---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-QSB

(Mark One)

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT

For the transition period from __________to __________

Commission file number 000-30299

LIGHTSCAPE TECHNOLOGIES INC.(Exact name of small business issuer as specified in its
charter)

|Nevada                                                               | 98-0217653                       
|-------------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (IRS Employer Identification No.)

3/F., 80 Gloucester Road, Wanchai, Hong Kong(Address
of principal executive offices)

(852) 2546-1808(Issuers telephone number)

N/A(Former name, former address and former fiscal
year, if changed since last report)

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 to such filing requirements for the past 90 days. Yes
[X] No [ ]

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

Yes [ ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date: 37,451,410 common
shares issued and outstanding as of August 3, 2007.

Transitional Small Business Disclosure Format (Check one): Yes [
] No [X]

---

- 2 -

LIGHTSCAPE TECHNOLOGIES INC.

PART I - FINANCIAL INFORMATION

|**Item 1.** | Unaudited Condensed
      Consolidated Financial Statements.
|----------- | ------------------------------------------------------------

|                                  | Condensed Consolidated Balance Sheets **as
      at June 30, 2007 and March 31, 2007**                                                            
|--------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|                                  |                                                                                                                                                   
|                                  | Condensed Consolidated Statements of Operations
      **for the three months ended June 30, 2007 and 2006**                                       
|                                  |                                                                                                                                                   
|                                  | Condensed Consolidated Statements of Shareholders
      Equity and Comprehensive Income **(Loss) for the three months
      ended June 30, 2007**
|                                  |                                                                                                                                                   
|                                  | Condensed Consolidated Statements of Cash Flows
      **for the three months ended June 30, 2007 and 2006**                                       
|                                  |                                                                                                                                                   
|                                  | Notes to Unaudited Condensed Consolidated Financial
      Statements                                                                              
|                                  |                                                                                                                                                   
|**Item 2.**                       | Managements Discussion and Analysis or Plan of
      Operation.                                                                                  
|                                  |                                                                                                                                                   
|**Item 3.**                       | Controls and Procedures.                                                                                                                          
|                                  |                                                                                                                                                   
|PART II - OTHER
      INFORMATION
|                                 
|**Item 1.**                       | Legal Proceedings.                                                                                                                                
|                                  |                                                                                                                                                   
|**Item 6.**                       | Exhibits.                                                                                                                                         

---

- 3 -

|**Item
    1.** | Financial Statements.
|--------------- | ---------------------

|LIGHTSCAPE TECHNOLOGIES INC.             
|-----------------------------------------
|INTERIM CONSOLIDATED FINANCIAL STATEMENTS
|JUNE 30, 2007                            
|UNAUDITED                                

---

|- 4 -                                                          
|---------------------------------------------------------------
|                                                               
|LIGHTSCAPE TECHNOLOGIES INC.                                   
|                                                               
|CONDENSED CONSOLIDATED BALANCE SHEETS                          
|Expressed in US
      dollars (except for the number of shares)

|                                                                  |  | June 30,    |  |  | March 31,  | 
|----------------------------------------------------------------- |  | ----------- |  |  | ---------- | 
|                                                                  |  | 2007        |  |  | 2007       | 
|                                                                  |  | (Unaudited) |  |  | (Audited)  | 
|                                                                  |  | $           |  |  | $          | 
|ASSETS                                                            |  |             |  |  |            | 
|Current assets:                                                   |  |             |  |  |            | 
|Cash and cash
      equivalents                                   |  | 1,703,512   |  |  | 4,117,107  | 
|Other investments, net of
      write-off amount                  |  |             |  |  |            | 
|of $31,516 on
      June 30, 2007 and $31,516 on March 31, 2007   |  | -           |  |  | -          | 
|Trade receivables, net of
      allowance for doubtful accounts   |  | 4,540,771   |  |  | 4,823,265  | 
|of $413,000 on
      June 30, 2007 and $413,082 on March 31, 2007 |  |             |  |  |            | 
|Net investment in sales-type
      leases  current portion       |  | 221,411     |  |  | 196,501    | 
|Prepaid expenses
      and other current assets                   |  | 3,127,158   |  |  | 2,246,172  | 
|Inventories                                                       |  | 1,684,231   |  |  | 1,708,020  | 
|                                                                  |  |             |  |  |            | 
|Total current assets                                              |  | 11,277,083  |  |  | 13,091,065 | 
|                                                                  |  |             |  |  |            | 
|Intangible assets                                                 |  | 4,047,101   |  |  | 4,280,612  | 
|Goodwill                                                          |  | 5,003,437   |  |  | 5,003,437  | 
|Plant and equipment, net                                          |  | 4,120,420   |  |  | 4,162,554  | 
|Construction in progress                                          |  | 1,716,666   |  |  | 1,715,141  | 
|Net investment in sales-type leases  non-current portion         |  | 285,937     |  |  | 329,238    | 
|                                                                  |  |             |  |  |            | 
|                                                                  |  | 15,173,561  |  |  | 15,490,982 | 
|                                                                  |  |             |  |  |            | 
|TOTAL ASSETS                                                      |  | 26,450,644  |  |  | 28,582,047 | 
|                                                                  |  |             |  |  |            | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                              |  |             |  |  |            | 
|                                                                  |  |             |  |  |            | 
|Current liabilities:                                              |  |             |  |  |            | 
|Short-term
      borrowings                                       |  | 3,652       |  |  | 3,678      | 
|Options                                                           |  | 2,619,000   |  |  | 2,619,000  | 
|Trade payables                                                    |  | 1,988,814   |  |  | 2,973,388  | 
|Amount due to a director                                          |  | 40,296      |  |  | 39,846     | 
|Amount due to a
      shareholder                                 |  | 45,161      |  |  | 46,546     | 
|Accrued expenses and other
      current liabilities              |  | 1,217,759   |  |  | 1,172,812  | 
|Obligations
      under capital leases  current portion          |  | 1,774       |  |  | 1,774      | 
|Income tax payable                                                |  | 381,236     |  |  | 396,719    | 
|                                                                  |  |             |  |  |            | 
|Total current liabilities                                         |  | 6,297,692   |  |  | 7,253,763  | 
|                                                                  |  |             |  |  |            | 
|Non-current liabilities:                                          |  |             |  |  |            | 
|Obligations
      under capital leases  non-current portion      |  | 6,799       |  |  | 6,947      | 
|Redeemable convertible notes                                      |  | 346,767     |  |  | 147,047    | 
|                                                                  |  |             |  |  |            | 
|Total non-current liabilities                                     |  | 353,566     |  |  | 153,994    | 
|                                                                  |  |             |  |  |            | 
|Total liabilities                                                 |  | 6,651,258   |  |  | 7,407,757  | 
|Minority interest                                                 |  | 1,830,847   |  |  | 1,865,916  | 

---

|- 5 -                                                          
|---------------------------------------------------------------
|                                                               
|LIGHTSCAPE TECHNOLOGIES INC.                                   
|                                                               
|CONDENSED CONSOLIDATED BALANCE SHEETS (continued)              
|Expressed in US
      dollars (except for the number of shares)

|                                                                      |  | June 30,    |   |  | March 31,  |  
|--------------------------------------------------------------------- |  | ----------- | - |  | ---------- | -
|                                                                      |  | 2007        |   |  | 2007       |  
|                                                                      |  | (Unaudited) |   |  | (Audited)  |  
|                                                                      |  | $           |   |  | $          |  
|COMMITMENTS AND CONTINGENCIES (see Notes 17
      and 18)             |  |             |   |  |            |  
|                                                                      |  |             |   |  |            |  
|Shareholders' equity:                                                 |  |             |   |  |            |  
|Common stock                                                          |  |             |   |  |            |  
|Authorized:                                                           |  |             |   |  |            |  
|800,000,000 common shares, par value $0.001 per share                 |  |             |   |  |            |  
|100,000,000 preferred shares, par value $0.001 per share              |  |             |   |  |            |  
|Issued and
      outstanding:                                         |  |             |   |  |            |  
|37,451,410 common shares at June 30, 2007 and at March 31,
      2007 |  | 37,451      |   |  | 37,451     |  
|Additional paid-in capital                                            |  | 24,139,333  |   |  | 24,139,333 |  
|Other reserves                                                        |  | 28,944      |   |  | 28,944     |  
|Accumulated other comprehensive income                                |  | 302,678     |   |  | 322,541    |  
|Accumulated deficit                                                   |  | (6,539,867  | ) |  | (5,219,895 | )
|                                                                      |  |             |   |  |            |  
|Total shareholders' equity                                            |  | 17,968,539  |   |  | 19,308,374 |  
|                                                                      |  |             |   |  |            |  
|TOTAL LIABILITIES AND                                                 |  |             |   |  |            |  
|SHAREHOLDERS' EQUITY                                                  |  | 26,450,644  |   |  | 28,582,047 |  

See notes to unaudited condensed consolidated financial
statements.

---

|- 6 -                                                      
|-----------------------------------------------------------
|                                                           
|LIGHTSCAPE TECHNOLOGIES INC.                               
|                                                           
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|Expressed in US
      dollars                              

|                                                             |  | Three Months Ended |  
|------------------------------------------------------------ |  | ------------------ | -
|                                                             |  | June 30,           |  
|                                                             |  | 2007               |  
|                                                             |  | $                  |  
|Revenues:                                                    |  |                    |  
|Sale of energy saving solutions                              |  | 35,688             |  
|Sale of lighting source products                             |  | 804,579            |  
|Sale and contract revenue of lighting design solutions       |  | -                  |  
|Rental income                                                |  | -                  |  
|Commission and service income                                |  | 10,317             |  
|Sales-type lease income                                      |  | 1,160              |  
|Total net revenues                                           |  | 851,744            |  
|                                                             |  |                    |  
|Cost of revenues:                                            |  |                    |  
|Sale of energy saving solutions                              |  | (17,770            | )
|Sale of lighting source products                             |  | (559,683           | )
|Sale and contract revenue of lighting
      design solutions |  | (68,407            | )
|Rental income                                                |  | -                  |  
|Commission and service income                                |  | -                  |  
|Total cost of revenues                                       |  | (645,860           | )
|                                                             |  |                    |  
|Gross profit                                                 |  | 205,884            |  
|                                                             |  |                    |  
|Amortization of intangible assets                            |  | (233,511           | )
|Selling and marketing expenses                               |  | (197,141           | )
|General and administrative expenses                          |  | (856,518           | )
|                                                             |  |                    |  
|Loss from operations                                         |  | (1,081,286         | )
|Interest expense                                             |  | (356,053           | )
|Interest income                                              |  | 24,303             |  
|Other income                                                 |  | 57,996             |  
|Equity share of the result of joint venture                  |  | -                  |  
|                                                             |  |                    |  
|(Loss) profit before income tax and minority interests       |  | (1,355,040         | )
|Income tax                                                   |  | -                  |  
|                                                             |  |                    |  
|Net loss                                                     |  | (1,355,040         | )
|Minority interests                                           |  | 35,068             |  
|                                                             |  |                    |  
|Net loss attributable to shareholders of the Company         |  | (1,319,972         | )
|                                                             |  |                    |  
|Loss per share                                               |  |                    |  
|- Basic                                                      |  | (0.04              | )
|- Diluted                                                    |  | (0.04              | )
|                                                             |  |                    |  
|Weighted average number of common shares outstanding         |  |                    |  
|- Basic                                                      |  | 37,451,410         |  
|- Diluted                                                    |  | 37,451,410         |  

See notes to unaudited condensed consolidated financial
statements.

---

|- 7 -                                                                                
|-------------------------------------------------------------------------------------
|                                                                                     
|LIGHTSCAPE TECHNOLOGIES INC.                                                         
|                                                                                     
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
      COMPREHENSIVE INCOME (LOSS)
|Expressed in US
      dollars (except for number of common shares)                   

|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  | Accumulated other    |   |  |             |   |  |             |  
|-------------------------- |  | ------------- |  |  | ------ |  |  | ---------- | - |  | ---------- | - |  | ---------- |  |  | -------------------- | - |  | ----------- | - |  | ----------- | -
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  | comprehensive income |   |  |             |   |  |             |  
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  | (loss)               |   |  |             |   |  |             |  
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  | Foreign     |   |  |             |  
|                           |  | Common Shares |  |  | Common |  |  | Additional |   |  |            |   |  | Unrealized |  |  | Currency             |   |  |             |   |  | Total       |  
|                           |  | Number        |  |  | Amount |  |  | Stock      |   |  | Paid-In    |   |  | Other      |  |  | Loss on              |   |  | Translation |   |  | Accumulated |  
|                           |  |               |  |  |        |  |  | Warrants   |   |  | Capital    |   |  | Reserves   |  |  | Investments          |   |  | Adjustment  |   |  | Deficit     |  
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Balance at April 1, 2005   |  | 19,033,096    |  |  | 19,033 |  |  | -          |   |  | 5,977,080  |   |  | -          |  |  | (45,809              | ) |  | 1,200       |   |  | (2,553,247  | )
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Issuance of shares in      |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|private placements         |  | 896,393       |  |  | 896    |  |  | -          |   |  | 1,319,933  |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Issuance of shares for the |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|acquisition of a           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|subsidiary                 |  | 10,606,230    |  |  | 10,606 |  |  | -          |   |  | 7,944,066  |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Common stock warrants      |  | -             |  |  | -      |  |  | 573,692    |   |  | (573,692   | ) |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Foreign currency           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|translation adjustment     |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | -                    |   |  | (4,942      | ) |  | -           |  
|Net loss                   |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | -                    |   |  | -           |   |  | (3,721,139  | )
|Other comprehensive        |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|gain:                      |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Unrealized gain on         |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|investments                |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | 9,212                |   |  | -           |   |  | -           |  
|Balance at March 31,       |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|2006                       |  | 30,535,719    |  |  | 30,535 |  |  | 573,692    |   |  | 14,667,387 |   |  | -          |  |  | (36,597              | ) |  | (3,742      | ) |  | (6,274,386  | )
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Issuance of shares for the |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|acquisition of additional  |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|interests in Beijing       |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Illumination               |  | 3,076,923     |  |  | 3,077  |  |  | -          |   |  | 3,381,538  |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Issuance of shares for the |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|acquisition of additional  |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|interests in Lightscape    |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Macau                      |  | 1,200,000     |  |  | 1,200  |  |  | -          |   |  | 838,800    |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Issuance of shares for the |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|capitalisation of balance  |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|due to a director          |  | 2,638,768     |  |  | 2,639  |  |  | -          |   |  | 1,448,716  |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Issuance of redeemable     |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|convertible notes (see     |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Note 11)                   |  | -             |  |  | -      |  |  | -          |   |  | 3,229,200  |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Expiry of stock warrants   |  | -             |  |  | -      |  |  | (573,692   | ) |  | 573,692    |   |  | -          |  |  | -                    |   |  | -           |   |  | -           |  
|Foreign currency           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|translation adjustment     |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | -                    |   |  | 329,827     |   |  | -           |  
|Net profit                 |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | -                    |   |  | -           |   |  | 1,079,891   |  
|Transfer                   |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | 28,944     |  |  | -                    |   |  | (3,544      | ) |  | (25,400     | )
|Disposal of investment     |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | 36,597               |   |  | -           |   |  | -           |  
|Balance at March 31,       |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|2007                       |  | 37,451,410    |  |  | 37,451 |  |  | -          |   |  | 24,139,333 |   |  | 28,944     |  |  | -                    |   |  | 322,541     |   |  | (5,219,895  | )
|                           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|Foreign currency           |  |               |  |  |        |  |  |            |   |  |            |   |  |            |  |  |                      |   |  |             |   |  |             |  
|translation adjustment     |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | -                    |   |  | (19,863     | ) |  | -           |  
|Net loss                   |  | -             |  |  | -      |  |  | -          |   |  | -          |   |  | -          |  |  | -                    |   |  | -           |   |  | (1,319,972  | )
|Balance at June 30, 2007   |  | 37,451,410    |  |  | 37,451 |  |  | -          |   |  | 24,139,333 |   |  | 28,944     |  |  | -                    |   |  | 302,678     |   |  | (6,539,867  | )

See notes to consolidated financial statements.

---

|- 8 -                                                      
|-----------------------------------------------------------
|                                                           
|LIGHTSCAPE TECHNOLOGIES INC.                               
|                                                           
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|Expressed in US
      dollars                              

|                                                                        |  | Three Months Ended |  
|----------------------------------------------------------------------- |  | ------------------ | -
|                                                                        |  | June 30,           |  
|                                                                        |  | 2007               |  
|                                                                        |  | $                  |  
|Cash flows from operating activities:                                   |  |                    |  
|Net loss                                                                |  | (1,319,972         | )
|Adjustment to reconcile net loss to                                     |  |                    |  
|net cash (used in) generated from operating activities:                 |  |                    |  
|Amortization of
      intangible assets                                 |  | 233,511            |  
|Depreciation expense                                                    |  | 129,993            |  
|Equity share of
      the result of corporate joint venture             |  | -                  |  
|Minority interest                                                       |  | (35,069            | )
|Write-off of bad
      debts                                            |  | -                  |  
|Changes in operating assets and liabilities, net of
      acquisitions: |  |                    |  
|Trade
      receivables                                                 |  | 282,494            |  
|Net investment in sales-type
      leases                               |  | 18,391             |  
|Prepaid expenses
      and other current assets                         |  | (880,986           | )
|Discount on redeemable
      convertible notes                          |  | 199,720            |  
|Inventories                                                             |  | 23,789             |  
|Trade payables                                                          |  | (984,574           | )
|Amount due from
      a related company                                 |  | -                  |  
|Accrued expenses and other
      current liabilities                    |  | 25,084             |  
|Income tax
      payable                                                |  | (15,483            | )
|                                                                        |  |                    |  
|Net cash (used in) generated from operating
      activities            |  | (2,323,102         | )
|                                                                        |  |                    |  
|Cash flows from investing activities:                                   |  |                    |  
|Purchase of plant and equipment                                         |  | (87,859            | )
|Increase in construction in progress                                    |  | (1,525             | )
|Cash paid for incorporation of a joint venture                          |  | -                  |  
|Advance to a shareholder                                                |  | -                  |  
|Advance from a shareholder                                              |  | -                  |  
|Increase in restricted deposits                                         |  | -                  |  
|                                                                        |  |                    |  
|Cash used in investing activities                                       |  | (89,384            | )

See notes to unaudited condensed consolidated financial
statements.

---

|- 9 -                                                                        
|-----------------------------------------------------------------------------
|                                                                             
|LIGHTSCAPE TECHNOLOGIES INC.                                                 
|                                                                             
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
      (continued)
|Expressed in US
      dollars                                                

|                                                             |  | Three Months Ended |  
|------------------------------------------------------------ |  | ------------------ | -
|                                                             |  | June 30,           |  
|                                                             |  | 2007               |  
|                                                             |  | $                  |  
|Cash flows from financing activities:                        |  |                    |  
|Proceeds from short-term borrowings                          |  | -                  |  
|Repayment of short-term borrowings and
      long-term debts |  | (26                | )
|Repayment of capital lease obligations                       |  | (148               | )
|Advances from directors of a subsidiary                      |  | -                  |  
|Advance from a related company                               |  | -                  |  
|Repayment to a related company                               |  | -                  |  
|Repayment to a shareholder                                   |  | (1,385             | )
|Advance from a director                                      |  | 450                |  
|Repayment to a director                                      |  | -                  |  
|                                                             |  |                    |  
|Net cash used in financing activities                        |  | (1,109             | )
|                                                             |  |                    |  
|Effect of foreign exchange rates change                      |  | -                  |  
|Net decrease in cash and cash equivalents                    |  | (2,413,595         | )
|Cash and cash equivalents at beginning of the period         |  | 4,117,107          |  
|                                                             |  |                    |  
|Cash and cash equivalents at end of the period               |  | 1,703,512          |  
|                                                             |  |                    |  
|Supplemental disclosure of cash flows information            |  |                    |  
|Cash paid for:                                               |  |                    |  
|Bank interest expenses                                       |  | 1,671              |  
|Income taxes paid                                            |  | -                  |  

See notes to unaudited condensed consolidated financial
statements.

---

|- 10 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    1.** | ORGANIZATION AND NATURE OF
      OPERATIONS
|--------------- | -------------------------------------------

Lightscape Technologies Inc., and its subsidiaries
(collectively referred to as the Company) is principally engaged in (i) the
provision of LED lighting products and services through wholly-owned subsidiary
Lightscape Technologies (Macau) Limited, (ii) the manufacture and distribution
of lighting source products through majority-owned subsidiary Beijing
Illumination (Hong Kong) Limited, and (iii) the development, manufacture and
distribution of energy saving products and technologies and the provision of
consulting and customer training services through wholly-owned subsidiary Tech
Team Holdings Limited.

The principal subsidiaries of the Company as of June 30, 2007
include the following:

|                                                                                        | Date of           | Place of                             | Percentage of
|--------------------------------------------------------------------------------------- | ----------------- | ------------------------------------ | -------------
|Name of subsidiaries                                                                    | incorporation     | incorporation                        | effective    
|                                                                                        |                   |                                      | ownership    
|Tech Team Holdings Limited
      (TTHL)                                               | February 15, 2002 | The Cayman Islands                   | 100          
|Tech Team Investment Limited (TTIL)                                                   | March 24, 2000    | The British Virgin Islands           | 100          
|Tech Team Development
      (Zhuhai) Limited (TT (Zhuhai))                            | August 23, 2002   | The People's Republic of
      China | 100          
|Tech Team Development Limited (TTDL)                                                  | October 22, 1999  | Hong Kong                            | 100          
|Luminous Lighting Technology
      (Asia) Limited (LLTL)                              | August 23, 2000   | Hong Kong                            | 100          
|Grandplex Development Limited (GDL)                                                   | January 18, 1999  | Hong Kong                            | 100          
|Tech Team (China) Limited
      (TTCL)                                                | May 22, 2002      | The British Virgin Islands           | 100          
|Tomi Fuji Energy Management Services
      Consultants Limited (TFEMS)                | March 10, 2004    | Hong Kong                            | 100          
|Beijing Illumination (Hong
      Kong) Limited (Beijing Illumination)                 | October 11, 2002  | Hong Kong                            | 76.8         
|Beijing Aihua New Enterprise Lighting
      Appliance Company Limited (Beijing Aihua) | July 26, 1999     | The People's Republic of China       | 76.8         
|Tomi Fuji Energy Pte. Limited
      (TFEPL)                                           | December 17, 2004 | Singapore                            | 80           
|Powerland Technology Limited (PTL)                                                    | September 8, 2005 | The British Virgin Islands           | 100          
|Lightscape Technologies
      (Macau) Limited (Lightscape Macau)                      | February 6, 2006  | Macau                                | 100          

---

|- 11 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 1.** | ORGANIZATION AND NATURE OF OPERATIONS
      (continued)
|----------- | -------------------------------------------------------

|Pro Shing Construction Team
      Macau Limited (Pro Shing) | June 19, 2006  | Macau     | 80 
|------------------------------------------------------------- | -------------- | --------- | ---
|Lightscape Technologies (Greater China)
      Limited         | April 11, 2007 | Hong Kong | 100

The condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business.

|**NOTE 2.** | ACQUISITIONS OF BUSINESS
|----------- | ------------------------

Acquisition of Interest in Beijing Illumination

Pursuant to a Sale and Purchase Agreement dated September 27,
2005 (as amended by a letter of agreement dated October 3, 2005) by and among
the Company, Glory Goal Investments Limited (Glory Goal) and Ko Yin, the
Company acquired 26.0% of the shares of Beijing Illumination on February 27,
2006. As consideration for the 26.0% interest in Beijing Illumination, the
Company issued to Glory Goal 1,750,000 common shares of the Company and paid to
Glory Goal $1,928,021 (approximately HK$15,000,000) in cash.

Pursuant to an Option Deed Agreement dated September 27, 2005
(as amended by a letter agreement dated October 3, 2005) and pursuant to a
Supplemental Deed Agreement dated February 22, 2006, both by and among the
Company, Admire Fame Investments Limited (Admire Fame), Gain Huge Investments
Limited (Gain Huge), Splendid Fortune Investments Limited (Splendid Fortune)
and Ko Yin, the Company acquired an additional 30.8% of the shares of Beijing
Illumination on February 27, 2006 in exchange for the issuance of an aggregate
of 8,856,230 common shares of the Company to Admire Fame, Gain Huge and Splendid
Fortune.

Following the closing of the acquisition of interests in
Beijing Illumination on February 27, 2006, the Company expanded its business
into the manufacturing and sale of lighting and specialty lighting source
products.

Total consideration paid is as follows:

|                                                                   |  | $          | 
|------------------------------------------------------------------ |  | ---------- | 
|Shares allotted (based on market value on
      February 27, 2006) |  | 7,954,672  | 
|Cash consideration                                                 |  | 1,928,021  | 
|Professional fees paid on acquisition                              |  | 120,272    | 
|Total consideration                                                |  | 10,002,965 | 

Acquisition of Additional Interest in Beijing Illumination

Pursuant to a Purchase Agreement dated March 29, 2006 by and
among the Company and Aeneas, the Company acquired a further 5.0% of the shares
of Beijing Illumination on June 29, 2006 in exchange for the issuance of
1,250,000 common shares of the Company to Aeneas.

---

|- 12 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    2.** | ACQUISITIONS OF BUSINESS
      (continued)
|--------------- | ------------------------------------------

Pursuant to a Purchase Agreement dated April 3, 2006 by and
among the Company and Aeneas, the Company acquired an additional 15.0% of the
shares of Beijing Illumination on June 29, 2006 in exchange for the issuance of
1,826,923 common shares of the Company to Aeneas.

In aggregate, the Company owns 960 of the 1,250 issued and
outstanding ordinary shares of Beijing Illumination, representing approximately
76.8% of the shares of Beijing Illumination as of June 30, 2007.

Total consideration paid is as follows:

|                                                               |  | $         | 
|-------------------------------------------------------------- |  | --------- | 
|Shares allotted (based on market value on
      June 29, 2006) |  | 3,384,615 | 
|Total consideration                                            |  | 3,384,615 | 

The purchase price has been allocated based on the estimated
fair values of the assets acquired and liabilities assumed as of the date of
acquisition. The following represents the allocation of the purchase price:

Net assets in Beijing Illumination at date of acquisition:

|                                                        |  | $          |  
|------------------------------------------------------- |  | ---------- | -
|Other investment                                        |  | 31,516     |  
|Property,
      plant and equipment                     |  | 3,345,249  |  
|Construction in progress                                |  | 1,942,550  |  
|Inventories                                             |  | 1,904,917  |  
|Trade receivables                                       |  | 1,811,550  |  
|Prepayment
      and other receivables                  |  | 409,414    |  
|Tax recoverable                                         |  | 12,009     |  
|Bank
      balances and cash                            |  | 129,099    |  
|Trade payables                                          |  | (714,815   | )
|Accrued
      expenses and other payables               |  | (562,637   | )
|Taxation payable                                        |  | (78,199    | )
|Loan from a
      shareholder                           |  | (517,962   | )
|Loan from directors                                     |  | (911,207   | )
|Short-term
      bank loans                             |  | (308,978   | )
|Minority shareholders interests                        |  | (1,506,261 | )
|Net assets
      attributable to existing shareholdings |  | (3,687,744 | )
|                                                        |  |            |  
|Net assets                                              |  | 1,298,501  |  
|                                                        |  |            |  
|Intangible assets:                                      |  |            |  
|- Completed technology  AHP                            |  | 294,479    |  
|- Completed technology  HID                            |  | 296,232    |  
|- Trademark                                             |  | 144,036    |  
|- Customer lists and relationships                      |  | 11,630     |  
|- Distributor list                                      |  | 42,753     |  
|Total intangible assets                                 |  | 789,130    |  
|Goodwill                                                |  | 1,296,984  |  
|Total consideration                                     |  | 3,384,615  |  

---

|- 13 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    2.** | ACQUISITIONS OF BUSINESS
      (continued)
|--------------- | ------------------------------------------

Acquisition of Additional Interest in Lightscape Macau

Pursuant to a Transfer of Shareholders Rights Agreement and an
Authorization letter, the Company, through its wholly-owned subsidiary TTDL,
obtained the beneficial interest in 49.6% of the registered share capital of
Lightscape Macau. The above arrangements made were solely implemented to
facilitate a rapid transfer of ownership of Lightscape Macau before the legal
title changes.

Pursuant to a Sale and Purchase Agreement dated September 29,
2006 by and among the Company, Albert Yee Tat Chan and Luminous LED Technologies
Limited (the Vendors) and Michelle Siu Kwan Lam and Joseph Sui Kei Lam (the
Guarantors), the Company acquired legally 49.6% of the registered share
capital of Lightscape Macau from Albert Yee Tat Chan as registered owner and
Luminous LED Technologies Limited as beneficial owner in consideration for the
payment of USD1,550 (MOP12,400) and the issuance of 1,200,000 common shares by
the Company to Albert Yee Tat Chan (the Consideration Shares). In aggregate,
the Company owns 100% of the registered share capital of Lightscape Macau as of
September 29, 2006.

Immediately upon the completion of the Sale and Purchase
Agreement, the Consideration Shares were delivered to an escrow agent pursuant
to an Escrow Agreement dated September 29, 2006 among the Company, the Vendors
and Clark Wilson LLP as the escrow agent. Pursuant to the terms and conditions
of the Sale and Purchase Agreement and the Escrow Agreement, all of the
Consideration Shares shall be released to the Vendors upon the determination
that the net profit of Lightscape Macau and its subsidiaries is not less than
HK$20,000,000 over the period October 1, 2006 to September 30, 2007. If the net
profit of Lightscape Macau and its subsidiaries is less than HK$20,000,000, the
percentage of the Consideration Shares equaling to the percentage of the
shortfall from HK$20,000,000 shall be released by the escrow agent not to the
Vendors but to the Company for cancellation, with the balance of the
Consideration Shares to be released to the Vendors; if there is no net profit
for Lightscape Macau and its subsidiaries, all of the Consideration Shares shall
be released to the Company for cancellation and the Company will be absolutely
released from the obligation to deliver the Consideration Shares.

In consideration of the Sale and Purchase Agreement, each of
the Vendors and the Guarantors irrevocably and unconditionally guaranteed
jointly and severally to the Company that the Net Profit for the Guarantee
Period as shown in the audited consolidated financial statements of Lightscape
Macau and its subsidiaries ending such date shall not be less than the
Guaranteed Net Profit. If the Net Profit is less than the Guaranteed Net Profit,
then the Vendors and the Guarantors shall jointly and severally pay to the
Company in cash within fourteen (14) calendar days after the delivery of the
audited consolidated financial statements of Lightscape Macau and its
subsidiaries aforesaid an amount calculated as follows:

Amount payable to the Company = (Guaranteed Net Profit  Net
Profit) X 40%

Following the closing of the acquisition of interests in
Lightscape Macau on September 30, 2006, the Company expanded its business into
the provision of full service lighting designed solutions including interior set
design and fabrication, computer-controlled special effects, intelligent
lighting, laser and multimedia technologies.

---

|- 14 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 2.** | ACQUISITIONS OF BUSINESS (continued)
|----------- | ------------------------------------

|Total consideration paid for this transaction is as
      follows: |  |         | 
|------------------------------------------------------------------ |  | ------- | 
|                                                                   |  |         | 
|                                                                   |  | $       | 
|Shares allotted (based on market value on
      October 2, 2006)   |  | 840,000 | 
|Cash consideration                                                 |  | 1,590   | 
|Total consideration                                                |  | 841,590 | 

The purchase price has been allocated based on the estimated
fair values of the assets acquired and liabilities assumed as of the date of
acquisition. The following represents the allocation of the purchase price:

|Net assets in Lightscape Macau at date of acquisition:      |  |           |  
|----------------------------------------------------------- |  | --------- | -
|                                                            |  | $         |  
|Accounts receivable                                         |  | 1,028,278 |  
|Bank
      balances and cash                                |  | 135       |  
|Accounts payable                                            |  | (867,609  | )
|Amount due
      to related companies                       |  | (29,177   | )
|Amount due to a director                                    |  | (141      | )
|                                                            |  |           |  
|Net assets                                                  |  | 131,486   |  
|Equity share of profits before acquisition                  |  | (64,651   | )
|Capital contributed by the Company before
      acquisition |  | (1,623    | )
|Goodwill                                                    |  | 776,378   |  
|Total consideration                                         |  | 841,590   |  

At the date of acquisition of Lightscape Macau, management made
its best estimate of the allocations of the fair value assigned to intangibles
and has categorized the value of $776,378 attributed to goodwill for the
acquisition.

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
|----------- | ----------------------------------------

Basis of Presentation

The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America.

Principle of Consolidation

The consolidated financial statements include the financial
statements of the Company and its majority-owned subsidiaries except for Xianghe
Aihua New Enterprise Lighting Equipment Company Ltd., which is classified as
other investment. All significant intercompany transactions and balances are
eliminated on consolidation.

---

|- 15 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
      (continued)
|----------- | ----------------------------------------------------------

Use of Estimates

The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and demand
deposits which are unrestricted as to withdrawal and use, and which have
maturities of three months or less when purchased.

Other Investment

Other investment is stated at cost less accumulated impairment
loss. It represents the investment in Xianghe Aihua New Enterprise Lighting
Equipment Company Ltd. (Xianghe Aihua), an indirect 51% owned company of
Beijing Illumination which is, in turn, an indirect 76.8% owned company of the
Company.

The control of Xianghe Aihua does not reside with the Company
and the Company does not have significant influence on it. The Company is unable
to obtain any updated financial statements of Xianghe Aihua. As a consequence,
the results of Xianghe Aihua were not included in the consolidated financial
statements of the Company.

Trade Receivables and Allowance for Doubtful Accounts

In regards to the Companys allowance for doubtful accounts,
the Company periodically records a provision for doubtful accounts based on an
evaluation of the collectibility of accounts receivable by assessing, among
other factors, the customers willingness or ability to pay, repayment history,
general economic conditions, and the ongoing relationship with the Company's
customers. The total amount of this provision is determined by first identifying
the receivables of customers that are considered to be a higher credit risk
based on their current overdue accounts, difficulties in collecting from these
customers in the past and their overall financial condition. For each of these
customers, the Company estimates the extent to which the customer will be able
to meet its financial obligations, and the Company records an allowance that
reduces its accounts receivable for that customer to the amount that is
reasonably believed will be collected. Additional allowances may be required in
the future if the financial condition of the Company's customers or general
economic conditions deteriorate, thereby reducing net income.

Inventories

Inventories are stated at the lower of cost or market value.
Cost is determined on the first-in, first-out basis. Write-down of potentially
obsolete or slow-moving inventory is recorded based on managements analysis of
inventory levels and the Company's assessment of estimated obsolescence based
upon assumptions about future demand and market conditions. Further write-down
of the value may be required in the future if there is rapid technological and
structural change in the industry. This may reduce the results of operations of
the Company.

---

|- 16 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
      (continued)
|----------- | ----------------------------------------------------------

Goodwill

The Company accounted for acquisitions of business in
accordance with SFAS No. 141 Business Combinations, which resulted in the
recognition of goodwill. Goodwill represents the excess of the purchase price
over the fair value of net assets acquired in business combinations accounted
for under the purchase method. Goodwill is not subject to amortization but will
be subject to periodic evaluation for impairment. Goodwill is stated in the
consolidated balance sheet at cost less accumulated impairment loss.

Intangible Assets

The Company acquired certain intangible assets through the
acquisition of TFEMS in January 2005. These intangible assets are comprised of
trademark, customer lists and relationships, and unfulfilled purchase orders.
The Company also acquired certain intangible assets through the acquisition of
Beijing Illumination in February 2006 and in June 2006. These intangible assets
consisted of completed technology for the production of Aihua Ultra-High
Pressure Mercury (AHP) lamps and HID lamps, trademark, a customer base and a
distributor base. The acquired trademarks were determined to have an indefinite
useful life which are not subject to amortization, unless and until their useful
life are determined no longer to be indefinite.

The Company tests for impairment of trademarks annually, or
more frequently if events or changes in circumstances indicate that the asset
might be impaired. The completed technologies for the production of AHP and HID,
distributor base, customer lists and relationships and unfulfilled purchase
orders are subject to amortization over their respective economic useful life
and reviewed for impairment if the carrying amount of these intangible assets
are not recoverable and their carrying amount exceeds their fair market value.
After an impairment loss is recognized, the adjusted carrying amount of the
intangible assets shall be their new accounting basis.

The estimation of the useful life of the trademarks, completed
technologies for the production of AHP and HID, distributor base, customer lists
and relationships will be affected by factors such as change in demand,
unanticipated competition and other economic factors including stability of
industry, change in technology, legislative action that results in an uncertain
or an adverse change in the regulatory environment and changes in distribution
channels and business climate. If impairment loss is recognized, the results of
operations and the financial condition of the Company will be adversely
affected.

Software and license is recognized as intangible assets at cost
less accumulated amortization which is amortized over 3 years.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for potential impairment
based on a review of projected undiscounted cash flows associated with these
assets. Long-lived assets are included in impairment evaluations when events and
circumstances exist that indicate the carrying amount of these assets may not be
recoverable. Measurement of impairment losses for long-lived assets that the
Company expects to hold and use is based on the estimated fair value of the
assets. Therefore, future changes in the Company's strategy and other changes in
its operations could impact the projected future operating results that are
inherent in estimates of fair value, resulting in impairments in the future.
Additionally, other changes in the estimates and assumptions, including the
discount rate and expected long-term growth rate, which drive the valuation
techniques employed to estimate the fair value of long-lived assets could change
and, therefore, impact the assessments of impairment in the future.

---

|- 17 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
      (continued)
|----------- | ----------------------------------------------------------

Plant and equipment and Construction in Progress

Plant and equipment is recorded at cost less accumulated
depreciation. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets. Estimated useful lives of equipment are as
follows:

|Testing equipment               | 4 years                                                      
|------------------------------- | -------------------------------------------------------------
|Office equipment                | 3 - 4 years                                                  
|Furniture and fixtures          | 3 - 4 years                                                  
|Leasehold improvements          | shorter of 4 years or the remaining terms of
      the leases
|Motor vehicles                  | 5 - 7 years                                                  
|Energy savers                   | 10 years                                                     
|Factory machinery and equipment | 10 - 16 years                                                

Energy savers are electronic devices sold by the Company that
assist in regulating the consumption of electricity by certain equipment thereby
resulting in energy savings. The Company retains a number of these devices as
demonstration units for marketing and promotion purposes.

Construction in progress is stated at cost which comprises all
direct costs incurred in relation to their construction.

The cost of construction in progress will not be amortized
until they are put into use and are transferred to a specific category of plant
and equipment when the construction is completed.

Expenditures for repairs, maintenance and minor renewals and
betterments are expensed.

Net Investment in Sales - Type Leases

At the time a sales-type lease is consummated, the Company
records the gross finance receivable, less unearned income. Unearned income is
recognized as lease income using the interest method over the term of the lease
and is included as financing revenue in the Company's consolidated statements of
operations. The Company reviews minimum lease payments receivable considered at
risk on a periodic basis. The review primarily consists of an analysis based
upon current information available about the client as well as the current
economic environment, value of leased assets net of repossession cost and prior
history. Impairment is measured using the fair value of the leased assets when
foreclosure is probable. Using this information, the Company determines the
expected cash flow for the receivable and calculates a recommended estimate of
the potential loss and the probability of loss. For those accounts in which the
loss is probable, the Company records a specific reserve.

Revenue Recognition

The Company recognizes revenue when it is realized or
realizable and earned. The Company considers revenue realized or realizable and
earned when it has persuasive evidence of an arrangement, the product has been
delivered and installed or the services have been provided to the customer, the
sales price is fixed or determinable, and collectibility is reasonably assured.
In addition to the aforementioned general policy, the following are specific
revenue recognition policies for each major category of revenue.

---

|- 18 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
      (continued)
|----------- | ----------------------------------------------------------

Sale of energy saving products - The Company sells its
products directly to end users with installation (Direct Sales Contracts) and
through distributors (Trading Contracts). Direct Sales Contracts revenue from
hardware sales or sales-type leases is recognized when the product is delivered
to the customer and related installation is completed when there are no
unfulfilled Company obligations that affect the customer's final acceptance of
the arrangement and when all other revenue recognition criteria are met. Revenue
from Trading Contracts is recognized when the product is delivered and title is
transferred and when all other revenue recognition criteria are met.

Sale of lighting source products-The Company
sells its products directly to end users and through distributors. Revenue is
recognized when the product is delivered to the customer and all other revenue
recognition criteria are met.

Sale of lighting design solutions-The Company
sells its products directly to end users and through distributors. Revenue is
recognized when the product is delivered to the customer and all other revenue
recognition criteria are met.

Contract revenue from lighting design solutions -
Revenue is primarily recognized on the percentage of completion method for
long-term construction contracts not yet completed, measured by the percentage
of total costs incurred to date to estimate total costs at completion for each
contract. This method is utilized because management considers the cost-to-cost
method the best method available to measure progress on these contracts.
Revenues and estimated total costs at completion are adjusted monthly as
additional information becomes available and based upon the Company's internal
tracking systems. Because of the inherent uncertainties in estimating revenue
and costs, it is reasonably possible that the estimates used will change within
the near term.

Contract costs include all direct material and labor costs and
those other indirect costs related to contract performance including, but not
limited to, indirect labor, subcontract costs and supplies. General and
administrative costs are charged to expense as incurred.

The Company has contracts that may extend over more than one
year; therefore, revisions in cost and profit estimates during the course of the
work are reflected in the accounting period in which the facts, which require
the revisions, become known.

Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.

The Company does not record any income from claims until the
claims have been received or awarded.

In accordance with construction industry practice, the Company
reports in current assets and liabilities those amounts relating to construction
contracts realizable and payable over a period in excess of one year.

Fees for the management of certain contracts are recognized
when services are provided.

Rental Income -Revenue from rentals and operating
leases without any acceptance provisions is recognized on a straight-line basis
over the term of the rental or lease.

---

|- 19 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
      (continued)
|----------- | ----------------------------------------------------------

Commission and Services Income:

- Revenue from consultancy services related to energy - saving feasibility
  study is recognized when granted. Services are considered granted when the
  Company delivers its assessment to its customer and the customer signs the
  acceptance report.
- Commissions earned from customer marketing services, where the Company is
  acting as an agent for petroleum distribution companies, are recorded upon
  notification by the petroleum distribution companies for the amount earned,
  which is based on a pre- determined amount, per unit of gasoline sold to
  referred customers.

Sales-type lease income - Represents finance income
attributable to sales-type leases and is recognized over the term of the lease,
using the effective interest method.

Income Taxes

Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the carrying amounts
of existing assets and liabilities and their respective tax bases as well as
operating loss and tax credit carry forwards. 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. 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. Valuation allowances are established when it is more likely than
not that some or all of the deferred tax assets will not be realized.

Foreign Currency Translation

The functional currency of the Company is in Hong Kong dollars
(HKD). Transactions in other currencies are recorded in HKD at the rates of
exchange prevailing when the transactions occur. Monetary assets and liabilities
denominated in other currencies are measured in HKD at rates of exchange in
effect at the balance sheet dates. Exchange gains and losses are recorded in the
unaudited condensed consolidated statements of operations as a component of
current period earnings.

For financial reporting purposes, the financial statements of
the Company which are prepared using the functional currency have been
translated into United States dollars. Assets and liabilities are translated at
the exchange rates at the balance sheet dates and revenue and expenses are
translated at the average exchange rates and stockholders equity is translated
at historical exchange rates. Any translation adjustments resulting are not
included in determining net income but are included in foreign exchange
adjustment to other comprehensive income, a component of stockholders equity.

HKD is pegged to USD and hence there is no translation
adjustment impact on the Companys unaudited condensed consolidated financial
statements.

Segment Information

The Companys segment reporting is prepared in accordance with
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. The management approach required by SFAS 131 designates that the
internal reporting structure that is used by management for making operating
decisions and assessing performance should be used as the source for presenting
the Companys reportable segments.

---

|- 20 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    3.** | SUMMARY OF PRINCIPAL ACCOUNTING
      POLICIES (continued)
|--------------- | ----------------------------------------------------------

Concentration of Credit Risk

Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash, trade receivables,
deposits for goods and net investment in sales-type leases. The Company places
its cash with financial institutions with high-credit ratings and quality.

The Company conducts credit evaluation of customers and
generally does not require collateral or other security from its customers. The
Company establishes an allowance for doubtful accounts primarily based upon the
age of the receivables and factors surrounding the credit risk of specific
customers.

Other than the one largest customer who accounted for
approximately 26% of the Companys total revenue for the three months ended June
30, 2007, no other single external customer exceeded 10% of the Companys total
revenue for the three months ended June 30, 2007.

The Company relies on supplies from numerous vendors. For the
three months ended June 30, 2007, the Company had one vendor that accounted for
approximately 14% of total supply purchases for the three months.

The Companys business, assets and operations is currently
focused on the sale of specialty lighting source products, sales and contract
revenue from lighting design solutions, and sales of electrical energy-saving
products in Hong Kong, China and Macau, and accordingly, is affected to a
significant degree by any economic, political and legal developments in Hong
Kong, China and Macau.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, trade
receivables, and trade payables approximate their fair values due to the
short-term maturity of these instruments. The fair value of long-term debts, and
capital lease obligations approximate their carrying value as the interest rates
approximate those which would have been available for loans of similar remaining
maturity at the respective period ends.

Comprehensive Income

Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners.

Basic and Diluted Loss per Share

The Company reports basic loss per share in accordance with
SFAS No. 128, Earnings Per Share. Basic loss per share is computed using the
weighted average number of shares outstanding during the periods presented. The
weighted average number of shares of the Company represents the common stock
outstanding during the period.

Diluted loss per share is based on the assumption that if there
is no anti-dilutive effect on the basic loss per share, all dilutive convertible
notes and options were converted or exercised. Dilution is computed by applying
the treasury stock method. Under this method, options are assumed to be
exercised at the beginning of the year (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the
average market price during the period.

---

|- 21 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 3.** | SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
      (continued)
|----------- | ----------------------------------------------------------

Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (FASB)
ratified the provisions of Emerging Issues Task Force (EITF) Issue No. 06-3,
How Taxes Collected from Customers and Remitted to Governmental Authorities
Should Be Presented in the Income Statement (That Is, Gross versus Net
Presentation). EITF Issue No. 06-3 requires that the presentation of taxes
within revenue-producing transactions between a seller and a customer, including
but not limited to sales, use, value added, and some excise taxes, should be on
either a gross (included in revenue and cost) or a net (excluded from revenue)
basis. In addition, for any such taxes that are reported on a gross basis, a
company should disclose the amounts of those taxes in interim and annual
financial statements for each period for which an income statement is presented
if those amounts are significant. The disclosure of those taxes can be done on
an aggregate basis. EITF Issue No. 06-3 is effective for fiscal years beginning
after December 15, 2006, which will be the Companys fiscal 2008.

In September 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin No.108 (SAB No. 108), Considering the
Effects of Prior Year Misstatements when Quantifying Current Year
Misstatements. SAB No. 108 requires analysis of misstatements using both an
income statement (rollover) approach and a balance sheet (iron curtain) approach
in assessing materiality and provides for a one-time cumulative effect
transition adjustment. SAB No. 108 is effective for the fiscal year beginning
November 15, 2006.

In September 2006, FASB issued Statement of Financial
Accounting Standards No. 158 (SFAS 158), Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements
No. 87, 88, 106, and 132 (R), which is effective for fiscal years beginning
after December 15, 2006. SFAS 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. SFAS 158
also requires an employer to measure the funded status of a plan as of the date
of its year-end statement of financial position, with limited exceptions.

The adoption of above pronouncements did not have a material
effect on the Company's future reported financial position or results of
operations.

In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 157 (SFAS
157), Fair Value Measurements, which is effective for fiscal years beginning
after November 15, 2007 and for interim periods within those years. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. The Companys management believes that this statement
will not have a significant impact on the Companys financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities (SFAS No. 159). SFAS No.
159 permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected will be reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Companys
management believes that this statement will not have a significant impact on
the Companys financial statements.

---

|- 22 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 4.** | NET INVESTMENT IN SALES-TYPE LEASES
|----------- | -----------------------------------

Net investment in sales-type leases is for leases that relate
to the Company's hardware sales and are generally for terms ranging from three
to five years. Interest rates range from 2.5% to 5% and the leases are secured
by the respective leased assets.

The details of net investment in sales-type leases are as
follows:

|                                                                |  | June 30,    |   |  | March 31, |  
|--------------------------------------------------------------- |  | ----------- | - |  | --------- | -
|                                                                |  | 2007        |   |  | 2007      |  
|                                                                |  | (Unaudited) |   |  | (Audited) |  
|                                                                |  | $           |   |  | $         |  
|Total minimum lease payments to be received                     |  | 528,479     |   |  | 540,318   |  
|Less: Unearned income                                           |  | (21,131     | ) |  | (14,579   | )
|Net investment in sales-type leases                             |  | 507,348     |   |  | 525,739   |  
|Current portion                                                 |  | (221,411    | ) |  | (196,501  | )
|Net investment in sales-type leases, less
      current portion |  | 285,937     |   |  | 329,238   |  

Contracted maturities of the sales-type leases as of June 30,
2007 are as follows:

|Twelve months ending June 30, |  | $       | 
|----------------------------- |  | ------- | 
|2008                          |  | 221,411 | 
|2009                          |  | 139,066 | 
|2010                          |  | 117,794 | 
|2011                          |  | 29,077  | 
|                              |  | 507,348 | 

|**NOTE 5.** | PREPAID EXPENSES AND OTHER CURRENT
      ASSETS
|----------- | -----------------------------------------------

Prepaid expenses and other current assets consist of the
following:

|                                     |  | June 30,    |  |  | March 31, | 
|------------------------------------ |  | ----------- |  |  | --------- | 
|                                     |  | 2007        |  |  | 2007      | 
|                                     |  | (Unaudited) |  |  | (Audited) | 
|                                     |  | $           |  |  | $         | 
|Trade deposits                       |  | 175,300     |  |  | 950,190   | 
|Rental, utilities and other deposits |  | 199,776     |  |  | 192,460   | 
|Deferred notes issuance costs        |  | 83,254      |  |  | 90,823    | 
|Prepaid expenses                     |  | 2,030,829   |  |  | 424,109   | 
|Staff advances                       |  | 65,594      |  |  | 18,507    | 
|Other receivable                     |  | 548,174     |  |  | 561,716   | 
|Others                               |  | 24,231      |  |  | 8,367     | 
|                                     |  |             |  |  |           | 
|                                     |  | 3,127,158   |  |  | 2,246,172 | 

---

|- 23 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    6.** | INVENTORIES
|--------------- | -----------

Inventories by major categories are summarized as follows:

|                 |  | June 30,    |  |  | March 31, | 
|---------------- |  | ----------- |  |  | --------- | 
|                 |  | 2007        |  |  | 2007      | 
|                 |  | (Unaudited) |  |  | (Audited) | 
|                 |  | $           |  |  | $         | 
|Raw materials    |  | 821,805     |  |  | 860,098   | 
|Work in progress |  | 594,482     |  |  | 542,491   | 
|Finished goods   |  | 267,944     |  |  | 305,431   | 
|                 |  | 1,684,231   |  |  | 1,708,020 | 

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

Plant and equipment, net consists of the following:

|                                |  | June 30,    |   |  | March 31,  |  
|------------------------------- |  | ----------- | - |  | ---------- | -
|                                |  | 2007        |   |  | 2007       |  
|                                |  | (Unaudited) |   |  | (Audited)  |  
|                                |  | $           |   |  | $          |  
|Testing equipment               |  | 606         |   |  | 606        |  
|Office equipment                |  | 550,841     |   |  | 524,442    |  
|Furniture and fixtures          |  | 16,171      |   |  | 15,412     |  
|Leasehold improvements          |  | 321,899     |   |  | 321,899    |  
|Motor vehicles                  |  | 87,233      |   |  | 87,233     |  
|Energy savers                   |  | 370,756     |   |  | 370,372    |  
|Mould                           |  | 78,747      |   |  | 18,431     |  
|Factory machinery and equipment |  | 4,258,483   |   |  | 4,258,482  |  
|Total                           |  | 5,684,736   |   |  | 5,596,877  |  
|Less: Accumulated depreciation  |  | (1,564,316  | ) |  | (1,434,323 | )
|Plant and equipment, net        |  | 4,120,420   |   |  | 4,162,554  |  

---

|- 24 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    7.** | PLANT AND EQUIPMENT, NET
      (continued)
|--------------- | ------------------------------------------

Equipment, net held under capital leases are summarized as
follows:

|                                         |  | June 30,    |   |  | March 31, |  
|---------------------------------------- |  | ----------- | - |  | --------- | -
|                                         |  | 2007        |   |  | 2007      |  
|                                         |  | (Unaudited) |   |  | (Audited) |  
|                                         |  | $           |   |  | $         |  
|Office equipment                         |  | 8,869       |   |  | 12,571    |  
|Less: Accumulated depreciation           |  | (1,232      | ) |  | (3,276    | )
|Equipment, net held under capital leases |  | 7,637       |   |  | 9,295     |  

Equipment, net leased under operating leases to customers is
summarized as follows:

|                                                          |  | June 30,    |   |  | March 31, |  
|--------------------------------------------------------- |  | ----------- | - |  | --------- | -
|                                                          |  | 2007        |   |  | 2007      |  
|                                                          |  | (Unaudited) |   |  | (Audited) |  
|                                                          |  | $           |   |  | $         |  
|Energy savers                                             |  | 18,953      |   |  | 18,953    |  
|Less: Accumulated depreciation                            |  | (11,214     | ) |  | (10,740   | )
|                                                          |  |             |   |  |           |  
|Equipment, net leased under operating leases to customers |  | 7,739       |   |  | 8,213     |  

|**NOTE 8.** | CONSTRUCTION IN PROGRESS
|----------- | ------------------------

|Construction in progress consists of the following: |  |             |  |  |           | 
|--------------------------------------------------- |  | ----------- |  |  | --------- | 
|                                                    |  | June 30,    |  |  | March 31, | 
|                                                    |  | 2007        |  |  | 2007      | 
|                                                    |  | (Unaudited) |  |  | (Audited) | 
|                                                    |  | $           |  |  | $         | 
|Production facilities for Xenon lights              |  | 1,111,215   |  |  | 1,111,215 | 
|Production facilities for AHP lamps                 |  | 545,723     |  |  | 545,723   | 
|Others                                              |  | 59,728      |  |  | 58,203    | 
|                                                    |  | 1,716,666   |  |  | 1,715,141 | 

---

|- 25 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 9.** | INTANGIBLE ASSETS
|----------- | -----------------

Intangible assets arise from the acquisitions of interests in
TFEMS and Beijing Illumination as stated in Note 2 above.

Acquired intangible assets consist of the following:

|                                                    |  | June 30,    |   |  | March 31,  |  
|--------------------------------------------------- |  | ----------- | - |  | ---------- | -
|                                                    |  | 2007        |   |  | 2007       |  
|                                                    |  | (Unaudited) |   |  | (Audited)  |  
|                                                    |  | $           |   |  | $          |  
|Completed technology  AHP                          |  | 1,172,616   |   |  | 1,172,616  |  
|Completed technology  HID                          |  | 1,214,012   |   |  | 1,214,012  |  
|Trademark                                           |  | 1,957,212   |   |  | 1,957,212  |  
|Software and license                                |  | 641,077     |   |  | 641,077    |  
|Customer lists and relationships                    |  | 2,513,921   |   |  | 2,513,921  |  
|Distributors list                                   |  | 179,351     |   |  | 179,351    |  
|Unfulfilled purchase orders                         |  | 4,113       |   |  | 4,113      |  
|                                                    |  |             |   |  |            |  
|Total                                               |  | 7,682,302   |   |  | 7,682,302  |  
|Less: Accumulated amortization                      |  |             |   |  |            |  
|- completed technology - AHP                        |  | (209,333    | ) |  | (167,454   | )
|- completed technology - HID                        |  | (379,984    | ) |  | (304,109   | )
|- software and license                              |  | (184,612    | ) |  | (131,232   | )
|- customer lists and relationships                  |  | (854,177    | ) |  | (806,746   | )
|- distributors list                                 |  | (74,961     | ) |  | (60,015    | )
|- unfulfilled purchase orders                       |  | (4,113      | ) |  | (4,113     | )
|Impairment loss on trademark                        |  | (771,209    | ) |  | (771,209   | )
|Impairment loss on customer lists and relationships |  | (1,156,812  | ) |  | (1,156,812 | )
|Total                                               |  | 4,047,101   |   |  | 4,280,612  |  

Amortization expenses charged to net loss from operations for
the three months ended June 30, 2007 and 2006 were $233,511 and $147,246
respectively. Anticipated amortization expense on intangible assets for each of
the next five years is as follows:

|Twelve months ending June 30, |  | $         | 
|----------------------------- |  | --------- | 
|2008                          |  | 934,217   | 
|2009                          |  | 925,941   | 
|2010                          |  | 665,310   | 
|2011                          |  | 335,630   | 
|                              |  | 2,861,098 | 

---

|- 26 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 10.** | SHORT-TERM BORROWINGS
|------------ | ---------------------

The Company's short-term borrowings represent the $3,652 and
3,678 of bank overdrafts as of June 30, 2007 and March 31, 2007 respectively.

|**NOTE
    11.** | REDEEMABLE CONVERTIBLE NOTES
|---------------- | ----------------------------

On January 23, 2007, pursuant to the terms and conditions of
the subscription agreements, the Company issued 60 $100,000 redeemable
convertible notes in an aggregate principal amount of $6,000,000 to three
investors consisting of Investec Bank (UK) Limited, Full Moon Resources Limited
and LP Asset Management Limited.

Each note bears a fixed rate of interest at 10% per annum,
payable quarterly, calculated on a 360 day year on the principal amount
outstanding. Unless previously converted or redeemed, each note will be redeemed
by the Company on the maturity date of December 31, 2009 at a final redemption
amount, calculated in accordance with a formula set out in the note, together
with all interest thereon. The notes are convertible into common shares at the
rate of one common share per each $0.55 of principal converted (subject to
adjustment as described in the subscription agreements).

In addition, pursuant to the terms and conditions of the
subscription agreements, the Company granted two options to each investor to
purchase additional redeemable convertible notes of the Company in the aggregate
amount of $12,000,000, the first option of which is exercisable at any time
during the period from April 1, 2007 to June 30, 2008. The first option entitles
the holder to subscribe for additional $100,000 redeemable convertible notes of
the Company in the aggregate principal amount of up to $6,000,000. The second
option, which is exercisable on July 1, 2008, January 1, 2009 and July 1, 2009,
or as otherwise described in the subscription agreements, entitles the holder to
subscribe for additional $100,000 redeemable convertible notes of the Company in
the aggregate principal amount of up to $6,000,000. The conversion price of the
notes underlying the first option are convertible at $0.55 per share if
converted on or before June 30, 2007 and at $0.66 per share if converted after
June 30, 2007. The conversion price of the notes underlying the second option is
subject to a formula as set out in the subscription agreements.

The notes were discounted for the fair value of options,
pursuant to APB 14 Accounting for Convertible Debt and Debt Issued with Stock
Purchase Warrants. The notes were further discounted for the intrinsic value of
the beneficial conversion feature, pursuant to EITF 98-5 Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios. The discount is being amortized over the life of
the notes. Through June 30, 2007, $199,720 was amortized and recorded as part of
interest expenses.

The fair value of the first option was determined using the
Black-Scholes option pricing model, using the following assumptions:

|Expected volatility     |   | 130.30%                  
|----------------------- | - | -------------------------
|Expected term in years  |   | 1.25 years               
|Risk-free interest rate |   | 4.89%                    
|Exercise price          | $ | 0.55                     
|Stock price             | $ | .76 (at January 23, 2007)

Expected volatilities are calculated using the historical
prices of the Companys common stock. The expected term of first option is based
on the term of the exercisable periods. The risk-free interest rates are based
on the U.S. Treasury Note rate with terms comparable with the first option.

---

|- 27 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 11.** | REDEEMABLE CONVERTIBLE NOTES (continued)
|------------ | ----------------------------------------

The fair value of second option is not determinable due to the
high dependence on the future performance and future number of shares of the
Company caused no reasonable basis for the valuation of the second option.

|                                                       |  | June 30,    |   |  | March 31,  |  
|------------------------------------------------------ |  | ----------- | - |  | ---------- | -
|                                                       |  | 2007        |   |  | 2007       |  
|                                                       |  | (Unaudited) |   |  | (Audited)  |  
|                                                       |  | $           |   |  | $          |  
|Face value of redeemable convertible notes             |  | 6,000,000   |   |  | 6,000,000  |  
|Estimated value of embedded options                    |  | (2,770,800  | ) |  | (2,770,800 | )
|Intrinsic value of beneficial conversion
      feature |  | (3,229,200  | ) |  | (3,229,200 | )
|Accumulated amortization of discount                   |  | 346,767     |   |  | 147,047    |  
|                                                       |  | 346,767     |   |  | 147,047    |  

|**NOTE 12.** | OBLIGATIONS UNDER CAPITAL LEASES
|------------ | --------------------------------

|                                                                |  | June 30,    |   |  | March 31, |  
|--------------------------------------------------------------- |  | ----------- | - |  | --------- | -
|                                                                |  | 2007        |   |  | 2007      |  
|                                                                |  | (Unaudited) |   |  | (Audited) |  
|                                                                |  | $           |   |  | $         |  
|Total minimum lease payments                                    |  | 8,573       |   |  | 8,721     |  
|Less: Amounts representing interests                            |  | -           |   |  | -         |  
|                                                                |  |             |   |  |           |  
|Present value of minimum lease payments                         |  | 8,573       |   |  | 8,721     |  
|Less: Current portion of obligations under
      capital leases |  | (1,774      | ) |  | (1,774    | )
|                                                                |  |             |   |  |           |  
|Long-term portion of obligations under
      capital leases     |  | 6,799       |   |  | 6,947     |  

The following is a summary of future minimum lease payments
under capital leases as of June 30, 2007:

|Twelve months ending June 30, |  | $     | 
|----------------------------- |  | ----- | 
|2008                          |  | 1,774 | 
|2009                          |  | 3,548 | 
|2010                          |  | 3,251 | 
|                              |  | 8,573 | 

The Company entered into capital lease arrangements for leasing
equipment used in its operations. The lease is for a term of 5 years. For the
three months ended Jun 30, 2007, the capital lease arrangement was on a
non-interest bearing basis. The leases are on a fixed repayment basis and no
arrangement entered into includes contingent rental payments.

The interest expenses incurred on these capital leases were nil
and nil for the three months ended June 30, 2007 and 2006, respectively.

---

|- 28 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 13.** | OTHER RESERVES
|------------ | --------------

The other reserves represent the statutory surplus reserve of
the Companys subsidiaries in the PRC.

Statutory Surplus Reserve

In accordance with the relevant laws and regulations of the PRC
and the subsidiaries articles of association, the subsidiaries are required to
appropriate 10% of its net income, after offsetting any prior years losses, to
the statutory surplus reserve. When the balance of such reserve reaches 50% of
the Companys share capital, any further appropriation is optional.

The statutory surplus reserve can be used to offset prior
years losses, if any, and may be converted into share capital by issuing new
shares to shareholders in proportion to their existing shareholding or by
increasing the par value of the shares currently held by them, provided that the
remaining balance of the reserve after such issue is not less than 25% of share
capital. The statutory surplus reserve is non-distributable.

|**NOTE 14.** | TOTAL COMPREHENSIVE LOSS
|------------ | ------------------------

|                                                   |  | Three Months Ended |  
|-------------------------------------------------- |  | ------------------ | -
|                                                   |  | June 30,           |  
|                                                   |  | 2007               |  
|                                                   |  | $                  |  
|                                                   |  |                    |  
|Net loss attributable to shareholders of
      the |  |                    |  
|Company                                            |  | (1,319,972         | )
|Foreign currency translation adjustments           |  | (19,863            | )
|                                                   |  |                    |  
|Total comprehensive loss                           |  | (1,339,835         | )

|**NOTE 15.** | FOREIGN CURRENCY TRANSACTION GAIN OR
      LOSS
|------------ | -----------------------------------------------

Aggregate foreign currency transaction loss of $(43,750) and of
$(8,163) for the three months ended June 30, 2007 and 2006 were included in
determining net loss, for the respective periods.

---

|- 29 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    16.** | INCOME TAX
|---------------- | ----------

The components of (loss) profit before income tax and minority
interests are as follows:

|                                                       |  | Three Months Ended |  
|------------------------------------------------------ |  | ------------------ | -
|                                                       |  | June 30,           |  
|                                                       |  | 2007               |  
|                                                       |  | $                  |  
|Hong Kong                                              |  | (981,832           | )
|Macau                                                  |  | (88,204            | )
|Mainland, the Peoples Republic of China
      (PRC) |  | (285,004           | )
|                                                       |  |                    |  
|                                                       |  | (1,355,040         | )

Taxes laws applicable to the Company are as follows:

- TTHL is a tax-exempted company incorporated in the Cayman Islands.
- Under the current BVI law, TTCs, TTILs and PTLs income are not subject
  to taxation.
- Lightscape Technologies Inc. and TFEPL also had no assessable profits
  earned or had tax losses brought forward to set off current year assessable
  profit during the periods presented.
- No provision for PRC income tax has been made as TT(Zhuhai) had no
  assessable profits earned during the three months ended June 30, 2007 and
  2006. Preferential tax treatment has been agreed with the relevant tax
  authorities and TT(Zhuhai) is exempted from PRC income tax in the first two
  profitable years and is subject to half of the standard statutory tax rate of
  15% in the subsequent three years.
- Pursuant to the relevant laws and regulations in the PRC, Beijing Aihua is
  exempted from PRC enterprise income tax for two years starting from its first
  profit-making year i.e. 2004 after it became a wholly foreign owned enterprise
  and followed by a 50% reduction for the next three years.
- Beijing Illumination is a Hong Kong company which is subject to a profits
  tax rate of 17.5%.
- Lightscape Macau is a company incorporated in Macau Special Administrative
  Region, which is subjected to progressive tax rate charging at a rate of 12%
  in maximum.
- Other companies are dormant and had no assessable profits earned during
  the periods presented.

---

|- 30 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE
    16.** | INCOME TAX (continued)
|---------------- | ----------------------

Income tax expense for the three months ended June 30, 2007 and
2006 represents the provision for income tax in the following jurisdictions:

|               |  | Three Months Ended | 
|-------------- |  | ------------------ | 
|               |  | June 30,           | 
|               |  | 2007               | 
|               |  | $                  | 
|Current taxes: |  |                    | 
|Hong Kong      |  | -                  | 
|Macau          |  | -                  | 
|Mainland, PRC  |  | -                  | 
|               |  |                    | 
|               |  | -                  | 

Income tax expense for the three months ended June 30, 2006
represented the provision for income tax of the subsidiary operating in China
which was calculated at applicable tax rate.

|**NOTE 17.** | COMMITMENTS
|------------ | -----------

The Company as Lessor

Energy saver rental income earned was nil and $964 for the
three months ended June 30, 2007 and 2006, respectively.

The Company as Lessee

The Company has operating lease agreements principally for its
office facilities and factory buildings. Such leases have remaining terms of 3
months to 3 years and 9 months. The following is a summary of future minimum
lease payments under operating leases as of June 30, 2007. Rental expense was
$67,875 and $58,433 for the three months ended June 30, 2007 and 2006,
respectively.

Twelve months ending June 30,

|     |  | $       | 
|---- |  | ------- | 
|2008 |  | 292,047 | 
|2009 |  | 195,261 | 
|2010 |  | 96,401  | 
|2011 |  | 48,201  | 
|     |  | 631,910 | 

Royalties

Pursuant to a supplier agreement (Agreement) dated March 8,
2006, entered into between Beijing Illumination and an independent third party,
the independent third party appointed Beijing Illumination as a non-exclusive
licensed OEM manufacturer with rights to make and distribute certain products
worldwide and Beijing Illumination shall pay to the independent third party
during the term of the Agreement 7% of gross revenues of certain products sold
to customers or distributors other than this independent third party. Such
royalty payments shall survive for five years after termination of the
Agreement.

---

|- 31 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 18.** | CONTINGENT LIABILITIES
|------------ | ----------------------

One Mr. Ho Tai-Kwan had instituted legal proceedings against
the Company demanding settlement of $321,337. This was a commercial dispute and
our company had instituted legal proceedings for a counter-claim against Mr. Ho
Tai-Kwan demanding settlement of $545,381 being a deficit payment to make up
guaranteed net profit as per an agreement signed on October 4, 2004.

Other than the above, the Company knows of no material, active,
or pending legal proceeding against the Company, nor is the Company involved as
a plaintiff in any material proceeding or pending litigation where such claim or
action involves damages for more than 10% of the Companys current assets up to
the date of this report. There are no proceedings in which any of the Companys
directors, officers, or affiliates, or any registered or beneficial
shareholders, is an adverse party or has a material interest adverse to the
Companys interest.

|**NOTE
    19.** | RELATED PARTY BALANCES AND
      TRANSACTIONS
|---------------- | ---------------------------------------------

Related Party Transactions

The Company repaid $1,385 to its shareholder, TFCL, during the
three months ended June 30, 2007.

As of June 30, 2007, the Company had an amount recoverable from
a director of $60,383 as included in other receivables. This is non-interest
bearing and payable on demand.

Pursuant to the terms of the agreements in relation to the
acquisition of interest in TFEMS as mentioned in Note 2 above, a beneficial
owner of TFCL has guaranteed to pay the shortfall to the Company should the net
profit of TFEMS for the period from the date of acquisition to June 30, 2005
(the guaranteed period) fall below a warranted sum. The profits for the
guaranteed period fell short by $604,546 and the Company is currently pursuing
the guarantor for the enforcement of this guarantee.

---

|- 32 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 19.** | RELATED PARTY BALANCES AND TRANSACTIONS
      (continued)
|------------ | ---------------------------------------------------------

In consideration of the Sale and Purchase Agreement for the
acquisition of additional interest in Lightscape Macau (as described in Note 2),
each of the Vendors and the Guarantors irrevocably and unconditionally
guaranteed jointly and severally to the Company that the Net Profit for the
Guarantee Period as shown in the audited consolidated financial statements of
Lightscape Macau and its subsidiaries ending such date shall not be less than
the Guaranteed Net Profit. If the Net Profit is less than the Guaranteed Net
Profit, then the Vendors and the Guarantors shall jointly and severally pay to
the Company in cash within fourteen (14) calendar days after the delivery of the
audited consolidated financial statements of Lightscape Macau and its
subsidiaries aforesaid an amount calculated as follows:

Amount payable to the Company = (Guaranteed Net Profit  Net
Profit) X 40%

Related Party Balances

As of June 30, 2007, the amounts due to a director and a
shareholder represent cash advances from them and are unsecured, non-interest
bearing and have no fixed repayment terms. The balances related to such advances
are as follows:

|                            |  | June 30,    |  |  | March 31, | 
|--------------------------- |  | ----------- |  |  | --------- | 
|                            |  | 2007        |  |  | 2007      | 
|                            |  | (Unaudited) |  |  |           | 
|                            |  | $           |  |  | $         | 
|                            |  |             |  |  |           | 
|Amount due to a director    |  |             |  |  |           | 
|Bondy Tan                   |  | 40,296      |  |  | 39,846    | 
|                            |  |             |  |  |           | 
|Amount due to a shareholder |  |             |  |  |           | 
|TFCL                        |  | 45,161      |  |  | 46,546    | 

|**NOTE 20.** | SEGMENT INFORMATION
|------------ | -------------------

The Company is a holding company owning subsidiaries
principally engaged in (i) the provision of LED lighting products and services
(Lighting design solutions) through Lightscape Macau, (ii) the manufacture and
distribution of lighting source products (Lighting source business) through
Beijing Illumination, and (iii) the development, manufacture and distribution of
energy saving products and technologies and the provision of consulting and
customer training services (Energy saving business) through TTHL.

The accounting policies of the operating segments are the same
as those described in the Summary of Principal Accounting Policies (see Note 3).
The Company evaluates performance based on profit or loss from operations,
excluding corporate, general and administrative expenses.

---

|- 33 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 20.** | SEGMENT INFORMATION (continued)
|------------ | -------------------------------

Information for the Lighting design solutions, Lighting source
business and Energy saving business is disclosed under FAS 131, Disclosures
about Segments of an Enterprise and Related Information as below:

|                          |  | Three Months Ended |  
|------------------------- |  | ------------------ | -
|                          |  | June 30,           |  
|                          |  | 2007               |  
|                          |  | $                  |  
|Net revenues:             |  |                    |  
|Energy saving business    |  | 47,165             |  
|Lighting source business  |  | 804,579            |  
|Lighting design solutions |  | -                  |  
|                          |  | 851,744            |  
|                          |  |                    |  
|                          |  |                    |  
|Segment profit/(loss):    |  |                    |  
|Energy saving business    |  | (854,211           | )
|Lighting source business  |  | (285,004           | )
|Lighting design solutions |  | (215,825           | )
|                          |  | (1,355,040         | )

|                          |  | June 30,    |  |  | March 31,  | 
|------------------------- |  | ----------- |  |  | ---------- | 
|                          |  | 2007        |  |  | 2007       | 
|                          |  | (Unaudited) |  |  |            | 
|                          |  | $           |  |  | $          | 
|Segment assets:           |  |             |  |  |            | 
|Energy saving business    |  | 6,403,643   |  |  | 7,602,314  | 
|Lighting source business  |  | 16,153,575  |  |  | 16,781,711 | 
|Lighting design solutions |  | 3,893,426   |  |  | 4,198,022  | 
|                          |  | 26,450,644  |  |  | 28,582,047 | 

|(ii) Geographical Information:
|------------------------------

|                  |  | Three Months Ended | 
|----------------- |  | ------------------ | 
|                  |  | June 30,           | 
|                  |  | 2007               | 
|                  |  | $                  | 
|Total sales:      |  |                    | 
|Mainland, the PRC |  | 756,434            | 
|Hong Kong         |  | 16,407             | 
|India             |  | 17,764             | 
|Singapore         |  | -                  | 
|Others            |  | 61,139             | 
|                  |  | 851,744            | 

---

|- 34 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 20.** | SEGMENT INFORMATION (continued)
|------------ | -------------------------------

No reconciliation is required as there is no unallocated amount
relating to corporate operations which is not included in the segment
information.

|(iii) The location of the Companys long-lived assets is as
      follows:
|--------------------------------------------------------------------------

|                  |  | June 30,    |  |  | March 31,  | 
|----------------- |  | ----------- |  |  | ---------- | 
|                  |  | 2007        |  |  | 2007       | 
|                  |  | (Unaudited) |  |  |            | 
|                  |  | $           |  |  | $          | 
|Hong Kong         |  | 9,830,086   |  |  | 10,069,185 | 
|Macau             |  | -           |  |  | -          | 
|Mainland, the PRC |  | 5,343,475   |  |  | 5,421,797  | 
|                  |  | 15,173,561  |  |  | 15,490,982 | 

|**NOTE
    21.** | SHARE CAPITAL AND OPTIONS
|---------------- | -------------------------

Share Capital

On January 18, 2007, the Company entered into subscription
agreements with three investors consisting of Investec Bank (UK) Limited, Full
Moon Resources Limited and LP Asset Management Limited, in addition to the
persons set out in Schedule 1 to each of the subscription agreements. Pursuant
to the terms and conditions of the subscription agreements, the Company agreed
to issue 60 $100,000 redeemable convertible notes in an aggregate principal
amount of US$6,000,000 to the three investors, which carry an annual interest
rate of 10% and mature on December 31, 2009. Each note is convertible from the
date of issuance until December 30, 2009 into common shares at the rate of one
common share for every $0.55 of principal converted (subject to adjustment as
described in the subscription agreements).

Options

Pursuant to the terms and conditions of the subscription
agreements, the Company agreed to grant two options to each investor, the first
option of which is exercisable at the at any time during the period from April
1, 2007 to June 30, 2008. The first option entitles the holder to subscribe for
additional US$100,000 redeemable convertible notes of the Company in the
aggregate principal amount of up to US$6,000,000. The second option, which is
exercisable on July 1, 2008, January 1, 2009 and July 1, 2009, or as otherwise
described in the subscription agreements, entitles the holder to subscribe for
additional US$100,000 redeemable convertible notes of the Company in the
aggregate principal amount of up to US$6,000,000. The conversion price of the
notes underlying the first option are convertible at US$0.55 per share if
converted on or before June 30, 2007 and at US$0.66 per share if converted after
June 30, 2007. The conversion price of the notes underlying the second option is
subject to a formula as set out in the subscription agreements.

---

|- 35 -                                              
|----------------------------------------------------
|                                                    
|LIGHTSCAPE TECHNOLOGIES INC.                        
|                                                    
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|FOR THE THREE MONTHS ENDED JUNE 30, 2007 (UNAUDITED)

|**NOTE 21.** | SHARE CAPITAL AND OPTIONS (continued)
|------------ | -------------------------------------

On January 23, 2007, the Company closed the convertible note
financing transaction. Pursuant to the terms and conditions of the subscription
agreements, the Company issued the 60 US$100,000 redeemable convertible notes in
an aggregate principal amount of US$6,000,000 to the three investors. Each note
bears a fixed rate of interest at 10% per annum, payable quarterly, calculated
on a 360 day year on the principal amount outstanding. Unless previously
converted or redeemed, each note will be redeemed by the Company on the maturity
date of December 31, 2009 at a final redemption amount, calculated in accordance
with a formula set out in the note, together with all interest thereon. The
notes are convertible into common shares at the rate of one common share per
each $0.55 of principal converted (subject to adjustment as described in the
subscription agreements). In addition, the Company issued two options to each of
the three investors to purchase additional redeemable convertible notes of the
Company in the aggregate amount of US$12,000,000. The Company issued the notes,
the common shares issuable upon conversion of the notes, and the options in an
offshore transaction to non U.S. persons (as that term is defined in Regulation
S under the Securities Act of 1933) relying on Section 4(2) or Regulation S
promulgated under the Securities Act of 1933.

---

- 36 -

|**Item
    2.** | Managements Discussion and Analysis
      or Plan of Operation.
|--------------- | ----------------------------------------------------------------

FORWARD-LOOKING STATEMENTS

Forward-Looking Statements

This quarterly report contains forward-looking statements as
that term is defined in Section 27A of the United States Securities Act of 1933
and Section 21E of the United States Securities Exchange Act of 1934. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as may,
should, intends, expects, plans, anticipates, believes, estimates,
predicts, potential, or continue or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled Risk Factors, which may cause our or our industrys actual
results, levels of activity or performance to be materially different from any
future results, levels of activity or performance expressed or implied by these
forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity or performance. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.

In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars and all references to
common shares refer to the common shares in our capital stock. Our financial
statements are prepared in accordance with United States generally accepted
accounting principles.

As used in this quarterly report and unless otherwise
indicated, the terms we, us and our refer to Lightscape Technologies Inc.
and our subsidiaries.

COMPANY OVERVIEW

We were incorporated under the laws of the State of Nevada
under the name Legacy Bodysentials Inc. on September 14, 1995. On September
25, 1996, we changed our name to Legacy Minerals Inc. and on May 18, 1998, we
changed our name to Global Commonwealth Inc. On November 12, 1999, we changed
our name to Global Innovative Systems Inc. and on April 20, 2007, we changed
our name to Lightscape Technologies Inc.

We are a holding company owning subsidiaries engaged in three
main business activities: (1) LED lighting solutions, (2) lighting source
products and (3) energy-savings solutions. During the three months ended June
30, 2007, approximately 94% of our revenue was derived from our lighting source
products business, 6% from our energy-savings solutions business and 0% from our
LED lighting solutions business,

Lighting Source Products Business

Beijing Illumination is an investment holding company engaged
in the research, development, manufacture and sale of lighting products. Beijing
Illumination, through its wholly-owned subsidiary Beijing Aihua New Enterprise
Lighting Appliance Company Ltd., manufactures and sells the following four main
categories of high-intensity discharge (HID) related lighting products: (1)
metal halide lamps; (2) high-pressure sodium lamps; (3) xenon lamps; and (4)
special application HID lamps. In addition to HID lamps, Beijing Illumination
has expanded its product mix into ultra high-pressure mercury lamps.

Energy-Savings Solutions Business

Tech Team is a developer, manufacturer and integrator of
energy-saving products and technologies, and a provider of energy management
consulting services. Tech Teams primary product is the Eco-Pro® Energy

---

- 37 -

Saver, a proprietary system which reduces energy consumed by
lighting and other electrical equipment and acts as a protective buffer against
voltage surges and other distortions.

LED Lighting Solutions Business

Lightscape Macau operates in three principal lines of business:
LED Lighting Systems, OEM and Licensing, and LED Rentals. Lightscape Macau
provides creative design, integration, installation and digital control of
intelligent LED-based lighting systems, OEM and licensing of our core
proprietary AI-One digital control software product, and rentals of LED lighting
hardware.

Material Trends and Uncertainties

Periodic changes occur in our companys industry and business
that make it reasonably likely that aspects of our future operating results will
be materially different from our historical operating results. Sometimes these
matters have not occurred, but their existence is sufficient to raise doubt
regarding the likelihood that historical operating results are an accurate gauge
of future performance. Our company attempts to identify and describe these
trends, events, and uncertainties to assist investors in assessing the likely
future performance of our company. Investors should understand that these
matters typically are new, sometimes unforeseen, and often are fluid in nature.
Moreover, the matters described below are not the only issues that may result in
variances between past and future performance nor are they necessarily the only
material trends, events, and uncertainties that will affect our company. As a
result, investors are encouraged to use this and other information to judge for
themselves the likelihood that past performance will be indicative of future
performance.

Following the acquisition of Lightscape Macau, our company
diversified our business into the sale of specialty lighting services, including
LED lighting systems, OEM and licensing of our proprietary intelligent lighting
control software, and LED rentals. Following the acquisition of Beijing
Illumination, our company diversified our business into the sale of specialty
lighting source products. Our business strategy is focused on growing the sales
of our specialty lighting services and lighting source products businesses. The
future performance of these business segments may materially affect the future
performance of our company. Our company continues to develop, manufacture and
sell energy-saving products and technologies, and we are reviewing our marketing
strategy related to the promotion of our energy-saving products. Our company has
identified this trend as one that is reasonably likely to materially affect the
comparison of historical operating results reported herein to either past period
results or to future operating results.

Summary of Key Results

Total net revenue for the three months ended June 30, 2007 was
$851,744, which represents a 56% decrease from the total net revenue of $
1,918,514 for the three months ended June 30, 2006.

Operating expenses, including selling and marketing expenses
and general and administrative expenses, for the three months ended June 30,
2007 were $1,053,659, which represents a 7% decrease in operating expenses of
$1,127,243 for the three months ended June 30, 2006.

Interest expense for the three months ended June 30, 2007 was
$356,053, which represents a 294% increase over $90,430 for the three months
ended June 30, 2006.

Loss before income tax and minority interest for the three
months ended June 30, 2007 was $1,355,040 compared to a profit of $42,101 for
the three months ended June 30, 2006.

Net loss for the three months ended June 30, 2007 was
$1,319,972 compared to a net loss of $222,954 for the three months ended June
30, 2006.

Basic loss per share for the three months ended June 30, 2007
was $0.04 compared to a basic loss per share of $0.01 for the three months ended
June 30, 2006. Fully diluted loss per share for the three months ended

---

- 38 -

June 30, 2007 was $0.04 compared to a loss per share of $0.01
on a fully diluted basis for the three months ended June 30, 2006.

Results of Operations  Three Months Ended June 30, 2007

Our companys loss before taxes and minority interest for the
three months ended June 30, 2007 was $1,355,040, as compared to profit before
taxes and minority interest of $42,101 for the three months ended June 30, 2006.
The decrease in profit is primarily attributable to the decrease in revenues
from the sale of lighting source products by subsidiary Beijing Illumination.

Revenues and Cost of Revenues

Total net revenue for the three months ended June 30, 2007 was
$851,744 which represents a 56% decrease from the total net revenue of
$1,918,514 for the three months ended June 30, 2006. The decrease in net
revenues is primarily attributable to the decrease in revenues from the sale of
lighting source products by subsidiary Beijing Illumination.

Specifically, sales of lighting source products derived from
Beijing Illumination were $804,579 for the three months ended June 30, 2007
compared to $1,889,229 for the three months ended June 30, 2006, representing a
decrease of 57%. The decrease in revenues from Beijing Illumination was due
primarily to the companys change of local senior executives and internal
restructuring during the three months ended June 30, 2007. The purpose of the
changes and restructuring was to reduce manufacturing costs and foster the
companys sales and marketing network in Shanghai, Guangzhou, Hainan and Zhuhai,
China.

Sales of hardware products related to our energy-saving systems
increased $28,294, or 383%, to $35,688 for the three months ended June 30, 2007
from $7,394 during the three months ended June 30, 2006. Our company has
expanded our operations in the business segments of the provision of LED
lighting design solutions, as well as manufacturing and sales of lighting source
products. As a result of the increased sales within of our specialty lighting
segments, we are reviewing our marketing strategy related to the promotion of
our energy-saving products.

Cost of revenues for the three months ended June 30, 2007 was
$645,860, which represents a decrease of $7,286 as compared with cost of
revenues of $653,146 for the three months ended June 30, 2006. The decrease in
the cost of revenues during the three months ended June 30, 2007 was directly
associated with the corresponding decrease in revenues.

Our company acquired certain intangible assets through the
acquisitions of Tomi Fuji Energy Management Services and Beijing Illumination.
These intangible assets are comprised of completed technology for the production
of AHP and HID lamps, trademarks, a customer base and a distributors list.
Amortization of intangible assets incurred for the three months ended June 30,
2007 was $233,511 as compared to $147,246 for the three months ended June 30,
2006.

Operating Expenses

Operating expenses for the three months ended June 30, 2007
were $1,053,659 which represents a 7% decrease from operating expenses of
$1,127,243 for the three months ended June 30, 2006. Selling and marketing
expenses as well as general and administrative expenses constitute the major
components of our companys operating expenses.

Selling and marketing expenses for the three months ended June
30, 2007 increased approximately 34% to $197,141 from $147,319 for the three
months ended June 30, 2006. The increase in selling and marketing expenses was a
result of increased selling and marketing expenses from acquired subsidiaries
Lightscape Macau and Beijing Illumination. Our company anticipates that selling
and marketing expenses will increase in the future as our companys sales of
specialty lighting services and lighting source products expand.

---

- 39 -

General and administrative expenses decreased 13% during the
three months ended June 30, 2007 to $856,518 from $979,924 for the three months
ended June 30, 2006. The decrease was mainly due to a decrease in overhead
expenses corresponding with the decrease in revenues for the three months ended
June 30, 2007. Our company anticipates that general and administrative costs
will increase in the future as our companys overall operations continue to
expand.

Interest expense increased to $356,053 for the three months
ended June 30, 2007 as compared to $90,430 for the three months ended June 30,
2006. The increase of 294%, or $265,623, was primarily due to the recognition of
interest expenses on convertible notes during the three months ended June 30,
2007.

Liquidity and Capital Resources

Our companys principal cash requirements are for operating
expenses, including staff costs, funding costs of inventory and accounts
receivable, and net investment in sales-type leases.

As of June 30, 2007, our company had a net working capital
surplus of $4,979,391 compared with a surplus of $5,837,302 as of March 31,
2007, representing a decrease in working capital of $857,911. The cash and cash
equivalents of our company decreased to $1,703,512 as at June 30, 2007 as
compared to $4,117,107 as of March 31, 2007. The decrease is primarily
attributable to an increase in prepaid expenses and net repayment of trade
payables. As of June 30, 2007, our company had no total credit facilities
granted.

The ability of our company to meet our financial commitments is
primarily dependent upon the continued extension of credit by our creditors, the
continued financial support of our directors and shareholders, the continued
issuance of equity to new shareholders, and our ability to achieve and maintain
profitable operations. On January 23, 2007, we raised $6,000,000 in a
convertible debt financing transaction following the entry into subscription
agreements with three investors consisting of Investec Bank (UK) Limited, Full
Moon Resources Limited and LP Asset Management Limited. Pursuant to the terms
and conditions of the subscription agreements, we agreed to issue 60 $100,000
redeemable convertible notes in an aggregate principal amount of $6,000,000 to
the three investors, which convertible notes carry an annual interest rate of
10% and mature on December 31, 2009. Each note is convertible from the date of
issuance until December 30, 2009 into common shares at the rate of one common
share for every $0.55 of principal converted (subject to adjustment as described
in the subscription agreements).

Pursuant to the terms and conditions of the subscription
agreements, we granted two options to each investor, the first option of which
is exercisable at any time during the period from April 1, 2007 to June 30,
2008. The first option entitles the holder to subscribe for additional $100,000
redeemable convertible notes of our company in the aggregate principal amount of
up to $6,000,000. The second option, which is exercisable on July 1, 2008,
January 1, 2009 and July 1, 2009, or as otherwise described in the subscription
agreements, entitles the holder to subscribe for additional $100,000 redeemable
convertible notes of our company in the aggregate principal amount of up to
$6,000,000. The conversion price of the notes underlying the first option are
convertible at $0.55 per share if converted on or before June 30, 2007 and at
$0.66 per share if converted after June 30, 2007. The conversion price of the
notes underlying the second option is subject to a formula as set out in the
subscription agreements.

On January 23, 2007, we closed the convertible note financing
transaction and raised the $6,000,000 which we intend to use for general
corporate purposes. Pursuant to the terms and conditions of the subscription
agreements, we issued the 60 $100,000 redeemable convertible notes in an
aggregate principal amount of $6,000,000 to the three investors. Each note bears
a fixed rate of interest at 10% per annum, payable quarterly, calculated on a
360 day year on the principal amount outstanding. Unless previously converted or
redeemed, each note will be redeemed by our company on the maturity date of
December 31, 2009 at a final redemption amount, calculated in accordance with a
formula set out in the note, together with all interest thereon. The notes are
convertible into common shares at the rate of one common share per each $0.55 of
principal converted (subject to adjustment as described in the subscription
agreements). In addition, we issued two options to each of the three investors
to purchase additional redeemable convertible notes of our company in the
aggregate amount of $12,000,000.

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Management believes that our companys cash and cash
equivalents, cash provided by operating activities, if any, and our unused
credit facilities will be sufficient to meet our working capital requirements
for the next twelve months. The issuance of additional equity securities by our
company in connection with the potential conversion of the redeemable
convertible notes may result in a significant dilution in the equity interests
of our current shareholders.

Cash Flow Related to Operating Activities

Operating activities used cash of $2,323,102 for the three
months ended June 30, 2007 as compared to cash provided of $517,792 for the
three months ended June 30, 2006. The net cash used in operating activities was
mainly due to an increase in prepaid expenses and other current assets, a
decrease in trade payables, and the net loss incurred during the three months
ended June 30, 2007.

Cash Flow Related to Investing Activities

Net cash used in investing activities amounted to $89,384
during the three months ended June 30, 2007 as compared with investing
activities using $1,740 during the three months ended June 30, 2006. The
increase in cash used in investing activities is attributable primarily to
increased purchases of plant and equipment during the three months ended June
30, 2007 as compared to the three months ended June 30, 2006.

Cash Flow Related to Financing Activities

Financing activities used cash of $1,109 for the three months
ended June 30, 2007 as compared to financing activities using cash of $526,712
for the three months ended June 30, 2006. The decrease in net cash used in
financing activities was mainly due to a reduction in the repayment of
short-term borrowings and long-term debts during the three months ended June 30,
2007 as compared to the three months ended June 30, 2006.

Capital Expenditures

Our company incurred capital expenditures of $87,859 during the
three months ended June 30, 2007 and $20,157 for the three months ended June 30,
2006. The increase in capital expenditures for the three months ended June 30,
2007 as compared to June 30, 2006 was mainly attributable to the purchase of
plant and equipment. As of June 30, 2007, our company did not have any material
commitments for capital expenditures and management does not anticipate that our
company will spend additional material amounts on capital expenditures in the
near future.

Off-Balance Sheet Arrangements

Our company has no outstanding derivative financial
instruments, off-balance sheet guarantees, interest rate swap transactions or
foreign currency contracts. Our company does not engage in trading activities
involving non-exchange traded contracts.

RISK FACTORS

Much of the information included in this quarterly report
includes or is based upon estimates, projections or other forward-looking
statements. Such forward-looking statements include any projections or estimates
made by us and our management in connection with our business operations. While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein.

Such estimates, projections or other forward-looking statements
involve various risks and uncertainties as outlined below. We caution the reader
that important factors in some cases have affected and, in the future, could
materially affect actual results and cause actual results to differ materially
from the results expressed

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- 41 -

in any such estimates, projections or other forward-looking
statements. Prospective investors should consider carefully the risk factors set
out below.

Risks Related to Our Business

We may require additional financing, the availability of
which cannot be assured, and if our company is unable to obtain such financing,
our business may fail.

Our business plan calls for expenses and working capital
necessary to continue the development of our products and expand our position in
our markets. However, there is no assurance that actual cash requirements will
not exceed our estimates. We may need to raise additional funds to:

- support our planned rapid growth;
- develop new or enhanced services and technologies;
- increase our marketing efforts;
- acquire complementary businesses or technologies; and/or
- respond to competitive pressures or unanticipated requirements.

We depend to a large extent on outside capital over the
near-term to fund our capital needs. Such outside capital may be obtained from
additional debt or equity financing. We do not currently have any arrangement
for financing and there is no assurance that capital will be available to meet
our continuing development costs or, if the capital is available, that it will
be on terms acceptable to us. The issuance of additional equity securities by us
would result in a dilution in the equity interests of our current stockholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments. If we are unable to obtain
financing in the amounts and on terms deemed acceptable to us, we may be unable
to implement our business and growth strategies, respond to changing business or
economic conditions, withstand adverse operating results, consummate desired
acquisitions or compete effectively.

We operate in a highly-competitive industry and our failure
to compete effectively may adversely affect our ability to generate revenue.

Management is aware of similar products which compete directly
with our products and some of the companies developing these similar products
have greater financial, technical and marketing resources, larger distribution
networks, and generate greater revenue and have greater name recognition than
us. These companies may develop products superior to those of our company. Such
competition will potentially affect our chances of achieving profitability in
the future.

This may place us at a disadvantage in responding to our
competitors pricing strategies, technological advances, marketing campaigns,
global expansion, alliances and other initiatives. Some of our competitors
conduct more extensive promotional activities and offer lower prices to
customers than we do, which could allow them to gain greater market share or
prevent us from increasing our market share. In the future, we may need to
decrease our prices if our competitors continue to lower their prices. Our
competitors may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements. Further, to the extent
our competitors are able to attract and retain customers based on product and/or
price advantages, or because of international operations or arrangements, our
business and ability to grow could be adversely affected in a material manner.
To be successful, we must establish and strengthen our brand awareness,
effectively differentiate our product and service lines from those of our
competitors and build our international and strategic partnerships. To achieve
this we may have to substantially increase marketing and research and
development in order to compete effectively.

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- 42 -

Rapid technological changes in our industry could render our
products non-competitive or obsolete and consequently affect our ability to
generate revenues.

Currently, we derive a majority of our revenues from the sale
of lighting design solutions and lighting source products, and a minor portion
of our current and expected future revenues from the sale of energy-saving
products. Both the specialty lighting products industry and the electrical
energy-saving industry are characterized by rapid technological change, new
products and services, new sales channels, evolving industry standards and
changing client preferences. Our success will depend, in part, upon our ability
to make timely and cost-effective enhancements and additions to our technology
and to introduce new products and services that meet customer demands. We expect
new products and services to be developed and introduced by other companies that
compete with our products and services. The proliferation of new LED lighting
products and services in our markets may reduce demand for our LED lighting
products and services. In addition, the rapid technological advancements in HID
lighting products may render our current specialty lighting products obsolete.
There can be no assurance that we will be successful in responding to these or
other technological changes, to evolving industry standards or to new products
and services offered by our current and future competitors. In addition, we may
not have access to sufficient capital for our research and development needs in
order to develop new products and services.

We could lose our competitive advantages if we are not able
to protect our proprietary technology and intellectual property rights against
infringement, and any related litigation could be time-consuming and costly.

Our success and ability to compete depends in part on our
proprietary technology incorporated in our products. If any of our competitors
copy or otherwise gain access to our proprietary technology or develop similar
technologies independently, we would not be able to compete as effectively. We
consider our trademarks invaluable to our ability to continue to develop and
maintain the goodwill and recognition associated with our brands. The measures
we take to protect the proprietary technology, and other intellectual property
rights, which presently are based upon a combination of trademark and trade
secret laws, may not be adequate to prevent their unauthorized use. Further, the
laws of foreign countries may provide inadequate protection of such intellectual
property rights. We may need to bring legal claims to enforce or protect such
intellectual property rights. Any litigation, whether successful or
unsuccessful, could result in substantial costs and a diversion of corporate
resources. In addition, notwithstanding any rights we have secured to our
intellectual property, other persons may bring claims against us claiming that
we have infringed on their intellectual property rights, including claims that
our intellectual property rights are not valid. Any claims against us, with or
without merit, could be time-consuming and costly to defend or litigate, divert
our attention and resources, result in the loss of goodwill associated with our
trademarks or require us to make changes to our technologies.

We hold no patents on our products and may not be able to
protect our proprietary technology.

Although we have not obtained patent protection for any of our
products, we have sought to protect our proprietary technology through a
combination of trademark and trade secret laws and other forms of intellectual
property protection. There can be no assurance that our operations do not or
will not violate the intellectual property rights of others, that they would be
upheld if challenged or that we, would, in such an event, not be prevented from
using such companys intellectual property rights, any of which could have a
material adverse effect on our business, financial condition and results of
operations.

In addition, our failure to obtain licenses required from third
parties for other technology and intellectual property could delay or prevent
the development, manufacture or sale of our products. Although we rely, in part,
on contractual provisions to protect our trade secrets and proprietary know-how,
there is no assurance that these agreements will not be breached, that we would
have adequate remedies for any breach or that our trade secrets will not
otherwise become known or be independently developed by competitors. Although no
lawsuits against us regarding infringement of any existing patents or other
intellectual property rights are pending, nor have any claims been asserted,
there can be no assurance that such infringement claims will not be asserted by
third parties in the future. There also can be no assurance in the event of such
claims of infringement that we will be able to obtain licenses on reasonable
terms.

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- 43 -

Our involvement in any intellectual property dispute or action
to protect trade secrets and know-how, including actions brought by us, could
result in a material adverse effect on our business. Adverse determinations in
litigation in which we may become involved could subject us to liabilities to
third parties, require us to grant licenses to or seek licenses from third
parties and prevent us from manufacturing and selling our products. Any of these
situations could have a material adverse effect on our business, financial
condition and results of operations.

We may not be able to hire and retain qualified personnel to
support our growth and if we are unable to retain or hire such personnel in the
future, our ability to improve our products and implement our business
objectives could be adversely effected.

To continue our growth, we will need to recruit additional
senior management personnel, including persons with financial and sales
experience. In addition, we must hire, train and retain a number of other
skilled personnel, including persons with experience in creative lighting system
design, development of intelligent lighting control software, electrical
engineering, manufacturing and energy management consulting. We have encountered
competition for these personnel. We may not be able to find or retain qualified
personnel, which would have a material adverse impact on our business.

Our growth could be impaired if we are not able to develop
and maintain the relationships we need to implement our international strategy.

Our growth will depend, in large part, on the success of our
international strategy. We have limited experience in marketing and selling our
products outside of Hong Kong, China and Macau. We will depend on partnerships
and/or joint ventures in international markets to help us build our
international operations and sales. We depend upon each of our international
partners to provide marketing and relationship building expertise, and a base of
existing customers. If we are unable to develop and maintain these
relationships, or to develop additional relationships in other countries, our
ability to penetrate, and successfully compete in foreign markets would be
materially affected in an adverse manner. To fully implement our international
strategy, we will need to expand our current relationships with international
partners. These partners may not agree to expand these relationships.

Our company is subject to sales channel risk due to a
concentration of sales to a limited number of customers and any significant
interruption from these customers may have a material adverse effect on our
company.

Over 26% of our revenue was contributed from sales of lighting
source products with one customer for the three months ended June 30, 2007. If
the customer ceased their business with our company, we would require time to
find other customers. If we lose this customer or are unable to generate
recurring revenues from this customer, there will be a negative impact on our
overall performance.

Our company is subject to supply channel risk due to a
concentration of supply lines with a limited number of vendors and any
significant interruption from these vendors may have a material adverse effect
on our company.

Our company currently relies on several vendors, one of which
accounts for more than 14% of our purchases for the three months ended June 30,
2007. If this vendor terminates its relationship with our company or if our
companys supply from a vendor is interrupted or terminated for any reason, we
may not have sufficient time to replace the supply of products from the
remaining vendors. Any such interruption would negatively impact our ability to
sell and distribute our products.

Our growth could be impaired if we do not successfully
handle certain risks associated with international business.

There are risks inherent in doing business in international
markets, including:

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- 44 -

- fluctuations in currency exchange rates;
- difficulties in staffing and managing foreign operations;
- changes in regulatory requirements, tariffs and other trade barriers;
- potential adverse tax consequences; and
- inadequate protection for intellectual property rights.

One or more of these factors may make it difficult for us to
fully implement our international business strategies and may have a material
adverse effect on our current or future international operations.

Any changes in the political and economic policies of, or
any new regulations implemented by, the Chinese government could affect, or even
restrict, the operation of our business and our ability to generate revenues.

Our business is currently focused on the sale of specialty
lighting products and services, and electrical energy-saving products and
services in Greater China. Accordingly, our business, results of operations and
financial conditions are affected to a significant degree by any economic,
political and legal developments in China.

Since the late 1970s, the Chinese government has been reforming
its economic system. Although we believe that economic reform and the
macroeconomic measures adopted by the Chinese government have had and will
continue to have a positive effect on the economic development in China, there
can be no assurance that the economic reform strategy will not from time to time
be modified or revised. Some modifications or revisions, if any, could have a
material adverse effect on the overall economic growth of China and the
development of specialty lighting products and services, and electrical
energy-saving products in China. Any such changes would have a material adverse
effect on our business. Furthermore, there is no guarantee that the Chinese
government will not impose other economic or regulatory controls that would have
a material adverse effect on our business. Any changes in the political,
economic and social conditions in China, adjustments in policies by the Chinese
government or changes in laws and regulations on the sale of specialty lighting
products and services, or electrical energy-saving products and services, could
affect the manner in which we operate our business and restrict or prohibit
transactions initiated or conducted by our company. Any such changes or new
regulations could affect our ability to develop and sell our products and
therefore affect our ability to generate revenues.

Chinas current and future economic, political and social
conditions, as well as government policies could have an adverse effect on our
companys overall financial condition and ability to generate revenues and
profits.

We expect that a substantial portion of our business, assets
and operations of our company will be located and conducted in China. The
economy of China differs from the economies of most developed countries in many
respects, including:

- government involvement;
- level of development;
- growth rate;
- control of foreign exchange; and
- allocation of resources.

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- 45 -

While Chinas economy has experienced significant growth in the
past twenty years, growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of China, but may also have a
negative effect on us. For example, our operating results and financial
condition may be adversely affected by government control over capital
investments or changes in tax regulations applicable to us. If there are any
changes in any policies by the Chinese government and our business is negatively
affected as a result, then our financial results, including our ability to
generate revenues and profits, will also be negatively affected.

Our company is subject to foreign exchange rate risk,
particularly fluctuations in the exchange rate between Chinese Renminbi and
United States dollars.

Our company may enter sales transaction denominated in Chinese
Renminbi. The Peoples Republic of China State Administration for Foreign
Exchange, under the authority of the Peoples Bank of China, controls the
conversion of Renminbi into foreign currencies. The principal regulation
governing foreign currency exchange in China is the Foreign Currency
Administration Rules (1996), as amended. Under the Rules, once various
procedural requirements are met, Renminbi is convertible for current account
transactions, including trade and services, but not for capital account
transactions, including direct investment, loan or investment in securities
outside China, unless the prior approval of the State Administration of Foreign
Exchange of the Peoples Republic of China is obtained. Although the Chinese
government regulations now allow greater convertibility of Renminbi for current
account transactions, significant restrictions still remain.

The value of the Renminbi is subject to changes in Chinas
central government policies and to international economic and political
developments affecting supply and demand in the China Foreign Exchange Trading
System market. Since 1994, the conversion of Renminbi into foreign currencies,
including United States dollars, has been based on rates set by the Peoples
Bank of China, which are set daily based on the previous days interbank foreign
exchange market rates and current exchange rates on the world financial markets.
Since 1994, the official exchange rate generally has been stable, but the
Chinese government recently announced that it will no longer peg its currency
exclusively to the United States dollar but will switch to a managed floating
exchange rate based on market supply and demand with reference to a basket of
currencies yet to be named by the Peoples Bank of China, which will likely
increase the volatility of Renminbi as compared to United States dollars.

Our company has experienced minimal foreign exchange gains and
losses to date due to the relative stability of the Renminbi. We do not know
what affect, if any, the decoupling of the Renminbi from the United States
dollar will have on our financial statements and results of operations. We do
not currently engage in hedging activities to reduce our exposure to exchange
rate fluctuation.

Our companys success relies on the ability of our agents
and distributors to sell our products and services, and on our ability to
effectively monitor the activities of such persons and the failure to establish
and maintain productivity from our agents and distributors may have a material
adverse effect on our operations.

Our company relies on agents and distributors to earn revenue
by means of selling our products and services directly to end users. Our use of
external distributors requires an effective and efficient monitoring system to
ensure our success in delivering products and services to customers. Our company
monitors the activities of our agents and distributors but there can be no
assurance that our monitoring efforts are successful in achieving a productive
and efficient distribution network. Failure to establish and maintain high
levels of productivity and efficiency from our distribution network may have a
material adverse effect on our operations.

New or changing government policies or regulations related
to the specialty lighting industry or the energy savings industry in our markets
may have an adverse effect on our operations and may require our company to
modify our business plan.

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Our management oversees trends in our market industries by
accessing available market information, including updated governmental policies
and regulations related to such industries from time to time. Both short and
long-term changes in governmental policies or regulations affecting the
specialty lighting products and services industry and/or the energy savings
industry may trigger our company to take appropriate measures to re-position our
company to achieve our business plan or alter the business plan as a whole. We
cannot assure that our company will be able to adapt to changing policies and
regulations efficiently in order to maintain the currently anticipated level of
business, results of operations or financial condition.

If LED-based lighting systems do not achieve greater market
acceptance, prospects for our growth and profitability may be limited.

Lightscape Macaus future success depends on increased market
acceptance of LED-based lighting. Potential customers for LED lighting systems
may be reluctant to adopt LED lighting as an alternative to traditional lighting
technology because of its higher initial cost and relatively low light output in
comparison with the most powerful traditional lighting sources, or because of
perceived risks relating to LED lightings novelty, complexity, reliability and
quality, usefulness and cost-effectiveness when compared to other lighting
sources available in the market. These factors, could adversely affect demand
for Lightscape Macaus LED-based lighting systems. If acceptance of LED-based
lighting systems does not continue to grow, opportunities to increase our
revenues and operate profitably may be limited.

If advances in LED lighting technology do not continue, we
may be unable to increase our penetration of our existing markets or expand into
new markets.

Lightscape Macau does not design or manufacture LEDs. Our
ability to continue penetrating our existing markets and to expand into new
markets depends on continued advancements in the design and manufacture by
others of LEDs. In the high performance color lighting markets that we currently
serve, we rely on continued improvements in the brightness, efficiency and
initial cost of color LEDs. The continued development of LED technologies
depends on other companies research and is out of our control. If advancements
in LED technologies occur at a slower pace than we anticipate, or fail to occur
at all, we may be unable to penetrate additional markets, our revenues will be
significantly reduced, and our future prospects for success may be harmed.

A drop in the retail price of electrical energy may have a
negative effect on our business.

A customers decision to purchase Tech Teams energy saving
products and services is primarily driven by the payback on the investment
resulting from the increased energy savings. Although management believes that
current retail energy prices support a reasonable return on investment for Tech
Teams energy saving products, there can be no assurances that future retail
pricing of electrical energy will remain at such levels.

Risks Related to Our Common Stock

A decline in the price of our common stock could affect our
ability to raise further working capital and adversely impact our operations.

A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because our operations have been primarily
financed through the sale of equity securities, a decline in the price of our
common stock could be especially detrimental to our liquidity and our continued
operations. Any reduction in our ability to raise equity capital in the future
would force us to reallocate funds from other planned uses and would have a
negative effect on our business plans and operations, including our ability to
develop new products and continue our current operations. If the stock price
declines, there can be no assurance that we can raise additional capital or
generate funds from operations sufficient to meet our obligations. We believe
the following factors could cause the market price of our common stock to
continue to fluctuate widely and could cause our common stock to trade at a
price below the price at which you purchase your shares:

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- 47 -

| | - actual or anticipated variations in our
      quarterly operating results,                                      
| | ------------------------------------------------------------------------------------------------------------------
| |                                                                                                                   
| | - announcements of new services, products,
      acquisitions or strategic relationships by us or our competitors,
| |                                                                                                                   
| | - trends or conditions in the energy management
      services industry,                                          
| |                                                                                                                   
| | - changes in accounting treatments or
      principles,                                                           
| |                                                                                                                   
| | - changes in earnings estimates by securities
      analysts and in analyst recommendations,                      
| |                                                                                                                   
| | - changes in market valuations of other energy
      management services companies, and                           
| |                                                                                                                   
| | - general political, economic and market
      conditions.                                                        
| |                                                                                                                   

The market price for our common stock may also be affected by
our ability to meet or exceed expectations of analysts or investors. Any failure
to meet these expectations, even if minor, could materially adversely affect the
market price of our common stock.

If we issue additional shares in the future, it will result
in the dilution of our existing stockholders.

Our certificate of incorporation authorizes the issuance of
800,000,000 shares of common stock and 100,000,000 shares of preferred stock.
Our board of directors has the authority to issue additional shares up to the
authorized capital stated in the certificate of incorporation. Our board of
directors may choose to issue some or all of such shares to acquire one or more
businesses or to provide additional financing in the future. The issuance of any
such shares will result in a reduction of the book value or market price of the
outstanding shares of our common stock. If we do issue any such additional
shares, such issuance also will cause a reduction in the proportionate ownership
and voting power of all other stockholders. Further, any such issuance may
result in a change of control of our corporation.

If a market for our common stock does not develop,
stockholders may be unable to sell their shares.

There is currently a limited market for our common stock, which
trades through the Over-the-Counter Bulletin Board quotation system. Trading of
stock through the Over-the-Counter Bulletin Board is frequently thin and highly
volatile. There is no assurance that a sufficient market will develop in the
stock, in which case it could be difficult for stockholders to sell their
stock.

Trading of our stock may be restricted by the Securities and
Exchange Commissions penny stock regulations which may limit a stockholders
ability to buy and sell our stock.

The Securities and Exchange Commission has adopted regulations
which generally define penny stock to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the Securities and
Exchange Commission which provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customers account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or

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with the customers confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of, our common stock.

The National Association of Securities Dealers Inc., or
NASD, has adopted sales practice requirements, which may limit a stockholders
ability to buy and sell our shares.

In addition to the penny stock rules described above, the
NASD has adopted rules requiring that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must
make reasonable efforts to obtain information about the customers financial
status, tax status, investment objectives and other information. Under
interpretations of these rules, the NASD believes that there is a high
probability that speculative low-priced securities will not be suitable for at
least some customers. The NASD requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which may
limit our shareholders ability to buy and sell our stock and which may have an
adverse effect on the market for our shares.

Most of our assets and all of our directors and officers are
outside the United States, with the result that it may be difficult for
investors to enforce within the United States any judgments obtained against us
or any of our directors or officers.

Although we are organized under the laws of the State of
Nevada, our principal executive office is located in Hong Kong. Outside the
United States, it may be difficult for investors to enforce judgments against us
obtained in the United States in any such actions, including actions predicated
upon civil liability provisions of federal securities laws. In addition, all of
our officers and directors reside outside the United States, and nearly all of
the assets of these persons and our assets are located outside of the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or to enforce against us or
such persons judgments predicated upon the liability provisions of the United
States securities laws. There is substantial doubt as to the enforceability
against us or any of our directors and officers located outside the United
States in original actions or in actions of enforcement of judgments of United
States courts or liabilities predicated on the civil liability provisions of
United States federal securities laws.

|**Item
    3.** | Controls and Procedures.
|--------------- | ------------------------

As required by Rule 13a-15 under the Securities Exchange Act of
1934, as of the end of the period covered by this quarterly report, being June
30, 2007, we have carried out an evaluation of the effectiveness of the design
and operation of our companys disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our companys management, including our companys Chief Executive Officer. Based
upon that evaluation, our companys Chief Executive Officer concluded that our
companys disclosure controls and procedures are effective as at the end of the
period covered by this report. There have been no significant changes in our
internal controls over financial reporting that occurred during our most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period specified in the
Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed

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under the Securities Exchange Act of 1934 is accumulated and
communicated to management, including our Chief Executive Officer, to allow
timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

|**Item 1.** | Legal Proceedings.
|----------- | ------------------

We know of no material, active, or pending legal proceeding
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation where such claim or action involves damages for
more than 10% of our current assets as of June 30, 2007. There are no
proceedings in which any of our companys directors, officers, or affiliates, or
any registered or beneficial shareholders, is an adverse party or has a material
interest adverse to our companys interest.

|**Item 6.** | Exhibits
|----------- | --------

Exhibits required by Item 601 of Regulation S-B

|Exhibit Number | Description                                                                                                                                                                                                                                                                                                                                                                                  
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)            | Plan of Purchase, Sale, Reorganization, Arrangement,
      Liquidation or Succession                                                                                                                                                                                                                                                                                                         
|2.1            | Share Exchange Agreement dated January 7, 2005, among
      Global Innovative Systems Inc., Tech Team Holdings Limited, Bondy Tan and
      the Selling Shareholders (incorporated by reference from our Current
      Report on Form 8-K filed on January 18, 2005)                                                                                                                         
|(3)            | (i) Articles of Incorporation; and (ii) Bylaws                                                                                                                                                                                                                                                                                                                                               
|3.1            | Charter (incorporated by reference from our Registration
      Statement on Form 10-SB filed on April 11, 2000).                                                                                                                                                                                                                                                                             
|3.2            | Articles of Incorporation (incorporated by reference from
      our Registration Statement on Form 10-SB filed on April 11, 2000).                                                                                                                                                                                                                                                           
|3.3            | Bylaws (incorporated by reference from our Registration
      Statement on Form 10-SB filed on April 11, 2000).                                                                                                                                                                                                                                                                              
|3.4            | Certificate of Reverse Stock Split filed with the Nevada
      Secretary of State on November 12, 2003 (incorporated by reference from
      our Current Report on Form 8-K filed on December 17, 2003).                                                                                                                                                                                     
|3.5            | Certificate of Amendment to Articles of Incorporation
      filed with the Secretary of State of Nevada on March 3, 2004 (incorporated
      by reference from our Quarterly Report on Form 10- QSB filed on May 15,
      2004)                                                                                                                                                             
|3.6            | Certificate of Change filed with the Secretary of State
      of Nevada on December 23, 2004 (incorporated by reference from our Current
      Report on Form 8-K filed on January 6, 2005)                                                                                                                                                                                                  
|3.7            | Articles of Merger filed with the Secretary of State of
      Nevada on April 17, 2007 effective April 20, 2007 (incorporated by
      reference from our Current Report on Form 8-K filed on April 23, 2007)                                                                                                                                                                                
|(10)           | Material Contracts                                                                                                                                                                                                                                                                                                                                                                           
|10.1           | Management Contract between Tech Team Holdings Limited /
      Tech Team Development Limited and Bondy Tan (incorporated by reference
      from our Current Report on Form 8-K filed on January 18, 2005)                                                                                                                                                                                   
|10.2           | Form of subscription agreement of a private placement
      that was issued to 8 non-U.S. persons (as that term is defined in
      Regulation S of the Securities Act of 1933) in offshore transactions
      relying on Regulation S and/or Section 4(2) of the Securities Act of 1933
      (incorporated by reference from our Annual Report on Form 10-KSB filed on
      July 18, 2005)
|10.3           | Form of subscription agreement of a private placement
      that was issued to 4 non-U.S. persons                                                                                                                                                                                                                                                                                            

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- 50 -

|      | (as that term is defined in Regulation S of the
      Securities Act of 1933) in offshore transactions relying on Regulation S
      and/or Section 4(2) of the Securities Act of 1933(incorporated by
      reference from our Annual Report on Form 10-KSB filed on July 18,
    2005)                                                                                                      
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4  | Sales Agreement dated September 8, 2005, between Tomi
      Fuji Energy Management Services Consultants Limited and Geopower
      Corporation (incorporated by reference from our Quarterly Report on Form
      10-QSB filed on August 22, 2005)                                                                                                                                            
|10.5  | Addendum to Sales Agreement dated September 16, 2005,
      between Tomi Fuji Energy Management Services Consultants Limited and
      Geopower Corporation (incorporated by reference from our Quarterly Report
      on Form 10-QSB filed on August 22, 2005)                                                                                                                               
|10.6  | Assignment Agreement dated September 16, 2005, between
      Tomi Fuji Energy Management Services Consultants Limited and GD Inet
      Electric Construction Co. Ltd. (incorporated by reference from our
      Quarterly Report on Form 10-QSB filed on August 22, 2005)                                                                                                                    
|10.7  | Sale and Purchase Agreement dated September 27, 2005,
      between Glory Goal Investments Limited, Global Innovative Systems Inc.,
      and Ko Yin (incorporated by reference from our Current Report on Form 8-K
      filed on October 3, 2005)                                                                                                                                           
|10.8  | Option Deed dated September 27, 2005, between Admire Fame
      Invests Limited, Gain Huge Investments Limited, Splendid Fortune
      Investments Limited, Global Innovative Systems Inc. and Ko Yin
      (incorporated by reference from our Current Report on Form 8-K filed on
      October 3, 2005)                                                                                    
|10.9  | Amendment to Sale and Purchase Agreement and Option Deed
      dated October 3, 2005, between Glory Goal Investments Limited, Admire Fame
      Investments Limited, Gain Huge Investments Limited, Splendid Fortune
      Investments Limited, Ko Yin and Global Innovative Systems Inc.
      (incorporated by reference from our Current Report on Form 8-K filed on
      October 3, 2005)
|10.10 | Supplemental Deed Agreement dated February 22, 2006
      between Admire Fame Investments Limited, Gain Huge Investments Limited,
      Splendid Fortune Investments Limited, Ko Yin and Global Innovative Systems
      Inc. (incorporated by reference from our Current Report on Form 8- K filed
      on February 28, 2006)                                                               
|10.11 | Sale and Purchase Agreement dated March 30, 2006 between
      Tech Team Investment Limited, Woo Yuen Yu, Michelle Siu Kwan Lam and
      Joseph Sui Kei Lam (incorporated by reference from our Current Report on
      Form 8-K filed on April 4, 2006)                                                                                                                                     
|10.12 | Purchase Agreement between Global Innovative Systems Inc.
      and Aeneas Portfolio Company LP, dated March 29, 2006 (incorporated by
      reference from our Current Report on Form 8-K filed on July 5,
  2006)                                                                                                                                                                           
|10.13 | Purchase Agreement between Global Innovative Systems Inc.
      and Aeneas Portfolio Company LP, dated April 3, 2006 (incorporated by
      reference from our Current Report on Form 8-K filed on July 5,
  2006)                                                                                                                                                                            
|10.14 | Amendment Agreement between Global Innovative Systems
      Inc. and Aeneas Portfolio Company LP dated June 21, 2006 to Purchase
      Agreement between Global Innovative Systems Inc. and Aeneas Portfolio
      Company LP, dated March 29, 2006 (incorporated by reference from our
      Current Report on Form 8-K filed on July 5, 2006)                                               
|10.15 | Amendment Agreement between Global Innovative Systems
      Inc. and Aeneas Portfolio Company LP dated June 21, 2006 to Purchase
      Agreement between Global Innovative Systems Inc. and Aeneas Portfolio
      Company LP, dated April 3, 2006 (incorporated by reference from our
      Current Report on Form 8-K filed on July 5, 2006)                                                
|10.16 | Sale and Purchase Agreement between Tech Team Development
      Limited, Albert Yee Tat Chan, Luminous LED Technologies Limited, Michelle
      Siu Kwan Lam and Joseph Sui Kei Lam, dated September 29, 2006
      (incorporated by reference from our Current Report on Form 8-K filed on
      October 5, 2006)                                                                            
|10.17 | Cancellation Deed between Tech Team Investment Limited,
      Woo Yuen Yu, Michelle Siu Kwan                                                                                                                                                                                                                                                                                                  

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- 51 -

|      | Lam, Joseph Sui Kei Lam and Lightscape Holding Ltd., dated
      September 29, 2006 (incorporated by reference from our Current Report on
      Form 8-K filed on October 5, 2006)                                                                 
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                    
|10.18 | OEM Agreement between Lightscape Technologies (Macau) Limited
      and Strong Base Electronic-optic Technology Corp., dated October 23, 2006
      (incorporated by reference from our Current Report on Form 8-K filed on
      October 31, 2006)
|      |                                                                                                                                                                                                                                                    
|10.19 | Subscription Agreement between Global Innovative Systems Inc.
      and Bondy Tan, dated January 18, 2007                                                                                                                                          
|      |                                                                                                                                                                                                                                                    
|10.20 | Subscription Agreement between Global Innovative Systems Inc.,
      Investec Bank (UK) Limited and the persons set out in Schedule 1 to the
      Subscription Agreement, dated January 18, 2007                                                  
|      |                                                                                                                                                                                                                                                    
|10.21 | Note issued by Global Innovative Systems Inc. to Investec Bank
      (UK) Limited dated January 23, 2007                                                                                                                                           
|      |                                                                                                                                                                                                                                                    
|10.22 | Subscription Agreement between Global Innovative Systems Inc.,
      Full Moon Resources Limited and the persons set out in Schedule 1 to the
      Subscription Agreement, dated January 18, 2007                                                 
|      |                                                                                                                                                                                                                                                    
|10.23 | Note issued by Global Innovative Systems Inc. to Full Moon
      Resources Limited dated January 23, 2007                                                                                                                                          
|      |                                                                                                                                                                                                                                                    
|10.24 | Subscription Agreement between Global Innovative Systems Inc.,
      LP Asset Management Limited and the persons set out in Schedule 1 to the
      Subscription Agreement, dated January 18, 2007                                                 
|      |                                                                                                                                                                                                                                                    
|10.25 | Note issued by Global Innovative Systems Inc. to LP Asset Management
      Limited dated January 23, 2007                                                                                                                                          
|      |                                                                                                                                                                                                                                                    
|(14)  | Code of Ethics                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                    
|14.1  | Code of Ethics (incorporated by reference from our Annual Report
      on Form 10-KSB filed on December 30, 2004)                                                                                                                                  
|      |                                                                                                                                                                                                                                                    
|(31)  | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                    
|31.1* | Certification of Principal Executive
      Officer and Principal Financial Officer filed pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.                                                                                          
|      |                                                                                                                                                                                                                                                    
|(32)  | Section 1350 Certifications                                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                    
|32.1* | Certification of Principal Executive
      Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                 

*Filed herewith

SIGNATURES

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

LIGHTSCAPE TECHNOLOGIES INC.

By: /s/ Bondy Tan
  Bondy Tan 
  President, Secretary and Treasurer 
  and Chief Executive Officer and Director 
  (Principal Executive Officer, 
  Principal Financial Officer and 
  Principal Accounting Officer)

Date: August 14, 2007

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