UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~March 3031, ~~2010~~2011

Oror

¨ o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _________.

Commission File Number:

001-~~33112~~3312

DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.

(Formerly known as Online Processing, Inc.)

(Exact Name of Registrant as Specified in Its Charter)

Nevada		22-3774845
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification Number)

23rd Floor, Building A, Galaxy Century,

No. 3069, Caitian Road, Futian District,

Shenzhen, the PRC

Post Code: 518026

(Address of Principal Executive Offices)

00-86-755-2655-3152

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (~~Former Name,~~1) ~~Former~~has ~~Address~~filed ~~and~~all ~~Former~~reports ~~Fiscal~~required ~~Year,~~to ifbe ~~Changed~~filed ~~Since~~by ~~Last Report~~Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No ¨

Indicate by check mark whether the registrant ~~(1)~~ has ~~filed~~submitted ~~all~~electronically ~~reports~~and posted on its corporate Web site, if any, every Interactive Data File required to be ~~filed~~ bysubmitted ~~Section~~and 13posted orpursuant ~~15(d)~~to Rule 405 of ~~the~~Regulation ~~Exchange~~S-T ~~Act~~(§232.405 of ~~1934~~this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~file~~submit ~~such reports),~~ and ~~(2)~~post ~~has been subject to~~ such ~~filing requirements for the past 90 days~~files). Yes x ¨ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x (Do not check if a smaller reporting company) ~~Smaller reporting company x~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

~~Yes~~As ¨of NoJune x14, 2011, the Company had 22,072,000 shares of common stock issued and outstanding.

As of September 30, 2010, the Company had 22,072,000 shares of common stock issued and outstanding.

Diguang International Development Co., Ltd.

Form 10-Q

For the Quarter Ended ~~September~~March 3031, ~~2010~~2011

Table of Contents

	Page		~~Page~~
Part I - Financial Information	3		4
Item 1. Financial Statements	~~Item 1. Financial Statements~~3		4
Consolidated Balance Sheets	4	~~Consolidated Balance Sheets~~	5
Consolidated Statements of Income and Comprehensive Income	5	~~Consolidated Statements of Income and Comprehensive Income~~	6
Consolidated Statements of Cash Flows	6	~~Consolidated Statements of Cash Flows~~	7
Notes to Consolidated Financial Statements	7	~~Notes to Consolidated Financial Statements~~	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations~~15		16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~19		25
Item 4. Controls and Procedures	~~Item 4. Controls and Procedures~~19		25
Part II - Other Information	20		25
Item 1. Legal Proceedings	~~Item 1. Legal Proceedings~~20		25
Item 1A. Risk Factors.	~~Item 1A. Risk Factors.~~20		25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~20		25
Item 3. Defaults Upon Senior Securities	~~Item 3. Defaults Upon Senior Securities~~20		26
Item 4. Reserved	~~Item 4. Reserved~~20		26
Item 5. Other Information	~~Item 5. Other Information~~20		26
Item 6. Exhibits	~~Item 6. Exhibits~~21		27
Signatures	~~Signatures~~22		28
Certifications	~~Certifications~~

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

The accompanying unaudited consolidated balance sheets, statements of income and comprehensive income, and statements of cash flows and the related notes thereto, have been prepared in accordance with generally accepted accounting principles in the United States of America, “GAAP,” for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission, the “SEC.” Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The financial statements reflect all adjustments, consisting only of normal, recurring adjustments, which are, in the opinion of management, necessary for a fair presentation for the interim periods.

The accompanying financial statements should be read in conjunction with the notes to the aforementioned financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010.

The results of operations for the ~~nine~~three-month period ended ~~September~~March 3031, ~~2010~~2011 are not necessarily indicative of the results to be expected for the entire fiscal year or any other period.

DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD. ~~CONSOLIDATED BALANCE SHEETS (In US Dollars)~~

	December 31,			September 30,
	2009			2010
	(Unaudited)			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,190,513		$	5,244,308
Restricted cash		4,341,112			3,030,857
Accounts receivable, net of allowance for doubtful accounts $1.5 million and $1.4 million		13,972,086			17,290,322
Inventories, net of provision $3.5 million and $3.6 million		7,439,287			10,921,816
Other receivables, net of provision $69,032 and $69,736		465,013			513,637
VAT recoverable		82,497			269,286
Advance to suppliers		900,328			1,270,769
Total current assets		33,390,836			38,540,995
Investment, net of impairment $1,500,000 and $1,500,000		-			-
Plant, property and equipment, net		17,736,766			17,695,328
Construction in process		132,079			6,247,549
Long-term prepayments		439,502			381,137
Total assets	$	51,699,183		$	62,865,009
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank loans	$	10,213,683		$	7,660,318
Accounts payable		15,446,721			22,149,847
Advance from customers		325,165			874,619
Accruals and other payables		2,510,206			2,030,277
Accrued payroll and related expense		712,206			824,202
Income tax payable		394,989			404,879
Amount due to stockholders – current		943,378			358,052
Total current liabilities		30,546,348			34,302,194
Long-term bank loans		-			8,639,115
Research funding advanced		952,255			688,476
Total non-current liabilities		952,255			9,327,591
Total liabilities		31,498,603			43,629,785
Equity：
Common stock, par value $0.001 per share, 50 million shares authorized, 22,593,000 and 22,593,000 shares issued, 22,072,000 and 22,072,000 shares outstanding		22,593			22,593
Additional paid-in capital		20,881,635			20,915,290
Treasury stock at cost		(674,455	)		(674,455	)
Appropriated earnings		802,408			798,928
Accumulated deficit		(7,644,254	)		(8,945,894	)
Translation adjustment		4,338,891			4,668,489
Total stockholders’ equity		17,726,818			16,784,951
Non-controlling interest		2,473,762			2,450,273
Total equity		20,200,580			19,235,224
Total liabilities and stockholders’ equity	$	51,699,183		$	62,865,009

CONSOLIDATED BALANCE SHEETS

(In US Dollars)

	March 31,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,426,251		$	6,563,211
Restricted cash					3,141,546
Accounts receivable, net of allowance for doubtful accounts $1,996,054 and $1,983,44		12,369,487			14,139,582
Inventories, net of provision $4,200,836 and $4,134,441		11,201,927			11,399,202
Other receivables, net of provision $122,323 and $122,323		677,653			752,663
VAT recoverable		(26,369	)		181,736
Advance to suppliers		2,364,932			1,502,805
Total current assets		31,013,881			37,680,745

Plant, property and equipment, net		17,310,979			17,503,777
Construction in process		9,422,222			8,085,261
Long-term prepayments		366,507			363,636
Total assets	$	58,113,589		$	63,633,419
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank loans	$	6,450,460		$	9,375,777
Accounts payable		23,765,397			25,264,404
Advance from customers		1,917,728			647,547
Accruals and other payables		675,796			2,549,137
Accrued payroll and related expense		866,404			945,196
Income tax payable		504,155			539,805
Amount due to stockholders – current		380,804			130,655
Total current liabilities		34,560,744			39,452,521

Long-term bank loans		8,643,464			7,437,878
Research funding advanced		703,427			697,917
Total non-current liabilities		9,346,891			8,135,795

Total liabilities		43,907,635			47,588,316

Equity:
Common stock, par value $0.001 per share, 50 million shares authorized, 22,593,000 and 22,593,000 shares issued, 22,072,000 and 22,072,000 shares outstanding		22,593			22,593
Additional paid-in capital		20,937,727			20,926,509
Treasury stock at cost		(674,455	)		(674,455	)
Appropriated earnings		802,408			802,408
Accumulated deficit		(13,746,840	)		(11,690,548	)
Translation adjustment		4,524,643			4,293,824
Total stockholders’ equity		11,866,076			13,680,331
Non-controlling interest		2,339,878			2,364,772
Total equity		14,205,954			16,045,103

Total liabilities and stockholders’ equity	$	58,113,589		$	63,633,419

See accompanying notes to financial statements

DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(In US Dollars)

	Nine Months Ended September 30,						Three Months Ended September 30,
	Three months ended March 31
	2009			2010			2009			2010
	2011			2010
	(Unaudited)			(Unaudited)			~~(Unaudited)~~			~~(Unaudited)~~
Revenues:
Revenues, net	$	2913,~~659~~409,~~356~~910		$	4812,~~577~~484,~~772~~194		$	~~13,456,366~~		$	~~19,050,932~~
Cost of sales		27(13,~~699~~070,~~850~~023	)		43(10,~~822~~779,~~467~~840	)		~~12,518,206~~			~~17,539,034~~
Gross profit		1339,~~959,506~~887			41,~~755~~704,~~305~~354			~~938,160~~			~~1,511,898~~
Selling expense		1607,~~653,102~~432			2600,~~036,485~~831			~~714,206~~			~~784,572~~
Research and development costs		1,486,377			725,070			460,946			391,103
Research and development		520,459			528,984
General and administrative expenses		3,185,343			2,830,203			997,932			889,226
General and administrative		1,145,934			1,068,932
Loss on disposing assets		~~30,487~~-			102,~~787~~686			~~10,308~~			~~8,480~~
Loss from operations		(41,~~395~~933,~~803~~938	)		(~~847~~497,~~240~~079	)		~~(1,245,232~~	)		~~(561,483~~	)
Interest income (expense), net		(285,~~759~~374	)		(~~585~~169,~~112~~226	)		~~(126,251~~	)		~~(226,099~~	)
Investment income (expense)		~~800~~			-			-			-
Other income (expense)		~~197~~120,~~937~~012			8338,~~690~~592			~~87,744~~			~~(63,375~~	)
Loss before income tax		(4,482,825	)		(1,348,662	)		(1,283,739	)		(850,957	)
Loss before income taxes		(2,099,300	)		(627,713	)
Income tax provision		~~30,927~~(386	)		~~29,028~~-			~~(646~~	)		~~16,199~~
Net loss		(42,~~513~~099,~~752~~686	)		(1627,~~377,690~~713	)		~~(1,283,093~~	)		~~(867,156~~	)
Net loss attributable to non-controlling interest		(248,609	)		(72,570	)		(65,543	)		(12,067	)
Net income (loss) attributable to non-controlling interest		(43,394	)		(50,888	)
Net loss attributable to common shares	$	(42,~~265~~056,~~143~~292	)	$	(1576,~~305,120~~825	)	$	~~(1,217,550~~	)	$	~~(855,089~~	)
Weighted average common shares outstanding – basic		22,072,000			22,072,000			~~22,072,000~~			~~22,072,000~~
Losses per share – basic		(0.1909	)		(0.0603	)		~~(0.06~~	)		~~(0.04~~	)
Weighted average common shares outstanding – diluted		22,072,000			22,072,000			~~22,072,000~~			~~22,072,000~~
Losses per shares – diluted		(0.19	)		(0.06	)		(0.06	)		(0.04	)
Loss per share – diluted		(0.09	)		(0.03	)
Comprehensive loss:
Net loss	$	(42,~~513~~099,~~752~~686	)	$	(1627,~~377,690~~713	)		~~(1,283,093~~	)		~~(867,156~~	)
Translation adjustment		~~(194~~249,~~471~~318	)		~~378~~(38,~~679~~965	)		~~8,346~~			~~282,519~~
Comprehensive loss		(41,~~708~~850,~~223~~368	)		(~~999~~666,~~011~~678	)		~~(1,274,747~~	)		~~(584,637~~	)
Comprehensive income (loss) attributable to non-controlling interest		(250,033	)		(23,489	)		(64,179	)		21,082
Comprehensive loss attributable to non-controlling interest		(24,895	)		(50,853	)
Comprehensive loss attributable to common shares	$	(4,458,190	)	$	(975,522	)	$	(1,210,568	)	$	(605,719	)
Comprehensive income attributable to common shares	$	(1,825,473	)	$	(615,825	)

See accompanying notes to financial statements.

DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (Decrease) in Cash and Cash Equivalents

(In US Dollars)

	Nine Months Ended September 30,
	Three months ended March 31,
	2009			2010
	2011			2010
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(42,~~513~~099,~~752~~686	)	$	(1627,~~377,690~~713	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1505,~~219,618~~560			1446,~~483,654~~606
Bad debts allowance		-			~~(108~~62,~~420~~698	)
Inventory provision		~~568~~66,~~265~~131			(33,~~619~~398	)
Loss on disposing assets		3021,~~487~~048			102,~~787~~686
Share-based compensation		~~301~~11,~~480~~219			3311,~~655~~219
Research and development costs offset by funding advanced		-			(516,156	)
Deferred tax asset		28,485			-
Changes in operating assets and liabilities:
Accounts receivable		(31,~~294~~751,~~841~~721	)		(31,~~147~~999,~~437~~455	)
Inventory		(2132,~~953,544~~832	)		(32,~~374~~535,~~239~~342	)
Other receivables		~~110~~73,~~788~~740			~~(46~~63,~~814~~989	)
VAT recoverable		~~(256~~206,~~989~~464	)		(~~183~~466,~~117~~465	)
Prepayments and other assets		(~~371~~861,~~720~~670	)		(~~371~~707,~~260~~798	)
Accounts payable		~~238~~(1,~~456~~298,342	)		41,~~156~~939,~~825~~835
Accruals and other payable		(641,~~672~~937,684	)		~~(362~~28,~~591~~130	)
Advance from customers		~~(11~~1,~~404~~265,088	)		~~557~~6,~~944~~257
Accrued interest payable to related parties		5755,~~103~~057			-
Taxes payable		(1735,~~492~~338	)		9(11,~~928~~207	)
Net cash used in operating activities		(82,~~929~~143,~~732~~860	)		(3,~~268~~819,~~550~~958	)
Cash flows from investing activities:
Purchase of fixed assets investment in construction		(87,631	)		(4,738,704	)
Purchase of fixed assets		(1,895,497	)		(1,257,632	)
Proceeds from disposal of fixed assets		2919,~~152~~242			~~11,805~~209
Net cash used in investing activities		(581,~~479~~876,255	)		(41,~~726~~257,~~899~~423	)
Cash flows from financing activities:
Due to related parties		~~(800~~195,~~912~~092	)		(597,568	)
Proceeds from (repayments for) short-term bank facilities		8,741,354			(1,253,804	)
Repayments for short-term bank facilities		(2,914,074	)		(1,438,624	)
Repayments for import financing loans		-			(1,356,660	)
Proceeds from import financing loans		-			2,970,691
Restricted cash released from (pledged for) import financing loans		(4,340,769	)		1,310,255
Restricted cash pledged for import financing loans		-			(2,970,691	)
Proceeds from long-term loan facilities		-1,211,096			86,~~639~~592,~~115~~731
Research funding advanced		-			248,603
Net cash (used)/received from financing activities		(1,507,886	)		4,556,539
Net cash received from financing activities		3,599,673			6,989,941
Effect of changes in foreign exchange rates		265,995			(39,255	)
Effect of changes in foreign exchange rates		(187,961	)		59,303
Net increase (decrease) in cash and cash equivalents		(5,262,006	)		(560,097	)
Net decrease in cash and cash equivalents		(5,576,499	)		(946,205	)
Cash and cash equivalents, beginning of the year		6,563,211			6,190,513
Cash and cash equivalents, beginning of the period		15,024,363			6,190,513
Cash and cash equivalents, end of the year	$	1,301,205		$	5,630,416
Cash and cash equivalents, end of the period	$	9,447,864		$	5,244,308
Supplemental disclosures of cash flow information:
Cash paid for interest	$	~~233~~275,~~986~~432		$	~~588~~120,~~700~~912
Cash paid for income taxes		~~14,821~~386			~~24,174~~-

See accompanying notes to financial statements

DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 ─ ORGANIZATION AND OVERVIEW OF BUSINESS

Diguang International Development Co., Ltd., formerly known as Online Processing, Inc., “Online”, ~~the “Company~~”, was ~~organized~~established under the laws of the State of Nevada in 2000. On January 10, 2006, Online entered into a stock exchange agreement with Diguang International Holdings Limited., “Diguang Holdings.” On March 17, 2006, Online issued 2.4 million shares of its common stock in exchange for the gross proceeds of $12 million and issued 18,250,000 shares of its common stock in exchange for 100% equity interest in Diguang Holdings, making Diguang Holdings a wholly owned subsidiary of Online. Consummating the above two transactions simultaneously, Online and Diguang Holdings successfully fulfilled their contractual obligations, respectively, under the stock exchange agreement on March 17, 2006. One of the conditions to closing the transaction was changing the name from Online Processing, Inc. to “Diguang International Development Co., Ltd.,” and the name was changed on February 28, 2006.

The Company specializes in the design, production and distribution of Light Emitting Diode, “LED,” and Cold Cathode Fluorescent Lamp, “CCFL,” backlights for various Thin Film Transistor Liquid Crystal Displays, “TFT-LCD,” and Super-Twisted Nematic Liquid Crystal Display, “STN-LCD,” Twisted Nematic Liquid Crystal Display, “TN-LCD,” and Mono LCDs~~. Taken~~, taking together, these applications are referred to as “LCD” applications. Those applications include color displays for cell phones, car televisions and navigation systems, digital cameras, televisions, computer displays, camcorders, PDAs and DVDs, CD and MP3/MP4 players, appliance displays and the like. In late 2009, the Company started aits trial run of producing LED TV sets inwith two ~~different~~ sizes.

The Company’s headquarter is located in Shenzhen, China. The Company owns its subsidiaries through Diguang Holdings. Diguang Holdings was established under the law of the British Virgin Islands on July 27, 2004 and holds equity interests in the following entities:

Well Planner Limited, a Hong Kong based entity;

Diguang Science and Technology (HK) Limited, a British Virgin Islands based entity;

Shenzhen Diguang Electronics Co., Ltd., a China based entity;

North Diamond;

Wuhan Diguang Electronics Co., Ltd.;

Dongguan Diguang Electronics Science and Technology Co., Ltd.; and

Shenzhen Optimum Electronics Co., Ltd.

Well Planner Limited, “Well Planner,” was established under the laws of Hong Kong Special Administrative Region on April 20, 2001 and has been doing ~~the~~major ~~majority of its~~ business in custom forwarding related to export and import activities conducted by Diguang Electronics for a service fee based on a service agreement, pursuant to which service fees should not be less than 2% of the goods Well Planner has sold. Well Planner mainly sells to Diguang Science and Technology (HK) Limited and has minimal sales to third-party customers.

Diguang Science and Technology (HK) Limited, “Diguang Technology,” was established under the laws of the British Virgin Islands on August 28, 2003 and has handled all sales to international customers and procurements of electronic components and materials for Diguang Electronics.

Both Well Planner and Diguang Technology do not have any office space leased in Hong Kong or ~~the~~and British Virgin Islands.

Shenzhen Diguang Electronics Co. Ltd., “Diguang Electronics,” was established as an equity joint venture in Shenzhen under the laws of the People’s Republic of China, the “PRC,” on January 9, 1996 with an operating life of 20 years starting on that date. As of December 31, 2006, its registered capital was RMB85 million, equivalent to approximately $10,573,615. Diguang Electronics designs, develops and manufactures LED and CCFL backlight units. These backlight units are essential components used in illuminating display panels such as TFT-LCD and color STN-LCD panels. These display panels are used in products such as mobile phones, PDAs, digital cameras, liquid crystal computer or television displays and other household and industrial electronic devices. Diguang Electronics’ customers are located in both China and overseas.7

NOTE 1 ─ ORGANIZATION AND OVERVIEW OF BUSINESS (Continued)

Shenzhen Diguang ~~Holdings~~ ~~acquired~~Electronics ~~65%~~Co. ~~interest~~Ltd., of“Diguang ~~North~~Electronics,” ~~Diamond~~was onestablished ~~January~~as ~~3, 2007. North~~an ~~Diamond~~equity isjoint aventure ~~holding~~in ~~company~~Shenzhen under the laws of ~~Dihao~~the ~~(Yangzhou)~~People’s ~~Co.~~Republic of China, ~~Ltd.,~~ the “~~Dihao~~PRC,” on January 9, 1996 with an operating ~~entity~~life of 20 years starting on that date. As of December 31, ~~which~~2006, isits registered incapital ~~the~~was ~~Yangzhou~~RMB ~~City Development~~85 ~~Zone~~million, ~~Jiangsu~~equivalent ~~Province~~to approximately $10,573,615. Diguang ~~China~~Electronics designs, develops and manufactures LED and CCFL backlight units. ~~Dihao~~ These ~~conducts~~backlight ~~primary business~~units isare essential components used in ~~developing,~~illuminating ~~manufacturing~~display panels such as TFT-LCD and ~~marketing~~color ~~backlight~~STN-LCD panels. These display panels are used in products ~~for large~~such ~~electronic~~as ~~display~~mobile ~~devices~~phones, PDAs, digital cameras, liquid crystal computer or television displays and ~~provides~~other ~~relevant~~household ~~technical~~and ~~services~~industrial electronic devices. Diguang Electronics’ customers are located in both China and overseas.

Diguang ~~Electronics~~ ~~and Diguang~~ Holdings ~~jointly~~acquired ~~set~~65% upinterest ~~Wuhan~~of ~~Diguang~~North ~~Electronics~~Diamond ~~Co., Ltd.,~~on ~~“Wuhan~~January ~~Diguang~~3,” in2007. North ~~Wuhan,~~Diamond ~~Hubei~~is ~~Province, China, with~~ a ~~registered capital~~holding company of Dihao $1(Yangzhou) ~~million~~Co., ofLtd., ~~which~~“Dihao,” ~~70%~~an ~~was~~operating ~~infused~~entity, bywhich ~~Diguang~~is registered ~~Electronics~~in ~~and~~ the ~~remaining~~ ~~30%~~Yangzhou byCity ~~Diguang~~Development ~~Holdings. Wuhan~~Zone, ~~Diguang~~Jiangsu ~~was established on March 13~~Province, ~~2007~~China. Dihao ~~and~~conducts ~~its~~ business ~~license~~activities ~~issued~~of bydeveloping, ~~Wuhan~~manufacturing ~~Municipal Administrative Bureau for Industry~~ and ~~Commerce~~marketing isbacklight ~~valid~~products for 20large ~~years~~size ~~expiring~~electronic ondisplay ~~March~~devices ~~12, 2027. Wuhan Diguang manufactures~~ and ~~sells~~provides ~~LED~~relevant ~~and~~technical ~~CCFL~~services ~~backlight units~~ in ~~the south central region of~~ China. ~~Wuhan Diguang started operation on July 1, 2007.~~

~~Dongguan~~ Diguang Electronics ~~Science~~ and ~~Technology~~Diguang Holdings jointly set up Wuhan Diguang Electronics Co., Ltd., “~~Dongguan~~Wuhan Diguang ~~S&T~~,” ~~was~~ ~~established~~in ~~under~~Wuhan, ~~the~~Hubei ~~laws~~Province, ofChina, ~~the~~with ~~People’s~~a ~~Republic~~registered capital of ~~China~~$1 ~~on February 16~~million, ~~2004~~ ~~and~~of ~~has~~which ~~been~~70% ~~used~~was infused by Diguang Electronics asand athe ~~production~~remaining ~~base~~30% ~~since~~by ~~its inception~~Diguang Holdings. On Wuhan ~~December~~Diguang 29was established on March 13, 2007, ~~Diguang~~and ~~Holdings~~its ~~acquired~~business ~~100%~~license ~~of the~~issued ~~equity~~by ~~interest~~Wuhan ofMunicipal ~~Dongguan~~Administrative ~~Diguang~~Bureau ~~S&T. On~~for ~~January~~Industry 1,and ~~2008~~Commerce is valid for 20 years expiring on March 12, 2027. Wuhan Diguang ~~Holdings~~manufactures ~~assigned~~and ~~70%~~sells ofLED itand ~~interest~~CCFL backlight units in ~~Dongguan~~Central ~~Diguang~~South ~~S&T~~region ~~to Diguang~~of ~~Electronics~~China. ~~Dongguan~~ Wuhan Diguang ~~S&T~~ started ~~its~~operation ~~own manufacturing~~on ~~activities~~July in1, ~~2008~~2007.

On ~~April 30~~December 29, ~~2009~~2007, ~~Well~~Diguang ~~Planner~~Holdings ~~established~~acquired a100% ~~wholly~~interest ~~owned~~in ~~entity~~Dongguan ~~named~~Diguang ~~Shenzhen Optimum~~ Electronics Science and Technology Co., Ltd., “~~Shenzhen~~Dongguan ~~Optimum,~~Diguang S&T.” On aJanuary ~~China~~1, ~~based entity~~2008, Diguang Holdings assigned 70% of interest in Dongguan Diguang S&T to Diguang Electronics. ~~Shenzhen~~ ~~Optimum~~Dongguan ~~concentrates~~Diguang onS&T was established under the ~~sale~~laws of ~~large-size~~the ~~LED TV~~People’s ~~sets~~Republic ~~manufactured~~of China on February 16, 2004 and has been used by Diguang Electronics toas ~~domestic~~the ~~customers~~production ~~throughout China~~base since its inception. Dongguan Diguang S&T has started its manufacturing activities since 2008.

~~NOTE 2~~On ~~─RECENTLY~~April ~~ISSUED~~30, ~~ACCOUNTING~~2009, ~~PRONOUNCEMENTS~~Well Planner established a wholly-owned entity named Shenzhen Optimum Electronics Co., Ltd, “Shenzhen Optimum,” a China based entity. Shenzhen Optimum concentrates in sales of large size LED TV sets manufactured by Diguang Electronics to domestic customers throughout China.

NOTE 2 ─ RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Issued Accounting Pronouncements Adopted

FASB ASU 2009-05

Effective January 1, 2010, the Company adopted Accounting Standards Update ("ASU") No. 2009-05, "Measuring Liabilities at Fair Value," which amends the guidance in ASC 820, Fair Value Measurements and Disclosures, to provide guidance on fair value measurement of liabilities. If a quoted price in an active market is not available for an identical liability, ASU 2009-05 requires companies to compute fair value by using quoted prices for an identical liability when traded as an asset, quoted prices for similar liabilities when traded as an asset or another valuation technique that is consistent with the guidance in ASC 820. ASU 2009-05 will be effective for interim and annual periods beginning after its issuance. The adoption of ASU 2009-05 did not have any impact on the Company’s financial statements.

FASB ASU 2009-17

Effective January 1, 2010, the Company adopted ASU No. 2009-17, “Consolidations (Topic 810) – Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which codifies FASB Statement No. 167, “Amendments to FASB Interpretation No. 46(R).” This ASU changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The adoption of ASU 2009-05 did not have any impact on the Company’s financial statements.

FASB ASU 2010-01

Effective January 1, 2010, the Company adopted ASU No. 2010-01 ─ “Accounting for Distributions to Shareholders with Components of Stock and Cash.” The amendments in this update clarify that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this ASU did not have a material impact on its consolidated financial statements.

NOTE 2 ─RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)

Recently Issued Accounting Pronouncements Adopted (Continued)

FASB ASU 2010-02

Effective January 1, 2010, the Company adopted ASU No. 2010-02 – “Accounting and Reporting for Decreases in Ownership of a Subsidiary – a Scope Clarification.” The amendments in this update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

FASB ASU 2010-09

In February 2010, FASB issued ASU No. 2010-9, – “Amendments to Certain Recognition and Disclosure Requirements.” This update addresses certain implementation issues related to an entity’s requirement to perform and disclose subsequent-events procedures, removes the requirement that public companies disclose the date of their financial statements in both issued and revised financial statements. According to the FASB, the revised statements include those that have been changed to correct an error or conform to a retrospective application of U.S. GAAP. The amendment is effective immediately. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Adopted Yet

FASB ASU 2009-13

In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition: Multiple-Deliverable Revenue Arrangements” (ASU 2009-13). This update removes the criterion that entities must use objective and reliable evidence of fair value in separately accounting for deliverables and provides entities with a hierarchy of evidence that must be considered when allocating arrangement consideration. The new guidance also requires entities to allocate arrangement consideration to the separate units of accounting based on the deliverables’ relative selling price. The provisions will be effective for revenue arrangements entered into or materially modified beginning January 1, 2011. The Company is currently evaluating the impact of the provisions of ASU 2009-13.

FSAB ASU 2010-06

In January 2010, FASB issued ASU No. 2010-06, – “Improving Disclosures about Fair Value Measurements.” This update provides amendments to Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers~~; and~~ . 2) Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). InThis ~~addition, this~~ update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows: 1) Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities~~; and~~ . 2) Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The ~~Company is currently evaluating the impact of this ASU. However, the Company does not expect the~~ adoption of this ASU did to not have a material impact on ~~its~~ the Company’s consolidated financial statements.

108

NOTE 2 ─ RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)

~~Recently Issued~~FASB ~~Accounting~~ASU ~~Pronouncements Not Adopted Yet (Continued)~~2010-29

The FASB has issued ASU No. 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” This ASU reflects the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity as defined by Topic 805, Business Combinations,that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.

The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Adopted Yet

FASB ASU 2010-13

In April 2010, the FASB issued Accounting Standards Update ("ASU") No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” which addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

FASB ASU 2010-17

The FASB issued ASU No. 2010-17, “Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition.” This ASU codifies the consensus reached in EITF Issue No. 08-9, “Milestone Method of Revenue Recognition.” The amendments to the Codification provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and nonsubstantive milestones, and each milestone should be evaluated individually to determine if it is substantive. ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

NOTE 3 ─ ALLOWANCE FOR ACCOUNTS RECEIVABLES

During the normal course of business, the Company extends unsecured credit to its customers. Typically, credit terms require payment to be made within 90 days of the invoice date. The Company does not require collateral from its customers. The Company maintains its cash accounts at credit worthy financial institutions and closely monitors the movements of its cash positions.

The Company regularly evaluates and monitors the creditworthiness of each customer on a case-by-case basis. The Company includes any accounts balances that are determined to be uncollectible in the allowance for doubtful accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on the information available to management, the Company believes that its allowance for doubtful accounts as of December 31, ~~2009~~2010 and ~~September~~March 3031, ~~2010~~2011 ~~was~~were adequate, respectively. However, actual write-off might exceed the recorded allowance.

The following table presents allowance activities in accounts receivable.

	December 31,			September 30,
	March 31,			December 31,
	2009			2010
	2011			2010
	(Unaudited)			~~(Unaudited)~~
Beginning balance	$	~~655~~1,~~893~~983,449		$	1,529,505
Additions charged to expense		~~927~~12,~~704~~605			-565,336
Recovery		-			(112,284	)
Write-off		-			(111,392	)
Write-off		(54,092	)		(2,353	)
Ending balance	$	1,996,054		$	1,983,449
Ending balance	$	1,529,505		$	1,414,868

NOTE 4 ─ INVENTORIES

The inventories are as follows:

	December 31,			September 30,
	March 31,			December 31,
	2009			2010
	2011			2010
	(Unaudited)			~~(Unaudited)~~
Raw materials	$	58,~~661~~039,~~873~~847		$	67,~~914~~457,~~873~~009
Work in progress		1,~~504~~889,~~063~~479			3,~~067~~046,~~240~~291
Finished goods		35,~~092~~196,~~724~~122			43,~~489~~972,~~063~~411
Consignment goods		~~699~~277,~~751~~315			61,~~909~~057,932
	$	1015,~~958~~402,~~411~~763		$	1415,~~478~~533,~~085~~643
Provision		(34,~~519~~200,~~124~~836	)		(34,~~556~~134,~~269~~441	)
Inventories, net	$	711,~~439~~201,~~287~~927		$	1011,~~921~~399,~~816~~202

1110

NOTE 5 ─ PROPERTY, PLANT, AND EQUIPMENT

A summary of property, plant and equipment at cost is as follows:

	December 31,			September 30,
	March 31,			December 31,
	2009			2010
	2011			2010
	(Unaudited)			~~(Unaudited)~~
Land usage rights	$	3,~~199~~303,~~461~~974		$	3,~~264~~278,~~210~~945
Plant and office buildings		11,~~493~~978,~~931~~080			11,~~726~~887,~~542~~337
Machinery		5,~~282~~984,~~122~~220			5,~~818~~819,~~182~~686
Office equipment		1,~~425~~940,~~128~~109			1,~~805~~886,~~714~~765
Vehicles		~~277~~320,~~171~~988			~~307~~363,~~776~~750
Software		~~153~~159,~~309~~767			~~174~~158,~~527~~556
Leasehold improvement		21,~~096~~945,~~803~~042			21,~~201~~985,~~142~~626
	$	2325,~~927~~632,~~925~~180		$	25,~~298~~380,~~093~~665
Accumulated depreciation		(68,~~191~~321,~~159~~201	)		(7,~~602~~876,~~765~~888	)
	$	17,~~736~~310,~~766~~979		$	17,~~695~~503,~~328~~777

The depreciation and amortization for the three months ended ~~September~~March 3031, ~~2009~~2011 and ~~2010~~ ~~were $362,126 and $543,542, and for the nine months ended September 30, 2009 and~~ 2010 were $1444,~~219,618~~313 and $1424,~~483,654,~~630 respectively.

~~NOTE 6~~NOTE6 ─ CONSTRUCTION IN PROCESS

The Company is constructing a manufacturing facility for the production of large-size LED products in Guangming District of Shenzhen City. The total budgeted capital investment for this facility is estimated to be $10.5 million, excluding cost of land usage right. As of ~~September~~March 3031, ~~2010~~ 2011, the cost of construction in process was $69,~~247~~422,~~549~~222. ~~The construction of the plants and buildings will be completed at the end of 2010.~~

NOTE 7 ─ RELATED PARTY TRANSACTIONS

Related Party Relationships

Name of Related Parties		Relationship with the Company
Mr. Yi Song		One of the shareholders of the Company
Mr. Hong Song		One of the shareholders of the Company
Shenzhen Diguang Engine & Equipment Co., Ltd., a China based entity		~~100~~80% owned by Mr. Yi Song and 20% owned by Mr. Hong Song
Sino Olympics Industrial Limited		The representative of Song’s brothers

The break-down details of due to related parties were summarized as follows:

Amount due to	Stockholders
Balance at December 31, 2009	$	~~943~~130,~~378~~655
Accrued interest		28250,~~114~~149
Payments made		(613,440	)
Balance at March 31, 2010	$	380,804
Balance at September 30, 2010	$	358,052

Prior to Diguang Holdings acquiring 100% of the equity interest of Dongguan Diguang S&T, Sino Olympics Industrial Limited, “Sino Olympics,” owns 92% of the interest and Shenzhen Diguang Engine & Equipment owns the remaining 8% of the interest of Dongguan Diguang S&T. Accordingly, the entire consideration of $4.2 million from Diguang Holdings was allocated $3,864,000 to Sino Olympics and $336,000 to Shenzhen Diguang Engine & Equipment. Based on the fact that Mr. Yi Song and Mr. Hong Song are the owners of both Sino Olympics and Shenzhen Diguang Engine & Equipment, the entire consideration of the $4.2 million was treated as an amount due to Mr. Yi Song and Mr. Hong Song. Of the $4.2 million acquisition price, $2 million was paid in cash before the end of 2007 and the remaining balance of $2.2 million should have been repaid through four installment payments on June 30, 2008, December 31, 2008, March 31, 2009 and June 30, 2009, respectively. The balance of $358,052 was overdue as of September 30, 2010.11

12NOTE 7 ─ RELATED PARTY TRANSACTIONS (Continued)

NOTE 8 ─ BANK LOANS

~~Short term~~Bank loans from Shenzhen Ping’an Bank

~~Diguang Electronics~~Short ~~renewed~~term bank loans of RMB30 million with Shenzhen Ping’an Bank. RMB10 million, equivalent to $1,494,657, and RMB20 million, equivalent to $2,989,313, were received on December 25, 2009 and January 6, 2010, respectively. The renewed bank loan will mature in one year. Pursuant to the renewed loan agreements, the plant owned by Dongguan Diguang S&T, with a net book value of $4,295,734, was put as pledge and the prevailing annual standard rate was 5.47% under the stipulation from the People's Bank of China.

~~The abovementioned~~Diguang ~~RMB30~~Electronics ~~million~~has ~~loans~~acquired ~~were~~bank ~~borrowed~~loan ~~under~~facilities ~~the~~of RMB30 million. ~~bank loan~~The ~~facilities~~RMB30 ~~provided~~million bybank ~~Shenzhen~~loan ~~Ping’an~~facility ~~Bank. Diguang Electronics~~was ~~also received~~ pledged ~~import~~by ~~financing~~buildings ~~loans~~in ~~from~~Dongguan ~~Shenzhen~~Diguang ~~Ping’an Bank. The~~S&T ~~import~~with ~~financing~~a ~~loans~~net ~~were~~book ~~guaranteed~~value ~~by equivalent deposit~~ of ~~cash~~$3.6 million.

OnAs ~~January~~of 12March 31, ~~2010~~2011, ~~Diguang~~the ~~Electronics~~Company ~~received an~~fully ~~import~~used ~~financing~~the ~~loan~~RMB30 ofmillion bank facilities and borrowed RMB30 million, equivalent to $24,~~996~~581,~~989~~342, from Shenzhen Ping’an Bank with ana prevailing annual ~~interest~~ rate of 26.315%,. All ~~which~~of ~~will~~these ~~mature~~bank onloans ~~January~~will ~~12,~~fall ~~2011. Diguang Electronics~~due ~~was~~in ~~required to repay~~ the ~~loan~~first inhalf ~~RMB~~year atof ~~the~~2011, ~~fixed~~among ~~exchange~~which, ~~rate of 6~~$1.~~7601~~5 ~~between~~million, U$1.S.1 ~~Dollar~~million, and ~~RMB when the loan falls mature~~$2. ~~The cash~~0 ~~deposit~~million towill ~~guarantee~~fall ~~the~~due ~~loan~~on ~~was~~June ~~RMB20~~6,~~277,948,~~ ~~equivalent~~May ~~to $3~~30,~~030,857 as~~ ofand ~~September~~May 3013, ~~2010~~2011, ~~with an interest rate of 2~~respectively.~~25% per annum.~~

~~Long-term loan~~Loans agreements with China Development Bank ~~Co., Ltd.~~

~~On November~~Long ~~10, 2009, Diguang Electronics entered into a 5 year, long-~~term loan ~~agreement~~ ~~with~~received ~~China Development Bank Co., Ltd. to borrow RMB100 million for the construction of the new facility located on the land owned~~ by Diguang ~~Electronics~~ ~~in the Guangming District of Shenzhen City. On December 30, 2009, Diguang~~ Electronics paid RMB3 million to China Development Bank as a 5 year guarantee expense for the RMB100 million bank facilities, upon which the bank facilities formally became effective. As of September 30, 2010, Diguang Electronics had received RMB55 million, equivalent to $8,220,611, from China Development Bank Co., Ltd.

~~The RMB100~~On ~~million~~November ~~banking~~10, ~~facilities~~2009, ~~are~~Diguang ~~secured~~Electronics byentered ~~the~~into ~~followings:~~a ~~(1)~~5 ~~two~~year ~~joint and~~long-term ~~several~~loan ~~personal~~agreement ~~guarantees~~with ~~from~~China MrDevelopment Bank Co., YiLtd. ~~Song~~to ~~and~~borrow ~~Mr.~~RMB100 ~~Hong~~million ~~Song,~~for ~~directors~~the construction of the ~~Company;~~new ~~(2)~~facility ~~collateral~~located ~~placed~~in on the ~~office~~Guangming ~~space~~District ~~owned~~of byShenzhen City. On December 30, 2009, Diguang Electronics ~~with~~paid aRMB3 ~~carrying~~million ~~amount~~to ofChina ~~$2,410,820;~~Development ~~(3)~~Bank ~~and~~as ~~collateral~~5 ~~placed~~year on guarantee expense for the ~~land~~RMB100 ~~use~~million ~~rights~~bank onfacilities, aupon ~~piece~~which ofthe ~~land~~bank ~~located~~facilities informally ~~the~~became ~~Guangming~~effective. ~~District~~As of ~~Shenzhen~~ ~~with~~March a31, ~~carrying~~2011, ~~amount~~Diguang ofElectronics had received RMB66.1 million, equivalent to $210,~~274~~023,~~911~~385, from China Development Bank Co., Ltd.

OnThe ~~May 25,~~RMB100 ~~2010,~~million ~~Dongguan~~banking ~~Diguang~~facilities ~~S&T~~are ~~entered~~secured ~~into~~by athe ~~loan~~followings: ~~agreement~~(1) ~~with~~two ~~China Development~~joint ~~Bank~~and ~~Co.,~~several ~~Ltd.~~personal ~~for~~guarantees ~~RMB30~~from ~~million~~Mr. ~~bank~~Yi ~~facilities~~Song and Mr. ~~The bank~~ ~~facilities~~Hong ~~provided~~Song, bydirectors of the ~~Bank~~Company; ~~aimed~~(2) tocollateral ~~replenish~~placed ~~working~~on ~~capital~~the ~~for~~office ~~a specified~~space ~~customer’s~~owned ~~purchase~~by ~~orders~~Diguang ~~and~~Electronics ~~the~~with ~~issuances~~a ofcarrying ~~loan~~amount ~~proceeds~~of ~~were tied~~$2.3 upmillion; ~~with~~and ~~purchase~~(3) ~~orders~~collateral ~~received~~placed ~~from~~on the ~~specific~~land ~~customer. On July~~use 9,rights ~~2010,~~of ~~Dongguan~~the ~~Diguang~~land ~~S&T~~on ~~received~~which ~~RMB4.0~~the ~~million,~~new ~~equivalent~~manufacturing ~~to $597~~facility was located,~~863,~~ ~~from~~which ~~China~~has ~~Development~~a ~~Bank~~carrying Coamount of $2.,4 ~~Ltd~~million.

~~The~~Long ~~RMB30 million~~term ~~banking~~loan ~~facilities~~received ~~are secured~~ by ~~the followings: (1) joint and several liabilities guarantee from Diguang Electronics; (2) all the interest and income related to the lease agreement between~~ Dongguan Diguang S&T and Diguang Electronics, by which Dongguan Diguang S&T leased its plants to Diguang Electronics for an annual rental of RMB4.6 million, equivalent to $681,563 as of September 30, 2010; and (3) all the interest and income related to sales contract between Dongguan Diguang S&T and the specified customer.

13On May 25, 2010, Dongguan Diguang S&T entered into a loan agreement with China Development Bank Co., Ltd. for RMB30 million bank facilities. The bank facilities provided by the Bank aimed to replenish working capital for a specified customer’s purchase orders and the issuances of loan proceeds were tied up with purchase orders received from the specific customer.

The RMB30 million banking facilities are secured by the followings: (1) joint and several liabilities guarantee from Diguang Electronics; (2) all the interest and income related to the lease agreement between Dongguan Diguang S&T’s and Diguang Electronics, by which Dongguan Diguang S&T leased its plants to Diguang Electronics for an annual rental of RMB4.6 million, equivalent to $0.7 million as of December 31, 2010; and (3) all the interest and income related to sales contract between Dongguan Diguang S&T and the specified customer.

On July 9, 2010, Dongguan Diguang S&T received RMB4.0 million, equivalent to $597,863, from China Development Bank Co., Ltd. Among which RMB1.0 million, equivalent to $151,639, was repay in March.

Since Dongguan Diguang S&T had not received enough purchase orders as expected from the specific customer, the Company estimated that the rest of the bank facilities of RMB26 million was no longer available.

NOTE 9 ─ STOCK OPTIONS

The Company recognized the share-based compensation cost based on estimated grant-date fair value. There were no stock options issued before January 1, 2006.

Assumptions

The fair value of each stock option granted was estimated at the date of grant using the Black-Scholes option pricing model with the below assumptions.

The expected volatilities are essentially based on the historical volatility of the Company’s stock. The observation was made on a daily basis. The periods of observation covered were from March 17, 2006 though the grant day for all the options granted. The expected terms of stock options are based on the average vesting period and the contractual life of stock options granted. The risk-free rates are consistent with the expected terms of stock option and based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated the forfeiture rate of its stock options was 6.13%.

Stock Option Plan

The Company’s 2006 Stock Incentive Plan, the “2006 Plan,” which is shareholder-approved, permits the grant of stock options to its employees up to 1,500,000 shares of common stock. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price per share equal to the five-day average share price before the Board of Directors’ approval. These options have up to ten-year contractual life term.

Awards generally vest over four years in equal installments on the next four succeeding anniversaries of the grant date. The share-based compensation will be recognized based on a graded vesting method over the four years, or over the three years regarding the options granted to directors in order to match their directorship terms. A summary of option activities under the 2006 Plan during the three months ended ~~September~~March 3031, 2010 are presented as follows:

Stock Options	Shares			Weighted- Average Exercise Price		Weighted -– Average Remaining Contractual Term
Outstanding at January 1, 2010		1,~~201~~131,917			1.77		85.7976
Forfeited or expired		(60,000	)		0.24		5.03
Granted		-
Outstanding at September 30, 2010		1,141,917			1.83		6.93
Exercised		-
Exercisable at September 30, 2010		641,361			3.15		5.90
Forfeited or expired		(16,000	)
Outstanding at March 31, 2010		1,115,917			1.87		6.42
Exercisable at March 31, 2010		669,694			3.03		5.53

The trading price of the Company stock at ~~September~~March 31, ~~2009~~2011 and 2010 was $0.4015 and $0.4530 per share, respectively. As of ~~September~~March 3031, ~~2010~~2011, the exercise price of 471,917 shares of outstanding stock option was higher than ~~the~~ trading price of the Company’s common stock and did not have any intrinsic value; the ~~excise~~ exercise price of the other ~~670~~644,000 shares granted in December 2008 was lower than ~~the~~ trading price and reported intrinsic value. Intrinsic value for outstanding and exercisable options as of ~~September~~March 3031, ~~2010~~2011 was $~~227~~25,~~100~~320 and $6110,~~250~~000, respectively.

NOTE 10 ─ ~~RESEARCH~~EARNINGS ~~AND~~PER ~~DEVELOPMENT COSTS~~SHARE

On October 27, 2008, Diguang Electronics received research funding of RMB3.5 million from the Department of Information Industry of Guangdong Province to support its research and development of “Ultra Thin, Energy Saving, and Environmental Friendly intelligent LED backlighting for TFT-LCD” project and industrialization of LED Driver IC production. The research and development of this project was successfully completed in the second quarter of 2010 and the subsidy received of RMB3.5 million, equivalent to $513,867, was offset against research and development cost.

NOTE 11 ─ EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net earnings per share for the periods as indicated:

	Nine Months Ended September 30,						Three Months Ended September 30,
	Three Months Ended March 31,
	2009			2010			2009			2010
	2011			2010
	(Unaudited)			(Unaudited)			~~(Unaudited)~~			~~(Unaudited)~~
Numerator:
Net loss attributable to common shareholders	$	(4,265,143	)	$	(1,305,120	)	$	(1,217,550	)	$	$(855,089	)
Net income (loss) attributable to the Company	$	(2,056,292	)	$	(576,825	)
Net loss used in computing diluted earnings per share	$	(4,265,143	)	$	(1,305,120	)	$	(1,217,550	)	$	(855,089	)
Net income (loss) used in computing diluted earnings per share	$	(2,056,292	)	$	(576,825	)
Denominator:
Weighted average common shares outstanding – basic		22,072,000			22,072,000			~~22,072,000~~			~~22,072,000~~
Potential diluted shares from stock options granted		-			-			-			-
Weighted average common share outstanding – diluted		22,072,000			22,072,000
Weighted average common share outstanding – diluted		22,072,000			22,072,000			22,072,000			22,072,000
Basic earnings per share	$	(0.09	)	$	(0.03	)
Basic earnings (losses) per share	$	(0.19	)	$	(0.06	)	$	(0.06	)	$	(0.04	)
Diluted earnings per share	$	(0.09	)	$	(0.03	)
Diluted earnings (losses) per share	$	(0.19	)	$	(0.06	)	$	(0.06	)	$	(0.04	)

~~NOTE 12 ─ SEGMENT REPORTING~~13

~~The Company~~NOTE ~~currently~~11 ~~operates~~─ ~~mainly~~SEGMENT in backlight production with portions of new products of LED monitors, LED general lighting and LED TV sets assembly. As the Company’s major production base is in China, while export revenue and net income in overseas entities are accounted for a significant portion of total consolidated revenue and net income, management believes that the following tables present useful information to chief operation decision makers for measuring business performance, financing needs and preparing corporate budget.REPORTING

	Nine Months Ended September 30,				Three Months Ended September 30,
	2009		2010		2009		2010
Sales to China domestic customers	$	11,745,244	$	24,508,862	$	5,654,407	$	9,736,092
Sales to international customers		17,914,112		24,068,910		7,801,959		9,314,840
	$	29,659,356	$	48,577,772	$	13,456,366	$	19,050,932

The Company currently operates mainly in backlight production with portions of new products of LED monitors, LED general lighting and LED TV sets assembly. As the Company’s major production base is in China while export revenue and net income in overseas entities is accounted for a significant portion of total consolidated revenue and net income, management believes that the following tables present useful information to chief operation decision makers for measuring business performance, financing needs, and preparing corporate budget, etc.

		China				International
	Three Months Ended March 31,
		Customers				Customers			Total
	2011				2010
For nine months ended and as of September 30, 2009
	(Unaudited)				(Unaudited)
Revenue		$	11,745,244			$	17,914,112		$	29,659,356
Sales to China domestic customers		$	4,257,335			$	6,006,812
Gross margin			8	%			6	%		7	%
Sales to international customers			9,152,575				6,477,382
Receivable			6,716,631				6,521,866			13,238,497
		$	13,409,910			$	12,484,194
Inventory			9,668,601				-			9,668,601
Property and equipment			17,983,687				-			17,983,687
Expenditures for long-lived assets			87,631				-			87,631
For nine months ended and as of September 30, 2010
Revenue		$	24,508,862			$	24,068,910		$	48,577,772
Gross margin			10	%			10	%		10	%
Receivable			9,708,933				7,581,389			17,290,322
Inventory			10,921,816				-			10,921,816
Property and equipment			17,695,328				-			17,695,328
Expenditures for long-lived assets			4,738,704				-			4,738,704

	China			International
	Customers			Customers			Total

As of March 31, 2010
Revenue	$	6,006,812		$	6,477,382		$	12,484,194
Gross margin		17	%		10	%		14	%
Receivable		8,332,146			7,576,732			15,908,878
Inventory		10,008,084			-			10,008,084
Property and equipment		18,698,964			-			18,698,964
Expenditures for long-lived assets		1,257,632			-			1,257,632

As of March 31, 2011
Revenue	$	4,257,335		$	9,152,575		$	13,409,910
Gross margin		5.4	%		1.2	%		2.5	%
Receivable		5,566,361			6,803,126			12,369,487
Inventory		11,201,927			-			11,201,927
Property and equipment		17,310,979			-			17,310,979
Expenditures for long-lived assets

NOTE 12 ─ ~~SEGMENT~~UNCERTAINTY ~~REPORTING~~ON ~~(Continued)~~GOING CONCERN

	China			International
	Customers			Customers			Total
For three months ended and as of September 30, 2009
Revenue	$	5,654,407		$	7,801,959		$	13,456,366
Gross margin		7	%		7	%		7	%
Receivable		6,716,631			6,521,866			13,238,497
Inventory		9,668,601			-			9,668,601
Property and equipment		17,983,687			-			17,983,687
Expenditures for long-lived assets		87,631			-			87,631
For three months ended and as of September 30, 2010
Revenue	$	9,736,092		$	9,314,840		$	19,050,932
Gross margin		6	%		10	%		8	%
Receivable		9,708,933			7,581,389			17,290,322
Inventory		10,921,816			-			10,921,816
Property and equipment		17,695,328			-			17,695,328
Expenditures for long-lived assets		4,738,704			-			4,738,704

The Company has incurred consecutive losses for four years since 2007 and has a working capital deficit of $3.55 million as of March 31, 2011. The cash flows from operating activities for the past three years were all negative. Management is fully aware of the current situation and knows the demand for cash from its operating activities and completion of building its manufacturing facility. Management is planning to do its best to secure more loans from commercial banks by collateralizing its properties located in Dongguan. Management believes that the Company should be able to obtain more loans from commercial banks based on the properties it owns and the fact that the market value of these properties has appreciated substantially under the trend of China property market. However, there is no assurance that management could succeed in its endeavor to obtain more loans from commercial banks.

NOTE 13 ─ SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after ~~September~~March 3031, ~~2010~~ 2011 up through the date the Company issued these financial statements. During this period the Company did not have any material recognizable subsequent events.

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

This Report contains forward-looking statements, including statements that include the words "believes," "expects," "estimates," "anticipates" or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements. Risk factors include, but are not limited to, costs associated with financing new products, ; the Company’s ability to cost-effectively manufacture its products on a commercial scale,; the concentration of the Company’s current customer base, ; competition,; the Company’s ability to comply with applicable regulatory requirements,; potential need for expansion of the Company’s production facility, ; the potential loss of a strategic relationship,; inability to attract and retain key personnel,; management's ability to effectively manage the Company’s growth, ; difficulties and resource constraints in developing new products,; protection and enforcement of the Company’s intellectual property and intellectual property disputes,; compliance with environmental laws,; climate uncertainty,; currency fluctuations,; control of the Company’s management and affairs by principal shareholders.

The reader should carefully consider, together with the other matters referred to herein, the information contained under the ~~subheading~~caption "Risk Factors" in the Company’s most recent ~~annual~~Annual ~~report~~Report inon ~~the~~ Form 10-K for a more detailed description of these significant risks and uncertainties. The Company cautions the reader, however, not to unduly rely on these forward-looking statements.

~~Risk Factors~~RISK FACTORS

Investment in the Company’s common stock involves risk. The investor should refer to information contained under the ~~subheading~~caption “Risk Factors” in the Company’s most recent ~~annual~~ ~~report~~Annual inReport ~~the~~on Form 10-K. You should carefully consider the ~~investment~~ investing risks before deciding to invest. The market price of the Company’s common stock could decline due to any of these risks, in which case you could lose all or part of your investment. In assessing these risks, you should also refer to the other information included in this report, including the Company’s consolidated financial statements and the accompanying notes. You should pay particular attention to the fact that the Company is a holding company with substantial operations in China and is subject to legal and regulatory environments that in many respects differ from that of the United States. The Company’s business, financial condition or results of operations could be affected materially and adversely by any of the risks discussed below and any others not foreseen. This discussion contains forward-looking statements.

Business Overview

The Company specializes in the design, production and distribution of small to medium-~~size~~sized Light Emitting Diode, “LED,” and Cold Cathode Fluorescent Lamp, “CCFL,” backlights for various Thin Film Transistor Liquid Crystal Displays, “TFT-LCD,” and Super-Twisted Nematic Liquid Crystal Display, “STN-LCD,” Twisted Nematic Liquid Crystal Display, “TN-LCD,” and Mono LCDs~~. Taken~~ , taken together, these applications are referred to as “LCD” applications. Those ~~and~~applications include color displays for cell phones, car televisions and navigation systems, digital cameras, televisions, computer displays, camcorders, PDAs, ~~DVD~~and DVDs, CD and MP3/MP4 players, appliance displays, ~~etc~~and the like.

The Company’s ~~headquarters~~headquarter is ~~located~~ in Shenzhen, China. The Company conducts its business principally through the operations of Shenzhen Diguang Electronics Co., ~~which~~ isLtd., “Diguang Electronics,” based in Shenzhen along with its main backlight manufacturing operation in Dongguan, Guangdong Province, China, Dihao Co. , Ltd., based in Yangzhou, “Dihao” and Wuhan Diguang Electronics Co., Ltd, based in Wuhan, “Wuhan Diguang.” Shenzhen Diguang Electronics had approximately 1,~~460~~374 full-time employees as of ~~September~~March 3031, ~~2010~~2011.

Dihao~~, which~~ is ~~based in Yangzhou, is~~ a 100% wholly-owned subsidiary of North Diamond. The Company gained controlling interest of Dihao by acquiring 65% of North Diamond on January 3, 2007. As of ~~September 30~~March 31, ~~2010~~2011, Dihao had approximately ~~150~~172 full-time employees.

Wuhan Diguang, ~~which is based in Wuhan,~~ was established on March 13, 2007 and commenced its operation on July 1, 2007. Wuhan Diguang was established with the capacity to provide large~~-size~~ inches of TFT-LCD, which are mainly sold to its customers infrom Taiwan. Wuhan Diguang had approximately ~~429~~ 422 employees as of ~~September~~March 3031, ~~2010~~2011.

Dongguan Diguang Electronics Science and Technology Co. Ltd., “Dongguan Diguang S&T,” was established toas be the production base of Shenzhen Diguang Electronics Co Ltd. It became a wholly-owned subsidiary of Diguang Holdings in since December 30, 2007 following the acquisition. As of ~~September~~March 3031, ~~2010~~2011, Dongguan Diguang S&T had approximately ~~236~~190 full-time employees.

Shenzhen Optimum Electronics Co., Ltd, “Shenzhen Optimum,” was established tofor ~~sell~~sales of large- size LED TV sets manufactured by Diguang Electronics to domestic customers throughout China. As of ~~September 30~~March 31, ~~2010~~2011, Shenzhen Optimum had approximately 1519 full-time employees.

Well Planner is involved in the import of raw materials into China and ~~the~~ export of finished products from China.

Diguang ~~S&T,~~ ~~which~~Science isand Technology Limited, based in Hong Kong, is directly involved inwith the international ~~procurement~~ buying of raw materials and ~~the~~selling ~~sales~~ of backlight products for Shenzhen Diguang Electronics. Diguang S&T purchases raw materials from international suppliers and acts as an international sales group for both Shenzhen Diguang Electronics, ~~Dongguan Diguang S&T~~ and Well Planner.

~~Recent Events~~15

None.

Critical Accounting Policies and Estimates

There ~~were~~ have been no significant changes in the critical accounting ~~policies~~polices and estimates as disclosed in ~~the~~ “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” ~~Item~~included 7,in ~~Part II of~~ the ~~Company’s~~most recent Annual Report ~~in the~~on Form 10-K ~~for the fiscal year ended December 31, 2009 filed with the Securities and Exchange Commission on March 31, 2010~~.

The discussion and analysis of the Company’s financial condition presented in this section are based on the Company’s financial statements, which have been prepared in accordance with ~~U.S.~~the ~~GAAP~~generally accepted accounting principles in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported ~~amount~~amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that management believes ~~to be~~ reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

Results of Operations

Comparison of Three Months Ended ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010

Revenue

Net revenue was approximately $1913.14 million for the three months ended ~~September~~March 3031, ~~2010~~ 2011, an increase of $50.69 million, or 7.41%, compared with $1312.5 million for the same period in the prior year. The Company’s three manufacturing facilities in Dongguan, Wuhan, and Yangzhou contributed toincreases ~~the increase~~ in sales revenue byof $1-0.95 million, $3.1.2 million, and $0.62 million, respectively, in the ~~third~~ quarter of 2010. The increase in sales revenue was primarily due to increased demand in the backlights market as a result of recovery from the global financial crisis suffered from the second half year of 2008 to the first ~~half year of 2009. From the third~~ quarter of 2009, the market showed an upward trend and the Company expanded sales both on its traditional product line and its newly developed product line of large-size LED backlights and Liquid Crystal Displays2011.

The Company’s total net revenue can be divided into international sales and domestic sales as follows:

	Three Months Ended September 30,
	Three Months Ended March 31,
	2010		2009
	2011		2010
International Sales		9,315,000		7,802,000
International sales		9,152,575		6,477,000
Domestic Sales		9,736,000		5,654,000
Domestic sales		4,257,335		6,007,000
Total		1913,~~051~~409,~~000~~910		1312,~~456~~484,000

Sales to international customers totaled $9.32 million for the three months ended ~~September~~ 30March 31, ~~2010~~2011, representing an increase of $12.57 million, or 19a 42% decrease, compared with $76.8 5 million for the ~~same~~first ~~period~~quarter inof ~~the prior year~~2010. ~~Wuhan~~ ~~facility contributed~~The ~~$3.1~~significant ~~million~~ increase in international sales ~~by providing large-size CCFL backlight products to Taiwanese customers, which~~ was ~~offset~~due ~~by $2.1 million decrease in sales~~ to ~~Hong~~an ~~Kong~~increase ~~customers~~ in the ~~Dongguan facility. Yangzhou~~demand ~~facility~~of ~~contributed~~LED ~~$0.5~~backlight ~~million increase in international sales~~products.

Sales to domestic customers were $94.72 million for the ~~third~~first quarter of ~~2010~~2011, anrepresenting ~~increase~~ a decrease of $41.08 million, or 70a 30% decrease, compared with $56.70 million infor the same period of ~~2009~~ 2010. ~~Along~~ The ~~with~~decrease ~~positive~~in ~~influence from overall market circumstances, the Company’s great efforts on developing~~ domestic sales ~~contributed~~ ~~significantly~~was due to ~~the~~some ~~increase~~of inthe ~~domestic~~major ~~sales revenue. Sales~~customers ofstarting ~~mid~~ to ~~large-size~~manufacture the LED backlight products, ~~LCMs~~by themselves, ~~and LCDs~~so ~~to newly developed domestic customers at~~ the ~~Dongguan~~sales ~~facility~~orders ~~contributed to~~from ~~$4.1~~those ~~million~~customers ~~increase~~dropped ~~in revenue~~significantly.

Domestic sales and international sales accounted for 5132% and 4968% of total sales revenue, respectively, in the current period, compared with 4248% and 5852% ~~for~~in the same period inof the prior year. The Company expects that the proportion of domestic sales will ~~continue~~keep toincreasing ~~increase~~on a going forward basis.

~~The~~ Because the Company has thousands of categories of products, and ~~its~~has ~~products~~constantly ~~mixes~~changed ~~are constantly~~its ~~changing~~product mixtures in order to adapt to market demands., ~~Sale~~and because the sale prices are quite different for different categories of products~~; consequently~~, it is almost impossible to discuss the impact of changes in volume and changes in product price here.

The Company ~~currently~~already has three manufacturing facilities ~~which are~~ located in the ~~eastern~~ East China region, (Yangzhou), ~~central~~the Central China region, (Wuhan), and ~~southern~~the Southern China region, (Dongguan). There are various capacities in the principal manufacturing facility of Dongguan, ~~such~~to asserve the customers which are LCD TV and monitor manufacturers and LCD assembly enterprises,. The Company has commenced to ~~meet~~produce ~~requirements~~LED ofgeneral ~~customers. The Company~~light ~~launched~~products in the Dongguan facility since June 2008 and large- size LED backlights and ~~LCDs~~monitors atfrom ~~the Dongguan facility in~~ 2009. The Yangzhou factory used to focus on producing small and mid- size CCFL and LED backlight products ~~but~~and began to ~~provide~~produce new products of large ~~sized~~size LCM products insince the fourth quarter of 2009. The Wuhan facility solely manufactures large- size CCFL backlight products. The Company is now establishing a new manufacturing facility in Shenzhen, of Southern China. This new facility will be used to manufacture large- size LED ~~backlight~~ back light products and LED TV sets. Based on these manufacturing facilities, the Company believes that it has strategically deployed the production capacity in China for its long term growth.

1816

InFrom ~~terms of~~the product mix aspect, the sales can be divided into ~~five~~six main categories: LED backlight, CCFL backlight, LCM, Mini-notebook assembly products, LED general light and LED monitor as follows.

	Three Months Ended September 30,
	Three Months Ended March 31,
	2010		2009
	2011		2010
LED Backlights		10,631,000		6,757,000
LED backlight		7,345,711		5,698,000
CCFL Backlights		5,550,000		2,884,000
CCFL backlight		3,716,992		4,443,000
LCMs		1,972,000		3,224,000
LCM		887,826		1,690,000
Liquid Crystal Displays		604,000		85,000
LED general lighting		27,958		236,000
LED General Lighting, Mini Note-books and Materials, etc.		294,000		506,000
Mini note-books		914,892		-
Total		19,051,000		13,456,000
Liquid Crystal Display		516,531		417,000
Total		13,409,910		12,484,000

The Company’s product mix has changed continuously ~~been changing~~ in recent years ~~given~~with the trend that the proportion of LED products sales is increasing ~~while~~and the proportion of CCFL ~~product~~products ~~sales~~ is decreasing. For the ~~third~~first quarter of ~~2010~~2011, sales of LED products, ~~including~~which included LED backlights, LED ~~LCMs~~LCM, LED general lights and ~~LCDs~~LED monitors, amounted to $138.175 million, representing 6965% of total sales revenue, whereas ~~sales~~the of CCFL products, including CCFL backlights and CCFL ~~LCMs,~~ LCM amounted to $53.774 million, representing 3028% of total sales revenue. ~~In comparison~~ Comparatively, tothe proportion of sales of LED products and CCFL, products were 62% and 38% respectively in the first quarter of 2010. LED products ~~have~~enjoy asuperiorities ~~superior~~in contrast ratio, color gamut, localized dimming and ~~lower~~low power consumption, ~~meeting~~which meet the environmental protection ~~standards~~requirements of the market. ~~Moreover~~ In addition, the small to mid- size of LED backlights have ~~the~~advantages ~~advantage~~ of ~~being~~ lower in cost than the same size of CCFL ~~product~~ products. In The ~~recent years, the~~ Company has ~~invested~~concentrated in ~~LED~~ research and development of LED products in recent years and has adjusted its product mix by ~~gradually~~enhancing ~~increasing~~sales ~~the~~ proportion of ~~LEDs~~LED products ~~manufactured~~gradually. The Company expects ~~that,~~ the overall, LED product shipments ~~will continue~~ to grow and ~~experience~~be more sustainable ~~growth,~~ as the transition from CCFL to LED backlights becomes more compelling due to ~~LEDs’~~its ~~higher~~high performance ~~levels~~in all aspects.

Sales of LED backlight products totaled $107.63 million in the ~~third~~first quarter of ~~2010~~2011, representing an increase of $31.86 million, or 56a 28% increase, compared with $65.87 million ~~for~~ in the same period inof ~~2009~~2010. ~~Sales~~ The ofincrease was due to the newly ~~introduced~~developed large- size LED backlight products ~~contributed~~contributing $41.36 million ofin increase, ~~which~~of ~~was offset by decrease in~~ sales ~~of traditional mid and small-size LED products due to decreased market demand~~revenue.

Sales of CCFL backlights totaled $53.67 million in the ~~third~~first quarter of ~~2010~~2011, representing an ~~increase~~a decrease of $20.7 million, or 93a 16% decrease, compared with $24.94 million for ~~the~~2010. The ~~same period~~decrease in ~~2009. The~~sale ~~significant~~of ~~increase~~CCFL was ~~primarily~~ due to ~~increased~~ ~~sales~~some ~~orders~~of ~~for~~the ~~large-size~~major ~~CCFL~~customers ~~backlights~~starting ~~received~~to manufacture the CCFL by themselves, so the ~~Wuhan facility~~sales orders from those customers dropped significantly.

~~Sales~~Total revenue from sales of ~~LCMs~~ ~~totaled~~LCM decreased from $21.07 million in the ~~third~~first quarter of 2010, ~~representing~~to ~~a decrease of~~ $10.289 million, orin ~~38%, compared with $3.2 million for~~ the ~~same~~first ~~period~~quarter ~~in 2009. Sales~~ of ~~LED backlight LCMs were $1.8 million~~2011, representing ~~an increase~~a decrease of approximately $0.481 million, or 29a 48%, ~~compared with $1~~decrease.4 Sales ~~million~~of ~~for~~LED ~~the~~backlighted ~~same~~LCM ~~period in~~and ~~2009. Sales of~~ CCFL ~~backlight~~backlighted ~~LCMs~~LCM was $0.281 million, ~~representing a~~and ~~decrease of~~ $10.608 million, oraccounting 89for 91%, ~~compared~~and ~~with~~9%, ~~$1.8~~respectively, ~~million~~ for the ~~same period~~first inquarter ~~2009~~of 2011.

Sales of Liquid Crystal ~~Displays~~Display (LCD) were $~~604~~516,~~000~~531 in the ~~third~~first quarter of ~~2010, representing~~2011. anThe ~~increase~~sales ofvolume ~~$519,000,~~was ~~compared~~approximately ~~with $85,000 for~~ the same ~~period in~~compared ~~2009. LCD products were launched in 2009, and the Company began the mass production of LCDs in the second quarter of 2010. Sales continued~~ to ~~grow in~~ the ~~third~~same ~~quarter~~period oflast ~~2010, and the Company expects further sales growth for the near future~~year.

Sales of LED general lights decreased ~~significantly~~slightly ~~due~~from to$236,000 ~~aggressive competition. The~~in ~~Company~~the ~~terminated~~first ~~production~~quarter ~~for~~of ~~mini~~2010 ~~note-books due~~ to ~~excessive~~$27,958 ~~competition~~in ~~and~~the ~~low~~first ~~gross~~quarter ~~margins~~of 2011 due to aggressive competition.

Cost of Sales

Since the basic materials for all backlight products are similar, the Company discusses ~~the aggregate~~ cost of sales in aggregate for all products. Cost of sales was $~~17.5~~13 million for the ~~third~~ first quarter of ~~2010~~2011, representing an increase of $52.02 million, or 40a 20% increase, compared with $1210.5 8 million for the ~~third~~first quarter in ~~2009~~2010. ~~The~~ Increase ~~increase~~ in ~~the~~ cost of sales was primarily due to ~~increases in sales, the 40%~~ increase in ~~cost of~~ sales ~~was~~ ~~in line with the 41% increase in total revenue~~volume. ~~Cost of sales for the third quarter of 2010 included a loss of $0.4 million on the disposal of obsolete raw materials.~~

Raw material ~~costs~~cost ~~were~~was $1511.62 million for the ~~third~~first quarter of ~~2010~~2011, representing an increase of $41.89 million, or 44a 20% increase, compared with $109.83 million for the ~~third~~first quarter of ~~2009~~ 2010. ~~Raw~~ The ~~material~~increase ~~costs~~in ~~accounted~~raw ~~for~~material ~~90%~~cost ofwas ~~the~~primarily ~~total~~due ~~cost~~to ofincreases ~~sales~~ in ~~the~~sales ~~third~~volume ~~quarter~~and ofchanges ~~2010,~~in ~~compared~~product ~~with~~mix. The ~~84%~~percentage ~~for~~of ~~the~~raw ~~same~~material ~~period~~cost ofto ~~2009; this~~total ~~increase~~cost ~~was~~of ~~due~~sales towas ~~changes~~86% infor ~~product~~the ~~mix. The~~first ~~Company increased~~quarter ~~production~~of ~~for~~2011, ~~new~~compared ~~products~~with ~~such~~86% asfor the ~~large-size~~same ~~LED~~period ~~backlights, LCMs~~of ~~and LCDs~~2010; ~~these~~which ~~new~~is ~~products~~for ~~required~~the ~~more~~same ~~expensive~~period ~~raw~~in ~~materials~~the ~~than traditional~~prior ~~products~~year. Raw materials ~~costs~~cost accounted for 8284% and 8074% of total sales revenue in the ~~third~~first ~~quarters~~quarter of ~~2010~~2011 and ~~2009~~2010, respectively.

19Labor cost was $784,201 for the first quarter of 2011, representing an increase of $7,201 or a 0.9% increase, compared with $777,000 for the same period of 2010. The percentage of labor cost to total cost of sales was 6% for the first quarter in 2011, compared with 7% for the same period in 2010. The increase of labor cost was mainly due to increased sales volume. Labor cost accounted for 6% and 6% of total sales revenue in the first quarter of 2011 and 2010 respectively.

~~Labor costs~~Production ~~were~~overhead ~~both~~was $1.0,050,162 ~~million~~ for the ~~third~~first quarter of ~~2010~~2011, ~~and 2009. The~~representing ~~Company~~an ~~has~~increase ~~enhanced~~of ~~its~~$334,162, ~~control~~or ~~over~~a ~~labor~~47% ~~costs~~increase, ~~during 2010. That~~compared iswith ~~the~~$716,000 ~~main~~for ~~reason~~the ~~that~~first ~~labor~~quarter ~~costs~~of ~~did~~2010. The ~~not~~production ~~increase~~overhead ~~along with~~includes ~~the~~depreciation ~~increase~~charges infor ~~sales~~fixed assets and ~~production~~amortization ~~volume. The~~for ~~percentage~~building ~~of labor~~improvement, ~~costs~~water toand ~~the~~electricity ~~total~~expenses, ~~cost~~repair ofexpenses, ~~sales~~and ~~was~~rentals, 5etc.9% Due ~~for~~to the ~~third~~semi-variable ~~quarter~~nature of ~~2010~~production overhead, ~~compared~~ ~~with 7.7% for~~ the ~~same~~increase ~~period~~ of ~~2009. Labor~~production ~~costs~~overhead ~~accounted for~~is 5%not ofdirectly ~~total~~associated ~~net~~with ~~revenue for~~ the ~~third~~increase ~~quarter~~of cost of ~~2010,~~sales. Production ~~compared~~overhead ~~with~~accounted 7for 12% and 6% of total ~~net~~sales revenue ~~for~~in the ~~same~~first ~~period~~quarter inof ~~2009~~2011 and 2010 respectively.

Production overhead was $0.9 million for the third quarter of 2010, representing an increase of $0.1 million, or 13%, compared with $0.8 million for the third quarter of 2009. Production overhead includes depreciation and amortization of fixed assets, water and electricity, repairs and rentals. Due to the semi-variable nature of production overhead, the increase in overhead is not directly associated with the increase in cost of sales. Production overhead accounted for 5% and 6% of total sales revenue in the third quarters of 2010 and 2009, respectively.17

Gross Margin

The overall gross margin for the ~~third~~first quarter of ~~2010~~2011 was 82.53%, ~~representing an increase of 1%,~~ compared with 714% for the ~~same~~first ~~period~~quarter of ~~2009~~2010. ~~The overall~~ ~~increase is mainly attributed to the Company’s efforts on adjusting product mix and enhanced control on raw materials.~~ The ~~Company developed~~management ~~new~~discusses ~~products to replace products with very low or negative gross margins. Moreover,~~ the ~~Company~~change ~~introduced incentives to enhance the efficiency of production and reduce manufacturing costs. However, the increase~~ in gross margin ~~was~~in tothe ~~some~~three ~~extent~~major ~~offset~~product bycategories aof ~~loss~~CCFL onproducts, ~~the~~LED ~~disposal~~products ~~of obsolete~~and ~~raw~~LCM ~~materials~~below.

The ~~Wuhan factory only manufactures OEM products for a Taiwanese customer, and operates on a very low~~ gross margin ~~in order to reduce the occupation~~ of ~~the~~LED ~~Company’s working~~backlight ~~capital.~~products ~~From~~decreased ~~January~~from to10% ~~September~~in 2010, ~~the~~to ~~total revenue at the Wuhan facility was US$14~~3.~~5 million but the gross margin was only 6.~~2%. ~~And,~~ in ~~the third quarter of 2010, the total revenue was US$5~~2011.1 ~~million,~~The ~~which~~decrease ~~accounted for 27% of the total sales volume in the third quarter, but the gross margin~~ was ~~only~~ ~~4%.~~contributed ~~Therefore,~~by ~~the~~a ~~Wuhan~~competitive ~~factory’s~~market ~~low~~and ~~gross~~selling ~~margin~~prices ~~significantly~~cannot ~~impacted the~~be ~~Company’s~~increased ~~gross~~in ~~margin~~line ~~level~~of ~~for~~cost ~~all~~of ~~products in the third quarter~~sales.

~~However, the~~Gross ~~Company~~margin ~~is now focusing more on sales~~ of ~~LED~~CCFL ~~BLU~~backlight ~~for~~products ~~large-size~~fell ~~backlights (18’~~ to ~~32’~~3% ~~inch),~~in ~~which~~2011 ~~has~~from a14% ~~higher~~in ~~gross margin (approximately 20%)~~2010. ~~As Diguang~~The ~~Technology's~~Wuhan ~~revenue~~facility ~~for~~contributed ~~LED~~most ~~BLU~~of ~~products~~the ~~was~~CCFL ~~USD~~sales ~~3.8~~in ~~million~~2011; ~~from~~but ~~July to~~as ~~September~~an ~~2010~~OEM factory, ~~with~~the a gross margin ofin ~~22%,~~ the ~~Company~~Wuhan ~~anticipates~~facility ~~that~~was ~~the growth~~very oflow, ~~this~~and ~~new~~the ~~business~~low ~~line~~margin atin ~~Diguang~~the ~~Technology~~Wuhan ~~will~~facility ~~provide~~led ~~profit growth~~to a decrease in the ~~future~~overall CCFL gross margin.

The gross margin for LCM had decreased from 6% in 2010 to -4% in 2011. The decrease was mainly caused by sales of LED LCM which had much lower selling prices in 2011 than in 2010.

Regarding international sales, the gross margin was approximately 10% for the first quarter of 2011, representing a 2% increase, compared with 10% for the first quarter of 2010. And for domestic sales, the gross margin was 17%, representing a 1% increase, compared with 17% for the first quarter of 2010.

Selling Expenses

Selling expenses were $~~785~~607,~~000~~432 for the ~~third~~first quarter of ~~2010~~2011, representing an increase of $716,~~000~~432, or 10 a 1% increase, compared with $~~714~~601,000 for the ~~same~~first ~~period~~quarter of ~~2009~~2010. ~~Selling expenses~~ The ~~consisted~~increase ~~mainly~~in ofselling ~~salaries, commission, transportation~~ expenses, ~~and office~~was ~~expenses. During~~primarily ~~the~~attributed ~~third~~to ~~quarter~~increased ~~of 2010,~~ commission~~, transportation~~ ~~expenses,~~paid ~~and~~for ~~salaries~~ increased ~~with increase of sales volume; while the other office expenses decreased as a result of the management’s efforts on control of overall costs~~revenue.

Selling expenses accounted for 4.5% and 5% of total sales revenue in the ~~third~~first ~~quarters~~quarter of ~~2010~~ 2011 and ~~2009,~~2010 respectively.

Research and Development ~~Costs~~Expenses

The net research and development ~~costs~~expenses were $~~391~~520,~~000~~459 for the ~~third~~first quarter of ~~2010~~2011, representing a decrease of $703,~~000~~541, or 15a 0.67% decrease, compared with $~~461~~524,000 for the ~~third~~ first quarter of ~~2009~~2010. The ~~decrease~~increase ofwas ~~net~~mainly ~~research~~an increase in payroll expenses and ~~development~~raw materials costs ~~was~~, ~~attributable~~due to ~~the~~increased ~~Company’s reduced~~ research and development activities ~~when~~ on new products ~~were put into production~~.

Research and development expenses accounted for 23.88% and 34% of total sales revenue in the ~~third~~ ~~quarters~~first quarter of ~~2010~~2011 and ~~2009,~~2010 respectively.

General and Administrative Expenses

General and administrative expenses were $01.914 million for the ~~third~~first quarter of ~~2010~~2011, ~~a decrease~~which ofwas ~~$0.1~~approximately ~~million,~~the orsame ~~10%,~~as ~~compared with $1.0 million~~ for the ~~same~~first ~~period in~~quarter ~~2009. The major components~~ of ~~general~~2010. General and administrative expenses mainly include payroll, share-based compensation, water and electricity expenses, ~~rent~~depreciation and ~~professional~~ ~~services. The~~insurance ~~decrease~~expenses, inrental ~~general~~expenses and ~~administrative expenses~~professional ~~was~~service ~~attributable~~fee, ~~to the management’s efforts to reduce overall costs~~etc.

General and administrative expenses ~~represent~~accounted 5for 8.54% and 89% of total sales revenue ~~for~~in the ~~third~~ ~~quarters~~first quarter of ~~2010~~2011 and ~~2009,~~2010 respectively.

Interest Expense

The net interest ~~expense~~expenses was $~~226~~285,~~000~~374 for the ~~third~~first quarter of ~~2010~~2011, representing an increase of $~~100~~116,~~000~~374, or 79a 68.86% increase, compared with $~~126~~169,000 ~~for~~in the ~~same~~first ~~period~~quarter of ~~2009~~ 2010. With continuous losses inthrough ~~operations~~its operating activities, the Company had to seek more funds from bank loans to support its working capital demands. As of March 31, 2011, the balance of short-term and long-term loans from bank was $15 million, while as of March 31, 2010, the balance of short-term and long-term bank loans was $18.3 million. The interest ~~expense~~ expenses increased ~~proportionally~~in line with ~~the~~an ~~increases~~increase in bank loans and other forms of financing.

20Interest expenses accounted for 2.12% and 1.4% of total sales revenue in the first quarter of 2011 and 2010 respectively.

Interest expense accounted for 1% of total sales revenue in the third quarters of 2010 and 2009, respectively.

Income Tax Provision

~~Income~~ There was no income tax provision for the first quarter ~~ended~~of ~~September~~2011 ~~30,~~and 2010. As ~~was~~all ~~approximately $16,000,~~operating ~~compared~~subsidiaries ~~with~~of ~~negative~~the ~~$646 for~~Company suffered losses during the ~~same~~first ~~period~~quarter ~~in 2009~~of 2010, no income tax was provided.

Net Loss

Net loss was $~~867,000~~2 million for the ~~third~~first quarter of ~~2010~~2011, compared with a net loss of $~~1.3 million~~577,000 for the same period of ~~2009, representing an increase of approximately $433,000 in net income~~2010. Net loss ~~decreased~~increased mainly due to an increase in ~~sales~~cost ~~revenue~~of ~~and gross margin~~sale.

Losses per Share

The basic losses per share were $0.0409 for the ~~third~~first quarter of ~~2010~~2011, compared with basic losses per share of $0.0603 for the ~~third~~first quarter of ~~2009~~2010. ~~The~~ Increase ~~decrease~~ in basic ~~loss~~losses per share was due to aan ~~decrease~~increase inof net loss occurred in the first quarter of 2011.

~~Comparison of Nine Months Ended September 30, 2010 and 2009~~18

Revenue

Net revenue was approximately $48.6 million for the nine months ended September 30, 2010, an increase of $18.9 million, or 64%, compared with $29.7 million for the same period of prior year. The Company’s three manufacturing facilities in Dongguan, Wuhan and Yangzhou contributed to the increase in sales revenue by $7.8 million, $9.8 million and $1.3 million, respectively, for the nine months ended September 30, 2010. The increase in sales revenue was primarily due to increased demand in the backlights market as a result of recovery from the global financial crisis. After the market showed an upward trend, the Company expanded sales both on its traditional product lines and its newly developed product lines of large-size LED backlights and Liquid Crystal Displays.

The Company’s total net revenue can be divided into international sales and domestic sales as follows:

	Nine Months Ended September 30,
	2010		2009
International Sales		24,069,000		17,914,000
Domestic Sales		24,509,000		11,745,000
Total		48,578,000		29,659,000

Sales to international customers totaled $24.1 million for the nine months ended September 30, 2010, an increase of $6.2 million, or 35%, compared with $17.9 million for the same period of 2009. Sales of large-size CCFL backlight products to Taiwanese customers at the Wuhan facility increased by approximately $9.7 million, and sales of backlight products and large-size LED and LCMs to Taiwanese customers at the Yangzhou facility increased by $1.1 million. However, the increase in sales to Taiwanese customers was offset by a decrease of $4.7 million in sales to Hong Kong customers at the Dongguan facility.

Sales to domestic customers were $24.5 million for the nine months ended September 30, 2010, an increase of $12.8 million, or 109%, compared with $11.7 million for the same period of 2009. The increase in domestic sales came mainly from the Dongguan facility. Sales to newly developed domestic customers contributed $10.6 million and sales to existing customers contributed $2.2 million to the increase in sales revenue.

In terms of product mix, sales can be divided into five main categories:

	Nine Months Ended September 30,
	2010		2009
LED Backlights		23,683,000		15,405,000
CCFL Backlights		16,582,000		7,431,000
LCMs		5,608,000		5,209,000
Liquid Crystal Displays		1,696,000		188,000
LED General Lighting, Mini Note-books and Materials		1,009,000		1,426,000
Total		48,578,000		29,659,000

The Company’s product mix has continuously been changing in recent years given the trend that the proportion of LED sales is increasing while the proportion of CCFL product sales is decreasing. For the nine months ended September 30, 2010, sales of LED products, including LED backlights, LED LCMs, LED general lights and LCDs, amounted to $31.4 million, representing 65% of total sales revenue, whereas sales of CCFL products, including CCFL backlights and CCFL LCMs, amounted to $17.2 million, representing 35% of total sales revenue.

Sales of LED backlight products totaled $23.7 million for the nine months ended September 30, 2010, an increase of $8.3 million, or 54%, compared with $15.4 million for the same period of 2009. Sales of the newly introduced large-size LED backlight products contributed $8.0 million to the increase in sales revenue. Sales of mid-size LED products increased by approximately $2.1 million. However, sales of the small-size LED decreased by approximately $1.8 million, as the Company attempts to phase out some products with very low gross margin.

Sales of CCFL backlights totaled $16.6 million in the nine months ended September 30, 2010, representing an increase of $9.2 million, or 124%, compared with $7.4 million for the same period of 2009. The significant increase was primarily caused by significantly enhanced sales of large-size CCFL backlights at the Wuhan and Yangzhou facilities due to increased downstream demand.

Sales of LCMs totaled $5.6 million in the first nine months of 2010, representing an increase of $0.4 million, or 8%, compared with $5.2 million for the same period of 2009. Sales of LED backlight LCMs was $5.0 million, representing an increase of $2.5 million, or 100%, compared with $2.5 million for the same period in 2009. Sales of CCFL backlight LCMs was $0.6 million, representing decrease of $2.1 million, or 78%, compared with $2.7 million for the same period in 2009.

Sales of Liquid Crystal Displays (LCD) were $1.7 million for the nine months ended September 30, 2010, representing an increase of $1.5 million, compared with $0.2 million for the same period in 2009.

Sales of LED general lights decreased due to aggressive competition. The Company terminated production for mini note-books due to excessive competition and low gross margins.

Cost of Sales

Since the basic materials for all products are similar, the Company discusses aggregate cost of sales for all products. Cost of sales was $43.8 million for the first nine months of 2010, an increase of $16.1 million, or 58%, compared with $27.7 million for the first nine months of 2009. The increase in cost of sales was primarily due to the increase in sales revenue, but the 58% increase in cost of sales was lower than the 64% increase in total revenue for the first nine months of the year.

Raw material costs were $38.0 million for the first nine months of 2010, an increase of $15.1 million, or 66%, compared with $22.9 million for the same period in 2009. The increase in raw materials cost was mainly due to the increase in sales volume and changes in product mix. The company increased production for new products that required more expensive raw materials than traditional products. Raw material costs accounted for 87% of the total cost of sales for the first nine months of 2010, compared with 83% for the same period of 2009. Raw material costs accounted for 78% of total revenue in the first nine months of 2010, compared with 77% in the first nine months of 2009.

Labor costs were $3.0 million for the first nine months of 2010, representing an increase of $0.6 million, or 25%, compared with $2.4 million for the same period in 2009. The 25% increase in labor costs was much lower than the 58% increase in cost of sales as the Company has exercised more control over labor costs. Labor costs accounted for 6% of total net revenue for the nine months of 2010, compared with 8% for the same period in 2009.

Production overhead was $2.7 million for the first nine month of 2010, an increase of $0.3 million, or 15%, compared with $2.4 million for the same period in 2009. Production overhead includes depreciation of fixed assets and amortization of building improvements, water and electricity, repairs, and rent. Due to the semi-variable nature of production overhead, the increase in production overhead is not directly associated with the increase in cost of sales. Production overhead accounted for 6% and 8% of total sales revenue in the first nine months of 2010 and 2009, respectively.

Gross Margin

The overall gross margin for the nine months ended September 30, 2010 was 10%, a 3% increase from 7% for the same period in 2009. The overall increase in gross margin was mainly attributable to the Company’s efforts on adjusting product mix. The Company developed new products to replace products that had low or negative gross margins. On the other hand, the Company introduced incentives to enhance the efficiency of production and reduce manufacturing costs.

Selling Expenses

Selling expenses were $2.0 million for the first nine months of 2010, an increase of approximately $0.3 million, or 18%, compared with $1.7 million for the same period of 2009. Selling expenses consist mainly of salaries, commission, and transportation expenses. During the first nine months year of 2010, commission, transportation expenses, and salary increased as a result of increased sales.

Selling expenses were approximately 4% and 6% of total sales revenue for the nine months ended September 30, 2010 and 2009, respectively.

Research and Development Costs

The net research and development costs were $725,000 for the first nine months of 2010, a decrease of $775,000, or 52%, compared with $1.5 million for the same period of 2009. The decrease of net research and development costs was attributable to two reasons. First, the Company reduced research and development activities when new developed products were put into production. Second, the research and development costs were offset by a government subsidy of $516,000 for the TFT-LCD project in the second quarter of 2010 when this project was successfully completed.

Research and development costs were approximately 1% and 5% of total sales revenue for the nine months ended September 30, 2010 and 2009, respectively.

General and Administrative Expenses

General and administrative expenses were $2.8 million for the first nine months ended September 30, 2010, a decrease of $400,000, or 13%, compared with $3.2 million for the same period in 2009. The major components of general and administrative expenses include payroll, share-based compensation, water and electricity, rent and professional services. Amortization of share-based compensation decreased by $270,000 from $301,000 to $34,000 compared with the same period of the prior year. Management’s efforts at reducing costs have led to decreases in nearly all kinds of expenses.

General and administrative expenses represent 6% and 11% of total sales revenue for the first nine months of 2010 and 2009, respectively.

Interest Expense

The net interest expense was $585,000 for the first nine months of 2010, representing an increase of $299,000 compared with $286,000 for the same period in 2009. With continuous losses in operations, the Company had to seek more funds from bank loans to support its working capital demands. Interest expense increased proportionally with the increase in bank loans.

Interest expense accounted for 1% of total sales revenue in the first nine months of 2010 and 2009, respectively.

Income Tax Provision

Income tax provision for the first nine months of 2010 was approximately $29,000, a decrease of $2,000, or 6%, compared with $31,000 for the same period in 2009.

Net Loss

Net loss was $1.4million for the first nine months of 2010, representing a decrease of $3.1 million in net loss compared to net loss of $4.5 million for the first nine months of 2009. The decrease in net loss was mainly due to higher sales revenue and gross margins.

Losses per Share

The basic losses per share were $0.06 for the first nine months of 2010, representing a $0.13 decrease in losses per share compared with basic losses per share of $0.19 for the same period in 2009. Losses per share decreased due to a decrease in net loss.

Liquidity and Capital Resources

As of ~~September~~ 30March 31, ~~2010~~2011 and December 31, ~~2009~~2010, wethe Company had cash and cash equivalents of $54.24 million and $6.26 million, respectively,. The ~~and~~Company’s working capital of was approximately -$43.25 million and -$21.8 million, respectively, as of March 31, 2011 and December 31, 2010.

~~Currently, the~~The Company’s operations ~~are~~were currently financed mainly by ~~debt financing, which included short-term and long-term~~ bank loans ~~and accounts payable~~. As of ~~September~~ 30March 31, ~~2010~~2011, ~~the net~~ balance of short- term and long term bank loans was $415.71 million~~; and~~. As ~~the net balance~~ of ~~long-term~~March ~~loans~~31, ~~to replenish working capital was $419~~2011,~~000. The~~ ~~Company~~total ~~does~~bank ~~not~~facility ~~have~~of ~~any~~the ~~further~~company ~~short-term~~granted from bank ~~facility~~ ~~readily~~was ~~available~~RMB ~~as of September 30~~133,000,000, ~~2010. The~~equivalent ~~Company expects~~ to be$20.2 ~~able~~million toand ~~apply~~the ~~for~~bank ~~additional loans when necessary by pledging as collateral its property and~~ facility atavailable ~~Dongguan~~to ~~which~~the ~~has~~Company awas ~~net book value of $3~~RMB33.59 million~~. The Company estimated that as of September 30~~, ~~2010, cash~~equivalent ~~on hand is enough~~ to ~~meet~~$5.1 ~~day-to-day~~million, ~~working~~which ~~capital~~was ~~requirements~~provided atby ~~the current~~China ~~operating~~Development ~~level~~Bank. ~~But~~ As if the ~~plant under construction in Guangming is put in use in the near future, then the~~ Company ~~may~~has ~~need more fund as working capital to run~~ the ~~new~~property ~~production~~in Dongguan facility~~. Based~~ onwith ~~the cash~~net oncarrying ~~hand,~~amount ~~the used banking facility~~ of $63.65 million, ~~and~~not ~~potential~~yet ~~borrowing ability~~pledged byagainst ~~pledging~~bank ~~Dongguang~~loan ~~plants,~~or ~~management~~loan offacilities, the Company ~~firmly~~expects ~~believes that~~to itbe ~~has~~able ~~adequate~~to ~~financing~~apply ~~ability~~for toadditional ~~run~~bank ~~operating~~facilities ~~activities~~using ~~for~~the aproperty ~~year~~ as of ~~September 30, 2010~~collateral.

The Company is now constructing a new manufacturing facility in the Guangming District of Shenzhen~~. This~~ ~~construction was financed by a long-term bank loan. The Company has acquired a bank facility of RMB100 million from China Development Bank. As of September 30~~City, ~~2010,~~and ~~RMB55 million of~~ the ~~facility~~capital ~~has been used and there was still RMB45 million, equivalent to $6.7 million, available for future use. The~~ commitment ~~to be paid~~ on ~~the~~ construction of the ~~new~~ facility iswas $710.15 million~~. There~~ ~~was~~as ~~a deficiency~~ of ~~$0.4~~March ~~million between capital commitment and long-term bank facility available~~31, ~~which should be complemented by working capital~~2011.

~~For~~The ~~the nine months ended September 30, 2010, net~~ cash ~~used~~on inhand ~~operating~~and ~~activities~~bank ~~was $3.3~~facilities ~~million,~~available ~~representing~~are aenough ~~decrease of $5.6 million compared~~ to ~~$8.9~~meet ~~million of net cash used in operating activities for~~ the ~~same~~Company’s ~~period~~capital incommitments ~~the prior year. Among the $3.3 million of net cash used in operating activities in the first nine months of 2010, net loss used $1.3 million~~ and ~~non~~day-~~cash~~to-day ~~items added~~requirements ~~back~~at ~~$0.9~~current operating ~~million~~level. The ~~Increase in accounts receivable and inventories occupied cash of $6.5 million; the~~ Company ~~typically~~may ~~provides~~need ~~longer credit terms~~ to ~~domestic~~seek ~~customers~~further ~~than~~financing ~~international~~resources ~~customers;~~to ~~therefore,~~supplement ~~with~~operating ~~an increase~~cash inflows ~~the~~if ~~proportion~~its ofoperating ~~domestic~~activity ~~sales,~~expands more ~~greater working capital became tied up in accounts receivable~~rapidly. ~~Increase~~ As inabovementioned, ~~accounts payable contributed $4.2 million to~~ the Company; ~~the~~could ~~Company~~apply isfor ~~currently~~additional ~~relying~~bank ~~on financing~~facilities ~~from~~using ~~suppliers,~~the ~~which~~property ~~carry~~as ~~potential risks to its future operations~~collateral.

~~Net~~For the three months ended March 31, 2011, net cash ~~flow~~ used inby ~~investing~~operating activities was $42.7 1 million, ~~for~~which ~~the~~represented ~~nine~~a ~~months~~decrease ~~ended September~~of ~~30,~~$1.7 ~~2010,~~million ~~which~~as ~~was~~compared ~~mainly~~to ~~investment~~the innet ~~construction~~cash ofused ~~the~~by ~~new manufacturing~~operating ~~facility~~activities inof $3.8 million for the ~~Guangming~~same ~~District~~period of ~~Shenzhen~~the prior year.

~~Net~~As ~~flow provided~~of byMarch ~~financing~~31, ~~activities~~2011, ~~was~~net cash from accounts receivable increased by $71.07 million, ~~for~~which was fully mitigated by cash provided from a decrease in accounts payables. The Company usually provided longer credit terms to domestic customers than international customers. With the ~~nine~~proportion ~~months~~of ~~ended September~~domestic 30sales revenue increasing, ~~2010~~more working capital was tied in accounts receivable. The Company also relied on financings from its suppliers currently, which ~~came~~may ~~mainly~~lead ~~from~~to ~~long-term~~potential ~~bank~~risks ~~loans~~for its future operating. As of March 31, 2011, net cash occupied by inventory increased by $1.3 million; the increased inventory was prepared for increased sales orders for the subsequent period.

24Net cash used in investing activities was $43,226 for the three months ended March 31, 2011, which was paid for construction of the new manufacturing facility in the Guangming District of Shenzhen City.

~~ITEM 3~~Net cash used in financing activities was $83,409 for the three months ended March 31, 2011. Proceeds ~~QUANTITATIVE~~from ~~AND~~bank ~~QUALITATIVE~~loans ~~DISCLOSURES~~provided ~~ABOUT~~cash ~~MARKET~~of ~~RISK~~$1.2 ~~– None~~million.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

(a) ~~Evaluation of~~ Disclosure ~~disclosure~~ controls and procedures:

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, the “Exchange Act,” is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s, the “SEC,” rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer, the “CEO,” and chief financial officer, the “CFO,” as appropriate, to allow timely decisions regarding required financial disclosure.

As of ~~September~~March 3031, ~~2010~~2011, the Company’s management including the CEO and ~~controller~~ CFO concluded that there have been no material changes to the disclosure control and procedures previously discussed in Part II, Item 9A of the Company's Form 10-K for the year ended December 31, ~~2009~~2010. The Company’s management, including the CEO and ~~controller~~CFO, concluded that as of December 31, ~~2009~~2010 the Company's disclosure controls and procedures were not effective because of the material weaknesses described under “Management's Report on Internal Control over Financial Reporting.” In light of the material weaknesses not having significantly changed since December 31, ~~2009~~2010, the Company’s management concluded that its disclosure controls and procedures were not effective as of ~~September~~ 30March 31, ~~2010~~2011.

To address these material weaknesses, the Company performed additional analyses and other procedures to ensure that in all material respects, the Company’s financial position, the results of its operations and its cash flows for the period presented in this Form 10-Q, in conformity with the accounting principles generally accepted in the United States of America, “GAAP.”

(b) ~~Changes in~~ Management’s report on internal control over financial reporting.

The Company’s management, including CEO and ~~controller~~CFO, concluded that there have been no changes to the internal controls over financial reporting that occurred during the quarter that have materially affected, or are reasonably likely to materially affect internal control over financial reporting. As a result, in light of the material weaknesses not having significantly changed since December 31, 2010, the Company’s management concluded that its disclosure controls and procedures were not effective as of March 31, 2011. The Company is in the process of taking the steps necessary for remediation of the material weaknesses identified in previously filed 10-K, and will continue to monitor the effectiveness of these steps.

~~PART II – OTHER INFORMATION~~19

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors previously discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Stock Repurchase Program

On March 26, 2007, the Company announced that its Board of Directors had authorized the repurchase of up to $5,000,000 of its common stock from the public market or in private purchases. The terms of the repurchase program permitted the Company to repurchase shares within twelve months and to repurchase shares at a pace at the discretion of management. During the three months ended ~~September~~March 3031, ~~2010~~2011, no shares were repurchased in the market. As of ~~September~~March 3031, ~~2010~~2011, the shares repurchased were held under the name of a security firm and presented at line of treasury stock at cost on the balance sheet at ~~September~~March 3031, ~~2010~~ 2011.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

a. EXHIBITS

31.1		Certification of Chief Executive Officer pursuant to Rule 13a - 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically)
31.2		Certification of ~~controller~~Chief Financial Officer pursuant to Rule 13a - 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically)
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith electronically).
32.2		Certification of ~~controller~~Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith electronically).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

	DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD
Dated: November 15, 2010	By:	/s/Yi Song
Dated: June 14, 2011	By:	/s/Yi Song
		Yi Song
		Chairman and Chief Executive Officer
Dated: November 15, 2010	By:	/s/ Li Jun Jiang
Dated: June 14, 2011	By:	/s/ Junjiang Li
		Li Jun Jiang
		Harvey Li
		Controller
		Financial Controller

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Filing Compare · DIGUANG INTERNATIONAL DEVELOPMENT CO., LTD.