UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended ~~March 31,~~June 30, 2009

¨	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: 000-50155

NF Energy Saving Corporation of America

(Exact name of registrant as specified in its charter)

Delaware		02-0563302
(State or Other Jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

21-Jia Bei Si Dong Road, Tie Xi Qu

Shenyang, P. R. China 110021

(Address of Principal Executive Offices)

(8624) 2560-9750

(Registrant’s Telephone Number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. xYes o¨No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period ~~hat~~that the registrant was required to submit and post such files).

o¨Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	o	¨	Accelerated filer	o¨
Non-accelerated filer	o	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

o¨Yes x No

As of ~~May 11,~~July 31, 2009, the registrant had 39,872,704 shares of common stock, $0.001 par value, issued and outstanding.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations " as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements	4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2225

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3136

Item 4T. Controls and Procedures	3136

PART II – OTHER INFOMRATION

Item 1. Legal Proceedings	3237

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3237

Item 3. Defaults Upon Senior Securities	3237

Item 4. Submission of Matters to a Vote of Security Holders	3237

Item 5. Other Information	3337

Item 6. Exhibits	3338

Signatures	3439

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

NF ENERGY SAVING CORPORATION OF AMERICA

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

		Page

Condensed Consolidated Balance Sheets as of ~~March 31,~~June 30, 2009 and December 31, 2008		5

Condensed Consolidated Statements of Operations And Comprehensive Income for the Three and Six Months ended ~~March 31,~~June 30, 2009 and 2008		6

Condensed Consolidated Statements of Cash Flows for the ~~Three~~Six Months ended ~~March 31,~~June 30, 2009 and 2008		7

Condensed Consolidated Statement of Stockholders’ Equity for the ~~Three~~Six Months ended ~~March 31,~~June 30, 2009		8

Notes to Condensed Consolidated Financial Statements		109 to 21
	24

NF ENERGY SAVING CORPORATION OF AMERICA

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF ~~MARCH 31,~~JUNE 30, 2009 AND DECEMBER 31, 2008

(Currency expressed in United States Dollars (“US$”), except for number of shares)

	March 31, 2009		December 31, 2008		June 30, 2009		December 31, 2008
	(Unaudited)		(Audited)		(Unaudited)		(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,441,394	$	2,252,771	$	1,474,070	$	2,252,771
Accounts receivable, trade		10,149,516		8,907,497		9,459,688		8,907,497
Inventories		2,165,620		1,516,777		837,783		1,516,777
Prepayments and other receivables		918,952		652,842		916,789		652,842

Total current assets		14,675,482		13,329,887		12,688,330		13,329,887

Plant and equipment, net		2,322,312		2,393,287		2,426,671		2,393,287
Construction in progress		2,788,081		2,328,839		6,307,824		2,328,839

TOTAL ASSETS	$	19,785,875	$	18,052,013	$	21,422,825	$	18,052,013

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, trade	$	3,287,060	$	2,043,944	$	2,704,799	$	2,043,944
Customer deposits		124,038		120,836		128,295		120,836
Value added tax payable		52,868		5,886		276,767		5,886
Income tax payable						181,840		—
Current portion of obligation under finance lease						154,867		—
Other payables and accrued liabilities		318,849		333,838		272,026		333,838

Total current liabilities		3,782,815		2,504,504		3,718,594		2,504,504

Long-term liabilities:
Obligation under finance lease						516,533		—

TOTAL LIABILITIES						4,235,127		2,504,504

Commitments and contingencies

Stockholders’ equity:
Common stock, $0.001 par value; 50,000,000 shares authorized; 39,872,704 and 39,872,704 shares issued and outstanding as of March 31, 2009 and December 31, 2008		39,872		39,872
Common stock, $0.001 par value; 50,000,000 shares authorized; 39,872,704 and 39,872,704 shares issued and outstanding as of June 30, 2009 and December 31, 2008						39,872		39,872
Additional paid-in capital		7,706,587		7,706,587		8,055,587		7,706,587
Statutory reserve		917,165		917,165		917,165		917,165
Accumulated other comprehensive income		1,302,211		1,288,573		1,328,901		1,288,573
Retained earnings		6,037,225		5,595,312		6,846,173		5,595,312

Total stockholders’ equity		16,003,060		15,547,509		17,187,698		15,547,509

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	19,785,875	$	18,052,013	$	21,422,825	$	18,052,013

Liaoning Nengfa Weiye Energy Technology Co. Ltd. (“Nengfa Energy”) (formerly Neng Fa Weiye Pipe Network Construction and Operation Co., Ltd.) is a wholly-owned subsidiary of the Company. Nengfa Energy is a ~~heavy~~energy-saving valve and intelligent flow control system manufacturer and ~~involves~~involved in the production of a variety of flow control components, including industrial valve, ~~components~~hydraulic system and electric control system which are widely used in water supply and sewage ~~systems,~~system, coal and gas fields, power generation stations, ~~and~~ petroleum and chemical industries. All the customers are located in the PRC.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

NOTE－3

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

l	Use of estimates

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the period reported. Actual results may differ from these estimates.

l	Basis of consolidation

The condensed consolidated financial statements include the financial statements of NFES and its subsidiaries, Nengfa Energy and Sales Company.

All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

l	Cash and cash equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of ~~three~~six months or less as of the purchase date of such investments.

l	Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. As of ~~March 31,~~June 30, 2009, the Company has determined that no allowance for doubtful accounts is necessary.

l	Inventories

Inventories are stated at the lower of cost or market (net realizable value), cost being determined on a weighted average method. Costs include material, labor and manufacturing overhead costs. The Company quarterly reviews historical sales activity ~~quarterly~~ to determine excess, slow moving items and potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. The Company provides inventory allowances based on excess and obsolete inventories determined principally by customer demand. As of ~~March 31,~~June 30, 2009, the Company did not record an allowance for obsolete inventories, nor have there been any write-offs.

l	Plant and equipment, net

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

	Depreciable life	Residual value
Plant and machinery	3 – 20 years	5%	5	%
Furniture, fixture and equipment	5 – 8 years	5%	5	%

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

Expenditure for repairs and maintenance is expensed as incurred. When assets have ~~been~~ retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

l	Construction in progress

Construction in progress is stated at cost, which includes the cost of construction, acquisition of plant and equipment and other direct costs attributable to the construction. Construction in progress is not depreciated until such time as the assets are completed and put into operational use. ~~No capitalized interest~~

l	Finance leases

Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is ~~incurred~~met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s normal depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the ~~period of construction.~~lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with APB Opinion No. 21, “Interest on Receivables and Payables”.

l	Impairment of long-lived assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment held and used by the Company and construction in progress are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to estimated discounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment as of ~~March 31,~~June 30, 2009.

l	Revenue recognition

In accordance with the SEC’s Staff Accounting Bulletin No. 104, “Revenue Recognition”, the Company recognizes revenue when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

(a)	Sale of products

The Company derives revenues from the sale of self-manufactured products relating to industrial valves components and wind-energy equipments. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

The Company recognizes revenue from the sale of products upon delivery to the customers and the transfer of title and risk of loss. The Company experienced no product returns and has recorded no reserve for sales returns for the ~~three~~six months ended ~~March 31,~~June 30, 2009 and 2008.

(b)	Service revenue

Service revenue is primarily derived from energy-saving technical services that are not an element of an arrangement for the sale of products. These services are generally billed on a time-cost plus basis. Revenue is recognized, net of business taxes when service is rendered and accepted by the customers.

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

(c)	Project revenue

The Company applies the percentage-of-completion method under SOP 81-1 “Accounting for Performance of Construction-Type and Production-Type Contracts”, to recognize revenues for energy-saving re-engineering projects that require significant modification or customization or installation subject to the customers. The Company records a provision in those instances in which the Company believes a contract will probably generate a net loss and the Company can reasonably estimate this loss. If the Company cannot reasonably estimate the loss, the Company limits the amount of revenue that the Company recognizes to the costs the Company has incurred, until the Company can estimate the total loss. Advance payments from customers and amounts billed to clients in excess of revenue recognized are recorded as receipt in advance. For the ~~three~~six months ended ~~March 31,~~June 30, 2009, the Company did not recognize any project revenue.

(d)	Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

l	Income taxes

The Company accounts for income tax using SFAS No. 109 “Accounting for Income Taxes”, which requires the asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred income taxes are provided for the estimated future tax effects attributable to temporary differences between financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected future tax benefits from loss carry-forwards and provisions, if any. Deferred tax assets and liabilities are measured using the enacted tax rates expected in the years of recovery or reversal and the effect from a change in tax rates is recognized in the statement of operations and comprehensive (loss) income in the period of enactment. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

The Company also adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ~~FIN 48~~This Interpretation also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. In accordance with FIN 48, the Company also adopted the policy of recognizing interest and penalties, if any, related to unrecognized tax positions as income tax expense. For the ~~three~~six months ended ~~March 31,~~June 30, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions. As of ~~March 31,~~June 30, 2009, the Company did not have any significant unrecognized uncertain tax positions.

l	~~Net income per share~~

~~The~~ For the period ended June 30, 2009, the Company ~~calculates net income per share in accordance with SFAS No. 128,~~ ~~“Earnings per Share.”~~ ~~Basic income per share is computed by dividing the net income~~filed and cleared 2008 PRC tax return by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

l	~~Comprehensive income~~

~~SFAS No. 130,~~ ~~“Reporting Comprehensive Income”~~, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax ~~expense or benefit.~~authority.

l	Product warranty

Under the terms of the contracts, the Company will provide a product warranty to its customers for a period of twelve months, free of charge and then at the discretion of the customers, enter into maintenance contracts. The Company has not experienced any material returns where it was under obligation to honor this standard warranty provision. As such, no reserve for product warranty has been provided in the result of operations for the ~~three~~six months ended ~~March 31,~~June 30, 2009.

l	Stock based compensation

The Company adopts SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)") using the fair value method. Under SFAS No. 123(R), the stock-based compensation is measured using the Black-Scholes Option-Pricing model on the date of grant.

For non-employee stock-based compensation, the Company adopts EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees.” Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, which ever is more readily determinable in accordance with SFAS 123(R).

l	Foreign currencies translation

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the condensed consolidated statement of operations.

The reporting currency of the Company is the United States dollar ("US$"). The Company's subsidiaries in the PRC, Nengfa Energy and Sales Company maintain their books and records in its local currency, the Renminbi Yuan ("RMB"), which is functional currency as being the primary currency of the economic environment in which these entities operate.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with SFAS No. 52, “Foreign Currency Translation”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective period:

Three months ended March 31,
2009 2008
Period end RMB:US$ exchange rate 6.8456 7.0222
Average monthly RMB:US$ exchange rate 6.8466 7.1757

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

l	~~Segment reporting~~

~~SFAS No. 131~~ ~~“Disclosures about Segments of an Enterprise and Related Information”~~ establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in the financial statements. The Company currently operates in two reportable business segments in Tieling City, Liaoning Province, the PRC: Manufacturing business and Energy-saving related business.

	2009		2008
Period-end RMB:US$1 exchange rate		6.8432		7.0726
Average monthly RMB:US$1 exchange rate		6.8448		6.8718

l	Fair value ~~of financial instruments~~measurement

~~The~~Effective January 1, 2008, the Company ~~values its~~adopted SFAS No. 157, “Fair Value Measurements” (FAS 157), for all financial instruments ~~as required by~~and non-financial instruments accounted for at fair value on a recurring basis. Effective January 1, 2009, the Company adopted SFAS ~~No. 107,~~157 for all non-financial instruments accounted for at fair value on a non-recurring basis. SFAS 157 establishes a new framework for measuring fair value and expands related disclosures. Effective April 1, 2009, the Company adopted FASB FSP FAS 157-4, ~~“Disclosures about~~Determining Fair Value When the Volume and Level of ~~Financial Instruments”~~Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. ~~The estimated fair value amounts have been determined by~~Adoption of the ~~Company, using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of amounts that~~FSP had an insignificant effect on the ~~Company could realize in a current market exchange.~~Company’s financial statements.

~~The Company’s financial instruments primarily include cash~~FAS 157 establishes a new framework for measuring fair value and ~~cash equivalents, trade accounts receivable, prepayments~~expands related disclosures. Broadly, FAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. FAS 157 establishes a three-level valuation hierarchy based upon observable and non-observable inputs. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other ~~receivables, accounts payable, customer deposits, value added tax payable~~than quoted prices in active markets that are either directly or indirectly observable; and ~~other payables and accrued liabilities.~~Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

AsFor financial assets and liabilities, fair value is the price the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the ~~balance sheet date,~~identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the ~~estimated fair values~~absence of ~~financial instruments were not materially different from their carrying values as presented due to short maturities of these instruments.~~such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

l	Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and ~~does~~do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

~~In December 2007, the FASB issued a revision to SFAS No. 141,~~ ~~“Business Combinations”~~ (“SFAS No. 141(R)”). SFAS No. 141(R) revises the accounting for business combinations. Under SFAS No. 141(R), an acquiring entity will be required to recognize the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Specifically, SFAS No. 141(R) will change the accounting for acquisition costs, noncontrolling interests, acquired contingent liabilities, restructuring costs associated with a combination and certain tax-related items, as well as require additional disclosures. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is required to apply SFAS No. 141(R) to any acquisitions in 2009 or thereafter.

~~In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51~~” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for noncontrolling interests in subsidiaries. This statement requires the reporting of all noncontrolling interests as a separate component of stockholders’ equity, the reporting of consolidated net income (loss) as the amount attributable to both the parent and the noncontrolling interests and the separate disclosure of net income (loss) attributable to the parent and to the noncontrolling interests. In addition, this statement provides accounting and reporting guidance related to changes in noncontrolling ownership interests. Other than the reporting requirements described above which require retrospective application, the provisions of SFAS No. 160 are to be applied prospectively in the first annual reporting period beginning on or after December 15, 2008. The Company’s adoption of SFAS No. 160 on January 1, 2009 did not have an impact on its consolidated results of operations or financial position.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

In ~~March 2008,~~April 2009, the Financial Accounting Standards Board (“FASB”) issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” and Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting.” (“FAS 107”) This FSP requires publicly-traded entities to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by FAS 107. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted FSP FAS 107-1 and APB 28-1 for the period ending June 30, 2009.

In May 2009, the FASB issued SFAS No. ~~161,~~165, “Subsequent Events” (“FAS 165”), which establishes general standards of accounting for, and requires disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted the provisions of FAS 165 for the quarter ended June 30, 2009. The adoption of FAS 165 did not have a material effect on the consolidated financial statements.

In June 2009, the FASB issued SFAS No. 166, “~~Disclosures About Derivative Instruments~~Accounting for Transfers of Financial Assets, an amendment to SFAS No. 140” (“FAS 166”). FAS 166 eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and ~~Hedging Activities - An Amendment~~requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. FAS 166 is effective for fiscal years beginning after November 15, 2009. The Company will adopt FAS 166 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“FAS 167”). The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. FAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and for interim periods within that first annual reporting period. The Company will adopt FAS 167 in fiscal 2010 and is evaluating the impact it will have on the consolidated results of the Company.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification ™ and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. ~~133 .”~~162” (“FAS 168”). FAS 168 replaces SFAS No. ~~161~~162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the ~~disclosure requirements for derivative instruments~~“FASB Accounting Standard Codification ™ ” (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States. All guidance contained in the Codification carries an equal level of authority. On the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and ~~for hedging activities with~~reporting standards. All other nongrandfathered non-SEC accounting literature not included in the intent to provide financial statement users with an enhanced understanding of the entity’s use of derivative instruments, the accounting of derivative instruments and related hedged items under SFAS No. 133 and its related interpretations, and the effects of these instruments on the entity’s financial position, financial performance and cash flows. SFAS No. 161Codification will become nonauthoritative. FAS 168 is effective for financial statements issued for ~~fiscal years beginning~~interim and annual periods ending after ~~November~~September 15, ~~2008.~~2009. The ~~Company’s adoption on January 1, 2009 did~~Company has evaluated this new statement, and has determined that it will not have a ~~material~~significant impact on ~~its consolidated~~the determination or reporting of the financial ~~statement disclosures.~~results.

~~In December 2008, FASB issued Staff Position (“FSP”) No. 140-4 and FIN 46(R)-8, “Disclosures by Public Entities about Transfers of Financial Assets and Interests in Variable Interest Entities”.~~ ~~The purpose of this FSP is to promptly increase disclosures by public entities and enterprises until the pending amendments to SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”,~~ ~~(“SFAS No. 140”) and FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities”~~, (“FIN 46(R)”) are finalized and approved by the FASB. The FSP is effective for reporting periods (interim and annual) ending after December 15, 2008. This adoption did not have any impact on the Company’s consolidated financial statements.

NOTE－4

~~ACCOUNTS RECEIVABLE, TRADE~~

The majority of the Company’s sales are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, management has determined that no allowance for doubtful accounts is required for the three months ended March 31, 2009.

~~NOTE~~－5

INVENTORIES

Inventories consisted of the following:

March 31, 2009 December 31, 2008
(Unaudited) (Audited)

Raw materials $ 914,624 $ 720,460
Work-in-process 646,063 569,450
Finished goods 604,933 226,867
$ 2,165,620 $ 1,516,777

~~For the three months ended March 31, 2009 and 2008, no allowance for obsolete inventories was recorded by the Company.~~

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

	June 30, 2009		December 31, 2008
	(Unaudited)		(Audited)

Raw materials	$	498,849	$	720,460
Work-in-process		302,319		569,450
Finished goods		36,615		226,867

	$	837,783	$	1,516,777

For the three and six months ended June 30, 2009 and 2008, no allowance for obsolete inventories was recorded by the Company.

NOTE－65

PREPAYMENTS AND OTHER RECEIVABLES

Prepayments and other receivables consisted of the following:

	March 31, 2009		December 31, 2008		June 30, 2009		December 31, 2008
	(Unaudited)		(Audited)		(Unaudited)		(Audited)

Prepayment to vendors for raw materials	$	682,766	$	473,064	$	653,400	$	473,064
Prepayment to equipment vendors		625,386		126,930		38,072		126,930
Prepaid operating expenses		53,312		26,354		4,208		26,354
Other receivables		3,123		26,494		1,965		26,494
Tendering deposit						219,144		—

	$	1,364,587	$	652,842	$	916,789	$	652,842

NOTE－76

PLANT AND EQUIPMENT, NET

Plant and equipment, net, consisted of the following:

	March 31, 2009			December 31, 2008			June 30, 2009			December 31, 2008
	(Unaudited)			(Audited)			(Unaudited)			(Audited)

Plant and machinery	$	3,146,564		$	2,967,425		$	3,324,823		$	2,967,425
Furniture, fixture and equipment		61,305			58,170			61,656			58,170
Foreign translation difference		4,025			181,814			4,359			181,814
		3,211,894			3,207,409			3,390,838			3,207,409
Less: accumulated depreciation		(888,549	)		(778,988	)		(963,084	)		(778,988	)
Less: foreign translation difference		(1,033	)		(35,134	)		(1,083	)		(35,134	)

	$	2,322,312		$	2,393,287
Plant and equipment, net							$	2,426,671		$	2,393,287

Depreciation expenses for the three months ended ~~March 31,~~June 30, 2009 and 2008 were ~~$74,428~~$74,535 and $83,262, respectively.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

Depreciation expenses for the six months ended June 30, 2009 and 2008 were $148,963 and $170,415, respectively.

NOTE－87

CONSTRUCTION IN PROGRESS

Since 2008, the Company was approved by the local government to construct a new manufacturing facility for energy-saving products and equipments in Yingzhou District Industrial Park, Tieling City, Liaoning Province, the PRC. The construction ~~project~~ consists of two phases, ~~where~~whereas the first phase is related to the development of ~~new manufacturing facilities~~critical component on wind electricity and intelligent flow control systems. Another purpose is to increase the production capacity of ~~valves components and~~ energy-saving ~~equipments and it~~valves. It is expected to be fully completed till 2010. ~~Total~~The estimated ~~construction cost~~investment of the first phase in 2009 is approximately $5 ~~million.~~million (not including land use rights of approximately $2 million). As of ~~March 31,~~June 30, 2009, the Company capitalized ~~$2,788,081~~$6,307,824 as construction in progress.

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

NOTE－98

OTHER PAYABLES AND ACCRUED LIABILITIES

Other payables and accrued liabilities consisted of the following:

	March 31, 2009		December 31, 2008		June 30, 2009		December 31, 2008
	(Unaudited)		(Audited)		(Unaudited)		(Audited)

Rent payable	$	7,304	$	40,121	$	18,262	$	40,121
Provision for contingent liability		200,000		200,000		200,000		200,000
Income tax payable		61,556		-
Accrued expenses		22,170		42,719		41,238		42,719
Payable to equipment vendors		15,295		38,196		—		38,196
Other payable		12,524		12,802		12,526		12,802

	$	318,849	$	333,838	$	272,026	$	333,838

NOTE－9

OBLIGATION UNDER FINANCE LEASE

The Company purchased certain equipment under a capital lease arrangement with an effective interest rate of 8.59% per annum, due May 25, 2012 and repayable principal and interest monthly.

The obligation under the finance lease is as follows:

	June 30, 2009

Finance lease	$	671,400
Less: current portion		(154,867	)

Non-current portion	$	516,533

The maturities of the finance lease obligation for the next three years are as follows:

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

Years ending June 30:
2010	$	210,442
2011		293,278
2012		268,839
Total finance leases obligation		772,559
Less: interest		(101,159	)

Present value of net minimum obligation	$	671,400

The Company’s certain equipments are held under finance lease and the related depreciation is included in depreciation expense (see Note 6).

NOTE－10

INCOME TAXES

NFES is ~~incorporated~~registered in the State of Delaware and is subject to the tax laws of United States of America.

As of ~~March 31,~~June 30, 2009, the operation in the United States of America has incurred ~~$336,862~~$1,376,231 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2029, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of ~~$117,902~~$481,681 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

Effective from January 1, 2008, the Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”) is imposed. Under the New CIT Law, Nengfa Energy, as a foreign investment enterprise continues to enjoy the unexpired tax holiday of 50%-reduction on the unified income tax through 2011, subject to a transitional policy. Sales Company is a domestic company which is entitled to the unified statutory income tax rate of 25%.

The Company’s effective income tax rates for the ~~three~~six months ended ~~March 31,~~June 30, 2009 and 2008 were ~~12%~~16.3% and 0%.

NOTE－11

STOCK BASED COMPENSATION

In June 2009, the Company entered into various agreements with Investor Relations (IR) firms, in which the Company agreed to issue the aggregate 450,000 warrants to the IR firms. The warrants have an exercise price of $0.60 per share and become exercisable at the effective date. The warrants expire 5 years after becoming exercisable and all of the warrants have fully vested.

Transactions involving warrants issued to IR firms during the period ended June 30, 2009 are summarized as follows (warrants were not issued to employees):

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

	Warrants outstanding
	Number of warrants		Exercise price range per share		Weighted average exercise price per share		Weighted average grant-date fair value per share

Balance as of December 31, 2008		—	$	—	$	—	$	—

Warrants granted in 2009		450,000		0.60		0.60		0.78
Warrants cancelled		—				—		—
Warrants exercised		—				—		—

Balance as of June 30, 2009		450,000	$	0.60	$	0.60	$	0.78

The Company adopted SFAS No. 123(R), “Share-Based Payment” using the Black-Scholes Option Pricing Model to measure the fair value of warrants on the grant date, with the following weighted average assumptions:

Expected life (in years)	5
Volatility	456.53	%
Risk free interest rate	2.52% - 2.89	%
Dividend yield	0	%
Weighted average fair value	0.78

The Company recognized $349,000 as stock based compensation at their fair values for the six months ended June 30, 2009.

NOTE－12

SEGMENT INFORMATION

The Company’s business units have been aggregated into two reportable segments: ~~Manufacturing~~Heavy manufacturing business and Energy-saving related business. Manufacturing business included the production of valves components and the provision of valve improvement and engineering services. Energy-saving related business included the production of wind-energy equipment, provision of energy-saving related re-engineering and technical services and long-term construction ~~projects.~~project. The Company operates these segments in the PRC and all of the identifiable assets of the Company are located in the PRC during the periods presented.

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the ~~three~~six months ended ~~March 31,~~June 30, 2009 and 2008. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Summarized financial information concerning the Company’s reportable segments is shown in the following table for the three and six months ended ~~March 31,~~June 30, 2009 and 2008:

Three months ended March 31, 2009:	Manufacturing business		Energy-saving related business		Total
							Three months ended June 30, 2009
							Valves manufacturing business		Energy-saving related business		Total

Operating revenues, net:
- Products	$	1,998,293	$	103,533	$	2,101,826	$	4,627,683	$	52	$	4,627,735
- Services		318,006		-		318,006		590,969		—		590,969
- Projects		-		-		-
Total operating revenues		2,316,299		103,533		2,419,832		5,218,652		52		5,218,704
Cost of revenues		1,661,637		78,733		1,740,370		3,693,886		39		3,693,925

Gross profit	$	654,662	$	24,800	$	679,462	$	1,524,766	$	13	$	1,524,779

Three months ended March 31, 2008: Manufacturing
business
Energy-saving
related business
Total

Operating revenues, net:
- Products $ 2,243,053 $ - $ 2,243,053
- Services - 331,381 331,381
- Projects - 290,523 290,523
Total operating revenues 2,243,053 621,904 2,864,957
Cost of revenues 1,660,147 449,290 2,109,437

Gross profit $ 582,906 $ 172,614 $ 755,520

      Three months ended March 31, 2008    March 31, 2008

Customers
      Revenues
Percentage
of revenues

Accounts
receivable, trade

Customer A $ 2,177,344 76% $ 2,694,260
Customer B 290,523 10% 322,313

Total: $ 2,467,867 86% Total: $ 3,016,573

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE ~~THREE~~SIX MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

~~(a)~~(b) Major vendors

For the three and six months ended ~~March 31,~~June 30, 2009 and 2008, vendors who account for 10% or more of purchases and their outstanding balances as at period-end dates, are presented as follows:

      Three months ended March 31, 2009    March 31, 2009
Vendors       Purchases
Percentage of
purchases
   Accounts payable

Vendor A $ 541,049 30% $ 817,904
Vendor C 524,216 29% 524,292
Vendor D 252,169 14% 252,205

Total: $ 1,317,434 73% Total: $ 1,594,401

	Three months ended June 30, 2009						June 30, 2009
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor B	$	426,964		17	%		$	348,160
Vendor E		543,491		22	%			250,555

Total:	$	970,455		39	%	Total:	$	598,715

	Six months ended June 30, 2009						June 30, 2009
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor B	$	968,013		23	%		$	348,160
Vendor D		530,264		13	%			121,292
Vendor E		543,491		13	%			250,555

Total:	$	2,041,768		49	%	Total:	$	720,007

		Three months ended March 31, 2008				March 31, 2008		Three months ended June 30, 2008						June 30, 2008
Vendors		Purchases		Percentage of purchases		Accounts payable		Purchases		Percentage of purchases				Accounts payable

Vendor A		$	151,090	33%		$	-
Vendor B			100,664	22%			-	$	240,117		11	%		$	245,498
Vendor C									250,443		11	%			—

	Total:	$	251,754	55%	Total:	$	-
Total:								$	490,560		22	%	Total:	$	245,498

	Six months ended June 30, 2008						June 30, 2008
Vendors	Purchases		Percentage of purchases				Accounts payable

Vendor A	$	730,197		17	%		$	—
Vendor B		1,402,461		32	%			245,498

Total:	$	2,132,658		49	%	Total:	$	245,498

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support such receivables.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

(d) Exchange rate risk

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in RMB and a significant portion of the assets and liabilities are denominated in RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and RMB. If RMB depreciates against US$, the value of RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

~~(d)~~(e) Economic and political risks

The Company's operations are conducted in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Company's operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.

NOTE－1314

COMMITMENTS AND CONTINGENCIES

(a)	Operating lease commitments

The Company leased an office premise under a non-cancelable operating lease agreement for a renewal period of one year, due February 9, 2010. The annual lease payment is ~~$43,824~~$43,829 (RMB300,000).

(b)	Capital commitments

Starting from 2008, the local government has approved the Company to establish a new manufacturing facility for energy-saving products and equipments in Yingzhou District Industrial Park, Tieling City, Liaoning Province, the PRC. The construction consists of two phases, ~~where~~whereas the first phase is related to the development of ~~new manufacturing facilities~~critical component on wind electricity and intelligent flow control systems. Another purpose is to increase the production capacity of ~~valves components and~~ energy-saving ~~equipments and it~~valves. It is expected to be fully completed till 2010. ~~Total~~The estimated ~~construction cost~~investment of the first phase in 2009 is approximately $5 ~~million.~~million (not including land use rights of approximately $2 million).

As of ~~March 31,~~June 30, 2009, the Company incurred approximately ~~$2.7~~$6 million and recorded as construction in ~~progress. Hence the aggregate~~progress with no significant contingent payments related to the third party ~~contractors and the addition of new plants and equipments are approximately $3 million.~~contractors.

NF ENERGY SAVING CORPORATION OF AMERICA

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

(c)	Litigation

On May 21, 2007, a civil complaint Robert Dawley vs NF Energy Saving Corp. of America, ~~et al.~~etal. was filed in the United States District Court, Middle District of Florida, Orlando, Civil No. 6:07-cv-872-Orl-18DAB. The complaint accuses the defendants of breaching a contract for payment of money that was signed by Sam Winer, former Chief Executive Officer, before the commencement of the ~~Company’s~~company’s reverse merger with the current subsidiary. After being initially dismissed by the Court, the action was authorized to proceed on November 16, 2007. The trial was held in the United States District Court, Middle District of Florida, Orlando on October 16, 2008. The District Court issued a ~~judgment~~Judgment on December 11, 2008 awarding the plaintiff the sum of ~~$400,000.00~~$400,000 against the ~~Company,~~company, plus prejudgment interest in the amount of ~~$132,821.92,~~$132,822, with continuing interest of ~~$131.51~~$132 per day on the $400,000 obligation until it is paid. The Court further adjudged that the plaintiff shall surrender his stock upon payment of the ~~$400,000.00.~~$400,000. In the event the plaintiff fails to surrender his stock after payment, the ~~Company~~company may cancel the stock. Any payments or collection under the ~~judgment~~Judgment shall be credited first to interest.

~~NF ENERGY SAVING CORPORATION OF AMERICA~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2009~~

~~(Currency expressed in United States Dollars (“US$”))~~

~~(Unaudited)~~

On January 6, 2009, the Company filed a notice of appeal 09-10140-B in the United States of Court of Appeals for the 11th11th Circuit from the District Court’s judgment. The Company has engaged an attorney to prosecute its appeal of the above judgment. The ~~parties currently are briefing the appeal. The~~ Company has also accrued $200,000 for this contingent liability to the statement of operation in 2008. The parties have completed briefing the appeal and are waiting for the court’s decision on the appeal. At this point, the Company does not believe that the judgment would have a material impact on the Company.

2124

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

GENERAL DESCRIPTION OF BUSINESS

As used herein the terms "we", "us", "our," the “Registrant,” “NFES” and the "Company" means, NF Energy Saving Corporation of America, a Delaware corporation, formerly known as Diagnostic Corporation of America, Global Broadcast Group, Inc., and Galli Process, Inc. These terms also refer to our subsidiary corporation, Liaoning Nengfa Weiye Energy Technology Corporation Ltd. (“Nengfa Energy”), formerly known as Liaoning Nengfa Weiye Pipe Network Construction and Operation Co. Ltd., a corporation organized and existing under the laws of the Peoples’ Republic of China (“Neng Fa”) acquired in November 2006.

NF Energy Saving Corporation of America was incorporated under the laws of the State of Delaware in the name of Galli Process, Inc. on October 31, 2000 for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship. On December 31, 2001, Galli Process, Inc. became a majority owned subsidiary of City View TV, Inc., a Florida corporation (“City View”). On January 31, 2002, Galli Process, Inc. changed its name to Global Broadcast Group, Inc. On March 1, 2002, City View merged into Global Broadcast Group, Inc., which was the surviving entity. On November 3, 2004, the Company changed its name to Diagnostic Corporation of America. On March 15, 2007, we changed our name to NF Energy Saving Corporation of America to more accurately reflect our business after a stock exchange transaction with Neng Fa. Our principal place of business is 21-Jia Bei Si Dong Road, Tie Xi Qu, Shenyang, P. R. China 110021. Our telephone number is (8624) 2560-9750.

On November 15, 2006, we executed a Plan of Exchange ("Plan of Exchange"), between and among us, Neng Fa, the shareholders of Neng Fa (the "Neng Fa Shareholders") and Gang Li, our Chairman and Chief Executive Officer ("Mr. Li").

Pursuant to and at the closing of the Plan of Exchange, which occurred on November 30, 2006, we issued the Neng Fa Shareholders 12,000,000 shares of our common stock, or 89.4% of our then outstanding common stock, in exchange for all of the shares of capital stock of Neng Fa owned by the Neng Fa shareholders. Immediately upon the closing, Neng Fa became our 100% owned subsidiary, and we ceased all of our current remaining operations and adopted and implemented the business plan of Neng Fa.

On September 5, 2007 we established a new sales company “Liaoning Nengfa Weiye Tie Fa Sales Co., Ltd” (“Sales Company”), a limited liability corporation organized and existing under the laws of the Peoples’ Republic of China. The sales company is a subsidiary 99% owned by ~~Neng Fa.~~NF Energy. The sales company ~~will market~~engaged in the sales and ~~sell the Company’s valve~~marketing of valves components and products in ~~China.~~the PRC.

On January 31, 2008 to better reflect our energy technology business we changed the name of our 100% own subsidiary “Liaoning Nengfa Weiye Pipe Network Construction and Operation Co. Ltd” to “Liaoning Nengfa Weiye Energy Technology Company Ltd.” (Nengfa Energy). Nengfa Energy’s area of business include research and development, processing , manufacturing, and marketing and distribution of energy saving flow control equipment; manufacturing, marketing and distribution of energy equipment, wind power equipment and fittings; energy saving technical reconstruction; and energy saving technology consulting services.

Nengfa Energy specializes in energy technology business. We provide energy saving technology consulting, optimization design services, energy saving reconstruction of pipeline networks and contractual energy management services for China’s electric power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries. We are also engaged in the manufacturing and sales of the energy-saving flow control equipment. At present, our valve business holds a leading position in China. Our company has the Det Norske Veritas Management System Certificate that certifies our products conform to the Management System Standard ISO9001:2000. We have been a member of Chicago Climate Exchange since 2006. In 2007 Nengfa Energy received contracts for three sections of the prominent project “Redirect the water from the Rivers in the South to the North Middle Section Jingshi Section Water Supply Engineering Project”. This project was completed and passed inspection in 2008. In 2008 our Company also received flow control equipment contracts from seven cities in Liaoning Province for their large water supply system.

2225

Our main development directions in the future include the expansion of our capabilities for technology consulting and production of equipment and pipe ~~networks~~network for building energy efficient infrastructures for municipalities, to provide comprehensive technology solutions for regional energy conservation and emission reduction, and to conduct research and development and the manufacturing of equipment and fittings for wind power plants.

FORWARD LOOKING STATEMENTS

Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Consolidated Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion ~~and acquisition~~ strategy, our ability to obtain projects in the energy savings segment, our ability to achieve operating efficiencies, our dependence on ~~network infrastructure, capacity, telecommunications carriers~~a limited number of customers and ~~other~~ suppliers, government policies and incentives, industry ~~pricing and~~ technology trends, ~~evolving industry~~and standards, ~~domestic~~taxation relief and ~~international~~reductions and other regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop, manufacture and deliver our products on a timely basis and in the prescribed condition; 2) market acceptance of our products and services and our ability to compete effectively with other companies in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability to retain our key executives.

CRITICAL ACCOUNTING POLICIES

An appreciation of our critical accounting policies is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. We applied our critical accounting policies and estimation methods consistently in all periods presented.

2326

Revenue recognition

~~(e)~~

(a) Sale of products

The Company derives revenues from the sale of self-manufactured products relating to industrial valves components and wind-energy ~~equipment.~~critical equipments. The Company records its revenues, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on the majority of the products at the rate of 17% on the invoiced value of sales.

~~(f)~~

(b) Service revenue

~~(g)~~

~~(h)~~

(d) Interest income

Interest income is recognized on a time apportionment basis, taking into account the principal amounts outstanding and the interest rates applicable.

Accounts receivable

Inventories

Plant and equipment, net

	Depreciable life	Residual value
Plant and machinery	3 – 20 years	5%	5	%
Furniture, fixture and equipment	5 – 8 years	5%	5	%

Finance leases

Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s normal depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with APB Opinion No. 21, “Interest on Receivables and Payables”.

Stock based compensation

For non-employee stock-based compensation, the Company adopts EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees.” Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services on the grant date, whichever is more readily determinable in accordance with SFAS 123(R).

Income Taxes

The Company also adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. In accordance with FIN 48, the Company also adopted the policy of recognizing interest and penalties, if any, related to unrecognized tax positions as income tax expense. For the ~~three~~six months ended ~~March 31,~~June 30, 2009 and 2008, the Company did not have any interest and penalties associated with tax positions. As of ~~March 31,~~June 30, 2009, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts major businesses in the PRC and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority. For the period ended June 30, 2009, the Company filed and cleared 2008 PRC tax return by the tax authority.

Foreign currencies translation

Translation of amounts from RMB into US$1 has been made at the following exchange rates for the respective period:

	2009		2008
Period-end RMB:US$1 exchange rate		6.8432		7.0726
Average monthly RMB:US$1 exchange rate		6.8448		6.8718

RESULTS OF OPERATIONS

~~Three Months Ended March 31,~~FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 ~~compared to the three months ended March 31,~~AND 2008

The following discussion should be read in conjunction with the financial statements included in this report and is qualified in its entirety by the foregoing.

Total revenues were ~~$2,419,832~~$5,218,704 and ~~$2,864,957~~$7,638,536 for the three and six months ended ~~March 31,~~June 30, 2009, respectively, as compared to $4,296,527 and ~~2008, respectively.~~$7,161,484 for the corresponding periods in 2008. Total revenues ~~decreased $445,125,~~increased by $922,177 and $477,052, a ~~16% decrease~~21% and 7% increase, for the three and six months ended ~~March 31,~~June 30, 2009, as compared to total revenues for the three and six months ended ~~March 31,~~June 30, 2008.

In 2008, the Chinese government announced more flexible monetary policies and financial policies. The Chinese government will invest close to 4 trillion RMB to stimulate domestic demand and has announced ten policies to promote growth. The Chinese government plans to strongly expand policies for domestic projects on civil engineering, basic infrastructure, constructions for environmental protection and reconstruction to promote economic stability and growth. The Chinese government’s policies to stimulate the Chinese economy by its spending on basic infrastructure and constructions for environmental protection should ~~greatly~~ benefit Nengfa Energy’s energy saving business which fitswithin some of the government stimulus policies on building energy saving infrastructure for municipalities and industrial companies. WeAs a result, we expect ~~significant~~ growth for all areas of our business in 2009 and ~~2010.~~2010, although there can be no assurance that we will be successful in our energy savings project line of business.

Product revenues are derived principally from the sale of self-manufactured products relating to industrial valves components and wind-energy ~~equipment.~~equipments. Product revenues were ~~$2,101,826~~$4,627,735 and ~~$2,243,053,~~$6,729,561, or ~~86.86%~~88.68% and ~~78.29%~~88.10% of total revenues for the three and six months ended ~~March 31,~~June 30, 2009, as compared to $3,036,313 and ~~2008, respectively.~~$5,279,366, or 70.67% and 73.72% of total revenues for both the corresponding periods in 2008. Product revenues increased by $1,591,422, a 52% increase, to $4,627,735 for the three months ended ~~March 31,~~June 30, 2009 ~~decreased $141,227,~~and increased by $1,450,195, a ~~6% decrease,~~27% increase, to $6,729,561 for the six months ended June 30, 2009 as compared to the ~~product revenues for the~~corresponding three ~~months ended March 31,~~and six month periods in 2008. The Company has several very large contracts which require a longer period of time to produce the valves and flow equipment needed for such projects. We expect that the revenues will be realized in future periods when these large contracts are completed.

Service revenues are derived principally from ~~energy-saving~~ technical services that are not an element of an arrangement for the sale of products. These services are generally billed on a time-cost plus basis. Revenue is recognized, net of business taxes when service is rendered and accepted by the customers. Service revenues were ~~$318,006~~$590,969 and ~~$331,381,~~$908,975, or ~~13.14%~~11.32% and ~~11.57%~~11.90% of total revenues for the three and six months ended ~~March 31,~~June 30, 2009, as compared to $ 837,555 and ~~2008, respectively.~~$1,168,936, or 19.49% and 16.32% of total revenues for both the corresponding periods in 2008. Service revenues decreased by $246,586, a 29% decrease, to $590,969 for the three months ended ~~March 31,~~June 30, 2009 and decreased ~~$13,375,~~by $259,961, a 4%22% decrease, to 908,975 for the six months ended June 30, 2009 as compared to the ~~service revenues for the~~corresponding three ~~months ended March 31,~~and six month periods in 2008.

Project revenues are derived principally from for energy-saving re-engineering projects that require significant modification or customization or installation subject to the customers. The Company applies the percentage-of-completion method to recognize project revenues. There ~~were~~was no project ~~revenues~~revenue for the three and six months ended ~~March 31, 2009 and the project~~June 30, 2009. Project revenues were ~~$290,523, 10.14%~~$422,659 and $713,182, or $9.84% and 9.96% of total revenues for the three and six months ended ~~March 31,~~June 30, 2008. Project revenues decreased by $422,659, a 100% decrease, to $0 for the three months ended June 30, 2009 and decreased by $713,182, a 100% decrease, to $0 for the six months ended June 30, 2009 as compared to the corresponding three and six month periods in 2008.

The Company is conducting feasibility ~~studies~~study and is in the process of negotiating several projects. There would be no assurance that the Company will win contracts for any of the projects on which it is studying or negotiating. Project revenues, if any, will be reported in the future periods. ..

Cost of product revenues consists primarily of material costs, direct labor, depreciation and manufacturing overheads, which are directly attributable to the manufacture of products and the rendering of services. Total cost of revenues was ~~$ 1,740,370~~$3,693,925 and ~~$2,109,437, or 71.92% and 73.63% of total revenues~~$5,434,295 for the three and six months ended ~~March 31,~~June 30, 2009, respectively, as compared to $3,045,518 and ~~2008, respectively.~~$5,154,955 for the corresponding three and six month periods in 2008. The total cost of revenues ~~decreased~~increased by ~~$369,067 (17%~~$648,407 (21%) and $279,340 (5%) for the three and six months ended ~~March 31,~~June 30, 2009, as compared to ~~the~~ total cost of revenues for the corresponding three and six months ~~ended March 31,~~periods in 2008. The ~~decrease~~increase in total cost of revenues was due to the ~~decrease~~increase in operating revenues during this period.

The overall gross profit for the Company was ~~$679,462~~$1,524,779 (29.22%) and ~~$755,520, or 28.08%~~$2,204,241 (28.86%) for the three and ~~26.37% of total revenues~~six months ended June 30, 2009 respectively. Profit margin increased by $273,770, a 21.88% increase, to $1,524,779, for the three months ended ~~March 31,~~June 30, 2009 and ~~2008, respectively. The profit margin decreased~~increased by ~~$76,058~~$197,712, a 9.85 % increase, to $2,204,241 for the ~~three~~six months ended March 31, 2009 compared to the three months ended March 31, 2008. However, due to reduced cost of revenues, the overall gross profit margin has increased by 1.71% to 28.08% for the three months ended March 31,June 30, 2009 as compared to the ~~gross profit margin of 26.37% for the~~corresponding three and six month ~~ended March 31,~~periods in 2008.

Total cost of products was ~~$1,565,874~~$3,250,140 and ~~$1,660,147,~~$4,816,014, or ~~89.97%~~87.99% and ~~78.7%~~88.62% of total cost of revenues, for the three and six months ended June 30, 2009 respectively as compared to $2,092,071 and $3,752,218, or 68.69% and 72.79% of total cost of revenues, for the corresponding three and six month periods in 2008. The cost of products increased by $1,158,069 to $3,250,140, an increase of 55% of total cost of revenues, for the three months ended ~~March 31,~~June 30, 2009, ~~and 2008, respectively.~~as compared to the corresponding period in 2008. The cost of products ~~decreased~~increased by ~~$94,273 (6%)~~$1,063,796 to $4,816,014, an increase of 28% of total costs of revenues, for the ~~three~~six months ended ~~March 31,~~June 30, 2009 as compared to the ~~cost of products for the three months ended March 31,~~corresponding period in 2008. ~~The decrease in cost of products of 6% was due to the 6% decrease in product revenues.~~

The gross profit for products was ~~$535,952~~$1,377,595 and ~~$582,906,~~$1,913,547, or ~~25.50%~~29.77% and ~~25.99%~~28.43% for the three and six months ended June 30, 2009 respectively as compared to $944,242 and $1,527,148, or 31.1% and 28.93% for the corresponding three and six month periods in 2008. Gross profit increased by $433,353 to $1,377,595, a decrease of 1%, for the three months ended ~~March 31,~~June 30, 2009, ~~and 2008, respectively.~~as compared to the corresponding period in 2008. Gross profit increased by $386,399 to $1,913,547, a decrease of 0.49%, for the six months ended June 30, 2009, as compared to the corresponding period in 2008. The ~~decrease~~increase in gross profit for products ~~of $46,954 and gross profit margin of .49% were~~is due to ~~the decrease~~increase in product revenues.

~~Total~~The cost of ~~services~~service was ~~$174,496~~$443,785 and ~~$209,520,~~$618,281, or ~~10.03%~~12.01% and ~~9.93%~~11.38% of total cost of revenues, for the three and six months ended ~~March 31,~~June 30, 2009 respectively as compared to $582,581 and ~~2008, respectively.~~$792,101, or 19.13 % and 15.37 % of total cost of revenues, for the corresponding three and six month period in 2008. The cost of ~~services~~service decreased by ~~$35,024 (17%) for the three months ended March 31, 2009 compared~~$138,796 to ~~the~~$443,785, a decrease of 24% of total cost of services, for the three months ended ~~March 31,~~June 30, 2009, as compared to the corresponding period in 2008. The cost of service decreased by $173,820 to $618,281, a decrease of 22% of total cost of service, for the six months ended June 30, 2009, as compared to the corresponding period in 2008.

The gross profit for service was $147,184 and $290,694, or 24.91% and 31.98% for the three and six months ended June 30, 2009 respectively as compared to $254,974 and $376,835, or 30.44% and 32.24% for the corresponding three and six month periods in 2008. Gross profit decreased by $107,790 to $147,184, a decrease of 6%, for the three months ended June 30, 2009, as compared to the corresponding period in 2008. Gross profit decreased by $86,141 to $290,694, a decrease of 0.26%, for the six months ended June 30, 2009, as compared to the corresponding period in 2008. The decrease in ~~cost of services of 17%~~gross profit and gross profit margin for service is ~~greater than~~due to the decrease in service revenues ~~of 4%.~~

~~The gross margin for services was $143,510 and $121,861, or 45.13% and 36.77% for~~not offset by the ~~three months ended March 31, 2009 and 2008, respectively. The increase in gross margin for services of $21,649 or 8.36% is due to the reduction~~decrease in cost of ~~services (17%) being greater than the decrease in service revenues (4%).~~services.

In 2007 the Company began contracting energy-saving re-engineering projects that require significant modification or customization or installation subject to the customers. ~~Total~~The cost of projects was ~~$$0~~$0 and ~~$239,770, or 0% and 11.37%~~$0 of total cost of revenues, for the three and six months ended ~~March 31,~~June 30, 2009 respectively as compared to $370,866 and ~~2008, respectively.~~$610,636, or 12.18 % and 11.85% of total cost of revenues, for the corresponding three and six month periods in 2008. The cost of ~~projects~~service decreased by ~~$239,770 (100%) for the three months ended March 31, 2009 compared~~$370,866 to ~~the~~$0, a decrease of 100% of total cost of projects, for the three months ended ~~March 31,~~June 30, 2009, as compared to the corresponding period in 2008. The ~~decrease in~~ cost of projects ~~is due~~decreased by $610,636 to ~~the lower demand for energy saving~~$0, a decrease of 100% of total cost of projects, for the ~~three~~six months ended ~~March 31, 2009.~~June 30, 2009, as compared to the corresponding period in 2008.

The gross margin for projects was $0 and ~~$50,753,~~$0 for the three and six months ended June 30, 2009 respectively, as compared to $51,793 and $102,546, or 0%12.25% and ~~17.47%~~14.38%, for the corresponding three and six month periods in 2008. Gross profit decreased by $51,793 to $0, a decrease of 100%, for the three months ended ~~March 31,~~June 30, 2009, ~~and 2008, respectively. Since we are still~~as compared to the corresponding period in ~~negotiation~~2008. Gross profit decreased by $102,546 to $0, a decrease of ~~several projects, we anticipate that project revenues and~~100%, for the six months ended June 30, 2009, as compared to the corresponding period in 2008.

There were no cost of projects for the three and six months ended June 30, 2009. Notwithstanding the absence of revenues in this line of business, as we are investigating several projects and negotiating for some of them, we believe that there is the opportunity for the Company to earn revenues in future periods for this line of business. There can be no assurance that the Company will be ~~reported~~successful in ~~future periods.~~these endeavors or this line of business.

~~The total~~Total operating expenses ~~were $194,018~~was $568,681 and ~~$180,114,~~$762,699, or ~~8.02%~~10.90% and ~~6.29%~~9.98% of total revenues, for the three and six months ended ~~on March 31,~~June 30, 2009 respectively as compared to $209,575 and $389,689, or 4.88% and 5.44% of total revenues, for the corresponding three and six month periods in 2008. Total operating expenses increased by $359,106 to $568,681 for the three months ended June 30, 2009, and increased by $373,010 to $762,699 for the six months ended June 30, 2009, as compared to the corresponding three and six month periods in 2008. The increase for the three and six months ended June 30, 2009 from the corresponding period in 2008 ~~respectively. This~~primarily consists of a $349,000 increase ~~was primarily due~~in stock based compensation expense incurred in 2009 for a commitment to ~~higher sales and marketing costs and general administrative costs.~~issue 450,000 shares of stock warrants to several investors relations firms for their work for the company in the coming years.

Selling and marketing expenses

On September 5, 2007 the Company established a new subsidiary, Liaoning Nengfa Weiye Tie Fa Sales Co., Ltd., to engage in the sales and marketing of valves products in the PRC. ~~The total sales~~Sales and marketing expenses ~~were $48,825~~was $25,628 and ~~$13,359,~~$74,453, or ~~2.02%~~0.49% and ~~0.47%~~0.97% of total revenues, for the three and six months ended ~~on March 31,~~June 30, 2009 respectively as compared to $48,921 and $62,280, or 1.14% and 0.87% of total revenues, for the corresponding three and six month periods in 2008.

Sales and marketing expenses decreased by $23,293 to $25,628 for the three months ended June 30, 2009, and increased by $12,173 to $74,453 for the six months ended June 30, 2009, as compared to the corresponding three and six month periods in 2008. The increase for the six months ended June 30, 2009 from the corresponding period in 2008 ~~respectively.~~are due to increased sales and marketing activities during this period.

Research and development expenses

The Company incurred research and development expenses to study the possibility of using the Company’s existing manufacturing facilities and valve production expertise to produce equipment and fittings for wind power plants. The R&D effort enabled the Company to create a new line of business to tap into a large demand for the equipment needed for new wind power plants that have been planned in PRC.

The ~~research and development expenses for the three months ended March 31, 2008, was $38,332, 1.34% of total revenues. There were~~company incurred no research and development expenses for the three and six months ended ~~March 31,~~June 30, 2009. Research and development expense was $47,253 and $85,585, or 1.10% and 1.20% of total revenues, for the three and six months ended June 30, 2008 respectively. Research and development expenses decreased by $47,253 to $0 for the three months ended June 30, 2009, and decreased by $85,585 to $0 for the six months ended June 30, 2009, as compared to the corresponding three and six month periods in 2008. Our company engaged in intensive research and development activities during 2007 and 2008 to study the possibility of using the company’s existing manufacturing facilities and valve production expertise to produce equipment for wind power plants. The decrease in research and development expenses for the three and six months ended June 30, 2009 from the corresponding periods in 2008 is due to that the Company has completed this phase of the research and development in 2008.

General and administrative expenses

General and administrative expenses was $194,053 and $339,246, or 3.72% and 4.44% of total revenues, for the three and six months ended June 30, 2009 respectively as compared to $113,401 and $241,824, or 2.64% and 3.38 % of total revenues, for the corresponding three and six month periods in 2008. General and administrative expenses increased by ~~$16,770~~$80,652 to ~~$145,193, 6% of total revenues,~~$194,053 for the three months ended ~~March 31,~~June 30, 2009, and increased by $97,422 to $339,246 for the six months ended June 30, 2009, as compared to ~~$128,423, 4.48% of total revenues,~~the corresponding three and six month periods in 2008. The increase for the three and six months ended ~~March 31, 2008.~~June 30, 2009 from the corresponding period in 2008 were both due to an increase in personnel expenses.

~~Income from Operations~~INCOME FROM OPERATIONS

As a result of the foregoing, ~~our~~for the three and six months ended June 30, 2009, income from operations ~~increased by $14,034~~was $956,098 and $1,441,542, 18.32% and 18.87% of total revenues, as compared to ~~$18,016, 0.74%~~$1,041,434 and $1,616,840, 24.24% and 22.58% of total revenues, for the three and six months ended ~~March 31, 2009, as compared~~June 30, 2008. Our income from operations decreased by $85,336 to ~~$3,982, or 0.14% of total revenues,~~$956,098, for the three months ended ~~March 31,~~June 30, 2009, and decreased by $175,298 to $1,441,542, for the six months ended June 30, 2009, as compared to the corresponding three and six month periods in 2008.

Income ~~Tax Expenses~~tax expense

For the three and six months ended ~~March 31,~~June 30, 2009, income tax expense was ~~$61,547,~~$181,912 and $243,460, as compared to ~~$301,~~$4 and $305 for the three and six months ended ~~March 31,~~June 30, 2008. The Company is enjoying the tax holiday in PRC due to NFES's foreign company status. During 2007, the Tieling city local government tax bureau in the PRC approved Nengfa Energy as a foreign investment enterprise. Hence, retroactively effective from January 1, 2007, Nengfa Energy is entitled to a two-year exemption from corporate income tax and a reduced corporate income tax rate of ~~15%~~12.5% for the following three years.

The Company’s effective income tax rates for the ~~three~~six months ended ~~March 31,~~June 30, 2009 and 2008 were ~~12%~~16.3% and 0%.

~~Net Income~~NET INCOME

As a result of the foregoing, we had a net income of ~~$441,913, a 18.26% profit margin on~~$808,949 and $1,250,861, 15.50% and 16.38% of total revenues, for the three and six months ended June 30, 2008, as compared to net income of $1,062,383 and $1,641,470, 24.73% and 22.92% of total revenues, for the three and six months ended June 30, 2008. Our net income decreased by $253,434 (24%) to $808,949 for the three months ended ~~March 31,~~June 30, 2009, and decreased by $390,609 (24%) to $1,250,861 for the six months ended June 30, 2009, as compared to ~~a net income of $579,087, a 20.21% profit margin on revenues, for~~ the corresponding three ~~months ended March 31, 2008. The net income for the three months ended March 31, 2009 decreased by $137,174~~ and ~~the net profit margin decreased by 1.95% compared to the net income for the three months ended March 31,~~six month periods in 2008.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2009, net cash ~~used in~~provided by operating activities was ~~$351,166.~~$2,683,173. This was primarily attributable to our net income of ~~$441,913,~~$1,250,861, adjusted by non-cash items of depreciation ~~$74,428,~~$148,963 and stock based compensation $349,000, and a ~~$867,507 decrease~~$934,349 increase in working capital. ~~Negative cash flows from operations~~The increase in working capital in the first ~~three~~six months of 2009 were due primarily to the decrease in inventories by $681,231, the increase in accounts ~~receivable~~payable by ~~$1,230,662, inventories~~$658,202, customer deposits by ~~$646,847, prepayments~~$7,295, value added tax payable by 270,935, and ~~other receivables~~income tax payable by ~~$265,284, and the decrease in other payables and accrued liabilities by $15,104,~~181,825, partially offset by the increase in accounts ~~payable~~receivable by ~~$1,240,372, customer deposits~~$540,094, prepayments, and other receivables by ~~$3,050,~~$263,154, and ~~value added tax~~other payables and accrued liabilities by ~~$46,968~~$61,891 in this period.

The large increase in accounts receivable of ~~$1,230,662 and inventories of $646,847,~~$540,094, an increase of ~~13.8% and 42.6%~~6% over the accounts receivables ~~and inventories~~ balances of $8,907,497 at December 31, 2008, ~~are~~is mainly due to several large contracts. For these large contracts, the construction and installation period is much longer. The collection period for receivables is also longer. In addition, we have to produce a larger inventory in order to prepare for the installation anticipated for these large projects. The decrease in inventories of $681,231 reflects a lower inventory level the company maintains for the current sales level. The reason for the large increase in the prepayments and other receivables of ~~$265,284,~~$263,154, a ~~40.6%~~40.3% increase over the prepayments and other receivables balance of $652,842 at December 31, 2008 is due to increases in prepayment to vendors for raw materials, prepayment to equipment vendors and prepaid operating expense. The company expects the cost of the raw material will increase in the coming year. In order to hedge the increase in raw material costs, we have signed more purchase contracts in advance with the suppliers and hence increasing the prepayments. The increase in accounts payable of ~~$1,240,372~~$658,202 corresponds to the increased purchase of materials required for the production for several large contracts. The increase in customer deposits of ~~$3,050~~$7,295 and value added tax payables of $270,935 is due to the increase in ~~sales. An increase of $46,968 in value added tax payables is due to increased value added tax payable~~sales this period. The increase in income tax payable of $181,825 is because the Company started to pay a reduced income tax rate in PRC in 2009 whereas the Company enjoyed tax holidays in 2008. The decrease of ~~$15,103~~$61,891 in other payables and accrued liabilities are due to the decrease in ~~rent~~welfare payable and other accrued ~~expenses and payable to equipment vendors, and an increase in income tax payable.~~expenses.

For the ~~three~~six months ended ~~March 31,~~June 30, 2008, net cash ~~used in~~provided by operating activities was ~~$273,995.~~$478,716. This was primarily attributable to our net income of ~~$579,087,~~$1,641,470, adjusted by non-cash items of depreciation ~~$83,262,~~$170,415, and a ~~$936,344~~$1,333,169 decrease in working capital. ~~Negative cash flows from operations~~The decrease in working capital in the first ~~three~~six months of 2008 were due primarily to the increase in accounts receivable by ~~$429,291, inventories by $166,210,~~$974,464, prepayments, and other receivables by ~~$357,858,~~$330,241, and the decrease in ~~value added tax~~accounts payable by ~~$19,261~~$107,754, and other payables and accrued liabilities by ~~$108,364,~~$132,019, partially offset by the decrease in inventories by $100,786, increase in ~~accounts payable by $86,792 and~~ customer deposits by ~~$57,848~~$108,199 and value added tax payable by $2,324 in this period.

The large increase in accounts receivable of ~~$429,291 and inventories of $166,210,~~$974,464, an increase of ~~10.6% and 11.5%~~24.0% over the accounts receivables ~~and inventories~~ balances at December 31, 2007, ~~are~~is mainly due to the sales growth during the ~~year.~~period. The decrease in inventories of $100,786 reflects a lower inventory level the company maintains for the current sales level. The reason for the large increase in the prepayments and other receivables of ~~$357,858,~~$330,241, a ~~59.1%~~54.5% increase over the prepayments and other receivables balance of $605,989 at December 31, 2007 is that the Company expects the cost of the ~~raw material~~raw-material will increase in the coming year. In order to hedge the increase in raw material costs, ~~we have~~the company has signed more purchase contracts in advance with the suppliers and hence increasing the prepayments. The ~~increase~~decrease in accounts payable of ~~$86,792 correspond~~$107,754 corresponds to more efficient payment of the ~~increase in the cost of revenues~~accounts payable during the ~~year.~~period. The increase in customer deposits of ~~$57,848~~$108,199 is due to the increase in sales. The decrease of ~~$108,364~~$132,019 in other payables and ~~accruals~~accrued liabilities are due to the decrease in welfare payable, payables to ~~fixed asset~~equipment vendors and other accrued expenses. A decrease of ~~$19,261~~$2,324 in value added tax payable is due to reduced value added tax payable this period.

Investing activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2009, net cash used in investing activities was ~~$456,715,~~$2,774,846, and was primarily attributable to the purchase of plant and equipment ~~of $460~~for $179,070 and ~~cash paid~~the payments to construction in progress of ~~$456,255.~~$2,595,776. For the ~~three~~six months ended ~~March 31,~~June 30, 2008, net cash used in investing activities was ~~$115,198~~$160,722, and was primarily attributable to the purchase of plant and equipment.

~~Starting from~~In 2008, the Company was approved by the local government ~~has approved the Company~~ to ~~establish~~construct a new manufacturing facility for energy-saving products and equipments in Yingzhou District Industrial Park, Tieling City, Liaoning Province, the PRC. The construction project consists of two phases, ~~where~~whereas the first phase is related to the development of new manufacturing facilities on the production of valves components and energy-saving equipments and it is expected to be fully completed till 2010. ~~Total~~The estimated ~~construction cost~~investment of the first phase in 2009 is approximately $5 ~~million.~~million (not including land use rights of approximately $2 million). As of ~~March 31,~~June 30, 2009, the Company ~~incurred approximately $2.7 million and recorded~~capitalized $6,307,824 as construction in progress.

Financing activities

For the ~~three~~six months ended ~~March 31,~~June 30, 2009, ~~there was no~~ net cash provided by financing ~~activities.~~activities was $709,373 attributable to the payments on finance lease. For the ~~three~~six months ended ~~March 31,~~June 30, 2008, net cash provided by financing activities was $2,000,000 attributable to the issuance of common stock ~~subscriptions from~~to two investors from a convertible note.

On April 28, 2008, the Company entered into a Securities Purchase Agreement with the Investors to consummate a private placement of 6,645,376 shares of restricted common stock for an aggregate purchase price of $2,000,000 at a 50-trading days weighted average market quoted price of $0.30 per share. Each of the Investors acquired one half of these shares of common stock, or 3,322,688 shares. As a result of this transaction, each of the investors owns 8.33% of the issued and outstanding common stock of the Company. The proceeds were used to fund the working capital. The Company also entered into various covenants with the Investors, including its (i) obtaining a listing on a United States stock exchange not later than December 31, 2009, (ii) developing a step by step energy saving and emission reduction business plan as a products and service provider in consultation with the Investors, (iii) limiting business arrangements with affiliates, and (iv) establishing good corporate governance and seeking good financial development.

We anticipate we will need additional working capital in 2009 and ~~in the future~~thereafter to fund our company’s ~~new~~ business plans to help the ~~company~~Company to establish a manufacturing base for new energy equipment, to develop comprehensive energy saving infrastructure projects for municipalities, and to maintain our lead position in flow control equipment manufacturing. We may decide to pursue additional investments or debt financing to obtain additional cash resources to fund our company’s new business and other future developments.There would be no assurance that the Company will be able to obtain the sought funds, or if offered that they will be on acceptable terms. Therefore, there would be no assurance that the Company will be able to finance its planned expansion.

We believe that the relatively moderate rate of inflation over the past few years has not had a significant impact on our results of operations. At present we are able to increase our prices due to the rising prices of raw materials.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any material off-balance sheet arrangements.

IMPACT OF RECENTLY ISSUED NEW ACCOUNTING STANDARDS

We do not expect adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4T. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~June 30, 2009. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2009, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

~~(b)~~ ~~Management’s Report on Internal Control Over Financial Reporting~~.

~~Management’s Report on Internal Control Over Financial Reporting~~

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive officer and principal financial officer and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

~~pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;~~

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with management authorization, and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2009. In making this assessment, the company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

~~Based on this assessment, our management concluded that, as of March 31, 2009, our internal control over financial reporting is effective.~~

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

c)b) Changes in Internal Controls

No change in our internal control over financial reporting occurred during the fiscal quarter ending ~~March 31,~~June 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On May 21, 2007, a civil complaint Robert Dawley vs NF Energy Saving Corp. of America, etal. was filed in the United States District Court, Middle District of Florida, Orlando, Civil No. 6:07-cv-872-Orl-18DAB. The complaint accuses the defendants of breaching a contract for payment of money that was signed by Sam Winer, former Chief Executive Officer, before the commencement of the Company’s reverse merger with the current subsidiary. After being initially dismissed by the Court, the action was authorized to proceed on November 16, 2007. The trial was held in the United States District Court, Middle District of Florida, Orlando on October 16, 2008. The District Court issued a judgment on December 11, 2008 awarding the plaintiff the sum of ~~$400,000.00~~$400,000 against the Company, plus prejudgment interest in the amount of $132,821.92, with continuing interest of $131.51 per day on the $400,000 obligation until it is paid. The Court further adjudged that the plaintiff shall surrender his stock upon payment of the ~~$400,000.00.~~$400,000. In the event the plaintiff fails to surrender his stock after payment, the Company may cancel the stock. Any payments or collection under the judgment shall be credited first to interest.

On January 6, 2009, the Company filed a notice of appeal 09-10140-B in the United States of Court of Appeals for the 11th Circuit from the District Court’s judgment. The Company has engaged an attorney to prosecute its appeal of the above judgment. The parties currently are briefing the appeal. The Company has also accrued $200,000 for this contingent liability to the statement of operation in 2008. The parties have completed briefing the appeal and are waiting for the court’s decision on the appeal. At this point, the Company does not believe that the judgment would have a material impact on the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~None.~~In June 2009, the Company agreed to issue warrants to purchase 450,000 shares of common stock, exercisable for five years, at an exercise price of $0.60. The warrants were issued and the underlying shares will be issued on the basis of an exemption from registration, as sales to sophisticated persons. The warrants were issued in connection with services to be provided by the warrant holders.

Item 3. Defaults Upon Senior Securities.

Item 4. Submission of Matters to a Vote of Security Holders.

Item 5. Other Information.

The list of Exhibits , required by Item 601 of Regulation S-K, filed as a part of this Form 10-Q are set forth on the Exhibit Index immediately preceding such Exhibits and is incorporated herein by this reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	NF Energy Saving Corporation of America
	(Registrant)

Date: ~~May 14,~~August 7, 2009	By:	/s/ Gang Li
		Gang Li
		Chairman, Chief Executive Officer and President

Date: August 7, 2009	By:	/s/ Li Hua Wang
		Li Hua Wang
		Chief Financial Officer (Principal Financial and Accounting Officer)

Exhibit No.		Description

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

	Three months ended March 31,							Six months ended June 30,
	2009			2008				2009			2008
Cash flows from operating activities:
Net income	$	441,913		$	579,087			$	1,250,861		$	1,641,470
Adjustments to reconcile net income to net cash used in operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		74,428			83,262				148,963			170,415
Stock based compensation									349,000			—
Change in operating assets and liabilities:
Accounts receivable		(1,230,662	)		(429,291	)			(540,094	)		(974,464	)
Inventories		(646,847	)		(166,210	)			681,231			100,786
Prepayments and other receivables		(265,284	)		(357,858	)			(263,154	)		(330,241	)
Accounts payable		1,240,372			86,792				658,202			(107,754	)
Customer deposits		3,050			57,848				7,295			108,199
Value added tax payables		46,968			(19,261	)			270,935			2,324
Income tax payable									181,825			—
Other payables and accrued liabilities		(15,104	)		(108,364	)			(61,891	)		(132,019	)
Net cash used in operating activities		(351,166	)		(273,995	)

Net cash provided by operating activities									2,683,173			478,716

Cash flows from investing activities:
Purchase of plant and equipment		(460	)		(115,198	)			(179,070	)		(160,722	)
Cash paid to construction in progress		(456,255	)		-
Payments to construction in progress									(2,595,776	)		—

Net cash used in investing activities		(456,715	)		(115,198	)			(2,774,846	)		(160,722	)

Cash flows from financing activities:
Payments on finance lease									(709,373	)		—
Proceeds from private placement		-			2,000,000				—			2,000,000
Net cash provided by financing activities		-			2,000,000

Net cash (used in) provided by financing activities									(709,373	)		2,000,000

Effect on exchange rate change on cash and cash equivalents		(3,496	)		102,540				22,345			202,357

NET CHANGE IN CASH AND CASH EQUIVALENTS		(811,377	)		1,713,347				(778,701	)		2,520,351

BEGINNING OF PERIOD		2,252,771			2,240,901				2,252,771			2,240,901

END OF PERIOD	$	1,441,394		$	3,954,248			$	1,474,070		$	4,761,252

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:							SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	57		$	-			$	61,561		$	305
Cash paid for interest expenses	$	-		$	-
Cash paid for interest								$	—		$	—

NON-CASH INVESTING AND FINANCING ACTIVITIES:							NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under finance leases								$	1,381,579		$	—

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2009			2008			2009			2008			2009			2008

REVENUES, NET
Products	$	2,101,826		$	2,243,053
REVENUE, NET
Product							$	4,627,735		$	3,036,313		$	6,729,561		$	5,279,366
Services		318,006			331,381			590,969			837,555			908,975			1,168,936
Projects		-			290,523			—			422,659			—			713,182
Total revenues, net		2,419,832			2,864,957
Total operation revenues, net								5,218,704			4,296,527			7,638,536			7,161,484

COST OF REVENUES:
Cost of products		1,565,874			1,660,147			3,250,140			2,092,071			4,816,014			3,752,218
Cost of services		174,496			209,520			443,785			582,581			618,281			792,101
Cost of projects		-			239,770			—			370,866			—			610,636
Total cost of revenues		1,740,370			2,109,437			3,693,925			3,045,518			5,434,295			5,154,955

GROSS PROFIT		679,462			755,520			1,524,779			1,251,009			2,204,241			2,006,529

OPERATING EXPENSES:
Sales and marketing		48,825			13,359			25,628			48,921			74,453			62,280
Research and development		-			38,332			—			47,254			—			85,586
General and administrative		145,193			128,423			194,053			113,401			339,246			241,824
Stock based compensation								349,000			—			349,000			—
Total operating expenses		194,018			180,114			568,681			209,576			762,699			389,690

INCOME FROM OPERATIONS		485,444			575,406			956,098			1,041,433			1,441,542			1,616,839

Other income:
Interest income		7,857			-			1,148			8,813			9,005			8,813
Other income		10,159			3,982			5			—			10,164			—
Subsidy income								33,610			12,141			33,610			16,123
Total other income		18,016			3,982			34,763			20,954			52,779			24,936

INCOME BEFORE INCOME TAXES		503,460			579,388			990,861			1,062,387			1,494,321			1,641,775

Income tax expense		(61,547	)		(301	)		(181,912	)		(4	)		(243,460	)		(305	)

NET INCOME	$	441,913		$	579,087		$	808,949		$	1,062,383		$	1,250,861		$	1,641,470

Other comprehensive income:
- Foreign currency translation gain		13,638			412,644			26,690			275,802			40,328			688,446

COMPREHENSIVE INCOME	$	455,551		$	991,731		$	835,639		$	1,338,185		$	1,291,189		$	2,329,916

Net income per share – basic and diluted	$	0.01		$	0.02
Net income per share
– Basic							$	0.02		$	0.03		$	0.03		$	0.05
– Diluted							$	0.02		$	0.03		$	0.03		$	0.05

Weighted average shares outstanding – basic and diluted		39,872,704			33,227,328
Weighted average shares outstanding
– Basic								39,872,704			36,033,153			39,872,704			34,630,241
– Diluted								39,961,037			36,033,153			39,916,871			34,630,241

									Accumulated
	Common stock								other				Total
					Additional		Statutory		comprehensive		Retained		stockholders’
	No. of shares		Amount		paid-in capital		reserve		income		earnings		equity
															Common stock								Accumulated
															No. of shares		Amount		Additional paid-in capital		Statutory reserve		other comprehensive income		Retained earnings		Total stockholders’ equity

Balance as of January 1, 2009		39,872,704	$	39,872	$	7,706,587	$	917,165	$	1,288,573	$	5,595,312	$	15,547,509		39,872,704	$	39,872	$	7,706,587	$	917,165	$	1,288,573	$	5,595,312	$	15,547,509

Foreign currency translation adjustment		-		-		-		-		13,638		-		13,638		—		—		—		—		40,328		—		40,328

Warrants issued for services																—		—		349,000		—		—		—		349,000

Net income for the period		-		-		-		-		-		441,913		441,913		—		—		—		—		—		1,250,861		1,250,861

Balance as of March 31, 2009		39,872,704	$	39,872	$	7,706,587	$	917,165	$	1,302,211	$	6,037,225	$	16,003,060
Balance as of June 30, 2009																39,872,704	$	39,872	$	8,055,587	$	917,165	$	1,328,901	$	6,846,173	$	17,187,698

Three months ended March 31, 2008:	Manufacturing business		Energy-saving related business		Total

Operating revenues, net:
- Products	$	2,243,053	$	-	$	2,243,053
- Services		-		331,381		331,381
- Projects		-		290,523		290,523
Total operating revenues		2,243,053		621,904		2,864,957
Cost of revenues		1,660,147		449,290		2,109,437

Gross profit	$	582,906	$	172,614	$	755,520

	Three months ended June 30, 2009						June 30, 2009
Customers	Revenues		Percentage of revenues				Accounts receivable, trade

Customer C	$	3,403,588		65	%			7,219,505
Customer D		549,735		11	%			257,349

Total:	$	3,953,323		76	%	Total:		7,476,854

		Three months ended March 31, 2009				March 31, 2009
Vendors		Purchases		Percentage of purchases		Accounts payable

Vendor A		$	541,049	30%		$	817,904
Vendor C			524,216	29%			524,292
Vendor D			252,169	14%			252,205

	Total:	$	1,317,434	73%	Total:	$	1,594,401