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,
  2009





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





Commission
File Number: 000-50155







NF
Energy Saving Corporation of America


(Exact
name of registrant as specified in its charter)





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





21-Jia
Bei Si Dong Road, Tie Xi Qu


Shenyang, P. R. China
110021


(Address
of Principal Executive Offices)





(8624)
2560-9750


(Registrant’s
Telephone Number, including area code)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. xYes 
oNo





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





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





Large
      accelerated filer
              o
              
              Accelerated
      filer
              oNon-accelerated
      filer
              o
              
              Smaller
      reporting company
              x





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





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





CAUTIONARY
STATEMENT REGARDING FORWARD LOOKING INFORMATION




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


2


TABLE
OF CONTENTS





PART
      I – FINANCIAL INFORMATIONItem
      1. Financial Statements
                4Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                22Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                31Item
      4T. Controls and Procedures
                31PART
      II – OTHER INFOMRATIONItem
      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
                33Item
      6. Exhibits
                33Signatures
                34


3


PART
I – FINANCIAL INFORMATION





Item 1.  Financial
Statements.





NF
ENERGY SAVING CORPORATION OF AMERICA





INDEX
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





PageCondensed
      Consolidated Balance Sheets as of March 31, 2009 and December 31,
      2008
                
                5Condensed
      Consolidated Statements of Operations And Comprehensive Income for the
      Three Months ended March 31, 2009 and 2008
                
                6Condensed
      Consolidated Statements of Cash Flows for the Three Months ended
      March 31, 2009 and 2008
                
                7Condensed
      Consolidated Statement of Stockholders’ Equity for the Three Months ended
      March 31, 2009
                
                8Notes
      to Condensed Consolidated Financial Statements
                
                10
      to 21


4


NF
ENERGY SAVING CORPORATION OF AMERICA


CONDENSED
CONSOLIDATED BALANCE SHEETS


AS
OF MARCH 31, 2009 AND DECEMBER 31, 2008


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





March 31, 2009
                      
                      
                      December 31, 2008(Unaudited)
                      
                      
                      (Audited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      1,441,394
                      
                      
                      $
                      2,252,771Accounts
      receivable, trade
                      
                      
                      10,149,516
                      
                      
                      
                      8,907,497Inventories
                      
                      
                      2,165,620
                      
                      
                      
                      1,516,777Prepayments
      and other receivables
                      
                      
                      918,952
                      
                      
                      
                      652,842Total
      current assets
                      
                      
                      14,675,482
                      
                      
                      
                      13,329,887Plant
      and equipment, net
                      
                      
                      2,322,312
                      
                      
                      
                      2,393,287Construction
      in progress
                      
                      
                      2,788,081
                      
                      
                      
                      2,328,839TOTAL
      ASSETS
                      
                      $
                      19,785,875
                      
                      
                      $
                      18,052,013LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable, trade
                      
                      $
                      3,287,060
                      
                      
                      $
                      2,043,944Customer
      deposits
                      
                      
                      124,038
                      
                      
                      
                      120,836Value
      added tax payable
                      
                      
                      52,868
                      
                      
                      
                      5,886Other
      payables and accrued liabilities
                      
                      
                      318,849
                      
                      
                      
                      333,838Total
      current liabilities
                      
                      
                      3,782,815
                      
                      
                      
                      2,504,504Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $0.001 par value; 50,000,000 shares authorized; 39,872,704 and
      39,872,704 shares issued and outstanding as of March 31, 2009 and December
      31, 2008
                      
                      
                      39,872
                      
                      
                      
                      39,872Additional
      paid-in capital
                      
                      
                      7,706,587
                      
                      
                      
                      7,706,587Statutory
      reserve
                      
                      
                      917,165
                      
                      
                      
                      917,165Accumulated
      other comprehensive income
                      
                      
                      1,302,211
                      
                      
                      
                      1,288,573Retained
      earnings
                      
                      
                      6,037,225
                      
                      
                      
                      5,595,312Total
      stockholders’ equity
                      
                      
                      16,003,060
                      
                      
                      
                      15,547,509TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                      
                      $
                      19,785,875
                      
                      
                      $
                      18,052,013





See
accompanying notes to condensed consolidated financial
statements.


5


NF
ENERGY SAVING CORPORATION OF AMERICA


CONDENSED
CONSOLIDATED STATEMENTS OF


OPERATIONS
AND COMPREHENSIVE INCOME


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


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


(Unaudited)





Three months ended March
31,2009
                            
                            
                            2008REVENUES,
      NETProducts
                            
                            $
                            2,101,826
                            
                            
                            $
                            2,243,053Services
                            
                            
                            318,006
                            
                            
                            
                            331,381Projects
                            
                            
                            -
                            
                            
                            
                            290,523Total
      revenues, net
                            
                            
                            2,419,832
                            
                            
                            
                            2,864,957COST
      OF REVENUES:Cost
      of products
                            
                            
                            1,565,874
                            
                            
                            
                            1,660,147Cost
      of services
                            
                            
                            174,496
                            
                            
                            
                            209,520Cost
      of projects
                            
                            
                            -
                            
                            
                            
                            239,770Total
      cost of revenues
                            
                            
                            1,740,370
                            
                            
                            
                            2,109,437GROSS
      PROFIT
                            
                            
                            679,462
                            
                            
                            
                            755,520OPERATING
      EXPENSES:Sales
      and marketing
                            
                            
                            48,825
                            
                            
                            
                            13,359Research
      and development
                            
                            
                            -
                            
                            
                            
                            38,332General
      and administrative
                            
                            
                            145,193
                            
                            
                            
                            128,423Total
      operating expenses
                            
                            
                            194,018
                            
                            
                            
                            180,114INCOME
      FROM OPERATIONS
                            
                            
                            485,444
                            
                            
                            
                            575,406Other
      income:Interest
      income
                            
                            
                            7,857
                            
                            
                            
                            -Other
      income
                            
                            
                            10,159
                            
                            
                            
                            3,982Total
      other income
                            
                            
                            18,016
                            
                            
                            
                            3,982INCOME
      BEFORE INCOME TAXES
                            
                            
                            503,460
                            
                            
                            
                            579,388Income
      tax expense
                            
                            
                            (61,547
                            )
                            
                            
                            (301
                            )NET
      INCOME
                            
                            $
                            441,913
                            
                            
                            $
                            579,087Other
      comprehensive income:-
      Foreign currency translation gain
                            
                            
                            13,638
                            
                            
                            
                            412,644COMPREHENSIVE
      INCOME
                            
                            $
                            455,551
                            
                            
                            $
                            991,731Net
      income per share – basic and diluted
                            
                            $
                            0.01
                            
                            
                            $
                            0.02Weighted
      average shares outstanding – basic and diluted
                            
                            
                            39,872,704
                            
                            
                            
                            33,227,328





See
accompanying notes to condensed consolidated financial
statements.


6


NF
ENERGY SAVING CORPORATION OF AMERICA


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


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


(Unaudited)





Three months ended March
31,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      income
                      
                      $
                      441,913
                      
                      
                      $
                      579,087Adjustments
      to reconcile net income to net cash used in operating
      activitiesDepreciation
                      
                      
                      74,428
                      
                      
                      
                      83,262Change
      in operating assets and liabilities:Accounts
      receivable
                      
                      
                      (1,230,662
                      )
                      
                      
                      (429,291
                      )Inventories
                      
                      
                      (646,847
                      )
                      
                      
                      (166,210
                      )Prepayments
      and other receivables
                      
                      
                      (265,284
                      )
                      
                      
                      (357,858
                      )Accounts
      payable
                      
                      
                      1,240,372
                      
                      
                      
                      86,792Customer
      deposits
                      
                      
                      3,050
                      
                      
                      
                      57,848Value
      added tax payables
                      
                      
                      46,968
                      
                      
                      
                      (19,261
                      )Other
      payables and accrued liabilities
                      
                      
                      (15,104
                      )
                      
                      
                      (108,364
                      )Net
      cash used in operating activities
                      
                      
                      (351,166
                      )
                      
                      
                      (273,995
                      )Cash
      flows from investing activities:Purchase
      of plant and equipment
                      
                      
                      (460
                      )
                      
                      
                      (115,198
                      )Cash
      paid to construction in progress
                      
                      
                      (456,255
                      )
                      
                      
                      -Net
      cash used in investing activities
                      
                      
                      (456,715
                      )
                      
                      
                      (115,198
                      )Cash
      flows from financing activities:Proceeds
      from private placement
                      
                      
                      -
                      
                      
                      
                      2,000,000Net
      cash provided by financing activities
                      
                      
                      -
                      
                      
                      
                      2,000,000Effect
      on exchange rate change on cash and cash equivalents
                      
                      
                      (3,496
                      )
                      
                      
                      102,540NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                      
                      
                      (811,377
                      )
                      
                      
                      1,713,347BEGINNING
      OF PERIOD
                      
                      
                      2,252,771
                      
                      
                      
                      2,240,901END
      OF PERIOD
                      
                      $
                      1,441,394
                      
                      
                      $
                      3,954,248SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for income taxes
                      
                      $
                      57
                      
                      
                      $
                      -Cash
      paid for interest expenses
                      
                      $
                      -
                      
                      
                      $
                      -





See
accompanying notes to condensed consolidated financial
statements.


7


NF
ENERGY SAVING CORPORATION OF AMERICA


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


FOR
THE THREE MONTHS ENDED MARCH 31, 2009


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


(Unaudited)





AccumulatedCommon stock
                
                
                
                
                
                
                
                
                other
                
                
                
                
                
                TotalAdditional
                
                
                Statutory
                
                
                comprehensive
                
                
                Retained
                
                
                stockholders’No. of shares
                
                
                Amount
                
                
                paid-in capital
                
                
                reserve
                
                
                income
                
                
                earnings
                
                
                equityBalance
      as of January 1, 2009
                
                
                39,872,704
                
                
                $
                39,872
                
                
                $
                7,706,587
                
                
                $
                917,165
                
                
                $
                1,288,573
                
                
                $
                5,595,312
                
                
                $
                15,547,509Foreign
      currency translation adjustment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                13,638
                
                
                
                -
                
                
                
                13,638Net
      income for the period
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                441,913
                
                
                
                441,913Balance
      as of March 31, 2009
                
                
                39,872,704
                
                
                $
                39,872
                
                
                $
                7,706,587
                
                
                $
                917,165
                
                
                $
                1,302,211
                
                
                $
                6,037,225
                
                
                $
                16,003,060





See
accompanying notes to condensed consolidated financial
statements.


8





NF
ENERGY SAVING CORPORATION OF AMERICA


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009


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


(Unaudited)





NOTE-1
            BASIS
      OF PRESENTATION





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





In the
opinion of management, the consolidated balance sheet as of December 31, 2008
which has been derived from audited financial statements and these unaudited
condensed consolidated financial statements reflect all normal and recurring
adjustments considered necessary to state fairly the results for the periods
presented. The results for the period ended March 31, 2009 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2009 or for any future period.





These
unaudited condensed consolidated financial statements and notes thereto should
be read in conjunction with the Management’s Discussion and the audited
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 2008.





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 heavy
industrial components and products such as valves and the provision of technical
service and re-engineering projects in the energy saving related industry in the
People’s Republic of China (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 heavy manufacturer and involves in
the production of a variety of industrial valve components which are widely
used in water supply and sewage systems, coal and gas fields, power generation
stations, and 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”).




9


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


NOTE-3
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





l
              Use
      of estimates





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





l
              Basis
      of consolidation





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





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





l
              Cash
      and cash equivalents





Cash and
cash equivalents are carried at cost and represent cash on hand, demand deposits
placed with banks or other financial institutions and all highly liquid
investments with an original maturity of three 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, 2009, the
Company has determined that no allowance for doubtful accounts is
necessary.





l
              Inventories





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





l
              Plant
      and equipment, net





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





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




10


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


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


l
              Construction
      in progress





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





l
              Impairment
      of long-lived assets





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





l
              Revenue
      recognition





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





(a)
            Sale
      of products





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





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, 2009 and 2008.





(b)
            Service
      revenue





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




11


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


(c)
            Project
      revenue





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





(d)
            Interest
      income





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





l
              Income
      taxes





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





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





The
Company conducts major businesses in the PRC and is subject to tax in this
jurisdiction. As a result of its business activities, the Company files tax
returns that are subject to examination by the foreign tax
authority.





l
              Net
      income per share





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




12


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


l
              Comprehensive
      income





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





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,
2009.





l
              Foreign
      currencies translation





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





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





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





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





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




13


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


l
              Segment
      reporting





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





l
              Fair
      value of financial
instruments





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





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





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





l
              Recent
      accounting pronouncements





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





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





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




14


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


In March
2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging
Activities - An Amendment of FASB Statement No. 133 .” SFAS No. 161
establishes the disclosure requirements for derivative instruments and for
hedging activities with the intent to provide financial statement users with an
enhanced understanding of the entity’s use of derivative instruments, the
accounting of derivative instruments and related hedged items under SFAS No. 133
and its related interpretations, and the effects of these instruments on the
entity’s financial position, financial performance and cash flows. SFAS No. 161
is effective for financial statements issued for fiscal years beginning after
November 15, 2008. The Company’s adoption on January 1, 2009 did not have a
material impact on its consolidated financial statement
disclosures.





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





NOTE-4
            ACCOUNTS
      RECEIVABLE, TRADE





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





NOTE-5
            INVENTORIES





Inventories
consisted of the following:





March 31, 2009
                
                
                December 31, 2008(Unaudited)
                
                
                (Audited)Raw
      materials
                
                $
                914,624
                
                
                $
                720,460Work-in-process
                
                
                646,063
                
                
                
                569,450Finished
      goods
                
                
                604,933
                
                
                
                226,867$
                2,165,620
                
                
                $
                1,516,777





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




15


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


NOTE-6
            PREPAYMENTS
      AND OTHER RECEIVABLES





Prepayments
and other receivables consisted of the following:





March 31, 2009
                
                
                December 31, 2008(Unaudited)
                
                
                (Audited)Prepayment
      to vendors for raw materials
                
                $
                682,766
                
                
                $
                473,064Prepayment
      to equipment vendors
                
                
                625,386
                
                
                
                126,930Prepaid
      operating expenses
                
                
                53,312
                
                
                
                26,354Other
      receivables
                
                
                3,123
                
                
                
                26,494$
                1,364,587
                
                
                $
                652,842





NOTE-7
            PLANT
      AND EQUIPMENT, NET





Plant and
equipment, net, consisted of the following:





March 31, 2009
                
                
                December 31, 2008(Unaudited)
                
                
                (Audited)Plant
      and machinery
                
                $
                3,146,564
                
                
                $
                2,967,425Furniture,
      fixture and equipment
                
                
                61,305
                
                
                
                58,170Foreign
      translation difference
                
                
                4,025
                
                
                
                181,8143,211,894
                
                
                
                3,207,409Less:
      accumulated depreciation
                
                
                (888,549
                )
                
                
                (778,988
                )Less:
      foreign translation difference
                
                
                (1,033
                )
                
                
                (35,134
                )$
                2,322,312
                
                
                $
                2,393,287





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





NOTE-8
            CONSTRUCTION
      IN PROGRESS





Since
2008, the Company was approved by the local government to construct a new
manufacturing facility for energy-saving products and equipments in Yingzhou
District Industrial Park, Tieling City, Liaoning Province, the PRC. The
construction project consists of two phases, where the first phase is related to
the development of new manufacturing facilities on the production of valves
components and energy-saving equipments and it is expected to be fully completed
till 2010. Total estimated construction cost of the first phase is approximately
$5 million. As of March 31, 2009, the Company capitalized $2,788,081 as
construction in progress.




16


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


NOTE-9
              OTHER
      PAYABLES AND ACCRUED
LIABILITIES





Other
payables and accrued liabilities consisted of the following:





March 31, 2009
                
                
                December 31, 2008(Unaudited)
                
                
                (Audited)Rent
      payable
                
                $
                7,304
                
                
                $
                40,121Provision
      for contingent liability
                
                
                200,000
                
                
                
                200,000Income
      tax payable
                
                
                61,556
                
                
                
                -Accrued
      expenses
                
                
                22,170
                
                
                
                42,719Payable
      to equipment vendors
                
                
                15,295
                
                
                
                38,196Other
      payable
                
                
                12,524
                
                
                
                12,802$
                318,849
                
                
                $
                333,838





NOTE-10
              INCOME
      TAXES





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





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





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





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





NOTE-11
              SEGMENT
      INFORMATION





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




17


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


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





Three
      months ended March 31, 2009:
                
                Manufacturing
                  business
                
                
                Energy-saving
                  related business
                
                
                TotalOperating
      revenues, net:-
      Products
                
                $
                1,998,293
                
                
                $
                103,533
                
                
                $
                2,101,826-
      Services
                
                
                318,006
                
                
                
                -
                
                
                
                318,006-
      Projects
                
                
                -
                
                
                
                -
                
                
                
                -Total
      operating revenues
                
                
                2,316,299
                
                
                
                103,533
                
                
                
                2,419,832Cost
      of revenues
                
                
                1,661,637
                
                
                
                78,733
                
                
                
                1,740,370Gross
      profit
                
                $
                654,662
                
                
                $
                24,800
                
                
                $
                679,462





Three
      months ended March 31, 2008:
                
                Manufacturingbusiness
                
                
                Energy-saving
                  related business
                
                
                TotalOperating
      revenues, net:-
      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
                
                
                $
                755,520





NOTE-12
            CONCENTRATIONS
      OF RISK





The
Company is exposed to the following concentrations of risk:





For the
three months ended March 31, 2009, 100% of the Company’s assets were located in
the PRC and 100% of the Company’s revenues and purchases were derived from
customers and vendors located in the PRC.





(a)         Major
customers





For the
period ended March 31, 2009, one customer represented more than 10% of the
Company’s revenue. This customer accounts for 73% of revenue amounting to
$1,755,122 and $8,275,329 of accounts receivable.





Threemonths endedMarch 31,2008
                          
                          
                          
                          March 31, 2008Customers
                          
                          
                          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:
                          
                          $
                          3,016,573
  18


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


(a)         Major
vendors





For the
three months ended March 31, 2009 and 2008, vendors who account for 10% or more
of purchases are presented as follows:





Three months ended March 31, 2009
                        
                        
                        
                        March 31, 2009Vendors
                        
                        
                        Purchases
                        
                        Percentage of
                          purchases
                        
                        
                        
                        Accounts payableVendor
      A
                        
                        
                        $
                        541,049
                        
                        30%
                        
                        
                        
                        $
                        817,904Vendor
      C
                        
                        
                        
                        524,216
                        
                        29%
                        
                        
                        
                        
                        524,292Vendor
      D
                        
                        
                        
                        252,169
                        
                        14%
                        
                        
                        
                        
                        252,205Total:
                        
                        $
                        1,317,434
                        
                        73%
                        
                        Total:
                        
                        $
                        1,594,401





Three months ended March 31, 2008
                        
                        
                        
                        March 31, 2008Vendors
                        
                        
                        Purchases
                        
                        Percentage of
                          purchases
                        
                        
                        
                        Accounts payableVendor
      A
                        
                        
                        $
                        151,090
                        
                        33%
                        
                        
                        
                        $
                        -Vendor
      B
                        
                        
                        
                        100,664
                        
                        22%
                        
                        
                        
                        
                        -Total:
                        
                        $
                        251,754
                        
                        55%
                        
                        Total:
                        
                        $
                        -





(c)         Credit
risk





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





(d)         Exchange
rate risk





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




19


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


(d)         Economic
and political risks





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





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





NOTE-13
            COMMITMENTS
      AND CONTINGENCIES





(a)
            Operating
      lease commitments





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





(b)
            Capital
      commitments





Starting
from 2008, the local government has approved the Company to establish a new
manufacturing facility for energy-saving products and equipments in Yingzhou
District Industrial Park, Tieling City, Liaoning Province, the PRC. The
construction consists of two phases, where the first phase is related to the
development of new manufacturing facilities on the production of valves
components and energy-saving equipments and it is expected to be fully completed
till 2010. Total estimated construction cost of the first phase is approximately
$5 million.





As of
March 31, 2009, the Company incurred approximately $2.7 million and recorded as
construction in progress. Hence the aggregate contingent payments related to the
third party contractors and the addition of new plants and equipments are
approximately $3 million.





(c)
            Litigation





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




20


NF
ENERGY SAVING CORPORATION OF AMERICA
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 (Currency
expressed in United States Dollars (“US$”))
 (Unaudited)


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


21


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





GENERAL
DESCRIPTION OF BUSINESS





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





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





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





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





On
September 5, 2007 we established a new sales company “Liaoning Nengfa Weiye Tie
Fa Sales Co., Ltd” (“Sales Company”), a limited liability corporation organized
and existing under the laws of the Peoples’ Republic of China. The sales company
is a subsidiary 99% owned by Neng Fa.  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 energy saving flow control equipment; manufacturing, marketing
and distribution of energy equipment, wind power equipment and fittings;
energy saving technical reconstruction; and energy saving technology consulting
services.





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




22





Our main
development directions in the future include the expansion of our capabilities
for technology consulting and production of equipment and pipe networks 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 judgments regarding uncertainties, and as a result, such estimates
may significantly impact our financial results. The precision of these estimates
and the likelihood of future changes depend on a number of underlying variables
and a range of possible outcomes. We applied our critical accounting policies
and estimation methods consistently in all periods presented.




23





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.





(e)
            Sale
      of products





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





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, 2009 and 2008.





(f)
            Service
      revenue





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





(g)
            Project
      revenue





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





(h)
            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, 2009, 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 reviews historical sales activity
quarterly to determine excess, slow moving items and potentially obsolete items
and also evaluates the impact of any anticipated changes in future demand. The
Company provides inventory allowances based on excess and obsolete inventories
determined principally by customer demand. As of March 31, 2009, the Company did
not record an allowance for obsolete inventories, nor have there been any
write-offs.




24





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 been
retired or sold, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized in the results of
operations.





Income
Taxes





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





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





The
Company conducts major businesses in the PRC and is subject to tax in this
jurisdiction. As a result of its business activities, the Company files tax
returns that are subject to examination by the foreign tax
authority.





RESULTS
OF OPERATIONS




Three
Months Ended March 31, 2009 compared to the three months ended
March 31, 2008




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




25





REVENUES




Total revenues were $2,419,832 and
$2,864,957 for the three months ended March 31, 2009 and 2008, respectively.
Total revenues decreased $445,125, a 16% decrease for the three months ended
March 31, 2009, compared to total revenues for the three months ended March 31,
2008.





In 2008,
the Chinese government announced more flexible monetary policies and financial
policies. The Chinese government will invest close to 4 trillion RMB to
stimulate domestic demand and has announced ten policies to promote growth. The
Chinese government plans to strongly expand policies for domestic projects on
civil engineering, basic infrastructure, constructions for environmental
protection and reconstruction to promote economic stability and growth. The
Chinese government’s policies to stimulate the Chinese economy by its spending
on basic infrastructure and constructions for environmental protection should
greatly benefit Nengfa Energy’s energy saving business which fits government
stimulus policies on building energy saving infrastructure for municipalities
and industrial companies. We expect significant growth for all areas of our
business in 2009 and 2010.





Product
Revenues





Product revenues are derived
principally from the sale of self-manufactured products relating to industrial
valves components and wind-energy equipment. Product revenues were $2,101,826
and $2,243,053, or 86.86% and 78.29% of total revenues for the three months
ended March 31, 2009 and 2008, respectively. Product revenues for the three
months ended March 31, 2009 decreased $141,227, a 6% decrease, compared to the
product revenues for the three months ended March 31, 2008. The Company has
several very large contracts which require a longer period of time to produce
the valves and flow equipment needed for such projects. We expect that the
revenues will be realized in future periods when these large contracts are
completed.




Service
Revenues





Service
revenues are derived principally from energy-saving technical services that are
not an element of an arrangement for the sale of products. These services are
generally billed on a time-cost plus basis. Revenue is recognized, net of
business taxes when service is rendered and accepted by the customers. Service
revenues were $318,006 and $331,381, or 13.14% and 11.57% of total revenues for
the three months ended March 31, 2009 and 2008, respectively. Service revenues
for the three months ended March 31, 2009 decreased $13,375, a 4% decrease,
compared to the service revenues for the three months ended March 31,
2008.





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. There were no project revenues for the three months
ended March 31, 2009 and the project revenues were $290,523, 10.14% of
total revenues, for the three months ended March 31, 2008. The Company is
conducting feasibility studies and negotiating several projects. Project
revenues will be reported in the future periods.


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 $ 1,740,370 and
$2,109,437, or 71.92% and 73.63% of total revenues for the three months ended
March 31, 2009 and 2008, respectively. The total cost of revenues decreased
by $369,067 (17%) for the three months ended March 31, 2009 compared to the
total cost of revenues for the three months ended March 31, 2008. The decrease
in total cost of revenues was due to the decrease in operating revenues during
this period.




26





The overall gross profit for the
Company was $679,462 and $755,520, or 28.08% and 26.37% of total revenues for
the three months ended March 31, 2009 and 2008, respectively. The profit margin
decreased by $76,058 for the three months ended March 31, 2009 compared to the
three months ended March 31, 2008. However, due to reduced cost of revenues, the
overall gross profit margin has increased by 1.71% to 28.08% for the three
months ended March 31, 2009, as compared to the gross profit margin of 26.37%
for the three month ended March 31, 2008.





Cost
of Products





Total
cost of products was $1,565,874 and $1,660,147, or 89.97% and 78.7% of total
cost of revenues, for the three months ended March 31, 2009 and 2008,
respectively. The cost of products decreased by $94,273 (6%) for the three
months ended March 31, 2009 compared to the cost of products for the three
months ended March 31, 2008. The decrease in cost of products of 6% was due to
the 6% decrease in product revenues.







The gross
profit for products was $535,952 and $582,906, or 25.50% and 25.99% for the
three months ended March 31, 2009 and 2008, respectively. The decrease in gross
profit for products of $46,954 and gross profit margin of .49% were due to the
decrease in product revenues.




Cost
of Service





Total
cost of services was $174,496 and $209,520, or 10.03% and 9.93% of total cost of
revenues, for the three months ended March 31, 2009 and 2008, respectively. The
cost of services decreased by $35,024 (17%) for the three months ended March 31,
2009 compared to the cost of services for the three months ended March 31, 2008.
The decrease in cost of services of 17% is greater than the decrease in service
revenues of 4%.




The gross
margin for services was $143,510 and $121,861, or 45.13% and 36.77% for the
three months ended March 31, 2009 and 2008, respectively. The increase in gross
margin for services of $21,649 or 8.36% is due to the reduction in cost of
services (17%) being greater than the decrease in service revenues
(4%).





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 was $$0 and $239,770, or 0% and 11.37% of
total cost of revenues, for the three months ended March 31, 2009 and 2008,
respectively. The cost of projects decreased by $239,770 (100%) for the three
months ended March 31, 2009 compared to the cost of projects for the three
months ended March 31, 2008. The decrease in cost of projects is due to the
lower demand for energy saving projects for the three months ended March 31,
2009.




The gross
margin for projects was $0 and $50,753, or 0% and 17.47% for the three months
ended March 31, 2009 and 2008, respectively. Since we are still in negotiation
of several projects, we anticipate that project revenues and cost of projects
will be reported in future periods.





Operating
Expenses





The total operating expenses were
$194,018 and $180,114, or 8.02% and 6.29% of total revenues, for the three
months ended on March 31, 2009 and 2008, respectively. This increase was
primarily due to higher sales and marketing costs and general administrative
costs.




27





Selling
and marketing expenses





On
September 5, 2007 the Company established a new subsidiary, Liaoning Nengfa
Weiye Tie Fa Sales Co., Ltd., to engage in the sales and marketing of valves
products in the PRC. The total sales and marketing expenses were $48,825 and
$13,359, or 2.02% and 0.47% of total revenues, for the three months ended on
March 31, 2009 and 2008, respectively.





Research
and development expenses





The
Company incurred research and development expenses to study the possibility of
using the Company’s existing manufacturing facilities and valve production
expertise to produce equipment and fittings for wind power plants. The R&D
effort enabled the Company to create a new line of business to tap into a large
demand for the equipment needed for new wind power plants that have been planned
in PRC. The research and development expenses for the three months ended March
31, 2008, was $38,332, 1.34% of total revenues. There were no research and
development expenses for the three months ended March 31, 2009.





General
and administrative expenses





General and administrative expenses
increased by $16,770 to $145,193, 6% of total revenues, for the three months
ended March 31, 2009, as compared to $128,423, 4.48% of total revenues, for the
three months ended March 31, 2008.




Income
from Operations





As a result of the foregoing, our
income from operations increased by $14,034 to $18,016, 0.74% of total revenues,
for the three months ended March 31, 2009, as compared to $3,982, or 0.14%
of total revenues, for the three months ended March 31, 2008.





Income
Tax Expenses





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





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





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





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




28




Net
Income





As a
result of the foregoing, we had a net income of $441,913, a 18.26% profit margin
on revenues, for the three months ended March 31, 2009, as compared to a
net income of $579,087, a 20.21% profit margin on revenues, for the three months
ended March 31, 2008. The net income for the three months ended March 31,
2009 decreased by $137,174 and the net profit margin decreased by 1.95% compared
to the net income for the three months ended March 31, 2008.





LIQUIDITY
AND CAPITAL RESOURCES





Operating
activities





For the three months ended March 31,
2009, net cash used in operating activities was $351,166. This was primarily
attributable to our net income of $441,913, adjusted by non-cash items of
depreciation $74,428, and a $867,507 decrease in working capital. Negative cash
flows from operations in the first three months of 2009 were due primarily to
the increase in accounts receivable by $1,230,662, inventories by $646,847,
prepayments and other receivables by $265,284, and the decrease in other
payables and accrued liabilities by $15,104, partially offset by the increase in
accounts payable by $1,240,372, customer deposits by $3,050, and value added tax
payables by $46,968 in this period.





The large increase in accounts
receivable of $1,230,662 and inventories of $646,847, an increase of 13.8% and
42.6% over the accounts receivables and inventories balances at December 31,
2008, are mainly due to several large contracts. For these large contracts, the
construction and installation period is much longer. The collection period for
receivables is also longer. In addition, we have to produce a larger inventory
in order to prepare for the installation anticipated for these large projects.
The reason for the increase in the prepayments and other receivables of
$265,284, a 40.6% increase over the prepayments and other receivables balance at
December 31, 2008, is due to increases in prepayment to vendors for raw
materials, prepayment to equipment vendors and prepaid operating expense. The
company expects the cost of the raw material will increase in the coming year.
In order to hedge the increase in raw material costs, we have signed more
purchase contracts in advance with the suppliers and hence increasing the
prepayments. The increase in accounts payable of $1,240,372 corresponds to the
increased purchase of materials required for the production for several large
contracts. The increase in customer deposits of $3,050 is due to the increase in
sales. An increase of $46,968 in value added tax payables is due to increased
value added tax payable this period. The decrease of $15,103 in other payables
and accrued liabilities are due to the decrease in rent payable, accrued
expenses and payable to equipment vendors, and an increase in income tax
payable.





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.




29





Investing
activities




For the
three months ended March 31, 2009, net cash used in investing activities was
$456,715, and was primarily attributable to the purchase of plant and equipment
of $460 and cash paid to construction in progress of $456,255. For the three
months ended March 31, 2008, net cash used in investing activities was
$115,198 attributable to the purchase of plant and equipment.





Starting from 2008, the local
government has approved the Company to establish a new manufacturing facility
for energy-saving products and equipments in Yingzhou District Industrial Park,
Tieling City, Liaoning Province, the PRC. The construction consists of two
phases, where the first phase is related to the development of new manufacturing
facilities on the production of valves components and energy-saving equipments
and it is expected to be fully completed till 2010. Total estimated construction
cost of the first phase is approximately $5 million. As of March 31, 2009, the
Company incurred approximately $2.7 million and recorded as construction in
progress.





Financing
activities





For the
three months ended March 31, 2009, there was no net cash provided by
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.





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





We anticipate we will need additional
working capital in 2009 and in the future to fund our company’s new business
plans to help the company to establish a manufacturing base for new energy
equipment, to develop comprehensive energy saving infrastructure projects for
municipalities, and to maintain our lead position in flow control equipment
manufacturing. We may decide to pursue additional investments or debt financing
to obtain additional cash resources to fund our company’s new business and other
future developments.





Inflation





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





OFF-BALANCE
SHEET ARRANGEMENTS





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





IMPACT
OF RECENTLY ISSUED NEW ACCOUNTING STANDARDS





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




30





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
Applicable.





Item
4T. Controls and Procedures.




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




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




Management’s
Report on Internal Control Over Financial Reporting




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





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


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


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





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





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




31





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





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




c) 
Changes in Internal Controls




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








PART
II. OTHER INFORMATION





Item
1.      Legal Proceedings.





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





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





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





None.





Item
3.      Defaults Upon Senior Securities.




None.





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




None.




32





Item
5.      Other Information.




None.





Item
6.      Exhibits.





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


33


SIGNATURES





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




NF
      Energy Saving Corporation of America(Registrant)Date:
      May 14, 2009
              By:
              /s/ Gang LiGang
      LiChairman,
      Chief Executive Officer and
President


34


INDEX
TO EXHIBITS




Exhibit
      No.
              
              Description31.1
              
              Certification
      of Chief Executive
      Officer pursuant to Rule 13a-14(a) and 15d-14 of the Securities
      Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
              
              Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14
      of  the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1
              
              Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to section 906 of the Sarbanes-Oxley Act of
      200232.2
              
              Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to section 906 of the Sarbanes-Oxley Act of
      2002


35