Raw
                  Material
              
              
              150,748
              
              
              103,543Consumables
              
              
              5,970
              
              
              6,138Finished
                  goods
              
              
              159,047
              
              
              273,502Total
              
              $
              315,765
              
              $
              383,183








**3.
      Summary of Significant Accounting Policies (continued)**





Property,
      Plant, and Equipment





Property,
      plant and equipment are carried at cost less accumulated depreciation and
      amortization. Depreciation and amortization are computed using the straight-line
      method over the 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. Property
      and equipment are depreciated over their estimated useful lives as
      follows:





Buildings
              6
                  -
                  50 years based on the land lease term.Machinery
                  and equipment
              10
                  yearsVehicles
              7
                  yearsComputer
                  equipment
              3
                  yearsOffice
                  equipment
              7
                  years





Long-term
      assets of the Company are reviewed annually to assess whether the carrying
      value
      has become impaired, according to the guidelines established in Statement of
      Accounting Standards (SFAS) No. 144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets.”* The
      Company also evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      No impairment of assets was recorded in the periods reported.








Earnings
      Per Share





Basic
      earnings per common share ("EPS") are calculated by dividing net income by
      the
      weighted average number of common shares outstanding during the year. Diluted
      EPS is calculated by adjusting the weighted average outstanding shares, assuming
      conversion of all potentially dilutive securities, such as stock options and
      warrants using the treasury stock method. The numerators and denominators used
      in the computations of basic and diluted EPS are presented in the following
      table:













**3.
      Summary of Significant Accounting Policies (continued)**





2006
              
              2005NUMERATOR
                  FOR BASIC AND DILUTED EPSNet
                  income to common stockholders
              
              $
              1,239,501
              
              $
              1,298,974DENOMINATORS
                  FOR BASIC AND DILUTED EPSWeighted
                  average shares of common stock outstanding
              
              
              6,205,290
              
              
              5,732,616Add:
                  dilutive equity securities outstanding
              
              
              752,586
              
              
              1,825,719Denominator
                  for diluted EPS
              
              
              6,957,876
              
              
              7,558,335EPS
                  - Basic
              
              $
              0.20
              
              $
              0.23EPS
                  - Diluted
              
              $
              0.18
              
              $
              0.17








Revenue
      Recognition





Revenue
      is recognized when the customer takes delivery of products subject to
      pre-existing terms, conditions and pricing, and when the Company reasonably
      expects that the amount invoiced to the customer is fully
      collectible.








Advertising
      Expenses





Advertising
      costs are expensed as incurred. Advertising expense amounted to $1,106,488
      and
      $646,667 for the years ended December 31, 2006 and 2005, respectively.








Foreign
      Currency and Comprehensive Income





The
      accompanying financial statements are presented in US dollars. The functional
      currency is the Renminbi (“RMB”) of the PRC. The financial statements are
      translated into US dollars from RMB at year-end exchange rates for assets and
      liabilities, and weighted average exchange rates for revenues and expenses.
      Capital accounts are translated at their historical exchange rates when the
      capital transactions occurred.





**3.
      Summary of Significant Accounting Policies (continued)**





Foreign
      Currency and Comprehensive Income





On
      July
      21, 2005, the PRC changed its foreign currency exchange policy from a fixed
      RMB/USD exchange rate into a flexible rate under the control of the PRC’s
      government. We use the Closing Rate Method in currency translation of the
      financial statements of Deli PRC. The financial statements are translated into
      US dollars from RMB at an exchange rate of 7.8041 RMB to one U.S. Dollar for
      assets and liabilities, and weighted average exchange rates (7.9725:1) for
      revenues and expenses. Capital accounts are translated at their historical
      exchange rates when the capital transactions occurred.





RMB
      is
      not freely convertible into the currency of other nations. All such exchange
      transactions must take place through authorized institutions. There is no
      guarantee the RMB amounts could have been, or could be, converted into US
      dollars at rates used in translation.





Taxes





Deferred
      tax assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to apply
      to
      taxable income in the years in which those temporary differences are expected
      to
      reverse. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in the statement of operations in the period that includes
      the enactment date. A valuation allowance is provided for deferred tax assets
      if
      it is more likely than not these items will either expire before the Company
      is
      able to realize their benefits, or that future deductibility is
      uncertain.





Historically,
      the Company has recorded no income taxes and no deferred taxes because it paid
      a
      fixed tax as assessed, and annually adjusted, by the State Administration of
      Taxation of Bazhou and Bazhou Local Taxation Bureau. Therefore, there was no
      income tax, per se, and there were no temporary differences in assets or
      liabilities.





Pursuant
      to the laws and regulations in the PRC, Deli Solar (PRC), as a wholly foreign
      owned enterprise ("WFOE") in the PRC, is entitled to an exemption from the
      PRC
      enterprise income tax for two years commencing from its first profitable
      year.





Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosures of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of income and expenses during the reporting period. Actual
      results could differ from those estimates.





**3.
      Summary of Significant Accounting Policies (continued)**





Reclassification





Certain
      amounts in the prior year have been reclassified to conform to the current
      year’s presentation.





**4.
      Advances to Suppliers**





Advances
      to suppliers represent the cash paid in advance for purchasing raw materials
      or
      inventory.





**5.
      Deposits**





During
      the year, we made an initial deposit of $256,278 to our target company, Shenzhen
      Xiong Ri. Our acquisition has not taken place as of this report date.





**6.
      Prepaid Land Lease**





According
      to the laws of the PRC, the government owns all of the land in the PRC.
      Companies or individuals are authorized to possess and use the land only through
      land use rights granted by the PRC government. Accordingly, the Company paid
      in
      advance for the land leases of its buildings. Prepaid land leases are being
      amortized and recorded as lease expense using the straight-line method over
      the
      leases term of 20 to 50 years. Prepaid land lease for the years ended December
      31, 2006 and 2005 was $1,003,530 and $70,798, respectively.





**7.
      Short-Term Notes Payable**





Short-term
      notes payable consist of renewable notes. The notes bear interest at rates
      ranging from 7.98% to 8.85%, are collateralized by the Company’s inventory and
      building. We paid all notes payable during the year ended December 31, 2006.





**8.
      Related Party Receivable and Payable**





Receivable
      from related parties represents amounts advanced to one of the Company’s
      directors. The balance as of December 31, 2006, and 2005, respectively, was
      $0
      and $37,856. Related party payable represents compensation or reimbursements
      owed to the directors. The balance as of December 31, 2006 and 2005 was $22,080
      and $50,045.





Consulting
      fees paid to consulting company owed by directors amounted to $140,000.





**9.
      Leases**





The
      Company leases land and buildings under non-cancelable lease arrangements
      accounted for as operating leases. Two of the leases are both a fifty year
      lease
      (see note 6) and the other, which was not paid in advance, is a twenty year
      lease.





Future
      minimum lease payments of lease obligations are as follows:




2007
              
              $
              57,6982008
              
              
              50,1722009
              
              
              50,1722010
              
              
              50,1722011
              
              
              30,522Thereafter
              
              
              170,589$
              463,260





**10.
      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
      March
      30, 2005, in conjunction with the recapitalization and private placement, 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.





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.





**11.
      Warrants**





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, and equivalent warrants to purchase
      171,429 shares of common stock to financial advisors and others. Stock warrant
      transactions are summarized in the following table.





Warrants2006
              
              2005Outstanding
                  - beginning of year
              
              
              1,825,719
              
              
              -Granted
              
              
              -
              
              
              1,885,719Exercised
              
              
              -
              
              
              60,000Forfeited
              
              
              -
              
              
              -Outstanding
                  - end of year
              
              
              1,825,719
              
              
              1,825,719Shares
                  exercisable - end of year
              
              
              1,825,719
              
              
              1,825,719





The
      following table provides certain information with respect to the
      above-referenced stock warrants outstanding and exercisable at December 31,
      2006:




Number
              
              
              
              Weighted
              
              WeightedOutstanding
                  and
              
              Exercise
              
              Average
              
              AverageExercisable
              
              Price
                  Range
              
              Exercise
                  Price
              
              Life
                  in YearsWarrants
              
              
              1,825,719
              
              $
              3.85
              
              $
              3.85
              
              
              4.2





**12.
      Business Combinations between Entities under Common
      Control**





The
      Company entered into a stock purchase agreement, dated February 24, 2005, with
      Ailiyang Solar Energy Technology Co., Ltd. ("Ailiyang"), one of the Company
      distributors. Ailiyang was formed on July 28, 1997 as a limited liability
      company in the PRC and was owned by one of the Company’s directors and his
      family (collectively, "Ailiyang Shareholders"). Pursuant to the agreement,
      the
      Company purchased all of the stock of Ailiyang from the Ailiyang Shareholders
      for a total purchase price of RMB 500,000 (approximately
      $64,700) .
      The
      Company completed the acquisition of Ailiyang on November 21, 2005, and Ailiyang
      is now a wholly owned subsidiary of Deli Solar (PRC) and its sole business
      is
      acting as a distributor for Deli Solar (PRC)’s products.





The
      acquisition was accounted for as a transfer of entities under common control.
      Accordingly, the operations of Ailiyang for the year ended December 31,
      200 6
      and
      2005 are included in the consolidated statements as if the transaction had
      occurred at the beginning of the first period presented, each account stated
      at
      its historical cost.





**13.
      Contingencies**





The
      Company has not, historically, carried any property or casualty insurance.
      No
      amounts have been accrued for any liability that could arise from the lack
      of
      insurance. Management believes the chances of such an obligation arising are
      remote.











**14.
      Recent Accounting Pronouncements**





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB
      Statements No. 133 and 140”. The statement permits fair value remeasurement for
      any hybrid financial instrument that contains an embedded derivative that
      otherwise would require bifurcation, clarifies which interest-only strips are
      not subject to the requirements of Statement 133, establishes a requirement
      to
      evaluate interests in securitized financial assets to identify interests that
      are freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation, clarifies that
      concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends Statement 140 to eliminate the prohibition on a
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. The Statement is effective for financial instruments acquired or
      issued after the beginning of the first fiscal year that begins after September
      15, 2006. The Company expects that the Statement will have no material impact
      on
      its consolidated financial statements.




In
      February 2006, the FASB issued Staff Position No. FAS 123(R)-4, “Classification
      of Options and Similar Instruments Issued as Employee Compensation That Allow
      for Cash Settlement upon the Occurrence of a Contingent Event”. This position
      addresses the classification of options and similar instruments issued as
      employee compensation that allow for cash settlement upon the occurrence of
      a
      contingent event, amending paragraphs 32 and A229 of SFAS No. 123 (revised
      2004), “Share-Based Payment”. As the Company has not traditionally paid
      compensation through the issuance of equity securities, no impact is expected
      on
      its consolidated financial statements.





In
      October 2005, the FASB issued Staff Position No. FAS 13-1, “Accounting for
      Rental Costs Incurred during a Construction Period”. This position addresses the
      accounting for rental costs associated with operating leases that are incurred
      during a construction period. Management believes that this position has no
      application to the Company.





In
      May
      2005, the FASB issued SFAS No.154, Accounting Changes and Error Corrections
      (“SFAS No. 154”), which replaced Accounting Principles Board Opinion No. 20,
      Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim
      Financial Statements. SFAS No. 154 changes the requirements for the accounting
      for and reporting of a change in accounting principles. It requires
      retrospective application to prior periods’ financial statements of changes in
      accounting principles, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. This statement
      is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The impact on the Company’s operations
      will depend on future accounting pronouncements or changes in accounting
      principles.