**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 
 **FORM
        10-Q**
 
 
 **x**
              **Quarterly
                  Report Pursuant to Section 13 Or 15(d) of the Securities Exchange
                  Act of
                  1934 for the Quarterly Period Ended March 31,
                  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.
 Yes**x**
              
              
              No**o**
 
 
 
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
 
 Large
        accelerated filer  **o**    Accelerated
        filer   **o**
 Non-accelerated
        filer  **o**    Smaller
        reporting company  **x**
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act)
 Yes**o**
              
              
              No**x**
 
 As
        of May
        14, 2008, the registrant had 33,227,328 shares of common stock, $0.001 par
        value, issued and outstanding.
 2
 
 **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.
  3
  **TABLE
        OF CONTENTS**
 
 **PART
        I - FINANCIAL INFORMATION**
 Item
                    1. Financial Statements
                
                
                5Item
                    2. Management’s Discussion and Analysis of Financial Condition and Results
                    of Operations
                
                
                23Item
                    3. Quantitative and Qualitative Disclosures About Market
                    Risk
                
                
                31Item
                    4T. Controls and Procedures
                
                
                32
  **PART
            II - OTHER INFOMRATION**
 Item
                    1. Legal Proceedings
                
                
                32Item
                    2. Unregistered Sales of Equity Securities and Use of
                    Proceeds
                
                
                32Item
                    3. Defaults Upon Senior Securities
                
                
                32Item
                    4. Submission of Matters to a Vote of Security Holders
                
                
                32Item
                    5. Other Information
                
                
                32Item
                    6. Exhibits
                
                
                32Signatures
                
                
                33
  4
  **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1.**  **Financial
        Statements.**
 
 
 **NF
        ENERGY SAVING CORPORATION OF AMERICA**
 
 
 **INDEX
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 **Page**Condensed
                    Consolidated Balance Sheets as of March 31, 2008 and December
                    31, 2007
                
                6Condensed
                    Consolidated Statements of Operations And Comprehensive Income
                    for the
                    three months ended March 31, 2008 and 2007
                
                7Condensed
                    Consolidated Statements of Cash Flows for the three months ended
                    March 31,
                    2008 and 2007
                
                8Condensed
                    Consolidated Statement of Stockholders’ Equity for the three months ended
                    March 31, 2008
                
                9Notes
                    to Condensed Consolidated Financial Statements
                
                10
                    to 22
  5
  **NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **AS
        OF MARCH 31, 2008 AND DECEMBER 31, 2007**
 **(Currency
        expressed in United States Dollars (“US$”), except for number of
        shares)**
  March
                  31,2008
              
              December
                  31, 2007(unaudited)
              
              (audited)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              3,954,248
              
              $
              2,240,901Accounts
                  receivable, trade
              
              
              4,649,374
              
              
              4,061,352Unbilled
                  accounts receivable
              
              
              19,474
              
              
              -Inventories
              
              
              1,678,435
              
              
              1,448,386Prepayments
                  and other receivables
              
              
              996,467
              
              
              605,989Total
                  current assets
              
              
              11,297,998
              
              
              8,356,628Plant
                  and equipment, net
              
              
              2,579,019
              
              
              2,514,795**TOTAL
                  ASSETS**
              
              $
              13,877,017
              
              $
              10,871,423**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable, trade
              
              $
              1,400,108
              
              $
              1,259,081Customer
                  deposits
              
              
              82,776
              
              
              22,719Value
                  added tax payable
              
              
              53,857
              
              
              70,604Other
                  payables and accrued liabilities
              
              
              184,916
              
              
              355,390Total
                  current liabilities
              
              
              1,721,657
              
              
              1,707,794Commitments
                  and contingenciesStockholders’
                  equity:Common
                  stock, $0.001 par value; 50,000,000 shares authorized; 33,227,328
                  shares
                  issued and outstanding as of March 31, 2008 and December 31,
                  2007
              
              
              33,227
              
              
              33,227Common
                  stock subscriptions
              
              
              2,000,000
              
              
              -Additional
                  paid-in capital
              
              
              5,713,232
              
              
              5,713,232Statutory
                  reserve
              
              
              517,774
              
              
              517,774Accumulated
                  other comprehensive income
              
              
              970,147
              
              
              557,503Retained
                  earnings
              
              
              2,920,980
              
              
              2,341,893Total
                  stockholders’ equity
              
              
              12,155,360
              
              
              9,163,629**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              13,877,017
              
              $
              10,871,423
  See
        accompanying notes to condensed consolidated financial
        statements.
  6
  **NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **AND
        COMPREHENSIVE INCOME**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(Currency
        expressed in United States Dollars (“US$”), except for number of
        shares)**
 **(Unaudited)**
  Three
                  months ended March 31,2008
              
              2007**OPERATING
                  REVENUE:**Products
              
              $
              2,243,053
              
              $
              932,251Services
              
              
              331,381
              
              
              70,235Projects
              
              
              290,523
              
              
              -Total
                  operating revenues
              
              
              2,864,957
              
              
              1,002,486**COST
                  OF REVENUES:**Cost
                  of products
              
              
              1,660,147
              
              
              741,231Cost
                  of services
              
              
              209,520
              
              
              36,224Cost
                  of projects
              
              
              239,770
              
              
              -Total
                  cost of revenues
              
              
              2,109,437
              
              
              777,455**GROSS
                  PROFIT**
              
              
              755,520
              
              
              225,031**OPERATING
                  EXPENSES:**Sales
                  and marketing
              
              
              13,359
              
              
              -Research
                  and development
              
              
              38,332
              
              
              -Stock-based
                  compensation
              
              
              -
              
              
              255,000General
                  and administrative
              
              
              128,423
              
              
              57,470Total
                  operating expenses
              
              
              180,114
              
              
              312,470**INCOME
                  (LOSS) FROM OPERATIONS**
              
              
              575,406
              
              
              (87,439
              )**OTHER
                  INCOME:**Other
                  income
              
              
              3,982
              
              
              6,652Total
                  other income
              
              
              3,982
              
              
              6,652**INCOME
                  (LOSS) BEFORE INCOME TAXES**
              
              
              579,388
              
              
              (80,787
              )Income
                  tax expenses
              
              
              (301
              )
              
              -**NET
                  INCOME (LOSS)**
              
              $
              579,087
              
              $
              (80,787
              )Other
                  comprehensive income:-
                  Foreign currency translation gain
              
              
              412,644
              
              
              36,598**COMPREHENSIVE
                  INCOME (LOSS)**
              
              $
              991,731
              
              $
              (44,189
              )Net
                  income (loss) per share - Basic and diluted
              
              $
              0.02
              
              $
              (0.00
              )Weighted
                  average number of shares outstanding during the period - Basic
                  and
                  diluted
              
              
              33,227,328
              
              
              31,249,550
  See
        accompanying notes to condensed consolidated financial
        statements.
  7
  **NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(Unaudited)**
  Three
                  months ended March 31,2008
              
              2007**Cash
                  flows from operating activities:**Net
                  income (loss)
              
              $
              579,087
              
              $
              (80,787
              )Adjustments
                  to reconcile net income to net cash used in operating
                  activitiesDepreciation
              
              
              83,262
              
              
              56,709Gain
                  on disposal of plant and equipment
              
              
              -
              
              
              (6,203
              )Stock-based
                  compensation
              
              
              -
              
              
              255,000Change
                  in operating assets and liabilities:Billed
                  and unbilled accounts receivable
              
              
              (429,291
              )
              
              (592,457
              )Inventories
              
              
              (166,210
              )
              
              (374,867
              )Prepayments
                  and other receivables
              
              
              (357,858
              )
              
              44,147Accounts
                  payable
              
              
              86,792
              
              
              164,858Customer
                  deposits
              
              
              57,848
              
              
              16,849Income
                  tax payable
              
              
              -
              
              
              (378,068
              )Value
                  added tax payable
              
              
              (19,261
              )
              
              8,495Other
                  payables and accrued liabilities
              
              
              (108,364
              )
              
              72,255Net
                  cash used in operating activities
              
              
              (273,995
              )
              
              (814,069
              )**Cash
                  flows from investing activities:**Purchase
                  of plant and equipment
              
              
              (115,198
              )
              
              -Proceeds
                  from disposal of plant and equipment
              
              
              -
              
              
              16,533Net
                  cash (used in) provided by investing activities
              
              
              (115,198
              )
              
              16,533**Cash
                  flows from financing activities:**Proceeds
                  from common stock subscriptions
              
              
              2,000,000
              
              
              -Net
                  cash provided by financing activities
              
              
              2,000,000
              
              
              -Effect
                  on exchange rate change on cash and cash equivalents
              
              
              102,540
              
              
              36,598**NET
                  CHANGE IN CASH AND CASH EQUIVALENTS**
              
              
              1,713,347
              
              
              (760,938
              )**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
              
              
              2,240,901
              
              
              796,944**CASH
                  AND CASH EQUIVALENTS, END OF PERIOD**
              
              $
              3,954,248
              
              $
              36,006**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid for income taxes
              
              $
              -
              
              $
              390,005Cash
                  paid for interest expenses
              
              $
              -
              
              $
              -
 
  See
        accompanying notes to condensed consolidated financial statements.
 
 8
  **NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **CONDENSED
        CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
        expressed in United States Dollars (“US$”), except for number of
        shares)**
 **(** **Unaudited)**
  Common
                  stockNo.
                  of shares
              
              Amount
              
              Common
                  stock subscriptions
              
              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
              
              $
              517,774
              
              $
              557,503
              
              $
              2,341,893
              
              $
              9,163,629Subscription
                  of common stock for $2,000,000
              
              
              -
              
              
              -
              
              
              2,000,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,000,0000Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              412,644
              
              
              -
              
              
              412,644Net
                  income for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              579,087
              
              
              579,087Balance
                  as of March 31, 2008
              
              
              33,227,328
              
              $
              33,227
              
              $
              2,000,000
              
              $
              5,713,232
              
              $
              517,774
              
              $
              970,147
              
              $
              2,920,980
              
              $
              12,155,360
  
 See
        accompanying notes to condensed consolidated financial statements.
 
 9
  **NF
        ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
  **NOTE** **-** **1**  **BASIS OF PRESENTATION**
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with both generally accepted accounting principles
        for
        interim financial information, and the instructions to Form 10-Q and Rule
        10-01
        of Regulation S-X. Accordingly, they do not include all of the information
        and
        footnotes required by generally accepted accounting principles for complete
        financial statements. The accompanying unaudited condensed consolidated
        financial statements reflect all adjustments (consisting of normal recurring
        accruals) that are, in the opinion of management, considered necessary for
        a
        fair presentation of the results for the interim periods presented. Interim
        results are not necessarily indicative of results for a full year.
 
 The
        condensed consolidated financial statements and related disclosures have
        been
        prepared with the presumption that users of the interim financial information
        have read or have access to our annual consolidated financial statements
        for the
        preceding fiscal year. Accordingly, these condensed consolidated financial
        statements should be read in conjunction with the consolidated financial
        statements and the related notes thereto contained 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, mainly engages in the production of
        industrial valve components and products in the People’s Republic of China (the
“PRC”). During 2007, the Company commenced a new business segment in the
        provision of technical service and re-engineering projects in the energy
        saving
        related industry in the PRC.
 
 Liaoning
        Nengfa Weiye Energy Technology Co. Ltd. (“Nengfa Energy”) (formerly Neng Fa
        Weiye Pipe Network Construction and Operation Co., Ltd.) is a wholly-owned
        subsidiary of the Company. Nengfa Energy is a valves manufacturer and involves
        in the production of a variety of industrial valve components, which are
        widely
        used in water supply and sewage system, coal and gas fields, power generation
        stations, petroleum and chemical industries. All the customers are located
        in
        the PRC.
 Liaoning
          Nengfa Weiye Tie Fa Sales Co., Ltd. (“Sales Company”) is a wholly-owned
          subsidiary of Nengfa Energy 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”).
 
 10
 **NF
          ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 **NOTE
        -** **3**  **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
 
 l
            Basis
                of presentation 
 These
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with generally accepted accounting principles in the United States
        of
        America.
 
 l
            Use
                of estimates 
 In
        preparing these condensed consolidated financial statements, management makes
        estimates and assumptions that affect the reported amounts of assets and
        liabilities in the balance sheet and revenues and expenses during the period
        reported. Actual results may differ from these estimates.
 
 l
            Basis
                of consolidation 
 The
        condensed consolidated financial statements include the financial statements
        of
        NFES and its subsidiaries, Nengfa Energy and Sales Company.
 
 All
        significant inter-company balances and transactions within the Company have
        been
        eliminated upon consolidation.
 
 l
            Cash
                and cash equivalents 
 Cash
        and
        cash equivalents are carried at cost and represent cash on hand, demand deposits
        placed with banks or other financial institutions and all highly liquid
        investments with an original maturity of three months or less as of the purchase
        date of such investments.
 
 l
            Accounts
                receivable 
 Accounts
        receivable are recorded at the invoiced amount and do not bear interest.
        The
        Company extends unsecured credit to its customers in the ordinary course
        of
        business but mitigates the associated risks by performing credit checks and
        actively pursuing past due accounts. An allowance for doubtful accounts is
        established and determined based on managements’ assessment of known
        requirements, aging of receivables, payment history, the customer’s current
        credit worthiness and the economic environment. As of March 31, 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 March 31, 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:
  11
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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 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
        March 31, 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 three
        months ended March 31, 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
  12
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 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 accounts for income taxes in interim periods as required by Accounting
        Principles Board Opinion No. 28, *“Interim
        Financial Reporting”* and as
        interpreted by FASB Interpretation No. 18, *“Accounting
        for Income Taxes in Interim Periods.”* The
        Company has determined an estimated annual effective tax rate. The rate will
        be
        revised, if necessary, as of the end of each successive interim period during
        the Company’s fiscal year to the Company’s best current estimate. The estimated
        annual effective tax rate is applied to the year-to-date ordinary income
        at the
        end of the interim period.
 
 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.
  13
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 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 No.
        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 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 March 31, 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 foreign tax
        authority.
 
 l
            Net
                (loss) income per share 
 The
        Company calculates net (loss) income per share in accordance with SFAS No.
        128, *“Earnings
        per Share.”* Basic
        (loss) income per share is computed by dividing the net (loss) income by
        the
        weighted-average number of common shares outstanding during the period. Diluted
        (loss) income per share is computed similar to basic (loss) 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 (loss) 
 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 three months ended March 31,
        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.
  14
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 The
        reporting currency of the Company is the United States dollar ("US$"). 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.
 
 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
              
              
              7.0222
              
              
              7.3141Average
                  daily RMB:US$ exchange rate
              
              
              7.1757
              
              
              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 and unbilled accounts receivable, inventories, 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.
  15
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 In
        February 2007, the FASB issued SFAS No. 159, *"The
        Fair Value Option for Financial Assets and Financial Liabilities"* ("SFAS
        No. 159"). SFAS No. 159 permits entities to choose to measure, on an
        item-by-item basis, specified financial instruments and certain other items
        at
        fair value. Unrealized gains and losses on items for which the fair value
        option
        has been elected are required to be reported in earnings at each reporting
        date.
        SFAS No. 159 is effective for fiscal years beginning after November 15, 2007,
        the provisions of which are required to be applied prospectively. The Company
        believes that SFAS 159 should not have a material impact on the consolidated
        financial position or results of 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.
 
 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.
 
 
 **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 March
        31,
        2008.
  16
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 
 **NOTE
        -** **5**  **INVENTORIES**
 
 Inventories
        consisted of the following:
 
 March
                  31, 2008
              
              December
                  31, 2007(audited)Raw
                  materials
              
              $
              844,401
              
              $
              310,040Work-in-process
              
              
              826,030
              
              
              734,711Finished
                  goods
              
              
              8,004
              
              
              403,635$
              1,678,435
              
              $
              1,448,386
 
 For
        the
        three months ended March 31, 2008 and 2007, no allowance for obsolete
        inventories was recorded by the Company.
 
 
 **NOTE
        -** **6**  **PREPAYMENTS
        AND OTHER RECEIVABLES**
 
 Prepayments
        and other receivables consisted of the following:
 
 March
                  31, 2008
              
              December
                  31, 2007(audited)Prepayment
                  to vendors for raw materials
              
              $
              964,097
              
              $
              558,047Prepaid
                  expenses
              
              
              9,433
              
              
              25,874Value
                  added tax receivable
              
              
              13,689
              
              
              12,537Other
                  receivables
              
              
              9,248
              
              
              9,531$
              996,467
              
              $
              605,989
 
 
 **NOTE
        -** **7**  **PLANT
        AND EQUIPMENT, NET**
 
 Property,
        plant and equipment, net, consisted of the following:
 
 March
                  31, 2008
              
              December
                  31, 2007(audited)Plant
                  and machinery
              
              $
              2,757,593
              
              $
              2,566,042Furniture,
                  fixture and equipment
              
              
              37,830
              
              
              33,968Construction
                  in progress
              
              
              234,847
              
              
              223,029Foreign
                  translation difference
              
              
              124,102
              
              
              162,4603,154,372
              
              
              2,985,499Less:
                  accumulated depreciation
              
              
              (553,967
              )
              
              (448,981
              )Less:
                  foreign translation difference
              
              
              (21,386
              )
              
              (21,723
              )$
              2,579,019
              
              $
              2,514,795
  17
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 Depreciation
        expense for the three months ended March 31, 2008 and 2007 were $83,262 and
        $56,709, respectively.
   **NOTE
        -** **8**  **OTHER
        PAYABLES AND ACCRUED LIABILITIES**
 
 Other
        payables and accrued liabilities consisted of the following:
 
 March
                  31, 2008
              
              December
                  31, 2007(audited)Rent
                  payable
              
              $
              49,842
              
              $
              37,599Welfare
                  payable
              
              
              96,941
              
              
              108,125Accrued
                  expenses
              
              
              18,823
              
              
              74,576Payable
                  to equipment vendors
              
              
              19,310
              
              
              135,090$
              184,916
              
              $
              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 “Investor”), 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 reached into a Securities Purchase Agreement (the
“Agreement”) with the Investors to exercise the conversion of 6,645,376 shares
        of restricted common stock for an aggregate amount of $2,000,000 at a 50-trading
        days weighted average market quoted price of $0.30 per share. Each of the
        Investors will acquire one half of these common stocks, or 3,322,688 shares. As
        a
        result of this transaction ,
        each of
        the investors will own 8.33% of the issued and outstanding common stock of
        the
        Company. The
        proceeds were used to fund the working capital.
 
 As
        of
        March 31, 2008, 6,645,376
        shares of restricted common stock to
        be
        issued were presented as “Common stock subscriptions” under equity section of
        the consolidated balance sheet.
 
 
 **NOTE
        -** **10**  **INCOME
        TAXES**
 
 NFES
        is
        registered in the State of Delaware and is
        subject to United States of America tax law.
  18
 **NF
            ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
            expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 As
        of
        March 31, 2008, the operation in the United States of America has incurred
        $604,511 of cumulative net operating losses which can be carried forward
        to
        offset future taxable income. The net operating loss carryforwards begin
        to
        expire in 2028, if unutilized. The Company has provided for a full valuation
        allowance against the deferred tax assets of $211,579 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 Enterprise Income Tax governed by the Income Tax Law of the People’s
        Republic of China.
 
 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
        50% 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 three months ended March 31, 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 March 31, 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 months ended March 31, 2008:
  Valves
                  manufacturing business
              
              Energy-saving
                  related business
              
              TotalOperating
                  revenues-
                  Products
              
              $
              2,243,053
              
              $
              -
              
              $
              2,243,053-
                  Services
              
              
              -
              
              
              331,381
              
              
              331,381-
                  Projects
              
              
              -
              
              
              290,523
              
              
              290,523Total
                  operating revenues
              
              
              2,243,053
              
              
              621,904
              
              
              2,864,957Cost
                  of revenues
              
              
              1,660,147
              
              
              449,290
              
              
              2,109,437Gross
                  profit
              
              
              582,906
              
              
              172,614
              
              
              755,520Depreciation
              
              
              64,935
              
              
              18,327
              
              
              83,262Net
                  income
              
              
              434,679
              
              
              144,408
              
              
              579,087Expenditure
                  for long-lived assets
              
              $
              89,830
              
              $
              25,368
              
              $
              115,198
 19
 **NF
              ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
              expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 Summarized
        financial information concerning the Company’s reportable segments is shown in
        the following table for the three months ended March 31, 2007:
  Valves
                  manufacturing business
              
              Energy-saving
                  related business
              
              TotalOperating
                  revenues-
                  Products
              
              $
              932,251
              
              $
              -
              
              $
              932,251-
                  Services
              
              
              -
              
              
              70,235
              
              
              70,235Total
                  operating revenues
              
              
              932,251
              
              
              70,235
              
              
              1,002,486Cost
                  of revenues
              
              
              741,231
              
              
              36,224
              
              
              777,455Gross
                  profit
              
              
              191,020
              
              
              34,011
              
              
              225,031Depreciation
              
              
              53,306
              
              
              3,403
              
              
              56,709Net
                  loss
              
              
              (71,900
              )
              
              (8,887
              )
              
              (80,787
              )Expenditure
                  for long-lived assets
              
              $
              -
              
              $
              -
              
              $
              -
 
 
 **NOTE
        -** **12**  **CONCENTRATION
        AND RISK**
 
 (a)  Major
        customers and vendors
 
 For
        the
        three months ended March 31, 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.
 
 For
        the
        three months ended March 31, 2008, customers and vendors who account for
        10% or
        more of revenues and purchases are presented as follows:
 
 Customers
              
              
              Revenues
              
              Percentage
                of
                  revenues
              
              
              Accounts
                receivable,
                  tradeCustomer
                  A
              
              
              $
              2,177,344
              
              76%
              
              
              $
              2,694,260Customer
                  B
              
              
              
              290,523
              
              10%
              
              
              
              322,313Total:
              
              $
              2,467,867
              
              86%
              Total:
              
              $
              3,016,573Vendors
              
              
              
              Purchases
              
              Percentage
                of
                  purchases
              
              
              
              Accounts
                payableVendor
                  A
              
              
              $
              151,090
              
              33%
              
              
              $
              -Vendor
                  B
              
              
              
              100,664
              
              22%
              
              
              
              -Total:
              
              $
              251,754
              
              55%
              Total:
              
              $
              -
 20
 **NF
              ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
              expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 For
        the
        three months ended March 31, 2007, customers and vendors who account for
        10% or
        more of revenues and purchases are presented as follows:
 
 Customers
              
              
              
              Revenues
              
              Percentage
                of
                  revenues
              
              
              
              Accounts
                receivableCustomer
                  A
              
              
              $
              782,230
              
              78%
              
              
              $
              865,396Customer
                  B
              
              
              
              161,730
              
              16%
              
              
              
              821,258Total:
              
              $
              943,960
              
              94%
              Total:
              
              $
              1,686,654Vendors
              
              
              
              Purchases
              
              Percentage
                of
                  purchases
              
              
              
              Accounts
                payableVendor
                  A
              
              
              $
              269,064
              
              35%
              
              
              $
              72,413Vendor
                  B
              
              
              
              155,083
              
              20%
              
              
              
              -Total:
              
              $
              424,147
              
              55%
              Total:
              
              $
              72,413
 
 (b)  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.
  (c)  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.
 
 
 **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 $39,665 (RMB300,000).
 21
 **NF
              ENERGY SAVING CORPORATION OF AMERICA**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
              expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 (b) Capital
        commitment
 
 As
        of
        March 31, 2008, the Company has contracted for purchase of equipment amounting
        to $227,849 (RMB1,600,000), of which $210,020 (RMB1,474,800) 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 prejustice. 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 and Winer for
        $2,000,000. It included charges of security fraud and breach of warranty
        by
        Winer. The trial was scheduled for October 2008. Counsel advised that the
        October 2008 trial would probably be postponed because of the new issues
        raised
        in the counterclaim.
 
 The
        Company plans to fight against the lawsuit aggressively. At this point, the
        Company does not believe that the lawsuit would have a material impact on
        the
        Company.
 
 
 **NOTE
        -** **14**  **SUBSEQUENT
        EVENTS**
 
 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 an equivalent 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 purchase price was paid by the conversion of non-interest bearing
        loans from the Investors which had been made on January 24 and March 4 2008. 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.
 
 22
 
 **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”.
 
 23
  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, to provide
        comprehensive technology solutions for regional energy conservation and emission
        reduction, and to conduct research and development and the manufacturing
        of
        equipment and fittings for wind power plants.
 
 **FORWARD
        LOOKING STATEMENTS**
  Certain
        statements in this report, including statements of our expectations, intentions,
        plans and beliefs, including those contained in or implied by "Management's
        Discussion and Analysis" and the Notes to Consolidated Financial Statements,
        are
        "forward-looking statements", within the meaning of Section 21E of the
        Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
        subject to certain events, risks and uncertainties that may be outside our
        control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”,
“will”, and similar expressions identify forward-looking statements. Readers are
        cautioned not to place undue reliance on these forward-looking statements,
        which
        speak only as of the date on which they are made. We undertake no obligation
        to
        update or revise any forward-looking statements. These forward-looking
        statements include statements of management's plans and objectives for our
        future operations and statements of future economic performance, information
        regarding our expansion and possible results from expansion, our expected
        growth, our capital budget and future capital requirements, the availability
        of
        funds and our ability to meet future capital needs, the realization of our
        deferred tax assets, and the assumptions described in this report underlying
        such forward-looking statements. Actual results and developments could differ
        materially from those expressed in or implied by such statements due to a
        number
        of factors, including, without limitation, those described in the context
        of
        such forward-looking statements, our expansion and acquisition strategy,
        our
        ability to 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 judgements 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.
 
 24
 **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 three months ended March 31, 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 March
        31,
        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
        March 31, 2008, the Company did not record an allowance for obsolete
        inventories, nor have there been
        any
        write-offs.
 
 25
 **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 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.
 
 **Income
        Taxes**
 
 The
        Company accounts for income taxes in interim periods as required by Accounting
        Principles Board Opinion
        No. 28, *“Interim
        Financial Reporting”* and
        as
        interpreted by FASB Interpretation No. 18, *“Accounting
        for Income Taxes in Interim Periods.”* The
        Company has determined an estimated annual
 effective
        tax rate. The rate will be revised, if necessary, as of the end of each
        successive interim period during
        the Company’s fiscal year to the Company’s best current estimate. The estimated
        annual effective tax rate
        is
        applied to the year-to-date ordinary income at the end of the interim
        period.
 
 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 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 March
        31,
        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 foreign tax authority.
 
 **RESULTS
        OF OPERATIONS**
 **Three
        Months Ended March 31, 2008 compared to the three months ended
        March 31, 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.
 
 26
 **REVENUES**
  Total
        revenues were $ 2,864,957 and
        $ 1,002,486  for
        the
        three months ended March 31, 2008 and 2007, respectively. Total revenues
        increased $ 1,862,471 ,
        a 186%
        increase, for the three months ended March 31, 2008 compared to total revenues
        for the three months ended March 31, 2007.
  Three
                  Months Ended
              
              Three
                  Months Ended
              
              ChangeMarch
                  31 2008
              
              March
                  31 2007Amount
              
              %
                  of Total Revenues
              
              Amount
              
              %
                  of Total Revenues
              
              Amount
              
              %
                  changeOPERATING
                  REVENUESProducts
              
              $
              2,243,053
              
              
              78.29
              %
              $
              932,251
              
              
              92.99
              %
              $
              1,310,802
              
              
              141
              %Service
              
              
              331,381
              
              
              11.57
              %
              
              70,235
              
              
              7.01
              %
              
              261,146
              
              
              372
              %Projects
              
              
              290,523
              
              
              10.14
              %
              
              -
              
              
              -
              
              
              290,523
              
              
              -Total
                  Operating Revenues
              
              $
              2,864,957
              
              
              100
              %
              $
              1,002,486
              
              
              100
              %
              $
              1,862,471
              
              
              186
              %
 
 ***Product
        Revenues***
 
 Product
        revenues are derived principally from the sale of self-manufactured products
        and
        provision of engineering services. Product revenues were $2,243,053 and
        $932,251, or 78.29% and 92.99% of total revenues for the three months ended
        March 31, 2008 and 2007, respectively. Product revenues for the three
        months ended March 31, 2008 increased $1,310,802,
        a 141 %
        increase, compared to the product revenues for the three months ended March
        31,
        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 $331,381
        and
        $70 ,235 ,
        or
        11.57% and 7.01% of total revenues for the three months ended March 31,
        2008 and 2007, respectively. Service revenues for the three months ended
        March
        31, 2008 increased $261,146, a 372% increase, compared to the service revenues
        for the three months ended March 31, 2007. This reflects the Company’s efforts
        in expanding the energy saving service project businesses.
 
 ***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 $290,523 or
        10.14% of total revenues for the three months ended March 31, 2008. 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.
  **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 $2,109,437 and $777,455, or 73.63% and 77.55% of total revenues for the
        three months ended March 31, 2008 and 2007, respectively. The total cost of
        revenues increased by $1,331,982 (171%) for the three months ended March
        31,
        2008 compared to the total cost of revenues for the three months ended March
        31,
        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.
 
 27
  Three
                  Months Ended
              
              Three
                  Months Ended
              
              ChangeMarch
                  31 2008
              
              March
                  31 2007Amount
              
              %
                  of Total Cost of Revenues
              
              Amount
              
              %
                  of Total Cost of Revenues
              
              Amount
              
              %
                  changeCOST
                  OF REVENUESCost
                  of Products
              
              $
              1,660,147
              
              
              78.70
              %
              $
              741,231
              
              
              95.34
              %
              $
              918,916
              
              
              124
              %Cost
                  of Service
              
              
              209,520
              
              
              9.93
              %
              
              36,224
              
              
              4.66
              %
              
              173,296
              
              
              478
              %Cost
                  of Projects
              
              
              239,770
              
              
              11.37
              %
              
              -
              
              
              -
              
              
              239,770
              
              
              -Total
                  Cost of Revenues
              
              $
              2,109,437
              
              
              100.00
              %
              $
              777,455
              
              
              100.00
              %
              $
              1,331,982
              
              
              171
              %
 
 The
        overall gross profit for the Company was $755,520 and $225,031, or 26.37%
        and
        22.45% for the three months ended March 31, 2008 and 2007 respectively. The
        profit margin increased by $530,489 or 3.92% for the three months ended March
        31, 2008 compared to the three months ended March 31, 2007.
  Three
                  Months EndedMarch
                  31, 2008Products
              
              %
              
              Service
              
              %
              
              Projects
              
              %
              
              Total
              
              %Revenues
              
              $
              2,243,053
              
              
              100.00
              %
              $
              331,381
              
              
              100.00
              %
              $
              290,523
              
              
              100.00
              %
              $
              2,864,957
              
              
              100.00
              %Cost
                  of Revenues
              
              
              1,660,147
              
              
              74.01
              %
              
              209,520
              
              
              63.23
              %
              
              239,770
              
              
              82.53
              %
              $
              2,109,437
              
              
              73.63
              %Gross
                  Margin
              
              $
              582,906
              
              
              25.99
              %
              $
              121,861
              
              
              36.77
              %
              $
              50,753
              
              
              17.47
              %
              $
              755,520
              
              
              26.37
              %
  Three
                  Months EndedMarch
                  31, 2007Products
              
              %
              
              Service
              
              %
              
              Projects
              
              %
              
              Total
              
              %Revenues
              
              $
              932,251
              
              
              100.00
              %
              $
              70,235
              
              
              100.00
              %
              
              -
              
              
              -
              
              $
              1,002,486
              
              
              100.00
              %Cost
                  of Revenues
              
              
              741,231
              
              
              79.51
              %
              
              36,224
              
              
              51.58
              %
              
              -
              
              
              -
              
              
              777,455
              
              
              77.55
              %Gross
                  Margin
              
              $
              191,020
              
              
              20.49
              %
              $
              34,011
              
              
              48.42
              %
              
              -
              
              
              -
              
              $
              225,031
              
              
              22.45
              %
 
 ***Cost
        of Products***
 
 Total
        cost of product revenues was $1,660,147 and $741,231, or 74.01% and 79.51%
        of
        products revenues, for the three months ended March 31, 2008 and 2007,
        respectively. The cost of product revenues increased by $918,916 (124%) for
        the
        three months ended March 31, 2008 compared to the cost of revenues for the
        three
        months ended March 31, 2007. The increase in product costs of 124% is less
        than
        the increase in product revenues of 141%.
  
 The
        gross
        profit for products was $582,906 and $191,020, or 25.99% and 20.49% for the
        three months ended March 31, 2008 and 2007, respectively. The increase in
        gross profit of $391,886 and profit margin of 5.5% for products are due to
        increase in sales and better control of costs of products revenues.
  ***Cost
        of Service***
 
 Total
        cost of service revenues was $209,520 and $36,224, or 63.23% and 51.58% of
        service revenues, for the three months ended March 31, 2008 and 2007,
        respectively. The cost of service revenues increased by $173,296 (478%) for
        the
        three months ended March 31, 2008 compared to the cost of revenues for the
        three
        months ended March 31, 2007. The increase in service costs of 478% is greater
        than the increase in service revenues of 372%.
  28
 The
        gross
        margin for services was $121,861 and $34,011, or 36.77% and 48.42% for the
        three
        months ended March 31, 2008 and 2007, respectively. The decrease in gross
        margin of $87,850 or 11.65% in service is due to the significant increase
        in
        costs to support the large increase in service revenues and the initial start
        up
        costs incurred to increase service revenues.
 
 ***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. Total cost of projects revenues was $239,770, 82.53% of project
        revenues, for the three months ended March 31, 2008. The gross profit for
        projects for the three months ended March 31, 2008 was $50,753 (17.47%).
 
 ***Operating
        Expenses***
 
 The
        total
        operating expenses were $180,114 and $312,470, or 6.29% and 31.17% of total
        operating revenues for the three months ended on March 31, 2008 and 2007
        respectively. This decrease was primarily due to a stock compensation cost
        of
        $255,000 incurred in the first three months ended March 31, 2007 for issuing
        1,000,000 shares of restricted common stock for business advisory services
        to
        Greentree Financial Group, Inc.
 
 ***Selling
        and marketing expenses***
 
 On
        September 5, 2007 the Company established a new subsidiary, Liaoning Nengfa
        Weiye Tie Fa Sales Co., Ltd. to engage in the sales and marketing of valves
        products in the PRC. In the first three months of 2008 the sales and marketing
        expenses were $13,359, 0.47% of total revenues. 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 fittings for wind power plants. The R&D
        effort enabled the Company to create a new line of business to tap into a
        large
        demand for the equipment needed for new wind power plants that have been
        planned
        in PRC. The research and development expenses for the three months ended
        March
        31, 2008 was $38,332, 1.34% of total revenues.
 
 ***General
        and administrative expenses***
 
 General
        and administrative expenses increased by $70,953 to $128,423, 4.48% of total
        revenues for the three months ended March 31, 2008, as compared to $57,470,
        5.73% of total revenues for the three months ended March 31, 2007.
  **Income
        from Operations**
 
 As
        a
        result of the foregoing, our income from operations increased by $662,845
        to
        $575,406, 20.08% of total revenues for the three months ended March 31,
        2008, as compared to a loss of $87,439, or -8.72% of total revenues for the
        three months ended March 31, 2007.
 
 **Income
        Tax Expenses**
 
 For
        the
        three months ended March 31, 2008, income tax expense was $301, as compared
        to $0 for the three months ended March 31, 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.
 
 29
 As
        of
        March 31, 2008, the operation in the United States of America has incurred
        $604,511 of net operating losses which can be carried forward to offset future
        taxable income. The net operating loss carryforwards begin to expire in 2028,
        if
        unutilized. The Company has provided for a full valuation allowance against
        the
        deferred tax assets of $211,579 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 $579,087, a 20.21% profit margin
        on revenues for the three months ended March 31, 2008, as compared to a net
        loss of $80,787, a 8.06% loss on margin on revenues for the three months
        ended
        March 31, 2007. The net income for the three months ended March 31, 2008
        increased by $659,874 and the profit margin increased by 28.27% compared
        to the
        net income for the three months ended March 31, 2007.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 **Operating
        activities**
 
 For
        the
        three months ended March 31, 2008, net cash used in operating activities
        was $273,995. This was primarily attributable to our net income of $579,087,
        adjusted by non-cash items of depreciation $83,262, and a $936,344 decrease
        in
        working capital. Negative cash flows from operations in the first three months
        of 2008 were due primarily to the increase in accounts receivable by $429,291,
        inventories by $166,210, prepayments and other receivables by $357,858, and
        the
        decrease in value added tax payable by $19,261 and other payables and accrued
        liabilities by $108,364, partially offset by the increase in accounts payable
        by
        $86,792 and customer deposits by $57,848 in this period.
 
 The
        large
        increase in accounts receivable of $429,291 and inventories of $166,210,
        an
        increase of 10.6% and 11.5% over the accounts receivables and inventories
        balances at December 31, 2007, are mainly due to the sales growth during
        the
        year. The reason for the increase in the prepayments and other receivables
        of
        $357,858, a 59.1% 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, we have signed more purchase contracts in advance with
        the
        suppliers and hence increasing the prepayments. The increase in accounts
        payable
        of $86,792 correspond to the increase in the cost of revenues during the
        year.
        The increase in customer deposits of $57,848 is due to the increase in sales.
        The decrease of $108,364 in other payables and accruals are due to the decrease
        in welfare payable, payables to fixed asset vendors and other accrued expenses.
        A decrease of $19,261 in value added tax payable is due to reduced value
        added
        tax payable this period.
 
 For
        the
        three months ended March 31, 2007, net cash used in operating activities
        was $814,069. This was primarily attributable to a net loss of $80,787, adjusted
        by non-cash items of depreciation $56,709, gain on disposal of plant and
        equipment of $6,203, a non-cash expense for shares issued for service rendered
        $255,000, and a $1,038,788 decrease in working capital. Negative cash flows
        from
        operations in the first three months of 2007 were due primarily to the increase
        in accounts receivable by $592,457, inventories by $374,867 and a decrease
        in
        income tax payable by $378,068, partially offset by the decrease in prepayments
        and other receivables $44,147, an increase in accounts payable by $164,858,
        customer deposits by $16,849, value added tax payable by $8,495 and other
        payables and accrued liabilities by $72,255 in this period.
 
 30
 **Investing
        activities**
  For
        the
        three months ended March 31, 2008, net cash used in investing activities
        was
        $115,198, and was primarily attributable to the purchase of plant and equipment.
        For the three months ended March 31, 2007, net cash provided by investing
        activities was $16,533 attributable to the disposal of plant and equipment.
 
 **Financing
        activities**
  For
        the
        three months ended March 31, 2008, net cash provided by financing
        activities was $2,000,000 attributable to common stock subscriptions from
        two
        investors from a convertible note.
 
 During
        January 2008, NF Energy Saving Corp. of America, a Delaware corporation
        (“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.
 
 **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.
 
 31
 **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.**
 
 There
        have been no material developments in a civil
        complaint *Robert
        Dawley vs NF Energy Saving Corp. of America, etal.* which
        was filed in the United States District Court, Middle District of Florida,
        Orlando, Civil No. 6:07-cv-872-Orl-19DAB.
 
 **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.
 
 **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 34 of this Form 10-Q, which is incorporated herein by
        reference.
  32
 
 **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: May
                15,
                2008
              By:
              /s/ Gang
                LiGang
                LiChairman,
                Chief
                Executive Officer and President
 
  33
  **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 section
                    906 of
                    the Sarbanes-Oxley Act of 200232.2
                
                Certification
                    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section
                    906 of
                    the Sarbanes-Oxley Act of
                    2002
  34