****Table of Contents****
****
 **UNITE** **D
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **FORM
10-QSB**
 (Mark
One)
 x
    
    QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended **March 31,
  2005**o
    
    TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from __________ to
__________
  Commission
file number:  **0-31047**
 ****
 CHINA
ENERGY SAVINGS TECHNOLOGY, INC.
 (Exact
name of small business issuer as specified in its charter)
  **Nevada**
    
    **86-0995730**(State
      or other jurisdiction of
    
    (I.R.S.
      Employer Identification
      No.)incorporation
      or organization)
 
 **Central
Plaza, 18 Harbour Road,**
 **Suite
3203A, 32nd Floor**
 **Hong
Kong, China**
 (Address
of principal executive offices)****
 ****
 **(852)
2588-1228**
 (Issuer’s
telephone number)
****
 ****
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
such filing requirements for the past 90 days. Yes x No o
 
 State the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date.
 
 Common
Stock Outstanding as of  May 23, 2005:  24,702,502 shares
 Transitional
Small Business Disclosure Format (check one): Yes o No x
 
 **Table of Contents**
 CHINA ENERGY SAVINGS TECHNOLOGY, INC.
 **Page**PART I
    FINANCIAL INFORMATION
    3Item 1.
    Financial Statements
    3Consolidated Balance Sheets as of March 31,
      2005 and September 30, 2004
    4Consolidated
      Statements of Income and Other ComprehensiveIncome
      (Loss) for the Three and Six Months Ended March 31, 2005 and
      2004
    5Consolidated Statements of Shareholders'
      Equity for the Six Months ended March 31,2005 and
      2004
    6Consolidated Statements of Cash Flows for the Six
      Months Ended March 31, 2005 and 2004
    7Condensed Notes to Consolidated Financial
      Statements
    8Item 2.
    Management's Discussion and Analysis or Plan
      of Operation
    23Item 3.
    Controls and Procedures
    28PART II
    OTHER INFORMATION
    29Item 1.
    Legal Proceedings
    29Item 2.
    Unregistered Sales of Equity Securities and Use of
      Proceeds
    29Item 3.
    Defaults Upon Senior Securities
    29Item 4.
    Submission of Matters to a Vote of Security
      Holders
    29Item 5.
    Other Information
    29Item 6.
    Exhibits and Reports on Form 8-K
    30Signatures
    31
 
 2
 **Table of Contents**
 **PART I - FINANCIAL INFORMATION**
 
 **ITEM
      1.**
    **FINANCIAL
      STATEMENTS.**
 **CHINA ENERGY SAVINGS TECHNOLOGY, INC. AND
SUBSIDIARIES**
 **CONSOLIDATED
BALANCE SHEETS**
 **AS OF
MARCH 31, 2005 AND SEPTEMBER 30, 2004**
 **ASSETS****March
      31**
    ****
    **September
      30**
    ********
    ****
    **2005**
    ****
    **2004**Unaudited
    
    AuditedCURRENT
      ASSETS:Cash
    
    $
    21,577,653
    
    $
    18,442,862Accounts
      receivable, trade, net of allowance for doubtfulaccounts
      of $768,151 and $768,151 as of March 31, 2005 andSeptember
      30, 2004, respectively
    
    
    15,446,880
    
    
    6,580,525Current
      maturities of notes receivable, net
    
    
    2,724,372
    
    
    3,727,540Inventories
    
    
    5,286,503
    
    
    4,329,552Prepaid
      expenses
    
    
    2,962,216
    
    
    1,529,955Due
      from related parties
    
    
    1,179,376
    
    
    1,257,130Total
      current assets
    
    
    49,177,000
    
    
    35,867,564PLANT
      AND EQUIPMENT, net
    
    
    498,849
    
    
    528,344OTHER
      ASSETS:Long-term
      loan receivable
    
    
    1,764,376
    
    
    —Long-term
      notes receivable, net
    
    
    6,488,530
    
    
    7,087,692Other
      receivables
    
    
    460,610
    
    
    778,880Total
      other assets
    
    
    8,713,516
    
    
    7,866,572Total
      assets
    
    $
    58,389,365
    
    $
    44,262,480**LIABILITIES
      AND SHAREHOLDERS' EQUITY**CURRENT
      LIABILITIES:Accounts
      payable and accrued expenses
    
    $
    1,669,422
    
    $
    2,719,554Current
      portion of note payable
    
    
    12,974
    
    
    12,799Other
      payables
    
    
    394,877
    
    
    551,528Customer
      deposits
    
    
    3,000,705
    
    
    1,752,216Taxes
      payable
    
    
    3,195,486
    
    
    1,892,676Total
      current liabilities
    
    
    8,273,464
    
    
    6,928,773LONG-TERM
      LIABILITIES:Note
      payable, net
    
    
    4,585
    
    
    7,895Total
      liabilities
    
    
    8,278,049
    
    
    6,936,668MINORITY
      INTEREST
    
    
    17,538,959
    
    
    18,662,906SHAREHOLDERS'
      EQUITY:Preferred
      stock, $0.001 par value, 10,000,000 shares authorized, none
      issued and outstanding
    
    
    —
    
    
    —Common
      stock, $0.001 par value, 50,000,000 shares authorized,24,599,753
      and 12,968,401 shares issued and outstandingas
      of March 31, 2005 and September 30, 2004,
    respectively
    
    
    24,600
    
    
    12,968Additional
      paid-in capital
    
    
    20,067,348
    
    
    8,655,339Statutory
      reserves
    
    
    324,583
    
    
    324,583Deferred
      compensation
    
    
    (4,234,612
    )
    
    —Retained
      earnings
    
    
    16,387,098
    
    
    9,666,676Accumulated
      other comprehensive income
    
    
    3,340
    
    
    3,340Total
      shareholders' equity
    
    
    32,572,357
    
    
    18,662,906Total
      liabilities and shareholders' equity
    
    $
    58,389,365
    
    $
    44,262,480
The accompanying
notes are an integral part of this
statement.
 3
 **Table of Contents**
  **CHINA ENERGY SAVINGS TECHNOLOGY, INC. AND
SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(LOSS)**
 **FOR
THE THREE AND SIX MONTHS ENDED MARCH 31, 2005 AND
2004**


**Three
      Months Ended**
    ****
    **Six
      Months Ended**
    ********
    ****
    **March
      31**
    ****
    **March
      31**
    ****
    **March
      31**
    ****
    **March
      31**
    ********
    ****
    **2005**
    ****
    **2004**
    ****
    **2005**
    ****
    **2004**Unaudited
    
    Unaudited
    
    Unaudited
    
    UnauditedREVENUES
    
    $
    11,175,617
    
    $
    8,818,742
    
    $
    22,884,307
    
    $
    20,320,207COST
      OF GOOD SOLD
    
    
    4,254,122
    
    
    3,234,882
    
    
    9,145,530
    
    
    10,682,628GROSS
      PROFIT
    
    
    6,921,495
    
    
    5,583,860
    
    
    13,738,777
    
    
    9,637,579OPERATING
      EXPENSESOperating
      expenses
    
    
    667,515
    
    
    347,596
    
    
    1,280,215
    
    
    1,159,689Selling,
      general and administrative expenses
    
    
    536,098
    
    
    169,554
    
    
    1,507,937
    
    
    224,408Total
      Operating Expenses
    
    
    1,203,613
    
    
    517,150
    
    
    2,788,152
    
    
    1,384,097INCOME
      FROM OPERATIONS
    
    
    5,717,882
    
    
    5,066,710
    
    
    10,950,625
    
    
    8,253,482OTHER
      INCOME (EXPENSE)Interest
      income
    
    
    392,042
    
    
    —
    
    
    740,221
    
    
    777,692Interest
      expense
    
    
    4,277
    
    
    —
    
    
    3,763
    
    
    (169
    )Other
      income (expense)
    
    
    (605
    )
    
    (3,677
    )
    
    (2,882
    )
    
    (3,677
    )Other
      income
    
    
    649
    
    
    —
    
    
    649
    
    
    5,537Total
      Other Income
    
    
    396,363
    
    
    (3,677
    )
    
    741,751
    
    
    779,383INCOME
      BEFORE INCOME TAXES AND MINORITY INTEREST
    
    
    6,114,245
    
    
    5,063,033
    
    
    11,692,376
    
    
    9,032,865LESS
      PROVISION FOR INCOME TAXES
    
    
    —
    
    
    —
    
    
    —
    
    
    (678,971
    )INCOME
      BEFORE MINORITY INTEREST
    
    
    6,114,245
    
    
    5,063,033
    
    
    11,692,376
    
    
    8,353,894MINORITY
      INTEREST
    
    
    2,252,101
    
    
    2,531,517
    
    
    4,971,954
    
    
    4,176,947NET
      INCOME
    
    
    3,862,144
    
    
    2,531,516
    
    
    6,720,422
    
    
    4,176,947OTHER
      COMPREHENSIVE INCOME (LOSS):Foreign
      currency translation adjustment
    
    
    —
    
    
    12,715
    
    
    —
    
    
    (500
    )COMPREHENSIVE
      INCOME
    
    $
    3,862,144
    
    $
    2,544,231
    
    $
    6,720,422
    
    $
    4,176,447Net
      income per share - basic and diluted
    
    $
    0.18
    
    $
    0.22
    
    $
    0.37
    
    $
    0.36Weighted
      average number of shares outstanding - basic and diluted
    
    
    21,910,462
    
    
    11,598,081
    
    
    18,339,801
    
    
    11,598,081


The
accompanying notes are an integral part of this statement.







4
 **Table of Contents**




**CHINA ENERGY SAVINGS TECHNOLOGY, INC. AND
SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY**


**FOR
THE SIX MONTHS ENDED MARCH 31, 2005 AND 2004**





****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    ****
    **Accumulated**
    ****
    ****
    ********
    ****
    ****
    ****
    ****
    ****
    **Additional**
    ****
    ****
    ****
    ****
    ****
    **Unappropriated**
    ****
    **other**
    ****
    ****
    ********
    ****
    **Number**
    ****
    **Common**
    ****
    **Paid-in**
    ****
    **Statutory**
    ****
    **Deferred**
    ****
    **Retained**
    ****
    **comprehensive**
    ****
    ****
    ********
    ****
    **of
      shares**
    ****
    **stock**
    ****
    **capital**
    ****
    **Reserves**
    ****
    **Compensation**
    ****
    **Earnings**
    ****
    **income
      (loss)**
    ****
    **Totals**BALANCE,
      September 30, 2003, unaudited
    
    
    100
    
    $
    11
    
    $
    666,666
    
    $
    329,489
    
    
    
    
    $
    $3,996,754
    
    $
    (1,142
    )
    $
    4,991,778Net
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,176,947
    
    
    
    
    
    4,176,947Foreign
      currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500
    )
    
    (500
    )Change
      in statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    (4,906
    )
    
    
    
    
    
    
    
    
    
    
    (4,906
    )BALANCE,
      March 31, 2004, unaudited
    
    
    100
    
    
    11
    
    
    666,666
    
    
    324,583
    
    
    
    
    
    8,173,701
    
    
    (1,642
    )
    
    9,163,319Net
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,492,975
    
    
    
    
    
    1,492,975Foreign
      currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,982
    
    
    4,982Shares
      issued in connection with the recapitalization
    
    
    12,338,301
    
    
    12,327
    
    
    (12,327
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    —Shares
      issued for employee compensation
    
    
    630,000
    
    
    630
    
    
    8,001,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,001,630BALANCE,
      September 30, 2004, audited
    
    
    12,968,401
    
    
    12,968
    
    
    8,655,339
    
    
    324,583
    
    
    
    
    
    9,666,676
    
    
    3,340
    
    
    18,662,906Net
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,720,422
    
    
    
    
    
    6,720,422Stock
      issued for the acquisition of additional 15% investment in Starway
      Management Limited
    
    
    3,346,100
    
    
    3,346
    
    
    6,092,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,095,901Stock
      issued for the acquisition of the 35% investment in Starway Management
      Limited
    
    
    7,807,569
    
    
    7,808
    
    
    (7,808
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    —Stock
      issued for services
    
    
    477,683
    
    
    478
    
    
    5,327,262
    
    
    
    
    
    (4,234,612
    )
    
    
    
    
    
    
    
    1,093,128BALANCE,
      March 31, 2005, unaudited
    
    
    24,599,753
    
    $
    24,600
    
    $
    20,067,348
    
    $
    324,583
    
    $
    (4,234,612
    )
    $
    16,387,098
    
    $
    3,340
    
    $
    32,572,357
 
 The accompanying
notes are an integral part of this statement.







5
 **Table of Contents**




**CHINA ENERGY SAVINGS TECHNOLOGY, INC. AND
SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 FOR THE
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
 **March
      31**
    ****
    **March
      31**
    ********
    ****
    **2005**
    ****
    **2004**Unaudited
    
    UnauditedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
    
    $
    6,720,422
    
    $
    4,176,947Adjustments
      to reconcile net income to cash provided
      by (used in) operating activities:Minority
      interest income
    
    
    4,971,954
    
    
    4,172,043Depreciation
      and amortization
    
    
    33,252
    
    
    40,906Decrease
      in statutory reserve
    
    
    —
    
    
    (4,910
    )Stock
      issued for services
    
    
    1,093,128
    
    
    —Change
      in operating assets and liabilities:(Increase)
      decrease in assets:Accounts
      receivable
    
    
    (8,866,355
    )
    
    (337,715
    )Long-term
      notes receivable
    
    
    1,602,330
    
    
    (2,329,972
    )Amount
      due from related parties
    
    
    77,755
    
    
    (46,102
    )Inventories
    
    
    (956,951
    )
    
    (323,355
    )Prepaid
      expenses
    
    
    (1,432,261
    )
    
    (596,870
    )Other
      receivables
    
    
    318,270
    
    
    (82,555
    )Other
      assets
    
    
    —
    
    
    64,617Increase
      (decrease) in liabilities:Accounts
      payable and accrued expenses
    
    
    (1,050,132
    )
    
    (305,008
    )Other
      payable
    
    
    (156,651
    )
    
    —Customer
      deposits
    
    
    1,248,489
    
    
    233,314Tax
      payable
    
    
    1,302,810
    
    
    1,690,964Net
      cash provided by (used in) operating activities
    
    
    4,906,060
    
    
    6,352,304CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of equipment
    
    
    (3,758
    )
    
    —Net
      cash used in investing activities
    
    
    (3,758
    )
    
    —CASH
      FLOWS FROM FINANCING ACTIVITIES:Long-term
      loan receivable
    
    
    (1,764,376
    )
    
    —Proceeds
      (payments) on loans payable - related parties
    
    
    —
    
    
    (237,821
    )Proceeds
      from notes payable
    
    
    175
    
    
    12,638Payments
      on notes payable
    
    
    (3,310
    )
    
    (12,877
    )Net
      cash (used in) provided by financing activities
    
    
    (1,767,511
    )
    
    (238,060
    )EFFECT
      OF EXCHANGE RATE ON CASH
    
    
    —
    
    
    (500
    )INCREASE
      (DECREASE) IN CASH
    
    
    3,134,791
    
    
    6,113,744CASH,
      beginning of period
    
    
    18,442,862
    
    
    181,283CASH,
      end of period
    
    $
    21,577,653
    
    $
    6,295,027
 
 The accompanying
notes are an integral part of this statement.





6
 **Table of Contents**
 **CHINA ENERGY SAVINGS TECHNOLOGY, INC. AND
SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 FOR THE
SIX MONTHS ENDED MARCH 31, 2005 AND 2004
 (Continued)
 
 **March
      31**
    ****
    **March
      31**
    ********
    ****
    **2005**
    ****
    **2004**Unaudited
    
    UnauditedSUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid for interest expense
    
    $
    —
    
    $
    855NON-CASH
      TRANSACTIONS:Stock
      issued to acquire additional interest in StarwayManagement
      Limited
    
    $
    6,095,901
    
    $
    —Stock
      issued for services
    
    $
    5,327,740
    
    $
    —
 
 The accompanying
notes are an integral part of this statement.
 
   
 
 7
 **Table of
Contents**


**CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Note
1 - Organization**
 ****
 Organization
 
 On August
23, 2004, China Energy Savings Technology, Inc. (the “Company”) formally changed
its name from Rim Holdings Inc. to China Energy Savings Technology, Inc.
 
 On June
30, 2004 (the “Closing Date”) Rim Holdings Inc., a Nevada corporation (“Rim”)
and Eurofaith Holdings, Inc., a British Virgin Islands corporation
(“Eurofaith”), entered a Stock Purchase Agreement (the “Eurofaith Stock Purchase
Agreement”). Pursuant to the Eurofaith Stock Purchase Agreement, Rim
acquired 50% of the outstanding shares of Starway Management Ltd., a British
Virgin Islands company (“Starway”) from Eurofaith (the “Acquisition”). The
purchase price for such stock was $120,000,000 payable by Rim’s issuance of a
convertible promissory note on the Closing Date. The note may be convertible
into 223,073,380 shares of the Rim’s common stock upon maturity at the
discretion of Rim. Eurofaith may also convert at any time prior to the maturity.
On June 30, 2004, the fair value of the convertible note payable was discounted
to the fair value of the equity interest acquired of $6,633,440. On August 26,
2004 this note was converted into 6,900,000 shares.
 
 Immediately
after the closing of this transaction, Rim redeemed 1,000,000 shares of its
common stock from Christina M. Strauch in exchange for all of the shares of
Rimmer Computer, Inc., an Arizona corporation (“Rimmer”).
 
 Prior to
the transaction, Rim was a holding company holding all of the shares of Rimmer.
Rimmer is an approved technical service provider for computer hardware and
software system manufacturers. All of Rimmer’s customers are currently located
in the Phoenix, Arizona area. Since the closing, Rim’s primary operations
consist of the operations of Starway.
 
 As a
result, the transaction was treated for accounting purposes as a
recapitalization by the accounting acquirer Starway Management Limited. This
stock issuance represents 50% of the issued and outstanding stock of Starway
Management Limited at the time of issuance. The acquisition of Starway
Management Limited by the Company was accounted for as a recapitalization of
Starway Management Limited, pursuant to which the accounting basis of Starway
Management Limited continued unchanged subsequent to the transaction date.
Starway Management Limited will be the historical financial statements of the
Company and its subsidiaries Shenzhen Dicken Industrial Development Limited and
Shenzhen Dicken Technology Development Limited. The financial statements have
been restated to reflect the recapitalization as if the transaction happened as
of January 1, 2002.
 
 On
November 17, 2004, the Company acquired an additional 15% of Starway Management
Limited to bring its stock ownership to 65% as of December 31, 2004, as further
described in note 16. On February 1, 2005, the Company acquired the remaining
35% of Starway Management Limited, as described in note 17, and Starway
Management Limited became a wholly owned subsidiary of the Company at that
time.
  8
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
1 - Organization, (continued)**
 
 Starway
was incorporated in the British Virgin Islands on September 15, 1998. Starway
owns all of the equity interests in Shenzhen Dicken Industrial Development
Limited, a company incorporated in the People’s Republic of China on November
20, 1996 (SDID) which in turn owns all of the equity interest in Shenzhen Dicken
Technology Development Limited, a company incorporated in the People’s Republic
of China on November 9, 1999 (SDTD). In 2003, Eurofaith, the shareholder of SDID
exchanged 100% of the common shares of SDID for 100 shares of
Starway.
 
 Activities
 
 Starway
through its two subsidiaries SDTD and SDID is a People’s Republic of China based
marketer, distributor and manufacturer of energy saving products for use in
commercial and industrial settings. SDID is a foreign-owned enterprise and
responsible for the operation and sales of its products. SDTD is a wholly-owned
subsidiary of SDID and is a limited liability company incorporated in the PRC
and is responsible for the development of energy saving projects of Shenzhen
Dicken Group. The Company through its subsidiaries mainly sells their products
within the People’s Republic of China.
 
 **Note
2 - Summary of significant accounting policies**
 
 Basis
of Presentation
 
 The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
accompany consolidated financial statements include the accounts of Starway
Management Limited, Shenzhen Dicken Technology Development Limited and Shenzhen
Dicken Industrial Development Limited, (collectively the “Company”). All
material intercompany transactions and balances have been eliminated in the
consolidation.
 
 Use of
Estimates
 
 In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from those
estimates.
 
 Cash
and Cash Equivalents
 
 For
purposes of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the time of
purchase to be cash equivalents.
  9
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
2 - Summary of significant accounting policies,
(continued)**
 
 Notes
Receivable
 
 The
Company carries its notes receivable at the net present value of the notes, net
of allowance for doubtful accounts.
 
 Inventory
 
 Inventory
is stated at the lower of cost or market value, cost being determined on a
first-in, first-out (FIFO) method.
 
 Plant
and Equipment
 
 The
Company’s plant and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets on a straight-line basis
from five to fifteen years.
 
 Intangibles
 
 Under the
Statement of Accounting Standards (“SFAS”) No. 142, “Goodwill and Other
Intangible Assets”, all goodwill and certain intangible assets determined to
have indefinite lives will not be amortized but will be tested for impairment at
least annually. Intangible assets other than goodwill will be amortized over
their useful lives of 10 years and reviewed for impairment in accordance with
SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived
Assets”.
 
 Impairment
of Long-Lived Assets
 
 Per SFAS
No. 144, long-lived assets will be analyzed annually for indications of
impairment. Impairment of long-lived assets is assessed by the Company whenever
there is an indication that the carrying amount of the asset may not be
recovered. Recoverability if these assets are determined by comparing the
forecasted undiscounted cash flows generated by those assets to the assets’ net
carrying value. The amount of impairment loss, if any, is measured as the
difference between the net book value of the assets and the estimated fair value
of the related assets.
 
 The
Company evaluates the recoverability of long-lived assets by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such flows of certain long-lived assets
are not sufficient to recover the carrying value of such assets, the assets are
adjusted to their fair values.
 
 Revenue
and Deferred Revenue Recognition
 
 The
Company recognizes product sales under the following two types of
contracts:
 
 1.
    Equipment
      sale contract - Under the Equipment sale contract, the Company recognizes
      revenue when persuasive evidence of an arrangement exists, the sales price
      to the buyer is fixed or determinable, collectability is reasonably
      assured, delivery has occurred and accepted by the
  buyers.
  10
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 ****
 **Note
2 - Summary of significant accounting policies,
(continued)**
 
 Revenue
and Deferred Revenue Recognition (continued)
 
 2.
    Energy
      savings sharing contract - Under this contract, the Company grants
      customers extended payment terms under contracts of sale. These contracts
      are generally for a period of one to five years at prevailing interest
      rates and are collateralized by the related equipment, which if
      repossessed, may be less than the receivable balance outstanding. The
      Company recognizes revenue under profit sharing agreements when the
      amounts are fixed and determinable and collectability is reasonably
      assured. Amounts received by the Company in excess of the original
      estimated cost savings on the contract is recorded as interest
      income.
 
 Product
Development Costs
 
 Product
development costs incurred in the process of developing product improvements and
enhancements or new products are charged to expense as incurred. Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant.
 
 Foreign
Currency Translation
 
 The
functional currency of the Company is the Chinese Renminbi. The financial
statements of the Company are translated to United States dollars using year-end
exchange rates as to assets and liabilities and average exchange rates as to
revenues and expenses. Capital accounts are translated at their historical
exchange rates when the capital transaction occurred. Net gains and losses
resulting from foreign exchange translations are included in the statements of
operations and stockholders’ equity as other comprehensive income.
 
 Comprehensive
Income (Loss)
 
 The
foreign currency translation gain or loss resulting from the translation of the
financial statements expressed in Chinese Renminbi to United States dollars is
reported as other comprehensive income (loss) in the statement of income and
stockholders’ equity.
 
 Income
Taxes
 
 The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement 109”).
  11
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
2 - Summary of significant accounting policies,
(continued)**
 
 Income
Taxes (continued)
 
 Under
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The Company
is organized in the British Virgin Islands and the People’s Republic of China
and no tax benefit is expected from the tax credits in the future. The Company
located its factories in a special economic region in China. This economic
region allows foreign enterprises a two-year income tax exemption and a 50%
income tax reduction for the following three years. The Company was approved as
a wholly owned foreign enterprise in 2004. The Company has income tax exemption
for 2004 and 2005 and 50% income tax reduction for 2006, 2007 and 2008.
 
 Fair
Value of Financial Instruments
 
 The
carrying amounts of the Company’s financial instruments including accounts
receivable, stockholder loans and notes payable approximate fair value due to
the relatively short period to maturity of these instruments.
 
 The fair
value of short-term and long-term notes receivable was determined using a
discounted cash flow analysis based on the Company’s borrowing rate. At December
31, 2004 and September 30, 2004, the carrying value of these notes approximated
their fair value.
 
 Earnings
Per Share
 
 The
Company reports earnings per share in accordance with the provisions of SFAS No.
128, "Earnings Per Share." SFAS No. 128 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock. There are no differences between Basic and Diluted EPS for
the periods ended March 31, 2005 and 2004.
 
 On
February 1, 2005, The Company acquired the remaining 35% interest
(the"Acquisition") in Starway Management Limited ("Starway) from Sky Beyond
Investments Limited ("Sky Beyond") by issuing a total of 7,807,569 shares of
common stock of the Company. However management of the Company has learned that
the stock sale between Sky Beyond and Golden Resorts Group Limited was subject
to approval by the shareholders of Golden Resorts. As of May 18, 2005, the
shareholder meeting to approve the sale has not been held. The Company and Sky
Beyond believe that the Company’s acquisition of the 35% in Starway has been
legally completed. However the Company is in the process of investigating this
matter and is taking a conservative approach in reflecting this acquisition in
the financial statements of the Company.
  12
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
2 - Summary of significant accounting policies,
(continued)**
 
 Earnings
Per Share (continued)
 
 As of
March 31, 2005, the Company has decided not to reflect the additional earnings
and additional paid in capital of the acquisition of the remaining 35% interest
in Starway. However since the 7,807,569 shares have been issued in this
transaction the par value of the stock has been reflected in the shareholders’
equity statement and the shares has been reflected in the earnings per share
calculation as issued. If 100% of the income was to be reflected in the income
statement at the date of acquisition, the Company’s earnings per share for the
periods would have been adjusted to the amounts indicated below:
 
 **Three
      months ended**
      **March
      31, 2005**
    ****
    **Three
      months ended**
      **March
      31, 2004**
    ****
    **Six
      months ended**
      **March
      31, 2005**
    ****
    **Six
      months ended**
      **March
      31, 2004**Net
      IncomeNet
      income as reported
    
    $
    3,862,144
    
    $
    2,531,516
    
    $
    6,720,422
    
    $
    4,176,947Add
      income attributed to minority interest
    
    
    1,534,770
    
    
    —
    
    
    1,534,770
    
    
    —Adjusted
      net income after recognizing 100% subsidiary income
    
    $
    5,396,914
    
    $
    2,531,516
    
    $
    8,255,192
    
    $
    4,176,947Basic
      and Diluted EPSNet
      income per share - as reported
    
    $
    0.18
    
    $
    0.22
    
    $
    0.37
    
    $
    0.36Add
      earnings per share attributed to minority interest
    
    
    0.07
    
    
    —
    
    
    0.08
    
    
    —Adjusted
      earnings per share
    
    $
    0.25
    
    $
    0.22
    
    $
    0.45
    
    $
    0.36
 
 Concentrations
and credit risks
 
 For the
period ended March 31, 2005 and 2004, 100% of the Company’s sales were to
companies located in the PRC. At March 31, 2005 and September 30, 2004 all the
Company’s assets were located in the PRC.
 
 The
Company’s operations may be adversely affected by significant political,
economic and social uncertainties in China. Although the Chinese government has
pursued economic reform policies in the past, there is no assurance that the
Chinese government will continue to pursue such policies or that such policies
may not be significantly altered, especially in the event of a change in
leadership, social or political disruption or unforeseen circumstances affect
China’s political, economic and social conditions. There is also no guarantee
that the Chinese government’s pursuit of economic reforms will be consistent or
effective.
 13
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
2 - Summary of significant accounting policies,
(continued)**
 
 Cash
in bank accounts
 
 Cash
includes cash on hand and demand deposits in accounts maintained with
state-owned banks within the People’s Republic of China. The total cash balance
in state-owned banks at March 31, 2005 and September 30, 2004 amounted to
$21,577,653 and $18,269,919, respectively of which no deposits are covered by
insurance. The Company has not experienced any losses in such accounts and
believes it is not exposed to any risks on its cash in bank
accounts.
  **Note
3 - Consolidated financial statements and condensed
footnotes**
  The
interim condensed consolidated financial statements presented herein have been
prepared by the Company and include the unaudited accounts of the Company and
its subsidiaries. All significant inter-company accounts and transactions have
been eliminated in the consolidation.
  These
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States for interim
financial information and the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. Management of the Company
believes the disclosures made are adequate to make the information presented not
misleading.
  The
condensed consolidated financial statements should be read in conjunction with
the Company’s audited financial statements for the period ended September 30,
2004 and notes thereto included in the Company’s Form 10-KSB/A, dated January
30, 2005.
  In the
opinion of management, the unaudited condensed consolidated financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position of the Company as of March
31, 2005 and the results of operations for the three months and six months ended
March 31, 2005 and 2004, respectively. Interim results are not necessarily
indicative of full year performance because of the impact of seasonal and
short-term variations.
  **Note
4 - Accounts receivable**
 
 Accounts
receivable as of March 31, 2005 and September 30, 2004 consisted of the
following:
 
 **March
      31,**
    ****
    **September
      30,**
    ********
    ****
    **2005**
    ****
    **2004**Accounts
      receivable
    
    $
    16,215,031
    
    $
    7,348,676Less:
      allowance fordoubtful accounts
    
    
    768,151
    
    
    768,151Totals
    
    $
    15,446,880
    
    $
    6,580,525
 14
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
5 - Notes receivable**
 
 The notes
receivable represent amounts due on Energy Savings Sharing contracts. The
Company carries its notes receivable at the net present value of the notes. The
notes receivable are secured by the related equipment. The notes receivable
amounted to the following:
 
 **March
      31,**
    ****
    **September
      30,**
    ********
    ****
    **2005**
    ****
    **2004**Notes
      receivable
    
    $
    9,212,902
    
    $
    10,815,232Less:
      Current portion of notes receivable
    
    
    2,724,372
    
    
    3,727,540Totals
    
    $
    6,488,530
    
    $
    7,087,692
 The
following table represents as of March 31, 2005 the estimated principal
collections on notes receivable:
 
 **Period
      Ending March 31,**
    ****
    **Amount**2006
    
    $
    2,724,3722007
    
    
    2,596,9392008
    
    
    2,475,4672009
    
    
    1,232,9972010
    
    
    183,127
 
 **Note
6 - Inventories**
 
 Inventories
as of March 31, 2005 and September 30, 2004 consisted of the
following:
 
 **March
      31,**
    ****
    **September
      30,**
    ********
    ****
    **2005**
    ****
    **2004**Raw
      materials
    
    $
    2,459,884
    
    $
    1,013,976Work
      in progress
    
    
    334,227
    
    
    869,059Finished
      goods
    
    
    2,492,392
    
    
    2,446,517Totals
    
    $
    5,286,503
    
    $
    4,329,552
 **Note
7 - Prepaid expenses**
 
 Prepaid
expenses at March 31, 2005 and September 30, 2004 amounted to $2,962,216 and
$1,529,955, respectively. Prepaid expenses represent advances to suppliers on
inventory purchases.
  15
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
8 - Plant and equipment**
 
 Plant and
equipment as of March 31, 2005 and September 30, 2004 are summarized as
follows:
 
 **March
      31,**
    ****
    **September
      30,**
    ********
    ****
    **2005**
    ****
    **2004**Building
    
    $
    409,888
    
    $
    409,888Office
      equipment
    
    
    83,857
    
    
    80,100Furniture
      and fixtures
    
    
    41,574
    
    
    41,574Plant,
      machinery andequipment
    
    
    80,126
    
    
    80,126Vehicle
    
    
    148,586
    
    
    148,586Total
    
    
    764,031
    
    
    760,274Less: accumulated
      depreciation
    
    
    265,182
    
    
    231,930Plant
      and equipment, net
    
    $
    498,849
    
    $
    528,344
 Depreciation
expense for the six months ending March 31, 2005 and 2004 amounted to $33,252
and $40,906, respectively.
 
 **Note
9 - Long-term loan receivable**
 
 The
long-term loan receivable as of March 31, 2005 amounted to $1,764,376. This
amount represents a loan made to third party in China.  The loan bears
interest at a monthly interest rate of 0.52%, or an annual rate at 6.24%, and is
due on June 30, 2006.  The loan is personally guaranteed by certain board
members of SDID.
 
 **Note
10 - Notes payable, net**
 
 Long-term
obligations consisted of the following:
 
 Note
      payable to finance company, secured by automobile, interest at 5.44% per
      annum. Monthly payments of $1,067 due through April 2006
    $
    17,559Less
      current maturities
    
    12,974Total
    $
    4,585
  Principal
payments for the next five years are as follows:
 **Year
      Ending September 30,**2005
    $
    12,9742006
    
    4,585
 16
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS**
 
 
 **Note
11 - Related party transactions**
 
 As of
March 31, 2005 and September 30, 2004, the due from related party amounted to
$1,179,376 and $1,257,130, respectively. A majority of this amount was generated
from making cash advances to the shareholders for ordinary business expenses. In
addition, certain shareholders had collected payments on receivables on the
Company’s behalf from the customers and those payments had not been repaid to
the Company by March 31, 2005 and September 30, 2004. These amounts are
unsecured, interest free and have no fixed terms of repayment.
 
 **Note
12 - Customer deposits**
 
 The
Company requires their customers to deposit monies with the Company when they
place an order for their products. The Company does not pay interest on these
amounts in customer deposits amounted to $3,000,705 and $1,752,216 as of March
31, 2005 and September 30, 2004, respectively.
 ****
 **Note
13 - Taxes payable**
 
 Taxes
payable at March 31, 2005 and September 30, 2004 consist of the
following:
 
 **March
      31,**
    ****
    **September
      30,**
    ********
    ****
    **2005**
    ****
    **2004**Urban
      maintenance andconstruction tax
    
    $
    34,817
    
    $
    21,104Education
      tax
    
    
    896
    
    
    1,058Value
      added tax
    
    
    3,159,773
    
    
    1,870,514Totals
    
    $
    3,195,486
    
    $
    1,892,676
 On July
22, 2004, the local Chinese tax authority waived the previously accrued tax
accumulated prior to January 1, 2004 in the amount of $4,853,332 which was
recorded as a credit during 2004 for previously accrued income taxes. The
Company has elected to record the entire credit for Chinese income taxes in
2004.
 
 The
credit (provision) for income taxes consisted of the following:
  **Six
      Months Ended**
      **March 31,**
    ********
    ****
    **2005**
    ****
    **2004**Provision
      for China income taxes
    
    $
    —
    
    $
    (678,971
    )Total
      provision for income taxes
    
    $
    —
    
    $
    (678,971
    )
 17
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS**
   **Note
13 - Taxes payable, (continued)**
 
 The
following table reconciles the U.S. Statutory rates to the Company’s effective
tax rate:
 
 **March
      31,**
    ********
    ****
    **2005**
    ****
    **2004**U.S.
      Statutory rates
    
    
    34.0
    %
    
    34.0
    %Foreign
      income not recognized in USA
    
    
    (34.0
    )
    
    (34.0
    )China
      income taxes
    
    
    —
    
    
    17.0Totals
    
    
    —
    %
    
    17.0
    %

The
Company located its factories in a special economic region in China. This
economic region allows foreign enterprises a two-year income tax exemption and a
50% income tax reduction for the following three years. The Company was approved
as a wholly owned foreign enterprise in 2004. The Company has income tax
exemption for years ending September 30, 2004 and 2005 and 50% income tax
reduction for the years ending September 30, 2006, 2007 and 2008.
 
 The
estimated tax savings for the six months ending March 31, 2005 amounted
$2,578,472. The net effect on earnings per share if the income tax had been
applied would decrease earnings per share from $0.37 to $0.23.
 
 The
Company has a net operating loss carry forward of $8,001,000 for US income tax
purposes that will expire during the year 2025. The Company has recorded a
valuation allowance for the entire amount of the loss carry forward. Since the
Company’s main operations are located in the PRC and any income subject to US
income taxes will be dependent upon the Company having operations in the US or
other US taxable events will have to occur. Since the Company is not sure at
this time that the Company will be able utilize the tax benefits of this
operating loss management has decided to record a valuation allowance for the
entire amount of the operating loss.
 
 **Note
14 - Commitments and contingencies**
 
 Operating
Leases
 
 The
Company leases its facilities under long term, non-cancelable operating lease
agreements expiring through June 2009. The non-cancelable operating lease
agreements provide that the Company pays certain operating expenses applicable
to the leased premises.
 
 Total
rent expense for the six months ended March 31, 2005 and 2004 amounted to
$52,636 and $52,142, respectively.
 18
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS**
 **Note
14 - Commitments and contingencies, (continued)**
 
 As of
March 31, 2005, the future minimum annual lease payments required under the
operating leases for the next five years are as follows:
 
 **Period
      Ending March 31,**
    ****
    **Amount**2005
    
    $
    59,2702006
    
    
    58,0002007
    
    
    58,0002008
    
    
    87,000Thereafter
    
    
    —
 
 **Note
15 - Equity incentive plan**
 
 On
September 8, 2004, the Company adopted an Equity Incentive Plan. The purpose of
this plan is to attract, retain and motivate eligible persons whose current and
potential contributions are important to the success of the Company by offering
them an opportunity to participate in the Company’s future performance through
awards of Options, the right to purchase common stock and stock bonuses. A total
of 1,200,000 shares of common stock have been registered with the Securities and
Exchange Commission under this plan.
 
 On
September 16, 2004, the Company issued 10,000 shares to non-employee consultants
and 620,000 shares of its common stock to certain qualifying employees at
US$12.70 per share. The total shares were valued at $8,001,000 ($12.70 per
share), the closing price of the stock at the date the shares were
issued.
 
 The
Company accounts for its employee stock option grants in accordance with the fair
value provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation” (SFAS 123). SFAS 123 established a
fair-value-based method of accounting for stock-based compensation
plans. Pursuant
to the transition provisions of SFAS 148, "Accounting for Stock-Based
Compensation -
Transition and Disclosure" (SFAS 148), the Company has elected the prospective
method and will apply the fair value method of accounting to all equity
instruments issued to employees. As of September 30, 2004, total stock based
compensation expense recorded in the accompanying income statement amounted to
$7,874,000.
 
 Compensation
expense related to stock options granted to non-employees is accounted for under
Statement of Financial Accounting Standards No. (SFAS) 123, “Accounting for
Stock-Based Compensation” and Emerging Issues Task Force (EITF)
96-18 ,
“Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in conjunction with Selling, Goods, or Services,”
which require entities to recognize an expense, based on the fair value of the
related awards.  As of September 30, 2004, total stock compensation to
non-employees amounted to $127,000.
 
 During
October and November 2004, the Company issued 470,000 shares to non-employee
consultants of its common stock at US$11.00 and US$13.15 per share. The total
shares were valued at $5,256,000, the closing price of the stock at the date the
shares were issued.
 19
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS**
 **Note
16- Shareholders’ equity**
 
 Stock
Issuances
 
 On
November 17, 2004, the Company completed an acquisition of an additional 15%
interest in Starway. Prior to the acquisition, the Company owned 50% of the
outstanding shares of capital stock of Starway. After the acquisition, the
Company will own a total of 65% of the outstanding shares of Starway capital
stock. The Company acquired the additional 15% interest in Starway from
Eurofaith. The sole director of Eurofaith is also a director and Corporate
Secretary of the Company.
 
 The
Company acquired the 15% interest in Starway by issuing a total of 3,346,100
shares of common stock of the Company. The amount of consideration given by the
Company for the acquisition was determined with reference to the acquisition of
shares of Starway capital stock as reported in the Company's Current Report on
Form 8-K filed on June 30, 2004. The closing of the Acquisition (the "Closing")
occurred on November 17, 2004 (the "Closing Date"). The sole consideration for
the Acquisition is common stock of the Company.
 
 In
accordance with SFAS 141, the Company is required to record the acquisition of
the minority interest in accordance with purchase accounting. However entities
that are under common control are required to record the acquisition of the
assets and liabilities transferred at their carrying amounts. Due to the common
majority ownership in the Company and Eurofaith, the Company and Eurofaith are
deemed in common control in accordance with SAB No. 47. Due to the common
control element in accordance with SFAS 141 the Company has recorded the 15%
acquisition from Eurofaith at historical costs value of $6,095,901.
 
 During
November and December 2004, the Company issued 7,683 shares of common stock for
legal services and director fees. The total shares were valued at
$71,740.
 
 The
Company acquired the remaining 35% interest (the "Acquisition") in Starway
Management Limited ("Starway) from Sky Beyond Investments Limited ("Sky Beyond")
on February 1, 2005 by issuing a total of 7,807,569 shares of common stock of
the Company. Sky Beyond had acquired the 35% interest in Starway from Golden
Resorts Group Limited (formerly known as "Meditech Group Company Limited"). The
amount of consideration given by the Company for the Acquisition was determined
with reference to the acquisitions of the 50% and subsequently the 15% interest
in Starway as reported in the Company's Form 8-K filed on June, 30, 2004 and
November 18, 2004, respectively. The closing of the Acquisition (the "closing")
occurred on February 1, 2005 and the Company owns 100% of Starway after the
Acquisition.
 
 However
management of the Company has learned that the stock sale between Sky Beyond and
Golden Resorts Group Limited was subject to approval by the shareholders of
Golden Resorts. As of May 18, 2005, the shareholder meeting to approve the sale
has not been held. The Company and Sky Beyond believe that the Company’s
acquisition of the 35% in Starway has been legally completed. However the
Company is in the process of investigating this matter and is taking a
conservative approach in reflecting this acquisition in the financial statements
of the Company.
 20
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS**
 **Note
16- Shareholders’ equity, (continued)**
 
 As of
March 31, 2005, the Company has decided not to reflect the additional earnings
and additional paid in capital of the acquisition of the remaining 35% interest
in Starway. However since the 7,807,569 shares have been issued in this
transaction the par value of the stock has been reflected in the shareholders’
equity statement and the shares has been reflected in the earnings per share
calculation as issued. If 100% of the income was to be reflected in the income
statement at the date of acquisition, the Company net income would increase by
$1,534,770 to $5,396,914 for the three months ended March 31, 2005 and earnings
per share would increase by $0.07 to $0.25 for the three months ended March 31,
2005. Year to date net income would increase to $8,255,192 and year to date
earnings per share would increase to $0.45.
 
 If the
Acquisition had been reflected in the financial statements, the net income and
earning per share for the periods presented would have been adjusted to the
amounts indicated below:
 
 
 **Three
      months ended**
      **March
      31, 2005**
    
    **Three
      months ended**
      **March
      31, 2004**
    
    **Six
      months ended**
      **March
      31, 2005**
    
    **Six
      months ended**
      **March
      31, 2004**Net
      IncomeNet
      income as reported
    
    $
    3,862,144
    
    $
    2,531,516
    
    $
    6,720,422
    
    $
    4,176,947Add
      income attributed to minority interest
    
    
    1,534,770
    
    
    —
    
    
    1,534,770
    
    
    —Adjusted
      net income after recognizing 100% subsidiary income
    
    $
    5,396,914
    
    $
    2,531,516
    
    $
    8,255,192
    
    $
    4,176,947Basic
      and Diluted EPSNet
      income per share - as reported
    
    $
    0.18
    
    $
    0.22
    
    $
    0.37
    
    $
    0.36Add
      earnings per share attributed to minority interest
    
    
    0.07
    
    
    —
    
    
    0.08
    
    
    —Adjusted
      earnings per share
    
    $
    0.25
    
    $
    0.22
    
    $
    0.45
    
    $
    0.36
 Statutory
Reserves and Restricted Retained earnings
 
 The
Company is required to make appropriations to reserve funds, comprising the
statutory surplus reserve, statutory public welfare fund and discretionary
surplus reserve, based on after-tax net income determined in accordance with
generally accepted accounting principles of the People’s Republic of China (the
“PRC GAAP”). Appropriation to the statutory surplus reserve should be at least
10% of the after tax net income determined in accordance with the PRC GAAP until
the reserve is equal to 50% of the entities’ registered capital. Appropriations
to the statutory public welfare fund are at 5% to 10% of the after tax net
income determined in accordance with the PRC GAAP.
 
 The
statutory public welfare fund is established for the purpose of providing
employee facilities and other collective benefits to the employees and is
non-distributable other than in liquidation. Appropriations to the discretionary
surplus reserve are made at the discretion of the Board of
Directors.
 21
 **Table of Contents**
 
 **CHINA
ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
SUBSIDIARIES**
 ****
 **CONDENSED
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS**
 **Note
17 - Minority Interest**
 
 Minority
interest represents the outside shareholder’s 35% ownership of the common stock
of Starway Management Limited. Due to common control over the entities the
financial statements of the Company have been restated to reflect the minority’s
shareholder’s interest as if the transaction was effective January 1, 2003.
 
 As
described in note 16 the Company has decided not to reflect the additional
earnings and additional paid in capital of the acquisition of the remaining 35%
interest in Starway.




22
 **Table of Contents**





****ITEM
      2.**
    **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF
      OPERATIONS.****




The
following discussion of our financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related
notes thereto. The following discussion contains forward-looking statements.
China Energy Savings Technology, Inc. is referred to herein as the “Company”,
"we" or "our." The words or phrases "would be," "will allow," "intends to,"
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements." Such statements include those concerning expected
financial performance, corporate strategy, and operational plans. Actual results
could differ materially from those projected in the forward-looking statements
as a result of a number of risks and uncertainties, including: (a) general
economic conditions in China; (b) regulatory factors in China that may lead to
additional costs or otherwise negatively affect our business; (c) whether we are
able to manage our planned growth efficiently, including whether our management
will be able to: (i) identify, hire, train, retain, motivate and manage required
personnel or (ii) successfully manage and exploit existing and potential market
opportunities; (d) whether we are able to generate sufficient revenues or obtain
financing to sustain and grow our operations; and (e) whether we are able to
successfully fulfill our primary cash requirements which are explained below
under "Liquidity and Capital Resources.” Statements made herein are as of the
date of the filing of this Form 10-QSB with the Securities and Exchange
Commission and should not be relied upon as of any subsequent date. Unless
otherwise required by applicable law, we do not undertake, and we specifically
disclaim any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or circumstances after the date
of such statement.
 
 **OVERVIEW**
  We are a
Nevada corporation headquartered in Hong Kong, China that invests in, develops,
markets, distributes and manufactures energy saving products for use in
commercial and industrial settings. As of December 31, 2004, we owned a 65%
interest in Starway Management Limited, a British Virgin Islands corporation
("Starway") which owns all of the equity interests in Shenzhen Dicken Industrial
Development Limited ("SDID"), a company incorporated in the People's Republic of
China on November 20, 1996 which in turn owns all of the equity interest in
Shenzhen Dicken Technology Development Limited ("SDTD"), a
company incorporated in the People’s Republic of China on November 9, 1999.
Subsequently, in February 2005, we acquired all of the remaining 35% interest in
Starway from Sky Beyond Investments Limited (“Sky Beyond”) bringing our total
ownership of Starway to 100%. Starway's subsidiaries, SDID and SDTD, develop,
market, distribute and manufacture energy saving products for use in commercial
and industrial settings in China.
 
 As
discussed more fully in Part II, Item 5 below and in Notes 2 and 16 in the
Condensed Notes to the Consolidated Financial Statements, the Company is aware
of a dispute regarding the Company’s February 2005 acquisition of the remaining
35% interest in Starway. The Company is in the process of resolving this matter
and has decided to take a conservative approach in reflecting this acquisition
in the financial statements of the Company. Thus, our financial statements are
consolidated with those of Starway and its subsidiaries with an adjustment so as
not to reflect the additional earnings and additional paid in capital of the
acquisition of the remaining 35% interest in Starway until the Company receives
confirmation that the matter has been fully resolved.
 
 **RESULTS
OF OPERATIONS**
 
 General
results of operations for the three months ended March 31, 2004 and March 31,
2005 and for the six months ended March 31, 2004 and March 31, 2005 are
summarized as follows:
 
 23
 **Table of Contents**
 
 **Three
      Months Ended March 31**
    ****
    ****
    **2005**
    ****
    ****
    **2004**
    ****
    ****
    **Change**Revenues
    
    
    11,175,617
    
    
    8,818,742
    
    
    27.00
    %Cost
      of goods sold
    
    
    4,254,122
    
    
    3,234,882
    
    
    32.00
    %Gross
      profit
    
    
    6,921,495
    
    
    5,583,860
    
    
    24.00
    %Operating
      expenses
    
    
    1,203,613
    
    
    517,150
    
    
    133.00
    %Operating
      profit
    
    
    5,717,882
    
    
    5,066,710
    
    
    13.00
    %Other
      income/(expense)
    
    
    396,363
    
    
    (3,677
    )
    
    N/AIncome
      before income taxes and minority interest
    
    
    6,114,245
    
    
    5,063,033
    
    
    21.00
    %Net
      income (after minority interest)
    
    
    3,862,144
    
    
    2,531,516
    
    
    52.50
    %
 
 **Six Months
      Ended March 31**
    ****
    ****
    **2005**
    ****
    ****
    **2004**
    ****
    ****
    **Change**Revenues
    
    
    22,884,307
    
    
    20,320,207
    
    
    13.00
    %Cost
      of goods sold
    
    
    9,145,530
    
    
    10,682,628
    
    
    –14.00
    %Gross
      profit
    
    
    13,738,777
    
    
    9,637,579
    
    
    43.00
    %Operating
      expenses
    
    
    2,788,152
    
    
    1,384,097
    
    
    101.00
    %Operating
      profit
    
    
    10,950,625
    
    
    8,253,482
    
    
    33.00
    %Other
      income
    
    
    741,751
    
    
    779,383
    
    
    –5.00
    %Income
      before income taxes and minority interest
    
    
    11,692,376
    
    
    9,032,865
    
    
    29.00
    %Net
      income (after minority interest and taxes)
    
    
    6,720,422
    
    
    4,176,947
    
    
    60.80
    %
 The key
financial ratios for the three months ended March 31, 2004 and March 31, 2005
and six months ended March 31, 2004 and March 31, 2005 are as
follows:
 
 **Three
      MonthsEnded
      March 31**
    ****
    **2005**
    ****
    **2004**Gross
      profit margin
    
    62%
    
    63%Income
      before taxes and minority interest margin
    
    55%
    
    57%Current
      ratio
    
    5.9
      times
    
    1.8
      timesQuick
      ratio
    
    5.3
      times
    
    1.6
      times
 
 **Six
      MonthsEnded
      March 31**
    ****
    **2005**
    ****
    **2004**Gross
      profit margin
    
    60%
    
    47%Income
      before taxes and minority interest margin
    
    51%
    
    44%Current
      ratio
    
    5.9
      times
    
    1.8
      timesQuick
      ratio
    
    5.3
      times
    
    1.6
      times
 
 
 **(1)**
    **REVENUES**
  Consolidated
revenues increased by $2,356,875, or approximately 27%, from $8,818,742 for the
three months ended March 31, 2004 to $11,175,617 for the three months ended
March 31, 2005. The 27% increase was a result of increased unit sales in our
energy savings products.
 24
 **Table of Contents**
  Consolidated
revenues increased by $2,564,100, or approximately 13%, from $20,320,207 for the
six months ended March 31, 2004 to $22,884,307 for the six months ended March
31, 2005. The increase in revenues reflects sales growth in SDID's energy
savings products, and was the result of increased unit sales. Our management
expects that revenue will continue to grow in 2005 because of our marketing and
sales efforts and growing demand for our products due to electricity shortages
in many parts of China. Further, our management believes that we will be able to
maintain our price levels due to the growing demand and a lack of strong
competitive products. While our products may be used internationally, we
currently have focused our sales efforts in China, targeting large businesses
and local governments. Management hopes to continue to increase our sales in
China. ****
 **(2)**
    **COST
      OF GOODS SOLD**
  Consolidated
costs of goods sold increased by $1,019,240, or approximately 32%, from
$3,234,882 for the three months ended March 31, 2004 to $4,254,122 for the three
months ended March 31, 2005. The 32% increase was a result of an increase in
sales as discussed previously and a slight increase in raw material costs of
energy savings products in the period.
 
 Consolidated
costs of goods sold decreased by $1,537,098, or approximately 14%, from
$10,682,628 for the six months ended March 31, 2004 to $9,145,530 for the six
months ended March 31, 2005. The decrease in cost of goods sold is a result of
better control over production costs. Because of our increase in sales volume,
we are able to buy our production materials in mass quantities so we are able to
leverage more buying power to get better prices for supplies and materials used
for the production of our products. Additionally, we have seen an increase in
suppliers for the supplies and materials used for the production of our
products, which results in more competitive pricing for such supplies and
materials. As a result, the cost of materials such as chipsets and other
hardware used in the production of our products has decreased
substantially,  which in turn produces better profit margins for us. Such a
decrease is expected to continue in the short term but we expect it to be
minimized in the future.
 
 **(3)**
    **GROSS
      PROFIT**
 
 Consolidated
gross profit increased by $1,337,635, or approximately 24%, from $5,583,860 for
the three months ended March 31, 2004 to $6,921,495 for the three months ended
March 31, 2005. Gross profit as a percentage of sales decreased from
approximately 63% for the three months ended March 31, 2004 to 62% for the three
months ended March 31, 2005. The increase in gross profit was a result of an
increase of sales units. The decrease in gross profit as a percentage of sales
was mainly attributable to variations in the type of products purchased in the
period by the Company’s customers and variations in profit margins associated
with different types of products.
 
 Consolidated
gross profit increased by $4,101,198, or approximately 43%, from $9,637,579 for
the six months ended March 31, 2004 to $13,738,777 for the six months ended
March 31, 2005. Gross profit as a percentage of sales increased from
approximately 48% for the six months ended March 31, 2004 to approximately 60%
for the six months ended March 31, 2005. The increase in gross profit was a
result of an
increase unit sales and a decrease in cost of goods sold. The increase in gross
profit as a percentage of sales was mainly attributable to increased sales of
the Company’s products that are mass produced which have a higher profit margin.
 **(4)**
    **OPERATING
      EXPENSES**
  Consolidated
operating expenses increased by $686,463, or approximately 133%, from $517,150
for the three months ended March 31, 2004 to $1,203,613 for the three months
ended March 31, 2005. The operating expenses as a percentage of sales increased
to 11% for the three months ended March 31, 2005 from 6% for the three months
ended March 31, 2004. The increase in operating expenses is primarily due to the
significant increase in our unit sales of energy savings products, the cost of
increased employee turnover, and costs associated with increases in our staff’s
salary by approximately 10% and the number of employees increased from
approximately 90 to about 110. In addition our operating expenses have increased
due to the increase in consulting fees for stock issued in October and November
2004, which is discussed below.
 25
 **Table of Contents**
 
 Consolidated
operating expenses increased by $1,404,055, or approximately 101%, from
$1,384,097 for the six months ended March 31, 2004 to $2,788,152 for the six
months ended March 31, 2005. The operating expenses as a percentage of sales
increased to 12% for the six months ended March 31, 2005 from 7% for the six
months ended March 31, 2004. In general, there were significant increases in
sales, marketing and administrative and operating expenses. A large part of the
increase is attributable to the fact that during October and November 2004, we
signed agreements with various consultants for consulting services. The
agreements range between three to five years. As compensation for the consulting
services we issued 470,000 shares of our common stock at US$11.00 and US$13.15
per share. The total shares were valued at $5,256,000, the closing price of the
stock at the date the shares were issued. This amount is being amortized over
the life of the agreements on a straight-line basis and consulting expense
amounted to $1,093,128 for the six months ended March 31, 2005. We believe
expenses related to the marketing and selling of our products will continue to
increase substantially to handle our growing sales volume. During November and
December 2004, we also issued 7,683 shares of common stock for legal services
and director fees. The total shares were valued at $71,740. We expect that
professional fees and expenses to ensure compliance with U.S. Securities laws,
the Sarbanes-Oxley Act and marketplace rules for the NASDAQ National Market will
increase substantially.
 ****
 **(5)**
    **OTHER
      INCOME**
 
 Consolidated
“other income” increased by $400,040 from ($3,677) for the three months ended
March 31, 2004 to $396,363 for the three months ended March 31, 2005. The
increase mainly represents the interest income received by the Company in excess
of the original estimated cost savings for cost savings contracts for the
period.
 
 Consolidated
“other income” decreased by $37,632, or approximately 5%, from $779,383 for the
six months ended March 31, 2004 to $741,751 for the six months ended March 31,
2005. The decrease was mainly due to the decrease in interest income received by
the Company in excess of the original estimated cost savings for cost savings
contracts for the period.
 **(6)**
    **NET
      INCOME**
 
 Consolidated
net income increased by $1,330,628, or approximately 53%, from $2,531,516 for
the three months ended March 31, 2004 to $3,862,144 for the three months ended
March 31, 2005. The increase was mainly due to the increase of revenue by 27%
and the additional interest income received by the Company in excess of the
original estimated cost savings for cost savings contracts for the period.
   Consolidated
net income increased by $2,543,475, or approximately 61%, from $4,176,947 for
the six months ended March 31, 2004 to $6,720,422 for the six months ended March
31, 2005. The increase was mainly due to the increase of revenue by 13%, the
decrease in cost of goods sold by 14% which was offset by an increase in
operating expenses of 5%.
 
 **LIQUIDITY
AND CAPITAL RESOURCES**
  **Six
      MonthsEnded
      March 31**
    
    **2005**
    
    **2004**
    
    **Change**Net
      cash provided by operating
      activities
    
    
    4,906,060
    
    
    6,352,304
    
    
    – 22.77
    %Net
      cash used ininvesting
      activities
    
    
    (3,758
    )
    
    —
    
    
    —Net
      cash used infinancing
      activities
    
    
    (1,767,511
    )
    
    (238,060
    )
    
    642.46
    %
  The
decrease of $1,446,244, or approximately 22.8% in net cash provided by operating
activities primarily reflects an increase in revenues for the six months ended
March 31, 2005 offset by the effect of a significant increase of accounts
receivable during the period.
 
 The
decrease in net cash used in investing activities was due to the acquisition of
equipment during the period.
 
 26
 **Table of Contents**
 
 The
decrease of $1,529,451, or approximately 642% in net cash used in financing
activities was due to the increase of long-term loan receivable and the
repayment of notes payable during the period.
 
 We
believe that we have adequate capital resources to continue our operations and
will not need to raise capital in the near future. We believe that our current
cash balance and the revenues that will be generated will cover anticipated
operating expenses for a period of at least one year without supplementing our
cash reserves. We may, however, raise additional capital to further develop our
other products.
  **MANAGEMENT
ASSUMPTIONS**
 
 Management
anticipates, based on internal forecasts and assumptions relating to our current
operations that existing cash and funds generated from operations will be
sufficient to meet working capital for at least the next 12 months. In the event
that plans change, our assumptions change or prove inaccurate or if other
capital resources and projected cash flow otherwise prove to be insufficient to
fund operations (due to unanticipated expense, technical difficulties, or
otherwise), we could be required to seek additional financing. There can be no
assurance that we will be able to obtain additional financing on terms
acceptable to it, or at all.
 
 **EFFECTS
OF INFLATION**
 
 We are
subject to commodity price risks arising from price fluctuations in the market
prices of the various raw materials that comprise our products. Price risks are
managed by each business unit through productivity improvements and
cost-containment measures. For the time being, the management does not believe
that inflation risk is material to our business or our consolidated financial
position, results of operations or cash flows.
 
 **EFFECT
OF FLUCTUATION IN FOREIGN EXCHANGE RATES**
 
 Our
operating subsidiaries are located in China, and our Company buys all raw
materials in China and sells all our products in China using Chinese Renminbi as
the functional currency. Based on China government regulation, all foreign
currencies under the category of current accounts are allowed to be freely
exchanged with hard currencies. During the past two years of operation, there
were no significant changes in exchange rates; however, unforeseen developments
may cause a significant change in exchange rates.
 
 **SHAREHOLDING
OF STARWAY MANAGEMENT LIMITED**
 As of
June 30, 2004, the Company held a 50% stake in Starway Management Limited
(“Starway”) and subsequently increased its share in Starway to 65% by acquiring
an additional 15% stake in Starway on November 16, 2004. Finally, the Company,
pursuant to an Agreement and Plan of Share Exchange with Sky Beyond dated
February 1, 2005 (the “Agreement”), purchased the remaining 35 shares of Starway
stock from Sky Beyond representing the final 35% stake in Starway. As discussed
more fully in Part II, Item 5 below and in Notes 2 and 16 in the Condensed Notes
to the Consolidated Financial Statements, the Company is aware of a dispute
regarding the Company’s February 2005 acquisition of the final 35% interest in
Starway.
  Starway
owns all of the equity interests in Shenzhen Dicken Industrial Development
Limited, a company incorporated in the People's Republic of China (“SDID”) which
in turns owns all of the equity interest in Shenzhen Dicken Technology
Development Limited, a company incorporated in the People's Republic of China
("SDTD"). SDID and SDTD are the Company’s operating subsidiaries which develops,
markets, distributes and manufactures the Company’s energy saving products.
 27
**Table of Contents**


**ITEM 3.**
    **CONTROLS
      AND PROCEDURES**
   (a)
    Evaluation
      of Disclosure Controls and Procedures. As of the end of the period
      covered by this report, we carried out an evaluation, under the
      supervision and with the participation of our management, including our
      Chief Executive Officer and the Chief Financial Officer, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Exchange Act Rule 13a-14. Based upon that
      evaluation, the Chief Executive Officer and Chief Financial Officer
      concluded that our disclosure controls and procedures are effective in
      timely alerting them to material information relating to us required to be
      included in our periodic SEC filings.
 
 (b)
    Changes
      in Internal Controls Over Financial Reporting. There was no change in
      our internal control over financial reporting during our most recent
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial
      reporting.


28
 **Table of Contents**


****


**PART II - OTHER INFORMATION**





**ITEM 1.**
    **LEGAL
      PROCEEDINGS**
  None.




**ITEM 2.**
    **UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS**
 
 In
February, 2004, the Registrant issued 7,807,569 shares of common stock to Sky
Beyond, which represented that it is an accredited investors as part of the
acquisition of a 35% interest in Starway. This transaction was effected under an
exemption to registration pursuant to Section 4(2) of the Securities Act of
1933, as amended. The recipients of the securities in the above-described
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the share certificate and other
instruments issued in such transaction.
 
  **ITEM 3.**
    **DEFAULTS
      UPON SENIOR SECURITIES**
 
 Not
Applicable.
 
 **ITEM 4.**
    **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS**
 
 Not
Applicable.
 
 **ITEM 5.**
    **OTHER
      INFORMATION**
 
 The
management of the Company became aware of a dispute between Golden Resorts Group
Limited, a Bermuda company listed on the Hong Kong Stock Exchange (“Golden
Resorts”) under the stock code 1031, and Sky Beyond Investments Limited, a
British Virgin Islands corporation (“Sky Beyond”) with respect to the sale of 35
shares of Starway Management Limited, a British Virgin Islands corporation
(“Starway”), representing 35% of the outstanding shares of Starway, by Win
Matching Limited (“Win Matching”), the wholly-owned subsidiary of Golden Resort,
to Sky Beyond pursuant to a Sale and Purchase Agreement dated January 10, 2005
between Win Matching and Sky Beyond (the “Starway Stock Sale”) from an
announcement made on May 9, 2005. Golden Resorts announced in a public filing
that it is taking the position that the Starway Stock Sale is not completed
because such sale was subject to Golden Resorts shareholder approval and such
approval has not been obtained. Sky Beyond, however, contends that the Starway
Stock Sale was complete because the consideration for the sale has been
delivered to Golden Resorts and that the stock certificate representing the 35
Starway shares has been delivered.

The
Company, pursuant to an Agreement and Plan of Share Exchange with Sky Beyond
dated February 1, 2005 (the “Agreement”), purchased 35 shares of Starway stock
from Sky Beyond. Sky Beyond represented to the Company in the Agreement that it
owned such shares of Starway and stock certificates representing such shares
were delivered to the Company upon closing.

On May
17, 2005, the management of the Company, upon learning the claims made by Golden
Resort and upon receiving correspondences from Sky Beyond and Golden Resorts
contacted representatives of Sky Beyond and Golden Resorts regarding the dispute
and together with Starway, the four parties have executed a Memorandumof
Understandingin which
Win Matching and its parent company, Golden Resorts, claimed to undertake to
resolve the dispute in an expedited manner.

There
were no changes to the procedures by which security holders may recommend
nominees to our board of directors.
29
**Table of
Contents**
 
 **ITEM 6.**
    **EXHIBITS 
      AND REPORTS ON FORM 8-K**
 **(a)**
    **Exhibits**
 
 **Exhibit**
      **Number**
    ****
    ****
      **Description**3.1
    
    Certificate
      of Incorporation (2)3.2
    
    Bylaws
      (2)10.1
    
    Agreement
      and Plan of Share Exchange dated November 16, 2004 by and between
      Eurofaith Holdings, Inc. and China Energy Savings Technology, Inc.
      (1)10.2
    
    Agreement
      and Plan of Share Exchange dated February 1, 2005 by and between Sky
      Beyond Investments Limited and China Energy Savings Technology, Inc.
      (3)31.1
    
    Certification
      of Chief Executive Officer Pursuant to 302 of the Sarbanes-Oxley Act of
      2002 (4)31.2
    
    Certification
      of Chief Financial Officer Pursuant to 302 of the Sarbanes-Oxley Act of
      2002 (4)32.1
    
    Certification
      of Chief Executive Officer Pursuant to 906 of the Sarbanes-Oxley Act of
      2002 (4)32.2
    
    Certification
      of Chief Financial Officer Pursuant to 906 of the Sarbanes-Oxley Act of
      2002 (4)
 
 (1)
    Previously
      filed with the Securities and Exchange Commission as Exhibit 10.1 to the
      Company's Current Report on Form 8K filed on November 18, 2004 and
      incorporated herein by reference.
 (2)
    Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Registration Statement on Form 10 filed on July 11, 2000 and incorporated
      herein by reference.
 (3)
    Previously
      filed with the Securities and Exchange Commission as Exhibit 10.1 to the
      Company's Current Report on Form 8K filed on February 4, 2005 and
      incorporated herein by reference.
 (4)
    Filed
      herewith.
   (b)
    **Reports
      on Form 8-K**
 
 1.
    
    8-K
    
    January
      27, 2005, Press Release re Corporate plans and objectives for
      20052.
    
    8-K
    
    February
      4, 2005, Acquisition of 35% of Starway from Sky Beyond Investments
      Limited3.
    
    8-K
    
    April
      19, 2005, Press Release re listing of Company’s common stock on NASDAQ
      National Market System4.
    
    8-K/A
    
    April
      21, 2005, Press Release re payment of fee for listing of Company’s Common
      Stock on NASDAQ National Market System, and Research Works, Inc. ("RW"),
      an independent equity research company initiating coverage of China Energy
      Savings Technology, Inc.5.
    
    8-K
    
    April
      21, 2005, Press Release re Company’s common stock trading on NASDAQ
      National Market System as of April 21, 2005 under symbol
      “CESV”


30
 **Table of Contents**


**SIGNATURES**





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


**CHINA
      ENERGY SAVINGS TECHNOLOGY, INC.**
      (Registrant)Date:  May 23, 2005
    By:
    /s/  Sun LiSun
      Li
      Chief
      Executive Officer
 Date:  May 23, 2005
    By:
    /s/  Kam Wah
PoonKam
      Wah Poon
      Chief
      Financial
Officer


31