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 30, 2012

[  ] 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: 000-53547

CHINA GREEN ENERGY INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)

Jiangsu Wujin Lijia Industrial Park
Lijia Town
Wujin District, Changzhou City
Jiangsu Province 213176
People’s Republic of China
(Address of principal executive offices, Zip Code)

(86) 519-86230102
(Registrant’s telephone number, including area code)

_____________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]          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.

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

Yes [  ]          No [X]

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 14, 2012 is as follows:

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

PART II
OTHER INFORMATION

PART I
FINANCIAL INFORMATION

1

China Green Energy Industries, Inc.
Consolidated Balance Sheets

(*) Derived from audited financial statements

See the accompanying notes to consolidated financial statements

2

China Green Energy Industries, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)

See the accompanying notes to consolidated financial statements

3

China Green Energy Industries, Inc.
Consolidated Statements of Cash Flows

See the accompanying notes to consolidated financial statements

4

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

5

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

6

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

7

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

8

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

9

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Net sales of products represent the value of goods, net of value added taxes (“VAT”), sales returns, trade discounts and allowances. The Company is subject to VAT which is levied on majority of their products at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales. Provision for sales returns are recorded as a reduction of revenue in the same period that revenue is recognized. The provision for sales returns, which is based on historical sales returns data, is the Company’s best estimate of the amounts of goods that will be returned from their customers. During the reporting periods, there were no sales returns and the Company did not recognize any provision for sales returns.

Cost of revenues

Cost of revenues consists primarily of materials costs, wages, employee compensation, depreciation and amortization and related costs, which are directly attributable to the production of products. Write-down of inventories to the lower of cost or market is also recorded in cost of revenues.

General and administrative expenses

General and administrative expenses consist primarily of bad debt expenses, loan provision, guaranty obligation provision, professional service fees, office expenses, entertainment, traveling expenses, staff welfare, consumables, labor protection and salaries and wages which are incurred at the administrative level and foreign exchange differences.

Selling expenses

Selling expenses consist primarily of advertising, traveling and transportation costs incurred during the selling activities.

10

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

11

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

• Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets which the Company can participate.

• Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement, and include inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

Basic and diluted earnings (loss) per share

Basic earnings (loss) per share is computed using the weighted average number of shares outstanding during the periods presented. The weighted average number of shares of the Company represents the average number of common stock outstanding during the reporting periods.

Diluted earnings (loss) per share is computed using the sum of weighted average number of shares outstanding and dilutive potential shares outstanding during the periods presented. During the three and nine months ended September 30, 2012 and 2011, there were no potentially dilutive shares.

12

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Additional reserve for obsolete inventories of $108,681 and $0 was recognized during the nine months ended September 30, 2012 and 2011, respectively.

13

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Notes:

The Company typically renews its loans to third parties on an annual basis until such time when the parties agree to repay these loans. Until agreement on repayments are reached, management considers the loans to be long-term in nature.

Loans measured at historical cost are reported at their outstanding principal balances. The allowance for loan loss represents the estimated probable credit losses on funded loans.

The loan reserve is calculated using loss rates delineated by a risk rating. Factors considered when assessing loss rates include the value of the underlying collateral, if applicable, the industry of the obligor, and the obligor’s liquidity and other financial indicators along with certain qualitative factors. The risk rating is updated for changes in economic and business conditions, including uncertainties that affect the Company’s estimate of probable losses including domestic and global economic uncertainty and large single name defaults.

A loan is considered nonaccruing or impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and/or interest, according to the contractual terms of the agreement. Once a loan has been identified as impaired, management measures impairment. Once a loan is deemed to be impaired, a specific reserve is established. The Company has assessed the loans for potential impairment but did not identify any impairment at September 30, 2012 or December 31, 2011. However, the Company has recorded a general loan reserve of $104,214 and $103,686 as of September 30, 2012 and December 31, 2011, respectively. The loan reserve is recorded in general and administration expenses.

When a loan is placed on nonaccrual status, accrued interest receivable is reversed. Interest collections on nonaccruing loans for which the ultimate collectability of principal is uncertain are applied as principal reductions; otherwise, such collections are credited to income when received. The Company ceased accruing interest on loans to third parties and related party during 2011 and the first nine months ended September 30, 2012 while they continued to extend the loans since the Company believes the loans are collectible.

14

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

The Company has $1,707,482 and $3,276,170 of loans to a related party, Jiangsu Dachao Electronic Vehicle Technology Company Limited at September 30, 2012 and December 31, 2011, respectively. Jiangsu Dachao Electronic Vehicle Technology Company Limited is a limited company held by Yinfeng Shi, who is the son of Jianliang Shi. The loans are interest bearing at 6% per annum and unsecured. Of the total loan due, $128,482, and $1,579,000 are repayable in May 2013 and in June 2013, respectively. The Company assessed the loans for potential impairment but did not identify any impairment as of September 30, 2012 or December 31, 2011. However, the Company has recorded a general loan reserve of $51,225 and $98,285 as of September 30, 2012 and December 31, 2011, respectively, which is included in general and administrative expenses (see Note 7 for the policy for determining the loan reserve).

The amounts due to and due from related parties are interest-free, unsecured and repayable on demand. All the related parties are controlled by certain family members of the officers of the Company. The Company assessed the amounts due from related party for potential impairment and recorded a reserve of $10,977 and $12,165 as of September 30, 2012 and December 31, 2011, respectively (see Note 7 for the policy for determining the loan reserve).

15

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

As of September 30, 2012 and December 31, 2011, property and plant with net book values of $1,324,792 and $1,737,163, respectively, were pledged as collateral under certain loan arrangements.

Intangible assets represent the brand name of “Niconia” for LEV purchase for a total consideration of RMB 20 million. The Company acquired the brand in January 2011 for which $2,757,587 has been paid and the remaining $404,413 is due in 2012. The brand name is amortized on the straight-line basis over the estimated useful life of 20 years. Amortization for the nine months ended September 30, 2012 amounted to $119,225. The estimated amortization expense for each of the next five years is $159,000 per year.

16

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

All bank loans are repayable within one year.

The bank loans as of September 30, 2012 and December 31, 2011 bear interest rates from 6.20% to 9.72% and 6.10% to 9.72%, respectively, and are due at various dates through December 2012.

Certain short-term bank loans were secured by the Company’s buildings and land use rights. The unsecured bank loans as of September 30, 2012 and December 31, 2011 were guaranteed by Mr. and Mrs. Shi and three non-related parties. Each of the aforementioned parties did not receive any compensation for acting as guarantors for the Company. During the reporting periods, there were no covenant requirements under the bank loans granted to the Company.

17

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

18

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

The Company believes that the terms obtained and consideration received in connection with the transactions described above were not less favorable than those that would have been obtained by the Company in arm’s-length transactions with an unrelated party.

19

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

20

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

21

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

22

China Green Energy Industries, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

23

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2011, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Use of Terms

Except where the context otherwise requires and for the purposes of this report only, references in this report to:

• “CGRE,” “the Company,” “we,” “us,” or “our,” are to the combined business of China Green Energy Industries, Inc., a Nevada corporation, its wholly-owned subsidiaries, Best Green BVI and Best Green Changzhou, and its variable interest entities, Best Cable and Best Appliances;
• “Best Green BVI” are to Best Green Energy Industries Limited, a BVI company;
• “Best Green Changzhou” are to Best Green Energy (Changzhou) Co., Ltd., a PRC company;
• “Best Cable” are to Changzhou City Wujin Best Electronic Cables Co., Ltd., a PRC company;
• “Best Appliances” are to Jiangsu Best Electrical Appliances Co., Ltd., a PRC company;
• “BVI” are to the British Virgin Islands;
• “PRC” and “China” are to the People’s Republic of China, excluding Hong Kong, Macau and Taiwan;
• “SEC” are to the Securities and Exchange Commission;
• “Securities Act” are to the Securities Act of 1933, as amended;
• “Exchange Act” are to the Securities Exchange Act of 1934, as amended;
• “Renminbi” and “RMB” are to the legal currency of China; and
• “U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

Overview of our Business

We manufacture and distribute clean technology-based consumer products, including light electric vehicles, or LEVs, and cryogen-free refrigerators. We also manufacture and distribute network and High-Definition Multimedia Interface, or HDMI, cables. We sell some of our products under our own brand name of “BEST” and the balance of our products as an original equipment manufacturer, or OEM, for other companies, who are our customers. On January 25, 2011, we acquired the “NICONIA LEV” brand name and retail sales network, which we believe will complement our line of LEVs.

Our corporate headquarters and manufacturing base are located in Changzhou, China, where we own an aggregate of approximately 46,800 square meters of manufacturing facilities and office space. We own the right to use a total of 49,900 square meters of land in China. Our annual manufacturing capacity for our LEVs, Cryogen-free refrigerators and sets of network and HDMI cables (combined) is 45,000 units, 115,000 units and 25 million sets, respectively.

24

Our principal executive offices are located at Jiangsu Wujin Lijia Industrial Park, Lijia Town, Wujin District, Changzhou City, Jiangsu Province 213176, People’s Republic of China. Our telephone number at that address is (86)519-86230103. We maintain a website at www.chinagei.com that contains information about our company, but that information is not part of this report.

Recent Developments

Third Quarter Financial Performance Highlights

The following summarizes certain key financial information for the third quarter of 2012:

• Revenues: Revenues were $7,439,499 for the three months ended September 30, 2012, an increase of $352,730, or 4.97%, from $7,086,769 for the same period in 2011.

• Gross profit and margin: Gross profit was $1,186,853 for the three months ended September 30, 2012, an increase of $289,065 or 32.19%, from $897,788 for the same period last year. Gross margin was 15.95% for the three months ended September 30, 2012, as compared to 12.67% for the same period in 2011.

• Net income (loss): Net loss was $184,695 for the three months ended September 30, 2012, a decrease of $689,735 from a net loss of $874,430 for the same period in 2011.

• Fully diluted net income (loss) per share: Fully diluted net loss per share for the three months ended September 30, 2012 was $0.01, as compared to a net loss per share of $0.04 for the same period in 2011.

Reportable Operating Segments

We use the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining the reportable segments. Management, including the chief operating decision maker, reviews the operating results solely by monthly revenue of cryogen-free refrigerators, cable products and LEVs. As such, the Company has determined that there are three operating segments as defined by FASB ASC 280 “Segment Reporting”: Cryogen-free refrigerators, cable products and LEVs. See Note 20 “Segment Information” to the consolidated financial statements included elsewhere in this report.

Results of Operations

Comparison of Three Months Ended September 30, 2012 and September 30, 2011 (unaudited)

The following table shows key components of our results of operations during the three months ended September 30, 2012 and 2011, in both dollars and as a percentage of our total revenues.

25

On a geographic basis, revenues generated from China was $4,713,812, or 63.36% of the total revenues, for the three months ended September 30, 2012, as compared to $4,155,434, or 58.64% of the total revenues, for the same period in 2011. The increase was mainly resulted from our efforts to increase product penetration into the cable products market, most of which were sold in China. Revenues generated from outside of China was $2,725,687, or 36.64% of the total revenues, compared to $2,931,335, or 41.36% of the total revenues for the three months ended September 30, 2012 and 2011, respectively. The decrease was mainly resulted from a reduction of demand in Hong Kong and Taiwan markets. However, the increase in sales to the USA was a result of our participation in the cable exhibition in the USA, which successfully brought in new customers and boosted cable sales.

The following table sets forth revenues by business segment and by geography for the three months ended September 30, 2012 and 2011.

26

Cost of revenues. Cost of revenues consists primarily of materials costs, wages, employee compensation, depreciation and amortization and other costs, which are directly attributable to the production of products. Our cost of revenues increased by $63,665, or 1.02%, to $6,252,646 in the three months ended September 30, 2012, from $6,188,981 in the same period in 2011. As a percentage of revenues, our cost of revenues decreased from 87.33% in the three months ended September 30, 2011 to 84.05% in the three months ended September 30, 2012. Though the Company had experienced a decrease in the sales of refrigerators and LEV, overall sales increased. The increase of cost of sales is in line with the increase of the total sales.

Gross profit. Our gross profit is the difference between revenue and cost of revenues. Gross profit increased by $289,605 or 32.19%, to $1,186,853 in the three months ended September 30, 2012, from $897,788 in the same period in 2011. Gross profit as a percentage of revenue was 15.95% and 12.67% for the three months ended September 30, 2012 and 2011, respectively. The respective gross profit margin of refrigerators, cable products and LEVs was -3.34%, 13.85% and 29.24% in the three months ended September 30, 2012 while 32.10%, -10.38% and 23.9% in the three months ended September 30, 2011

The significant decrease on sales of refrigerators was due to our gradually switching our sales concentration from refrigerators to cable products and LEVs. The fixed cost of refrigerators such as depreciation was remained unchanged in 2012 which contributed to a lower gross profit margin. The sales of cable products expanded significantly as a result of our participation in the cable exhibition in the USA, which successfully brought in new customers and boosted cable sales. Additionally, we have established a group of selective and stable suppliers with whom we have negotiated competitive prices based on long-term relationships. Thus, the cost of cable materials will be more manageable and will ultimately reduce costs of revenues accordingly. Additionally, the negative gross profit in the third quarter of 2011 was as a result of booking inventory provisions, while there was no such provisions booked in the same period in 2012. For LEVs, we raised the price for luxury models in 2012 because of improved LEVs models, but less competitive than other LEVs, which leading to the decrease on sales.

General and administrative expenses. General and administrative expenses consist primarily of office expenses, professional fees, certain reserves and provisions, entertainment, traveling expenses, staff welfare, labor protection and salaries and wages which are incurred at the administrative level. Our general and administrative expenses decreased by $858,420 or 48.22%, to $921,499 in the three months ended September 30, 2012, from $1,779,919 in the same period in 2011. Such decrease is mainly because in the third quarter of 2011, the Company assessed additional bad debt reserve, while in 2012, no such provision was necessary.

Selling expenses. Selling expenses consist primarily of advertising, salaries and shipping costs incurred in connection with selling activities. Our selling expenses increased by $253,315 or 167.02%, to $404,814 in the three months ended September 30, 2012, from $151,599 in the same period in 2011. The increase was primarily attributable to increased spending on sample expenses of all product lines by $158,305 and advertising fee by $52,555.

Interest expenses. Our interest expenses decreased by $8,213, or 3.91%, to $201,485 for the three months ended September 30, 2012, from $209,698 for the same period in 2011. Such decrease was mainly due to a decrease in bank loans and decreased loan interest rates.

Net loss. As a result of the factors described above, we generated a net loss of $184,695 in the three months ended September 30, 2012, an increase of $689,735, from a net loss of $874,430 in the three months ended September 30, 2011.

27

Comparison of Nine Months Ended September 30, 2012 and September 30, 2011 (unaudited)

The following table shows key components of our results of operations during the nine months ended September 30, 2012 and 2011, in both dollars and as a percentage of our total revenues.

Revenues. Our revenues increased by $8,869,143 or 48.51%, to $27,149,060 in the nine months ended September 30, 2012, from $18,279,917 in the same period in 2011. The increase was primarily due to an increase in sales of cable products and LEVs. Revenue of cable products increased by $6,743,097 or 82.39%, from $8,183,748 in the nine months ended September 30, 2011 to $14,926,845 in the nine months ended September 30, 2012. The increase was a result of our effort to maintain the long-term relationship with our main customers, in addition to 2011’s new and domestic customers, whose demand has increased each year. We experienced a substantial increase in LEV sales of $3,761,604 or 60.12%, from $6,255,992 in the nine months ended September 30, 2011 to $10,017,596 in the nine months ended September 30, 2012. The increase was a result from established stable relationships with several distributors and our Niconia brand name has been well recognized in the local market. However, revenue of refrigerators decreased by $1,635,558 or 42.59%, from $3,840,177 in the nine months ended September 30, 2011 to $2,204,619 in the nine months ended September 30, 2012. The decrease was mainly due to the reduced demand.

On a geographic basis, revenues generated from China was $17,914,255 or 65.98% of the total revenues, for the nine months ended September 30, 2012, as compared to $11,225,248 or 61.41% of the total revenues, for the same period in 2011. The increase mainly resulted from our efforts to increase product penetration into the cable products and LEVs markets, most of which were sold in China. Revenues generated from outside of China was $9,234,805 or 34.02% of the total revenues, compared to $7,054,669 or 38.59% of the total revenues for the nine months ended September 30, 2012 and 2011, respectively. Additionally, the increase in sales to the USA was a result of our participation in the cable exhibition, which successfully brought in new customers and boosted cable sales. The increase in sales order from Australia and our efforts on newly-established customers in France contributed to the increase in sales as compared to that of 2011.

The following table sets forth revenues by business segment and by geography for the nine months ended September 30, 2012 and 2011.

28

Cost of revenues. Cost of revenues consists primarily of materials costs, wages, employee compensation, depreciation and amortization and other costs, which are directly attributable to the production of products. Our cost of revenues increased by $6,894,158 or 45.13%, to $22,168,017 in the nine months ended September 30, 2012, from $15,273,859 in the same period in 2011. As a percentage of revenues, our cost of revenues decreased from 83.56% in the nine months ended September 30, 2011 to 81.65% in the nine months ended September 30, 2012. The decrease in costs of sales as a percentage of sales was based on the static fixed costs not changing over a period of increased sales. The increase of cost of sales is in line with the increase of the total sales.

Gross profit. Our gross profit is the difference between our revenues and our cost of revenues. Our gross profit increased by $1,974,985 or 65.70%, to $4,981,043 in the nine months ended September 30, 2012, from $3,006,058 in the same period in 2011. Gross profit was 18.35% and 16.44% for the nine months ended September 30, 2012 and 2011, respectively. The respective gross profit margin of refrigerators, cable products and LEVs was 9.68%, 15.25% and 24.87% for the nine months ended September 30, 2012 while it was 24.11%, 9.24% and 21.16% for the same period in 2011.

The significant decrease on sales of refrigerators was due to concentrating our sales efforts from refrigerators to cable products and LEVs. The fixed cost of refrigerators such as property and equipment depreciation remained unchanged in 2012 coupled with lower sales, which, contributed to a lower gross profit margin. The sales of cable products expanded significantly as a result of our participation in the cable exhibition in the USA, which successfully brought in new customers and boosted cable sales. Additionally, we have established a group of selective and stable suppliers with whom we have negotiated competitive prices based on long-term relationships. Thus, the cost of cable materials will be more manageable and will ultimately reduce costs of revenues accordingly. For LEVs, we raised the price for luxury models in 2012 because of improved models,

General and administrative expenses. General and administrative expenses consist primarily of office expenses, professional fees, certain reserves and provisions, entertainment, traveling expenses, staff welfare, labor protection and salaries and wages which are incurred at the administrative level. Our general and administrative expenses decreased by $1,176,564 or 34.07%, to $2,276,062 in the nine months ended September 30, 2012, from $3,452,626 in the same period in 2011. Such decrease was mainly due to that in the third quarter of 2011, the Company assessed additional bad debt reserve of $1,224,157, while in 2012, no such provision was necessary.

Selling expenses. Selling expenses consist primarily of advertising, salaries and shipping costs incurred in connection with selling activities. Our selling expenses increased by $416,740 or 51.34%, to $1,228,333 in the nine months ended September 30, 2012, from $811,593 in the same period in 2011. The increase was primarily attributable to increased spending on marketing and exhibitions for all products lines by $206,290 and traveling expenses by $145,668.

29

Interest expenses. Our interest expenses increased by $130,774 or 24.26%, to $669,825 for the nine months ended September 30, 2012, from $539,051 for the same period in 2011. Such increase was mainly due to an increase in bank loans and loan interest rates.

Net income (loss). As a result of the factors described above, we generated a net income of $965,650 in the nine months ended September 30, 2012, an increase of $2,180,155, from a net loss of $1,214,505 in the nine months ended September 30, 2011.

Liquidity and Capital Resources

As of September 30, 2012, we had cash and cash equivalents of $2,053,800, primarily consisting of cash on hand and demand deposits. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

Cash Flows

Operating Activities

Net cash used in operating activities was $700,938 for the nine months ended September 30, 2012, as compared to $3,610,454 for the same period in 2011. The increase was primarily attributable to (i) an increase in net income of $2,180,155, (ii) a decrease in change in allowance for doubtful accounts of $896,825 (iii) a decrease in inventories of $539,886, (iv) a decrease in other current assets of $786,272, (v) a decrease in prepayments to suppliers of $3,862,024, (vi) an increase in payables (including accounts payable, accrued liabilities and other payables, and income taxes payable) of $3,484,616, and (vii) an increase in collections on accounts receivable $2,037,435.

Investing Activities

Net cash used in investing activities was $3,075,329 for the nine months ended September 30, 2012, as compared to $9,604,862 for the same period in 2011. The decrease in net cash used in investing activities was mainly attributable to (i) an increase in spending on property, plant and equipment by $1,066,618, (ii) a decrease in spending on intangible assets by $2,207,204, (iii) a decrease in restricted cash deposit requirements of $3,831,981, and (iv) an increase in collections from a related party of $1,586,375.

Financing Activities

Net cash provided by financing activities was $4,811,835 for the nine months ended September 30, 2012, as compared to $12,575,081 for the same period in 2011. The decrease was mainly attributable to (i) a decrease in bills payable of $6,124,699, (ii) a decrease in borrowings of short-term bank loans of $7,471,000, (iii) a decrease in repayments of short-term bank loans of $6,379,420.

Loan Commitments

As of September 30, 2012, we are party to several loan and bill acceptance agreements as follows:

30

Loan Agreements:

• Loan Agreement between Best Appliance and Wujin Rural Commercial Bank for a loan with a total amount available to borrow of RMB1,450,000 (approximately $229,000). The loan matures on May 20, 2013. The annual interest rate is 8.36%. The amount outstanding at September 30, 2012 was $228,955.

• Loan Agreements between Best Cable and Wujin Agriculture Bank, pursuant to which we renewed the loan of RMB3,000,000 (approximately $474,000) in June 27, 2012 , for a term maturing February 10, 2013. The annual interest rate is 7.57%. We borrowed RMB5,000,000 (approximately $790,000) in January 2012, for a term maturing October 20, 2012. The annual interest rate is 7.22%. The amount outstanding at September 30, 2012 was $1,263,200.

• Loan Agreement between Best Cable and Wujin ICBC for a loan with a total amount available to borrow of RMB17, 000,000 (approximately $2,684,000). The loan will mature in October 26, 2012. The annual interest rate is 6.56%. The amount outstanding at September 30, 2012 was $2,684,300.

• Loan Agreement between Best Appliances and Wujin Rural Commercial Bank for a loan with a total amount available to borrow of RMB19,670,000 (approximately $3,106,000). The annual interest rate ranges is 9.72% and the loan will mature in November 18, 2012. The amount outstanding at September 30, 2012 was $3,105,893.

• Loan Agreement between Best Appliance and Wujin Rural Commercial Bank for a loan with a total amount available to borrow of RMB5,000,000 (approximately $790,000). The loan matured on April 16, 2012 and was extended to March 20, 2013. The annual interest rate is 8.70%. The amount outstanding at September 30, 2012 was $789,500.

• Loan Agreement between Best Cable and Pudong Development Bank Changzhou Branch for a loan with a total amount available to borrow of RMB 10,000,000 (approximately $1,579,000). The loan matures on December 14, 2012. The annual interest rate is 8.20%. The amount outstanding at September 30, 2012 was $1,579,000.

• Loan Agreement between Best Appliance and Wujin Agricultural Bank Of China for a loan with a total amount available to borrow of RMB7,000,000 (approximately $1,105,000). The loan will mature in October 12, 2012. The annual interest rate is 6.16%. The amount outstanding at September 30, 2012 was $1,105,300.

Certain bank loans are secured by our buildings and land rights. Other unsecured bank loans were guaranteed by Mr. Shi, our Chairman and Chief Executive Officer, his wife Ms. Xueqin Wang, and three non-related parties.

Bill Acceptance Agreements:

• Commercial Bill Acceptance Agreement, between Best Cable and Pudong Development Bank Changzhou Branch, pursuant to which the bank provided commercial bills with a total amount of RMB25,700,000 (approximately $4,058,000) at September 30, 2012. The agreement matures on January 10, 2013; however, the bills payable September 30, 2012 become due at various times through March 2013. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $4,058,030.

• Commercial Bill Acceptance Agreement, between Best Cable and Communication Bank Fangzhicheng Sub- branch, pursuant to which the bank provided commercial bills with a total amount of RMB11,300,000 (approximately $1,784,000) at September 30, 2012. The agreement matures on March 23, 2013. The bills payable at September 30, 2012 become due at various times through March 2013. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $1,784,270

• Commercial Bill Acceptance Agreement, between Best Cable and Wujin Agricultural Bank, pursuant to which the bank provided two commercial bills with a total amount available to borrow of RMB14,800,000 (approximately $2,337,000) at September 30, 2012. The agreement matures on December 13, 2012, guaranteed by our CEO Mr. Shi, Ms. Wang, and KK Lighting, an unrelated party. The bills payable at September 30, 2012 become due at various times through March 2013. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $2,336,920.

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• Bank Acceptance Agreement, between Best Appliance and Wujin Rural Commercial Bank pursuant to which the bank provided a bill with a total amount of RMB24,000,000 (approximately $3,790,000) at September 30, 2012. The agreement matures on May 8, 2014. The bills payable at September 30, 2012 become due at various times through December 2012. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $3,789,600

• Bank Acceptance Agreement, between Best Appliance and China Minsheng Bank Changzhou Branch pursuant to which the bank provided a bill with a total amount of RMB14,000,000 (approximately $2,211,000) at September 30, 2012. The agreement matures on March 28, 2013. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $2,210,600.

• Bank Acceptance Agreement, between Best Cable and Wujin Construction Bank pursuant to which the bank provided a bill with a total amount available to borrow of RMB9,000,000 (approximately $1,421,000) at September 30, 2012. The agreement matures on January 14, 2014. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $1,421,100

• Bank Acceptance Agreement, between Best Appliance and Jiangsu Bank University Sub-branch pursuant to which the bank provided a bill with a total amount of RMB62,500,000 (approximately $9,869,000) at September 30, 2012. The agreement matures on December 14, 2012; however, the bills payable at September 30, 2012 become due at various times through March 2013. As we incur future expenses, we will borrow additional funds under these arrangements. The amount outstanding at September 30, 2012 was $9,868,750.

Capital Expenditures

Our capital expenditures for the nine months ended September 30, 2012 and 2011 were $2.10 million and $3.23 million, respectively, representing the total amount of investment activities. Our capital expenditures during the nine months ended September 30, 2012 consisted of capital expenditures relating to certain equipment and improvements of office buildings and workshops, as compared to the same period in 2011, when we made payments to acquire of the Niconia LEV brand and certain equipment

Going Concern

To date, we have financed our operations primarily through cash flows from operations, augmented by short-term bank loans and equity contributions by stockholders. We believe that cash on hand and cash flow from operations will meet a portion of our present cash needs and that we will require additional cash resources, including equity investment, to meet expected capital expenditures and working capital requirements for the next 12 months. If our own financial resources are insufficient to satisfy capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to stockholders. The occurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by management to raise additional funds on terms favorable to us, or at all, could limit our ability to expand business operations and could harm overall business prospects. We currently do not have any agreements to extend or refinance the debts beyond a one-year term. In addition, the Company has a negative cash flow from operations of $700,938 for the nine months ended September 30, 2012. As a result of these factors, there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments to that might result from the outcome of this uncertainty.

Inflation

Inflation and changing prices have not had a material effect on our business, and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor price changes in the Chinese economy and our industry and continually maintain effective cost controls in operations.

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Off Balance Sheet Arrangements

Except as set forth below, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

As of September 30, 2012 and December 31, 2011, we had capital commitments amounting to $93,951 and $590,382, respectively, with respect to the acquisition of property, plant and equipment that were contracted for but not provided in the consolidated financial statements. Such commitments will be recorded to the financial statements when the property, plant and equipment is received.

As of September 30, 2012 and December 31, 2011, we acted as a guarantor for bank loans granted to certain business associates totaling $6,387,055 and $6,393,970, respectively. The maximum amount that can be drawn on these guaranteed loans is $8,716,080 at September 30, 2012 and these guarantees expire at various times through August 2013. None of our directors or executive officers are involved in the normal operations or have invested in the business of the guaranteed business associates. All the business have a history of paying back the loans in a timely manner.

All the above guarantees have no recourse provisions that would enable us to recover from the business associates any amounts paid under the guarantees and any assets held as collateral that we can obtain or liquidate to recover all or a portion of the amounts that could be paid under the guarantees. If the business associates fail to perform under their contractual obligation, we are obligated to make future payments including the contractual principal amounts, related interest and penalties.

Management has assessed the fair value of the obligation arising from the above financial guarantees and recognized $255,482 and $255,759 as of September 30, 2012 and December 31, 2011, respectively, which is included in accrued liabilities and other payables in the consolidated financial statements.

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues usually increase over each quarter of the calendar year with the first quarter usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Recent Accounting Pronouncements

See Note 2 to our unaudited consolidated financial statements included elsewhere in this report.

Not applicable.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Jianliang Shi, and Chief Financial Officer, Ms. Jianfeng Xu, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2012. Based upon, and as of the date of this evaluation, Mr. Shi and Ms. Xu, determined that because of the material weaknesses described in Item 9A “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2011, our disclosure controls and procedures were still not effective as of September 30, 2012. We are in the process of remediating the material weaknesses as of September 30, 2012. Investors are directed to Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2011 for the description of these weaknesses.

Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2011, our management identified material weakness related to (1) our failure to record adequate loan reserves and guaranty loan reserves which were not in compliance with US GAAP; (2) our entering into certain prohibitive transactions, as defined by the Sarbanes-Oxley Act, with an officer of one of our variable interest entities, where Company funds were commingled with personal accounts for various periods of time resulting in loans to officers. As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, our management has identified the steps necessary to address the material weaknesses, and in the third quarter of 2012, we continued to implement these remedial procedures.

Other than in connection with the implementation of the remedial measures described above, there were no changes in our internal controls over financial reporting during the third quarter of 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

Not applicable.

We have not sold any equity securities during the third quarter of 2012 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during third quarter.

No repurchases of our common stock were made during the third quarter of 2012.

None.

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Not applicable.

We have no information to disclose that was required to be in a report on Form 8-K during the third quarter of 2012, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXHIBIT INDEX