Table
              of Contents
  **UNITED
          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**June
                            30, 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 August 18, 2005:  24,699,753
                  shares
  Transitional
                  Small Business Disclosure Format (check one): Yes o No x
  
  Table
                  of Contents
  **CHINA
                  ENERGY SAVINGS TECHNOLOGY, INC.**
 **TABLE
                  OF CONTENTS**
 **TO
                  QUARTERLY REPORT ON FORM 10-QSB**
 **FOR PERIOD
                  ENDED JUNE 30, 2005**
  **Page**PART
                            I
                        FINANCIAL
                            INFORMATION
                        3Item
                            1.
                        Financial
                            Statements
                        3Consolidated
                            Balance Sheets as of June 30, 2005 and
                            September 30, 2004
                        3Consolidated
                            Statements of Income and Other Comprehensive
                            Income (Loss) for the Three and Nine Months Ended
                            June 30, 2005 and
                            2004
                        4Consolidated
                            Statements of Shareholders'
                            Equity for the Nine Months ended June 30,2005
                            and
                            2004
                        5Consolidated
                            Statements of Cash Flows for the Nine
                            Months Ended June 30, 2005 and 2004
                        6Condensed
                            Notes to Consolidated Financial
                            Statements
                        7Item
                            2.
                        Management's
                            Discussion and Analysis or Plan
                            of Operation
                        24Item
                            3.
                        Controls
                            and Procedures
                        30PART
                            II
                        OTHER
                            INFORMATION
                        31Item
                            1.
                        Legal
                            Proceedings
                        31Item
                            2.
                        Unregistered
                            Sales of Equity Securities and Use of
                            Proceeds
                        31Item
                            3.
                        Defaults
                            Upon Senior Securities
                        31Item
                            4.
                        Submission
                            of Matters to a Vote of Security
                            Holders
                        31Item
                            5.
                        Other
                            Information
                        31Item
                            6.
                        Exhibits
                            and Reports on Form 8-K
                        32Signatures
                        34
  2
 Table
                      of Contents
  **PART
                  I - FINANCIAL INFORMATION**
 
 **ITEM
                          1.**
                        **FINANCIAL
                            STATEMENTS.**
  **CHINA
                              ENERGY SAVINGS TECHNOLOGY, INC. AND
                              SUBSIDIARIES********CONSOLIDATED
                              BALANCE SHEETS****AS
                              OF JUNE 30, 2005 AND SEPTEMBER 30, 2004********ASSETS****June
                              30**
                          
                          **September
                              30******
                          
                          **2005**
                          
                          **2004******
                          
                          **Unaudited**
                          
                          **Audited**CURRENT
                              ASSETS:Cash
                          
                          $
                          24,549,115
                          
                          $
                          18,442,862Accounts
                                    receivable, trade, net of allowance for doubtful
                                    accounts of $768,151 and
                                    $768,151 as of June 30, 2005 and September 30,
                                    2004,
                                    respectively
                          
                          
                          4,143,865
                          
                          
                          6,580,525Current
                              maturities of notes receivable, net
                          
                          
                          6,623,302
                          
                          
                          3,727,540Inventories
                          
                          
                          4,720,607
                          
                          
                          4,329,552Prepaid
                              expenses
                          
                          
                          3,397,159
                          
                          
                          1,529,955Due
                              from related parties
                          
                          
                          482,890
                          
                          
                          1,257,130Total
                              current assets
                          
                          
                          43,916,938
                          
                          
                          35,867,564PLANT
                              AND EQUIPMENT, net
                          
                          
                          481,567
                          
                          
                          528,344OTHER
                              ASSETS:Long-term
                              loan receivable
                          
                          
                          1,746,514
                          
                          
                          –Long-term
                              notes receivable, net
                          
                          
                          17,378,353
                          
                          
                          7,087,692Other
                              receivables
                          
                          
                          337,488
                          
                          
                          778,880Total
                              other assets
                          
                          
                          19,462,355
                          
                          
                          7,866,572Total
                              assets
                          
                          $
                          63,860,860
                          
                          $
                          44,262,480**LIABILITIES
                              AND SHAREHOLDERS' EQUITY**CURRENT
                              LIABILITIES:Accounts
                              payable and accrued expenses
                          
                          $
                          1,426,932
                          
                          $
                          2,719,554Current
                              portion of note payable
                          
                          
                          12,974
                          
                          
                          12,799Other
                              payables
                          
                          
                          248,384
                          
                          
                          551,528Customer
                              deposits
                          
                          
                          3,198,318
                          
                          
                          1,752,216Taxes
                              payable
                          
                          
                          3,876,480
                          
                          
                          1,892,676Total
                              current liabilities
                          
                          
                          8,763,088
                          
                          
                          6,928,773LONG-TERM
                              LIABILITIES:Note
                              payable, net
                          
                          
                          1,173
                          
                          
                          7,895Total
                              liabilities
                          
                          
                          8,764,261
                          
                          
                          6,936,668MINORITY
                              INTEREST
                          
                          
                          –
                          
                          
                          18,662,906SHAREHOLDERS'
                              EQUITY:Common
                                    stock, $0.001 par value, 50,000,000 shares authorized,
                                    24,699,753 and
                                    12,968,401 shares issued and outstanding as
                                    of June 30, 2005 and
                                    September 30, 2004, respectively
                          
                          
                          24,700
                          
                          
                          12,968Additional
                              paid-in capital
                          
                          
                          37,068,134
                          
                          
                          8,655,339Statutory
                              reserves
                          
                          
                          324,583
                          
                          
                          324,583Deferred
                              compensation
                          
                          
                          (4,750,434
                          )
                          
                          –Retained
                              earnings
                          
                          
                          22,426,276
                          
                          
                          9,666,676Accumulated
                              other comprehensive income
                          
                          
                          3,340
                          
                          
                          3,340Total
                              shareholders' equity
                          
                          
                          55,096,599
                          
                          
                          18,662,906Total
                              liabilities and shareholders' equity
                          
                          $
                          63,860,860
                          
                          $
                          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****FOR
                            THE THREE AND NINE MONTHS ENDED JUNE 30, 2005 AND
                            2004****Three
                            Months Ended**
                        
                        **Nine
                            Months Ended****June
                            30**
                        
                        **June
                            30**
                        
                        **June
                            30**
                        
                        **June
                            30****2005**
                        
                        **2004**
                        
                        **2005**
                        
                        **2004****Unaudited**
                        
                        **Unaudited**
                        
                        **Unaudited**
                        
                        **Unaudited**REVENUES
                        
                        $
                        9,594,188
                        
                        $
                        13,739,415
                        
                        $
                        32,478,495
                        
                        $
                        34,059,622COST
                            OF GOOD SOLD
                        
                        
                        4,397,104
                        
                        
                        4,780,495
                        
                        
                        13,542,634
                        
                        
                        15,463,123GROSS
                            PROFIT
                        
                        
                        5,197,084
                        
                        
                        8,958,920
                        
                        
                        18,935,861
                        
                        
                        18,596,499OPERATING
                            EXPENSESOperating
                            expense
                        
                        
                        465,751
                        
                        
                        238,399
                        
                        
                        1,745,966
                        
                        
                        1,398,088Selling,
                            general and administrative expenses
                        
                        
                        662,237
                        
                        
                        352,622
                        
                        
                        2,170,174
                        
                        
                        577,030Total
                            operating expenses
                        
                        
                        1,127,988
                        
                        
                        591,021
                        
                        
                        3,916,140
                        
                        
                        1,975,118INCOME
                            FROM OPERATIONS
                        
                        
                        4,069,096
                        
                        
                        8,367,899
                        
                        
                        15,019,721
                        
                        
                        16,621,381OTHER
                            INCOME (EXPENSE)Interest
                            income
                        
                        
                        434,347
                        
                        
                        170
                        
                        
                        1,174,568
                        
                        
                        777,862Interest
                            expense
                        
                        
                        (194
                        )
                        
                        (65,507
                        )
                        
                        3,569
                        
                        
                        (65,676
                        )Other
                            expense
                        
                        
                        (8
                        )
                        
                        (172,611
                        )
                        
                        (2,890
                        )
                        
                        (176,288
                        )Other
                            income
                        
                        
                        1,167
                        
                        
                        3,584
                        
                        
                        1,816
                        
                        
                        9,121Total
                            other income (expense)
                        
                        
                        435,312
                        
                        
                        (234,364
                        )
                        
                        1,177,063
                        
                        
                        545,019INCOME
                            BEFORE INCOME TAXES AND MINORITY INTEREST
                        
                        
                        4,504,408
                        
                        
                        8,133,535
                        
                        
                        16,196,784
                        
                        
                        17,166,400LESS
                            PROVISION FOR INCOME TAXES
                        
                        
                        –
                        
                        
                        –
                        
                        
                        –
                        
                        
                        (678,971
                        )INCOME
                            BEFORE MINORITY INTEREST
                        
                        
                        4,504,408
                        
                        
                        8,133,535
                        
                        
                        16,196,784
                        
                        
                        16,487,429MINORITY
                            INTEREST
                        
                        
                        –
                        
                        
                        4,089,008
                        
                        
                        3,437,184
                        
                        
                        8,265,955NET
                            INCOME
                        
                        
                        4,504,408
                        
                        
                        4,044,527
                        
                        
                        12,759,600
                        
                        
                        8,221,474OTHER
                            COMPREHENSIVE INCOME (LOSS):Foreign
                            currency translation adjustment
                        
                        
                        –
                        
                        
                        7,355
                        
                        
                        –
                        
                        
                        6,855COMPREHENSIVE
                            INCOME
                        
                        $
                        4,504,408
                        
                        $
                        4,051,882
                        
                        $
                        12,759,600
                        
                        $
                        8,228,329Net
                            income per share - basic and diluted
                        
                        $
                        0.18
                        
                        $
                        0.23
                        
                        $
                        0.62
                        
                        $
                        0.46Weighted
                            average number of shares outstanding - basic and diluted
                        
                        
                        24,683,269
                        
                        
                        17,740,967
                        
                        
                        20,454,285
                        
                        
                        17,740,967
 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 NINE MONTHS ENDED JUNE 30, 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
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          8,221,474
                          
                          
                          
                          
                          
                          8,221,474Foreign
                              currency translation adjustments
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          6,855
                          
                          
                          6,855Change
                              in statutory reserves
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (4,906
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (4,906
                          )BALANCE,
                              June 30, 2004, unaudited
                          
                          
                          100
                          
                          
                          11
                          
                          
                          666,666
                          
                          
                          324,583
                          
                          
                          –
                          
                          
                          12,218,228
                          
                          
                          5,713
                          
                          
                          13,215,201Net
                              income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (2,551,552
                          )
                          
                          
                          
                          
                          (2,551,552
                          )Foreign
                              currency translation adjustments
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (2,373
                          )
                          
                          (2,373
                          )Shares
                              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
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          12,759,600
                          
                          
                          
                          
                          
                          12,759,600Stock
                              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
                          
                          
                          15,996,381
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          16,004,189Stock
                              issued for services
                          
                          
                          577,683
                          
                          
                          578
                          
                          
                          6,323,859
                          
                          
                          
                          
                          
                          (4,750,434
                          )
                          
                          
                          
                          
                          
                          
                          
                          1,574,003BALANCE,
                              June 30, 2005, unaudited
                          
                          
                          24,699,753
                          
                          $
                          24,700
                          
                          $
                          37,068,134
                          
                          $
                          324,583
                          
                          $
                          (4,750,434
                          )
                          $
                          22,426,276
                          
                          $
                          3,340
                          
                          $
                          55,096,599
 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 NINE MONTHS ENDED JUNE 30, 2005 AND 2004****June
                              30**
                          
                          **June
                              30****2005**
                          
                          **2004****Unaudited**
                          
                          **Unaudited**CASH
                              FLOWS FROM OPERATING ACTIVITIES:Net
                              income
                          
                          $
                          12,759,600
                          
                          $
                          8,221,474Adjustments
                              to reconcile net income to cash provided by operating
                              activities:Minority
                              interest income
                          
                          
                          3,437,184
                          
                          
                          8,265,955Depreciation
                              and amortization
                          
                          
                          50,650
                          
                          
                          124,437Stock
                              issued for services
                          
                          
                          1,574,003
                          
                          
                          –Loss
                              on disposal of equipment
                          
                          
                          –
                          
                          
                          196,443Beneficial
                              conversion interest expense
                          
                          
                          –
                          
                          
                          64,480Change
                              in operating assets and liabilities:(Increase)
                              decrease in assets:Accounts
                              receivable
                          
                          
                          2,436,660
                          
                          
                          (3,034,133
                          )Long-term
                              notes receivable
                          
                          
                          (13,186,423
                          )
                          
                          (2,125,876
                          )Amount
                              due from related parties
                          
                          
                          774,240
                          
                          
                          (96,371
                          )Inventories
                          
                          
                          (391,055
                          )
                          
                          (779,454
                          )Prepaid
                              expenses
                          
                          
                          (1,867,204
                          )
                          
                          (628,345
                          )Other
                              receivables
                          
                          
                          441,392
                          
                          
                          190,476Other
                              assets
                          
                          
                          –
                          
                          
                          64,617Increase
                              (decrease) in liabilities:Accounts
                              payable and accrued expenses
                          
                          
                          (1,292,622
                          )
                          
                          (1,850,427
                          )Other
                              payable
                          
                          
                          (303,144
                          )
                          
                          –Customer
                              deposits
                          
                          
                          1,446,102
                          
                          
                          636,009Tax
                              payable
                          
                          
                          1,983,804
                          
                          
                          (2,483,862
                          )Net
                              cash provided by operating activities
                          
                          
                          7,863,187
                          
                          
                          6,765,423CASH
                              FLOWS FROM INVESTING ACTIVITIES:Payments
                              on long-term loan receivable
                          
                          
                          (1,746,514
                          )
                          
                          –Purchase
                              of equipment
                          
                          
                          (3,873
                          )
                          
                          (64,027
                          )Net
                              cash used in investing activities
                          
                          
                          (1,750,387
                          )
                          
                          (64,027
                          )CASH
                              FLOWS FROM FINANCING ACTIVITIES:Proceeds
                              from loans payable - related parties
                          
                          
                          –
                          
                          
                          3,264,268Proceeds
                              from notes payable
                          
                          
                          175
                          
                          
                          977,788Payments
                              on notes payable
                          
                          
                          (6,722
                          )
                          
                          (15,554
                          )Net
                              cash (used in) provided by financing activities
                          
                          
                          (6,547
                          )
                          
                          4,226,502EFFECT
                              OF EXCHANGE RATE ON CASH
                          
                          
                          –
                          
                          
                          5,709INCREASE
                              IN CASH
                          
                          
                          6,106,253
                          
                          
                          10,933,607CASH,
                              beginning of period
                          
                          
                          18,442,862
                          
                          
                          181,283CASH,
                              end of period
                          
                          $
                          24,549,115
                          
                          $
                          11,114,890SUPPLEMENTAL
                              DISCLOSURE OF CASH FLOW INFORMATION:Cash
                              paid for interest expense
                          
                          $
                          –
                          
                          $
                          855NON-CASH
                              TRANSACTIONS:Stock
                                  issued to acquire additional interest in Starway
                                  Management
                                  Limited
                          
                          $
                          22,100,090
                          
                          $
                          –Stock
                              issued for services
                          
                          $
                          6,324,437
                          
                          $
                          –Convertible
                              note payable
                          
                          $
                          –
                          
                          $
                          6,633,440
 The
                      accompanying notes are an integral part of this statement.
 6
 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 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, which is 50% of the net book value
                      of Starway as
                      December 31, 2003. On August 26, 2004 this note was converted
                      into 11,153,669
                      shares post-split of 20 to 1 (223,073,380 pre split). New Solomon
                      Consultants
                      Limited acquired 6.9 million shares of common stock from Eurofaith
                      Holdings upon
                      conversion.
 
 Immediately
                      after the closing of this transaction, Rim redeemed 1,000,000
                      shares pre-split
                      shares (50,000 shares post-split) of its common stock from
                      Christina M. Strauch
                      in exchange for all of the shares of Rimmer Computer, Inc.,
                      an Arizona
                      corporation (“Rimmer”). The following is a summary of the shares issued due to
                      the recapitalization:
  **No.
                                  of Shares****Issued**Shares
                                    issued to current stock holders in connection
                                    with
                                    recapitalization
                              
                              
                              1,234,632Shares
                                  issued to Eurofaith due to note conversion
                              
                              
                              11,153,669Shares
                                  redeemed from Christina Strauch
                              
                              
                              (50,000
                              )Net
                                  shares issued due to recapitalization
                              
                              
                              12,338,301
 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.
 7
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                            of Contents
 **CHINA
                            ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                            SUBSIDIARIES**
  **CONDENSED
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  Note
                            1 -
                            Organization, (continued)
 
 Organization
                      (continued)
 
 Starway
                      Management Limited’s financial statements 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.
 
 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.
 8
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                            of Contents
 **CHINA
                          ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                          SUBSIDIARIES**
  **CONDENSED
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  Note
                          2 -
                          Summary of significant accounting policies,
                          (continued)
  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.
 
 Notes
                      Receivable
 
 The
                      Company carries its notes receivable at the net present value
                      of the notes, net
                      of allowance for doubtful accounts. The Company uses the best
                      lending rate in
                      China as of the quarter ending in determining the net present
                      value of notes
                      receivable outstanding on energy savings sharing contracts
                      at the time the
                      contract was entered into. In accordance with APBO 21, Interest
                      on Receivables
                      and Payables, the Company believes that using this rate reflects
                      what a company
                      would be charged on this type of transaction if the funds were
                      borrowed from an
                      independent lender. The interest rates used to discount the
                      notes receivable are
                      reviewed on a monthly basis compared to the current market
                      rates to determine if
                      the rates used are still applicable. The interest rates used
                      in determining this
                      discount may change if the Company determines that a permanent
                      decline in
                      interest rates has occurred.
 
 Allowance
                      for Doubtful Accounts
 
 The
                      Company reviews its accounts and notes receivable on a monthly
                      basis to
                      determine if the allowance for bad debts is sufficient. As
                      of June 30, 2005 and
                      September 30, 2004, the allowance for doubtful accounts amounted
                      to $768,151 and
                      $768,151, respectively.
 
 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.
 9
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                            of Contents
 **CHINA
                          ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                          SUBSIDIARIES**
  **CONDENSED
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  Note
                          2 -
                          Summary of significant accounting policies,
                          (continued)
 
 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 of 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
                      then adjusted to their fair values.
 
 Revenue
                      and Deferred Revenue Recognition
 
 The
                      Company recognizes revenue when all four of the following criteria
                      are met: (1)
                      persuasive evidence has been received that an arrangement exists;
                      (2) delivery
                      of the products and/or services has occurred; (3) the selling
                      price is fixed or
                      determinable; and (4) collectibility is reasonably assured.
                      The Company follows
                      the provisions of SAB No. 104 which sets forth guidelines in
                      the timing of
                      revenue recognition based upon factors such as passage of title,
                      installation,
                      payments and customer acceptance. Any amounts received prior
                      to satisfying the
                      Company’s revenue recognition criteria is recorded as deferred
                      revenue.
 
 The
                      Company has two types of contracts for its product sales: energy
                      savings sharing
                      contracts and equipment sales contracts.
 
 (a)
                            Energy
                                savings sharing
 
 Under
                      this arrangement, the customers do not need to bear the initial
                      cost of the
                      energy saving equipments. Instead, they sign energy savings
                      sharing contracts
                      with the Company. Pursuant to these contracts, the Company
                      is entitled to
                      receive a share of the aggregated amount of estimated energy
                      saving within a
                      specified period of the arrangement.
 
 The
                      Company’s revenue arising from sales of energy savings equipments and
                      notes
                      receivable under this arrangement is recognized when:
 10
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                            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)
 
 1.
                            the
                                agreement of energy savings sharing is signed by
                                both
                                parties;
 2.
                            the
                                original estimated cost savings can be ascertained;
                                and
 3.
                            the
                                equipment is installed and tested for an average
                                rate of energy
                                savings.
 
 The
                      receipt of each installment made by the customer during the
                      period of the
                      contract will be recognized as the repayments of the outstanding
                      notes
                      receivable when the amount of energy savings can be quantified
                      and agreed upon
                      by both parties. The excess amount received of the original
                      estimated savings
                      stated in the contract will be recognized as interest income
                      by the
                      Company.
 
 (b)
                            Outright
                                equipment sales
 
 Under
                      this arrangement, the Company’s customer has to pay the cost of the energy
                      saving equipments and they can keep all benefits of their energy
                      savings.
 
 Revenue
                      arising from the sales of the energy saving equipment to customers
                      is recognized
                      when the goods are taken and accepted by the customer and the
                      customer assumes
                      all the related risks and rewards of ownership. Revenue represents
                      the sales
                      value of goods to customers after allowances for goods returned , excludes
                      value added tax (“VAT”) and is after deduction of any trade
                      discounts.
 
 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.
 11
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                            of Contents
 **CHINA
                            ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                            SUBSIDIARIES**
  **CONDENSED
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
                            2 - Summary of significant accounting policies,
                            (continued)**
 
 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”).
 
 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 are determined
                      by using a
                      discounted cash flow analysis based on the best lending rate
                      in China. At June
                      30, 2005 and September 30, 2004, the carrying value of these
                      notes approximated
                      at 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 June 30, 2005 and 2004.
 12
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                            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)
 
 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. Sky Beyond had acquired the 35%
                      interest in Starway
                      from Golden Resorts Group Limited (formerly known as “Meditech Group Company
                      Limited”). However, management of the Company then learned that the
                      stock sale
                      between Sky Beyond and Golden Resorts Group Limited was subject
                      to approval by
                      the shareholders of Golden Resorts. On July 28, 2005, the shareholders
                      of Golden
                      Resorts approved the sale of the Starway interest to Sky Beyond.
                      In the
                      financial statements of the Company as of March 31, 2005, the
                      Company took a
                      conservative approach in reflecting the acquisition of Starway
                      and did not
                      record the additional earnings and additional paid in capital
                      attributed to the
                      acquisition. Since the transaction has been approved, the Company
                      has reflected
                      the earnings and additional paid in capital from February 1,
                      2005 in the
                      financial statements of June 30, 2005. The financial statements
                      contained in the
                      10-QSB for the quarter ending March 31, 2005 will be amended
                      to reflect the
                      acquisition as being completed.
 
 Concentrations
                      and Credit Risks
 
 For
                      the
                      period ended June 30, 2005 and 2004, 100% of the Company’s sales were to
                      companies located in the PRC. At June 30, 2005 and September
                      30, 2004 all of 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.
 
 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 June 30, 2005 and September 30, 2004
                      amounted to
                      $24,454,208 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.
 13
 Table
                            of Contents
 **CHINA
                            ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                            SUBSIDIARIES**
  **CONDENSED
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
                            3 - Consolidated financial statements and condensed footnotes,
                            (continued)**
  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 June 27,
                      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 June 30,
                      2005 and the results of operations for the three months and
                      nine months ended
                      June 30, 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 June 30, 2005 and September 30, 2004 consisted
                      of the
                      following:
 
 **June
                                30**
                            ****
                            **September
                                30,**
                            ********
                            ****
                            **2005**
                            ****
                            **2004**Accounts
                                receivable
                            
                            $
                            4,912,016
                            
                            $
                            7,348,676Less:
                                  allowance for doubtful accounts
                            
                            
                            768,151
                            
                            
                            768,151Totals
                            
                            $
                            4,143,865
                            
                            $
                            6,580,525
  **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:
 
 **June
                                30,**
                            ****
                            **September
                                30,**
                            ********
                            ****
                            **2005**
                            ****
                            **2004**Notes
                                receivable
                            
                            $
                            24,001,655
                            
                            $
                            10,815,232Less:Current
                                portion of notes receivable
                            
                            
                            6,623,302
                            
                            
                            3,727,540Totals
                            
                            $
                            17,378,353
                            
                            $
                            7,087,692
 14
 Table
                            of Contents
 **CHINA
                            ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                            SUBSIDIARIES**
  **CONDENSED
                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
                            5 - Notes receivable, (continued)**
 
 The
                      following table represents as of June 30, 2005 the estimated
                      principal
                      collections on notes receivable:
 
 **Period
                                Ending June 30,**
                            ****
                            **Amount**2006
                            
                            $
                            6,623,3022007
                            
                            
                            6,059,7622008
                            
                            
                            4,465,3872009
                            
                            
                            4,030,0362010
                            
                            
                            2,823,168
 
 **Note
                      6 - Inventories**
 
 Inventories
                      as of June 30, 2005 and September 30, 2004 consisted of the
                      following:
 
 **June
                                30,**
                            ****
                            **September
                                30,******
                            ****
                            **2005**
                            ****
                            **2004**Raw
                                materials
                            
                            $
                            1,484,949
                            
                            $
                            1,013,976Work
                                in progress
                            
                            
                            995,959
                            
                            
                            869,059Finished
                                goods
                            
                            
                            2,239,699
                            
                            
                            2,446,517Totals
                            
                            $
                            4,720,607
                            
                            $
                            4,329,552
 
 **Note
                      7 - Prepaid expenses**
 
 Prepaid
                      expenses at June 30, 2005 and September 30, 2004 amounted to
                      $3,397,159 and
                      $1,529,955, respectively. Prepaid expenses represent advances
                      to suppliers on
                      inventory purchases.
 
 **Note
                      8 - Plant and equipment**
 
 Plant
                      and
                      equipment as of June 30, 2005 and September 30, 2004 are summarized
                      as
                      follows:
 15
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                              of Contents
 **CHINA
                              ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                              SUBSIDIARIES**
  **CONDENSED
                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
                              8 - Plant and equipment, (continued)**
 **June
                                        30,**
                                    
                                    **September
                                        30,****2005**
                                    
                                    **2004**Building
                                    
                                    $
                                    410,125
                                    
                                    $
                                    409,888Office
                                        equipment
                                    
                                    
                                    84,022
                                    
                                    
                                    80,100Furniture
                                        and fixtures
                                    
                                    
                                    41,597
                                    
                                    
                                    41,574Plant,
                                        machinery and equipment
                                    
                                    
                                    80,173
                                    
                                    
                                    80,126Vehicle
                                    
                                    
                                    148,672
                                    
                                    
                                    148,586Total
                                    
                                    
                                    764,589
                                    
                                    
                                    760,274Less:
                                        accumulated depreciation
                                    
                                    
                                    283,022
                                    
                                    
                                    231,930Plant
                                        and equipment, net
                                    
                                    $
                                    481,567
                                    
                                    $
                                    528,344
 Depreciation
                              expense for the nine months ending June 30, 2005 and
                              2004 amounted to $46,518
                              and $70,309, respectively.
 **Note
                          9 - Long-term loan receivable**
 
 The
                      long-term loan receivable as of June 30, 2005 amounted to $1,746,514.
                      This
                      amount represents a loan made to a third party in China.
                       The purpose
                      of this loan was for investing purposes only in order earn
                      a higher rate of
                      return on the Company’s money. The loan bears interest at a monthly interest
                      rate of 0.52%, or an annual rate at 6.24%, and is due on March
                      31, 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
                            
                            $
                            14,147Less
                                current maturities
                            
                            
                            12,974Total
                            
                            $
                            1,173
 16
 Table
                                of Contents
 **CHINA
                                  ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                  SUBSIDIARIES**
  **CONDENSED
                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 Note
                      10 -
                      Notes payable, net, (continued)
  Principal
                          payments for the next five years are as follows:
 **Year
                                  Ending June 30,**2005
                              
                              $
                              12,9742006
                              
                              
                              1,173
 
 Note
                      11 -
                      Related party transactions
 
 As
                      of
                      June 30, 2005 and September 30, 2004, the amount due from related
                      parties were
                      $482,890 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 June 30, 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, which amounted to $3,198,318
                      and $1,752,216
                      as of June 30, 2005 and September 30, 2004, respectively.
  **Note
                      13 - Taxes payable**
 
 Taxes
                      Payable
 
 Taxes
                      payable at June 30, 2005 and September 30, 2004 consist of
                      the
                      following:
  **June
                                30,**
                            ****
                            **September
                                30,**
                            ********
                            ****
                            **2005**
                            ****
                            **2004**Urban
                                maintenance and construction tax
                            
                            $
                            36,701
                            
                            $
                            21,104Education
                                tax
                            
                            
                            –
                            
                            
                            1,058Others
                            
                            
                            5,558
                            
                            
                            –Value
                                added tax
                            
                            
                            3,834,221
                            
                            
                            1,870,514Totals
                            
                            $
                            3,876,480
                            
                            $
                            1,892,676
 17
 Table
                                  of Contents
 **CHINA
                                  ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                  SUBSIDIARIES**
  **CONDENSED
                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
                                  13 - Taxes payable,
                                  (continued)**
  Provision
                          for Income Taxes
 
 The
                          credit (provision) for income taxes consisted of the following:
 **Nine
                                      months ended****June
                                      30,****2005**
                                  
                                  **2004**Provision
                                      for China income taxes
                                  
                                  $
                                  –
                                  
                                  $
                                  (678,971
                                  )Total
                                      provision for income taxes
                                  
                                  $
                                  –
                                  
                                  $
                                  (678,971
                                  )
 The
                          following table reconciles the U.S. Statutory rates to
                          the Company’s effective
                          tax rate:
 **June
                                      30**
                                  ********
                                  ****
                                  **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 nine months ending June 30,
                        2005 amounted
                        $2,739,858. The net effect on earnings per share if the income
                        tax had been
                        applied would decrease earnings per share from $0.62 to
                        $0.49.
  The
                        Company has a net operating loss carry forward of $8,001,000
                        for U.S. 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, any income subject
                        to U.S.
                        income taxes will be dependent upon the Company having operations
                        in the U.S. or
                        other U.S. 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.
 18
 Table
                                  of Contents
 **CHINA
                                  ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                  SUBSIDIARIES**
  **CONDENSED
                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
                      13 - Taxes payable, (continued)**
 
 Income
                      Tax Refund
 
 In
                      the
                      beginning of 2004, Shenzhen Dicken Industrial Development Limited
                      became a
                      wholly owned foreign enterprise. 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.
 
 In
                      addition, the Company is doing business in a special economic
                      zone. In order to
                      encourage the companies to do business in this high technology
                      economic zone,
                      the local Chinese tax authority granted a one-time waiver to
                      waive the
                      previously accrued tax accumulated prior to January 1, 2004
                      in the amount of
                      $4,854,221, which consisted of the following :
  **Amount**Urban
                                  Maintenance and construction tax
                              
                              $
                              21,584Education
                                  tax
                              
                              
                              74,108Enterprise
                                  income tax
                              
                              
                              2,281,467Value
                                  added tax
                              
                              
                              2,477,062Total
                              
                              $
                              4,854,221
 The
                      Company has treated the waiver of the VAT tax as a reduction
                      of income tax
                      expense since this was a unique situation as the local Chinese
                      tax authority
                      granted a one-time waiver for all accrued accumulated taxes
                      prior to January 1,
                      2004. The Company believes that the presentation of this transaction
                      in the
                      financial statements was the most conservative approach. The
                      Company believes
                      that recording the refund of the VAT tax of $2,477,062 as an
                      addition to gross
                      revenues would distort the Company’s gross profit and thus be misleading as to
                      the actual results of the Company.
 19
 Table
                                    of Contents
 **CHINA
                                    ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                    SUBSIDIARIES**
  **CONDENSED
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **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 nine months ended June 30, 2005 and 2004
                      amounted to
                      $92,261 and $101,316, respectively.
 
 As
                      of
                      June 30, 2005, the future minimum annual lease payments required
                      under the
                      operating leases for the next five years are as follows:
 
 **Period
                                Ending June 30,**
                            ****
                            **Amount**2006
                            
                            $
                            58,0002007
                            
                            
                            58,0002008
                            
                            
                            58,0002009
                            
                            
                            58,000Thereafter
                            
                            
                            –
 
 **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
                      stock is fully vested.
 
 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.
 20
 Table
                                    of Contents
 **CHINA
                                    ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                    SUBSIDIARIES**
  **CONDENSED
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Note
                      15 - Equity incentive plan, (continued)**
 
 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.
 
 On
                      April
                      15, 2005, the Company issued 100,000 shares to non-employee
                      consultants and an
                      employee of its common stock at US$10.00 for services performed.
                      The total
                      shares were valued at $996,697.
 
 **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 to be under 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 cost 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.
 21
 Table
                                    of Contents
 **CHINA
                                    ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                    SUBSIDIARIES**
  **CONDENSED
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
   **Note
                                    16 - Shareholders’ equity,
                                    (continued)**
 
 Stock
                      Issuances (continued)
 
 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, see note 17.
 
 Preferred
                      Stock
 
 The
                      Company has 10,000,000 shares of $0.001 par value preferred
                      stock that is
                      authorized. As of June 30, 2005, there is no preferred stock
                      issued and
                      outstanding.
 
 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.
 
 **Note
                      17 - Acquisition of minority interest**
 
 At
                      September 30, 2004, minority interest represented the outside
                      shareholder’s 50%
                      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. In November 2004, the Company
                      acquired an
                      additional 15% in Starway.
 22
 Table
                                    of Contents
 **CHINA
                                    ENERGY SAVINGS TECHNOLOGY, INC.**
 **AND
                                    SUBSIDIARIES**
  **CONDENSED
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
  **Note
                                    17 - Acquisition of minority interest,
                                    (continued)**
  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. On
                      February 2, 2005,
                      the Company was instructed by Sky Beyond to reissue the 7,807,569
                      shares to New
                      Solomon Consultants Limited (6,050,000 shares) and Sky Beyond
                      (1,757,569
                      shares).
  As
                      of
                      February 2, 2005, New Solomon was holding 16,005,134 shares
                      representing
                      approximately 65% of the outstanding shares of CESV.
 
 Since
                      New
                      Solomon Consultants Limited ultimately gained control over
                      an additional
                      6,050,000 shares, the Company has recorded this acquisition,
                      in accordance with
                      SFAS No. 141 “Business Combinations”, as entities under common control and a
                      transfer of net assets and not as a purchase recorded at fair
                      value. As a
                      result, no goodwill has been recorded on the financial statements
                      of the
                      Company. The Company believes that this is a conservative approach
                      and better
                      reflects the substance of the acquisition.
 
 The
                      following unaudited pro forma financial information was prepared
                      in accordance
                      with SFAS No. 141, which assumes the acquisition had occurred
                      at the beginning
                      of the periods presented. The unaudited pro forma information
                      is provided for
                      informational purposes only. These pro forma results are based
                      upon the
                      respective historical financial statements. The pro forma combined
                      results of
                      operations for the three and nine months ended June 30, 2005
                      and 2004 are as
                      follows:
  **Three
                                  months ended**
                              
                              **Nine
                                  months ended****June
                                  30,**
                              
                              **June
                                  30,****2005**
                              
                              **2004**
                              
                              **2005**
                              
                              **2004**Revenues
                              
                              $
                              9,594,188
                              
                              $
                              13,739,415
                              
                              $
                              32,478,495
                              
                              $
                              34,059,622Net
                                  income before minority interest
                              
                              $
                              4,504,408
                              
                              $
                              8,133,535
                              
                              $
                              16,196,784
                              
                              $
                              16,487,429Net
                                  income per share - basic and diluted
                              
                              $
                              0.18
                              
                              $
                              0.36
                              
                              $
                              0.66
                              
                              $
                              0.74Weighted
                                  average number of shares - basic and diluted
                              
                              
                              24,683,269
                              
                              
                              22,307,339
                              
                              
                              24,572,563
                              
                              
                              22,307,339
 23
 Table
                      of Contents
  **ITEM
                          2.**
                        **MANAGEMENT'S
                            DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                            OF
                            OPERATIONS**
  The
                  following discussion of our financial condition and results of
                  operations should
                  be read in conjunction with the consolidate d financial
                  statements and related notes thereto. The following discussion
                  contains
                  forward-looking statements. China Energy Saving s 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
                  t o
                  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 lea d 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 thi s Form
                  10−QSB with the Securities and Exchange Commission and should not
                  be relied upon
                  as of any subsequent date. Unles s otherwise
                  required by applicable law, we do not undertake, and we specifically
                  disclaim
                  any obligation, to update an y forward-looking
                  statements to reflect occurrences, developments, unanticipated
                  events or
                  circumstances after the date of suc h
                  statement.
 
 **OVERVIEW**
 
 We
                  are a
                  Nevada corporation headquartered in Hong Kong, China that invests
                  in, develops,
                  markets, distributes and manufacture s energy
                  saving products for use in commercial and industrial settings.
                  As of December
                  31, 2004, we owned a 65% interest in Starwa y Management
                  Limited, a British Virgin Islands corporation (“Starway”) which owns all of the
                  equity interests in Shenzhen Dicke n
                  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 th e People's
                  Republic of China on November 9, 1999. Subsequently, in February
                  2005, we
                  acquired all of the remaining 35% interest i n 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 an d
                  industrial settings in China.
 
 As
                  discussed more fully in Part II, Item 5 below and in Notes 2 and
                  17 of the
                  Condensed Notes to the Consolidated Financial Statements, the dispute
                  previously
                  reported regarding the Company’s February 2005 acquisition of the remaining 35%
                  interest in Starway has been resolved. Thus, the Company wholly
                  owns Starway,
                  and the Company’s financial statements are fully consolidated with those of
                  Starway and its subsidiaries.
 24
 Table
                        of Contents
   **RESULTS
                  OF OPERATIONS**
 
 General
                  results of operations for the three months ended June 30, 2004
                  and June 30, 2005
                  and for the nine months ended June 30, 2004 and June 30, 2005 are
                  summarized as
                  follows:
  **Three
                              Months Ended June 30**
                          
                          **2005**
                          
                          **2004**
                          
                          **Change**Revenues
                          
                          $
                          9,594,188
                          
                          $
                          13,739,415
                          
                          
                          -30
                          %Cost
                              of goods sold
                          
                          
                          4,397,104
                          
                          
                          4,780,495
                          
                          
                          -8
                          %Gross
                              profit
                          
                          
                          5,197,084
                          
                          
                          8,958,920
                          
                          
                          -42
                          %Operating
                              expenses
                          
                          
                          1,127,988
                          
                          
                          591,021
                          
                          
                          91
                          %Operating
                              profit
                          
                          
                          4,069,096
                          
                          
                          8,367,899
                          
                          
                          -51
                          %Other
                              income/(expense)
                          
                          
                          435,312
                          
                          
                          (234,364
                          )
                          
                          286
                          %Income
                              before income taxes and minority interest
                          
                          
                          4,504,408
                          
                          
                          8,133,535
                          
                          
                          -45
                          %Net
                              income (after minority interest)
                          
                          $
                          4,504,408
                          
                          $
                          4,044,527
                          
                          
                          11
                          %
 **Nine
                            Months Ended June 30**
                        
                        **2005**
                        
                        **2004**
                        
                        **Change**Revenues
                        
                        $
                        32,478,495
                        
                        $
                        34,059,622
                        
                        
                        -5
                        %Cost
                            of goods sold
                        
                        
                        13,542,634
                        
                        
                        15,463,123
                        
                        
                        -12
                        %Gross
                            profit
                        
                        
                        18,935,861
                        
                        
                        18,596,499
                        
                        
                        2
                        %Operating
                            expenses
                        
                        
                        3,916,140
                        
                        
                        1,975,118
                        
                        
                        98
                        %Operating
                            profit
                        
                        
                        15,019,721
                        
                        
                        16,621,381
                        
                        
                        -10
                        %Other
                            income
                        
                        
                        1,177,063
                        
                        
                        545,019
                        
                        
                        116
                        %Income
                            before income taxes and minority interest
                        
                        
                        16,196,784
                        
                        
                        17,166,400
                        
                        
                        -6
                        %Net
                            income (after minority interest and taxes)
                        
                        $
                        12,759,600
                        
                        $
                        8,221,474
                        
                        
                        55
                        %
 25
 Table
                      of Contents
  The
                  key
                  financial ratios for the three months ended June 30, 2004 and June
                  30, 2005 and
                  nine months ended June 30, 2004 an d
                  June
                  30, 2005 are as follows:
  **Three
                          Months Ended
                          June 30**
                        
                        **2005**
                        
                        **2004**Gross profit margin
                        
                        54%
                        
                        65%Net
                            profit margin beforeminority
                            interestand
                            taxes
                        
                        47%
                        
                        59%Current ratio
                        
                        5.0
                            times
                        
                        3.0
                            timesQuick ratio
                        
                        4.4
                            times
                        
                        3.0
                            times**Nine
                          Months Ended
                          June 30**
                        
                        **2005**
                        
                        **2004**Gross profit margin
                        
                        58%
                        
                        55%Net
                            profit margin beforeminority
                            interestand
                            taxes
                        
                        50%
                        
                        50%Current ratio
                        
                        5.0
                            times
                        
                        3.0
                            timesQuick
                            ratio
                        
                        4.4
                            times
                        
                        3.0
                            times
  **REVENUES**
 
 Consolidated
                  revenues decreased by $4,145,227, or approximately 30%, from $13,739,415
                  for the
                  three months ended June 30, 200 4 to
                  $9,594,188 for the three months ended June 30, 2005. The 30% decrease
                  was a
                  result of decrease in sales volume of our energ y
                  savings
                  products. This
                  decrease was composed of a $2,091,364 reduction in revenues, a
                  write-off for the
                  six months ended June 30, 2005, which was caused by our
                  discounting of our
                  notes receivable at June 30, 2005 in accordance with our revenue
                  recognition
                  policy. In addition, the decrease in revenues was due to a longer
                  production
                  cycle and lower unit sales price of energy savings equipment under
                  our energy
                  savings profit sharing contracts during 2005 as compared to more
                  outright
                  equipment sales for the three months ended June 30, 2004.
 
 Consolidated
                  revenues decreased by $1,581,127, or approximately 5%, from $34,059,622
                  for the
                  nine months ended June 30, 200 4 to
                  $32,478,495 for the nine months ended June 30, 2005. This decrease
                  was a direct
                  result of the $2,091,364 reduction in our notes received as described
                  above
                  coupled with an increase in revenues of approximately $509,000.
                  The decrease in
                  revenues reflects the decrease of sales volume of
                  our
                  outright sales of energy savings equipment from 2004 to 2005 as
                  compared to an
                  increase in sales of energy savings equipment under energy savings
                  profit
                  sharing contracts for the nine
                  months ended June 30, 2005 . The
                  gross
                  margin in outright sales ,
                  which
                  accounts for the total revenues for the year 2004, was recorded
                  with a booking
                  upfront whilst the gross margin for the
                  energy savings
                  sharing contracts, which accounts for the majority of revenues
                  for the year 2005, will be collected over five to seven years of
                  contract life,
                  which ensures a higher (at
                  least
                  three times) rate of
                  income return. However,
                  our management expects that revenue will continue to grow in 2005
                  because
                  o f
                  our
                  marketing and sales efforts and the 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, a lack of strong competitiv e products
                  and increasing profit. While our products may be used internationally,
                  we
                  currently have focused our sales efforts in China, targeting larg e
                  businesses and the endorsement of the local governments. Price
                  of products for
                  outright sales is 25% higher than that of products for energy savings
                  sharing
                  contracts on average.  Management hopes to continue to increase
                  our market
                  share in China.
 26
 Table
                      of Contents
  **COST
                  OF GOODS SOLD**
 
 Consolidated
                  costs of goods sold decreased by $383,391, or approximately 8%,
                  from $4,780,495
                  for the three months ended June 30, 2004 to $4,397,104 for the
                  three months
                  ended June 30, 2005. The 8% decrease was a result of better control
                  over
                  production costs and a decrease in raw material costs during the
                  period.
 
 Consolidated
                  costs of goods sold decreased by $1,920,489, or approximately 12%,
                  from
                  $15,463,123 for the nine months ended June 30 ,
                  2004 to
                  $ 13,542,634 for the
                  nine months ended June 30, 2005. The decrease in cost of goods
                  sold is a result
                  of better control ove r production
                  costs and increased efficiency in our labor force .
                  Moreover, the cost of materials such as chipsets and othe r
                  hardware used in the production of our products has decreased substantially.
                  Such a decrease is expected to continue in the short term but we
                  expect it to be
                  minimized in the future.
 
 **GROSS
                  PROFIT**
 
 Consolidated
                  gross profit decreased by $3,761,836, or approximately 42%, from
                  $8,958,920 for
                  the three months ended June 30 , 2004 to
                  $5,197,084 for the three months ended June 30, 2005. Gross profit
                  as a
                  percentage of sales decreased from approximatel y 65% for
                  the three months ended June 30, 2004 to 54% for the three months
                  ended June 30,
                  2005. The decrease in gross profit wa s a
                  result
                  of a charge of $2,091,364 against the revenue for the quarter ended
                  June 30,
                  2005 and notes receivable as of June 30, 2005, which represents
                  a discount of
                  the notes receivable as of June 30, 2005.  Moreover,
                  as the average unit price of our
                  outright sales of energy savings equipment was higher than that
                  of energy
                  savings profit sharing contracts ,
                  the
                  decrease in sales volume of outright sales of energy savings products
                  and the
                  increase in sales volume of profit sharing contract sales of energy
                  savings
                  products contributed to the drop in gross profit for the three
                  months ended June
                  30, 2005. The
                  gross
                  margin in outrightsales,
                  which
                  accounts for the total revenues for the year 2004, was recorded
                  with a booking
                  upfront whilst the gross margin forthe
                  energysavings
                  sharing contracts, which accounts for the majorityofrevenues
                  for the year 2005, will be collected over five to seven years of
                  contract life,
                  which ensures a higher(at
                  least
                  three times)rate of
                  income return.
 
 Consolidated
                  gross profit increased by $339,362, or approximately 2%, from $18,596,499
                  for
                  the nine months ended June 30, 2004 to $18,935,861 for the nine
                  months ended
                  June 30, 2005. Gross profit as a percentage of sales increased
                  from
                  approximately 55% for the
                  nine
                  months ended June 30, 2004 to approximately 58% for the nine months
                  ended June
                  30, 2005. The increase in gross profi t was
                  a
                  result of decrease in cost of goods sold offset by the decrease
                  in revenues due
                  to the $2,091,364 charge against revenues for the discount of the
                  notes
                  receivable.
  Although
                  there is an increase in revenues, more
                  income will be generated in the long run over the contract life.
  **OPERATING
                  EXPENSES**
 
 Consolidated
                  operating expenses increased by $536,967, or approximately 91%,
                  from $591,021
                  for the three months ended June 30 ,
                  2004 to
                  $1,127,988 for the three months ended June 30, 2005. The operating
                  expenses as a
                  percentage of sales increased to 12% for
                  the
                  three months ended June 30, 2005 from 4% for the three months ended
                  June 30,
                  2004. The increase in operating expense s was
                  primarily due to the amortization of S-8 shares and the significant
                  increase in
                  sales volume of energy savings products under energy savings profit
                  sharing
                  contracts, which increased the amount of distribution costs for
                  the three
                  months ended June 30, 2005.
 27
 Table
                      of Contents
  Consolidated
                  operating expenses increased by $1,941,022, or approximately 98%,
                  from
                  $1,975,118 for the nine months ended June 30, 2004 to $3,916,140
                  for the nine
                  months ended June 30, 2005. The operating expenses as a percentage
                  of sales
                  increased to 12 % for
                  the
                  nine months ended June 30, 2005 from 6% for the nine months ended
                  June 30, 2004.
                  In general, there were significan t increases
                  in sales, marketing and administrative and operating expenses.
                  A large part of
                  the increase is attributable to the fact tha t during
                  October and November 2004, we signed agreements with various consultants
                  for
                  consulting services. The agreements rang e
                  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,
                  based on 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 t o $857,721
                  for the nine months ended June 30, 2005. We believe expenses related
                  to the
                  marketing and selling of our products wil l continue
                  to increase substantially to handle our growing sales volume. During
                  April 2005,
                  we also issued 100,000 shares
                  of common stock for legal services, consulting services and director
                  fees. The
                  total shares were valued at $996,697 of which $160,542 was expensed.
                  We expect
                  that professional fees and
                  expenses to ensure compliance with U.S. Securities laws, the Sarbanes-Oxley
                  Act,
                  and marketplace rules for the NASDA Q
                  National Market will increase substantially.
 
 **OTHER
                  INCOME**
 
 Consolidated
                  “other income” increased by $669,676 or approximately 286% from ($234,364) for
                  the three months ended June 30, 2004 to $435,312 for th e three
                  months ended June 30, 2005. The increase mainly represents the
                  interest income
                  received by the Company in excess of th e
                  original estimated cost savings for energy savings contracts for
                  the
                  period.
 
 Consolidated
                  “other income” increased by $632,044, or approximately 116%, from $545,019 for
                  the nine months ended June 30, 2004 to $1,177,063
                  for the nine months ended June 30, 2005. The increase was mainly
                  due to the
                  increase in interest income received by th e
                  Company
                  in excess of the original estimated cost savings for energy savings
                  contracts
                  for the period.
 
 **NET
                  INCOME**
 
 Consolidated
                  net income before taxes and minority interest decreased by $3,629,127,
                  or
                  approximately 45%, from $8,133,535 for the three months ended June
                  30 , 2004
                  to
                  $4,504,408 for the three months ended June 30, 2005. The decrease
                  was mainly due
                  to the  charge
                  of
                  $2,091,364 against the revenue for the quarter ended June 30, 2005,
                  which
                  represents a discount of the long-term portion of the notes receivable
                  as of
                  June 30, 2005.
 
 Consolidated
                  net income before taxes and minority interest decreased by $969,616,
                  or
                  approximately 6%, from $17,166,400 for the nine months ended June
                  30,
                  200 4
                  to
                  $16,196,784 for the nine months ended June 30, 2005. The decrease
                  was a result
                  of the $2,091,364 charge against revenues as described above, an
                  increase in
                  operating expenses which was offset by a decrease in cost of goods
                  sold by 12%,
                  and an increase in other income.
 The
                  gross
                  margin in outright sales ,
                  which
                  accounts for the total revenues for the year 2004, was recorded
                  with a booking
                  upfront whilst the gross margin for the
                  energy savings
                  sharing contracts, which accounts for the majority of revenues
                  for the year 2005, will be collected over five to seven years of
                  contract life,
                  which ensures a higher (at
                  least
                  three times) rate of
                  income return.
 28
 Table
                      of Contents
  On
                    July
                    12, 2005, the Company had announced its preliminary 3 rd Quarter
                    (unaudited) revenue, net income and earnings per share figures
                    of its
                    subsidiary, Starway Management Limited (“Starway”) for the quarter ending June
                    30, 2005. The Company has finalized their 3 rd Quarter
                    financial statements and have reported the following results:
  **Preliminary
                                Results**
                            
                            **Form
                                10-QSB Results**
                            
                            **Difference****of
                                Starway**
                            
                            **of
                                CESV Consolidated Financial**
                            
                            **In
                                Results****June
                                30, 2005**
                            
                            **June
                                30, 2005**
                            
                            **June
                                30, 2005**Revenues
                            
                            $12.17
                                million
                            
                            $9.6
                                million
                            
                            $2.5
                                millionNet
                                Income
                            
                            $7.35
                                million
                            
                            $4.5
                                million
                            
                            $2.85
                                millionEPS
                            
                            $0.30
                            
                            $0.18
                            
                            $0.12
  Revenues
  After
                          the
                          consolidation of the Company’s financial statements, the difference of $2.5
                          million in revenues is a result primarily from the Company
                          adjusting their
                          revenues downward. This adjustment to the first three quarters
                          of 2005 as made
                          in the 3 rd Quarter
                          was caused by reducing the Company’s long term notes receivable by the discount
                          interest rate to comply with the Company’s revenue recognition policy. The
                          revenues of the Company before this adjustment would have
                          been approximately
                          $11.7 million for the quarter ending June 30, 2005.
 Net
                            Income
  The
                            difference of $2.85 million in net income is a result
                            primarily from the
                            adjustment to revenues described above and the adjustment
                            to the S-8 shares of
                            $330,000 both made in the 3 rd Quarter
                            ending June 30, 2005.
 **LIQUIDITY
                  AND CAPITAL RESOURCES**
  **Nine
                              Months Ended June 30**
                          
                          **2005**
                          
                          **2004**
                          
                          **Change**Net
                              cash provided by operating activities
                          
                          $
                          7,863,187
                          
                          $
                          6,765,423
                          
                          
                          16
                          %Net
                              cash used in investing activities
                          
                          $
                          (1,750,387
                          )
                          $
                          (64,027
                          )
                          
                          -2634
                          %Net
                              cash (used in) provided by financing activities
                          
                          $
                          (6,547
                          )
                          $
                          4,226,502
                          
                          
                          -100
                          %
  The
                  increase of $1,097,764 or approximately 16.23% in net cash provided
                  by operating
                  activities primarily reflects an increase i n net
                  income for the nine months ended June 30, 2005 offset by the effect
                  of a
                  significant increase in notes receivable during th e
                  period.
 
 The
                  increase in net cash used in investing activities was due to the
                  increase of
                  long-term loan receivable during the period. The Company loaned
                  money to a third
                  party in order to earn a higher rate of return on the Company’s
                  money.
 29
 Table
                      of Contents
  The
                    net
                    cash provided by financing activities decreased by $4,233,049
                    from $4,226,502 to
                    ($6,547). The Company did not borrow funds during 2005 as compared
                    to
                    approximately $4,242,056 that was borrowed in 2004.
 
 We believe
                    that our current cash balance and the revenues that will be generated
                    will cover
                    anticipated operating expenses for a period o f at
                    least
                    one year without supplementing our cash reserves. We may, however,
                    raise
                    additional capital to further develop our othe r
                    products in the energy savings sharing model.
 **LONG-TERM
                    LOAN RECEIVABLE**
 
 During
                    the nine months ending June 30, 2005, the Company entered into
                    a loan agreement
                    with a third party in China. The long-term loan receivable as
                    of June 30, 2005
                    amounted to $1,746,514. The purpose of this loan was for investing
                    purposes only
                    in order to earn a higher rate of return on the Company’s money. The loan bears
                    interest at a monthly interest rate of 0.52%, or an annual rate
                    at 6.24%, and is
                    due on March 31, 2006.  The loan is personally guaranteed
                    by certain board
                    members of SDID.
  **NOTES
                    RECEIVABLE AND ACCOUNTS RECEIVABLE**
 
 The
                  Company's notes receivable represent amounts due on energy savings
                  sharing
                  contracts and are stated at the present value of the discounted
                  sales price. The
                  breach of any terms stated in the contract by the customer can
                  lead to the
                  return of the energy savings equipment to the Company. The Company
                  will write
                  off the deficiency of the total receipts over the notes receivable
                  outstanding
                  as bad debts in its income statement and increase its closing inventories
                  after
                  the return of the equipment or the collateral. Accounts and notes
                  receivable are
                  analyzed for potential bad debts on a monthly basis. The Company
                  requires each
                  new customer to go through credit review in order for it to approve
                  the
                  extension of credit. Once the sale is made, the Company performs
                  reviews on a
                  monthly basis to ensure that the customer is adhering to the terms
                  of the
                  payment schedule. If the customer does not adhere to the payment
                  schedule, then
                  we follow up with the customer as to collection of the payments.
                  At the end of
                  each year, our Company’s management reviews the individual accounts and notes
                  receivable for status of collections and payment terms, payment
                  history and
                  order status, and the customer's financial condition, if available,
                  to determine
                  if such account receivables are considered uncollectible. Generally,
                  all
                  uncollected amounts over one year old are reserved for or written
                  off as bad
                  debts. The fair value of the energy savings equipment secured under
                  the energy
                  savings sharing contract is determined by comparing the market
                  price of the
                  equipment at the date of repossession.
  **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.
 30
 Table
                      of Contents
  PART
                  II - OTHER
                  INFORMATION
 
  **ITEM
                          1.**
                        **LEGAL
                            PROCEEDINGS**
  None.
  **ITEM
                          2.**
                        **UNREGISTERED
                            SALES OF EQUITY SECURITIES AND USE OF
                            PROCEEDS**
  In
                  April
                  2005, the Company issued 100,000 restricted shares of our common
                  stock to
                  non-employee consultants and an employee at US$10.00 per share
                  for legal
                  services, consulting services and director fees. The total shares
                  were valued at
                  $996,697. These transactions were 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 transactions.
 
 **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
                  Company’s management has learned that the 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”) has been
                  resolved. The Company, pursuant to an Agreement and Plan of Share
                  Exchange with
                  Sky Beyond dated February 1, 2005 (the “Agreement”), had purchased the 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 the stock certificate
                  representing such shares was delivered to the Company upon closing.
 
 However,
                  the Company then learned Golden Resorts announced in a public filing
                  that it was
                  taking the position that the Starway Stock Sale was not completed
                  because such
                  sale was subject to Golden Resorts shareholders’ approval and that such approval
                  had not been obtained. Sky Beyond, however, claimed that the Starway
                  Stock Sale
                  was complete because the consideration for the sale had been delivered
                  to Golden
                  Resorts and that the stock certificate representing the 35 Starway
                  shares had
                  been delivered.
 31
 Table
                      of Contents
  On
                  May
                  17, 2005, the Company’s management, 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 executed a Memorandum
                  of
                  Understanding in which Win Matching and its parent company, Golden
                  Resorts,
                  claimed to undertake to resolve the dispute in an expedited manner.
 
 On
                  July
                  29, 2005, the Company’s management learned that the dispute between Golden
                  Resorts and Sky Beyond with respect to the sale of the remaining
                  35% of the
                  outstanding shares of Starway, by Win Matching to Sky Beyond pursuant
                  to the
                  Starway Stock Sale, was finally resolved. The Company received
                  notice that
                  Golden Resorts’ shareholders approved the Starway Stock Sale, that Win Matching
                  received from Sky Beyond the HK$52,000,000 consideration due for
                  the Starway
                  Stock Sale, and that the Starway Stock Sale has been completed.
                  Thus, the
                  Company holds a 100% ownership interest in Starway.
 
 There
                  were no changes to the procedures by which security holders may
                  recommend
                  nominees to our board of directors.
  **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.
 32
 Table
                      of Contents
 **(b)**
                        **Reports
                            on Form 8-K**
 
 1.
                        
                        8-K
                        
                        April
                            19, 2005, Press Release re listing of Company’s common stock on NASDAQ
                            National Market System2.
                        
                        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.3.
                        
                        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”4.
                        
                        8-K
                        
                        June
                            27, 2005, Regardingamendment
                            and restatement of the financial statements presented
                            in the Registrant's
                            Quarterly Report on Form 10-QSB for the quarter ended
                            December 31,
                            2004
  33
 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: 
                            August 22, 2005
                        By:
                        /s/
                          Sun LiSun
                            Li
                          Chief
                            Executive Officer
  Date: 
                            August 22, 2005
                        By:
                        /s/
                          Lawrence Lok Yuen-MingLawrence
                            Lok Yuen-Ming
                          Chief
                            Financial Officer
  34