CHINA ENERGY TECHNOLOGY CORP., LTD.

Net sales increased by $3,794,566 for the six months ended June 30, 2015 compared to the six months ended June 30, 2014; for the three months ended June 30, 2015 and 2014, net sales were $4,133,875 and $334,630 respectively, the increase mainly due to development of new markets in Sichuan and Hubei provinces. Sales in these new markets accounted for 24% and 16% of total sales respectively for the six months ended June 30, 2015. We also started to sell platform style solar water heating systems to real estate developers for large urban apartment building projects. Products sold in the three months ended June 30, 2015 increased to 21 kinds compared to 5 kinds for the same period in 2014.

Selling expenses decreased from $128,975 for the six months ended in June 30, 2014, to $79,717 for the same period in 2015, and $50,982 for the three months ended in June 30, 2014 to $27,837 for the same period in 2015. This decrease was mainly due to reduction of installation expenses, freight and advertising, of which installation expenses decreased by $19,372, and freight decreased by $19,401 because of reduction of retail sales of vacuum tube solar energy collectors in first quarter of 2015 and part of installation expenses were afforded by resellers from second quarter of 2015.

Current assets as of June 30, 2015 totaled $10,267,982, an increase of 14% compared with December 31, 2014, mainly due to the increase of $1,876,489 of accounts receivable and $2,421,763 of advances to suppliers, respectively. Accounts receivable increased because sales during the period of April to June 2015 increased significantly, cost of goods sold increased correspondingly, in order to meet production demand for materials and inventories, and advances to suppliers increased in the same pace. Because the Company predicted that there would be a dramatic rise in price of raw materials in 2015, the Company made payments to major suppliers in advance based on estimated sales for the year, so as to be able to lock in lower raw materials prices for 2015.

Meanwhile, decrease of our restricted cash and due from related parties as well as other receivables offset the influence of accounts receivable and advances to suppliers. Restricted cash decreased because the majority of bank drafts expired and the deposits were used for payment. Due from related parties decreased as one of the owners of Anhui Solar, Ms. Li, received payments from customers on behalf of the company during the prior year, and most of that amount has been remitted to the company through payments to suppliers as Ms. Li agreed to fully repay the amount she owes to the company by December 31, 2016. Other receivables decreased by $819,271 as loans to an unrelated company were repaid.

Current liabilities as of June 30, 2015 totaled $12,693,397, reflecting an increase of 30% from the December 31, 2014 balance of $9,773,547. This increase was due primarily to an increase in our accounts payable, short term loans, taxes payable and other current liabilities, which was partly offset by notes payable. As of June 30, 2015, a majority of our bank drafts had been expired and $2,094,861 (RMB16, 000,000) of notes with Bengbu Rural Commercial Bank (“Bengbu BRC Bank”) and the Bank of Communications had been repaid upon maturity, therefore our notes payable decreased observably. On the other hand, taxes payable increased by $850,433 as sales increased by $3,794,566, and tax payable-output VAT increased accordingly. Other current liabilities increased from $639,950 to $1,311,691, which was mainly caused by an increase in staff borrowings.

At the same time, we had to continue increasing short term loans from banks to balance capital flows and satisfy production requirements. All of our short term loans from banks are required to be used for routine business activities according to bank agreement restrictions. Our agreement with the Xuehua branch of Bengbu BRC Bank requires that our loan of $1,612,903 (RMB10, 000,000) be used for the purchase of production materials only, and not for property, plant and equipment purchases, equity investments or any other purpose. Our agreements with the Bengbu branch of Shanghai Pudong Bank and Huishang Bank require that our loans of $1,612,903 (RMB8, 000,000) and $806,452 (RMB5, 000,000), respectively, be used for the purchase of production materials only.