**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 September 30,
                2008**





o
            **Transition
                Report Pursuant to Section 13 or 15(d) of The Securities Exchange
                Act of
                1934 for the Transition Period from _______ to
                _______**





**Commission
      File Number: 000-50155**












**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.




Yesx
            
            
            Noo





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
            oNon-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)




Yeso
            
            
            Nox





As
      of
      November 10, 2008, the registrant had 39,872,704 shares of common stock, $0.001
      par value, issued and outstanding.




1





**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.




2





**TABLE
      OF CONTENTS**





**PART
      I - FINANCIAL INFORMATION**


Item
                    1. Financial Statements
                4Item
                    2. Management’s Discussion and Analysis of Financial
                    Conditionand
                    Results of Operations
                24Item
                    3. Quantitative and Qualitative Disclosures About Market
                    Risk
                35Item
                    4T. Controls and Procedures
                35**PART
                    II - OTHER INFORMATION**Item
                    1. Legal Proceedings
                35Item
                    2. Unregistered Sales of Equity Securities and Use of
                    Proceeds
                35Item
                    3. Defaults Upon Senior Securities
                35Item
                    4. Submission of Matters to a Vote of Security Holders
                36Item
                    5. Other Information
                36Item
                    6. Exhibits
                36Signatures
                36




3




**PART
      I - FINANCIAL INFORMATION**





**Item
      1.**  **Financial
      Statements**





**NF
      ENERGY SAVING CORPORATION OF AMERICA**





**INDEX
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**Page**Condensed
                ConsolidatedBalanceSheets as
              of
                September 30, 2008 and December 31, 2007
            
            5Condensed
                ConsolidatedStatements
                of Operations And Comprehensive Income
              for
                the three and nine months ended September 30, 2008 and
                2007
            
            6Condensed
                ConsolidatedStatements
                of Cash Flows
              for
                the nine months ended September 30, 2008 and 2007
            
            7Condensed
                ConsolidatedStatementof
                Stockholders’ Equity
              for
                the nine months ended September 30, 2008
            
            8Notes
                to Condensed Consolidated Financial Statements
            
            9
                to 23





4


**NF
      ENERGY SAVING CORPORATION OF AMERICA**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**AS
      OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007**


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


**(Unaudited)**






September
                30, 2008
            
            December
                31, 2007(Unaudited)
            
            (Audited)**ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            2,904,609
            
            $
            2,240,901Accounts
                receivable, trade
            
            
            8,264,829
            
            
            4,061,352Inventories
            
            
            2,175,182
            
            
            1,448,386Prepayments
                and other receivables
            
            
            953,803
            
            
            605,989Total
                current assets
            
            
            14,298,423
            
            
            8,356,628Plant
                and equipment, net
            
            
            3,150,192
            
            
            2,514,795**TOTAL
                ASSETS**
            
            $
            17,448,615
            
            $
            10,871,423**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable, trade
            
            $
            2,221,138
            
            $
            1,259,081Customer
                deposits
            
            
            379,229
            
            
            22,719Value
                added tax payable
            
            
            76,293
            
            
            70,604Other
                payables and accrued liabilities
            
            
            166,487
            
            
            355,390Total
                current liabilities
            
            
            2,843,147
            
            
            1,707,794Stockholders’
                equity:Common
                stock, $0.001 par value; 50,000,000 shares authorized; 39,872,704
                and
                33,227,328 shares issued and outstanding as of September 30, 2008
                and
                December 31, 2007
            
            
            39,872
            
            
            33,227Additional
                paid-in capital
            
            
            7,706,587
            
            
            5,713,232Statutory
                reserve
            
            
            517,774
            
            
            517,774Accumulated
                other comprehensive income
            
            
            1,323,135
            
            
            557,503Retained
                earnings
            
            
            5,018,100
            
            
            2,341,893Total
                stockholders’ equity
            
            
            14,605,468
            
            
            9,163,629**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            17,448,615
            
            $
            10,871,423





See
      accompanying notes to condensed consolidated financial statements.




5




**NF
      ENERGY SAVING CORPORATION OF AMERICA**


**CONDENSED
      CONSOLIDATED STATEMENTS OF**


**OPERATIONS
      AND COMPREHENSIVE INCOME**


**FOR
      THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007**


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


**(Unaudited)**




Three
                months ended September 30,
            
            Nine
                months ended September 30,2008
            
            2007
            
            2008
            
            2007**REVENUE,
                NET**Product
            
            $
            3,557,112
            
            $
            1,383,252
            
            $
            8,836,478
            
            $
            5,328,588Services
            
            
            939,406
            
            
            211,915
            
            
            2,108,342
            
            
            1,297,962Projects
            
            
            105,308
            
            
            435,849
            
            
            818,490
            
            
            435,849Total
                operation revenues
            
            
            4,601,826
            
            
            2,031,016
            
            
            11,763,310
            
            
            7,062,399**COST
                OF REVENUES:**Cost
                of products
            
            
            2,639,688
            
            
            881,432
            
            
            6,391,906
            
            
            3,889,149Cost
                of services
            
            
            711,781
            
            
            93,152
            
            
            1,517,172
            
            
            387,886Cost
                of projects
            
            
            14,115
            
            
            330,878
            
            
            609,811
            
            
            330,878Total
                cost of revenues
            
            
            3,365,584
            
            
            1,305,462
            
            
            8,518,889
            
            
            4,607,913**GROSS
                PROFIT**
            
            
            1,236,242
            
            
            725,554
            
            
            3,244,421
            
            
            2,454,486**OPERATING
                EXPENSES:**Sales
                and marketing
            
            
            16,318
            
            
            9,568
            
            
            78,598
            
            
            24,277Research
                and development
            
            
            10,377
            
            
            14,014
            
            
            95,963
            
            
            343,920Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            510,000General
                and administrative
            
            
            153,262
            
            
            125,478
            
            
            411,091
            
            
            254,707Total
                operating expenses
            
            
            179,957
            
            
            149,060
            
            
            585,652
            
            
            1,132,904**INCOME
                FROM OPERATIONS**
            
            
            1,056,285
            
            
            576,494
            
            
            2,658,769
            
            
            1,321,582Other
                income:Interest
                income
            
            
            8,902
            
            
            4,085
            
            
            17,716
            
            
            4,427Other
                income
            
            
            76
            
            
            (2,662
            )
            
            194
            
            
            8,857Total
                other income
            
            
            8,978
            
            
            1,423
            
            
            17,910
            
            
            13,284**INCOME
                BEFORE INCOME TAXES**
            
            
            1,065,263
            
            
            577,917
            
            
            2,676,679
            
            
            1,334,866Income
                tax expense
            
            
            (167
            )
            
            -
            
            
            (472
            )
            
            -**NET
                INCOME**
            
            $
            1,065,096
            
            $
            577,917
            
            $
            2,676,207
            
            $
            1,334,866Other
                comprehensive income:-
                Foreign currency translation gain
            
            
            77,186
            
            
            206,182
            
            
            765,632
            
            
            278,034**COMPREHENSIVE
                INCOME**
            
            $
            1,142,282
            
            $
            784,099
            
            $
            3,411,839
            
            $
            1,612,900Net
                income per share - basic and
              diluted
            
            $
            0.03
            
            $
            0.02
            
            $
            0.07
            
            $
            0.04Weighted
                average shares
              outstanding
                - basic and diluted
            
            
            33,227,328
            
            
            32,320,661
            
            
            36,377,728
            
            
            31,699,180




See
      accompanying notes to condensed consolidated financial statements.




6




**NF
      ENERGY SAVING CORPORATION OF AMERICA**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**


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


**(Unaudited)**





Nine
                months ended September 30,2008
            
            2007**Cash
                flows from operating activities:**Net
                income
            
            $
            2,676,207
            
            $
            1,334,866Adjustments
                to reconcile net income to net cash provided by
              operating
                activitiesDepreciation
            
            
            238,702
            
            
            190,161Gain
                on disposal of plant and equipment
            
            
            
            
            
            (7,640
            )Stock-based
                compensation
            
            
            
            
            
            510,000Change
                in operating assets and liabilities:Accounts
                receivable
            
            
            (3,804,182
            )
            
            (1,004,058
            )Inventories
            
            
            (609,412
            )
            
            213,836Prepayments
                and other receivables
            
            
            (306,187
            )
            
            (1,878,371
            )Accounts
                payable
            
            
            849,318
            
            
            16,063Customer
                deposits
            
            
            343,490
            
            
            67,294Income
                tax payable
            
            
            167
            
            
            (392,183
            )Value
                added tax payables
            
            
            8,618
            
            
            5,123Other
                payables and accrued liabilities
            
            
            (156,442
            )
            
            (23,392
            )Net
                cash provided by operating activities
            
            
            (759,721
            )
            
            (968,301
            )**Cash
                flows from investing activities:**Purchase
                of plant and equipment
            
            
            (738,043
            )
            
            (166,605
            )Proceeds
                from disposal of plant and equipment
            
            
            -
            
            
            79,504Net
                cash (used in) provided by investing activities
            
            
            (738,043
            )
            
            (87,101
            )**Cash
                flows from financing activities:**Proceeds
                from private sale of common stock
            
            
            2,000,000
            
            
            870,000Net
                cash provided by financing activities
            
            
            2,000,000
            
            
            870,000Effect
                on exchange rate change on cash and cash equivalents
            
            
            161,472
            
            
            38,262**NET
                CHANGE IN CASH AND CASH EQUIVALENTS**
            
            
            663,708
            
            
            (147,140
            )**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            2,240,901
            
            
            796,944**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            2,904,609
            
            $
            649,804**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                paid for income taxes
            
            $
            305
            
            $
            392,183Cash
                paid for interest expenses
            
            $
            -
            
            $
            -





See
      accompanying notes to condensed consolidated financial statements.





7


**NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **CONDENSED
        CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
        expressed in United States Dollars (“US$”), except for number of
        shares)**
 **(** **Unaudited)**




Common
                stockNo.
                of shares
            
            Amount
            
            Additional
              paid-in
                capital
            
            Statutory
              reserve
            
            Accumulated
              other
              comprehensive
              income
            
            Retained
              earnings
            
            Total
                stockholders’
                equityBalance
                as of January 1, 2008
            
            
            33,227,328
            
            $
            33,227
            
            $
            5,713,232
            
            $
            557,503
            
            $
            517,774
            
            $
            2,341,893
            
            $
            9,163,629Private
                sale of common stock
            
            
            6,645,376
            
            
            6,645
            
            
            1,993,355
            
            
            -
            
            
            -
            
            
            -
            
            
            2,000,000Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            765,632
            
            
            -
            
            
            -
            
            
            765,632Net
                income for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,676,207
            
            
            2,676,207Balance
                as of September 30, 2008
            
            
            39,872,704
            
            $
            39,872
            
            $
            7,706,587
            
            $
            1,323,135
            
            $
            517,774
            
            $
            5,018,100
            
            $
            14,605,468





See
      accompanying notes to condensed consolidated financial statements.




8


**NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**




**NOTE
      -** **1**  **BASIS
      OF PRESENTATION**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared by management in accordance with both accounting principles generally
      accepted in the United States (“GAAP”), and the instructions to Form 10-Q and
      Rule 10-01 of Regulation S-X. Certain information and note disclosures normally
      included in audited financial statements prepared in accordance with generally
      accepted accounting principles have been condensed or omitted pursuant to those
      rules and regulations, although the Company believes that the disclosures made
      are adequate to make the information not misleading.





In
      the
      opinion of management, the condensed balance sheet as of December 31, 2007
      which
      has been derived from audited financial statements and these unaudited condensed
      consolidated financial statements reflect all normal and recurring adjustments
      considered necessary to state fairly the results for the periods presented.
      The
      results for the period ended September 30, 2008 are not necessarily indicative
      of the results to be expected for the entire fiscal year ended December 31,
      2008
      or for any future period.





These
      unaudited condensed consolidated financial statements and notes thereto should
      be read in conjunction with the Management’s Discussion and the audited
      financial statements and notes thereto included in the Annual Report on Form
      10-KSB for the year ended December 31, 2007.





**NOTE** **-** **2**  **ORGANIZATION
      AND BUSINESS BACKGROUND**





NF
      Energy
      Saving Corporation of America (the
      “Company” or “NFES”) was incorporated in the State of Delaware in the name of
      Galli Process, Inc. on October 31, 2000. On February 7, 2002, the Company
      changed its name to “Global Broadcast Group, Inc.” On November 12, 2004, the
      Company changed its name to “Diagnostic Corporation of America.” On March 15,
      2007, the Company further changed to its existing name.




The
      Company, through its subsidiaries, is specialized in the manufacture of
      industrial valve components and products. Starting from 2007, the Company has
      commenced the energy-saving related business in the provision of integrated
      energy conservation solutions utilizing energy-saving equipment, technical
      services and energy re-engineering management services to clients in the
      People’s Republic of China (the “PRC”). During 2008, the Company has expanded
      its business to technology consulting service and production of equipment and
      infrastructures for the municipalities to improve energy efficiency and emission
      reduction.


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 mainly operates the energy-saving business in the PRC and all
        of
        the customers are located in the PRC.


Liaoning
      Nengfa Weiye Tie Fa Sales Co., Ltd. (“Sales Company”) is a wholly-owned
      subsidiary of Neng Fa in the PRC. Sales Company was incorporated as a limited
      liability company under the laws of the PRC with a registered capital of
      $683,620 (equivalent to RMB 5,000,000) on September 5, 2007. It is mainly
      engaged in the sales and marketing of valves components and products in the
      PRC.





NFES,
      Nengfa Energy and Sales Company are hereinafter referred to as (the
“Company”).




9


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(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.





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 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 September 30, 2008, 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 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 September 30, 2008, 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:




10


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**





Depreciable
                life
            
            Residual
                valuePlant
                and machinery
            
            3
                -
                20 years
            
            5%Furniture,
                fixture and equipment
            
            5
                -
                8 years
            
            5%





Expenditure
      for repairs and maintenance is expensed as incurred. When assets have 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
            Impairment
                of long-lived assets





In
      accordance with the Statement of Financial Accounting Standard (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
      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
      September 30, 2008.





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 and
      provision of engineering services. The Company recognizes its revenues net
      of
      related business taxes and value added taxes (“VAT”). The Company is subject to
      VAT which is levied on the majority of the products at the rate of 17% on the
      invoiced value of sales. Output VAT is borne by customers in addition to the
      invoiced value of sales and input VAT is borne by the Company in addition to
      the
      invoiced value of purchases to the extent not refunded for export sales.





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 nine
      months ended September 30, 2008.





(b)  Service
      revenue





Service
      revenue is primarily derived from energy-saving technical or consulting 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
      when service is rendered and accepted by the customers.





(c)  Project
      revenue




11


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**




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.





(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
            Cost
                of revenues





Cost
      of
      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.





l
            Stock-based
                compensation





The
      Company adopts SFAS No. 123 (revised 2004), " *Share-Based
      Payment* "
      ("SFAS
      No. 123R") 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. The fair value of
      stock-based compensation that are expected to vest are recognized using the
      straight-line method over the requisite service period.





l
            Income
                taxes





The
      Company also 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
      statements of operations and comprehensive 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.





Effective
      January 1, 2007, the Company also adopts
      the provisions of the Financial Accounting Standards Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes” (“* FIN
      48 *”)* .
      FIN 48
      prescribes a recognition threshold and measurement process for recording in
      the
      financial statements uncertain tax positions taken or expected to be taken
      in a
      tax return. FIN No. 48 also provides guidance on de-recognition, classification,
      interest and penalties, accounting in interim periods, disclosures and
      transitions. In
      connection with the adoption of FIN No. 48, the Company has analyzed the filing
      positions in all of the jurisdictions where the Company is required to file
      income tax returns, as well as all open tax years in these jurisdictions. The
      Company also follows the policy of recognizing interest and penalties, if any,
      related to unrecognized tax positions as income tax expense. The Company did
      not
      have any unrecognized tax position and there was no effect on the financial
      condition or results of operations for the period ended September 30, 2008.




12


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**




The
      Company conducts its 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 local and foreign tax
      authority.





l
            Net
                income per share





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





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.





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 nine months ended September 30,
      2008.





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.





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.




13


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**


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




2008
            
            2007Months
                end RMB:US$ exchange rate
            
            
            7.0726
            
            
            7.3141Average
                monthly RMB:US$ exchange rate
            
            
            6.8718
            
            
            7.5633





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 :
      Valves
      manufacturing business and Energy-saving related business.





l
            Fair
                value of financial instruments





The
      Company values its financial instruments as required by SFAS No. 107, *“Disclosures
      about Fair Value of Financial Instruments”* .
      The
      estimated fair value amounts have been determined by the Company, using
      available market information and appropriate valuation methodologies. The
      estimates presented herein are not necessarily indicative of amounts that the
      Company could realize in a current market exchange.





The
      Company’s financial instruments primarily include cash and cash equivalents,
      trade accounts receivable, prepayments and other receivables, accounts payable,
      customer deposits, value added tax payable and other payables and accrued
      liabilities.





As
      of the
      balance sheet date, the estimated fair values of financial instruments were
      not
      materially different from their carrying values as presented due to short
      maturities of these instruments.





l
            Recent
                accounting pronouncements





The
      Company has reviewed all recently issued, but not yet effective, accounting
      pronouncements and 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 SFAS No. 141 (Revised 2007), *"Business
      Combinations" (* "SFAS
      No.
      141R"). SFAS No. 141R will change the accounting for business combinations.
      Under SFAS No. 141R, an acquiring entity will be required to recognize all
      the
      assets acquired and liabilities assumed in a transaction at the acquisition-date
      fair value with limited exceptions. SFAS No. 141R will change the accounting
      treatment and disclosure for certain specific items in a business combination.
      SFAS No. 141R applies prospectively to business combinations for which the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. Accordingly, any business
      combinations the Company engages in will be recorded and disclosed following
      existing GAAP until January 1, 2009. The Company expects SFAS No. 141R will
      have
      an impact on accounting for business combinations once adopted but the effect
      is
      dependent upon acquisitions at that time. The Company is still assessing the
      impact of this pronouncement.




14


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**


In
      December 2007, the FASB issued SFAS No. 160, *"Noncontrolling
      Interests in Consolidated Financial Statements--An Amendment of ARB No. 51,
      or
      SFAS No. 160"* ("SFAS
      No. 160"). SFAS No. 160 establishes new accounting and reporting standards
      for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
      December 15, 2008. The Company believes that SFAS 160 should not have a material
      impact on the consolidated financial position or results of
      operations.





In
      March
      2008, the FASB issued SFAS No. 161, *"Disclosures
      about Derivative Instruments and Hedging Activities"* ("SFAS
      No. 161"). SFAS No. 161 requires companies with derivative instruments to
      disclose information that should enable financial-statement users to understand
      how and why a company uses derivative instruments, how derivative instruments
      and related hedged items are accounted for under FASB Statement No. 133 *"Accounting
      for Derivative Instruments and Hedging Activities"* and how
      derivative instruments and related hedged items affect a company's financial
      position, financial performance and cash flows. SFAS No. 161 is effective for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008. The adoption of this statement is not expected to have a
      material effect on the Company's future financial position or results of
      operations.





In
      May
      2008, the FASB issued SFAS No. 162, *“The
      Hierarchy of Generally Accepted Accounting Principles”* ("SFAS
      No. 162"). This statement identifies the sources of accounting principles and
      the framework for selecting the principles to be used in the preparation of
      financial statements in conformity with generally accepted accounting principles
      (GAAP) in the United States. This statement is effective 60 days following
      the
      SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
      Section 411, *“The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles”* .
      The
      Company does not expect the adoption of SFAS No. 162 to have a material effect
      on the financial condition or results of operations of the Company.





In
      May
      2008, the FASB issued SFAS No. 163, *“Accounting
      for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement
      No. 60”* ("SFAS
      No. 163"). SFAS No. 163 interprets Statement 60 and amends existing accounting
      pronouncements to clarify their application to the financial guarantee insurance
      contracts included within the scope of that Statement. SFAS No. 163 is effective
      for financial statements issued for fiscal years beginning after December 15,
      2008, and all interim periods within those fiscal years. As such, the Company
      is
      required to adopt these provisions at the beginning of the fiscal year ended
      December 31, 2009. The Company is currently evaluating the impact of SFAS No.
      163 on its financial statements but does not expect it to have an effect on
      the
      Company's financial position, results of operations or cash flows.





Also
      in
      May 2008, the FASB issued FSP APB 14-1, " *Accounting
      for Convertible Debt Instruments that may be Settled in Cash upon Conversion
      (Including Partial Cash Settlement)"* ("FSP
      APB 14-1"). FSP APB 14-1 applies to convertible debtsecurities that, upon conversion, may be settled by the issuer fully or
      partially in cash. FSP APB 14-1 specifies that issuers of such instruments
      should separately account for the liability and equity components in a manner
      that will reflect the entity's nonconvertible debt borrowing rate when interest
      cost is recognized in subsequent periods. FSP APB 14-1 is effective for
      financial statements issued for fiscal years after December 15, 2008, and must
      be applied on a retrospective basis. Early adoption is not permitted. The
      Company does not expect it to have an effect on the Company's financial
      position, results of operations or cash flows.




15


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**


In
      June
      2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, *"Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities"* ("FSP
      EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
      instruments granted in share-based payment transactions are participating
      securities prior to vesting, and therefore need to be included in the earnings
      allocation in computing earnings per share under the two-class method as
      described in SFAS No. 128, Earnings per Share. Under the guidance of FSP EITF
      03-6-1, unvested share-based payment awards that contain nonforfeitable rights
      to dividends or dividend equivalents (whether paid or unpaid) are participating
      securities and shall be included in the computation of earnings-per-share
      pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial
      statements issued for fiscal years beginning after December 15, 2008 and all
      prior-period earnings per share data presented shall be adjusted
      retrospectively. Early application is not permitted. The Company does not expect
      it to have an effect on the Company's financial position, results of operations
      or cash flows.





Also
      in
      June 2008, the FASB ratified EITF No. 07-5, " *Determining
      Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own
      Stock* "
      ("EITF
      07-5"). EITF 07-5 provides that an entity
      should use a two-step approach to evaluate whether an equity-linked financial
      instrument (or embedded feature) is indexed to its own stock,
      including evaluating the instrument's contingent exercise and settlement
      provisions. EITF 07-5 is effective for financial statements issued for fiscal
      years beginning after December 15, 2008. Early application is not permitted.
      The
      Company is assessing the potential impact of this EITF 07-5 on the financial
      condition and results of operations and does not expect it to have an effect
      on
      the Company's financial position, results of operations or cash
      flows.





**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 period ended September
      30, 2008.





**NOTE** **-** **5**  **INVENTORIES**





Inventories
      consisted of the following:





September
                30, 2008
            
            December
                31, 2007(Unaudited)
            
            (Audited)Raw
                materials
            
            $
            910,352
            
            $
            310,040Work-in-process
            
            
            896,625
            
            
            734,711Finished
                goods
            
            
            368,205
            
            
            403,635$
            2,175,182
            
            $
            1,448,386





For
      the
      three and nine months ended September 30, 2008 and 2007, no allowance for
      obsolete inventories was recorded by the Company.





16


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**


**NOTE** **-** **6**  **PREPAYMENTS
      AND OTHER RECEIVABLES**





Prepayments
      and other receivables consisted of the following:





September
                30, 2008
            
            December
                31, 2007(Unaudited)
            
            (Audited)Prepayment
                to vendors for raw materials
            
            $
            839,914
            
            $
            558,047Prepaid
                operating expenses
            
            
            27,975
            
            
            25,874Value
                added tax receivable
            
            
            5,431
            
            
            12,537Other
                receivables
            
            
            80,483
            
            
            9,531$
            953,803
            
            $
            605,989





**NOTE** **-** **7**  **PLANT
      AND EQUIPMENT, NET**





Plant
      and
      equipment, net, consisted of the following:





September
                30, 2008
            
            December
                31, 2007(Unaudited)
            
            (Audited)Plant
                and machinery
            
            $
            2,832,941
            
            $
            2,566,042Furniture,
                fixture and equipment
            
            
            43,454
            
            
            33,968Construction
                in progress
            
            
            843,023
            
            
            223,029Foreign
                translation difference
            
            
            179,689
            
            
            162,4603,899,107
            
            
            2,985,499Less:
                accumulated depreciation
            
            
            (709,406
            )
            
            (448,981
            )Less:
                foreign translation difference
            
            
            (39,509
            )
            
            (21,723
            )$
            3,150,192
            
            $
            2,514,795





Depreciation
      expenses for the three months ended September 30, 2008 and 2007 were $68,287
      and
      $50,856 respectively.





Depreciation
      expenses for the nine months ended September 30, 2008 and 2007 were $238,702
      and
      $190,161 respectively.




17


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**





**NOTE** **-** **8**  **OTHER
      PAYABLES AND ACCRUED LIABILITIES**





Other
      payables and accrued liabilities consisted of the following:




September
                30, 2008
            
            December
                31, 2007(Unaudited)
            
            (Audited)Rent
                payable
            
            $
            29,175
            
            $
            37,599Welfare
                payable
            
            
            56,524
            
            
            108,125Accrued
                expenses
            
            
            68,534
            
            
            74,576Payable
                to equipment vendors
            
            
            12,254
            
            
            135,090$
            166,487
            
            $
            355,390





**NOTE** **-** **9**  **COMMON
      STOCK SUBSCRIPTIONS**





In
      January 2008, the Company entered a loan agreement to borrow an aggregate of
      $2,000,000 from two independent investors namely, South World Ltd. and Oriental
      United Resources Ltd. (the “Investors”), which are established under the laws of
      the British Virgin Islands. The loans were unsecured, non-interest bearing
      and
      convertible into common stock in a term of 3 months from the drawdown date.
      The
      Company also had an option to repay the balance with interest charge at a rate
      of 36% per annum. The Company received the aggregate amount of $2,000,000 in
      January and March 2008, respectively.





On
      April
      28, 2008, the Company entered into a Securities Purchase Agreement with two
      independent investors (“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. The Investors are South World Ltd. and Oriental United Resources
      Ltd., which are established under the laws of the British Virgin Islands, each
      of the Investors acquired one half of these 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.





As
      of
      September 30, 2008, the
      number of issued and outstanding shares of the Company’s common stock was 39,872,704.





**NOTE** **-** **10**  **INCOME
      TAXES**





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





As
      of
      September 30, 2008, the operation in the United States of America has incurred
      $664,569 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 $232,599 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.





The
      Company's subsidiaries operating in the PRC, Nengfa Energy and Sales Company
      are subject
      to the Corporate Income Tax governed by the Income Tax Law of the People’s
      Republic of China.




18


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**


Effective
      from January 1, 2008, the Corporate Income Tax Law of the People’s Republic of
      China (the “New CIT Law”) is followed. Under the New CIT Law, Nengfa Energy, as
      a foreign investment enterprise continues to enjoy the unexpired tax holidays
      for a full exemption of income tax for the first two profit making years with
      a
      15% exemption of income tax for the next three years. Sales Company is a
      domestic company which is entitled to the tax rate reduction from 33% to 25%.





The
      Company’s effective income tax rates for the nine months ended September 30,
      2008 and 2007 were 0%, and 0%.





**NOTE** **-** **11**  **SEGMENT
      INFORMATION**





The
      Company’s business units have been aggregated into two reportable segments:
      Valves manufacturing business and Energy-saving related business. Valves
      manufacturing business included the production
      of valves components and provision of valve improvement and engineering
      services. Energy-saving related business included the provision of energy-saving related
      re-engineering and technical services and long-term construction 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.





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 periods ended September 30, 2008 and 2007. 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 nine months ended September 30,
      2008:




Three
                months ended September 30, 2008:
            
            Valves
                manufacturing business
            
            Energy-saving
                related business
            
            TotalOperating
                revenues-
                Products
            
            $
            3,557,112
            
            $
            -
            
            $
            3,557,112-
                Services
            
            
            939,406
            
            
            -
            
            
            939,406-
                Projects
            
            
            -
            
            
            105,308
            
            
            105,308Total
                operating revenues
            
            
            4,496,518
            
            
            105,308
            
            
            4,601,826Cost
                of revenues
            
            
            3,351,469
            
            
            14,115
            
            
            3,365,584Gross
                profit
            
            
            1,145,049
            
            
            91,193
            
            
            1,236,242Depreciation
            
            
            66,724
            
            
            1,563
            
            
            68,287Net
                income
            
            
            1,040,722
            
            
            24,374
            
            
            1,065,096Expenditure
                for long-lived assets
            
            $
            564,110
            
            $
            13,211
            
            $
            557,321




19


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**




Nine
                months ended September 30, 2008:
            
            Valves
                manufacturing business
            
            Energy-saving
                related business
            
            TotalOperating
                revenues-
                Products
            
            $
            8,836,478
            
            $
            -
            
            $
            8,836,478-
                Services
            
            
            2,108,342
            
            
            -
            
            
            2,108,342-
                Projects
            
            
            -
            
            
            818,490
            
            
            818,490Total
                operating revenues
            
            
            10,944,820
            
            
            818,490
            
            
            11,763,310Cost
                of revenues
            
            
            7,909,078
            
            
            609,811
            
            
            8,518,889Gross
                profit
            
            
            3,035,742
            
            
            208,679
            
            
            3,244,421Depreciation
            
            
            222,093
            
            
            16,609
            
            
            238,702Net
                income
            
            
            2,489,997
            
            
            186,210
            
            
            2,676,207Expenditure
                for long-lived assets
            
            $
            686,690
            
            
            51,353
            
            
            738,043





Summarized
      financial information concerning the Company’s reportable segments is shown in
      the following table for the three and nine months ended September 30, 2007:






Three
                months ended September 30, 2007:
            
            Valves
                manufacturing business
            
            Energy-saving
                related business
            
            TotalOperating
                revenues-
                Products
            
            $
            1,383,252
            
            $
            -
            
            $
            1,383,252-
                Services
            
            
            211,915
            
            
            -
            
            
            211,915-
                Projects
            
            
            -
            
            
            435,849
            
            
            435,849Total
                operating revenues
            
            
            1,595,167
            
            
            435,849
            
            
            2,031,016Cost
                of revenues
            
            
            974,584
            
            
            330,878
            
            
            1,305,462Gross
                profit
            
            
            620,583
            
            
            104,971
            
            
            725,554Depreciation
            
            
            39,943
            
            
            10,913
            
            
            50,856Net
                income
            
            
            418,731
            
            
            159,186
            
            
            577,917Expenditure
                for long-lived assets
            
            $
            72,599
            
            $
            19,836
            
            $
            92,435




Nine
                months ended September 30, 2007:
            
            Valves
                manufacturing business
            
            Energy-saving
                related business
            
            TotalOperating
                revenues-
                Products
            
            $
            5,328,588
            
            $
            -
            
            $
            5,328,588-
                Services
            
            
            1,297,962
            
            
            -
            
            
            1,297,962-
                Projects
            
            
            -
            
            
            435,849
            
            
            435,849Total
                operating revenues
            
            
            6,626,550
            
            
            435,849
            
            
            7,062,399Cost
                of revenues
            
            
            4,277,035
            
            
            330,878
            
            
            4,607,913Gross
                profit
            
            
            2,349,515
            
            
            104,971
            
            
            2,454,486Depreciation
            
            
            144,522
            
            
            45,639
            
            
            190,161Net
                income
            
            
            689,205
            
            
            645,661
            
            
            1,334,866Expenditure
                for long-lived assets
            
            $
            156,323
            
            $
            10,282
            
            $
            166,605


20
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**





**NOTE** **-** **12**  **CONCENTRATIONS
      OF RISK**





The
      Company is exposed to the followings concentrations of risk:





For
      the
      nine months ended September 30, 2008, 100% of the Company’s assets were located
      in the PRC and 100% of the Company’s revenues and purchases were derived from
      customers and vendors located in the PRC.





(a)  Major
      customers





For
      the
      three and nine months ended September 30, 2008, customers who account for 10%
      or
      more of revenues are presented as follows:





Three
                months ended September 30, 2008
            
            
            
            September
                30, 2008Customers
            
            
            
            Revenues
            
            Percentage
              of
                revenues
            
            
            
            Accounts
              receivable,
                tradeCustomer
                A
            
            
            
            
            $
            2,212,765
            
            
            48
            %
            
            
            
            $
            5,150,727Customer
                D
            
            
            
            
            
            624,632
            
            
            14
            %
            
            
            
            
            709,051Total:
            
            $
            2,837,397
            
            
            62
            %
            
            Total:
            
            $
            5,859,778





Nine
                months ended September 30, 2008
            
            
            
            September
                30, 2008Customers
            
            
            
            Revenues
            
            Percentage
              of
                revenues
            
            
            
            Accounts
              receivable,
                tradeCustomer
                A
            
            
            
            
            $
            6,833,406
            
            
            58
            %
            
            
            
            $
            5,150,727Customer
                D
            
            
            
            
            
            1,499,557
            
            
            13
            %
            
            
            
            
            709,051Total:
            
            $
            8,332,963
            
            
            71
            %
            
            Total:
            
            $
            5,859,778





For
      the
      three and nine months ended September 30, 2007, customers who account for 10%
      or
      more of revenues are presented as follows:





Three
                months ended September 30, 2007
            
            
            
            September
                30, 2007Customers
            
            
            
            Revenues
            
            Percentage
              of
                revenues
            
            
            
            Accounts
              receivable,
                tradeCustomer
                A
            
            
            
            
            $
            1,170,151
            
            
            58
            %
            
            
            
            $
            766,359Customer
                B
            
            
            
            
            
            385,082
            
            
            19
            %
            
            
            
            
            -Customer
                C
            
            
            
            
            
            230,960
            
            
            11
            %
            
            
            
            
            -Total:
            
            $
            1,786,193
            
            
            88
            %
            
            Total:
            
            $
            766,359




21


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**




Nine
                months ended September 30, 2007
            
            
            
            September
                30, 2007Customers
            
            
            
            Revenues
            
            Percentage
              of
                revenues
            
            
            
            Accounts
              receivable,
                tradeCustomer
                A
            
            
            
            
            $
            3,039,508
            
            
            43
            %
            
            
            
            $
            766,359Customer
                B
            
            
            
            
            
            918,335
            
            
            13
            %
            
            
            
            
            -Total:
            
            $
            3,957,843
            
            
            56
            %
            
            Total:
            
            $
            766,359





(a)  Major
      vendors





For
      the
      three and nine months ended September 30, 2008, vendors who account for 10%
      or
      more of purchases are presented as follows:


Three
                  months ended September 30, 2008
              
              
              
              September
                  30, 2008Vendors
              
              
              
              Purchases
              
              Percentage
                of
                  purchases
              
              
              
              Accounts
                payableVendor
                  A
              
              
              S
              
              $
              2,165,463
              
              
              31
              %
              
              
              
              $
              246,096
  Nine
                  months ended September 30, 2008
              
              
              
              September
                    30, 2008Vendors
              
              
              
              Purchases
              
              Percentage
                of
                  purchases
              
              
              
              Accounts
                PayableVendor
                  A
              
              
              
              
              $
              3,567,924
              
              
              32
              %
              
              Total:
              
              $
              246,096




For
      the
      three and nine months ended September 30, 2007, one vendor represented more
      than
      10% of the Company’s purchases and accounts payable, respectively. This vendor
      accounts for 20% of purchases amounting to $218,499 and 46% of purchases
      amounting to $1,809,017 for the three and nine months ended respectively, with
      $0 of accounts payable as of September 30, 2007.





(c)  Credit
      risk





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.





(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.




22


**NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED SEPTEMBER 30, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**




**NOTE** **-** **13**  **COMMITMENT
      AND CONTINGENCIES**





(a) Operating
      lease commitment





The
      Company leased an office premise under a non-cancelable operating lease
      agreement for a renewal period of one year, due February 9, 2009. The annual
      lease payment is $42,373 (RMB300,000).





(b) Capital
      commitment





As
      of
      September 30, 2008, the Company has contracted for purchase of equipment
      amounting to $262,578 (RMB1,800,000), of which $112,325 (RMB770,000) was paid
      to
      suppliers.





(c) Litigation





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 faults the defendants in breach
      of contract, which was signed by Sam Winer, former Chief Executive Officer,
      before the commencement of reverse merger with the current subsidiary. The
      case
      was dismissed on August 13, 2007 without prejudice. On October 5, 2007 the
      plaintiff filed amended complaint Case No. 6:07-cv-872-Orl-19DAB and the case
      was authorized by court on November 16, 2007. The plaintiff charged the Company
      with breach of contract since March 8, 2006 and sought a relief of 11,900,000
      shares of common stock plus $60,000-$120,000 annual “consultant
      income”.





On
      March
      5, 2008 the Company has filed a counterclaim against Dawley for $2,000,000.
      It
      included charges of security fraud and conspiracy between Winer and Dawley.
      The
      trial was held in the United States District Court, Middle District of Florida
      in Orlando on October 16. At this point, the Company is waiting for the court
      rulings from the District Court judge. The Company does not believe that the
      lawsuit would have a material impact on the Company.





23


**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., Galli
      Process, Inc. These terms also refer to our subsidiary corporation, Liaoning
      Nengfa Weiye Energy Technology Co., 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. The sales company will market and sell
      the
      Company’s valve products in China.





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
      valves, actuating device and pipe fittings; 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 utility, metallurgy, petrochemical, coal, construction, and
      municipal infrastructure development industries. We are also engaged in the
      manufacturing and sales of large-diameter low pressure valves. 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”.




24




Our
      main
      development directions in the future include the expansion of our capabilities
      for technology consulting and production of equipment and pipe network for
      building energy efficient infrastructures for municipalities, providing
      comprehensive technology solutions for regional energy conservation and emission
      reduction, and conducting research and development and the manufacturing of
      equipment and accessories 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 achieve operating efficiencies, our dependence on network
      infrastructure, capacity, telecommunications carriers and other suppliers,
      industry pricing and technology trends, evolving industry standards, domestic
      and international 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) 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.





**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.




25




(a)
      Sale
      of products





The
      Company derives revenues from the sale of self-manufactured products and
      provision of engineering services. The Company recognizes its revenues net
      of
      related business taxes and value added taxes (“VAT”). The Company is subject to
      VAT which is levied on the majority of the products at the rate of 17% on the
      invoiced value of sales. Output VAT is borne by customers in addition to the
      invoiced value of sales and input VAT is borne by the Company in addition to
      the
      invoiced value of purchases to the extent not refunded for export sales.





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 nine
      months ended September 30, 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 when service
      is rendered and accepted by the customers.





(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.





(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**





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 September 30, 2008, the
      Company has determined that no allowance for doubtful accounts is
      necessary.





**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 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 September 30, 2008, the Company
      did not record an allowance for obsolete inventories, nor have there been any
      write-offs.




26




**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
                valuePlant
                and machinery
            
            3
                -
                20 years
            
            5%Furniture,
                fixture and equipment
            
            5
                -
                8 years
            
            5%





Expenditure
      for repairs and maintenance is expensed as incurred. When assets are 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.





**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
      statements of operations and comprehensive 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.





Effective
      January 1, 2007, the Company also adopts
      the provisions of the Financial Accounting Standards Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes” (“* FIN
      48 *”)* .
      FIN 48
      prescribes a recognition threshold and measurement process for recording in
      the
      financial statements uncertain tax positions taken or expected to be taken
      in a
      tax return. FIN No. 48 also provides guidance on de-recognition, classification,
      interest and penalties, accounting in interim periods, disclosures and
      transitions. In
      connection with the adoption of FIN No. 48, the Company has analyzed the filing
      positions in all of the jurisdictions where the Company is required to file
      income tax returns, as well as all open tax years in these jurisdictions. The
      Company also follows the policy of recognizing interest and penalties, if any,
      related to unrecognized tax positions as income tax expense. The Company did
      not
      have any unrecognized tax position and there was no effect on the financial
      condition or results of operations for the period ended September- 30, 2008.





The
      Company conducts its 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 local and foreign tax
      authority.





**RESULTS
      OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**




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.





**REVENUES**





Total
      revenues were $4,601,826 and $11,763,310 for the three and nine months ended
      September 30, 2008, respectively, as compared to $2,031,016 and $7,062,399
      for
      the corresponding periods in 2007. Total
      revenues increased by $2,570,810
      and $4,700,911 ,
      a 127%
      and 67% increase, for the three and nine months ended September 30, 2008, as
      compared to total revenues for the three and nine months ended September 30,
      2007.




27




Three
                Months Ended
            
            Three
                Months EndedSeptember
                30 2008
            
            September
                30 2007
            
            ChangeAmount
            
            %
                of Total Revenues
            
            Amount
            
            %
                of Total Revenues
            
            Amount
            
            %
                changeREVENUE,
                NETProducts
            
            $
            3,557,112
            
            
            77.30
            %
            $
            1,383,252
            
            
            68.11
            %
            $
            2,173,860
            
            
            157
            %Service
            
            
            939,406
            
            
            20.41
            %
            
            211,915
            
            
            10.43
            %
            
            727,491
            
            
            343
            %Projects
            
            
            105,308
            
            
            2.29
            %
            
            435,849
            
            
            21.46
            %
            
            -330,541
            
            
            -76
            %Total
                Operating Revenues
            
            $
            4,601,826
            
            
            100
            %
            $
            2,031,016
            
            
            100
            %
            $
            2,570,810
            
            
            127
            %




Nine
                Months Ended
            
            Nine
                Months EndedSeptember
                30 2008
            
            September
                30 2007
            
            ChangeAmount
            
            %
                of Total Revenues
            
            Amount
            
            %
                of Total Revenues
            
            Amount
            
            %
                changeREVENUE,
                NETProducts
            
            $
            8,836,478
            
            
            75.12
            %
            $
            5,328,588
            
            
            75.45
            %
            $
            3,507,890
            
            
            66
            %Service
            
            
            2,108,342
            
            
            17.92
            %
            
            1,297,962
            
            
            18.38
            %
            
            810,380
            
            
            62
            %Projects
            
            
            818,490
            
            
            6.96
            %
            
            435,849
            
            
            6.17
            %
            
            382,641
            
            
            88
            %Total
                Operating Revenues
            
            $
            11,763,310
            
            
            100
            %
            $
            7,062,399
            
            
            100
            %
            $
            4,700,911
            
            
            67
            %





***Product
      Revenues***




Product
      revenues are derived principally from the sale of self-manufactured products
      and
      provision of engineering services. Product revenues were $3,557,112 and
      $8,836,478, or 77.30% and 75.12% of total revenues for the three and nine months
      ended September 30, 2008, as compared to $1,383,252 and $5,328,588, or 68.11%
      and 75.45% of total revenues for both the corresponding periods in 2007. Product
      revenues increased by $2,173,860,
      a 157% increase, to
      $3,557,112 for the three months ended September 30, 2008 and increased by $3,507,890,
      a  66 %
      increase, to $8,836,478 for the nine months ended September 30, 2008 as compared
      to the corresponding three and nine month periods in 2007.




***Service
      Revenues***




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. Service revenues were $939,406
      and
      $2,108,342, or 20.41% and 17.92% of total revenues for the three and nine months
      ended September 30, 2008, as compared to $ 211,915 and $1,297,962, or 10.43%
      and
      18.38% of total revenues for both the corresponding periods in 2007. Service
      revenues increased by $727,491,
      a 343% increase, to
      $939,406 for the three months ended September 30, 2008 and increased by $810,380
      a  62 %
      increase, to $2,108,342 for the nine months ended September 30, 2008 as compared
      to the corresponding three and nine month periods in 2007.





***Project
      Revenues***




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.
      This
      is a newly created business line in 2007. Project revenues were $105,308 and
      $818,490, or 2.29% and 6.96% of total revenues for the three and nine months
      ended September 30, 2008, as compared to $435,849 and $435,849, or 21.46% and
      6.17% of total revenues for both the corresponding periods in 2007. Project
      revenues decreased by $330,541,
      a 76% decrease, to
      $105,308 for the three months ended September 30, 2008 and increased by $382,641,
      a  88 %
      increase, to $818,490 for the nine months ended September 30, 2008 as compared
      to the corresponding three and nine month periods in 2007. With
      the
      Company’s new emphasis on managing comprehensive energy saving and emission
      reduction projects for municipalities and large industrial enterprises, we
      expect the project revenues will continue to increase in 2008.




28




**COSTS
      AND EXPENSES**





***Cost
      of Revenues***







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 $3,365,584 and $8,518,889 for the three and nine months ended September
      30,
      2008, respectively, as compared to $1,305,462 and $4,607,913 for the
      corresponding three and nine month periods in 2007. The total cost of revenues
      increased by $2,060,122 (158%) and $3,910,976 (85%) for the three and nine
      months ended September 30, 2008, as compared to total cost of revenues for
      the
      corresponding three and nine months periods in 2007. The increase in total
      cost
      of revenues was due partly to increased supporting costs for increasing sales
      and partly induced by the inflation in PRC.




Three
                Months Ended
            
            Three
                Months EndedSeptember
                30 2008
            
            September
                30 2007
            
            ChangeAmount
            
            %
                of Total Cost of Revenues
            
            Amount
            
            %
                of Total Cost of Revenues
            
            Amount
            
            %
                changeCOST
                OF REVENUESCost
                of Products
            
            $
            2,639,688
            
            
            78.43
            %
            $
            881,432
            
            
            67.52
            %
            $
            1,758,256
            
            
            199
            %Cost
                of Service
            
            
            711,781
            
            
            21.15
            %
            
            93,152
            
            
            7.14
            %
            
            618,629
            
            
            664
            %Cost
                of Projects
            
            
            14,115
            
            
            0.42
            %
            
            330,878
            
            
            25.35
            %
            
            -316,763
            
            
            -96
            %Total
                Cost of Revenues
            
            $
            3,365,584
            
            
            100.00
            %
            $
            1,305,462
            
            
            100.00
            %
            $
            2,060,122
            
            
            158
            %




Nine
                  Months EndedSeptember
                30 2008
            
            Nine
                  Months EndedSeptember
                30 2007
            
            ChangeAmount
            
            %
                of Total Cost of Revenues
            
            Amount
            
            %
                of Total Cost of Revenues
            
            Amount
            
            %
                changeCOST
                OF REVENUESCost
                of Products
            
            $
            6,391,906
            
            
            75.03
            %
            $
            3,889,149
            
            
            84.40
            %
            $
            2,502,757
            
            
            64
            %Cost
                of Service
            
            
            1,517,172
            
            
            17.81
            %
            
            387,886
            
            
            8.42
            %
            
            1,129,286
            
            
            291
            %Cost
                of Projects
            
            
            609,811
            
            
            7.16
            %
            
            330,878
            
            
            7.18
            %
            
            278,933
            
            
            84
            %Total
                Cost of Revenues
            
            $
            8,518,889
            
            
            100.00
            %
            $
            4,607,913
            
            
            100.00
            %
            $
            3,910,976
            
            
            85
            %





The
      overall gross profit for the Company was $1,236,242 and $3,244,421, or 26.86%
      and 27.58% for the three and nine months ended September 30, 2008 respectively.
      Profit margin increased by $510,688 to $1,236,242, but the gross margin ratio
      decreased 8.86% to 26.86%, for the three months ended September 30, 2008 and
      increased by $789,935 to
      $3,244,421 , but
      the
      gross margin ratio decreased 7.17% to 27.58%, for the nine months ended
      September 30, 2008 as compared to the corresponding three and nine month periods
      in 2007.




29




Three
                Months Ended
                September
                  30 2008Products
            
            %
            
            Service
            
            %
            
            Projects
            
            %
            
            Total
            
            %Revenues
            
            $
            3,557,112
            
            
            100.00
            %
            $
            939,406
            
            
            100.00
            %
            $
            105,308
            
            
            100.00
            %
            $
            4,601,826
            
            
            100.00
            %Cost
                of Revenues
            
            $
            2,639,688
            
            
            74.21
            %
            
            711,781
            
            
            75.77
            %
            
            14,115
            
            
            13.40
            %
            
            3,365,584
            
            
            73.14
            %Gross
                Margin
            
            $
            917,424
            
            
            25.79
            %
            $
            227,625
            
            
            24.23
            %
            $
            91,193
            
            
            86.60
            %
            $
            1,236,242
            
            
            26.86
            %




Three
                  Months Ended
                  September
                    30 2007Products
            
            %
            
            Service
            
            %
            
            Projects
            
            %
            
            Total
            
            %Revenues
            
            $
            1,383,252
            
            
            100.00
            %
            $
            211,915
            
            
            100.00
            %
            $
            435,849
            
            
            100.00
            %
            $
            2,031,016
            
            
            100.00
            %Cost
                of Revenues
            
            
            881,432
            
            
            63.72
            %
            
            93,152
            
            
            43.96
            %
            
            330,878
            
            
            75.92
            %
            
            1,305,462
            
            
            64.28
            %Gross
                Margin
            
            $
            501,820
            
            
            36.28
            %
            $
            118,763
            
            
            56.04
            %
            $
            104,971
            
            
            24.08
            %
            $
            725,554
            
            
            35.72
            %




Nine
                  Months Ended
                  September
                    30 2008Products
            
            %
            
            Service
            
            %
            
            Projects
            
            %
            
            Total
            
            %Revenues
            
            $
            8,836,478
            
            
            100.00
            %
            $
            2,108,342
            
            
            100.00
            %
            $
            818,490
            
            
            100.00
            %
            $
            11,763,310
            
            
            100.00
            %Cost
                of Revenues
            
            
            6,391,906
            
            
            72.34
            %
            
            1,517,172
            
            
            71.96
            %
            
            609,811
            
            
            74.50
            %
            
            8,518,889
            
            
            72.42
            %Gross
                Margin
            
            $
            2,444,572
            
            
            27.66
            %
            $
            591,170
            
            
            28.04
            %
            $
            208,679
            
            
            25.50
            %
            $
            3,244,421
            
            
            27.58
            %




Nine
                Months Ended
              September
                30 2007Products
            
            %
            
            Service
            
            %
            
            Projects
            
            %
            
            Total
            
            %Revenues
            
            $
            5,328,588
            
            
            100.00
            %
            $
            1,297,962
            
            
            100.00
            %
            $
            435,849
            
            
            100.00
            %
            $
            7,062,399
            
            
            100.00
            %Cost
                of Revenues
            
            
            3,889,149
            
            
            72.99
            %
            
            387,886
            
            
            29.88
            %
            
            330,878
            
            
            75.92
            %
            
            4,607,913
            
            
            65.25
            %Gross
                Margin
            
            $
            1,439,439
            
            
            27.01
            %
            $
            910,076
            
            
            70.12
            %
            $
            104,971
            
            
            24.08
            %
            $
            2,454,486
            
            
            34.75
            %





***Cost
      of Products***





Cost
      of
      product revenues was $2,639,688 and $6,391,906, or 74.21% and 72.34% of total
      products revenues, for the three and nine months ended September 30, 2008
      respectively as compared to $881,432 and $3,889,149, or 63.72% and 72.99% of
      total product revenues, for the corresponding three and nine month periods
      in
      2007. The cost of product revenues increased by $1,758,256 to $2,639,688, an
      increase of 10.49% from 63.72% to 74.21% of total revenues, for the three months
      ended September 30, 2008, as compared to the corresponding period in 2007.
      Cost
      of product revenues increased by $2,502,757 to $6,391,906, a decrease of 0.65%
      from 72.99% to 72.34% of total revenues, for the nine months ended September
      30,
      2008, as compared to the corresponding period in 2007.




30




The
      gross
      profit for products was $917,424 and $2,444,572, or 25.79% and 27.66% for the
      three and nine months ended September 30, 2008 respectively as compared to
      $501,820 and $1,439,439, or 36.28% and 27.01% for the corresponding three and
      nine month periods in 2007. Gross profit increased by $415,604 to $917,424,
      but
      the gross margin ratio decreased 10.49% from 36.28% to 25.79%, for the three
      months ended September 30, 2008, as compared to the corresponding period in
      2007. Gross profit increased by $1,005,133 to $2,444,572, the gross margin
      ratio
      increased 0.65% from 27.01% to 27.66%, for the nine months ended September
      30,
      2008, as compared to the corresponding period in 2007. The increase in gross
      profit for products is due to increase in sales and better control of costs
      of
      products revenues.




***Cost
      of Service***





Cost
      of
      service revenues was $711,781 and $1,517,172, or 75.77% and 71.96% of total
      service revenues, for the three and nine months ended September 30, 2008
      respectively as compared to $93,152 and $387,886, or 43.96% and 29.88% of total
      service revenues, for the corresponding three and nine month periods in 2007.
      Cost of service revenues increased by $618,629 to $711,781, an increase of
      31.81% from 43.96% to 75.77% of total service revenues, for the three months
      ended September 30, 2008, as compared to the corresponding period in 2007.
      Cost
      of service revenues increased by $1,129,286 to $1,517,172, an increase of 42.08%
      from 29.88% to 71.96% of total service revenues, for the nine months ended
      September 30, 2008, as compared to the corresponding period in
      2007.





The
      gross
      profit for service was $227,625 and $591,170, or 24.23% and 28.04% for the
      three
      and nine months ended September 30, 2008 respectively as compared to $118,763
      and $910,076 or 56.04% and 70.12% for the corresponding three and nine month
      periods in 2007. Gross profit increased by $108,862 to $227,625, but the gross
      margin ratio decreased 31.81% from 56.04% to 24.23% for the three months ended
      September 30, 2008, as compared to the corresponding period in 2007. Gross
      profit decreased by $318,906 to $591,170, a decrease of 42.08% from 70.12%
      to
      28.04%, for the nine months ended September 30, 2008, as compared to the
      corresponding period in 2007. The decrease in gross profit for service is due
      to
      that the company just started providing energy-saving technical services in
      2007
      and lower cost of service revenues were reported in 2007.





***Cost
      of Projects***





In
      2007
      the Company began contracting energy-saving re-engineering projects that require
      significant modification or customization or installation subject to the
      customers. Cost of projects revenues was $14,115 and $609,811, or 13.40% and
      74.50% of total project revenues, for the three and nine months ended September
      30, 2008 respectively as compared to $330,878, or 75.92% of total service
      revenues, for both the corresponding three and nine month periods in 2007.
      Cost
      of project revenues decreased by $316,763 to $14,115, a decrease of 62.52%
      from
      75.92% to 13.40% of total project revenues, for the three months ended September
      30, 2008, as compared to the corresponding period in 2007. Cost of project
      revenues increased by $278,933 to $609,811, a decrease of 1.42% from 75.92%
      to
      74.50% of total project revenues, for the nine months ended September 30, 2008,
      as compared to the corresponding period in 2007.





The
      gross
      profit for projects was $91,193 and $208,679, or 86.60% and 25.50% for the
      three
      and nine months ended September 30, 2008 respectively as compared to $104,971
      or
      24.08% for both the corresponding three and nine month periods in 2007. Gross
      profit decreased by $13,778 to $91,193, but the gross margin ratio increased
      62.52% from 24.08% to 86.60% for the three months ended September 30, 2008,
      as
      compared to the corresponding period in 2007. Gross profit increased by $103,708
      to $208,679, an increase of 1.42% from 24.08% to 25.50%, for the nine months
      ended September 30, 2008, as compared to the corresponding period in
      2007.





***Operating
      Expenses***





Total
      operating expenses was $179,957 and $585,652, or 3.91% and 4.98% of total
      revenues, for the three and nine months ended September 30, 2008 respectively
      as
      compared to $149,060 and $1,132,904, or 3.24% and 16.04% of total revenues,
      for
      the corresponding three and nine month periods in 2007. Total operating expenses
      increased by $30,897 to $179,957 for the three months ended September 30, 2008,
      and decreased by $547,252 to $585,652 for the nine months ended September 30,
      2008, as compared to the corresponding three and nine month periods in 2007.
      The
      decrease for the nine months ended September 30, 2008 from the corresponding
      period in 2007 primarily consists of a $510,000 decrease in stock compensation
      expense that was incurred in 2007 for issuing 1,000,000 shares of restricted
      common stock for business advisory services to Greentree Financial Group,
      Inc.




31




***Sales
      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. Sales and marketing expenses was $16,318 and $78,598,
      or
      0.35% and 0.67% of total revenues, for the three and nine months ended September
      30, 2008 respectively as compared to $9,568 and $24,277, or 0.47% and 0.34%
      of
      total revenues, for the corresponding three and nine month periods in
      2007.




Sales
      and
      marketing expenses increased by $6,750 to $16,318 for the three months ended
      September 30, 2008, and increased by $54,321 to $78,598 for the nine months
      ended September 30, 2008, as compared to the corresponding three and nine month
      periods in 2007. The increase for the three months ended September 30, 2008
      from
      the corresponding period in 2007 and the increase for the nine months ended
      September 30, 2008 from the corresponding period in 2007 are both due to
      increased sales and marketing activities during these periods. Another reason
      for the increase in sales and marketing expenses was that in 2007 the sales
      and
      marketing expenses were included in general and administrative
      expenses.





***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 accessories 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.




Research
      and development expenses was $10,377 and $95,963, or 0.23% and 0.82% of total
      revenues, for the three and nine months ended September 30, 2008 respectively
      as
      compared to $14,014 and $343,920, 0.69% and 4.87% of total revenues, for the
      corresponding three and nine month periods in 2007. Research and development
      expenses decreased by $3,637 to $10,377 for the three months ended September
      30,
      2008, and decreased by $247,957 to $95,963 for the nine months ended September
      30, 2008, as compared to the corresponding three and nine month periods in
      2007.
      The decrease for the three months ended September 30, 2008 from the
      corresponding period in 2007 and the decrease for the nine months ended
      September 30, 2008 from the corresponding period in 2007 are primarily due
      to
      intensive research and development activities during 2007 to study the
      possibility of using the company’s existing manufacturing facilities and valve
      production expertise to produce equipment for wind power plants.





***General
      and administrative expenses***




General
      and administrative expenses was $153,262 and $411,091, or 3.33% and 3.49% of
      total revenues, for the three and nine months ended September 30, 2008
      respectively as compared to $125,478 and $254,707, or 6.18% and 3.61% of total
      revenues, for the corresponding three and six month periods in 2007. General
      and
      administrative expenses increased by $27,784 to $153,262 for the three months
      ended September 30, 2008, and increased by $156,384 to $411,091 for the nine
      months ended September 30, 2008, as compared to the corresponding three and
      nine
      month periods in 2007.  The
      increase for the three months ended September 30, 2008 from the corresponding
      period in 2007 and the increase for the nine months ended September 30, 2008
      from the corresponding period in 2007 were both due to an increase in personnel
      expenses.




32




**Income
      from Operations**




As
      a
      result of the foregoing, for the three and nine months ended September 30,
      2008,
      income from operations was $1,056,285 and $2,658,769, 22.95% and 22.60% of
      total
      revenues, as compared to $576,494 and $1,321,582, 28.38% and 18.71% of total
      revenues, for the three and nine months ended September 30, 2007. Our income
      from operations increased by $479,791 to $1,056,285, for the three months ended
      September 30, 2008, and increased by $1,337,187 to $2,658,769, for the nine
      months ended September 30, 2008, as compared to the corresponding three and
      nine
      month periods in 2007.





**Income
      Tax Expenses**





For
      the
      three and nine months ended September 30, 2008, income tax expense was $167
      and $472, as compared to $0 and $0 for the three and nine months ended September
      30, 2007. 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% for the following three years.





As
      of
      September 30, 2008, the operation in the United States of America has incurred
      $664,569 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 $232,599 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.




**Net
      Income**




As
      a
      result of the foregoing, we had net income of $1,065,096 and $2,676,207, 23.15%
      and 22.75% of total revenues, for the three and nine months ended September
      30,
      2008, as compared to net income of $577,917 and $1,334,866, 28.45% and 18.90%
      of
      total revenues, for the three and nine months ended September 30, 2007. Our
      net
      income increased by $487,179 (84.3%) to $1,065,096 for the three months ended
      September 30, 2008, and increased by $1,341,341 (100.49%) to $2,676,207 for
      the
      nine months ended September 30, 2008, as compared to the corresponding three
      and
      nine month periods in 2007.





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Operating
      activities**





For
      the
      nine months ended September 30, 2008, net cash used for operating activities
      was
      $759,721. This was primarily attributable to our net income of $2,676,207,
      adjusted by non-cash items of depreciation $238,702, and a decrease in working
      capital of $3,674,630. The decrease in working capital in the first nine months
      of 2008 were due primarily to the increase in accounts receivable by $3,804,182,
      inventories by $609,412, prepayments and other receivables by $306,187, and
      the
      decrease in other payables and accrued liabilities by $156,442, partially offset
      by an increase in accounts payable by $849,318, customer deposits by $343,490,
      income tax payable by $167 and value added tax payables by $8,618 in this
      period.





The
      large
      increase in accounts receivable of $3,804,182, more than double the accounts
      receivables balances at December 31, 2007, is mainly due to the sales growth
      during the period. The increase in inventories of $609,412 reflects a higher
      inventory level the company maintains for the current sales level. The reason
      for the large increase in the prepayments and other receivables of $306,187,
      a
      57.40% 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
      will increase in the coming year. In order to hedge the increase in raw material
      costs, the company has signed more purchase contracts in advance with the
      suppliers and hence increasing the prepayments. The increase in accounts payable
      of $849,318 corresponds to sales growth during the period. The increase in
      customer deposits of $343,490 is also due to the increase in sales. An increase
      of $8,618 in value added tax payable is due to increased value added tax payable
      this period. The decrease of $156,422 in other payables and accrued liabilities
      are due to the decrease in welfare payable, payables to equipment vendors and
      other accrued expenses.




33




For
      the
      nine months ended September 30, 2007, net cash used for operating activities
      was
      $968,301. This was primarily attributable to a net income of $1,334,866,
      adjusted by non-cash items of depreciation $190,161, gain on disposal of plant
      and equipment of $7,640, a non-cash expense for shares issued for service
      rendered $510,000, and a decrease in working capital of $2,995,688. The decrease
      in working capital in the first nine months of 2007 were due primarily to the
      increase in accounts receivable by $1,004,058, prepayments and other receivables
      by 1,878,371 and a decrease in income tax payable by $392,183, and other
      payables and accrued liabilities by $23,392, partially offset by the decrease
      in
      inventories by $213,836, an increase in accounts payable by $16,063, customer
      deposits by $67,294, and value added tax payable by $5,123 in this
      period.





**Investing
      activities**




For
      the
      nine months ended September 30, 2008, net cash used in investing activities
      was
      $738,043, and was primarily attributable to the purchase of plant and equipment.
      For the nine months ended September 30, 2007, net cash used in investing
      activities was $87,101 attributable to the purchase of plant and equipment
      of
      $166,605, partially offset by the proceeds from disposal of plant and equipment
      $79,504.





**Financing
      activities**




For
      the
      nine months ended September 30, 2008, net cash provided by financing activities
      was $2,000,000 attributable to the issuance of common stock to two investors
      from a convertible note. For the nine months ended September 30, 2007, net
      cash
      provided by financing activities was $870,000 attributable to the issuance
      of
      common stock.





During
      January 2008, the company borrowed an aggregate of $2,000,000 from two
      independent investors. The loans were made on a demand, interest free basis,
      on
      the condition that the principal would be converted into common equity. The
      parties have completed negotiations of a Securities Purchase Agreement, dated
      April 28, 2008, for the issuance of an aggregate of 6,645,376 shares of common
      stock, at an equivalent per share price of $0.30, of “restricted stock”, without
      registration rights, on conversion of the loans. The investors are South World
      Ltd. and Oriental United Resources Ltd., each a company established under the
      laws of the British Virgin Islands (together the “Investors”), each of which
      Investor acquired one half of the above securities, or 3,322,688 shares. As
      a
      result of the issuance of the shares, each of the investors owns 8.33% of the
      issued and outstanding common stock of the Company. The proceeds of the loans
      have been used and will continue to be used for working capital.





We
      anticipate we will need additional working capital in 2008 and in the future
      to
      fund our company’s new business plans and to help establish our company to be a
      leader in equipment manufacturing for wind power plants and in comprehensive
      energy saving infrastructure projects for municipalities while keeping our
      current leading position in valve production. 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.





**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.




34




**EFFECTS
      OF INFLATION**





We
      believe that the 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 .





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.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





Not
      Applicable.





**Item
      4T. Controls and Procedures.**




The
      Company maintains disclosure controls and procedures designed to ensure that
      information required to be disclosed in reports filed under the Securities
      Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and
      reported within the specified time periods. The Company’s Chief Executive
      Officer and its Chief Financial Officer (collectively, the “Certifying
      Officers”) are responsible for maintaining disclosure controls and procedures
      for the Company. The controls and procedures established by the Company are
      designed to provide reasonable assurance that information required to be
      disclosed by the issuer in the reports that it files or submits under the
      Exchange Act are recorded, processed, summarized and reported within the time
      periods specified in the Commission’s rules and forms.




As
      of the
      end of the period covered by this report, the Certifying Officers evaluated
      the
      effectiveness of the Company’s disclosure controls and procedures. Based on the
      evaluation, the Certifying Officers concluded that the Company’s disclosure
      controls and procedures were effective to provide reasonable assurance that
      information required to be disclosed by us in the reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported, within
      the time periods specified in the applicable rules and forms, and that it is
      accumulated and communicated to our management, including the Certifying
      Officers, as appropriate to allow timely decisions regarding required
      disclosure.





**PART
      II. OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





The
      trial
      for a
      civil
      complaint *Robert
      Dawley vs NF Energy Saving Corp. of America, et al.* which
      was filed in the United States District Court, Middle District of Florida,
      Orlando, Civil No. 6:07-cv-872-Orl-19DAB was held in
      the
      United States District Court, Middle District of Florida, Orlando on
      October 16, 2008. The Company is waiting for the court rulings from the District
      Court judge. At this point, the Company does not believe that the lawsuit would
      have a material impact on the Company.





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





On
      April
      30, 2008, the Company filed an 8-K report under Item 1.01 Entry into a Material
      Definitive Agreement and Item 3.02, Unregistered Sales of Equity Securities
      reporting that On
      April
      28, 2008, the Company entered into a Securities Purchase Agreement with two
      independent 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 an
      equivalent price of $0.30 per share.





**Item
      3. Defaults Upon Senior Securities.**


None.




35





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


None.





**Item
      5. Other Information.**


None.





**Item
      6. Exhibits.**





Exhibits
      required by Item 601 of Regulation S-K are listed in the Index to Exhibits
      Beginning on page 37 of this Form 10-Q, which is incorporated herein by
      reference.








**SIG** **NATURES**





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:
              November 10, 2008
            By:
            /s/ Gang
              LiGang
              LiChairman,
              Chief
              Executive Officer and President





36





**INDEX
      TO E** **XHIBITS**


**Exhibit
                  No.**
              **Description**31.1
              Certification
                  of Chief Executive Officer31.2
              Certification
                  of Chief Financial Officer32.1
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section906
                  of the Sarbanes-Oxley Act of 200232.2
              Certification
                  pursuantto
                  18 U.S.C. Section 1350, as adopted pursuant to section906
                  of the Sarbanes-Oxley Act of
                  2002




37