**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**




**FORM
      10-QSB/A**




(Mark
      One)


x
            **QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
                1934**




**For
      the quarterly period ended September 30, 2007**




o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF
                1934**




**For
      the transition period from _______ to _________**




**Commission
      file number:** 000-21419




**CHINA
                DISPLAY TECHNOLOGIES, INC.**(Name
                of Small Business Issuer in Its Charter)




**Delaware**
            
            **23-2753988**(State
                or Other Jurisdiction of Incorporation or
              Organization)
            
            (I.R.S.
                Employer Identification No.)




**12A
                Block, Xinhe Road, Xinqiao No. 3**
              **Industrial
                Zone, Shajing District, Baoan Town, Shenzen,
                China 150090**(Address
                of Principal Executive Offices and Zip Code)**86-0755-29758811**(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 o




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


Yes o
      No x




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: 11,600,000 shares at November 15,
      2007.





Transitional
      Small Business Disclosure Format ( *Check
      one* ):
      Yes o No
x








EXPLANATORY
      NOTE





We
      are
      filing this Form 10-QSB/A for the period ended Sept 30, 2007, to amend our
      Financial Statements.





Any
      items
      included in the original report on Form 10-QSB for the period ended Sept 30,
      2007, that are not included herein, are not amended and remain in effect as
      of
      the date of the original filing thereof. Additionally, this Form 10-QSB/A does
      not purport to provide a general update or discussion of any other developments
      subsequent to the original filing.





The
      filing of this Form 10-QSB/A shall not be deemed to be an admission that the
      original filing, when made, included any untrue statement of material fact
      or
      omitted to state a material fact necessary to make a statement contained therein
      not misleading.








CHINA
      DISPLAY TECHNOLOGIES, INC. AND SUBSIDIARIES


FORM
      10-QSB


QUARTERLY
      PERIOD ENDED SEPTEMBER 30, 2007





INDEX




PagePART
                I - FINANCIAL INFORMATIONItem
                1.
            Consolidated
                Financial StatementsConsolidated
                Balance Sheet (Unaudited) As of September 30, 2007
            3Consolidated
                Statements of Operations (Unaudited) For the Three and Nine Months
                Ended September 30, 2007 and 2006
            4Consolidated
                Statements of Cash Flows (Unaudited) For the Nine Months Ended
                September 30, 2007 and 2006
            5Notes
                to Unaudited Consolidated Financial Statements
            6Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            17Item
                3.
            Controls
                and Procedures
            22PART
                II - OTHER INFORMATIONItem
                4.
            Submission
                of Matters to a Vote of Security Holders
            22Item
                6.
            Exhibits
            22


2





**China
      Display Technologies Inc. and Subsidiaries**


**Consolidated
      Balance Sheet**


**September
      30, 2007 (Restated)**


**(Unaudited)**




**ASSETS:**Current
                Assets:Cash
                and cash equivalent
            
            $
            2,544,844Restricted
                cash
            
            
            795,444Receivables,
                net of allowance for doubtful accounts of $139,166
            
            
            3,352,116Inventories,
                net of provision $153,138
            
            
            2,132,605Advances
                to suppliers
            
            
            2,966,863Prepaid
                expenses and other receivables
            
            
            1,900,203Total
                current assets
            
            
            13,692,075Property
                and Equipment, net (Note 6)
            
            
            2,462,128**Total
                Assets**
            
            $
            16,154,203**LIABILITIES
                & STOCKHOLDERS' EQUITY:**Current
                Liabilities:Payables
                and accrued liabilities
            
            $
            1,528,176Short
                term loans (Notes 7)
            
            
            3,550,926Various
                taxes payable
            
            
            240,611Wages
                payable
            
            
            94,770Corporate
                taxes payable
            
            
            261,630Total
                current liabilities
            
            
            5,676,113Due
                to related party - Chen Guoxin
            
            
            55,556**Total
                Liabilities**
            
            
            5,731,669**Commitments
                and Contingencies (Note 11)****Stockholders'
                Equity:**Series
                  A convertible preferred stock, $.001 par value; 20,000,000 shares
                  authorized;
              3,703,704
                shares issued and outstanding; liquidation preference
                $4,000,000
            
            
            3,704Common
                stock. $.001 par value; 100,000,000 shares authorized;11,600,000
                shares issued and outstanding
            
            
            11,600Additional
                paid-in capital
            
            
            6,083,694Accumulated
                other comprehensive income
            
            
            336,715Statutory
                reserves
            
            
            198,550Retained
                earnings
            
            
            3,788,271**Total
                Stockholders' Equity**
            
            
            10,422,534**Total
                Liabilities and Stockholders' Equity**
            
            $
            16,154,203




The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


3





**China
      Display Technologies Inc. and Subsidiaries**


**Consolidated
      Statements of Income**


**(Unaudited)**




**For
                the Three Months Ended**
            
            **For
                the Nine Months Ended****September
                30,**
            
            **September
                30,****2007**
              **(Restated)**
            
            **2006**
            
            **2007**
              **(Restated)**
            
            **2006**Total
                Revenues
            
            $
            9,175,767
            
            $
            4,661,127
            
            $
            20,487,682
            
            $
            10,583,088Cost
                of Sales
            
            
            6,985,054
            
            
            3,625,027
            
            
            15,705,834
            
            
            8,145,038Gross
                Profit
            
            
            2,190,713
            
            
            1,036,100
            
            
            4,781,848
            
            
            2,438,050Operating
                Expenses:Selling
                Expenses
            
            
            275,439
            
            
            79,855
            
            
            415,472
            
            
            168,188Research
                and development
            
            
            165,957
            
            
            84,593
            
            
            391,833
            
            
            231,384Other
                general and administrative
            
            
            277,229
            
            
            82,453
            
            
            569,108
            
            
            255,789Total
                Expenses
            
            
            718,625
            
            
            246,901
            
            
            1,376,413
            
            
            655,361Income
                from Operations
            
            
            1,472,088
            
            
            789,199
            
            
            3,405,435
            
            
            1,782,689Other
                Income (Expenses):Other
            
            
            (475
            )
            
            -
            
            
            68
            
            
            -Interest
                Incomes
            
            
            817
            
            
            -
            
            
            817
            
            
            -Interest
                Expenses
            
            
            (81,874
            )
            
            (2,080
            )
            
            (96,292
            )
            
            (1,990
            )Total
                Other Income (Expenses)
            
            
            (81,532
            )
            
            (2,080
            )
            
            (95,407
            )
            
            (1,990
            )Income
                Before Income Taxes
            
            
            1,390,556
            
            
            787,119
            
            
            3,310,028
            
            
            1,780,699Provision
                for (Benefit from) Income Taxes
            
            
            112,278
            
            
            -
            
            
            256,238
            
            
            -Net
                Income
            
            
            1,278,278
            
            
            787,119
            
            
            3,053,790
            
            
            1,780,699Deemed
                preferred stock dividend
            
            
            (2,177,853
            )
            
            -
            
            
            (2,177,853
            )
            
            -Net
                Income (loss) available to common shareholders
            
            $
            (899,575
            )
            $
            787,119
            
            $
            875,937
            
            $
            1,780,699Net
                earnings (loss) per share of common stock, basic
            
            $
            (0.08
            )
            $
            0.07
            
            $
            0.08
            
            $
            0.15Weighted
                average number of shares outstanding, basic
            
            
            11,553,348
            
            
            11,542,000
            
            
            11,545,824
            
            
            11,542,000Net
                earnings (loss) per share of common stock, diluted
            
            $
            (0.08
            )
            $
            0.07
            
            $
            0.06
            
            $
            0.15Weighted
                average number of shares outstanding, diluted
            
            
            11,553,348
            
            
            11,542,000
            
            
            15,249,528
            
            
            11,542,000




The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


4





**China
      Display Technologies Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**




**For
                the Nine Months Ended****September
                30,****2007**
              **(Restated)**
            
            **2006****Cash
                flows from operating activities**Net
                income
            
            $
            3,053,790
            
            $
            1,780,699Adjustments
                to reconcile net income to cash  provided by (used in) operating
                activities:Depreciation
            
            
            322,494
            
            
            257,783Chang
                in operating assets and liabilities:-Decrease
                (Increase) in assets:Accounts
                receivable, net
            
            
            (1,304,822
            )
            
            (1,603,956
            )Advances
                to suppliers
            
            
            (2,966,863
            )
            
            -Inventories,
                net
            
            
            (605,438
            )
            
            (776,486
            )Prepaid
                expenses and other receivables
            
            
            (1,666,988
            )
            
            129,834Increase
                (Decrease) in liabilities:Accounts
                payables and accrued liabilities
            
            
            249,430
            
            
            1,638,844Various
                tax payable
            
            
            (7,619
            )
            
            -Wage
                payable
            
            
            18,780
            
            
            (87,771
            )Corporate
                tax payable
            
            
            256,237
            
            
            176,126Due
                to related parties
            
            
            -
            
            
            189,892Net
                cash provided by (used in) operating activities
            
            
            (2,650,999
            )
            
            1,704,965**Cash
                flows from investing activities**Increase
                in restricted cash
            
            
            (779,048
            )
            
            -Recapitalization
                costs
            
            
            (625,000
            )Purchase
                of property and equipment
            
            
            (934,319
            )
            
            (656,575
            )Net
                cash used in investing activities
            
            
            (2,338,367
            )
            
            (656,575
            )**Cash
                flows from financing activities**Proceeds
                from loans payable
            
            
            3,477,734
            
            
            -Net
                Proceeds from preferred stock offering
            
            
            3,860,993
            
            
            -Proceeds
                From related party loan
            
            
            5,844
            
            
            -Repayment
                of related party loans
            
            
            -
            
            
            (66,341
            )Net
                cash provided by (used in) financing activities
            
            
            7,344,571
            
            
            (66,341
            )Effect
                of exchange rate changes on cash
            
            
            54,648
            
            
            (301,011
            )**Net
                increase in cash**
            
            
            2,409,853
            
            
            681,038Cash,
                beginning of period
            
            
            134,991
            
            
            26,135Cash,
                end of period
            
            $
            2,544,844
            
            $
            707,173**Supplemental
                disclosure information:**Interest
                expense paid
            
            $
            96,292
            
            $
            1,990Income
                taxes paid
            
            $
            256,238
            
            $
            -




The
      accompanying notes are an integral part of these unaudited consolidated
      financial statements


5




**China
      Display Technologies, Inc. and Subsidiaries**


**Notes
      to Unaudited Consolidated Financial Statements**


**September
      30, 2007**





**1 –
      Restatement of
      September 30, 2007 Financial Statements**





In
      accordance with SFAS 154 management has restated the September 30, 2007
      financial statements to correct an error in recording the sale of preferred
      stock in September 2007. The Board of Directors and management of the
      Company have discussed the restatement disclosed in this Form 10QSB/A
      with the Company’s independent registered public accounting
      firm.





**September
      2007 Balance Sheet**





An
      adjustment was made to increase additional paid in capital by $256,000 resulting
      from an error in recording $150,000 in prepaid investor relations expense and
      $106,000 of professional fees as part of the offering expenses related to the
      September 2006 preferred stock sale. This adjustment also increased prepaid
      expense by $150,000 and decreased retained earnings by $106,000.





**Statements
      of Operations – Three and nine months ended September 30,
      2007**





The
      company restated its previously reported “other general and administrative”
expense by $106,000 as a result of incorrectly including $106,000 of
      professional fees as part of offering expense charged to additional paid in
      capital related to the September 2007 preferred stock sale.





The
      consolidated financial statements as of September 30, 2007 and for the three
      and
      nine months then ended, and the notes thereto, have been restated to include
      the
      items identified in the above. The following financial statement line items
      were
      impacted:





As
                previouslyreported
            
            RestatedSeptember
                30,
            
            September
                30,Consolidated
              Balance Sheet
            
            2007
            
            2007Prepaid
                expense
            
            $
            1,750,203
            
            $
            1,900,203Additional
                paid in capital
            
            $
            5,827,694
            
            $
            6,083,694Retained
                earnings unrestricted
            
            $
            3,894,272
            
            $
            3,788,272





As previously
            
            
            
            As
                previouslyreported
            
            Restated
            
            reported
            
            RestatedFor
              The Three Months Ended
            
            For
                The Nine Months EndedConsolidated
                Statements of
                Operations
            
            September
                30, 2007
            
            September
                30, 2007As
                included in G&A expenses:Professional
                fees
            
            $
            -
            
            $
            106,000
            
            $
            -
            
            $
            106,000Total
                expenses
            
            $
            612,625
            
            $
            718,625
            
            $
            1,270,413
            
            $
            1,376,413Operating
                income
            
            $
            1,578,088
            
            $
            1,472,088
            
            $
            3,511,435
            
            $
            3,405,435Income
                before income taxes
            
            $
            1,496,556
            
            $
            1,390,556
            
            $
            3,416,028
            
            $
            3,310,028Net
                income
            
            $
            1,384,278
            
            $
            1,278,278
            
            $
            3,159,790
            
            $
            3,053,790Net
                income available to common shareholders
            
            $
            (793,575
            )
            $
            (899,575
            )
            $
            981,937
            
            $
            875,937Basic
                (loss) income per common share
            
            $
            (0.07
            )
            $
            (0.08
            )
            $
            0.09
            
            $
            0.08Diluted
                (loss) income per common share
            
            $
            (0.07
            )
            $
            (0.08
            )
            $
            0.06
            
            $
            0.06





**2.
      Organization**




China
      Display Technologies, Inc. (the “Company”) was incorporated in Delaware on
      September 29, 2004 under the name Lincoln International Corporation (“Lincoln”).
      On September 21, 2007, its corporate name was changed to SUNY Display
      Technologies, Inc., and on October 11, 2007, its corporate name was changed
      to
      China Display Technologies, Inc. References to Lincoln relate to the Company
      prior to the reverse acquisition. At the time of the acquisition, Lincoln was
      not engaged in any active business.




On
      September 12, 2007, the Company executed a share exchange agreement (“Share
      Exchange Agreement”) with Lawrence Kwok-Yan Chan, the sole stockholder of Keep
      On Holdings, Limited, a British Virgin Island corporation incorporated on April
      18, 2007 (Keep On”) , whereby the Company acquired all of the outstanding common
      stock of Keep On in exchange for newly-issued stock of the Company to Keep
      On’s
      sole shareholder.





Under
      the
      Share Exchange Agreement, on September 12, 2007, the Company issued
      11,376,000 shares of common stock to the Keep On Stockholder and his assignees
      in exchange for 100% of the stock of Keep On. Pursuant to a separate agreement,
      the Company acquired from the principal stockholder 290,000 shares of the
      Company’s common stock he owned immediately prior to the closing for $340,133
      and the Company repaid obligations to the principal stockholders due to him
      in
      the aggregate amount of $284,867. The shares acquired from the principal
      stockholder were cancelled. After giving effect to the cancellation of shares,
      the Company had 58,000 shares of common stock outstanding immediately prior
      to
      Closing. After the Closing, the Company had a total of 11,600,000 shares of
      common stock outstanding, with the Keep On stockholder and his assignees owning
      98.1% of the total issued and outstanding shares of the Company's common
      stock.





The
      Company is the sole stockholder of Keep On and Keep On is the sole stockholder
      of Suny Electronics (Shenzhen) Company Limited (“Suny”), a corporation organized
      under the laws of the Peoples’ Republic of China. Suny was organized on November
      2, 2004 and commenced operations in 2005. On July 19, 2007, Keep On acquired
      all
      of the equity interest in Suny.




The
      Company’s business is the business of Suny. Suny designs, manufactures and
      markets small to medium-sized light emitting diode, known as “LEDs,” and cold
      cathode fluorescent lamp, known as “CCFL,” for various types of displays, such
      as amorphous silicon thin film liquid crystal displays, low temperature
      poly-silicon thin film liquid crystal displays, super-twisted liquid crystal
      display, colored super-twisted liquid crystal display, twisted liquid crystal
      display, and mono LCDs for liquid crystal displays. Suny’s products are used in
      a variety of products, such as mobile phones, PDA’s, GPS system, portable
      DVD/VCD players, MP3 and MP4, medical equipment, household appliances with
      displays. Its emphasis is on small to medium-size back-light unit
      manufacturing.




As
      a
      result of the Share Exchange Agreement, t he acquisition of Keep On by the
      Company was accounted for as a reverse acquisition because on a post-acquisition
      basis, the former stockholder of Keep On and his assignees held a majority
      of
      the outstanding common stock of the Company on a voting and fully-diluted basis.
      As a result, Keep On is deemed to be the acquirer for accounting purposes.
      Accordingly, the consolidated financial statement data presented are those
      of
      Keep On and its wholly-owned subsidiary, Suny, for all periods prior to the
      Company’s acquisition of Keep On on September 12, 2007, and the financial
      statements of the consolidated companies from the acquisition date
      forward.





On
      September 19, 2007, the holders of a majority of the outstanding shares of
      the
      Company’s common stock approved the adoption of a restated certificate of
      incorporation which, among other provisions, effected a one-for-7.5 reverse
      split and changed our authorized capital stock to provided that the Company
      is
      authorized to issue 20,000,000 shares of preferred stock, par value $.001 per
      share, and 100,000,000 shares of common stock, par value $.001 per share. The
      restated certificate of incorporation, including the reverse split, became
      effective on November 8, 2007. All share and per share information in these
      financial statements give retroactive effect to the reverse split and the change
      in par value.


6


**3.**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





**a.**
            **Basis
                of Preparation**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions to Form 10-QSB and Item 310 of Regulation S-B. In the opinion
      of
      management, the condensed consolidated financial statements reflect all
      adjustments (consisting of normal recurring adjustments) considered necessary
      for a fair presentation of the results China Display Technologies, Inc. and
      its
      subsidiaries for the periods presented. Operating results for interim periods
      are not necessarily indicative of results that may be expected for the fiscal
      year as a whole. The preparation of the financial statements in conformity
      with
      accounting principles generally accepted in the U.S. requires management to
      make
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues, expenses, and the related disclosures at the date of
      the
      financial statements and during the reporting period. Actual results could
      materially differ from these estimates. For further information, refer to the
      consolidated financial statements and notes of Suny Electronics (Shenzhen)
      Limited for December 31, 2006 and the two years in the period ended December
      31,
      2006, which appear in the Company’s Report on Form 8-K which was filed on
      September 19, 2007. Certain prior quarter amounts may have been reclassified
      to
      conform to the presentation used in 2007.





**b.**
            **Basis
                of consolidation**





The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries, Keep On and Suny. Intercompany transactions have
      been
      eliminated on consolidation.





**c.**
            **Fair
                values of financial
                instruments**





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





The
      Company’s financial instruments primarily consist of cash, accounts receivable,
      other receivables, notes receivable, accounts payable, receipt in advance,
      accrued expenses, other payables, bank loans, short term loans, government
      loans, and short-term related party loans.





As
      of the
      balance sheet date, the estimated fair values of the financial instruments
      were
      not materially different from their carrying values as presented due to the
      short maturities of these instruments and that the interest rates on the
      borrowings approximate those that would have been available for loans of similar
      remaining maturity and risk profile at respective year ends.





**d.**
            **Cash
                and Cash Equivalents**





Cash
      and
      cash equivalents include cash on hand, demand deposits with banks and liquid
      investments with an original maturity of three months or less.




**e.**
            **Accounts
                Receivable**





Accounts
      receivables are recognized and carried at original invoiced amount less an
      allowance for uncollectible accounts, as needed.





The
      Company uses the aging method to estimate the valuation allowance for
      anticipated uncollectible receivable balances. Under the aging method, bad
      debts
      percentages determined by management based on historical experience as well
      as
      current economic climate are applied to customers’ balances categorized by the
      number of months the underlying invoices have remained outstanding. The
      valuation allowance balance is adjusted to the amount computed as a result
      of
      the aging method. When facts subsequently become available to indicate that
      the
      amount provided as the allowance was incorrect, the Company makes an adjustment,
      which is classified as a change in estimate.


7





**f.**
            **Inventories**





Inventories
      are stated at the lower of cost, as determined on a weighted average basis,
      or
      market. Costs of inventories include purchase and related costs incurred in
      bringing the products to their present location and condition. Market value
      is
      determined by reference to selling prices after the balance sheet date or to
      management’s estimates based on prevailing market conditions. The management
      writes down the inventories to market value if market value is below cost.
      The
      management also regularly evaluates the composition of its inventories to
      identify slow-moving and obsolete inventories to determine if valuation
      allowance is required.





**g.**
            **Property
                and Equipment**





Property
      and equipment are initially recognized recorded at cost. Gains or losses on
      disposals are reflected as gain or loss in the period of disposal. The cost
      of
      improvements that extend the life of plant and equipment are capitalized. These
      capitalized costs may include structural improvements, equipment and fixtures.
      All ordinary repairs and maintenance costs are expensed as
      incurred.





Depreciation
      for financial reporting purposes is provided using the straight-line method
      over
      the estimated useful lives of the assets:




Production
                Machinery and Equipment
            8
                yearsLeasehold
                Improvements
            10
                yearsOffice
                and Other Equipment
            5
                yearsAutomobiles
            5
                years





**h.**
            **Impairment
                of Long-Lived Assets**





The
      Company accounts for impairment of plant and equipment and amortizable
      intangible assets in accordance with SFAS No. 144, “Accounting for Impairment of
      Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the
      Group to evaluate a long-lived asset for recoverability when there is event
      or
      circumstance that indicate the carrying value of the asset may not be
      recoverable. An impairment loss is recognized when the carrying amount of a
      long-lived asset or asset group is not recoverable (when carrying amount exceeds
      the gross, undiscounted cash flows from use and disposition) and is measured
      as
      the excess of the carrying amount over the asset’s (or asset group’s) fair
      value.




**i.**
            **Comprehensive
                income**





SFAS
      No.130, “Reporting Comprehensive Income”, requires disclosure of all components
      of comprehensive income and loss on an annual and interim basis. Comprehensive
      income and loss is defined as the change in equity of a business enterprise
      during a period from transactions and other events and circumstances from
      non-owner sources. The Company had consolidated comprehensive income of $216,345
      for the nine months period ended September 30, 2007. The comprehensive income
      arose from the changes in foreign currency exchange rates.





**j.**
            **Segment
                information**





SFAS
      No.131, “Disclosures about Segments of an Enterprise and Related Information”,
      requires certain financial and supplementary information to be disclosed on
      an
      annual and interim basis for each reportable segment of an enterprise. The
      Group
      believes that it operates in one business segment (research, development,
      production, marketing and sales of auto electronic products) and in one
      geographical segment (China), as all of the Company’s current operations are
      carried out in China.


8





**k.**
            **Revenue
                recognition**





The
      Company generates revenues from the sales of LEDs and CCFLs. Sales are
      recognized when the following four revenue criteria are met: persuasive evidence
      of an arrangement exists, delivery has occurred, the selling price is fixed
      or
      determinable, and collectibility is reasonably assured. Sales are presented
      net
      of value added tax (VAT). No return allowance is made as products returns are
      insignificant based on historical experience.





**l.**
            **Research
                and development costs**





Research
      and development costs are expensed to operations as incurred.





**m.**
            **Income
                taxes**





The
      Company accounts for income taxes in accordance with SFAS No. 109, "Accounting
      for Income Taxes." SFAS No. 109 requires an asset and liability approach for
      financial accounting and reporting for income taxes and allows recognition
      and
      measurement of deferred tax assets based upon the likelihood of realization
      of
      tax benefits in future years. Under the asset and liability approach, deferred
      taxes are provided for the net tax effects of temporary differences between
      the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. A valuation allowance is provided
      for
      deferred tax assets if it is more likely than not these items will either expire
      before the Group is able to realize their benefits, or that future deductibility
      is uncertain.





**n.**
            **Foreign
                currency translation**





The
      reporting currency is the U.S. dollar. The functional currency of the Company
      is
      the local currency, the Chinese Renminbi (“RMB”). The financial statements of
      the Company are translated into United States dollars in accordance with
      Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency
      Translation”, using year-end rates of exchange for assets and liabilities, and
      average rates of exchange for the period for revenues, costs, and expenses
      and
      historical rates for the equity. Translation adjustments resulting from the
      process of translating the local currency financial statements into U.S. dollars
      are included in determining comprehensive income. At September 30, 2007, the
      cumulative translation adjustment of $336,715 was classified as an item of
      other
      comprehensive income in the stockholders’ equity section of the consolidated
      balance sheet. For the nine months ended September 30, 2007 and 2006,
      accumulated other comprehensive income was $3,372,267 and $1830,255,
      respectively.




The
      exchange rates used to translate amounts in RMB into U.S. Dollars for the
      purposes of preparing the consolidated financial statements were as follows:
      As
      of September 30, 2007, the Company used the period-end rates of exchange for
      assets and liabilities of $0.13302 to RMB1.00. For the nine months ended
      September 30, 2007 and 2006, the Company used the period’s average rate of
      exchange to convert revenues, costs, and expenses of $0.13028 to RMB1.00 and
      $0.12471 to RMB1.00, respectively, and historical rates for equity.





**o.**
            **Related
                parties**





A
      party
      is considered to be related to the Company if the party directly or indirectly
      or through one or more intermediaries, controls, is controlled by, or is under
      common control with the Company or one of its subsidiaries. Related parties
      also
      include principal owners of the Company, its management, members of the
      immediate families of principal owners of the Company and its management and
      other parties with which the Company or its subsidiaries may deal if one party
      controls or can significantly influence the management or operating policies
      of
      the other to an extent that one of the transacting parties might be prevented
      from fully pursuing its own separate interests. A party which can significantly
      influence the management or operating policies of the transacting parties or
      if
      it has an ownership interest in one of the transacting parties and can
      significantly influence the other to an extent that one or more of the
      transacting parties might be prevented from fully pursuing its own separate
      interests is also a related party.





p.
            Basic
                earnings per share is computed by dividing net earnings by the weighted
                average number of shares of common stock outstanding during the period.
                Diluted income per share is computed by dividing net income by the
                weighted average number of shares of common stock, common stock
                equivalents and potentially dilutive securities outstanding during
                each
                period. Potentially dilutive shares of common stock consist of the
                common
                stock issuable upon the exercise of stock warrants (using the treasury
                stock method) and upon the conversion of convertible preferred stock
                (using the if-converted method). A reconciliation of the denominator
                used
                in the calculation of basic and diluted net income (loss) per share
                is as
                follows:





9





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Numerator:**Net
                income (loss) available to common shareholders
            
            $
            (899,575
            )
            $
            787,119
            
            $
            875,937
            
            $
            1,780,699**Denominator:**Weighted-average
                shares outstanding for basic earnings per share
            
            
            11,553,348
            
            
            11,542,000
            
            
            11,545,824
            
            
            11,542,000Effect
                of dilutive securities:Convertible
                preferred stock
            
            
            -
            
            
            -
            
            
            3,703,704
            
            
            -Weighted-average
                shares outstanding for diluted earnings (loss) per share
            
            
            11,553,348
            
            
            11,542,000
            
            
            15,249,528
            
            
            11,542,000




The
      following were excluded from the computation of diluted shares outstanding
      as
      they would have had an anti-dilutive impact. In periods where the Company has
      a
      net loss, all dilutive securities are excluded. In periods where the Company
      has
      net income, the dilutive securities are excluded when, for example, their
      exercise prices are greater than the average fair values of the Company’s common
      stock as follows:





**Three
                months ended**
              **September
                30,**
            
            **Nine
                months ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Stock
                warrants
            
            
            11,500,000
            
            
            -
            
            
            11,500,000
            
            
            -Series
                A preferred stock
            
            
            3,703,704
            
            
            -
            
            
            -
            
            
            -




**q.**
            **Recently
                issued accounting
                pronouncements**





In
      February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments”. SFAS No. 155 amends SFAS No 133, “Accounting for
      Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”. SFAS No. 155, permits fair value remeasurement for any hybrid
      financial instrument that contains an embedded derivative that otherwise would
      require bifurcation, clarifies which interest-only strips and principal-only
      strips are not subject to the requirements of SFAS No. 133, establishes a
      requirement to evaluate interest in securitized financial assets to identify
      interests that are freestanding derivatives or that are hybrid financial
      instruments that contain an embedded derivative requiring bifurcation, clarifies
      that concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
      qualifying special-purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. This statement is effective for all financial instruments acquired
      or issued after the beginning of the Company’s first fiscal year that begins
      after September 15, 2006. The adoption of this statement did not have a material
      impact on the Company’s consolidated financial position or consolidated results
      of operations.





In
      March
      2006 FASB issued SFAS 156 “Accounting for Servicing of Financial Assets” this
      Statement amends FASB Statement No. 140, Accounting for Transfers and Servicing
      of Financial Assets and Extinguishments of Liabilities, with respect to the
      accounting for separately recognized servicing assets and servicing liabilities.
      This Statement:





•
      Requires an entity to recognize a servicing asset or servicing liability each
      time it undertakes an obligation to service a financial asset by entering into
      a
      servicing contract.


•
      Requires all separately recognized servicing assets and servicing liabilities
      to
      be initially measured at fair value, if practicable


•
Permits
      an entity to choose 'Amortization method' or ‘Fair value measurement method’ for
      each class of separately recognized servicing assets and servicing
      liabilities.





At
      its
      initial adoption, permits a one-time reclassification of available-for-sale
      securities to trading securities by entities with recognized servicing rights,
      without calling into question the treatment of other available-for-sale
      securities under Statement 115, provided that the available-for-sale securities
      are identified in some manner as offsetting the entity's exposure to changes
      in
      fair value of servicing assets or servicing liabilities that a servicer elects
      to subsequently measure at fair value.


10




•
      Requires separate presentation of servicing assets and servicing liabilities
      subsequently measured at fair value in the statement of financial position
      and
      additional disclosures for all separately recognized servicing assets and
      servicing liabilities. An entity should adopt this Statement as of the beginning
      of its first fiscal year that begins after September 15, 2006.





The
      adoption of this statement did not have a material impact on the Company’s
      financial position or results of operations.





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. The adoption of EITF Issue No. 06-3 did not have a
      material impact on the Company’s consolidated results of operations or financial
      position.





In
      July
      2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for
      Uncertainty in Income Taxes,” which prescribes a comprehensive model for how a
      company should recognize, measure, present and disclose in its financial
      statements uncertain tax positions that the company has taken or expects to
      take
      on a tax return (including a decision whether to file or not to file a return
      in
      a particular jurisdiction). The accounting provisions of FIN No.48 are effective
      for fiscal years beginning after December 15, 2006. The adoption of this
      Interpretation had no impact on the Company’s financial position or results of
      operations.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for
      reporting fair value and expands disclosures about fair value measurements.
      SFAS
      No. 157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      adoption of this standard will have no impact on the Company’s financial
      statements.





In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159, “The Fair Value Option for Financial Assets and Financial
      Liabilities-Including an amendment of FASB Statement No. 115,
      (“SFAS No. 159”). SFAS No. 159 permits entities to choose to
      measure many financial instruments and certain other items at fair value. Most
      of the provisions of this Statement apply only to entities that elect the fair
      value option. However, the amendment to FASB Statement No. 115, “Accounting
      for Certain Investments in Debt and Equity Securities,”
(“SFAS No. 115”), applies to all entities with available-for-sale and
      trading securities. SFAS No. 159 is effective for the Company’s
      consolidated financial statements for the annual reporting period beginning
      after November 15, 2007. The Company is currently evaluating the impact of
      this new pronouncement on its consolidated financial statements.





**4.**  **CONCENTRATIONS
      OF CREDIT RISK**





Financial
      instruments which potentially expose the Company to concentrations of credit
      risk, consist of cash, accounts and other receivables as of September 30, 2007
      and 2006. The Company performs ongoing evaluations of its cash position and
      credit evaluations to ensure collections and minimize losses.





As
      of
      September 30, 2007 the Company’s bank deposits were 100% placed with banks in
      the PRC where there is currently no insurance to cover bank deposits in the
      event of bank failure.





For
      the
      nine months period ended September 30, 2007, approximately 75% of the Company’s
      sales were made to customers located in the PRC. ** In
      addition, approximately 90% ** of
      accounts receivables as of September 30, 2007 also arose from customers located
      in the PRC.





The
      largest customer accounted for approximately 19% of the Company’s total revenue
      for the nine months period ended September 30, 2007. No other customer accounted
      for 10% or more of the Company’s revenues for the nine months ended September
      30, 2006.






11




**5. 
 **INVENTORIES****




At
      September 30, 2007, inventories consist of the following:




Raw
                materials
            
            $
            1,985,393Work-in-progress
            
            
            272,994Consumables
            
            
            27,3562,285,743Less:
                Allowance for obsolescence
            
            
            (153,138
            )Total
            
            $
            2,132,605




6. 
**PROPERTY
      AND EQUIPMENT**




At
      September 30, 2007, property and equipment consist of the
      following:




Production
                Machinery and Equipment
            
            $
            2,561,021Leasehold
                Improvements
            
            
            307,735Office
                and Other Equipment
            
            
            63,642Automobiles
            
            
            300,1613,232,559Less:
                Accumulated depreciation
            
            
            (770,431
            )$
            2,462,128




Depreciation
                expense was $322,494 and $257,783 for the nine-month periods ended
                September 30, 2007 and 2006, and is broken down as
                follows:






September
                30, 2007
            
            September
                30, 2006Cost
                of sales
            
            $
            284,908
            
            $
            224,363Operating
                expense
            
            
            37,586
            
            
            33,420Total
            
            $
            322,494
            
            $$
            257,783




7.  
**SHORT-TERM
      BANK LOANS**




At
      September 30, 2007, short-term bank loans consist of the following:




Revolving
                loans with ABN Amro, renewable on 90-days terms, interest at 6.44%
                per
                annum due October to December 2007 and secured by restricted cash
                of
                approximately $399,000. These loans were each renewed for 90
                days.
            
            
            1,984,752Revolving
                loans with Public Bank (Hong Kong) Limited, renewable on 90-day terms,
                interest rates ranging from 8.55% - 9.48%, due in October 2007 and
                secured
                by restricted cash of approximately $133,000. These loans were each
                renewed for 90 days.
            
            
            266,043Revolving
                loans with DBS Bank, renewable on 90-days terms, interest at 9.50%
                per
                annum, due November 2007 and secured by restricted cash of approximately
                $263,000. These loans were each renewed for 90 days.
            
            
            635,022China
                Construction Bank, interest at 8.42% per annum, due July 23, 2008
                and
                secured by a personal guarantee of the Company’s chief executive
                officer.
            
            
            665,109Total
                short-term bank loans
            
            $
            3,550,926




Interest
      expenses arising from these loans for the nine months ended September 30, 2007
      and 2006 amounted to $96,292 and $0, respectively.


12




**8.** **STOCKHOLDERS
        EQUITY**




**Reverse
      Split**




See
      Note
      1 for information concerning a one-for-7.5 shares reverse split of the common
      stock.





**Preferred
      Stock Series A**





On
      September 12, 2007, the Company entered into a securities purchase agreement
      with Barron Partners LP and EOS Holdings LLC pursuant to which the investors
      purchased, for $4,000,000, an aggregate of (i) 3,703,704 shares of series A
      convertible preferred stock, with each share of series A preferred stock being
      initially convertible into one of a share of common stock, (ii) warrants to
      purchase 5,500,000 shares of common stock at $1.30 per share, and (iii) warrants
      to purchase 6,000,000 shares of common stock at $1.50 per share.




Additionally,
      the Company entered into a registration rights agreement pursuant to which
      the
      Company agreed to register the shares of Common Stock issuable upon conversion
      of the series A preferred stock and exercise of the warrants and an escrow
      agreement pursuant to which the Company placed 3,700,000 shares of series A
      preferred stock in escrow. If the Company’s consolidated net income, as defined,
      for 2007 and 2008 do not reach the target numbers, on a per share, fully diluted
      basis, some or all of these shares are to be delivered to the investors and
      if
      the targets are met, the shares are to be returned to the Company and cancelled.
      The target number for 2007 is approximately $0.1315 per share, and the target
      number for 2008 is approximately $0.2085 per share, except that, if all of
      the
      warrants shall not have been exercised by March 31, 2008, the target number
      for
      2008 shall by approximately $0.1818 per share. All of the shares held in escrow
      are delivered to the Investors if the net income for either year is 50% or
      less
      than the target number for that year. If the shortfall is less than 50%, a
      ratable portion of the shares are delivered to the Investors. The conversion
      rates are based on the rates on September 11, 2007, and are subject to
      change.




Net
      income, for the purposes of determining whether any shares are to be delivered
      to the investors, is defined to mean net income determined in accordance with
      GAAP plus (a) any charges relating to the transaction contemplated by the
      Purchase Agreement and the registration rights agreement, minus (b) the amount,
      if any, by which all non-recurring losses or expenses exceed all non-recurring
      items or income or gain . Net Income shall not be adjusted if all non-recurring
      items of income or gain exceed all non-recurring losses or expenses. Items
      shall
      be deemed to be non-recurring only if they qualify as non-recurring pursuant
      to
      GAAP. For determining net income per share, all shares which are outstanding
      or
      which may be issuable upon exercise or conversion of options, warrants and
      other
      convertible securities are deemed to be outstanding, regardless of whether
      the
      shares would be counted for purposes of computing diluted earnings per shares
      under GAAP.




The
      warrants have a term of five years, and expire on September 12, 2012. The
      warrants provide a cashless exercise feature which permits the conversion of
      the
      warrants into shares of Common Stock or Series A Preferred Stock; however,
      the
      holders of the warrants may not make a cashless exercise during the twelve
      months commencing on September 12, 2007 and thereafter only if the underlying
      shares are not covered by an effective registration statement.




The
      warrants provide that the exercise price of the warrants may be reduced by
      up to
      50% in each of 2007 and 2008 if the Company’s net income, as defined, per share
      of common stock, on a fully-diluted basis, is less than the Target Numbers
      described above for 2007 and 2008. An adjustment in the warrant exercise price
      does not affect the number of shares issuable upon exercise of the
      warrants.




In
      accordance with Emerging Issues Task Force (‘‘EITF’’) 98-5 and EITF 00-27, the
      Series A convertible preferred stock (“Series A Preferred”) were considered to
      have an embedded beneficial conversion feature (BCF) because the effective
      conversion price was less than the fair value of the Company’s common stock.
      This convertible preferred stock was fully convertible at the issuance date,
      therefore the portion of proceeds allocated to the Series A preferred of
      $1,088,927 was determined to be the value of the beneficial conversion feature
      and was recorded as a deemed preferred stock dividend.




The
      Purchasers also received Common Stock Purchase Warrants (the “Warrants”).
      Pursuant to the terms of the Warrants, the Purchasers are entitled to purchase
      up to 5,500,000 shares of common stock of the Company at an exercise price
      of
      $1.30 per share and are entitled to purchase up to 6,000,000 shares of common
      stock of the Company at an exercise price of $1.50 per share. The fair market
      value of each stock warrant was estimated on the date of grant using the
      Black-Scholes option-pricing model in accordance with SFAS No. 123R using the
      following weighted-average assumptions: expected dividend yield 0%; risk-free
      interest rate of 4.50%; volatility of 15% and an expected term of five years.
      The portion of proceeds allocated to the warrants of $1,088,926 was determined
      to be the value of the warrants and was recorded as a deemed preferred stock
      dividend.. [Since there are investor warrants and not compensatory warrants,
      is
      123R relevant?]




13




The
      Purchase Agreement, the certificate of designation and the warrants provide
      that
      those securities may not be exercised or converted if such conversion or
      exercise would result in the holder and its affiliates having beneficial
      ownership of more than 4.9% of the Company’s outstanding common stock.
      Beneficial ownership is determined in accordance with Section 13(d) of the
      Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder. This
      limitation may not be waived.




The
      Purchase Agreement, the certificate of designation for the series A preferred
      stock and the warrants also provide that, with certain exceptions, if the
      Company issues common stock at a price, or other warrants or other convertible
      securities with an exercise or conversion price which is less than the
      conversion price of the series A preferred stock or the exercise price of the
      warrants, as the case may be, the conversion price of the warrants or the
      exercise price of the warrants will be reduced to the sales price, exercise
      price or conversion price, as the case may be, of such other securities, except
      that, the exercise price of the $1.30 warrants has a formula
      adjustment.




Pursuant
      to the purchase agreement, in addition to the foregoing:




·
            The
                Company agreed to have appointed such number of independent directors
                that
                would result in a majority of its directors being independent directors,
                that the audit committee would be composed solely of independent
                directors
                and the compensation committee would have a majority of independent
                directors within 90 days after the closing. Failure to meet this
                date will
                result in liquidated damages commencing 90 days after the closing
                from the
                period from the end of the 90 day period until the date on which
                the
                requirement is satisfied. Thereafter, if the Company does not meet
                these
                requirements for a period of 60 days for an excused reason, as defined
                in
                the Purchase Agreement, or 75 days for a reason which is not an excused
                reason, this would result in the imposition of liquidated
                damages.




·
            The
                Company agreed to hire a full-time qualified chief financial officer
                within 60 days after the closing date. Failure to meet this covenant
                would
                result in the imposition of liquidated
                damage.




·
            Liquidated
                damages for failure to comply with the preceding two covenants are
                computed in an amount equal to 12% per annum of the Purchase Price,
                up to
                a maximum of 15% of the Purchase Price, which is $600,000, which
                is
                payable in cash or series A preferred stock, at the election of the
                investors.




·
            The
                Company and the investors entered into a registration rights agreement
                pursuant to which the Company agreed to file, within 60 days after
                the
                closing, a registration statement covering the common stock issuable
                upon
                conversion of the series A preferred stock and exercise of the warrants.
                The failure of the Company to meet this schedule and other timetables
                provided in the registration rights agreement would result in the
                imposition of liquidated damages, which are payable through the issuance
                of additional shares of series A preferred stock at the rate of 1,217
                shares of series A preferred stock for each day, based on the proposed
                registration of all of the underlying shares of common stock, with
                a
                maximum of 550,000 shares. The registration rights agreement also
                provides
                for additional demand registration rights in the event that the investors
                are not able to register all of the shares in the initial registration
                statement.




·
            The
                investors have a right of first refusal on future
                financings.




·
            The
                Company is restricted from issuing convertible debt or preferred
                stock or
                from having debt in an amount greater than twice the Company’s earnings
                before interest, taxes, depreciation and
                amortization.




·
            The
                Company’s debt cannot exceed twice the preceding four quarters earnings
                before interest, taxes, depreciation and
                amortization.




·
            The
                Company’s officers and directors agreed, with certain limited exceptions,
                not to publicly sell shares of common stock for 27 months or such
                earlier
                date as all of the convertible securities and warrants have been
                converted
                or exercised and the underlying shares of common stock have been
                sold.




·
            The
                Company paid Barron Partners $50,000 for its due diligence
                expenses.




**Common
      Stock**




On
      September 12, 2007, in connection with securities purchase agreement, the
      Company issued 166,000 shares of its common stock.




14





**Warrants
      and Options**




Through
      a
      private placement on September 12, 2007, the Company issued an aggregate of
      11,500,000 five-year warrants consisting of 5,500,000 Series A Warrants
      exercisable at $1.30 per share and 6,000,000 Series B Warrants exercisable
      at
      $1.50 per share, as set forth above.





A
      summary
      of the status of the Company's outstanding stock warrants as of September 30,
      2007 and changes during the periods then ended is as follows:




Number
                of
              Warrants
            
            Weighted
              Average
              Exercise
              PriceBalance
                at December 31, 2006
            
            
            -
            
            $
            -Granted
            
            
            11,500,000
            
            
            1.40Exercised
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -Balance
                at September 30, 2007
            
            
            11,500,000
            
            $
            1.40Options
                exercisable at end of period
            
            
            11,500,000
            
            $
            1.40





The
      following information applies to all warrants outstanding at September 30,
      2007:





Warrants
                OutstandingWeighted AverageRemaining
            
            
            
            Warrants
                ExercisableRange of Exercise Prices
            
            Shares
            
            ContractualLife
              (Years)
            
            Weighted Average
              Exercise
                Price
            
            Shares
            
            Weighted Average
              Exercise
                Price$
            1.30
            
            5,500,000
            
            5.0
            
            $
            1.30
            
            5,500,000
            
            $
            1.30$
            1.50
            
            6,000,000
            
            5.0
            
            $
            1.50
            
            6,000,000
            
            $
            1.5011,500,000
            
            
            
            $
            1.40
            
            11,500,000
            
            $
            1.40




Following
      the Model of EITF 00-19, “Accounting for Derivative Financial Instruments
      Indexed to, and Potentially Settled in, a Company’s Own Stock”, the Warrants,
      are considered freestanding instruments and are classified as equity instruments
      and included in additional paid-in capital.





As
      of
      September 30, 2007 and 2006, the Company did not have an equity-based incentive
      plan and no options were outstanding.




**9.** ****DUE
        TO RELATED PARTY****




From
      time
      to time, the Company’s chief executive officer advances funds to company for
      working capital purposes. These advances are non-interest bearing, unsecured
      and
      payable on demand. At September 30, 2007, the Company had a payable to its
      chief
      executive officer of $55,556. This officer has agreed not to demand payment
      for
      one year.




**10.** **CURRENT
        VULNERABILITY DUE TO CERTAIN
        CONCENTRATIONS**





The
      Company’s operations are all carried out in the PRC. Accordingly, the Company’s
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environments in the PRC, and by the general state
      of the PRC’s economy.





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


15




**11.** ****COMMITMENTS
          AND CONTINGENCIES****
 (a)
                *Operating
                    lease commitments*


The
      Company has entered into 5-year leases for factory premises and staff dorms.
      These leases can be renewed for an additional 5-year term. The Company’s
      commitments for minimum lease payments under these non-cancelable operating
      leases for the next five years and thereafter are as follows *:*





Year
                ending December 31,2007
            
            $
            90,2562008
            
            
            232,1012009
            
            
            243,0702010
                and thereafter
            
            
            304,632Total
            
            $
            870,059




(b)
              *Social
                  insurances of Suny’s
                  employees*
 According
        to the laws and regulations of the PRC, Suny is required to cover its employees
        with medical, retirement and unemployment insurance programs. Management
        believes that due to the transient nature of its employees, Suny does not
        need
        to provide all employees with such social insurances, and has paid the social
        insurances for those of its employees who have completed three months’
continuous employment with Suny.





In
      the
      event that any current or former employee files a complaint with the PRC
      government and the complaint is upheld, Suny may be subject to making up the
      social insurances as well as administrative fines. The Company does not believe
      that any liability it may incur if it is held to be in violation of these laws
      would be material, and, accordingly, no provision has been made for any possible
      liability.




(c)
            *Statutory
                Reserves*




Based
      on
      the legal formation of the entities, Suny is required to set aside 10% of its
      net income as reported in its statutory accounts on an annual basis to the
      Statutory Surplus Reserve Fund. Once the total Statutory Surplus Reserve reaches
      50% of the registered capital of Suny, further appropriations are discretionary.
      The Statutory Surplus Reserve can be used to increase the registered capital
      and
      eliminate future losses of the respective companies under PRC GAAP. The
      Statutory Surplus Reserve is not distributable to shareholders except in the
      event of liquidation.





Before
      January 1, 2006, Suny was also required on an annual basis to set aside at
      least
      5% of after-tax profit, calculated in accordance with PRC accounting standards
      and regulations, to the Statutory Surplus Welfare Fund, which can be used for
      staff welfare.





Effective
      from January 1, 2006, the appropriation to the Statutory Surplus Welfare Fund
      is
      no longer required. If Suny provide the Statutory Surplus Welfare Fund, such
      amount shall be determined at the discretion of its board of
      directors.





The
      Reserve Fund can be used to increase the registered capital upon approval by
      relevant government authorities and eliminate future losses of the respective
      companies upon a resolution by the board of directors.





Appropriations
      to the above statutory reserves are accounted for as a transfer from retained
      earnings to statutory reserves and are performed once a year at the fiscal
      year-end.





There
      are
      no legal requirements in the PRC to fund these statutory reserves by transfer
      of
      cash to any restricted accounts, and the Group does not do so. These reserves
      are not distributable as cash dividends.


16




ITEM
      2.
      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





**Forward
      Looking Statements**





Statements
      contained in this Form 10-QSB include forward-looking statements that are
      subject to risks and uncertainties. In particular, statements in this Form
      10-QSB that state our intentions, beliefs, expectations, strategies, predictions
      or any other statements relating to our future activities or other future events
      or conditions are “forward-looking statements.” Forward-looking statements are
      subject to risks, uncertainties and other factors, including, but not limited
      to, those identified under “Risk Factors,” in our Form 8-K which was filed on
      September 19, 2007 and those described in “Management's Discussion and Analysis
      of Financial Conditions and Results of Operations” in the Form 8-K and this Form
      10-QSB, and those described in any other filings by us with the Securities
      and
      Exchange Commission, as well as general economic conditions and economic
      conditions affecting the electronics and consumer electronics industry, any
      one
      or more of which could cause actual results to differ materially from those
      stated in such statements. In addition, such statements could be affected by
      risks and uncertainties related to the ability to conduct business in China,
      product demand, our ability to develop products using the most current
      technology, our ability to raise any financing which we may require for our
      operations, competition, government regulations and requirements, pricing and
      development difficulties, our ability to make acquisitions and successfully
      integrate those acquisitions with our business, as well as general industry
      and
      market conditions and growth rates, and general economic conditions. Any
      forward-looking statements speak only as of the date on which they are made,
      and
      we do not undertake any obligation to update any forward-looking statement
      to
      reflect events or circumstances after the date of this Form 10-QSB.




**Overview**




When
      used in this quarterly report, the terms the "China Display Technologies,"
      the
      "Company," "we," and "us" refers to China Display Technologies, Inc. and our
      wholly-owned subsidiaries.




The
      financial statements reflect the operations of Suny prior to September 12,
      1007,
      the date of the reverse acquisition, and the consolidated operations of the
      Company subsequent to September 12, 2007.




We
      design, manufacture and market small to medium-sized LEDs and cold cathode
      fluorescent lamp for various types of displays. Our emphasis is on small to
      medium-size back lighting unit manufacturing, and we are now developing the
      large size back lighting unit.




We
      sell our products to manufacturers of electronic products and not to end users.
      Our customers generally do not provide us with any long-term commitments. As
      a
      result it is necessary for us to estimate, based in part on non-binding
      estimates by our customers and potential customers, the requirements for our
      products. In addition, in some instances, we develop products based on
      anticipated customer demand with no assurance that we will get the anticipated
      orders. To the extent that we do not receive the anticipated orders or that
      our
      customers require products in greater quantities than we anticipated, our
      revenue and margins will be affected.




A
      small number of customers account for a very significant percentage of our
      revenue. During the nine months ended September 30, 2007, we had one customer
      that generated revenue of more than 10%. That customer accounted for 19% of
      our
      revenue during the nine months ended September 30, 2007, and our four largest
      customers accounted for approximately 48% of our revenue for that period. For
      the year ended December 31, 2006, four customers accounted for revenue of
      approximately 37% of revenue, and for the year ended December 31, 2005, four
      customers accounted for approximately 63% of revenue. Unless we replace a
      customer, the loss of any of these customers could have a material adverse
      effect upon our revenue and net income.




We
      also do not have long term supply contracts. While this practice reduces our
      risk, it also subjects us to price changes and, if our suppliers have a larger
      than anticipated demand for its products, our allocation may be reduced. We
      may
      not be able to obtain the components from alternate suppliers in a timely manner
      if at all, which would affect our relationship with our customers.




Prior
      to September 2007, we were a privately-owned company and we did not have the
      legal, accounting and other expenses that are associated with our being a public
      company. Commencing in the third quarter of 2007, our general and administrative
      expenses will increase as a result of these factors.




As
      a result of the issuance of series A preferred stock and warrants, we incurred
      a
      deemed dividend to the holders of the series A preferred stock in the amount
      of
      approximately $2.2 million, resulting from the discount of the conversion price
      of the series A preferred stock from the value of the underlying common stock
      and the allocated value of the warrants granted.




17




**Critical
      Accounting Policies and Estimates**




The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our financial statements which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect the reported amounts of assets and liabilities. On an on-going basis,
      we
      evaluate our estimates including the allowance for doubtful accounts, the
      salability and recoverability of inventory, income taxes and contingencies.
      We
      base our estimates on historical experience and on other assumptions that we
      believes to be reasonable under the circumstances, the results of which form
      our
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.




In
      estimating the collectability of accounts receivable we analyze historical
      write-offs, changes in our internal credit policies and customer concentrations
      when evaluating the adequacy of our allowance for doubtful accounts. Differences
      may result in the amount and timing of expenses for any period if we make
      different judgments or uses difference estimates. Our accounts receivable
      represent a significant portion of our current assets and total assets. Our
      realization on accounts receivable, expressed in terms of United States dollars
      may be affected by fluctuations in currency rates since the customer’s currency
      is frequently a currency other than United States dollars.




Inventories
      comprise raw materials work on process, finished goods and low value consumable
      articles are stated at the lower of cost or market. Substantially all inventory
      costs are determined using the weighted average basis. Costs of finished goods
      include direct labor, direct materials, and production overhead before the
      goods
      are ready for sale. Inventory costs do not exceed net realizable
      value.




Property,
      equipment are stated at cost. Depreciation is provided principally by use of
      the
      straight-line method over the useful lives of the related assets. Expenditures
      for maintenance and repairs, which do not improve or extend the expected useful
      life of the assets, are expensed to operations while major repairs are
      capitalized. The gain or loss on disposal of property, plant and equipment
      is
      the difference between the net sales proceeds and the carrying amount of the
      relevant assets, and, if any, is recognized in the statements of
      operations.




Under
      the tax laws of the PRC, we received a 100% tax holiday for 2005 and 2006 for
      the enterprise income tax. For 2007, 2008 and 2009, under present law, we will
      be entitled to a 50% tax holiday from this tax. As a result, there is no
      provision for income tax for 2005 and 2006. The tax provision for 2007 is 7.5%
      of taxable income.




We
      cannot predict what future laws and regulations might be passed that could
      have
      a material effect on our results of operations. We assess the impact of
      significant changes in laws and regulations on a regular basis and update the
      assumptions and estimates used to prepare our financial statements when we
      deem
      it necessary.




We
      recognize product sales generally at the time the product is shipped. Shipping
      and handling costs are included in cost of goods sold. Revenue is presented
      net
      of any sales tax and value added tax.




Our
      functional currency is the RMB, which is the currency of the PRC, and our
      reporting currency is United States dollars. Our balance sheet accounts are
      translated into United States dollars at the year-end exchange rates prevailing
      during the periods in which these items arise. Translation gains and losses
      are
      deferred and accumulated as a component of other comprehensive income in owners’
equity. Transaction gains and losses that arise from exchange rate fluctuations
      from transactions denominated in a currency other than the functional currency
      are included in the statement of operations as incurred. The translation and
      transaction gains and losses were immaterial in the statement of operations
      as
      incurred. The translation and transaction gains and losses were immaterial
      for
      the nine months ended September 30, September 30, 2007 and 2006.




The
      PRC
      government imposes significant exchange restrictions on fund transfers out
      of
      the PRC that are not related to business operations. These restrictions have
      not
      had a material impact on our operations because we have not previously engaged
      in any significant transactions that are subject to the
      restrictions.


18




**Reverse
      Acquisition**




On
      September 12, 2007, we acquired Keep On Holdings and its wholly-owned
      subsidiary, Suny, in a transaction which is accounted for as a reverse
      acquisition. Although we are the company that made the acquisition, for
      accounting purposes, Suny is treated as the acquiring company. As a result
      our
      financial statements reflect the financial position, results of operations
      and cash flows of Suny prior to September 12, 2007 and the combined operations
      of Suny and the Company from and after September 12, 2007. From Suny’s
      organization until the completion of the reverse acquisition, Lawrence Kwok-Yan
      Chan, was Suny’s sole stockholder. The 11,376,000 shares issued to Mr. Chan and
      his designees are deemed to have been outstanding for all periods prior to
      September 12, 2007.




**Convertible
      Preferred Stock and Warrants**




In
      accordance with EITF 00-19, we determined that the convertible preferred stock
      and the accompanying warrants were equity instruments under SFAS 150 and 133.
      Although we had unconditional obligation to issue additional shares of common
      stock upon conversion of the series A preferred stock if our fully-diluted
      EBITDA per share were below the targeted levels, the certificate of designation
      relating to the series A preferred stock did not provide that we must issue
      shares that are registered pursuant to the Securities Act of 1933, with the
      result, pursuant to the certificate of designation, the additional shares need
      not be registered shares. Our series A preferred stock also met all other
      conditions for the classification as equity instruments. We had a sufficient
      number of authorized shares, the agreement contained an explicit limit on the
      number of shares to be delivered on conversion of the series A preferred stock,
      there is no required cash payment or net cash settlement requirement, and the
      holders of the series A preferred stock had no right higher than the holders
      of
      the common stock.




Our
      warrants were excluded from derivative accounting because they were indexed
      to
      our common stock and were classified in stockholders’ equity section according
      to SFAS 133 paragraph 11(a).





**Results
      of Operations**




***Three
      Months ended September 30, 2007 and 2006***




The
      following table sets forth information from our statements of operations for
      the
      three months ended September 30, 2007 and 2006, in dollars and as a percentage
      of revenue (dollars in thousands):




Three
                Months Ended September 30,2007
                (Restated)
            
            2006Sales
            
            $
            9,176
            
            
            100.0
            %
            $
            4,661
            
            
            100.0
            %Cost
                of sales
            
            
            6,985
            
            
            76.1
            %
            
            3,625
            
            
            77.8
            %Gross
                profit
            
            
            2,191
            
            
            23.9
            %
            
            1,036
            
            
            22.2
            %Selling
            
            
            275
            
            
            3.0
            %
            
            80
            
            
            1.7
            %General
                and administrative
            
            
            277
            
            
            3.0
            %
            
            82
            
            
            1.8
            %Research
                and development
            
            
            166
            
            
            1.9
            %
            
            84
            
            
            1.8
            %Income
                from operations
            
            
            1,472
            
            
            16.0
            %
            
            789
            
            
            16.9
            %Interest
                expense, net
            
            
            81
            
            
            0.9
            %
            
            2
            
            
            0.0
            %Income
                before income taxes
            
            
            1,391
            
            
            15.2
            %
            
            787
            
            
            16.9
            %Provision
                for (benefit from) income taxes
            
            
            112
            
            
            1.2
            %
            
            -
            
            
            -Net
                income
            
            
            1,278
            
            
            13.9
            %
            
            787
            
            
            16.9
            %Deemed
                preferred stock dividend
            
            
            2,178
            
            
            23.7
            %
            
            -
            
            
            -Income
                (loss) to common stockholders
            
            
            (900
            )
            
            (9.8
            )%
            
            787
            
            
            16.9
            %




Sales
      were $9.18 million for the nine months ended September 30, 2007 (the “September
      2007 Quarter”), an increase of $4.5 million, or 97%, from $4.66 million for nine
      months ended September 30, 2006 (the “September 2006 Quarter”). The increase in
      revenue reflects an increase demand for our products from small screen liquid
      crystal display and LED manufacturers.




Cost
      of sales was $7.0 million for the September 2007 Quarter, an increase of $3.36
      million, or 93%, compared to $3.6 million for the September 2006 Quarter. The
      gross profit for the September 2007 Quarter was $2.2 million, an increase of
      $1.2 million, or 111%, from $1.0 million for the September 2006 Quarter. In
      general, the increase in cost of good sold and gross profit resulted from and
      reflected the increase in revenue, although the gross margin for the September
      2007 Quarter was 23.9%, compared with 22.2% for the September 2006
      Quarter.




Selling
      expenses were $275,000 for September 2007 Quarter, an increase of $195000,
      or
      243%, compared with $80,000 during the September 2006 Quarter. The increase
      was
      primarily attributed to our heightened efforts to expand our market share and
      promote our new products such as backlights for motor vehicle
      installations.




19




General
      and administrative were $277,000 for the September 2007 Quarter, an increase
      of
      $195,000, or 237.8% from the September 2006 Quarter. The increase was primarily
      attributed to the expensed incurred in connection with the reverse acquisition
      and additional expenses resulting from out status as a pubic
      company.




Research
      and development expenses were $166,000 for the September 2007 Quarter, an
      increase of $81,000, or 96%, from $85,000 for the September 2006 Quarter, as
      a
      result of research and development relating to new projects.




Income
      from operations was approximately $1.5 million for the September 2007 Quarter,
      compared with approximately $789,000 for the September 2006 Quarter. The
      increase was primarily the result of factors described above.




Income
      tax provision for the September 2007 Quarter was approximately $112,000. We
      had
      no tax provision for the September 2006 Quarter due to the tax holiday that
      was
      in effect in the 2006 period. The effective tax rate for the September 2007
      Quarter was 7.5%, as a result of the 50% tax holiday that, under current law,
      applies to 2007, 2008 and 2009.





For
      the September 2007 Quarter, we had net income of $1.28 million compared to
      $787,000 for the 2006 September Quarter, an increase of 491,000
      or62%





The
      beneficial effect of the conversion price is reflected as a deemed dividend
      of
      approximately $2.2 million to the holders of the series A preferred stock in
      the
      September 2007 Quarter. This deemed dividend is a non-cash
      transaction.




As
      a result of the foregoing, net income (loss) available to common stockholders
      for the September 2007 Quarter was $(900,000), or $(0.08) per share (basic
      and
      diluted), as compared with net income of $787,000, or $0.07 per share (basic
      and
      diluted) for the September 2006 Quarter.




***Nine
      Months Ended September 30, 2007 and 2006***




The
      following table sets forth information from our statements of operations for
      the
      nine months ended September 30, 2007 and 2006, in dollars and as a percentage
      of
      revenue (dollars in thousands):




Nine
                Months Ended September 30,2007
                (Restated)
            
            2006Sales
            
            $
            20,488
            
            
            100.0
            %
            $
            10,583
            
            
            100.0
            %Cost
                of sales
            
            
            15,706
            
            
            76.7
            %
            
            8,145
            
            
            77.0
            %Gross
                profit
            
            
            4,782
            
            
            23.3
            %
            
            2,438
            
            
            23.0
            %Selling
            
            
            415
            
            
            2.0
            %
            
            168
            
            
            1.6
            %General
                and administrative
            
            
            569
            
            
            2.8
            %
            
            256
            
            
            2.4
            %Research
                and development
            
            
            392
            
            
            1.9
            %
            
            231
            
            
            2.2
            %Income
                from operations
            
            
            3,405
            
            
            17.1
            %
            
            1,783
            
            
            16.8
            %Interest
                expense, net
            
            
            96
            
            
            0.0
            %
            
            2
            
            
            0.0
            %Income
                before income taxes
            
            
            3,310
            
            
            16.2
            %
            
            1,781
            
            
            16.8
            %Provision
                for (benefit from) income taxes
            
            
            256
            
            
            1.3
            %
            
            -
            
            
            -Net
                income
            
            
            3,054
            
            
            14.9
            %
            
            1,781
            
            
            16.8
            %Deemed
                preferred stock dividend
            
            
            2,178
            
            
            10.6
            %
            
            -
            
            
            -Net
                income to common stockholders
            
            
            876
            
            
            4.3
            %
            
            1,781
            
            
            16.8
            %




Sales
      were $20.5 million for the nine months ended September 30, 2007 (the “September
      2007 Period”), an increase of $9.9 million, or 94%, from $10.6 million for nine
      months ended September 30, 2006 (the “September 2006 Period”). The increase in
      revenue reflects an increase demand for our products from small screen liquid
      crystal display and LED manufacturers.




Cost
      of sales were $15.7 million for the September 2007 Period, an increase of $7.6
      million, or 93%, compared to $8.1 million for the September 2006 Period. The
      gross profit for the September 2007 Period was $4.8 million, an increase of
      $2.3
      million, or 109%, from $2.4 million for the September 2006 Period. In general,
      the increase in cost of good sold and gross profit resulted from and reflected
      the increase in revenue, although the gross margin for the September 2007 Period
      was 23.3%, compared with 23.0% for the September 2006 Period.




Selling
      expenses were $415,000 for September 2007 Period, an increase of $247,000,
      or
      147%, compared with $168,000 for the September 2006 Period. The increase was
      primarily attributed to our heightened efforts to expand our market share and
      promote our new products such as backlights for motor vehicle
      installations.




20




General
      and administrative were $569,000 for the September 2007 Period, an increase
      of
      $314,000, or 123% from the September 2006 Period. The increase was primarily
      attributed to the expensed incurred in anticipation of the reverse acquisition
      as well as additional expense which we incurred after the closing of the reverse
      acquisition.




Research
      and development expenses were $392,000 for the September 2007 Period, an
      increase of $160,000, or 69%, from $231,000 for the September 2006 Period,
      as a
      result of research and development relating to new projects.




Income
      from operations was approximately $3.3 million for the September 2007 Period,
      compared with approximately $1.8 million for the September 2006 Period. The
      increase was primarily the result of factors described above.




Income
      tax provision for the September 2007 Period was approximately $256,000 compared
      to $0 in the September 2006 Period because of the 100% tax holiday that was
      in
      effect in 2006. The tax for the September 2007 Period is 7.5%, as a result
      of
      the 50% tax holiday that, under current law, applies to 2007, 2008 and
      2009.





Net
      income for the September 2007 period was $3.1 million compared to $1.78 million
      for the September 2006 Period, an increase of $1.32 million or
      74.1%.





The
      beneficial effect of the conversion price is reflected as a deemed dividend
      of
      approximately $2.2 million to the holders of the series A preferred stock in
      the
      September 2007 Quarter. This deemed dividend is a non-cash
      transaction.





As
      a result of the foregoing, net income available to common shareholders for
      the
      September 2007 Period was $875,000, or $0.08 per share (basic) and
      $0.06  per share (diluted), as compared with net income of $1.78
      million, or $0.15 per share (basic and diluted) for the September 2006
      Period.





**Liquidity
      and Capital Resources**




At
      September 30, 2007, we had a cash balance of $2.5 million. These funds are
      located in financial institutions located in China.





We
      are subject to the regulations of the PRC which restricts the transfer of cash
      from that country, except under certain specific circumstances. Accordingly,
      such funds may not be readily available to us to satisfy obligations which
      have
      been incurred outside the PRC.





As
      of September 30, 2007, we had working capital of approximately $8.01 million,
      compared to $2.2 million at December 31, 2006, of which cash and cash
      equivalents amounted to $2.5 million, compared to $135,000 at December 31,
      2006.
      Our accounts receivable has been a significant portion of our current assets,
      representing $3.35 million, or 21% of current assets, compared to $1.9 million,
      or 52% of current assets at December 31, 2006. Inventories amounted to $2.1
      million, compared to $1.5 million at December 31, 2006. During the September
      2007 Period, our cash flow used in operations amounted $2.7 million compared
      to
      net cash provided by operating activities of $1.7 million in the September
      2006
      Period.




For
      the September 2007 Period, we used cash for investing activities of $2.3 million
      as compared to $657,000 for the September 2006 Period. For the September 2007
      Period, we used cash for the purchase of property and equipment of $934,000
      and
      had an increase in restricted cash of $779,000. For the September 2006 Period,
      we used cash for the purchase of property and equipment of
      $657,000.




We
      have entered into 90-day revolving loan facilities with several banks pursuant
      which we have borrowed $2.88 million. Each 90-day period, we are required to
      renew these loans. At September 30, 2007, there was $2,885,817 outstanding,
      all
      of which were due in the fourth quarter of 2007. These loans bear interest
      at
      rates ranging from 6.44% to 9.50% and are secured by restricted cash of
      $795,000. These loans were renewed for an additional 90-day term. Additionally,
      at September 30, 2007, we have a loan payable with a bank of $665,109 which
      is
      due on July 23, 2008 and is personally guarantee by our chief executive officer.
        In September 2007, we received gross proceeds of $4.0 million from the
      sale of our series A preferred stock and warrants. We used $625,000 of the
      proceeds in connection to pay a former principal stockholder for his stock,
      which was subsequently cancelled, and to pay debt to that stockholder. The
      net
      proceeds to us after payment of closing costs and the payment to the former
      principal stockholder, was approximately $3.0 million. We used the net proceeds
      for working capital purposes.




The
      securities purchase agreement for our September 2007 private placement prohibits
      us (i) from issuing convertible debt or preferred stock until the earlier of
      five years from the closing or until the investors have converted or exercised
      and sold the securities issued in the private placement or (ii) from having
      debt
      in an amount greater than twice our EBITDA until three years from the closing
      or
      until 90% of the securities have been converted or exercised and sold. The
      investors in the private placement also have a right of first refusal on future
      financings until the earlier of five years from the date of this Agreement
      or
      such time as the investors, as a group, cease to own at least five percent
      (5%)
      of the total number of shares of common stock that were issued or are issuable
      upon conversion of series A preferred stock that were initially issued to the
      investors. These provisions may make it difficult for us to raise money for
      our
      operations or for acquisitions.




21




*Off-balance
      Sheet Arrangements*





We
      have
      not entered into any other financial guarantees or other commitments to
      guarantee the payment obligations of any third parties. We have not entered
      into
      any derivative contracts that are indexed to our shares and classified as
      stockholder's equity or that are not reflected in our consolidated financial
      statements. Furthermore, we do not have any retained or contingent interest
      in
      assets transferred to an unconsolidated entity that serves as credit, liquidity
      or market risk support to such entity. We do not have any variable interest
      in
      any unconsolidated entity that provides financing, liquidity, market risk or
      credit support to us or engages in leasing or hedging services with
      us.





ITEM
      3.
      CONTROLS AND PROCEDURES





As
      of
      September 30, 2007, our chief executive officer and our chief financial officer
      performed an evaluation of the effectiveness of and the operation of our
      disclosure controls and procedures as defined in Rule 13a-15(e) or Rule
      15d-15(e) under the Exchange Act. Based on that evaluation, our chief executive
      officer and chief financial officer concluded that our disclosure controls
      and
      procedures were not effective for the reasons discussed below related to the
      weaknesses in our internal control over financial reporting. Disclosure controls
      and procedures are defined as controls
      and other procedures that are designed to ensure that information required
      to be
      disclosed by us in the reports that we file or submit under the Securities
      Exchange Act of 1934, as amended, is recorded, processed, summarized and
      reported, within the time periods specified in the Commission’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      us in
      these reports is accumulated and communicated to our management, including
      our
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure.




Our
      management is responsible for establishing and maintaining effective internal
      controls. Because of its inherent limitations, internal controls may not prevent
      or detect misstatements. A control system, no matter how well designed and
      operated, can only provide reasonable, not absolute, assurance that the control
      system’s objectives will be met. Also, projections of any evaluation of
      effectiveness as to future periods are subject to the risk that controls may
      become inadequate because of changes in conditions, or that the degree of
      compliance with policies and procedures may deteriorate.




A
      material weakness is a control deficiency or combination of control deficiencies
      that results in more than a remote likelihood that a material misstatement
      of
      the annual or interim financial statements will not be prevented or detected.
      As
      a result of our evaluation of our disclosure controls and procedures described
      above, we concluded that there were weaknesses in our disclosure controls and
      procedures. To address these weaknesses described below, we performed additional
      analysis and performed other procedures to ensure the consolidated financial
      statements were prepared in accordance with generally accepted accounting
      principles. Accordingly, management believes that the consolidated financial
      statements included in this quarterly report on Form 10-QSB, fairly
      present, in all material respects, our financial condition, results of
      operations and cash flows for the periods presented in accordance with generally
      accepted accounting principles.




Our
      chief
      executive officer and chief financial officer noted that the reverse merger
      pursuant to which the Company acquired Keep On Holdings Limited was completed
      18
      days prior to the end of the reporting period, that the Company prior to the
      reverse acquisition was a blank check shell company with no business activities,
      and that prior to the reverse acquisition the Company did not engage in any
      significant transactions. Subsequent to September 30, 2007, we took the steps
      to
      address those weaknesses.




We
      believe that the measures we have taken have addressed each matter identified
      as
      a material weakness by management and our independent registered public
      accounting firm. We will continue to monitor the effectiveness of our internal
      controls and procedures on an ongoing basis and will take further actions,
      as
      appropriate.




The
      certification of our chief executive officer and chief financial officer, which
      is included as Exhibit 31.1 to this Annual Report on Form 10-K, include, in
      paragraph 4 of such certification, information concerning our disclosure
      controls and procedures and internal control over financial reporting. Such
      certifications should be read in conjunction with the information contained
      in
      this Item 3 - Controls and Procedures for a more complete understanding of
      the
      matters covered by such certification.




Except
      as
      otherwise discussed herein, there have been no significant changes in our
      internal control over financial reporting during the most recently completed
      fiscal quarter that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting. In addition,
      we are continuing to implement the enhancements to our internal control over
      financing reporting to address the material weaknesses described above.




PART
      II -
      OTHER INFORMATION





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





On
      September 19, 2007, the holders of 43,746,180 shares of common stock, or 50.31%
      of our outstanding common stock voted to approve our restated certificate of
      incorporation, which, among other changes, effected a one-for-7.5 reverse split
      of the common stock, all as set forth in our information statement which was
      filed with the SEC on October 16, 2007.  The restated certificate of
      incorporation was effective on November 8, 2007.  The number of shares
      referred to in this Item 4 does not reflect the reverse split.




Item
      6.
    Exhibits





31.1
        Rule 13a-14(a)/15d-14(a) certification of Chief Executive
      Officer


31.2
        Rule 13a-14(a)/15d-14(a) certificate of Chief Financial
      Officer


32.1
        Section 1350 certification of Chief Executive and Chief Financial
      Officers





SIGNATURES




In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned thereunto duly
      authorized.




China
                Display Technologies, Inc.Date:
                January 23, 2008
            By:
            /s/
                Lawrence Kwok-Yan ChanLawrence
              Kwok-Yan ChanChief
                Executive Officer, Principal Executive
                Officer


Date:
                January 23, 2008
            By:
            /s/
                  Kam Ming YipKam
                Ming YipChief
                  Financial Officer, Principal Financial
                  Officer




22